##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 or
 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 Number: 0-28298
 ONYX PHARMACEUTICALS, INC.
  Delaware
    
    94-3154463(State or other jurisdiction of
    
    (I.R.S. Employer ID Number)incorporation or organization)
 
 
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
 o þ




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##### 



INDEX
 PagePART I: FINANCIAL INFORMATION
    
    
    3Item 1.Financial Statements (Unaudited)
    
    
    3Condensed Balance Sheets  September 30, 2009 and December 31, 2008
    
    
    3Condensed Statements of Operations  Three and nine months ended September 30, 2009 and 2008
    
    
    4Condensed Statements of Cash Flows  Nine months ended September 30, 2009 and 2008
    
    
    5Notes to Condensed Financial Statements
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4.Controls and Procedures
    
    
    22PART II: OTHER INFORMATION
    
    
    23Item 1.Legal Proceedings
    
    
    23Item 1A.Risk Factors
    
    
    24Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3.Defaults Upon Senior Securities
    
    
    42Item 4.Submission of Matters to a Vote of Security Holders
    
    
    42Item 5.Other Information
    
    
    43Item 6.Exhibits
    
    
    43SIGNATURES
    
    
    45EX-10.29EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements (Unaudited)
 
 CONDENSED BALANCE SHEETS
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)
    
    
    (Note 1)(In thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    334,907
    
    
    $
    235,152Marketable securities, current
    
    
    469,763
    
    
    
    183,272Receivable from collaboration partner
    
    
    51,444
    
    
    
    35,836Prepaid expenses and other current assets
    
    
    7,389
    
    
    
    7,799Total current assets
    
    
    863,503
    
    
    
    462,059Marketable securities, non-current
    
    
    38,410
    
    
    
    39,622Property and equipment, net
    
    
    3,124
    
    
    
    3,363Other assets
    
    
    9,014
    
    
    
    4,723Total assets
    
    $
    914,051
    
    
    $
    509,767LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,347
    
    
    $
    93Advance from collaboration partner
    
    
    
    
    
    
    16,633Accrued liabilities
    
    
    8,115
    
    
    
    4,523Accrued clinical trials and related expenses
    
    
    6,758
    
    
    
    6,041Accrued compensation
    
    
    6,668
    
    
    
    6,014Total current liabilities
    
    
    22,888
    
    
    
    33,304Deferred rent and lease incentives
    
    
    986
    
    
    
    1,263Convertible senior notes due 2016
    
    
    141,559
    
    
    
    Commitments and contingenciesStockholders equity:Common stock
    
    
    62
    
    
    
    57Receivable from stock option exercises
    
    
    (315
    )
    
    
    (455
    )Additional paid-in capital
    
    
    1,198,717
    
    
    
    950,628Accumulated other comprehensive loss
    
    
    (808
    )
    
    
    (4,320
    )Accumulated deficit
    
    
    (449,038
    )
    
    
    (470,710
    )Total stockholders equity
    
    
    748,618
    
    
    
    475,200Total liabilities and stockholders equity
    
    $
    914,051
    
    
    $
    509,767
  3




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##### Table of Contents



CONDENSED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per share amounts)Revenue:Revenue from collaboration agreement
    
    $
    69,137
    
    
    $
    50,766
    
    
    $
    183,074
    
    
    $
    144,693Total operating revenue
    
    
    69,137
    
    
    
    50,766
    
    
    
    183,074
    
    
    
    144,693Operating Expenses:Research and development
    
    
    35,635
    
    
    
    21,792
    
    
    
    92,478
    
    
    
    63,845Selling, general and administrative
    
    
    23,440
    
    
    
    19,319
    
    
    
    68,899
    
    
    
    58,985Total operating expenses
    
    
    59,075
    
    
    
    41,111
    
    
    
    161,377
    
    
    
    122,830Income from operations
    
    
    10,062
    
    
    
    9,655
    
    
    
    21,697
    
    
    
    21,863Investment income
    
    
    1,015
    
    
    
    2,763
    
    
    
    3,108
    
    
    
    10,696Interest expense
    
    
    (2,255
    )
    
    
    
    
    
    
    (2,255
    )
    
    
    Income
before provision for income taxes
    
    
    8,822
    
    
    
    12,418
    
    
    
    22,550
    
    
    
    32,559Provision for income taxes
    
    
    589
    
    
    
    175
    
    
    
    878
    
    
    
    424Net income
    
    $
    8,233
    
    
    $
    12,243
    
    
    $
    21,672
    
    
    $
    32,135Net income per share:Basic
    
    $
    0.14
    
    
    $
    0.22
    
    
    $
    0.37
    
    
    $
    0.58Diluted
    
    $
    0.14
    
    
    $
    0.21
    
    
    $
    0.37
    
    
    $
    0.57Shares used in computing net income per share:Basic
    
    
    60,248
    
    
    
    56,197
    
    
    
    58,201
    
    
    
    55,755Diluted
    
    
    60,624
    
    
    
