10-K

QuickLinks -- Click here to rapidly navigate through this document

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the year ended December 31, 2001.
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to ___________.

Commission File No. 0-28298

ONYX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

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

3031 Research Drive
Richmond, California 94806
(510) 222-9700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

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

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

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

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

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

        The aggregate market value of the voting stock held by nonaffiliates of the Registrant based upon the last trade price of the common stock reported on the Nasdaq National Market on March 25, 2002 was approximately $71,383,000.

        The number of shares of common stock outstanding as of March 25, 2002 was 18,591,213.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of Onyx's Definitive Proxy Statement filed with the Commission pursuant to Regulation 14A in connection with the 2002 Annual Meeting are incorporated herein by reference into Part III of this report.

        Certain Exhibits filed with Onyx's Registration Statement on Form SB-2 (Registration No. 333-3176-LA), as amended, Onyx's Annual Report on Form 10-K (Commission File No. 0-28298) for the years ended December 31, 1997 and December 31, 1999, Onyx's Quarterly Reports on Form 10-Q for the quarters ended June 30, 1996, March 31, 1997, September 30, 1997, March 31, 1999, September 30, 1999, June 30, 2000, September 30, 2000, March 31, 2001 and September 30, 2001, Onyx's Current Report on Form 8-K filed on January 26, 1998, Onyx's Current Report on Form 8-K filed on March 1, 2000 and Onyx's Current Report on Form 8-K filed on February 23, 2001, are incorporated by reference into Part IV of this Report.

PART I.

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

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

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

Item 1. Business

Overview

        We are developing innovative products for the treatment of cancer utilizing two technology platforms, small molecules and therapeutic viruses. Utilizing our proprietary virus technology, we are developing ONYX-015, ONYX-411, which is an RB-selective virus, and Armed Therapeutic Viruses™. Together with Bayer Corporation, we are developing a novel small molecule compound, BAY 43-9006.

        ONYX-015 is a human virus genetically engineered to selectively replicate in and kill cancer cells based on the mutation or loss of function of a specific tumor suppressor gene, the p53 gene. We believe that the mutation or loss of function of the p53 gene is present in the majority of human cancers. In June 2000, we initiated a 360-patient, multi-center Phase III clinical trial of ONYX-015 administered by direct injection into tumors, or intratumoral injection, in patients with head and neck cancer that has progressed following initial treatment with surgery and/or radiation, or recurrent disease. Enrollment in this trial has proceeded very slowly. In the first quarter of 2002, we decided to modify our development plan for ONYX-015 in head and neck cancer prior to advancing ONYX-015 in the Food and Drug Administration, or FDA, registration process and, therefore, we are not accelerating the Phase III clinical trial until these development modifications are complete. In addition, we are in the process of initiating an open-label Phase II/III clinical trial that will evaluate ONYX-015 in patients with head and neck cancer that is resistant to all therapies, or refractory disease. We will treat approximately 30 patients in this study. Pending results in these patients and discussions with the FDA, we may expand this study to treat additional patients.

        In addition to head and neck cancer, we completed a Phase I/II clinical trial evaluating ONYX-015 administered through an artery leading to the liver, or intrahepatic artery infusion, in patients with colon cancer that has spread to the liver, or liver metastases of colorectal cancer. We intend to begin a Phase II clinical trial evaluating ONYX-015 in this indication in mid-2002. We are conducting a Phase I/II clinical trial evaluating ONYX-015 administered as a mouthwash in patients with premalignant growth in the oral cavity, or oral leukoplakia, and are currently enrolling additional patients.

        In addition to ONYX-015, we are developing products that resulted from our small molecule drug discovery efforts. Together with Bayer, we are conducting multiple clinical trials of BAY 43-9006 designed to block the inappropriate growth signals in tumor cells by inhibiting Raf kinase, an enzyme that is activated by ras to induce cancer cell growth. We have treated over 89 patients to date and

1

together with Bayer, we are in the process of completing four Phase I clinical trials. In addition, we are conducting a Phase I clinical trial in Canada in patients with acute myelogenous leukemia, or AML, and myelodysplastic syndrome, or MDS. We also initiated the first Phase I clinical trial of BAY 43-9006 in combination with chemotherapy agents. We plan to initiate additional Phase I and multiple Phase II clinical trials of BAY 43-9006 in patients with various tumor types in 2002.

        Further, we are developing human viruses that selectively replicate in and kill cancer cells based on mutations or loss of function of the retinoblastoma, or RB, tumor suppressor gene. We have shown that our RB-selective therapeutic virus, ONYX-411, produces significant tumor shrinkage in animal models. In our armed virus program in collaboration with Warner-Lambert Company, a subsidiary of Pfizer, Inc., we are currently developing an armed ONYX-015 virus with a prodrug converting enzyme, Cytosine Deaminase, or CD. We are independently developing ONYX-411 and armed ONYX-411 with CD. We are conducting preclinical studies with ONYX-411 and Armed Therapeutic Viruses that are armed with CD. Pending the final results of these ongoing preclinical studies for all three products, we intend to select one product candidate by the end of 2002 for further development. Finally, Warner- Lambert continues to review possible clinical candidates arising from our recently concluded cell cycle and inflammation research programs.

Our Product Candidates

        We are developing the product candidates listed below:

Product/Program	Technology	Indication	Status
ONYX-015	p53-Selective Replicating Virus	Recurrent Head and Neck Cancer Refractory Head and Neck Cancer Liver Metastases of Colorectal Cancer Oral Leukoplakia	Phase III Phase II/III Phase II Phase I/II
BAY 43-9006	Small Molecule Inhibitor of Raf kinase	Multiple solid tumor types, Acute Myelogenous Leukemia, Myelodysplastic Syndrome	Phase I
ONYX-411	RB-Selective Replicating Virus	Multiple Tumor Types	Preclinical
Armed ONYX-015 Armed ONYX-411	p53- and RB-Selective Replicating Viruses Armed with Anticancer Genes (CD, GM-CSF, Nitroreductase)	Multiple Tumor Types	Preclinical
Cell Cycle Program	Small Molecule	Multiple Tumor Types	Research
Inflammation Program	Small Molecule	Acute and Chronic Inflammatory Disease	Research

ONYX-015

        Our lead product, ONYX-015, is a human virus that is genetically engineered so that it does not make E1B 55k, a viral protein that binds to a specific tumor suppressor protein, or p53, and blocks its function. As a result, ONYX-015 cannot inactivate p53 or its function and, therefore, cannot effectively replicate in normal cells. However, in most cancer cells, p53 has already lost its function through mutation of the p53 gene or other mutations in the p53 pathway. When ONYX-015 infects these cancer cells, the virus growth cycle proceeds and the cancer cells are killed. New viruses are then released and infect neighboring cancer cells, killing those cells and perpetuating the selective cancer killing cycle. This process continues, amplifying the therapeutic effect.

2

Status of Collaboration

        In October 1999, we entered into a collaboration agreement with Warner-Lambert to develop and commercialize ONYX-015 as well as two additional product candidates. Pfizer subsequently acquired Warner-Lambert. In August 2001, we and Warner-Lambert amended this collaboration agreement. We regained full rights to develop and commercialize ONYX-015 in head and neck cancer and other cancers that are treated via intratumoral injections and other local and regional routes of administration. We will fund all costs associated with these efforts and will retain all profit derived from worldwide sales of ONYX-015 in these indications, subject to the potential re-establishment of the original collaboration agreement. Warner-Lambert will retain development rights for ONYX-015 for cancers where the drug is administered intravenously. We believe that the local and regional indications provide the highest probability of success in obtaining marketing approval on a timely basis, since these are the indications where ONYX-015 has demonstrated proof of concept.

Manufacturing Update

        To date, ONYX-015 development has experienced delays as a result of limited drug supply produced from a small-scale manufacturing process. Warner-Lambert had the exclusive right to commercially manufacture any products that result from our collaboration with them. As a result of the amended agreement on ONYX-015, in August 2001 we regained the manufacturing rights for ONYX-015. In January 2001, we entered into a process development and manufacturing agreement for ONYX-015 with XOMA (US) LLC. The agreement calls for XOMA to develop a large-scale production process for ONYX-015, produce clinical supplies, prepare the manufacturing facility for FDA review and provide commercial supplies to us. Together with XOMA, we are improving the existing manufacturing process to produce ONYX-015 on a large-scale basis. We will need to continue to develop the process and manufacture additional batches of ONYX-015 to demonstrate consistency and to support filing Chemistry, Manufacturing and Control, or the CMC, amendment with the FDA in order to utilize the supplies in clinical trials.

Status of Head & Neck Clinical Trials

        Together with Warner-Lambert, we initiated a Phase III clinical trial for the treatment of recurrent head and neck disease in June 2000. The trial compares intratumoral injection of ONYX-015 plus standard chemotherapy, 5-Fluorouracil and Cisplatin, versus standard chemotherapy alone. The primary objectives, or endpoints, of the trial are to establish improvements in patient survival without further growth of the treated tumor, also known as local/regional progression free survival. Secondary endpoints are to demonstrate higher quality of life and injected tumor shrinkage of greater than or equal to 50%.

        The Phase III clinical trial has experienced slow accrual due to:

•

the limitation of the manufacturing scale and the inability to produce sufficient quantities of materials for multiple clinical trials including intravenous administration studies;



•

the timing of the transfer of the Investigational New Drug application, or IND, from Warner-Lambert to us at the time of the amendment to the collaboration agreement in August 2001;



•

the need to re-establish us as the clinical trial sponsor with the investigational sites; and



•

the need to agree with the FDA on the Phase III protocol and other pivotal trial protocols to meet the regulatory and market needs.

        To date, we have currently reached less than 5% of our targeted enrollment for this Phase III study. We have enrolled patients in only five centers. In the first quarter of 2002, we decided to modify our development plan for ONYX-015 in head and neck cancer prior to advancing ONYX-015 in the

3

FDA registration process and, therefore, we are not accelerating the Phase III clinical trial until these development modifications are complete.

        We are in the process of initiating an open-label Phase II/III clinical trial that will evaluate ONYX-015 in patients with refractory head and neck cancer. We expect that this trial will treat 30 patients with ONYX-015 in combination with chemotherapy for an interim evaluation of tumor response as the primary endpoint. If we observe significant tumor response rate, we may expand this study to treat additional patients. The expansion of the study will depend on agreement with the FDA that we could use a second head and neck clinical trial to support the results of our Phase III clinical trial to obtain regulatory approval.

Status of FDA discussions

        Subsequent to the transfer of the ONYX-015 IND from Warner-Lambert, we met with the FDA to discuss the Phase III clinical trial protocol for recurrent head and neck cancer. As a result, we modified and amended the protocol with the Institutional Review Boards at the clinical trial sites. In addition, we held discussions with the FDA regarding the specific requirements for a registration path to market approval in head and neck cancer. We are currently holding discussions with the FDA to determine:

•

if the Phase III clinical trial in recurrent head and neck cancer alone can be used to obtain full approval;



•

which quality of life endpoints would be a confirmatory measure of patient benefit;



•

whether a single arm open-label Phase II/III clinical trial in refractory head and neck cancer can be used as a supportive study if a second study is required for full approval;



•

what documentation is required to demonstrate that patients are refractory to standard chemotherapy in the single arm open-label Phase II/III clinical trial; and



•

what data are required to demonstrate unmet medical needs in the refractory head and neck indication to support a potential accelerated approval path.

Status of Head and Neck Cancer Program

        Based on our discussions with the FDA and the status of the development of the large-scale manufacturing process, we decided in the first quarter of 2002 to modify our ONYX-015 development plan to increase the likelihood of success of commercializing ONYX-015 in head and neck cancer. Our decision was based in part on the significant investment required to support large pivotal clinical trials and the regulatory risks inherently associated with pharmaceutical development. We believe we must meet the following milestones for the ONYX-015 program in head and neck cancer to advance towards FDA approval:

•

Successfully manufacture additional batches of ONYX-015 at XOMA on a consistent basis;



•

Gain concurrence from the FDA of the CMC amendment for materials produced from XOMA; and



•

Obtain full alignment with the FDA regarding requirements for an ONYX-015 registration path in head and neck cancer.

