##### 



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 June 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
incorporation or organization)
    
    (I.R.S. Employer ID Number)
 
 
  þ o
  o þ o
  o þ




---



##### 



INDEX
 PagePART I: FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Balance Sheets  June 30, 2006 and December 31, 2005
    
    
    3Condensed Statements of Operations  Three and six months ended June 30, 2006 and 2005
    
    
    4Condensed Statements of Cash Flows  Six months ended June 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)
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    33,923
    
    
    $
    46,064Marketable securities
    
    
    209,544
    
    
    
    228,754Receivable from collaboration partner
    
    
    4,612
    
    
    
    4,350Other current assets
    
    
    4,366
    
    
    
    3,935Total current assets
    
    
    252,445
    
    
    
    283,103Long-term marketable securities
    
    
    
    
    
    
    9,862Property and equipment, net
    
    
    1,296
    
    
    
    1,617Other assets
    
    
    70
    
    
    
    83$
    253,811
    
    
    $
    294,665LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    278
    
    
    $
    581Payable to collaboration partner
    
    
    17,101
    
    
    
    30,823Accrued liabilities
    
    
    3,105
    
    
    
    1,343Accrued clinical trials and related expenses
    
    
    10,251
    
    
    
    5,567Accrued compensation
    
    
    2,859
    
    
    
    3,111Total current liabilities
    
    
    33,594
    
    
    
    41,425Advance from collaboration partner
    
    
    40,000
    
    
    
    30,000Commitments and contingenciesStockholders equity:Common stock
    
    
    41
    
    
    
    41Additional paid-in capital
    
    
    578,867
    
    
    
    569,800Receivable from stock option exercises
    
    
    (27
    )
    
    
    (24
    )Accumulated other comprehensive loss
    
    
    (1,028
    )
    
    
    (767
    )Accumulated deficit
    
    
    (397,636
    )
    
    
    (345,810
    )Total stockholders equity
    
    
    180,217
    
    
    
    223,240$
    253,811
    
    
    $
    294,665
  3




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##### 



ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue:License fee
    
    $
    150
    
    
    $
    
    
    
    $
    150
    
    
    $
    1,000Operating expenses:Net expense from unconsolidated joint business
    
    
    12,449
    
    
    
    
    
    
    
    16,551
    
    
    
    Research and development
    
    
    8,693
    
    
    
    12,079
    
    
    
    16,493
    
    
    
    25,611Selling, general and administrative
    
    
    13,421
    
    
    
    7,840
    
    
    
    25,044
    
    
    
    12,640Total operating expenses
    
    
    34,563
    
    
    
    19,919
    
    
    
    58,088
    
    
    
    38,251Loss from operations
    
    
    (34,413
    )
    
    
    (19,919
    )
    
    
    (57,938
    )
    
    
    (37,251
    )Interest income, net
    
    
    2,939
    
    
    
    1,403
    
    
    
    6,112
    
    
    
    2,635Other income
    
    
    
    
    
    
    375
    
    
    
    
    
    
    
    375Net loss
    
    $
    (31,474
    )
    
    $
    (18,141
    )
    
    $
    (51,826
    )
    
    $
    (34,241
    )Basic and diluted net loss per share
    
    $
    (0.76
    )
    
    $
    (0.51
    )
    
    $
    (1.25
    )
    
    $
    (0.97
    )Shares used in computing basic and diluted net loss per share
    
    
    41,422
    
    
    
    35,313
    
    
    
    41,357
    
    
    
    35,293
  4




---



##### 



ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
 Six Months Ended June 30,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (51,826
    )
    
    $
    (34,241
    )Adjustments to reconcile net loss to net cash used
in operating activities:Depreciation and amortization
    
    
    379
    
    
    
    278Gain on sale of fixed assets
    
    
    
    
    
    
    (6
    )Gain on sale of investment
    
    
    
    
    
    
    (375
    )Stock-based compensation
    
    
    7,493
    
    
    
    355Changes in assets and liabilities:Receivable from collaboration partner
    
    
    (262
    )
    
    
    (2,382
    )Prepaid expenses and other current assets
    
    
    (431
    )
    
    
    (954
    )Other assets
    
    
    13
    
    
    
    402Accounts payable
    
    
    (303
    )
    
    
    (188
    )Accrued liabilities
    
    
    1,762
    
    
    
    (590
    )Accrued clinical trials and related expenses
    
    
    4,684
    
    
    
