##### 



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, 2006
 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 þ o
  o þ




---



##### 



INDEX
 PagePART I: FINANCIAL INFORMATIONItem 1.Financial Statements (Unaudited)Condensed Balance Sheets  September 30, 2006 and December 31, 2005
    
    
    3Condensed Statements of Operations  Three and Nine months ended September 30, 2006
and 2005
    
    
    4Condensed Statements of Cash Flows  Nine months ended September 30, 2006 and 2005
    
    
    5Notes to Condensed Financial Statements
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4.Controls and Procedures
    
    
    20PART II: OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    21Item 1A.Risk Factors
    
    
    21Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3.Defaults Upon Senior Securities
    
    
    37Item 4.Submission of Matters to a Vote of Security Holders
    
    
    37Item 5.Other Information
    
    
    37Item 6.Exhibits
    
    
    37SIGNATURES
 2




---



##### 



PART I: FINANCIAL INFORMATION
 Item 1. Financial Statements (Unaudited)
 ONYX PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(In thousands)
 September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    68,658
    
    
    $
    46,064Marketable securities
    
    
    143,626
    
    
    
    228,754Receivable from collaboration partner
    
    
    4,503
    
    
    
    4,350Other current assets
    
    
    3,776
    
    
    
    3,935Total current assets
    
    
    220,563
    
    
    
    283,103Long-term marketable securities
    
    
    5,959
    
    
    
    9,862Property and equipment, net
    
    
    1,278
    
    
    
    1,617Other assets
    
    
    74
    
    
    
    83$
    227,874
    
    
    $
    294,665LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,285
    
    
    $
    581Payable to collaboration partner
    
    
    7,602
    
    
    
    30,823Accrued liabilities
    
    
    2,301
    
    
    
    1,343Accrued clinical trials and related expenses
    
    
    8,648
    
    
    
    5,567Accrued compensation
    
    
    2,980
    
    
    
    3,111Total current liabilities
    
    
    22,816
    
    
    
    41,425Advance from collaboration partner
    
    
    40,000
    
    
    
    30,000Commitments and contingenciesStockholders equity:Common stock
    
    
    42
    
    
    
    41Additional paid-in capital
    
    
    583,543
    
    
    
    569,800Receivable from stock option exercises
    
    
    (165
    )
    
    
    (24
    )Accumulated other comprehensive loss
    
    
    (578
    )
    
    
    (767
    )Accumulated deficit
    
    
    (417,784
    )
    
    
    (345,810
    )Total stockholders equity
    
    
    165,058
    
    
    
    223,240$
    227,874
    
    
    $
    294,665
  3




---



##### 



ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue:License fee
    
    $
    100
    
    
    $
    
    
    
    $
    250
    
    
    $
    1,000Operating expenses:Net expense from unconsolidated joint business
    
    
    3,596
    
    
    
    
    
    
    
    20,147
    
    
    
    Research and development
    
    
    7,631
    
    
    
    14,780
    
    
    
    24,124
    
    
    
    40,391Selling, general and administrative
    
    
    11,900
    
    
    
    9,268
    
    
    
    36,944
    
    
    
    21,908Total operating expenses
    
    
    23,127
    
    
    
    24,048
    
    
    
    81,215
    
    
    
    62,299Loss from operations
    
    
    (23,027
    )
    
    
    (24,048
    )
    
    
    (80,965
    )
    
    
    (61,299
    )Interest income, net
    
    
    2,879
    
    
    
    1,467
    
    
    
    8,991
    
    
    
    4,102Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    375Net loss
    
    $
    (20,148
    )
    
    $
    (22,581
    )
    
    $
    (71,974
    )
    
    $
    (56,822
    )Basic and diluted net loss per share
    
    $
    (0.49
    )
    
    $
    (0.64
    )
    
    $
    (1.74
    )
    
    $
    (1.61
    )Shares used in computing basic and diluted
net loss per share
    
    
    41,499
    
    
    
    35,367
    
    
    
    41,405
    
    
    
    35,300
  4




---



##### 



ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
 Nine Months EndedSeptember 30,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (71,974
    )
    