        As a result of our decision, we extended our timelines for the introduction of ONYX-015 to market. The extent of the delay will be dependent on our ongoing discussions with the FDA to gain concurrence on the CMC amendment and the time it will take to ensure all clinical trial design and protocols fully satisfy FDA requirements for registration. Once we have full agreement with the FDA and sufficient supply of ONYX-015, we expect to aggressively resume our pivotal clinical trials.

4

Other Clinical Programs

        We completed a Phase I/II clinical trial evaluating ONYX-015 administered through intrahepatic artery infusion in patients with liver metastases of colorectal cancer. We intend to begin a Phase II clinical trial evaluating ONYX-015 in this indication in mid-2002. We are also conducting a Phase I/II clinical trial evaluating ONYX-015 administered as a mouthwash in patients with oral leukoplakia and are currently enrolling additional patients.

Liver Metastases of Colorectal Cancer.    Colorectal cancer is the third leading cause of cancer death in the United States. Aside from the standard therapies for treatment of colorectal cancer, currently there is no standard treatment specifically for liver metastases of colorectal cancer, other than surgery. Approximately 5% of patients with liver metastases of colorectal cancer have disease that may be surgically treated.

        We completed a Phase I/II clinical trial in which ONYX-015 is administered through intrahepatic artery infusion in patients with liver metastases of colorectal cancer. Intrahepatic artery infusion permits simultaneous delivery of ONYX-015 to multiple tumor sites within the liver. In this trial, patients received initial cycles of treatment with ONYX-015 alone and then received a combination of ONYX-015 plus 5-Flourouracil and Leucovorin, the standard chemotherapeutic regimen for colorectal cancer treatment, for subsequent treatment cycles. A total of 33 patients were treated and evaluated. Six patients were treated in the dose escalation phase and 27 patients received the high doses. All patients tolerated the regimen. Patients receiving the highest dose experienced extended survival compared with patients receiving lower doses. Patients who received low doses survived a maximum of 155 days. However, patients receiving higher doses had a median survival rate of 342 days with 10 of 27 patients surviving more than one year. As a result of these data, we intend to begin a Phase II clinical trial evaluating ONYX-015 in this indication in mid-2002.

Oral Leukoplakia.    The development of oral cavity cancer is frequently preceded by premalignant growths, or dysplastic lesions, in the oral mucosa. This condition is often referred to as oral leukoplakia. We reported the interim results of a Phase I/II clinical trial where ONYX-015, given as a mouthwash, is well tolerated and may cause resolution of dysplasia in patients. In the Phase II study, ONYX-015 was administered at weekly doses for 12 weeks. Repeated biopsies were performed to evaluate evidence of persistent disease. Patients demonstrating histologic improvement were eligible to receive 12 weeks of therapy. In the 10 patients on this regimen, two patients had resolution of evident dysplasia, four patients had improvement in the histologic grade of dysplasia and one patient had initial improvement followed by progression. Three patients had progression of the disease despite therapy. No significant clinical toxicity has been observed to date. We are enrolling additional patients in this trial and plan to present the final analysis of this trial at future scientific meetings.

BAY 43-9006

        The ras gene and its related biochemical pathway, or the ras signaling pathway, play a key role in cell proliferation. In normal cell proliferation, when the ras signaling pathway is activated, or "on," it sends a signal telling the cell to grow and divide. When a gene in the ras signaling pathway is mutated, the signal may not turn "off" as it should causing the cell to continuously reproduce itself. Raf kinase is an enzyme in the pathway that ras activates to signal cell growth. Other kinases in this part of the growth signaling pathway include MEK and ERK. The ras signaling pathway gets triggered by activation of growth factor receptors as well as through mutational activation of the ras gene. We believe that the ras signaling pathway plays an integral role in growth of some tumor types, and that inhibiting this pathway could have an effect on tumor growth. Mutations in the ras gene occur in approximately 30% of all human cancers, including 90% of pancreatic cancer, 50% of colon cancer and some lung cancers.

5

Phase I Clinical Trials.    To date, we have reported on 89 patients with advanced cancers treated in Phase I clinical trials being conducted in Germany, Belgium, Canada and the United States. The objective of the Phase I studies was to test the safety, pharmacokinetics and pharmacodynamics of BAY 43-9006 when administered orally at various dosing regimens and schedules. Treated patients had advanced cancers including colorectal, hepatocellular, breast, non-small cell lung, ovarian and other cancers. Few adverse events or toxicities clearly related to BAY 43-9006 have been reported. Toxicities were generally mild and included skin reactions, anorexia, fatigue and diarrhea. Patients enrolled in these trials have achieved serum BAY 43-9006 levels equivalent to the levels at which anti-tumor activity was seen in preclinical studies. In the Phase I study in Germany, the investigator reported that some patients treated with BAY 43-9006 achieved stable disease for several weeks. We are enrolling additional patients in these studies and plan to present the final analysis of this trial at future scientific meetings.

Phase I and Phase II Clinical Trials in AML and MDS.    Together with Bayer, we initiated a Phase I clinical trial in AML and MDS patients. The first phase of the study is a dose escalation study to be followed by an expansion Phase II study.

Phase I and Phase II Clinical Trials in Multiple Tumor Types.    Together with Bayer, we initiated a Phase I clinical trial studying BAY 43-9006 in combination with chemotherapy. Additional Phase I and multiple Phase II clinical trials in various solid tumors will be initiated in 2002.

Other Product Opportunities

ONYX-411 and Armed Therapeutic Virus Products

        We believe that the RB pathway function is abnormal in most cancers. We engineered human viruses to selectively replicate in and kill cancer cells based on defects in the RB function in these cells. With our lead RB-selective virus, ONYX-411, we have shown that treatment with ONYX-411 produces significant tumor shrinkage in animal models.

        We are developing therapeutic viruses armed with anticancer genes. A number of anticancer chemotherapeutic agents are inactive forms of drugs, or prodrugs, that are converted to their active forms by specific chemical modifications. Specific enzymes, or prodrug converting enzymes, are known to carry out this conversion. We developed a system to arm our therapeutic viruses such as ONYX-015 and ONYX-411 with genes that produce prodrug converting enzymes. With this strategy, we arm each virus with a single gene that produces an enzyme that converts a prodrug into an anticancer chemotherapeutic drug at the tumor site. As a result, we believe that arming our viruses should enable the concentrated delivery of the anticancer chemotherapeutic drug to the tumor, thereby enhancing the therapeutic effect.

        Together with Warner-Lambert, we are currently developing ONYX-015 armed with the prodrug converting enzyme, CD. We are also independently developing ONYX-411 armed with CD.

        In addition, we are conducting research and development of particular genes that encode cytokines that activate an immune response in the tumor. This immune response may result either from the protein expressed by the gene itself, or from other elements of the human immune system that are activated as a result. We are currently collaborating with Sangamo BioSciences, Inc. to develop an armed virus with Sangamo's zinc finger DNA-binding transcription factor, or ZFP TF, to express the granulocyte macrophase colony-stimulating factor, or GM-CSF, in the virus in order to induce immune response. We believe that inducing immune response in the tumor will further enhance the tumor killing power of the virus.

        We are conducting preclinical studies with ONYX-411 and Armed Therapeutic Viruses. Pending the final results of these ongoing preclinical studies for all three products, we intend to select one product candidate by the fourth quarter of 2002 for further development.

6

Cell Cycle and Inflammation Programs

        Together with Warner-Lambert, we identified a number of lead compounds that modulate the activity of key enzymes that regulate the process whereby a single cell replicates itself and divides into two identical new cells, a process known as the cell cycle. Mutations in genes that regulate the cell cycle are present in a majority of human cancers. Our small molecule discovery collaboration with Warner-Lambert ended in August 2001. However, Warner-Lambert is currently evaluating the most advanced lead compound in this program for its effectiveness in animal models of human cancer. We also identified other lead compounds in cell cycle and one lead compound that inhibits an enzyme associated with inflammatory diseases during the collaboration period. These leads are currently being optimized at Warner-Lambert. If Warner-Lambert develops and markets products from this research, we will receive milestone payments and royalties on their worldwide sales.

Business Strategy

        Our objective is to be a leading developer of novel cancer therapies by developing compounds that attack cancer at the molecular level. We intend to develop and commercialize a broad portfolio of products based on our selectively replicating virus technology and small molecule drugs resulting from our long-standing research and development collaborations with Bayer and Warner-Lambert.

        Elements of our strategy are to:

•

Develop and obtain regulatory and marketing approvals for ONYX-015 in local and regional indications.  After we have completed our discussions with the FDA to ensure that our clinical trials and CMC amendments for ONYX-015 drug supplies from XOMA are aligned with the FDA requirements for registration and approval, we intend to complete the necessary clinical trials aimed at gaining regulatory approval of ONYX-015. In addition, we expect to develop ONYX-015 for various cancer types such as liver metastases of colorectal cancer, oral leukoplakia and other cancers.



•

Develop and obtain regulatory and marketing approvals for BAY 43-9006 in various cancer indications.  Together with Bayer, we are committed to developing this novel small molecule drug in multiple tumor indications. We and Bayer are actively conducting Phase I clinical trials and intend to initiate additional Phase I and multiple Phase II clinical trials in various cancer indications as a single agent and in combination with widely used chemotherapeutic agents.



•

Identify and develop additional virus products.  We are developing Armed Therapeutic Viruses that incorporate prodrug converting enzymes to selectively activate chemotherapeutic drugs at the tumor site and Armed Therapeutic Viruses incorporating cytokines. We intend to select one of these product candidates for further development by the end of 2002.



•

Retain substantial co-promotion rights to our products.  We intend to build sales and marketing capabilities to promote our products in the United States and Canada. In establishing new product collaborations, we seek to retain at least 50% of marketing and profit-sharing rights in the United States. In our collaboration with Warner-Lambert for the virus programs, we retained co-promotion rights as well as the opportunity for equal profit sharing in the United States and Canada. Our collaboration with Bayer offers us co-development, co-promotion and profit-sharing rights in the United States for BAY 43-9006 and any other products resulting from our collaboration that satisfy definitions contained in the agreement.



•

Establish strategic product partnerships for other virus products.  We believe that our therapeutic virus platform offers an opportunity to generate multiple development product candidates. We intend to establish strategic relationships to ensure that all product opportunities are fully maximized.

7

Collaborations

Warner-Lambert: ONYX-015 and Armed Therapeutic Viruses

        Effective September 1999, we entered into an agreement with Warner-Lambert for the purpose of developing and commercializing ONYX-015 and two armed therapeutic viruses. Under the terms of this agreement, we had the right to co-promote ONYX-015 and two armed virus products with Warner-Lambert in the United States and Canada. We also had the right to share equally in resulting profits or losses in these territories. Additionally, Warner-Lambert was responsible for commercializing the products in the rest of the world and was obligated to pay us a royalty on net sales in these markets. To retain its rights for the two armed virus product candidates, Warner-Lambert is required to fully fund the research and preclinical development of these product candidates.

        We retained the rights to independently develop and commercialize products based on p53-selective armed viruses other than the two selected in the collaboration. In addition, we retained the rights to all other products derived from our therapeutic virus technology.

        Pursuant to a related agreement, Warner-Lambert purchased $10 million of our common stock from us in two installments in 2000 and 2001.

        Warner-Lambert has the right to terminate this agreement, or terminate its efforts directed at select product candidates, at any time on 90 days advance notice. In such event, all product rights, or related product rights in the case of termination directed at select product candidates, would revert to us. These product rights would be royalty-free in the case of ONYX-015, and would be royalty-bearing to Warner-Lambert in the case of the armed virus product candidates, if such candidates had entered clinical trials prior to termination.