    2,787Payable to collaboration partner
    
    
    (13,722
    )
    
    
    2,216Accrued compensation
    
    
    (252
    )
    
    
    (4
    )Net cash used in operating activities
    
    
    (52,465
    )
    
    
    (32,702
    )Cash flows from investing activities:Purchases of marketable securities
    
    
    (153,606
    )
    
    
    (160,261
    )Maturities of marketable securities
    
    
    182,417
    
    
    
    136,204Capital expenditures
    
    
    (58
    )
    
    
    (232
    )Proceeds from sale of fixed assets
    
    
    
    
    
    
    6Net cash provided by (used in) investing activities
    
    
    28,753
    
    
    
    (24,283
    )Cash flows from financing activities:Advance from collaboration partner
    
    
    10,000
    
    
    
    Net proceeds from issuances of common stock
    
    
    1,571
    
    
    
    813Net cash provided by financing activities
    
    
    11,571
    
    
    
    813Net decrease in cash and cash equivalents
    
    
    (12,141
    )
    
    
    (56,172
    )Cash and cash equivalents at beginning of period
    
    
    46,064
    
    
    
    74,243Cash and cash equivalents at end of period
    
    $
    33,923
    
    
    $
    18,071
  5




---



##### 



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




---



##### 



Three Months Ended
    
    
    Six Months EndedJune 30, 2006
    
    
    June 30, 2006(in thousands)
    
    
    (in thousands)Product revenue, net
    
    $
    32,190
    
    
    $
    55,937Combined cost of goods sold, distribution, selling,
general and administrative
    
    
    26,175
    
    
    
    43,883Combined research and development
    
    
    49,362
    
    
    
    79,393Combined collaboration loss
    
    $
    (43,347
    )
    
    $
    (67,339
    )Onyxs 50% share of collaboration loss
    
    $
    (21,674
    )
    
    $
    (33,670
    )Reimbursement of Onyxs direct development and
marketing expenses
    
    
    9,225
    
    
    
    17,119Onyxs net expense from unconsolidated joint business
    
    $
    (12,449
    )
    
    $
    (16,551
    )
 Note 3. Stock-Based Compensation
 ,
  Employee Stock Plans
 7




---



##### 



Pro forma Information for Periods prior to the Adoption of FAS 123(R)
   8




---



##### 



Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005(in thousands except per share data)Net loss, as reported
    
    $
    (18,141
    )
    
    $
    (34,241
    )Deduct: Total stock-based employee compensation determined
under the fair value based method for all awards, net of
related tax
effects
    
    
    (3,297
    )
    
    
    (5,845
    )Net loss  pro forma
    
    $
    (21,438
    )
    
    $
    (40,086
    )Loss per share:Basic and diluted net loss per share  as reported
    
    $
    (0.51
    )
    
    $
    (0.97
    )Basic and diluted net loss per share  pro forma
    
    $
    (0.61
    )
    
    $
    (1.14
    )
 Impact of the Adoption of FAS 123(R)
  Three Months Ended
    
    
    Six Months EndedJune 30, 2006
    
    
    June 30, 2006(in thousands except per share data)Research and development
    
    $
    695
    
    
    $
    1,381Selling, general and administrative
    
    
    3,008
    
    
    
    5,952Total share-based compensation expense
    
    $
    3,703
    
    
    $
    7,333Impact on basic and diluted net loss per share
    
    $
    (0.09
    )
    
    $
    (0.18
    )
 9




---



##### 



Three Months Ended
    
    Six Months EndedJune 30, 2006
    
    June 30, 2006Stock options plans:Weighted average grant date fair value
    
    $
    7.95
    
    
    $
    12.88Total fair
value vested (in thousands)
    
    
    2,694
    
    
    
    5,486Stock bonus
awards:Weighted average grant date fair value
    
    $
    21.04
    
    
    $
    21.04Total fair value vested
    
    
    
    
    
    
    
  Valuation Assumptions
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302006
    
    2005
    
    2006
    
    2005Stock Option Plans:Risk-free interest rate
    
    
    4.57
    %
    
    
    3.92
    %
    
    
    4.57
    %
    
    
    3.61
    %Expected life
    
    4.2 years
    
    3.9 years
    
    4.2 years
    
    3.8 yearsExpected volatility
    
    
    60%
    
    
    
    73%
    
    
    
    60%
    
    
    