    $
    (56,822
    )Adjustments to reconcile net loss to net cash used
in operating activities:Depreciation and amortization
    
    
    566
    
    
    
    446Gain on sale of fixed assets
    
    
    
    
    
    
    (6
    )Gain on sale of investment
    
    
    
    
    
    
    (375
    )Stock-based compensation
    
    
    11,162
    
    
    
    603Changes in assets and liabilities:Receivable from collaboration partner
    
    
    (153
    )
    
    
    (3,543
    )Prepaid expenses and other current assets
    
    
    159
    
    
    
    (311
    )Other assets
    
    
    9
    
    
    
    12Accounts payable
    
    
    704
    
    
    
    2,241Accrued liabilities
    
    
    958
    
    
    
    2,225Accrued clinical trials and related expenses
    
    
    3,081
    
    
    
    Payable to collaboration partner
    
    
    (23,221
    )
    
    
    7,089Accrued compensation
    
    
    (131
    )
    
    
    710Accrued restructuring
    
    
    
    
    
    
    (195
    )Net cash used in operating activities
    
    
    (78,840
    )
    
    
    (47,926
    )Cash flows from investing activities:Purchases of marketable securities
    
    
    (157,428
    )
    
    
    (172,116
    )Maturities of marketable securities
    
    
    246,648
    
    
    
    194,139Proceeds from sale of Syrxx Investment
    
    
    
    
    
    
    750Capital expenditures
    
    
    (227
    )
    
    
    (470
    )Proceeds from sale of fixed assets
    
    
    
    
    
    
    6Net cash provided by (used in) investing activities
    
    
    88,993
    
    
    
    22,309Cash flows from financing activities:Advance from collaboration partner
    
    
    10,000
    
    
    
    10,000Net proceeds from issuances of common stock
    
    
    2,441
    
    
    
    1,064Net cash provided by financing activities
    
    
    12,441
    
    
    
    11,064Net decrease in cash and cash equivalents
    
    
    22,594
    
    
    
    (14,553
    )Cash and cash equivalents at beginning of period
    
    
    46,064
    
    
    
    74,243Cash and cash equivalents at end of period
    
    $
    68,658
    
    
    $
    59,690
  5




---



##### 



NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 Note 1. Basis of Presentation
    Note 2. Net Expense from Unconsolidated Joint Business
     6




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2006(in thousands)
    
    
    (in thousands)Product revenue, net
    
    $
    45,405
    
    
    $
    101,342Combined cost of goods sold, distribution, selling,
general and administrative
    
    
    29,895
    
    
    
    73,778Combined research and development
    
    
    40,711
    
    
    
    120,104Combined collaboration loss
    
    $
    (25,201
    )
    
    $
    (92,540
    )Onyxs share of collaboration loss
    
    $
    (12,601
    )
    
    $
    (46,271
    )Reimbursement of Onyxs direct development and
marketing expenses
    
    
    9,005
    
    
    
    26,124Onyxs net expense from unconsolidated joint business
    
    $
    (3,596
    )
    
    $
    (20,147
    )
 Note 3. Stock-Based Compensation
 ,
  7




---



##### 



Employee Stock Plans
  1)
    
    The 1996 Equity Incentive Plan which amended and restated the 1992 Incentive Stock Plan
in March 1996. The Board initially reserved 1,725,000 shares of common stock for issuance under the
Incentive Plan. At the Companys annual meetings of stockholders in subsequent years,
stockholders approved reserving an additional 4,100,000 shares of common stock for issuance
under the Incentive Plan. The Incentive Plan provided for grants to employees of either
nonqualified or incentive options and provided for the grant to consultants of the Company
of nonqualified options.2)
    
    The 1996 Non-Employee Directors Stock Option Plan (the Directors Plan) which was
approved in March 1996 and initially reserved 175,000 shares for issuance, provided 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 subsequent
years, stockholders approved reserving an additional 250,000 shares of common stock for
issuance under the Directors Plan.
   Pro forma Information for Periods prior to the Adoption of FAS 123(R)
 
  8




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2005(in thousands except per share data)Net loss, as reported
    
    $
    (22,581
    )
    