    57,194
    
    
    
    58,511
    
    
    
    56,773
  4




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CONDENSED STATEMENTS OF CASH FLOWS
 Nine Months Ended September 30,2009
    
    
    2008(In thousands)Cash flows from operating activities:Net income
    
    $
    21,672
    
    
    $
    32,135Adjustments to reconcile net income to net cash
provided by operating activities:Realized gains on sales of short-term marketable securities
    
    
    
    
    
    
    (483
    )Depreciation and amortization
    
    
    1,145
    
    
    
    992Stock-based compensation
    
    
    16,206
    
    
    
    15,017Excess tax benefit from stock-based awards
    
    
    (36
    )
    
    
    (120
    )Amortization of convertible senior notes discount and debt issuance costs
    
    
    1,105
    
    
    
    Changes in operating assets and liabilities:Receivable from collaboration partner
    
    
    (15,608
    )
    
    
    (35,384
    )Prepaid expenses and other current assets
    
    
    446
    
    
    
    (1,678
    )Other assets
    
    
    (19
    )
    
    
    (60
    )Accounts payable
    
    
    1,254
    
    
    
    106Accrued liabilities
    
    
    3,592
    
    
    
    1,277Accrued clinical trials and related expenses
    
    
    717
    
    
    
    3,577Accrued compensation
    
    
    654
    
    
    
    (1,104
    )Deferred rent and lease incentives
    
    
    (277
    )
    
    
    5Net cash provided by operating activities
    
    
    30,851
    
    
    
    14,280Cash flows from investing activities:Purchases of marketable securities
    
    
    (525,272
    )
    
    
    (268,804
    )Sales of marketable securities
    
    
    38,505
    
    
    
    87,916Maturities of marketable securities
    
    
    205,000
    
    
    
    320,415Capital expenditures
    
    
    (906
    )
    
    
    (525
    )Net cash provided by (used in) investing activities
    
    
    (282,673
    )
    
    
    139,002Cash flows from financing activities:Purchases of treasury stock
    
    
    (18
    )
    
    
    (529
    )Payments to collaboration partner
    
    
    (16,633
    )
    
    
    (14,374
    )Net proceeds from issuances of common stock
    
    
    145,442
    
    
    
    22,671Proceeds from issuance of convertible senior notes
    
    
    230,000
    
    
    
    Convertible senior notes debt issuance costs
    
    
    (7,250
    )
    
    
    Excess tax benefit from stock-based awards
    
    
    36
    
    
    
    120Net cash provided by financing activities
    
    
    351,577
    
    
    
    7,888Net increase in cash and cash equivalents
    
    
    99,755
    
    
    
    161,170Cash and cash equivalents at beginning of period
    
    
    235,152
    
    
    
    161,653Cash and cash equivalents at end of period
    
    $
    334,907
    
    
    $
    322,823
  5




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NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)
 Note 1. Basis of Presentation
   Note 2. Revenue from Collaboration Agreement
      6




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Onyxs share of collaboration commercial profit
    
    $
    61,732
    
    
    $
    44,390
    
    
    $
    162,781
    
    
    $
    127,192Reimbursement of Onyxs shared marketing expenses
    
    
    5,342
    
    
    
    5,484
    
    
    
    16,079
    
    
    
    15,771Royalty revenue
    
    
    2,063
    
    
    
    892
    
    
    
    4,214
    
    
    
    1,730Revenue from collaboration agreement
    
    $
    69,137
    
    
    $
    50,766
    
    
    $
    183,074
    
    
    $
    144,693
 Note 3. Fair Value Measurements
  
    
    Level 1, defined as observable inputs such as quoted prices for identical assets in
active markets;
    
    Level 2, defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and
    
    Level 3, defined as unobservable inputs in which little or no market data exists,
therefore requiring management to develop its own assumptions based on best estimates of
what market participants would use in pricing an asset or liability at the reporting date.
  7




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As of September 30, 2009(In thousands)As
reflected on the unaudited
 balance sheet
    
    Level 1
    
    Level 2
    
    Level 3
    
    TotalAssets:Money market funds
    
    $
    296,500
    
    
    $
    296,500
    
    
    $
    
    
    
    $
    
    
    
    $
    296,500Corporate and financial institutions debt
    
    
    99,891
    
    
    
    
    
    
    
    99,891
    
    
    
    
    
    
    
    99,891Auction rate securities
    
    
    38,510
    
    
    
    
    
    
    
    100
    
    
    
    38,410
    
    
    
    38,510U.S. government agencies
    
    
    143,240
    
    
    
    
    
    
    
    143,240
    
    
    
    
    
    
    
    143,240U.S. treasury bills
    
    
    260,111
    
    
    
    260,111
    
    
    
    
    
    
    
    
    
    
    
    260,111Liabilities:Convertible senior notes due 2016 (face value $230,000)
    
    $
    141,559
    
    
    
    
    
    
    $
    244,881
    
    
    
    
    