    76%Expected dividends
    
    None
    
    None
    
    None
    
    NoneWeighted average option fair value
    
    $
    7.95
    
    
    $
    16.88
    
    
    $
    12.88
    
    
    $
    15.36Stock bonus awards:Expected life
    
    3 years
    
    
    
    
    
    3 years
    
    
    Expected dividends
    
    None
    
    
    
    
    
    None
    
    
    Weighted average shares fair value
    
    $
    21.04
    
    
    
    
    
    
    $
    21.04
    
    
    
    ESPP:Risk-free interest rate
    
    
    4.33
    %
    
    
    2.50
    %
    
    
    4.33
    %
    
    
    2.50
    %Expected life
    
    6 months
    
    6 months
    
    6 months
    
    6 monthsExpected volatility
    
    
    60%
    
    
    
    80%
    
    
    
    60%
    
    
    
    80%Expected dividends
    
    None
    
    None
    
    None
    
    NoneWeighted average shares fair value
    
    $
    9.32
    
    
    $
    16.92
    
    
    $
    9.32
    
    
    $
    16.92
 Stock-Based Payment Award Activity
  10




---



##### 





Shares
    
    
    Number of
    
    
    WeightedAvailable for
    
    
    Shares
    
    
    AverageGrant
    
    
    Outstanding
    
    
    Exercise PriceEmployee stock options:Balance at December 31, 2004
    
    
    1,282,193
    
    
    
    2,296,442
    
    
    $
    17.99Shares authorized
    
    
    3,990,000
    
    
    
    
    
    
    
    Granted
    
    
    (895,500
    )
    
    
    895,500
    
    
    $
    27.04Exercised
    
    
    
    
    
    
    (78,590
    )
    
    $
    9.19Cancelled/expired/forfeited
    
    
    38,834
    
    
    
    (38,834
    )
    
    $
    30.46Balance at June 30, 2005
    
    
    4,415,527
    
    
    
    3,074,518
    
    
    $
    20.70Balance at December 31, 2005
    
    
    3,610,461
    
    
    
    3,806,081
    
    
    $
    21.17Granted
    
    
    (1,218,950
    )
    
    
    1,218,950
    
    
    $
    25.34Exercised
    
    
    
    
    
    
    (240,464
    )
    
    $
    6.72Expired
    
    
    (9,083
    )
    
    
    
    
    
    $
    48.74Cancelled/forfeited
    
    
    45,687
    
    
    
    (45,687
    )
    
    $
    33.70Balance at June 30, 2006
    
    
    2,428,115
    
    
    
    4,738,880
    
    
    $
    22.86


Weighted AverageGrant Date FairShares
    
    
    ValueStock bonus
awards:Balance at
December 31, 2005
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    
    
    
    
    40,000
    
    
    
    $21.04Vested
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
    
    
    
    Balance at
June 30, 2006
    
    
    
    
    
    
    40,000
    
    
    
    $21.04




Weighted AverageGrant Date FairShares
    
    
    ValueNonvested at December 31, 2005
    
    
    2,209,027
    
    
    $
    14.68Granted
    
    
    1,218,950
    
    
    $
    12.88Vested
    
    
    (389,354
    )
    
    $
    14.11Cancelled/expired/forfeited
    
    
    (36,604
    )
    
    $
    17.66Nonvested at June 30, 2006
    
    
    3,002,019
    
    
    $
    13.99




Options Outstanding
    
    
    Options ExercisableWeighted Average
    
    
    WeightedContractual Life
    
    
    Average
    
    
    
    
    
    
    WeightedNumber
    
    
    Remaining ( In
    
    
    Exercise
    
    
    Number
    
    
    AverageRange of Exercise Prices
    
    Outstanding
    
    
    years)
    
    
    Price
    
    
    Exercisable
    
    
    Exercise Price$3.82 - $12.00
    
    
    1,033,931
    
    
    
    4.7
    
    
    $
    7.22
    
    
    
    966,565
    
    
    $
    7.30$12.11 - $24.04
    
    
    1,129,552
    
    
    
    9.0
    
    
    $
    19.44
    
    
    
    102,491
    
    
    $
    17.37$24.14 - $36.13
    
    
    1,952,297
    
    
    
    9.2
    
    
    $
    27.97
    
    
    
    342,300
    
    
    $
    28.04$38.08 - $48.19
    
    
    623,100
    
    
    
    7.9
    
    
    $
    38.98
    
    
    