    $
    (56,822
    )Deduct: Total stock-based employee compensation
determined under the fair value based method for
all awards, net of related tax effects
    
    
    (3,724
    )
    
    
    (9,535
    )Net loss  pro forma
    
    $
    (26,305
    )
    
    $
    (66,357
    )Loss per share:Basic and diluted net loss per share  as reported
    
    $
    (0.64
    )
    
    $
    (1.61
    )Basic and diluted net loss per share  pro forma
    
    $
    (0.74
    )
    
    $
    (1.88
    )
 Impact of the Adoption of FAS 123(R)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2006(in thousands except per share data)Research and development
    
    $
    629
    
    
    $
    2,010Selling, general and administrative
    
    
    2,878
    
    
    
    8,830Total share-based compensation expense
    
    $
    3,507
    
    
    $
    10,840Impact on basic and diluted net loss per share
    
    $
    (0.08
    )
    
    $
    (0.26
    )
 9




---



##### 



Three Months Ended
    
    Nine Months EndedSeptember 30, 2006
    
    September 30, 2006Stock options plans:Weighted average grant date fair value
    
    $
    8.20
    
    
    $
    11.54Total fair value vested (in thousands)
    
    $
    5,540
    
    
    $
    11,026Stock bonus awards:Weighted average grant date fair value
    
    $
    
    
    
    $
    21.04Total fair value vested
    
    $
    
    
    
    $
    
  Valuation Assumptions
  Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302006
    
    2005
    
    2006
    
    2005Stock Option Plans:Risk-free interest rate
    
    
    4.97
    %
    
    
    3.97
    %
    
    
    4.69
    %
    
    
    3.78
    %Expected life
    
    4.2 years
    
    3.8 years
    
    4.2 years
    
    3.8 yearsExpected volatility
    
    
    60
    %
    
    
    72
    %
    
    
    60
    %
    
    
    74
    %Expected dividends
    
    None
    
    None
    
    None
    
    NoneWeighted average option fair value
    
    $
    8.20
    
    
    $
    11.55
    
    
    $
    11.54
    
    
    $
    13.55Stock bonus awards:Expected life
    
    
    
    
    
    
    
    
    
    3 years
    
    
    Expected dividends
    
    
    
    
    
    
    
    
    
    None
    
    
    Weighted
average fair value per share
    
    
    
    
    
    
    
    
    
    $
    21.04
    
    
    
    ESPP:Risk-free interest rate
    
    
    5.17
    %
    
    
    3.33
    %
    
    
    4.98
    %
    
    
    3.14
    %Expected life
    
    6 months
    
    6 months
    
    6 months
    
    6 monthsExpected volatility
    
    
    60
    %
    
    
    72
    %
    
    
    60
    %
    
    
    74
    %Expected dividends
    
    None
    
    None
    
    None
    
    NoneWeighted
average fair value per share
    
    $
    5.35
    
    
    $
    10.39
    
    
    $
    6.23
    
    
    $
    11.89
 Stock-Based Payment Award Activity
  10




---



##### 



Shares
    
    Number of
    
    WeightedAvailable for
    
    Shares
    
    Average ExerciseEmployee stock options:
    
    Grant
    
    Outstanding
    
    PriceBalance at December 31, 2004
    
    
    1,282,193
    
    
    
    2,296,442
    
    
    $
    17.99Shares authorized
    
    
    3,990,000
    
    
    
    
    
    
    
    Granted
    
    
    (1,647,000
    )
    
    
    1,647,000
    
    
    $
    24.43Exercised
    
    
    
    
    
    
    (103,562
    )
    
    $
    8.59Cancelled/expired/forfeited
    
    
    42,789
    
    
    
    (42,789
    )
    
    $
    31.39Balance at September 30, 2005
    
    
    3,667,982
    
    
    
    3,797,091
    
    
    $
    20.89Balance at December 31, 2005
    
    
    3,610,461
    
    
    
    3,806,081
    
    
    $
    21.17Granted
    
    
    (1,705,450
    )
    
    
    1,705,450
    
    
    $
    22.67Exercised
    
    
    
    
    
    
    (326,845
    )
    