    
    $
    244,881
 As of December 31, 2008(In thousands)As
reflected 
on the unaudited
 balance sheet
    
    Level 1
    
    Level 2
    
    Level 3
    
    TotalAssets:Money market funds
    
    $
    113,832
    
    
    $
    113,832
    
    
    $
    
    
    
    $
    
    
    
    $
    113,832Corporate debt
    
    
    109,866
    
    
    
    
    
    
    
    109,866
    
    
    
    
    
    
    
    109,866Auction rate securities
    
    
    39,622
    
    
    
    
    
    
    
    
    
    
    
    39,622
    
    
    
    39,622U.S. government agencies
    
    
    143,376
    
    
    
    
    
    
    
    143,376
    
    
    
    
    
    
    
    143,376U.S. treasury bills
    
    $
    49,993
    
    
    $
    49,993
    
    
    
    
    
    
    
    
    
    
    $
    49,993
   Auction Rate SecuritiesNine Months EndedSeptember 30, 2009
    
    
    September 30, 2008(In thousands)Fair value at beginning of period
    
    $
    39,622
    
    
    $
    50,000Redemptions
    
    
    (5,450
    )
    
    
    Transfer to Level 2
    
    
    (100
    )
    
    
    (5,000
    )Change in valuation
    
    
    4,338
    
    
    
    (3,310
    )Fair value at end of period
    
    $
    38,410
    
    
    $
    41,690
  8




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Note 4. Marketable Securities
   September 30, 2009Adjusted
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Agency bond investments:Current
    
    $
    387,436
    
    
    $
    348
    
    
    $
    (17
    )
    
    $
    387,767Total agency bond investments
    
    $
    387,436
    
    
    $
    348
    
    
    
    (17
    )
    
    $
    387,767Corporate debt investments:Current
    
    
    82,095
    
    
    
    3
    
    
    
    (102
    )
    
    
    81,996Non-current
    
    
    39,450
    
    
    
    27
    
    
    
    (1,067
    )
    
    
    38,410Total corporate investments
    
    
    121,545
    
    
    
    30
    
    
    
    (1,169
    )
    
    
    120,406Total available-for-sale marketable securities
    
    $
    508,981
    
    
    $
    378
    
    
    $
    1,186
    
    
    $
    508,173
 December 31, 2008Adjusted
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Agency bond investments:Current
    
    $
    132,319
    
    
    $
    1,054
    
    
    $
    (4
    )
    
    $
    133,369Total agency bond investments
    
    
    132,319
    
    
    
    1,054
    
    
    
    (4
    )
    
    
    133,369Corporate debt investments:Current
    
    
    49,903
    
    
    
    
    
    
    
    
    
    
    
    49,903Non-current
    
    
    45,000
    
    
    
    
    
    
    
    (5,378
    )
    
    
    39,622Total corporate investments
    
    
    94,903
    
    
    
    
    
    
    
    (5,378
    )
    
    
    89,525Total available-for-sale marketable securities
    
    $
    227,222
    
    
    $
    1,054
    
    
    $
    (5,382
    )
    
    $
    222,894
  Note 5. Other Long-Term Assets
 9




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Note 6. Convertible Senior Notes due 2016
        September 30, 2009(In thousands)Long-term
    
    Principal
    
    
    Discount
    
    
    Net Carrying Value2016 Notes  4.00%
    
    $
    230,000
    
    
    $
    88,441
    
    
    $
    141,559
  10




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Note 7. Advance from Collaboration Partner
  Note 8. Stock-Based Compensation
  Valuation Assumptions
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Stock Option Plans:Risk-free interest rate
    

    2.51%

    

    3.28%

    

    1.89%

    

    2.91%Expected life
    
    4.3 years

    
    4.4 years

    
    4.3 years

    
    4.4 yearsExpected volatility
    

    58%

    

    64%

    

    65%

    

     64%Expected dividends
    
    None

    
    None

    
    None

    
    NoneWeighted average option fair value
    

    $15.41

    

    $21.67

    

    $15.34

    

    $17.66Stock Bonus Awards:Expected life
    
    3 years

    
    
    
    
    
    3 years

    
    3 yearsExpected dividends
    
    None

    
    
    
    
    
    None

    
    NoneWeighted average fair value per share
    

    $32.07

    

    

    

    $29.05

    

    $30.77ESPP:Risk-free interest rate
    

    0.31%

    

    2.19%

    

    0.29%

    

    2.69%Expected life
    
    6 months

    
    6 months

    
    6 months

    
    6 monthsExpected volatility
    

    56%

    

    55%

    

    60%

    

    59%Expected dividends
    
    None

    
    None

    
    None

    
    NoneWeighted average shares fair value
    

    $8.16

    

    $10.73

    

    $9.16

    

    $13.56
 11




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Note 9. Common Stock Offering
  Note 10. Income Taxes
    Note 11. Net Income per Share
    12




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per share amounts)Net income  basic
    