    325,505
    
    
    $
    38.87Total
    
    
    4,738,880
    
    
    
    8.0
    
    
    $
    22.86
    
    
    
    1,736,861
    
    
    $
    17.90


11



---



##### 



Note 4. Revenue
    Note 5. Net Loss Per Share
  Note 6. Comprehensive Loss
  12




---



##### 



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)
    
    
    (In thousands)Net loss - as reported
    
    $
    (31,474
    )
    
    $
    (18,141
    )
    
    $
    (51,826
    )
    
    $
    (34,241
    )Other comprehensive loss:Change in unrealized gain (loss) on
available-for-sale securities
    
    
    20
    
    
    
    218
    
    
    
    (261
    )
    
    
    (157
    )Comprehensive loss
    
    $
    (31,454
    )
    
    $
    (17,923
    )
    
    $
    (52,087
    )
    
    $
    (34,398
    )
 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 Quarter 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 six months ended June 30, 2006 and 2005
 Revenue
    Net Expense from Unconsolidated Joint Business
      16




---



##### 



Three Months Ended
    
    
    Six Months EndedJune 30, 2006
    
    
    June 30, 2006(in thousands)
    
    
    (in thousands)Product revenue, net
    
    $
    32,190
    
    
    $
    55,937Combined cost of goods sold, distribution, selling,
general and administrative
    
    
    26,175
    
    
    
    43,883Combined research and development
    
    
    49,362
    
    
    
    79,393Combined collaboration loss
    
    $
    (43,347
    )
    
    $
    (67,339
    )Onyxs 50% share of collaboration loss
    
    $
    (21,674
    )
    
    $
    (33,670
    )Reimbursement of Onyxs direct development and
marketing expenses
    
    
    9,225
    
    
    
    17,119Onyxs net expense from unconsolidated joint business
    
    $
    (12,449
    )
    
    $
    (16,551
    )
 Research and Development Expenses
  17




---



##### 



Selling, General and Administrative Expenses
  Interest Income, net
  Other Income
  Liquidity and Capital Resources
 18




---



##### 



.
    19




---



##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   June 30, 2006
    
    December 31, 2005Average
    
    
    
    
    
    
    
    
    
    AverageFair Value
    
    Interest
    
    
    
    
    
    Fair Value
    
    InterestMaturity
    
    (In millions)
    
    Rate
    
    Maturity
    
    (In millions)
    
    RateCash equivalents, fixed rate
    
    0  2 months
    
    $
    33.9
    
    
    
    4.96
    %
    
    0  2 months
    
    $
    45.4
    
    
    
    3.97
    %Marketable securities,
fixed rate
    
    0  19 months
    
    $
    209.5
    
    
    
    5.42
    %
    
    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 IA. 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.
 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 is a competing therapy 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.
        
    
    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.
  23




---



##### 



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.
    
    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.
   24




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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.
   Our clinical trial of Nexavar in kidney cancer may not yield statistically significant overall
survival data, which may negatively impact the commercialization of Nexavar. í
  25




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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;
 26




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
    
    diminish any competitive advantages that we may attain; and
    
    adversely affect our receipt of revenues or royalties.
  While Nexavar has received approvals for sale in a number of countries outside of the United
States, it may never receive pricing approval in these foreign countries, and may not receive
marketing approval in additional countries. í
  .
 27




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We face intense competition and rapid technological change, and many of our competitors have
substantially greater resources than we have.
   
    
    developing products;
    
    undertaking preclinical testing and human clinical trials;
    
    obtaining FDA and other regulatory approvals of products; and
    
    manufacturing and marketing products.
     28




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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;
    
    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.
   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.
  29




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We are dependent on the efforts of Bayer to market and promote Nexavar in countries outside
the United States where Nexavar has received 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;
 30




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
    
    be unable to satisfy financial obligations to us or others; and
    
    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;
 31




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
    
    types of cancer for which the product is approved;
    
    rate of a products acceptance by the target population;
    
    timing of market entry relative to competitive products;
    
    availability of alternative therapies;
    
    price of our product relative to alternative therapies;
    
    extent of marketing efforts by us and third-party distributors or agents retained by us; and
    
    side effects or unfavorable publicity concerning our products or similar products.
  If Bayers business strategy changes, it may adversely affect our collaborative relationship.
  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




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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.
   33




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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.*
  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;
 34