        In August 2001, Onyx and Warner-Lambert amended the collaboration agreement for the development and commercialization of ONYX-015. We regained full rights to develop and commercialize ONYX-015 for head and neck cancer and other cancers that are treated via direct injections to the tumors and other local and regional routes of administration. We will fund all costs associated with these efforts and will retain all profit derived from worldwide sales of ONYX-015 in these indications, subject to the potential re-establishment of the original collaboration agreement. Warner-Lambert will retain development rights for ONYX-015 for cancers where the drug is administered intravenously. The parties have discontinued the clinical trials for ONYX-015 administered intravenously, and Onyx will utilize all available drug supply for clinical trials in head and neck cancer as well as other clinical trials involving local or regional administration. Once adequate drug supply for the intravenous trials is available, Warner-Lambert will have the option to pursue the development and regulatory approval of ONYX-015 for intravenous administration at its own cost. If Warner-Lambert does not exercise its option to reinitiate clinical trials for intravenous administration, we may establish one or more collaborative relationships with other parties for the development of ONYX-015. If Warner-Lambert exercises its option and if ONYX-015 receives marketing approval for intravenous administration in the United Sates, Onyx and Warner-Lambert will re-establish the collaboration under the terms of the original collaboration agreement for all indications. At that time, Onyx and Warner-Lambert will co-promote ONYX-015 in the United States and Canada and will share equally in any resulting profits.

        Onyx and Warner-Lambert are continuing their collaboration for the research and development of a CD armed virus. When a product candidate is selected for clinical development, we are obligated to pay 25% of the development costs to retain our profit sharing and co-promotion rights in the United States and Canada for this product candidate. If we choose not to or are unable for any reason to (1) fund our portion of the development costs for this Armed Therapeutic Virus product candidate, or (2) maintain our required co-promotion effort, then:

•

we would lose our co-promotion and profit-sharing rights for this product;

8

•

we would license this product exclusively to Warner-Lambert; and



•

we would receive a royalty on these sales in the applicable market.

        The rights to research and develop a cytokine armed virus product were reacquired from Warner-Lambert in November 2001.

Warner-Lambert: Cell Cycle

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

Warner-Lambert: Inflammation

        In July 1997, we entered into a research and development collaboration agreement with Warner-Lambert to discover and commercialize small molecule drugs for the treatment of acute and chronic inflammatory disorders. The obligations of the parties are similar to those agreed to under the cell cycle program. We would receive milestone payments based on the development and registration of any resulting products and would receive royalties on worldwide sales. The research term under the agreement ended in August 2001. Warner-Lambert may develop products identified during the research term and, if Warner-Lambert receives FDA approval, we could receive milestone payments and royalties on these marketed products.

Bayer

        Effective February 1994, we established a research and development collaboration agreement with Bayer to discover, develop and market compounds that inhibit the function, or modulate the activity, of the ras signaling pathway or that appropriately modulate the activity of this pathway to treat cancer and other diseases. Bayer and we concluded collaborative research under this agreement in 1999. Based on this research, Bayer and we identified a development candidate, BAY 43-9006, a compound that inhibits ras signaling in cells by inhibiting Raf kinase. In our Raf kinase inhibitor program, we are conducting with Bayer Phase I clinical trials in Germany, the United States, Canada and Belgium and a Phase I trial in AML and MDS. Together with Bayer, we will initiate multiple Phase I and Phase II studies in various cancer indications studying BAY 43-9006 as a single agent and also in combination with chemotherapeutic agents.

        Bayer has paid all the costs of research and preclinical development of this drug candidate. Under our agreement with Bayer, we have the opportunity to co-fund 50% of clinical development costs worldwide, excluding Japan, and we are currently co-funding 50% of clinical development costs. Bayer will fund 100% of development costs in Japan and pay us a royalty on sales. If we continue to co-fund and we exercise our right to co-promote in the United States, we would share equally in profits or losses in this territory. If we continue to co-fund but do not co-promote in the United States, Bayer would first receive a portion of the product revenues to repay Bayer for its commercialization infrastructure, before determining our share of profits and losses. In other parts of the world except

9

Japan, Bayer would also receive this preferential distribution. Based on our continued co-funding of development costs, Bayer will pay us $5 million at the initiation of Phase II studies and $15 million at the initiation of Phase III studies. These amounts will be repayable to Bayer from any of our future profits and royalties. At any time during product development, either company may terminate its participation in development costs, in which case the other party would retain exclusive rights to the product on a royalty-bearing basis. If we do not continue to bear 50% of product development costs, Bayer would retain exclusive, worldwide rights to this product candidate and would pay royalties to us on net sales.

        In addition to the development candidate referred to above, Bayer's chemists have optimized an additional lead compound identified in the course of the collaborative research. This continuing work has resulted in the identification of an inhibitor of Rho kinase. Rho kinase is also believed to be involved in the ras signaling pathway leading to tumor growth. This small molecule compound has been selected by Bayer to enter clinical trials. We are reviewing with Bayer the history of the discovery of this compound. Bayer has asserted that we have no economic interest in this compound, but on the basis of our current information, we believe we would have the right to receive our economic return in the event this compound is successfully developed and commercialized. We are seeking to resolve the existing disagreement, but we cannot assure you as to the ultimate outcome.

Chiron Corporation

        Our business began in April 1992 by means of the transfer from Chiron to us of the drug discovery program being conducted at Chiron by Dr. Frank McCormick, our scientific founder, and his research team. Under an agreement between Chiron and us, Chiron has an option through April 2007 to receive an exclusive or co-exclusive royalty-bearing license to any diagnostic and vaccine product candidates we may develop. If Chiron does not exercise its option rights with respect to a particular product candidate, then prior to the completion of Phase II clinical trials, we may seek a third party licensor of that product, subject to a right of first refusal in favor of Chiron, and after the completion of Phase II clinical trials for product candidates, the related option rights of Chiron expire.

        This agreement also includes a mechanism for our making proposals to Chiron for future collaborations. In these proposals, we would disclose to Chiron the material information known to us regarding the program and propose a set of commercial terms. If a proposal is made, and we and Chiron do not reach agreement within 60 days after we make the proposal, then we may, within 120 days thereafter, enter into an agreement with a third party on terms no more favorable taken as a whole than the terms that we offered to Chiron. Chiron has advised us that it believes the foregoing provision, in the context of the other provisions of this agreement, requires us to offer gene therapy programs to Chiron pursuant to this mechanism before we license any such program to a third party. We do not agree that these provisions impose this obligation to make proposals to Chiron. However, the resulting uncertainty about the interpretation of this agreement may impede our ability to enter into agreements with other companies for gene therapy products in the absence of a waiver by Chiron.

        Chiron has never exercised any right to receive a product license from us. We executed the agreement with Warner-Lambert concerning ONYX-015 and armed viruses pursuant to a waiver letter from Chiron. We understand that in recent years Chiron has reduced its research activities in the field of gene therapy. However, it is possible that Chiron will, in the future, assert rights under this agreement, which may impede or delay our ability to enter into collaboration agreements with others.

Marketing and Sales

        We currently have no marketing, sales or distribution capabilities, but we intend to build these capabilities to promote our products in the United States and Canada. Consequently, we have retained co-promotion rights in these territories for most of our products. We also expect to exploit relationships

10

with one or more pharmaceutical companies with established marketing, sales and distribution capabilities and direct sales forces to market our products. We may be unable to establish in-house marketing, sales and distribution capabilities or relationships with third parties, and may not be successful in gaining market acceptance for our products.

Manufacturing

        At this time, we do not have internal manufacturing capabilities to supply small or large-scale clinical trials or commercial quantities of ONYX-015. To manufacture our products for clinical trials or on a commercial scale, if we are required to or choose to do so, we will have to build or gain access to a manufacturing facility, which will require a significant amount of funds. In our collaborations in small molecule drug discovery, Bayer and Warner-Lambert are obligated to manufacture all such drugs for clinical development and commercialization.

        We have used contract manufacturers for the production of ONYX-015 for use in our clinical trials. Molecular Medicine LLC has manufactured ONYX-015 for use in our Phase III clinical trial using a small-scale manufacturing process. Although Molecular Medicine has produced viral products for Phase I and Phase II clinical trials, prior to the commencement of our Phase III clinical trial of ONYX-015, Molecular Medicine had not produced Phase III clinical trial materials for us or any other parties.

        To date, we have had delays in the production and the release of batches of clinical material manufactured by Molecular Medicine. While we have successfully produced and released batches of materials to support the Phase III clinical trial, Molecular Medicine has had production problems resulting in failed batches. Our agreement with Molecular Medicine terminates in June 2002.

        In January 2001, we entered into a process development and manufacturing agreement for ONYX-015 with XOMA. The agreement would allow us to obtain clinical and commercial supplies of ONYX-015 from XOMA. The agreement calls for XOMA to develop a large-scale production process for ONYX-015, produce clinical supplies, prepare the manufacturing facility for FDA review and provide commercial supplies to us. Together with XOMA, we are improving the existing manufacturing process to produce ONYX-015 on a large-scale basis.

        Together with XOMA, we are developing a process to produce ONYX-015 batches in a bioreactor which is 10 times larger than that of Molecular Medicine. Once we have completed the 10-fold scale up, we will work with XOMA to develop commercial manufacturing in a bioreactor 50 times larger than that of Molecular Medicine. We are currently working with XOMA to modify the process and manufacture consistent batches of ONYX-015 at the 10-fold scale increase to demonstrate consistency in the larger-scale process for filing of the CMC amendment. We expect to complete the process development and manufacture consistent batches to pass compliance testing and to be released for clinical trials by the second half of 2002. We expect to move forward with the 50-fold scale up development and manufacturing in 2003. Although XOMA has produced a number of protein products on a large-scale basis, XOMA does not have experience in large-scale viral manufacturing. XOMA may terminate the contract with 48 months' notice for any reason.

        Bayer has the manufacturing responsibility to supply BAY 43-9006 for clinical trials and to support commercial requirements. To date, there has been sufficient drug supply to support all clinical trials in progress as well as future clinical trials. We believe that Bayer has the capability to meet all future drug supply needs and meet the FDA and other regulatory agency requirements for commercialization.

11

Patents and Proprietary Rights

        We believe that patent and trade secret protection is crucial to our business and that our future will depend in part on our ability to obtain patents, maintain trade secret protection and operate without infringing the proprietary rights of others, both in the United States and other countries. In October 1997, we were awarded United States Patent No. 5,677,178 for claims covering the use of ONYX-015 for the treatment of functionally p53-deficient cancers. In April 1999, we were awarded European Patent No. 689,447, for claims covering the use of ONYX-015 for the treatment of functionally p53-deficient cancers. We were also awarded United States Patent No. 5,801,029, a broad methods of use patent, for claims covering the use of adenoviral mutants that kill functionally RB-deficient tumor cells and the corresponding European Patent No. 931830. Each of these patents includes claims covering armed viruses with anticancer genes. Further, we have made additional filings worldwide that claim adenoviruses can be used to kill functionally deficient p53 or RB cancer cells, with or without a prodrug converting enzyme. We were also awarded United States Patent No. 5,846,945, for claims covering compositions of matter that consist of ONYX-015 and a chemotherapeutic. As of December 31, 2000, we owned or had licensed rights to 35 United States patents and 41 United States patent applications, and generally, foreign counterparts of these filings. We have licensed patents and patent applications covering formulations of viruses, prodrug converting enzymes and other technology useful in the conduct of our business.

        Generally, patent applications in the United States are maintained in secrecy until patents issue and since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we are not certain that we were the first to make the inventions covered by each of our pending patent applications or that we were the first to file patent applications for such inventions. The patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions. Therefore, we cannot predict the breadth of claims allowed in biotechnology and pharmaceutical patents, or their enforceability. To date there has been no consistent policy regarding the breadth of claims allowed in biotechnology patents. Third parties or competitors with similar technology may challenge or circumvent our patents or patent applications, if issued, and the rights granted thereunder may not provide proprietary protection or competitive advantages to us with respect to these competitors. Furthermore, others may independently develop similar technologies or duplicate technology that we have developed. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that before we commercialize any of our products, any related patent may expire, or remain in existence for only a short period following commercialization, thus reducing any advantage of the patent.