    $
    7.17Expired
    
    
    (9,083
    )
    
    
    
    
    
    $
    48.74Cancelled/forfeited
    
    
    67,012
    
    
    
    (67,012
    )
    
    $
    30.50Balance at September 30, 2006
    
    
    1,962,940
    
    
    
    5,117,674
    
    
    $
    22.44
 WeightedAverageGrant DateStock bonus awards:
    
    Shares
    
    Fair ValueBalance at December 31, 2005
    
    
    
    
    
    
    Granted
    
    
    40,000
    
    
    $
    21.04Vested
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Balance at September 30, 2006
    
    
    40,000
    
    
    $
    21.04
  Weighted-Average Grant-Shares
    
    Date Fair ValueNonvested at December 31, 2005
    
    
    2,209,027
    
    
    $
    14.68Granted
    
    
    1,705,450
    
    
    $
    11.54Vested
    
    
    (808,675
    )
    
    $
    13.63Cancelled/expired/forfeited
    
    
    (57,929
    )
    
    $
    15.80Nonvested at September 30, 2006
    
    
    3,047,873
    
    
    $
    13.25
  11




---



##### 



Options Outstanding
    
    Options ExercisableWeightedAverage
    
    WeightedContractual Life
    
    Average
    
    
    
    
    
    WeightedNumber
    
    Remaining
    
    Exercise
    
    Number
    
    AverageRange of Exercise Prices
    
    Outstanding
    
    (In years)
    
    Price
    
    Exercisable
    
    Exercise Price$3.82 - $15.44
    
    
    1,296,831
    
    
    
    5.9
    
    
    $
    9.29
    
    
    
    926,626
    
    
    $
    7.25$15.46 - $24.74
    
    
    1,282,771
    
    
    
    9.0
    
    
    $
    19.38
    
    
    
    281,945
    
    
    $
    20.27$25.19 - $28.62
    
    
    1,533,972
    
    
    
    9.0
    
    
    $
    27.29
    
    
    
    333,115
    
    
    $
    26.54$28.75 - $48.19
    
    
    1,004,100
    
    
    
    7.9
    
    
    $
    35.94
    
    
    
    528,115
    
    
    $
    36.52Total
    
    
    5,117,674
    
    
    
    8.0
    
    
    $
    22.44
    
    
    
    2,069,801
    
    
    $
    19.60
   Note 4. Revenue
    Note 5. Net Loss Per Share
  12




---



##### 



Note 6. Comprehensive Loss
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005(In thousands)
    
    (In thousands)Net loss  as reported
    
    $
    (20,148
    )
    
    $
    (22,581
    )
    
    $
    (71,974
    )
    
    $
    (56,822
    )Other comprehensive loss:Change in unrealized
gain (loss) on
available-for-sale
securities
    
    
    450
    
    
    
    (125
    )
    
    
    189
    
    
    
    (282
    )Comprehensive loss
    
    $
    (19,698
    )
    
    $
    (22,706
    )
    
    $
    (71,785
    )
    
    $
    (57,104
    )
 Note 7. Subsequent Event
  13




---



##### 



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 this Quarterly Report on 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 Form 10-Q .
 Overview
 changing the way cancer is treated 
 ®
    Critical Accounting Policies and the Use of Estimates
 14




---



##### 



Net Expense from Unconsolidated Joint Business:
 Stock-Based Compensation: ,
   Results of Operations
 15




---



##### 



Three and nine months ended September 30, 2006 and 2005
 Revenue
    Net Expense from Unconsolidated Joint Business
      16




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2006(in thousands)
    
    
    (in thousands)Product revenue, net
    
    $
    45,405
    
    
    $
    101,342Combined cost of goods sold, distribution, selling,
general and administrative
    
    
    29,895
    
    
    
    73,778Combined research and development
    
    
    40,711
    
    
    
    120,104Combined collaboration loss
    
    $
    (25,201
    )
    
    $
    (92,540
    )Onyxs share of collaboration loss
    
    $
    (12,601
    )
    
    $
    (46,271
    )Reimbursement of Onyxs direct development and
marketing expenses
    