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
    
    developments in patent or other proprietary rights;
    
    additions or departures of key personnel;
    
    announcements by us or our competitors of technological innovations or new commercial therapeutic products;
    
    published reports by securities analysts;
    
    statements of governmental officials; and
    
    changes in healthcare reimbursement policies.
 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.
  35




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




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##### 



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
  (a)
    
    Each of the nominees of the Board of Directors was elected to serve until our
annual meeting of stockholders in 2009. The nominees were: Paul Goddard, Ph.D;
32,700,103 common shares for and 1,989,707 withheld; Antonio J.
Grillo-Lopez, M.D.; 34,285,260 common shares for and 404,550 withheld; and Wendell
Wierenga, Ph.D.; 32,725,273 commons shares for and 1,964,537 withheld. The term of
office of directors Corinne H. Lyle and Thomas G. Wiggans continues until our annual
meeting of stockholders in 2007. The term of office of directors Magnus Lundberg and
Hollings C. Renton continues until our annual meeting of stockholders in 2008.(b)
    
    The stockholders approved the amendment to the Companys Certificate of
Incorporation to increase the authorized number of shares of common stock from
50,000,000 to 100,000,000 shares: 31,950,614 common shares for, 2,438,752 against,
300,444 abstaining and zero broker non-votes.(c)
    
    The stockholders approved the amendment to the Companys Employee Stock
Purchase Plan to increase the aggregate number of shares of Common Stock authorized
for issuance under that plan by 75,000 shares: 21,644,605 common shares for, 1,476,529
against, 291,701 abstaining and 11,276,975 broker non-votes.(d)
    
    The stockholders ratified the selection by the Audit Committee of the Board of
Directors of Ernst & Young LLP as our independent registered public accounting firm
for our fiscal year ending December 31, 2006: 34,133,204 common
shares for, 264,927 against, 291,679 abstaining and zero broker non-votes.
 Item 5. Other Information
  Item 6. Exhibits
 3.1 (1)
    
    Restated Certificate of Incorporation of the Company.3.2 (1)
    
    Bylaws of the Company.3.3 (2)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation.4.1
    
    Reference is made to Exhibits 3.1, 3.2 and 3.3.4.2 (1)
    
    Specimen Stock Certificate.10.7 (3)
    
    1996 Employee Stock Purchase Plan10.30 (4)
    
    Letter Agreement between Gregory W. Schafer and the Company, dated April 12, 2006.
 37




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##### 



10.33 (5)
    
    Separation Agreement between the Company and Scott M. Freeman, M.D., dated May 3, 2006.10.34 (6)
    
    Letter Agreement between Laura A. Brege and the Company, dated May 19, 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 amended31.2 (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 amended32.1 (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).
 
 (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
June 30, 2000.(3)
    
    Filed as an exhibit to the registrants Registration Statement on Form S-8 (No. 333-134567).(4)
    
    Filed as an exhibit to the registrants Current Report on Form 8-K filed on April 18, 2006(5)
    
    Filed as an exhibit to the registrants Current Report on Form 8-K filed on May 12, 2006(6)
    
    Filed as an exhibit to the registrants Current Report on Form 8-K filed on June 12, 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




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##### 



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




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##### 



EXHIBIT INDEX
 3.1 (1)
    
    Restated Certificate of Incorporation of the Company.3.2 (1)
    
    Bylaws of the Company.3.3 (2)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation.4.1
    
    Reference is made to Exhibits 3.1, 3.2 and 3.3.4.2 (1)
    
    Specimen Stock Certificate.10.7 (3)
    
    1996 Employee Stock Purchase Plan10.30 (4)
    
    Letter Agreement between Gregory W. Schafer and the Company, dated April 12, 2006.10.33 (5)
    
    Separation Agreement between the Company and Scott M. Freeman, M.D., dated May 3, 2006.10.34 (6)
    
    Letter Agreement between Laura A. Brege and the Company, dated May 19, 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 amended31.2 (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 amended32.1 (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).
 
 (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
June 30, 2000.(3)
    
    Filed as an exhibit to the registrants Registration Statement on Form S-8 (No. 333-134567).(4)
    
    Filed as an exhibit to the registrants Current Report on Form 8-K filed on April 18, 2006(5)
    
    Filed as an exhibit to the registrants Current Report on Form 8-K filed on May 12, 2006(6)
    
    Filed as an exhibit to the registrants Current Report on Form 8-K filed on June 12, 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. 40