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

        With respect to ONYX-015 and selectively-replicating viruses, we are aware of a patent application filed in the United States, Europe, Japan and Canada by General Hospital Corporation, an affiliate of Massachusetts General Hospital. This patent application is related to research involving a modified

12

herpes simplex virus but it also includes broader claims that, if they were to issue, would cover ONYX-015 and other selectively-replicating viruses. We believe, and have received an opinion from outside counsel to the effect, that such broad claims made in the General Hospital patent application are not patentable. Consistent with this opinion is a review of the European patent status of the General Hospital patent application, which shows that the patent examiner is requiring that General Hospital limit the claims to herpes viruses. However, General Hospital may receive broad claims in one or more countries, and we may not successfully challenge these claims. We may not obtain a license if this patent were to issue.

        We identified United States Patent No. 5,837,520 that covers methods of purification of viral vectors. Canji, Inc. either owns or has licensed the rights to this patent. We may seek a license under this patent from Canji. However, if a license were not available at commercially reasonably terms, or at all, we believe that we could develop purification methods that are not covered by the patent.

        We identified four European Patent Applications, EPA 415, 731; EPA 657, 539; EPA 657, 540; and EPA 690, 129, that claim enzymes for converting prodrugs to their active forms for treating disease, including cancer, and methods of delivering the enzymes using viruses. Glaxo Wellcome either owns or has licensed the rights to these patent applications. The European Applications were filed in 1989, and as yet, have not been granted. We assume that one or more corresponding United States patent applications have been filed, but none have issued yet. The issuance of any of these patent applications in either Europe or the United States will not prevent us from developing and commercializing ONYX-015. However, these patent applications, should they issue, may restrict our ability to incorporate prodrug converting enzymes into viruses. Moreover, we may not be successful in challenging these claims, under any of these patents if they were to issue, and we may not obtain a license to the patent.

        Genetic Therapeutic Inc. owns or has licensed the rights of United States patent No. 5,998,205. This patent covers adenoviruses that replicate in specific tissue types in which replication is controlled by genetic elements whose expression is unique to those tissues. This patent does not cover ONYX-015, but may cover a subset of our RB-selective viruses whose replication is controlled by a genetic element expressed in nearly all tumor cells regardless of the tissue of origin. If this patent were asserted against us, we may not successfully challenge these claims and we may not obtain a license.

        Introgen Therapeutics, Inc. owns or has licensed the rights of United States Patent No. 6,194,191. This patent covers methods for producing/purifying adenoviruses. We may seek a license to this patent. However, if a license were not available at commercially reasonably terms, or at all, we believe that we could develop purification methods that are not covered by the patent.

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

Government Regulation

        Regulation by government authorities in the United States and other countries will be a significant factor in the manufacturing and marketing of any products that may be discovered or developed by us, or that may arise out of our research. We must obtain the requisite regulatory approval by government agencies prior to commercialization of our products. We anticipate that our products will be subject to

13

rigorous preclinical and clinical testing and premarket approval procedures by the FDA and similar health authorities in foreign countries. Various federal statutes and regulations also govern or influence the manufacturing, testing, labeling, storage, recordkeeping and marketing and promotion of such products.

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

•

preclinical studies;



•

the submission to the FDA of an IND that must become effective before human clinical trials may commence;



•

adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug or biologic;



•

the submission of a marketing application to the FDA; and



•

FDA approval of the marketing application, including inspection and approval of the product manufacturing facility.

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

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

        The goal of Phase I clinical trials is to establish initial data about safety and tolerance of the investigational product in humans. The goal of Phase II clinical trials is to provide evidence about the desired therapeutic efficacy of the investigational product in limited studies with small numbers of carefully selected subjects. The investigators seek to evaluate the effects of various dosages and to establish an optimal dosage level and dosage schedule. Investigators also gather additional safety data from these studies. The Phase III clinical trial consists of expanded, large-scale, multicenter studies in the target patient population. The goal of these studies is to obtain definitive statistical evidence of the efficacy and safety of the proposed product and dosage regimen.

        We would need to submit all data obtained from this comprehensive development program as a marketing application to the FDA, and to the corresponding agencies in other countries for review and approval, before marketing products. The FDA may elect to present data on our products to one of its advisory committees for review and recommendation before it grants approval. Essentially all of our proposed products will be subject to demanding and time-consuming approval procedures in the countries where we intend to commercialize our products. These regulations define not only the form

14

and content of the development of safety and efficacy data regarding the proposed product, but also impose specific requirements regarding:

•

manufacture of the product;



•

testing;



•

quality assurance;



•

packaging;



•

storage;



•

documentation;



•

recordkeeping;



•

labeling;



•

advertising; and



•

marketing procedures.

        Effective commercialization also requires inclusion of our products in national, state, provincial, or institutional formularies or cost reimbursement systems.

        The FDA must approve our products, including the manufacturing processes and facilities used to produce these products, before the products may be marketed in the United States. The process of obtaining FDA approval can be costly, time consuming and subject to unanticipated delays. The FDA may refuse to approve an application if it believes that applicable regulatory criteria are not satisfied. The FDA may also require additional testing for safety and efficacy of the drug. Moreover, if regulatory approval of a drug product is granted, the approval will be limited to specific indications. Approvals of our proposed products, processes or facilities may not be granted on a timely basis, if at all. Any failure to obtain, or delay in obtaining, such approvals would seriously harm our business, financial condition and results of operations. Moreover, even if regulatory approval is granted, such approval may include significant limitations on indicated uses for which a product could be marketed. In some instances, regulatory approval may be granted with the condition that confirmatory Phase IV clinical trials are carried out. If these Phase IV clinical trials do not confirm the results of previous studies, regulatory approval for marketing may be withdrawn. Failure to comply with FDA and other applicable regulatory requirements may result in, among other things:

•

warning letters;



•

civil penalties;



•

criminal prosecution;



•

injunctions;



•

seizure or recall of products;



•

total or partial suspension of production;



•

refusal of the government to grant approval; or



•

withdrawal of approval of our products.

        In addition to regulations enforced by the FDA, we are subject to regulation under:

•

the Occupational Safety and Health Act;



•

the National Environmental Policy Act;

15

•

the Toxic Substances Control Act;



•

the Resource Conservation and Recovery Act; and



•

other present and potential future federal, state or local regulations.

        Our potential products may require review by the Recombinant DNA Advisory Committee. In other countries, similar regulations may apply. Our research and development involves the controlled use of hazardous materials and chemicals. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources.

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

Competition

        We are engaged in a rapidly changing and highly competitive field. Other products and therapies that currently exist or are being developed will compete with the products we are seeking to develop and market. Some of these competitive products are in clinical trials. Direct competitors to our BAY 43-9006 program include Pfizer, Astra Zeneca PLC, OSI Pharmaceuticals, Inc., Genentech, Inc. and Protein Design Labs, Inc., or PDLI. Pfizer is conducting Phase I clinical trials with a small molecule targeting the MEK kinase, an enzyme that is also involved in the ras signaling pathway. In addition, potential competition may come from agents that target cancer cells with positive Epidermal Growth Factor, or EGF, receptors and Vascular Endothelial Growth Factor, or VEGF, receptors. These agents include antibodies and small molecules. In particular, OSI Pharmaceuticals and Astra Zeneca are developing small molecule inhibitors of tyrosine kinase. These products, IRESSA™ and Tarceva™ are currently in Phase III clinical trials. Companies working on developing antibody approaches include ImClone Systems, Incorporated with a C225 antibody targeting EGF receptors and Genentech and PDLI with antibodies targeting VEGF receptors. In addition, many other pharmaceutical companies are developing novel cancer therapies that, if successful, would provide competition for BAY 43-9006.

        The agents directly competitive to our therapeutic viruses include Introgen Therapeutics' p53 gene therapy product that is currently in Phase III clinical trials for treatment of head and neck cancer. Targeted Genetics Corporation's tumor inhibiting gene therapy in combination with radiation therapy for the treatment of head and neck cancer is currently in Phase II clinical trials. Vical Incorporated is in Phase II clinical trials with Allovectin-7®, a gene therapy product, for treatment of early stage cancer of the oral cavity. In addition, there are other therapeutic approaches in development to treat head and neck cancer and liver metastases of colorectal cancer. These approaches include monoclonal antibodies and small molecules targeting cancer cells with positive EGF receptors. ImClone Systems is conducting Phase II/III clinical trials of a monoclonal antibody targeting EGF receptors in patients with head and neck cancer and liver metastases of colorectal cancer. OSI Pharmaceuticals is conducting Phase II/III clinical trials of a small molecule targeting tyrosine kinase for treatment of head and neck cancer. Other small molecule approaches in Phase II clinical trials for treatment of head and neck cancer

16

include Tularik Inc.'s Lometrexol, an anti-folate, and Eli Lilly and Company's Gemcitabine. If approved, the products of these and other competitors now in clinical trials will compete directly with ONYX-015.

        We compete with our competitors based on a variety of factors, including:

•

product efficacy and safety;



•

the timing and scope of regulatory approvals;



•

availability of supply;



•

marketing and sales capability;



•

reimbursement coverage;



•

price; and



•

patent position.

Employees

        As of December 31, 2001, we had 85 full-time employees of whom 19 hold Ph.D. or M.D. degrees. Of our employees, 59 are in research and development and 26 are in corporate development, finance and administration. No employee of ours is represented by a labor union and we consider our employee relations to be good. In late 2001, we reduced the size of our workforce, primarily impacting the research and administrative functions, by approximately 30 percent in addition to implementing various cost-saving measures in all areas of the company.

Properties

        We occupy a total of approximately 50,000 square feet of office and laboratory space in our primary facility in Richmond, California. The lease expires in April 2005 with an option to extend the lease for an additional five years. We entered into a sublease with Syrrx, Inc. to use 1,450 square feet of this facility and certain common areas for a six-month term commencing in November 2001. The sublease fee is $6,850 per month. Syrrx has one option to extend the term for up to an additional three months.

        We also lease an additional 12,000 square feet of space in a secondary facility in Richmond, California. The lease for approximately 9,000 square feet in this facility expires in September 2010 with renewal options at the end of the lease for two subsequent five-year terms. The lease for 3,000 square feet in this facility expires in October 2003 with renewal options at the end of the lease term for three years and four years. We determined that we no longer require this space as a result of the reduction in force that was announced in October 2001, and we are currently attempting to sublease all of the 12,000 square feet in this facility.

Legal Proceedings

        We are not a party to any material legal proceedings.

17

ADDITIONAL BUSINESS RISKS

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

If we are not able to demonstrate the effectiveness of ONYX-015 in our clinical trials or if our clinical trials are delayed, we may be unable to commercialize ONYX-015.

        In June 2000, we initiated a 360-patient, multi-center Phase III clinical trial of ONYX-015 administered by direct injection into tumors, or intratumoral injection, in patients with head and neck cancer that has progressed following initial treatment with surgery and/or radiation, or recurrent disease. Enrollment to this trial has proceeded very slowly. In the first quarter of 2002, we decided to modify our development plan for ONYX-015 in head and neck cancer prior to advancing ONYX-015 in the FDA registration process and, therefore, we are not accelerating the Phase III clinical trial until these development modifications are complete. In addition, we are planning to initiate a Phase II/III clinical trial in head and neck cancer patients with refractory disease. Historically, many companies have failed to demonstrate the effectiveness of pharmaceutical products in Phase III clinical trials notwithstanding favorable results in Phase II clinical trials. We may fail to demonstrate desired effectiveness levels in our Phase III clinical trial of ONYX-015. In addition, we may observe previously unforeseen side effects. We may fail to extend the findings of previous clinical trials in our Phase III clinical trial of ONYX-015, including similar tumor response rates, duration of tumor response or safety.