    $
    8,233
    
    
    $
    12,243
    
    
    $
    21,672
    
    
    $
    32,135Add: interest and issuance costs related to convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income  diluted
    
    $
    8,233
    
    
    $
    12,243
    
    
    $
    21,672
    
    
    $
    32,135Weighted average common shares outstanding  basic
    
    
    60,248
    
    
    
    56,197
    
    
    
    58,201
    
    
    
    55,755Dilutive effect of convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dilutive effect of options
    
    
    376
    
    
    
    997
    
    
    
    310
    
    
    
    1,018Weighted average common shares outstanding and dilutive potential common shares  diluted
    
    
    60,624
    
    
    
    57,194
    
    
    
    58,511
    
    
    
    56,773Net income per share:Basic
    
    $
    0.14
    
    
    $
    0.22
    
    
    $
    0.37
    
    
    $
    0.58Diluted
    
    $
    0.14
    
    
    $
    0.21
    
    
    $
    0.37
    
    
    $
    0.57
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Potential common shares  2016 Notes
    
    
    5,801
    
    
    
    
    
    
    
    5,801
    
    
    
    Potential common shares  equity plans
    
    
    3,312
    
    
    
    1,614
    
    
    
    3,897
    
    
    
    1,6362016 Notes interest and issuance
expense not added back under the
if-converted method
    
    $
    (2,255
    )
    
    $
    
    
    
    $
    (2,255
    )
    
    $
    
 Note 12. Comprehensive Income
  13




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Net income  as reported
    
    $
    8,233
    
    
    $
    12,243
    
    
    $
    21,672
    
    
    $
    32,135Other comprehensive income (loss):Change in unrealized gain (loss) on available-for-sale securities
    
    
    557
    
    
    
    (2,125
    )
    
    
    3,512
    
    
    
    (3,564
    )Comprehensive income
    
    $
    8,790
    
    
    $
    10,118
    
    
    $
    25,184
    
    
    $
    28,571
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Increase (decrease) in unrealized gain (loss) on available-for-sale securities
    
    $
    557
    
    
    $
    (2,125
    )
    
    $
    3,512
    
    
    $
    (4,047
    )Reclassification adjustment for net gains on available-for-sale securities including in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    483Change in unrealized gain (loss) on available-for-sale securities
    
    $
    557
    
    
    $
    (2,125
    )
    
    $
    3,512
    
    
    $
    (3,564
    )
 Note 13. Subsequent Events
     Note 14. Related Party Transactions
  14




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Note 15. Recent Accounting Pronouncements
   15




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Item 2.
    
    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 Form 10-Q 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 Form 10-Q. Our actual
results could differ materially from those anticipated in these forward-looking statements for many
reasons, including those set forth under Item 1A Risk Factors in this Quarterly Report on Form
10-Q.
 Overview
 Changing the way cancer is treated ®
  ®
     16




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Form
10-Q.
 Critical Accounting Policies and the Use of Estimates
  Convertible Senior Notes
   Results of Operations
 17




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Three and nine months ended September 30, 2009 and 2008
 Revenue
  Revenue from Collaboration Agreement
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)
    
    
    (In thousands)Nexavar product revenue, net (as recorded by Bayer)
    
    $
    229,243
    
    
    $
    180,887
    
    
    $
    608,295
    
    
    $
    501,303Nexavar revenue subject to profit sharing (as recorded by Bayer)
    
    $
    199,774
    
    
    $
    168,141
    
    
    $
    548,093
    
    
    $
    476,584Combined cost of goods sold, distribution, selling, general and administrative expenses
    
    
    76,309
    
    
    
    79,362
    
    
    
    222,531
    
    
    
    222,200Combined collaboration commercial profit
    
    $
    123,465
    
    
    $
    88,779
    
    
    $
    325,562
    
    
    $
    254,384Onyxs share of collaboration commercial profit
    
    $
    61,732
    
    
    $
    44,390
    
    
    $
    162,781
    
    
    $
    127,192Reimbursement of Onyxs shared marketing expenses
    
    
    5,342
    
    
    
    5,484
    
    
    
    16,079
    
    
    
    15,771Royalty revenue
    
    
    2,063
    
    
    
    892
    
    
    
    4,214
    
    
    
    1,730Revenue from collaboration agreement
    
    $
    69,137
    
    
    $
    50,766
    
    
    $
    183,074
    
    
    $
    144,693
   18




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Research and Development Expenses
      19




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Selling, General and Administrative Expenses
  Investment Income
  Interest Expense
  Liquidity and Capital Resources
    20




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Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
   September 30, 2009
    
    December 31, 2008Average
    
    
    
    
    
    
    
    
    
    AverageFair Value
    
    Interest
    
    
    
    
    
    Fair Value
    
    InterestMaturity
    
    (In millions)
    
    Rate
    
    Maturity
    
    (In millions)
    
    RateCash equivalents, fixed rate
    
    0  3 months
    
    $
    330.1
    
    
    
    0.21
    %
    
    0  3 months
    
    $
    233.8
    
    
    
    0.53
    %Marketable securities, fixed rate
    
    0  24 months
    
    $
    508.2
    
    
    
    0.50
    %
    
    0  12 months
    
    $
    222.9
    
    
    
    0.87
    %
 Liquidity Risk
 21




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Foreign Currency Exchange Rate Risk
   
 Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures:
 Changes in Internal Control over Financial Reporting:
 Inherent Limitations on Effectiveness of Controls:
 22




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PART II: OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings.
 Onyx Pharmaceuticals, Inc.
v. Bayer Corporation and Bayer AG
 23




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Item 1A.
    