    
    9,005
    
    
    
    26,124Onyxs net expense from unconsolidated joint business
    
    $
    (3,596
    )
    
    $
    (20,147
    )
 Research and Development Expenses
  17




---



##### 



Selling, General and Administrative Expenses
  Interest Income, net
  Other Income
 18




---



##### 



Liquidity and Capital Resources
  .
     19




---



##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   September 30, 2006
    
    December 31, 2005AverageFair Value
    
    Interest
    
    
    
    
    
    Fair Value
    
    AverageMaturity
    
    (In millions)
    
    Rate
    
    Maturity
    
    (In millions)
    
    Interest RateCash equivalents, fixed rate
    
    0  1 month
    
    $
    66.7
    
    
    
    4.92
    %
    
    0  2 months
    
    $
    45.4
    
    
    
    3.97
    %Marketable securities,
fixed rate
    
    0  16 months
    
    $
    149.6
    
    
    
    5.24
    %
    
    0  23 months
    
    $
    238.6
    
    
    
    4.66
    %
  Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures:
 Changes in Internal Control over Financial Reporting:
 Inherent Limitations on Effectiveness of Controls:
 20




---



##### 



PART II: OTHER INFORMATION
 Item 1. Legal Proceedings
  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 and/or contingent value rights.
 We have marked with an asterisk (*) those risk factors below that reflect material changes
from the risk factors included in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 16, 2006.
 Risks Related to Our Business
 Nexavar ® (sorafenib) tablets is our only product, and we do not have any other
product candidates in Phase II or Phase III clinical development. If Nexavar is not commercially
successful, we may be unable to identify and promote alternative product candidates and our
business would fail.
  If our clinical trials fail to demonstrate that Nexavar is safe and effective for cancer types
other than kidney cancer, we will be unable to broadly commercialize Nexavar as a treatment for
cancer, and our business may fail.*
    21




---



##### 



There are competing therapies approved for the treatment of advanced kidney cancer, and we
expect the number of approved therapies to rapidly increase, which could harm the prospects for
Nexavar in this indication.*
      22




---



##### 



We are dependent upon our collaborative relationship with Bayer to manufacture and to further
develop and commercialize Nexavar. There may be circumstances that delay or prevent the development
and commercialization of Nexavar.
       23




---



##### 




    
    the amount and timing of resource expenditures 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.
  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.*
  
    
    Hypertension may occur early in the course of therapy and blood pressure should be
monitored weekly during the first six weeks of therapy and treated as needed.
    
    Gastrointestinal perforation has been reported in less than one percent of patients
taking Nexavar.
 24




---



##### 




    
    Incidence of bleeding, regardless of causality, was 15 percent for Nexavar vs. 8
percent for placebo and the incidence of treatment-emergent cardiac ischemia/infarction
was 2.9 percent for Nexavar vs. 0.4 percent for placebo.
    
    Most common treatment-emergent adverse events with Nexavar were diarrhea,
rash/desquamation, fatigue, hand-foot skin reaction, alopecia and nausea. Grade 3/4
adverse events were 38 percent for Nexavar vs. 28 percent for placebo.
    
    Women of child-bearing potential should be advised to avoid becoming pregnant and
advised against breast-feeding.
    
    In cases of any severe or persistent side effects, temporary treatment interruption,
dose modification or permanent discontinuation should be considered.
  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.*
    We have a history of losses, and we expect to continue to incur losses.
  25




---



##### 



We are subject to extensive government regulation, which can be costly, time consuming and
subject us to unanticipated delays.*
    
    
    adversely affect the successful commercialization of Nexavar;
    
    impose costly procedures on us;
    
    diminish any competitive advantages that we may attain; and
    
    adversely affect our receipt of revenues or royalties.
  26




---



##### 



While Nexavar has received marketing approvals in many countries outside of the
United States, it has not received pricing approval in all of these countries, and may not
receive marketing approvals or pricing approvals in additional countries.*
  .
 We face intense competition and rapid technological change, and many of our competitors have
substantially greater resources than we have.
  27