        The process of obtaining FDA and other required regulatory approvals, including foreign approvals, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. We have had only limited experience in filing and pursuing applications necessary to gain regulatory approvals. We are currently under discussions with the FDA on the design of our clinical trials to determine whether they meet the needs of the FDA for registration. The FDA may not accept our Phase III clinical trial and our planned Phase II/III clinical trial in refractory head and neck cancer as registration trials. In addition, the FDA may not accept the results of our clinical trials or accept as sufficient for market approval other elements of the application that we may file for ONYX-015. The FDA may require changes in our current trials or may require additional clinical trials, which may be extensive, expensive and time-consuming. We cannot market ONYX-015 unless we receive regulatory approval.

        In addition, in our clinical trials we treat patients who have failed conventional treatments and who are in advanced stages of cancer. During the course of treatment, these patients may die or suffer adverse medical effects for reasons that may be unrelated to ONYX-015. These adverse effects may impact the interpretation of clinical trial results.

We may fail to demonstrate that ONYX-015 is effective for the treatment of other types of cancer even if ONYX-015 is proven effective for the treatment of head and neck cancer.

        We are initially developing ONYX-015 for treatment of head and neck cancer using intratumoral injection. Even if we are successful in developing ONYX-015 for this type of cancer, we may not demonstrate that ONYX-015 is effective in the treatment of a broader array of cancer types. We conducted a Phase I/II clinical trial for treatment of liver metastases of colorectal cancer with ONYX-015 administered through intrahepatic artery infusion. In addition, we are in the process of completing Phase I/II clinical trials of ONYX-015 for treatment of oral dysplasia. The Phase I/II clinical trial in liver metastases of colorectal cancer is based on a small number of patients, and we may not reproduce the results from these clinical trials in future clinical trials with additional patients. If we are not successful in establishing the effectiveness of ONYX-015 in a broad range of cancer types that are treated via direct injections to the tumors and other local and regional routes of administration or

18

demonstrate effectiveness in metastatic cancers treated via intravenous administration, ONYX-015 may not have a broad commercial use.

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

        We lack the resources, experience and capabilities to manufacture our products on our own. We would require substantial funds to establish these capabilities. Consequently, we are dependent on third parties, including collaborative parties and contract manufacturers, to manufacture our products and product candidates. These parties may encounter difficulties in production scale-up, including problems involving production yields, quality control and quality assurance and shortage of qualified personnel. These third parties may not perform as agreed or may not continue to manufacture our products for the time required by us to successfully market our products. These third parties may fail to deliver the required quantities of our products or product candidates on a timely basis and at commercially reasonable prices. Failure by these third parties could delay our clinical trials and our applications for regulatory approval. If these third parties do not adequately perform, we may be forced to incur additional expenses to pay for the manufacture of our products or to develop our own manufacturing capabilities.

We currently rely on a limited number of sources for the manufacturing of ONYX-015, and if these sources are unable or unwilling to deliver the required quantities, we may not be able to find replacement manufacturers, which could result in a delay in clinical trials or in regulatory approval.

        We currently rely on two sources for the manufacturing of ONYX-015, Molecular Medicine and XOMA. We are aware of only a limited number of manufacturers who we believe would have the ability and capacity to manufacture this product or any other therapeutic viruses we may develop. Currently, we have clinical supplies produced and released for clinical trials from Molecular Medicine. Molecular Medicine has experienced production problems resulting in failed batches. In addition, we have held up final release of some of the batches from Molecular Medicine until the manufacturer completed documentation that complies with our manufacturing standards. Our agreement with Molecular Medicine will expire in June 2002.

        In our manufacturing collaboration with XOMA, we made modifications to the process to increase the scale of the manufacturing process and to minimize batch failures. We do not expect XOMA to begin supplying us with ONYX-015 for use in clinical trials before mid-2002. This could delay our clinical trials and our applications for regulatory approval with the FDA. If XOMA fails to supply us with sufficient materials, we may be forced to incur additional expenses to pay for the manufacture of materials using a replacement contract manufacturer, if we can find a replacement manufacturer, or to develop our own manufacturing capabilities, which may not occur within a reasonable amount of time or at commercially reasonable rates.

No one has manufactured replicating human viruses at a large commercial scale; if we are unable to develop an effective process to manufacture ONYX-015 on a large scale, our clinical trials and regulatory approval would be delayed.

        No one has produced replicating human viruses using a commercial-scale manufacturing process. To date, Molecular Medicine and we have experienced production problems using a small-scale process to supply our clinical trials. We are making changes to the process and operations using a larger scale process at XOMA. However, we may need to make additional process changes and operational changes to make the manufacturing process more reliable and to make the process easier for us to develop into a larger commercial-scale manufacturing process. If we are unable to improve the large-scale manufacturing process, we may not increase the number of clinical trials for ONYX-015 and the number of sites enrolling patients. If we are unable to expand the number of clinical trials, clinical sites

19

enrolling patients and patients receiving ONYX-015, the results from our clinical trials will be delayed, and we will not receive regulatory approval without the results from these trials.

XOMA may not be able to produce commercial quantities of ONYX-015, which could delay regulatory approval.

        To obtain regulatory approval for ONYX-015, we will need to treat a large percentage of the patients in our clinical trials for registration using ONYX-015 produced from the manufacturing process and in the same manufacturing facility that we intend to use following FDA approval. In conjunction with XOMA, we will need to modify the manufacturing process to produce large quantities of ONYX-015 and to lower the cost by improving the efficiency of the process. To modify the manufacturing process and to meet our quality standards for ONYX-015, in conjunction with XOMA, we will need to spend a significant amount of time and capital and complete a substantial amount of experimentation. In conjunction with XOMA, we will need to expand and modify existing manufacturing facilities to produce commercial quantities of ONYX-015. XOMA does not have experience in large-scale viral manufacturing.

        In addition, XOMA may terminate our process development and manufacturing agreement with us for any reason by providing notice 48 months in advance. Further, if Warner-Lambert asserts its right as the sole manufacturer of ONYX-015 for commercial supply after having exercised the option to develop and commercialize ONYX-015 in intravenous indications, we will have to rely on Warner-Lambert for commercial supply of ONYX-015 rather than XOMA and the timing for the availability of the commercial supply will depend on when Warner-Lambert decides to invest in a commercial manufacturing facility.

        We will need to demonstrate to the FDA that the product from the process manufactured at XOMA is comparable to ONYX-015 produced from the process at Molecular Medicine. Filing of our applications for regulatory approval may be delayed if we:

•

encounter difficulties in modifying the manufacturing process;



•

fail to treat patients in our clinical trials required for registration with product from the new manufacturing process; or



•

fail to meet the FDA requirements for the CMC submission for the Biologics License Application, or BLA.

We are dependent upon collaborative relationships to develop, manufacture and commercialize our products and to obtain regulatory approval, which could delay the development and commercialization of our products.

        Our strategy for developing, manufacturing and commercializing our products and obtaining regulatory approval depends in large part upon maintaining and entering into collaboration agreements with pharmaceutical companies or other collaborators. We have entered into a number of collaboration agreements with different parties, including research, development and marketing agreements with Warner-Lambert and Bayer. If we fail to maintain these collaborative relationships or to establish new collaborative relationships, we would need to undertake these research, development, manufacturing and marketing activities at our own expense, which would significantly increase our capital requirements and limit the programs we are able to pursue. Further, we would incur significant delays with the development, manufacture or sale of our products.

        In August 2001, Onyx and Warner-Lambert amended the collaboration agreement for the development and commercialization of ONYX-015. We regained full rights to develop and commercialize ONYX-015 in head and neck cancer and other cancers that are treated via direct injections to the tumors and other local and regional routes of administration. We will fund all costs associated with these efforts and will retain all profit derived from worldwide sales of ONYX-015 in

20

these indications, subject to the potential re-establishment of the original collaboration agreement. Warner-Lambert will retain development rights for ONYX-015 for cancers where the drug is administered intravenously.

        We are subject to a number of risks associated with our dependence upon collaborative relationships, including:

•

the amount and timing of expenditure of resources can vary because of collaborator decisions;



•

business combinations and changes in a collaborator's business strategy may adversely affect the party's willingness or ability to complete its obligations under the collaboration agreement with us;



•

the right of the collaborator to terminate its collaboration agreement with us on limited notice and for reasons outside our control;



•

loss of significant rights to our collaborative parties if we fail to meet our obligations under these agreements;



•

disagreements as to ownership of clinical trial results or regulatory approvals, and the refusal of the FDA to recognize us as holding the regulatory approvals necessary to commercialize our products;



•

withdrawal of support by a collaborator following the development or acquisition by the collaborator of competing products; and



•

disagreements with a collaborator regarding the collaboration agreement or ownership of proprietary rights.

        Due to these factors and other possible disagreements with collaborators, we could suffer delays in the research, development or commercialization of our products or we may become involved in litigation or arbitration, which would be time consuming and expensive.

Chiron may have preferential rights to establish collaborations with us, which may complicate our future collaborative arrangements.

        We were established in April 1992 by means of a transfer from Chiron to us of the drug discovery program conducted at Chiron by Dr. Frank McCormick, our scientific founder, and his research team. Under the agreement executed at that time, we granted Chiron preferential rights to receive product licenses in the fields of diagnostics and vaccines, and also established a mechanism for our making proposals to Chiron for future collaborations. Chiron has advised us that it believes this mechanism requires us to offer gene therapy programs to Chiron before licensing any of these programs to a third party. We and Chiron have different interpretations of this agreement as it relates to the scope of Chiron's rights. We executed our agreement with Warner-Lambert for the development of ONYX-015 and two other virus products pursuant to a waiver letter from Chiron. If Chiron does not grant us further waivers and asserts rights under the April 1992 agreement, or if disputes arise, we may encounter difficulties or delays in entering into future collaborations for other product candidates.

We do not fully understand the biological characteristics of our therapeutic viruses, and their interactions with other drugs and the human immune and other defense systems, which may cause us to fail to demonstrate the safety and effectiveness of our products in clinical trials.

        Therapeutic viruses are novel and we are still determining the biological characteristics of these viruses. For example, in our clinical trials to date, we have achieved the best results when ONYX-015 is used in combination with standard chemotherapy drugs, but we are uncertain as to the reasons for and the nature of the interaction of the virus with these drugs. In addition, we are still investigating the response of the human immune system to our therapeutic viruses, and the immune system may play a

21

role in limiting the tumor-killing effect of our therapeutic viruses. We also do not know the extent the human body may clear our therapeutic viruses from circulation in the bloodstream and limit the tumor-killing activity of our therapeutic viruses. Further, we are uncertain as to whether the killing activity of ONYX-015 is specific to cells having the abnormal function involving the p53 gene. Moreover, we do not understand all of the many factors that contribute to the formation of each individual patient's cancer. These factors include not only the cancer type, but also the pressures within the tumor and the presence of normal cells and fibrous tissue within the tumor. These factors make each tumor unique. Because of the variety of factors, some cancer patients respond to a particular type of cancer therapy while others do not, even among patients with the same cancer type. The novelty and scientific uncertainties regarding our therapeutic viruses and the uniqueness of human cancers from patient-to-patient increase the risk that we will not successfully develop our product candidates or prove their safety and effectiveness in clinical trials. Even if we succeed in developing our product candidates, our product candidates may not have a therapeutic effect in a broad patient population.

Even if our products are approved, the market may not accept our products.

        Even if our product development efforts are successful and even if the requisite regulatory approvals are obtained, our products may not gain market acceptance among physicians, patients, healthcare payers and the medical community. A number of additional factors may limit the market acceptance of products including the following:

•

rate of adoption by healthcare practitioners;



•

types of cancer for which the product is approved;



•

rate of our products' acceptance by the target population;



•

timing of market entry relative to competitive products;



•

availability of alternative therapies;



•

price of our product relative to alternative therapies;



•

availability of third-party reimbursement;



•

extent of marketing efforts by us and third-party distributors or agents retained by us; and



•

side effects or unfavorable publicity concerning our products or similar products.

        If any of our products do not achieve market acceptance, we may lose our investment in that product which may cause our stock price to decline.

We do not have marketing or sales experience or capabilities and are dependent on the efforts of others, which could limit our ability to commercialize our products.