    Risk Factors.
 You should carefully consider the risks described below, together with all of the other information
included in this report, in considering our business and prospects. The risks and uncertainties
described below contain forward-looking statements, and our actual results may differ materially
from those discussed here. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business operations. Each of these risk factors could
adversely affect our business, operating results and financial condition, as well as adversely
affect the value of an investment in our common stock.
 We have marked with an asterisk (*) those risk factors below that reflect material changes from the
risk factors included in our 2008 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 25, 2009.
 Nexavar ® (sorafenib) tablets is our only approved product. If Nexavar fails and we are
unable to develop and commercialize alternative product candidates our business would fail.*
  There are several competing therapies approved and in development for the treatment of advanced
kidney cancer. If Nexavar is unable to successfully compete against existing and future therapies
in advanced kidney cancer, our business would be harmed.*
    There are several existing approaches and several therapies in development for the treatment of
liver cancer. If Nexavar is unable to successfully compete against existing and future therapies in
liver cancer, our business would be harmed.*
  Although Nexavar has been approved in the United States, the European Union and other territories
for the treatment of patients
 24




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with liver cancer, adoption may be slow or limited for a variety of reasons including the
geographic distribution of the patient population, the current treatment paradigm for liver cancer
patients, the underlying liver disease present in most liver cancer patients and limited
reimbursement. If Nexavar is not broadly adopted for the treatment of liver cancer, our business
would be harmed.
   If our ongoing and planned clinical trials fail to demonstrate that Nexavar is safe and effective
or we are unable to obtain necessary regulatory approvals, we will be unable to expand the
commercial market for Nexavar and our business may fail.
     We are dependent upon our collaborative relationship with Bayer to further develop, manufacture and
commercialize Nexavar. There may be circumstances that delay or prevent Bayers ability to develop,
manufacture and commercialize Nexavar.
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
    
    adverse decisions by Bayer regarding the amount and timing of resource expenditures for
the development and commercialization of Nexavar;
    
    possible disagreements as to development plans, including clinical trials or regulatory
approval strategy;
    
    the right of Bayer to terminate the 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;
    
    the development or acquisition by Bayer of competing products. For example, Bayer has
been developing fluoro-sorafenib (which Bayer sometimes refers to by its International
Nonproprietary Name of regorafenib) and is expected to initiate Phase 3 clinical trials in
kidney cancer in 2010. The ownership of this compound is being disputed by us through the
lawsuit we filed against Bayer;
    
    adverse regulatory or legal action against Bayer resulting from failure to meet
healthcare industry compliance requirements in the promotion, sale, or federal and state
reporting of Nexavar;
    
    changes in key management personnel at Bayer that are members of the collaborations
executive team; and
    
    disagreements with Bayer regarding the collaboration agreement or ownership of
proprietary rights.
    We face intense competition and rapid technological change, and many of our competitors have
substantially greater resources than we have.*
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
    
    developing products;
    
    undertaking preclinical testing and human clinical trials;
    
    obtaining FDA and other regulatory approvals of products; and
    
    manufacturing and marketing products.
     If we are not successful at integrating the Proteolix organization with ours, we may not be able to
operate efficiently or to realize any benefits from the acquisition.*
  27




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
    
    consolidating research and development operations;
    
    retaining key employees;
    
    consolidating corporate and administrative infrastructures;
    
    preserving the research and development and other important relationships of the
companies;
    
    integrating and managing the technology of two companies;
    
    using the combined companys capital and other assets efficiently to develop the
business of the combined company;
    
    preserving relationships with third parties, such as clinical research organizations,
contract manufacturing organizations, licensors and suppliers;
    
    appropriately managing the liabilities of the combined company; and
    
    difficulty managing new risks associated with Proteolixs facilities, including
environmental risks and compliance with laws regulating laboratories.
    Our operating results are unpredictable and may fluctuate. If our operating results are below the
expectations of securities analysts or investors, the trading price of our stock could decline.*
  28




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The market may not accept our products and pharmaceutical pricing and reimbursement pressures may
reduce profitability.
    
    
    rate of adoption by healthcare practitioners;
    
    treatment guidelines issued by government and non-government agencies;
    
    types of cancer for which the product is approved;
    
    rate of a products acceptance by the target population;
    
    timing of market entry relative to competitive products;
    
    availability of alternative therapies;
    
    price of our product relative to alternative therapies;
    
    extent of marketing efforts by us and third-party distributors or agents retained by us;
and
    
    side effects or unfavorable publicity concerning our products or similar products.
  29