---



##### 




    
    developing products;
    
    undertaking preclinical testing and human clinical trials;
    
    obtaining FDA and other regulatory approvals of products; and
    
    manufacturing and marketing products.
     We will need substantial additional funds, and our future access to capital is uncertain.*
  
    
    the size and complexity of our Nexavar program;
    
    decisions made by Bayer and Onyx to alter the size, scope and schedule of clinical development;
    
    repayment of our of milestone-based advances;
    
    progress with clinical trials;
    
    the time and costs involved in obtaining regulatory approvals;
 28




---



##### 




    
    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 of additional products;
    
    competing technological and market developments; and
    
    global product commercialization activities.
    29




---



##### 



We are dependent on the efforts of Bayer to market and promote Nexavar in countries outside
the United States where Nexavar has received approval.
     If Bayers business strategy changes, it may adversely affect our collaborative relationship.
  We do not have manufacturing expertise or capabilities and are dependent on Bayer to fulfill
our manufacturing needs, which could result in lost sales and the delay of clinical trials or
regulatory approval.
  We have the right to co-promote Nexavar in the United States, but we do not have proven sales
or marketing expertise.
  If the specialty pharmacies and distributors that we and Bayer rely upon to sell our products
fail to perform, our business may be adversely affected.
  
    
    not provide us with 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
 30




---



##### 




    
    cease operations.
  If we lose our key employees and consultants or are unable to attract or retain qualified
personnel, our business could suffer.
   The market may not accept our products and pharmaceutical pricing and reimbursement pressures
may reduce profitability.*
    
    
    rate of adoption by healthcare practitioners;
    
    types of cancer for which the product is approved;
 31




---



##### 




    
    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.
  We may not be able to protect our intellectual property or 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.
   32




---



##### 



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 face product liability risks and may not be able to obtain adequate insurance.
  33




---



##### 




    
    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.*
  Our stock price is volatile. *
  
    
    reported sales of Nexavar;
    
    interim or final results of, or speculation about, clinical trials from Nexavar;
    
    decisions by regulatory agencies;
    
    changes in the regulatory approval requirements;
    
    ability to accrue patients into clinical trials;
    
    success or failure in, or speculation about, obtaining regulatory approval by us or our competitors;
    
    public concern as to the safety and efficacy of our product candidates;
    
    developments in our relationship with Bayer;
    
    developments in patent or other proprietary rights;
    
    additions or departures of key personnel;
    
    announcements by us or our competitors of technological innovations or new commercial therapeutic products;
 34




---



##### 




    
    published reports by securities analysts;
    
    statements of governmental officials;
    
    changes in healthcare reimbursement policies;
    
    sales of our common stock by existing holders, or sales of shares issuable upon exercise of
outstanding options and warrants; and
    
    sales by us of our common stock, including sales under our committed equity financing facility arrangement
with Azimuth.
 We are at risk of securities class action litigation due to our expected stock price
volatility.
  Existing stockholders have significant influence over us.
   Provisions in our collaboration agreement with Bayer may prevent or delay a change in control.
  Provisions in Delaware law, our charter and executive change of control agreements we have
entered into may prevent or delay a change of control.
 35




---



##### 




    
    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.
   
    
    our board is classified into three classes of directors as nearly equal in size as possible with staggered
three-year terms;
    
    the authority of our board to issue up to 5,000,000 shares of preferred stock and to determine the price,
rights, preferences and privileges of these shares, without stockholder approval;
    
    all stockholder actions must be effected at a duly called meeting of stockholders and not by written consent;
    
    special meetings of the stockholders may be called only by the chairman of the board, the chief executive
officer, the board or ten percent or more of the stockholders entitled to vote at the meeting; and
    
    no cumulative voting.
   Accounting pronouncements may affect our future financial position and results of operations.*
  36




---



##### 



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
  Item 5. Other Information
  Item 6. Exhibits
 3.1 (1)
    
    Restated Certificate of Incorporation of the Company filed with the Delaware
Secretary of State on May 14, 1996.3.2 (1)
    
    Bylaws of the Company.3.3 (2)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation
filed with the Delaware Secretary of State on  June 13, 2000.3.4 (3)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation
filed with the Delaware Secretary of State on  May 25, 2006.4.1
    
    Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.4.2 (1)
    
    Specimen Stock Certificate.10.22 *
    
    Amendment #3to the Amended and Restated Research, Development and
Marketing Collaboration Agreement between Warner- Lambert and the Company, dated
May 2, 1995.10.35 (4)
    
    Letter Agreement between Gregory W. Schafer and the Company, dated July 7, 2006.10.36 (4)
    
    Form of Stock Bonus Award Grant Notice and Agreement between the Company and
certain award recipients.10.37 (5)
    
    Separation Agreement between Fabio M. Benedetti, M.D. and the Company, dated
September 6, 2006.10.38 (6)
    
    Common Stock Purchase Agreement between Azimuth Opportunity Ltd. and the
Company, dated September 29, 2006.31.1 (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 Principal 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).
 37




---



##### 



*
    
    Confidential treatment has been requested for portions of this document. The redactions to
this agreement have been amended since its original filing in accordance with a request for
extension of confidential treatment filed separately by the Company with the Securities and
Exchange Commission.(1)
    
    Filed as an exhibit to the registrants Registration Statement on Form SB-2 (No.
333-3176-LA).(2)
    
    Filed as an exhibit to the registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000.(3)
    
    Filed as an exhibit to the registrants Registration
Statement on Form S-3 (No. 333-134565) filed on
May 30, 2006.(4)
    
    Filed as an exhibit to the registrants Current Report on Form 8-K filed on July 12, 2006.(5)
    
    Filed as an exhibit to the registrants Current Report on Form 8-K filed on September 7,
2006.(6)
    
    Filed as an exhibit to the registrants Current Report on Form 8-K filed on September 29,
2006.(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. 38




---



##### 



SIGNATURES
  ONYX PHARMACEUTICALS, INC.Date: November 9, 2006
    By:
    /s/ Hollings C. RentonHollings C. RentonChairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)Date: November 9, 2006
    By:
    /s/ Gregory W. SchaferGregory W. SchaferVice President and Chief Financial Officer
(Principal Financial Officer) 39




---



##### 



EXHIBIT INDEX
 3.1 (1)
    
    Restated Certificate of Incorporation of the Company filed with the Delaware
Secretary of State on May 14, 1996.3.2 (1)
    
    Bylaws of the Company.3.3 (2)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation
filed with the Delaware Secretary of State on June 13, 2000.3.4 (3)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation
filed with the Delaware Secretary of State on May 25, 2006.4.1
    
    Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.4.2 (1)
    
    Specimen Stock Certificate.10.22*
    
    Amendment #3to the Amended and Restated Research, Development and
Marketing Collaboration Agreement between Warner-Lambert and the Company, dated
May 2, 1995.10.35(4)
    
    Letter Agreement between Gregory W. Schafer and the Company, dated July 7, 2006.10.36 (4)
    
    Form of Stock Bonus Award Grant Notice and Agreement between the Company and
certain award recipients.10.37 (5)
    
    Separation Agreement between Fabio M. Benedetti, M.D. and the Company, dated
September 6, 2006.10.38 (6)
    
    Common Stock Purchase Agreement between Azimuth Opportunity Ltd. and the
Company, dated September 29, 2006.31.1 (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 Principal 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 has been requested for portions of this document. The redactions to
this agreement have been amended since its original filing in accordance with a request for
extension of confidential treatment filed separately by the Company with the Securities and
Exchange Commission.(1)
    
    Filed as an exhibit to the registrants Registration Statement on Form SB-2 (No.
333-3176-LA).(2)
    
    Filed as an exhibit to the registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000.(3)
    
    Filed as an exhibit to the registrants Registration
Statement on Form S-3 (No. 333-134565) filed on
May 30, 2006.(4)
    
    Filed as an exhibit to the registrants Current Report on Form 8-K filed on July 12, 2006.(5)
    
    Filed as an exhibit to the registrants Current Report on Form 8-K filed on September 7,
2006.(6)
    
    Filed as an exhibit to the registrants Current Report on Form 8-K filed on September 29,
2006. 40




---



##### 



(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. 41