        We intend to enter into agreements with third parties to market and sell most of our products if we receive regulatory approval for a product. We may not be able to enter into marketing and sales agreements with others on acceptable terms, if at all. To the extent that we enter into marketing and sales agreements with other companies, our revenues, if any, will depend on the efforts of others. We also have the right under our collaboration agreements to co-promote our products in conjunction with our collaborators. If we are unable to enter into third-party agreements or if we are exercising our rights to co-promote a product, then we will be required to develop marketing and sales capabilities. We may not successfully establish marketing and sales capabilities or have sufficient resources to do so. If we do not develop marketing and sales capabilities, we may not meet our co-promotion obligations under our collaboration agreements, which could result in our losing these co-promotion rights. If we do develop such capabilities, we will compete with other companies that have experienced and well-funded marketing and sales operations and we will incur additional expenses.

22

Adverse events in the field of viral gene therapy may negatively affect regulatory approval or public perception of our products, which could delay our clinical trials.

        We depend in part on public acceptance of the use of viruses as therapeutics or as delivery vehicles for gene therapy for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that these therapies are unsafe, and these therapies may not gain acceptance by the public or the media. As a result of negative public reaction to these therapies, the FDA and the Recombinant DNA Advisory Committee, which acts as an advisory body to the National Institutes of Health, may impose greater regulation, stricter clinical trial oversight and stricter commercial product labeling requirements. Any adverse events in the field of gene therapy that may occur in the future may result in greater governmental regulation of our product candidates and potential regulatory delays relating to the testing or approval of our product candidates.

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

        As of December 31, 2001, we had an accumulated deficit of approximately $113 million. We have incurred these losses principally from costs incurred in our research and development programs and from our general and administrative costs. We derived no significant revenues from product sales or royalties. We expect to incur significant and increasing operating losses over the next several years as we expand our research and development efforts, preclinical testing and clinical trial and manufacturing activities, including the 2001 manufacturing contract with XOMA. We expect our operating losses to increase even more dramatically with the amendment of the collaboration agreement with Warner-Lambert for the development of ONYX-015. We expect that the amount of operating losses will fluctuate significantly from quarter to quarter as a result of increases or decreases in our research and development efforts, the establishment or termination of collaborations, the timing and amount of collaboration payments under the terms of our collaboration agreements, or the initiation, success or failure of clinical trials.

        We do not expect to generate revenues from the sale of products for the foreseeable future. We expect that substantially all of our revenues for the foreseeable future will result from payments under our collaboration agreements. Our ability to achieve profitability depends upon our success in completing development of our potential products, obtaining required regulatory approvals and manufacturing and marketing our products.

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

        We will require substantial additional funds to conduct the costly and time-consuming research, preclinical testing and clinical trials necessary to develop our technology and proposed products, and to establish or maintain relationships with collaborative parties. Our future capital requirements will depend upon a number of factors, including:

•

continued scientific progress in the research and development of our technology programs;



•

the size and complexity of these programs;



•

our ability to establish and maintain collaboration agreements;



•

our ability to manufacture sufficient drug supply to complete clinical trials;



•

progress with preclinical testing and clinical trials;



•

the time and costs involved in obtaining regulatory approvals;



•

the cost involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;



•

competing technological and market developments; and

23

•

product commercialization activities.

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

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

        The loss of the services of one or more of our key employees could have an adverse impact on our business. We do not maintain key person life insurance on any of our officers, employees or consultants, other than for our chief executive officer. We depend on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We face competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities, and other research institutions. Because of the scientific nature of our business, we are highly dependent on principal members of our scientific and management staff. To pursue our product development plans, we will need to hire additional management personnel and additional qualified scientific personnel to perform research and development, as well as personnel with expertise in clinical testing, government regulation and manufacturing. We may not be successful in hiring or retaining qualified personnel.

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

        We are engaged in a rapidly changing and highly competitive field. We are seeking to develop and market products that will compete with other products and therapies that currently exist or are being developed. Many other companies are actively seeking to develop products that have disease targets similar to those we are pursuing. Some of these competitive products are in clinical trials. If approved, the products of these and other competitors now in clinical trials will compete directly with BAY 43-9006 and ONYX-015. Other companies are developing drugs targeting cancer cells that may compete with our other product candidates.

        Many of our competitors, either alone or together with collaborators, have substantially greater financial resources and larger research and development staffs than we do. In addition, many of these competitors, either alone or together with their collaborators, have significantly greater experience than we do in:

•

developing products;



•

undertaking preclinical testing and human clinical trials;



•

obtaining FDA and other regulatory approvals of products; and



•

manufacturing and marketing products.

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

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

24

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

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

We are subject to extensive government regulation, which can be costly, time consuming and subject us to unanticipated delays; even if we obtain regulatory approval for some of our products, those products may still face regulatory difficulties.

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

        We expect to rely on collaborative parties to file investigational new drug applications and generally direct the regulatory approval process for many of our product candidates. These collaborative parties may not obtain necessary approvals from the FDA or other regulatory authorities for any product candidates. If we fail to obtain required governmental approvals, we or our collaborative parties will experience delays in or be precluded from marketing products developed through our research. In addition, the commercial use of our products will be limited. If we have disagreements as to ownership of clinical trial results or regulatory approvals, and the FDA refuses to recognize us as holding, or having access to, the regulatory approvals necessary to commercialize our products, we may experience delays in or be precluded from marketing products developed through our research.

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

•

adversely affect the successful commercialization of any products that we or our collaborators develop;



•

impose costly procedures on us or our collaborators;



•

diminish any competitive advantages that we or our collaborators may attain; and



•

adversely affect our receipt of revenues or royalties.

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

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

        Although for planning purposes we project the commencement, continuation and completion of clinical trials, the actual timing of these events may be subject to significant delays relating to various causes, including scheduling conflicts with participating clinicians and clinical institutions, difficulties in identifying and enrolling patients who meet trial eligibility criteria, and shortages of available drug

25

supply. We may not commence clinical trials involving any of our products or complete them as projected.

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

        In addition, we may suffer a delay in the completion of any one of our clinical trials because of requests from the FDA to revise the size or scope of the clinical trial. In particular, the FDA may require us to expand the number of patients in our Phase III clinical trial. Failure to commence or complete, or delays in, any of our planned clinical trials would adversely affect our stock price and prevent us from commercializing our products.

        Based on our discussions with the FDA and the status of the development of the large-scale manufacturing process, we decided in the first quarter of 2002 to modify our ONYX-015 development plan. We believe we must meet the following milestones for the ONYX-015 program in head and neck cancer to advance towards FDA approval:

•

Successfully manufacture additional batches of ONYX-015 at XOMA;



•

Gain concurrence from the FDA of the CMC amendment for materials produced from XOMA; and



•

Obtain full alignment with the FDA requirements for the ONYX-015 registration path in head and neck cancer.

        As a result of our decision, we expect delay in the time to market for ONYX-015. The extent of the delay will be dependent on our ongoing discussions with the FDA to gain concurrence on the CMC amendment and the time it will take to ensure all clinical trial design and protocols fully satisfy FDA requirements for registration.

If testing of a particular product does not yield successful results, then we will be unable to commercialize that product.

        If preclinical or clinical testing of one or more of our products does not yield successful results, the product will fail. To achieve the results we need, we must demonstrate our products' safety and effectiveness in humans through extensive preclinical and clinical testing. Numerous unforeseen events may arise during, or as a result of, the testing process, including the following:

•

safety and effectiveness results attained in early human clinical trials may not be indicative of results that are obtained in later clinical trials;



•

the results of preclinical studies may be inconclusive, or they may not be indicative of results that will be obtained in human clinical trials;



•

after reviewing test results, we or our collaborators may abandon projects that we previously believed to be promising;



•

we, our collaborators or regulators may suspend or terminate clinical trials if the participating subjects or patients are being exposed to unacceptable health risks; and



•

potential products may not have the desired effect or may have undesirable side effects or other characteristics that preclude regulatory approval or limit their commercial use if approved.

        Clinical testing is very expensive and can take many years. The failure to adequately demonstrate the safety and effectiveness of a product would delay or prevent regulatory approval of the product.

26

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

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

•

obtain patents;



•

license technology rights from others;



•

protect trade secrets;



•

operate without infringing upon the proprietary rights of others; and



•

prevent others from infringing on our proprietary rights.

        Our existing patent rights may not have a deterrent effect on competitors who are conducting or desire to commence competitive research programs with respect to the biological targets or fields of inquiry that we are pursuing. Our ultimate patent position will depend on our ability to obtain effective patent coverage for the compositions of matter identified in these research programs. Because these programs are at an early stage, we cannot determine whether potential products that we may derive from our drug discovery program may be subject to the patent rights of third parties.

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

        We may not have been the first to make the inventions covered by each of our issued or pending patent applications, or we may not have been the first to file patent applications for such inventions. Competitors may have independently developed technologies similar to ours. We may need to license the right to use third-party patents and intellectual property to develop and market our products. We may not acquire such required licenses on acceptable terms, if at all. If we do not obtain such licenses, we may need to design around other parties' patents, or we may not be able to proceed with the development, manufacture or sale of our products. We may face litigation to defend against claims of infringement, assert claims of infringement, enforce our patents, protect our trade secrets or know-how, or determine the scope and validity of others' proprietary rights.

        In addition, we may require interference proceedings declared by the United States Patent and Trademark Office to determine the priority of inventions relating to our patent applications. These activities, and especially patent litigation, are costly.

        Specifically, we are aware of patent applications filed in the United States and abroad that, if they were to issue, would cover ONYX-015 and other viruses that selectively replicate. We are aware of patents that might cover our RB-selective viruses and may cover our method for producing and purifying viruses. We are also aware of patent applications that claim enzymes for converting drugs to their active forms for treating disease, including cancers, and claim methods of delivering the enzymes using a virus. We may be unable to commercialize our products affected by these patents, if any of these patents are issued and we are unable to:

•

successfully challenge any claims asserting that our product candidates or products infringe the patent;

27

•

design around the patent; or



•

negotiate a reasonable license under the patent.

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

        The use of any of our product candidates in clinical trials, and the sale of any approved products, exposes us to liability claims resulting from the use or sale of our products. We have obtained limited product liability insurance coverage for our clinical trials. We intend to expand our insurance coverage to include the sale of commercial products if marketing approval is obtained for product candidates in development. However, insurance coverage is becoming increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost. We may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise. Regardless of merit or eventual outcome, product liability claims may result in:

•

decreased demand for a product;



•

injury to our reputation;



•

withdrawal of clinical trial volunteers; and



•

loss of revenues.

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

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

        Our research and process development activities involve the controlled use of hazardous materials. We cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may exceed our financial resources and may seriously harm our business. In addition, if we develop a manufacturing capacity, we may incur substantial costs to comply with environmental regulations and would be subject to the risk of accidental contamination or injury from the use of hazardous materials in our manufacturing process.

Our stock price is highly volatile.

        The market price of our common stock has been highly volatile and is likely to continue to be volatile. Factors affecting our stock price include:

•

results of clinical trials from BAY 43-9006 and ONYX-015;



•

ability to accrue patients into clinical trials;



•

ability to manufacture sufficient supply of ONYX-015;



•

success or failure in obtaining regulatory approval by us or our competitors;



•

public concern as to the safety and efficacy of our products;



•

developments concerning the business of collaborative parties or their transactions with third parties;



•

developments in our relationship with collaborative parties;



•

developments in patent or other proprietary rights;



•

additions or departures of key personnel;

28

•

announcements by us or our competitors of technological innovations or new commercial therapeutic products;



•

published reports by securities analysts;



•

fluctuations in stock market price and volume, which are particularly common among securities of biotechnology companies;



•

fluctuations in our operating results;



•

statements of governmental officials; and



•

changes in healthcare reimbursement policies.

Existing stockholders have significant influence over us.

        Our executive officers, directors and 5% stockholders own, in the aggregate, approximately 17% of our outstanding common stock. As a result, these stockholders will be able to exercise substantial influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could have the effect of delaying or preventing a change in control of our company and will make some transactions difficult or impossible to accomplish without the support of these stockholders.