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Unstable market and economic conditions may have serious adverse consequences on our business.*
  Our clinical trials could take longer to complete than we project or may not be completed at all.*
   If serious adverse side effects are associated with Nexavar, approval for Nexavar could be revoked,
sales of Nexavar could decline, and we may be unable to develop Nexavar as a treatment for other
types of cancer.
  30




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We are subject to extensive government regulation, which can be costly, time consuming and subject
us to unanticipated delays. If we are unable to obtain or maintain regulatory approvals for our
products, compounds or product candidates, we will not be able to market or further develop them.*
     31




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We are dependent on the efforts of Bayer to market and promote Nexavar.
     We are dependent on the efforts of and funding by Bayer for the development of Nexavar.
  32




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ONX 0801and carfilzomib, should the Proteolix acquisition close, may not be developed successfully,
which would adversely affect our prospects for future revenue growth and our stock price.*
  
    
    preclinical tests may show the product to be toxic or lack efficacy in animal models;
    
    clinical trial results may show the product to be less effective than desired or to have
harmful or problematic side effects;
    
    the necessary regulatory approvals may not be received, or may be delayed due to factors
such as slow enrollment in clinical studies, extended length of time to achieve study
endpoints, additional time requirements for data analysis or preparation of the
investigational new drug application (IND), discussions with regulatory authorities,
requests from regulatory authorities for additional pre-clinical or clinical data, analyses
or changes to study design, or unexpected safety, efficacy or manufacturing issues;
    
    difficulties formulating the product, scaling the manufacturing process or in getting
approval for manufacturing;
    
    manufacturing costs, pricing or reimbursement issues, or other factors may make the
product uneconomical;
    
    the proprietary rights of others and their competing products and technologies may
prevent the product from being developed or commercialized; and
    
    the contractual rights of our collaborators or others may prevent the product from being
developed or commercialized.
  We do not have the manufacturing expertise or capabilities for any current and future products and
are dependent on others to fulfill our manufacturing needs, which could result in lost sales and
the delay of clinical trials or regulatory approval.*
   We have a history of losses, and we may continue to incur losses.*
  33




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We incurred significant indebtedness through the sale of our 4.0% convertible senior notes due
2016, and we may incur additional indebtedness in the future. The indebtedness created by the sale
of the notes and any future indebtedness we incur exposes us to risks that could adversely affect
our business, financial condition and results of operations.
  
    
    increasing our vulnerability to adverse economic and industry conditions;
    
    limiting our ability to obtain additional financing;
    
    requiring the dedication of a substantial portion of our cash flow from operations to
service our indebtedness, thereby reducing the amount of our cash flow available for other
purposes;
    
    limiting our flexibility in planning for, or reacting to, changes in our business; and
    
    placing us at a possible competitive disadvantage with less leveraged competitors and
competitors that may have better access to capital resources.
  The conditional conversion features of the 2016 Notes, if triggered, may adversely affect our
financial condition and operating results.
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If we lose our key employees or are unable to attract or retain qualified personnel, our
business could suffer.*
  We may need additional funds, and our future access to capital is uncertain.*
  
    
    revenue from our product sales;
    
    global product development and commercialization activities;
    
    the cost involved in enforcing patent claims against third parties and defending claims
by third parties;
    
    the costs associated with acquisitions or licenses of additional products;
    
    the cost of acquiring new or complementary businesses;
    
    competing technological and market developments;
    
    repayment of our of milestone-based advances to Bayer, and
    
    future fee and milestone payments to BTG, S*BIO and, if the acquisition of Proteolix
closes, former stockholders of Proteolix.
   If the specialty pharmacies and distributors that we and Bayer rely upon to sell Nexavar fail to
perform, our business may be adversely affected.
  35




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##### Table of Contents




    
    not provide us accurate or timely information regarding their inventories, the number
of patients who are using Nexavar or complaints about Nexavar;
    
    not effectively sell or support Nexavar;
    
    reduce their efforts or discontinue to sell or support Nexavar;
    
    not devote the resources necessary to sell Nexavar in the volumes and within the time
frames that we expect;
    
    be unable to satisfy financial obligations to us or others; and
    
    cease operations.
  We or Bayer may not be able to protect or enforce our or their intellectual property, which gives
us or Bayer the power to exclude third parties from using Nexavar and products we may develop, or
we may not be able to operate our business without infringing upon the intellectual property rights
of others.*
  
    
    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, particularly generic drug
manufacturers. In the United States, for drugs deemed a new chemical entity, such as
Nexavar, FDA regulations preclude the filing of an ANDA, that contains a challenge to the
patents, prior to the four year anniversary of marketing approval. As such, we expect that
one or more generic drug manufacturers will file an ANDA near the end of 2009, which will be
the four year anniversary of Nexavars United States marketing approval.
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Limited foreign intellectual property protection and compulsory licensing could limit our revenue
opportunities.*
  37