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

Substantial sales of common stock by our existing stockholders could cause our stock price to fall.

        The market price of our common stock could decline as a result of sales by our existing stockholders of shares of common stock in the market or the perception that these sales could occur. These sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

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

        In the past, stockholders have often brought securities class action litigation against a company following a decline in the market price of its securities. This risk is especially acute for us, because biotechnology companies have experienced greater than average stock price volatility in recent years and, as a result, have been subject to, on average, a greater number of securities class action claims than companies in other industries. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources, and could seriously harm our business, financial condition and results of operations.

Provisions in Delaware law and our charter may prevent or delay a change of control.

        We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent Delaware corporations from engaging in a merger or sale of more than 10% of its assets with any stockholder, including all affiliates and associates of the stockholder, who owns 15% or more of the corporation's outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation's stock unless:

•

the board of directors approved the transaction where the stockholder acquired 15% or more of the corporation's stock;

29

•

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.

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

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

•

our board is classified into three classes of directors as nearly equal in size as possible with staggered three year-terms;



•

the authority of our board to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges of these shares, without stockholder approval;



•

all stockholder actions must be effected at a duly called meeting of stockholders and not by written consent;



•

special meetings of the stockholders may be called only by the chairman of the board, the chief executive officer or the board; and



•

no cumulative voting.

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

30

PART II.

Item 5. Market For Registrant's Common Stock and Related Stockholder Matters

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

	Common Stock
	2001				2000
	High		Low		High		Low
First Quarter	$	13.625	$	6.750	$	32.938	$	9.625
Second Quarter		11.970		5.375		15.500		7.000
Third Quarter		11.510		3.510		32.734		10.000
Fourth Quarter		5.990		3.500		24.688		11.625

        On March 25, 2002, the last reported sales price of our common stock on the Nasdaq National Market was $4.64 per share.

Holders

        There were approximately 378 stockholders of our common stock as of March 25, 2002.

Dividends

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

31

Item 6. Selected Financial Data

Onyx Pharmaceuticals, Inc.

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

        The Statement of Operations Data for the years ended December 31, 1999, 2000 and 2001 and the Balance Sheet Data as of December 31, 2000 and 2001 have been derived from our audited financial statements included elsewhere in this report. The Statement of Operations Data for the years ended December 31, 1997 and 1998 and the Balance Sheet Data as of December 31, 1997, 1998 and 1999 have been derived from our audited financial statements that are not included in this report. Historical results are not necessarily indicative of future results. See the Notes to Financial Statements for an explanation of the method used to determine the number of shares used in computing basic and diluted net loss per share.

		Year Ended December 31,
		2001			2000			1999			1998			1997
		(In thousands, except per share data)
Statement of Operations Data:
Total revenue		$	15,846		$	24,180		$	13,324		$	11,314		$	7,799
Operating expenses:
	Research and development		39,927			26,879			23,627			25,383			20,715
	General and administrative		6,652			7,508			5,341			5,275			5,089
	Restructuring and other		812			—			—			—			—
Loss from operations			(31,545	)		(10,207	)		(15,644	)		(19,344	)		(18,005	)
Other income and expense, net			3,973			2,728			842			1,685			1,980
Net loss		$	(27,572	)	$	(7,479	)	$	(14,802	)	$	(17,659	)	$	(16,025	)
Basic and diluted net loss per share		$	(1.50	)	$	(0.50	)	$	(1.29	)	$	(1.56	)	$	(1.65	)
Shares used in computing basic and diluted net loss per share			18,385			14,896			11,503			11,289			9,707

	December 31,
	2001			2000			1999			1998			1997
	(In thousands)
Balance Sheet Data:
Cash, cash equivalents and marketable securities.	$	58,466		$	81,994		$	14,463		$	32,160		$	35,472
Total assets		65,782			88,597			21,628			37,207			41,858
Working capital		48,669			74,209			6,773			19,591			27,885
Long-term debt, noncurrent portion		—			—			183			2,382			4,336
Accumulated deficit		(113,124	)		(85,552	)		(78,073	)		(63,271	)		(45,612	)
Total stockholders' equity		55,085			76,896			7,662			21,619			28,821

32

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Overview

        We are engaged in the discovery and development of novel cancer therapies. Based on our proprietary technologies that target the molecular basis of cancer, we are developing our lead products, ONYX-015 and BAY 43-9006. ONYX-015 is currently in a Phase III clinical trial for treatment of recurrent head and neck cancer. In the first quarter of 2002, we decided to modify our development plan for ONYX-015 in head and neck cancer prior to advancing ONYX-015 in the FDA registration process. Therefore, we are not accelerating the Phase III clinical trial until these development modifications are complete. In collaboration with Bayer, we are in the process of completing four Phase I clinical trials. In addition, we are conducting a Phase I clinical trial in Canada in patients with acute myelogenous leukemia, or AML, and myelodysplastic syndrome, or MDS. We also initiated the first Phase I clinical trial of BAY 43-9006 in combination with chemotherapy agents. We plan to initiate additional Phase I and multiple Phase II clinical trials of BAY 43-9006 in patients with various tumor types in 2002. Further, on our own and as a result of our virus and small molecule collaborations, additional research and development is being conducted on potential future product candidates.

        In August 2001, we amended our collaboration agreement with Warner-Lambert for the development and commercialization of ONYX-015. We regained full rights to develop and commercialize ONYX-015 for head and neck cancer and other cancers where local or regional administration of ONYX-015 would be feasible. We will fund all costs associated with these efforts and will retain all profit derived from worldwide sales of ONYX-015 in these indications, subject to the potential re-establishment of the original collaboration agreement. Warner-Lambert will retain development rights for ONYX-015 for cancers where the drug is administered intravenously. The parties have discontinued the clinical trials for ONYX-015 administered intravenously, and Onyx will utilize all available drug supply for clinical trials in head and neck cancer as well as other clinical trials involving local or regional administration. Once adequate drug supply for the intravenous trials is available, Warner-Lambert will have the option to pursue the development and regulatory approval of ONYX-015 for intravenous administration at its own cost. If Warner-Lambert does not exercise its option to reinitiate clinical trials for intravenous administration, we may attempt to establish one or more collaborative relationships with other parties for the development of ONYX-015. If Warner-Lambert exercises its option and if ONYX-015 receives marketing approval for intravenous administration in the United States, Onyx and Warner-Lambert will re-establish the collaboration under the terms of the original collaboration agreement for all indications. At that time, Onyx and Warner-Lambert will co-promote ONYX-015 in the United States and Canada and will share equally in any resulting profits.

        In August 2001, our small molecule research collaborations with Warner-Lambert concluded. We no longer receive funding for these programs nor conduct any independent research in the cell cycle and inflammation areas. Warner-Lambert continues to review possible clinical candidates arising from these research programs.

33

        In the fourth quarter of 2001, we implemented a restructuring plan and reduced the size of our workforce by approximately 30 percent. In addition, we put into effect various cost-saving measures in all other areas of the company. The reduction in staffing primarily impacted the research and administrative functions. We will continue to build staff in development functions to ensure the continued development of ONYX-015 and BAY 43-9006. Key hires will continue to be made in clinical development and manufacturing.

        We have not been profitable since inception and expect to incur substantial and increasing losses for the foreseeable future, primarily due to expenses associated with the development and commercialization of ONYX-015 in local/regional indications and our co-funding of the clinical development of BAY 43-9006 with Bayer. We expect that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. As of December 31, 2001, our accumulated deficit was approximately $113.1 million.

        Our business is subject to significant risks, including the risks inherent in our research and development efforts, the results of the ONYX-015 and BAY 43-9006 clinical trials, our dependence on collaborative parties, uncertainties associated with obtaining and enforcing patents, the lengthy and expensive regulatory approval process and competition from other products. We do not expect to generate revenues from the sale of proposed products in the foreseeable future. We expect that all of our revenues in the foreseeable future will be generated from collaboration agreements.

Critical Accounting Policies

        We consider accounting policies related to revenue recognition and use of estimates to be critical policies.

        Revenue Recognition:    Revenue is recognized when the related costs are incurred and the following four basic criteria of revenue recognition are met:

•

persuasive evidence of an arrangement exists;



•

delivery has occurred or services rendered;



•

the fee is fixed and determinable; and



•

collectibility is reasonably assured.

Determination of the criteria regarding the nature of the fee charged for products or services delivered and the collectibility of those fees are based on management's judgments.

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

        Contract revenue also involves Onyx providing research services on a best efforts basis to certain collaborative partners. We are reimbursed based on the costs associated with the number of full-time equivalent employees working on each specific contract. We recognize revenue under these arrangements as the related research and development costs are incurred, which is generally on a ratable basis over the contract. Deferred revenue may result when we do not incur the required level of effort during a specific period in comparison to funds received under the respective contract.

        Milestone payments under collaboration arrangements are recognized as revenue upon achievement of the incentive milestone events, which represent the culmination of the earnings process, because we have no future performance obligations related to the payment. Milestone payments are triggered either by the results of our research efforts or by events external to Onyx, such as regulatory

34

approvals, the commencement of clinical trials or selection of candidates for drug development. Amounts received in advance are recorded as deferred revenue until the related milestone is achieved.

        Use of Estimates:    The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. The items in our financial statements requiring significant estimates and judgments include determining the useful lives of fixed assets for depreciation and amortization calculations, assumptions for valuing stock options and estimated lives of license and collaboration agreements related to deferred revenue. Actual results could differ materially from these estimates.

Results of Operations

Years Ended December 31, 2001, 2000 and 1999

        Total Revenue.    Our total revenues in each of the last three years were derived almost exclusively from collaborative research and development programs with Warner-Lambert and Bayer. The approximate revenue from each of our programs, and other sources for each of the past three years was as follows:

		Year Ended December 31,
		2001		2000		1999
		(In millions)
Warner-Lambert:
	ONYX-015 and Armed Therapeutic Viruses	$	12.0	$	18.6	$	4.0
	Cell Cycle		2.2		2.5		2.7
	Inflammation		1.4		2.7		3.3
Bayer			—		0.1		1.8
Eli Lilly and Company			—		—		0.5
	Total contract revenues		15.6		23.9		12.3
All other sources			0.2		0.3		1.0
	Total revenues	$	15.8	$	24.2	$	13.3

        Total revenues decreased by $8.3 million or 34 percent from 2000 to 2001. This decrease is primarily due to the fact that we are no longer receiving reimbursement for ONYX-015 development costs from Warner-Lambert as a result of the amended agreement announced in August 2001. For fiscal year 2000, revenue also included $3.7 million received from Warner-Lambert upon the completion of a research milestone. In addition, the cell cycle and inflammation collaborations with Warner-Lambert concluded in August 2001, and we will not receive further funding under these programs. Total revenues increased by $10.9 million or 81 percent from 1999 to 2000 primarily as a result of increased contract revenues. Total contract revenues increased in 2000, because we recognized a full year of revenues under the Warner-Lambert ONYX-015 and armed therapeutic virus collaboration agreement, as well as the $3.7 million payment mentioned above. This collaboration agreement was in effect for only four months of 1999. In January 1999, our research collaboration with Bayer concluded. Based on this research, we and Bayer identified a development candidate, and we are co-funding clinical trials with Bayer. As a result, we did not recognize any revenue in 2001 and 2000 from this program. In June 1999, the collaboration program with Eli Lilly and Company expired pursuant to the terms of the agreement and as a result, we did not recognize any future revenues under this program. We expect total contract revenues in 2002 to total between $2.5 million and $3.5 million primarily related to research funding from Warner-Lambert for the armed therapeutic virus program.

35

        Research and Development Expenses.    Research and development consists of costs incurred for independent and collaborative research and development. Below are a summary of products and the related stages of development for each product in clinical development. The major components of research and development costs include salaries and employee benefits, clinical manufacturing costs, clinical trial expenses, consulting and other third-party costs, supplies and materials, equipment depreciation and allocations of various overhead and occupancy costs. The scope and magnitude of future research and development expenses are difficult to predict at this time given the number of studies that will need to be conducted for any of our potential products. In general, biopharmaceutical development involves a series of steps beginning with identification of a potential target and includes proof of concept in animals and Phase I, II and III clinical studies in humans, each of which is typically more expensive than the previous step. Success in development results in increasing expenditures, and the timing for completion of these steps may be uncertain.