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We may incur significant liability if it is determined that we are promoting the off-label use of
drugs or are otherwise found in violation of federal and state regulations in the United States or
elsewhere.
   We may not be able to realize the potential financial or strategic benefits of future business
acquisitions or strategic investments, which could hurt our ability to grow our business, develop
new products or sell our products.*
  
    
    difficulty in combining the products, operations or workforce of any acquired business with our business;
    
    difficulty in operating in a new or multiple new locations;
    
    disruption of our ongoing businesses or the ongoing business of the company that we invest in or acquire;
    
    difficulty in realizing the potential financial or strategic benefits of the transaction;
    
    difficulty in maintaining uniform standards, controls, procedures and policies;
    
    disruption of or delays in ongoing research, clinical trials and development efforts;
    
    diversion of capital and other resources;
    
    assumption of liabilities;
    
    diversion of resources and unanticipated expenses resulting from litigation arising from potential or
actual business acquisitions or investments;
    
    difficulties in entering into new markets in which we have limited or no experience and where
competitors in such markets have stronger positions; and
    
    impairment of relationships with our or the acquired businesses employees and other third parties, such
as clinical research organizations, contract manufacturing organizations, licensors, suppliers, or the
loss of such relationships as a result of our acquisition or investment
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We face product liability risks and may not be able to obtain adequate insurance.*
   
    
    decreased demand for a product;
    
    injury to our reputation;
    
    withdrawal of clinical trial volunteers; and
    
    loss of revenues.
  If we do not receive timely and accurate financial information from Bayer regarding the development
and sale of Nexavar, we may be unable to accurately report our results of operations.
  Provisions in our collaboration agreement with Bayer may prevent or delay a change in control.
  39




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Our stock price is volatile.*
  
    
    fluctuations in our results of operations;
    
    interim or final results of, or speculation about, clinical trials of Nexavar;
    
    development progress of our early stage compounds;
    
    decisions by regulatory agencies, or changes in regulatory requirements;
    
    announcements by us regarding, or speculation about, our business development activities;
    
    ability to accrue patients into clinical trials;
    
    developments in our relationship with Bayer;
    
    public concern as to the safety and efficacy of our product candidates;
    
    changes in healthcare reimbursement policies;
    
    announcements by us or our competitors of technological innovations or new commercial
therapeutic products;
    
    government regulation;
    
    developments in patent or other proprietary rights or litigation brought against us;
    
    sales by us of our common stock or debt securities;
    
    foreign currency fluctuations, which would affect our share of collaboration profits or
losses; and
    
    general market conditions.
  Existing stockholders have significant influence over us.
  40




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A portion of our investment portfolio is invested in auction rate securities, and if auctions
continue to fail for amounts we have invested, our investment will not be liquid. If the issuer of
an auction rate security that we hold is unable to successfully close future auctions and their
credit rating deteriorates, we may be required to adjust the carrying value of our investment
through an impairment charge to earnings.
  We are at risk of securities class action litigation due to our expected stock price volatility.
  Our operating results could be adversely affected by product sales occurring outside the United
States and fluctuations in the value of the United States dollar against foreign currencies.
  Provisions in the indenture for the 2016 Notes may deter or prevent a business combination.
  Provisions in Delaware law, our charter and executive change of control agreements we have entered
into may prevent or delay a change of control.
 41




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##### Table of Contents




    
    the board of directors approved the transaction where the stockholder acquired 15% or
more of the corporations stock;
    
    after the transaction in which the stockholder acquired 15% or more of the corporations
stock, the stockholder owned at least 85% 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.
   
    
    our board is classified into three classes of directors as nearly equal in size as
possible with staggered three-year terms;
    
    the authority of our board to issue up to 5,000,000 shares of preferred stock and to
determine the price, rights, preferences and privileges of these shares, without stockholder
approval;
    
    all stockholder actions must be effected at a duly called meeting of stockholders and not
by written consent;
    
    special meetings of the stockholders may be called only by the chairman of the board, the
chief executive officer, the board or 10% or more of the stockholders entitled to vote at
the meeting; and
    
    no cumulative voting.
   
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3.
    
    Defaults Upon Senior Securities.
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders.
  42




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Item 5.
    
    Other Information.
  
 Item 6.
    
    Exhibits.
 2.1*(1)
    
    Agreement and Plan of Merger dated as of October 10, 2009 among Onyx Pharmaceuticals, Inc., Proteolix,
Inc., Profiterole Acquisition Corp., and Shareholder Representative Services LLC3.1 (2)
    
    Restated Certificate of Incorporation of the Company.3.2 (3)
    
    Amended and Restated Bylaws of the Company.3.3 (4)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation.3.4 (5)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation.4.1
    
    Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.4.2 (2)
    
    Specimen Stock Certificate.4.3(6)
    
    Indenture dated as of August 12, 2009 between Onyx Pharmaceuticals, Inc. and Wells Fargo Bank, National
Association4.4(6)
    
    First Supplemental Indenture dated as of August 12, 2009 between Onyx Pharmaceuticals, Inc. and Wells
Fargo Bank, National Association4.5(6)
    
    Form of 4.00% Convertible Senior Note due 201610.29+
    
    Executive Employment Agreement between the Company and Suzanne M. Shema, effective as of August 31, 2009.31.1 (7)
    
    Certification of Chief Executive Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.31.2 (7)
    
    Certification of Chief Financial Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.32.1 (7)
    
    Certifications required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as
amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
 43




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##### Table of Contents




    
    Confidential treatment requested as to certain portions, which portions were omitted and
filed separately with the Securities and Exchange Commission.*
    
    Certain schedules related to identified agreements and persons have been omitted pursuant to
Item 601(b)(2) of Regulation S-K. The Company undertakes to furnish supplemental copies of any
of the omitted schedules upon request by the Securities and Exchange Commission.+
    
    Management contract or compensatory plan.(1)
    
    Filed as an exhibit to the Companys Current Report on Form 8-K filed on October 6, 2009.(2)
    
    Filed as an exhibit to the Companys Registration Statement on Form SB-2 (No. 333-3176-LA).(3)
    
    Filed as an exhibit to Companys Current Report on Form 8-K filed on December 5, 2008.(4)
    
    Filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended June
30, 2000.(5)
    
    Filed as an exhibit to the Companys Registration Statement on Form S-3 (No. 333-134565)
filed on May 30, 2006.(6)
    
    Filed as an exhibit to Companys Current Report on Form 8-K filed on August 12, 2009.(7)
    
    This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is
not deemed filed with the Securities and Exchange Commission and is not to be incorporated by
reference into any filing of Onyx Pharmaceuticals, Inc. under the Securities Act of 1933, as
amended or the Securities Exchange Act of 1934, as amended (whether made before or after the
date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language
contained in such filing. 44




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##### Table of Contents



SIGNATURES
  ONYX PHARMACEUTICALS, INC.Date: November 3, 2009
    By:
    /s/  N. Anthony ColesN. Anthony ColesPresident and Chief Executive Officer
(Principal Executive Officer)Date: November 3, 2009
    By:
    /s/  Matthew K. FustMatthew K. FustExecutive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 45




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EXHIBIT INDEX
 2.1*(1)
    
    Agreement and Plan of Merger dated as of October 10, 2009 among Onyx Pharmaceuticals, Inc., Proteolix,
Inc., Profiterole Acquisition Corp., and Shareholder Representative Services LLC3.1 (2)
    
    Restated Certificate of Incorporation of the Company.3.2 (3)
    
    Amended and Restated Bylaws of the Company.3.3 (4)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation.3.4 (5)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation.4.1
    
    Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.4.2 (2)
    
    Specimen Stock Certificate.4.3(6)
    
    Indenture dated as of August 12, 2009 between Onyx Pharmaceuticals, Inc. and Wells Fargo Bank, National
Association4.4(6)
    
    First Supplemental Indenture dated as of August 12, 2009 between Onyx Pharmaceuticals, Inc. and Wells
Fargo Bank, National Association4.5(6)
    
    Form of 4.00% Convertible Senior Note due 201610.29+
    
    Executive Employment Agreement between the Company and Suzanne M. Shema, effective as of August 31, 2009.31.1 (7)
    
    Certification of Chief Executive Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.31.2 (7)
    
    Certification of Chief Financial Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.32.1 (7)
    
    Certifications required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as
amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
 
 
    
    Confidential treatment requested as to certain portions, which portions were omitted and
filed separately with the Securities and Exchange Commission.*
    
    Certain schedules related to identified agreements and persons have been omitted pursuant to
Item 601(b)(2) of Regulation S-K. The Company undertakes to furnish supplemental copies of any
of the omitted schedules upon request by the Securities and Exchange Commission.+
    
    Management contract or compensatory plan.(1)
    
    Filed as an exhibit to the Companys Current Report on Form 8-K filed on October 6, 2009.(2)
    
    Filed as an exhibit to the Companys Registration Statement on Form SB-2 (No. 333-3176-LA).(3)
    
    Filed as an exhibit to the Companys Current Report on Form 8-K filed on December 5, 2008.(4)
    
    Filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended June
30, 2000.(5)
    
    Filed as an exhibit to the Companys Registration Statement on Form S-3 (No. 333-134565)
filed on May 30, 2006.(6)
    
    Filed as an exhibit to Companys Current Report on Form 8-K filed on August 12, 2009.(7)
    
    This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is
not deemed filed with the Securities and Exchange Commission and is not to be incorporated by
reference into any filing of Onyx Pharmaceuticals, Inc. under the Securities Act of 1933, as
amended or the Securities Exchange Act of 1934, as amended (whether made before or after the
date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language
contained in such filing. 46