Product/Program	Technology	Indication	Status
ONYX-015	p53-Selective Replicating Virus	Recurrent Head and Neck Cancer Refractory Head and Neck Cancer Liver Metastases of Colorectal Cancer Oral Leukoplakia	Phase III Phase II/III Phase II Phase I/II
BAY 43-9006	Small Molecule Inhibitor of Raf kinase	Multiple solid tumor types, Acute Myelogenous Leukemia, Myelodysplastic Syndrome	Phase I
ONYX-411	RB-Selective Replicating Virus	Multiple Tumor Types	Preclinical
Armed ONYX-015 Armed ONYX-411	p53- and RB-Selective Replicating Viruses Armed with Anticancer Genes (CD, GM-CSF, Nitroreductase)	Multiple Tumor Types	Preclinical
Cell Cycle Program	Small Molecule	Multiple Tumor Types	Research
Inflammation Program	Small Molecule	Acute and Chronic Inflammatory Disease	Research

        Research and development expenses were $39.9 million in 2001, an increase of $13.0 million or 49 percent from 2000. $9.5 million of the increase in expenses was attributable to development costs for ONYX-015, including process development and manufacturing expenses incurred under the agreement with XOMA. $3.4 million of the increased expenses related to the co-development and clinical trial costs of BAY 43-9006 with Bayer. Phase I clinical trials were initiated in July 2000, and effective with the commencement of clinical trials, we are currently co-funding 50 percent of BAY 43-9006 clinical development costs. Research and development expenses were $26.9 million in 2000, an increase of $3.3 million or 14 percent from 1999. This increase was primarily due to increased clinical trial expenses for the Phase I clinical trials of BAY 43-9006 and to contract manufacturing expenses as production increased to provide ONYX-015 for our various Phase I/II clinical trials. Our research and development expenses in 2002 are expected to increase modestly over 2001. Increased investment in ONYX-015 and BAY 43-9006 development programs will be offset by the reductions to earlier stage research programs that were announced as part of our restructuring plan in October 2001.

        Our product development programs may not result in any approved products. Product candidates that may appear promising at early stages of development may not reach the market for a number of reasons. Product candidates may be found ineffective or cause harmful side effects during clinical trials, may take longer to pass through clinical trials than had been anticipated, may fail to receive necessary regulatory approvals and may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality. Furthermore, as part of our business strategy, we may enter into collaborative arrangements with third parties to complete the development and commercialization of our product candidates, and it is uncertain which of our product candidates would be subject to future collaborative arrangements. The participation of a collaborative partner may

36

accelerate the time to completion and reduce the cost to us of a product candidate, or it may delay the time and increase the cost to us due to the alteration of our existing strategy. The risks and uncertainties associated with our research and development projects are discussed more fully in the section of this report titled "Additional Business Risks." Because of these risks and uncertainties, we cannot predict when or whether we will successfully complete the development of our product candidates or the ultimate product development cost.

        General and Administrative Expenses.    General and administrative expenses were $6.7 million in 2001, a decrease of $0.9 million or 11 percent from 2000. The decrease was primarily due to a reduction in consulting expenses. General and administrative expenses were $7.5 million in 2000, an increase of $2.2 million or 41 percent from 1999. The increase was primarily due to increased employee-related expenses for the hiring of additional staff. It is anticipated that general and administrative expenses in 2002 may decrease slightly from 2001 expenses as a result of headcount reductions that impacted the administrative functions at the end of 2001.

        Restructuring and Other.    In October 2001, we formally adopted and announced a restructuring plan aimed at reducing future operating costs. We recognized $0.8 million of restructuring and other charges. Of the $0.8 million, $0.4 million related to the impairment of certain long-lived assets, $0.3 million related to employee termination costs, and $0.1 million related to office closure costs. We reduced the size of our workforce by approximately 30 percent, primarily impacting the research and administrative functions. Employee termination costs consisted of wage continuation and advance notice pay. Office closure costs included losses on operating leases and asset impairments included leasehold improvements related to vacated facilities and equipment related to research and development programs not expected to continue. Restructuring and other expenses in fiscal years 2000 and 1999 were zero. We expect 2002 operating expenses to be only slightly higher than in 2001 as a result of reductions to earlier stage research programs while increasing investment in ONYX-015 and BAY 43-9006 development programs.

        Interest and Other Income, net.    We had net interest income of $3.2 million in 2001, and increase of $0.5 million from 2000. The increase was principally due to the $48.1 million follow-on public offering of common stock in October 2000 and the $5.0 million common stock issuance to Warner-Lambert in March 2001, resulting in increased cash and investment balances and thus more interest income for the current period. We had net interest income of $2.7 million in 2000, an increase of $1.9 million from 1999. The increase was principally due to the increased cash and investment balances from the $17.8 million private placement financing of common stock in January 2000, the $5.0 million common stock issuance to Warner-Lambert in February 2000, and the $48.1 million follow-on public offering of common stock in October 2000. This resulted in more interest income for the year ended December 31, 2000. In November 2001, we sold and licensed to Syrrx assets from our small molecules discovery program, including drug targets, related reagents and assays and compound libraries in exchange for preferred stock valued at $0.8 million, which was recorded as other income. The preferred stock value was based on recent sales of Syrrx preferred stock for cash. The chief executive officer of Syrrx is a member of our board of directors. Other income for fiscal years 2000 and 1999 were zero.

Income Taxes

        Since our inception, we have incurred operating losses and accordingly have not recorded a provision for income taxes for any of the periods presented. As of December 31, 2001, our net operating loss carryforwards for federal income tax purposes were approximately $107.5 million and for state income tax purposes were approximately $20.7 million. We also had federal research and development tax credit carryforwards of approximately $3.5 million. If not utilized, the net operating loss and credit carryforwards will expire at various dates beginning in 2003. Utilization of net operating losses and credits may be subject to a substantial annual limitation due to ownership change limitations

37

provided by the Internal Revenue Code of 1986. The annual limitation may result in the expiration of our net operating loss and credit carryforwards before they can be used. Please read Note 10 of the Notes to the Financial Statements included in Item 8 of this Form 10-K for further information.

Related Party Transactions

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

        In November 2001, we sold and licensed to Syrrx assets from the our small molecules discovery program, including drug targets, related reagents and assays and compound libraries in exchange for Syrrx preferred stock valued at $0.8 million, which was recorded as other income. The value of the preferred stock was determined based on recent sales of the Syrrx preferred stock for cash. We could also receive royalties on pharmaceutical products resulting from these assets. The chief executive officer of Syrrx is a member of our board of directors.

        We have loans with certain current and former employees of which approximately $0.3 million were outstanding at December 31, 2001 and 2000. These loans bear interest at rates ranging from 0.0% to 10.0% per annum.

Liquidity and Capital Resources

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

        At December 31, 2001, we had cash and investments of $58.5 million, compared to $82.0 million at December 31, 2000, and $14.5 million at December 31, 1999. The decrease of $23.5 million in 2001 was primarily attributable to cash used in operating activities of $26.8 million and capital expenditures of $2.3 million. These uses of cash were partially offset by the sale of our common stock to Warner-Lambert in March 2001, which raised $5.0 million. The increase in cash and investments from 1999 to 2000 of $67.5 million was attributable to several sources. In January 2000, we completed a private placement of common stock, which raised $17.8 million. In February 2000, we sold common stock to Warner-Lambert, which raised $5.0 million. In October 2000, we raised $48.1 million of net proceeds from our public offering of 3.45 million shares of our common stock. In addition, we received $4.5 million of cash from the exercise of stock options by our employees. These increases were partially offset by cash used in operations of $4.4 million, the repayment of debt of $2.2 million and capital expenditures of $1.6 million.

        Our cash used in operations was $26.8 million in 2001, $4.4 million in 2000 and $14.7 million in 1999. The cash was used primarily to fund increasing levels of research and development expenses necessary to support development expenses including manufacturing and clinical trial costs for ONYX-015 and for clinical development costs related to BAY 43-9006. Expenditures for capital equipment amounted to $2.3 million in 2001, as compared to $1.6 million in 2000, and $1.3 million in 1999. We currently expect to make expenditures for capital equipment and leasehold improvements between $1.0 million and $1.5 million in 2002.

        We believe that our existing capital resources and interest thereon, anticipated revenues from existing collaborations along with cost savings from the reduction in force announced in October 2001 will be sufficient to fund our current and planned operations through 2002. Specifically, we anticipate that Bayer will pay us under our collaboration agreement $5.0 million during 2002 for the initiation of Phase II clinical trials for BAY 43-9006 based on our continued co-funding of development costs.

38

Pursuant to our collaboration agreement, this amount is repayable to Bayer from our share of profits and royalties. Changes in our research and development plans, revenues from collaborators or other changes affecting our operating expenses may result in the expenditure of these resources before the end of 2002, and in any event, we will need to raise substantial additional capital to fund our operations in future periods. We intend to seek this additional funding through collaborations, public and private equity or debt financings, capital lease transactions or other available financing sources. Additional financing may not be available on acceptable terms, if at all. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or development programs or to obtain funds through collaborations with others that are on unfavorable terms or that may require us to relinquish rights to certain of our technologies, product candidates or products that we would otherwise seek to develop on our own.

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

	Payments Due by Period
Contractual Obligations(1)	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
	(In thousands)
Operating Leases	$	3,194	$	797	$	1,613	$	428	$	356

(1)

This table does not include any payments under research and development collaborations, as the amount and timing of such payments are not known.

Recently Issued Accounting Standards

        In July 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS 141, "Business Combinations." SFAS 141 supersedes APB 16, "Business Combinations," and SFAS 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." SFAS 141 requires the purchase method of accounting for all business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. We do not expect the adoption of SFAS 141 to have a material effect on our financial condition or results of operations.

        In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets." SFAS 142 supersedes APB 17, "Intangible Assets," and requires the discontinuance of goodwill amortization. In addition, SFAS 142 includes provisions regarding the reclassification of certain existing recognized intangibles as goodwill, reassessment of useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. SFAS 142 is required to be applied for fiscal years beginning after December 15, 2001, with certain early adoption permitted. We do not expect the adoption of SFAS 142 to have a material effect on our financial condition or results of operations.

        In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations." SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. We do not expect the adoption of SFAS 143 to have a material effect on our financial condition or results of operations.

        In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. However, SFAS 144 retains the fundamental provisions of SFAS 121 for: 1) recognition and measurement of the impairment of long-lived assets to be held and used: and 2) measurement of long-lived assets to be disposed of by sale. SFAS 144 is effective for fiscal years beginning after December 15, 2001. We do not expect the adoption of SFAS 144 to have a material effect on our financial condition or results of operations.

39

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

        Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. By policy, we place our investments with high quality debt security issuers, limit the amount of credit exposure to any one issuer, limit duration by restricting the term, and hold investments to maturity except under rare circumstances. We classify our cash equivalents or marketable securities as fixed rate if the rate of return on an instrument remains fixed over its term. As of December 31, 2001, all of our cash equivalents and marketable securities are classified as fixed rate.

        The table below presents the amounts and related weighted interest rates of our cash equivalents and marketable securities at December 31, 2001:

	Maturity	Fair Value (in $ millions)		Average Interest Rate
Cash equivalents, fixed rate	Daily	$	39.6	4.38	%
Marketable securities, fixed rate	0 - 18 months	$	18.9	3.89	%

Item 8. Financial Statements and Supplementary Data

        Our Financial Statements and notes thereto appear on pages 47 to 66 of this Annual Report on Form 10-K.

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

        Not applicable.

40

PART III.

Item 10. Directors and Executive Officers of the Registrant

        The information required by this item concerning our directors and executive officers is incorporated by reference from our 2002 Definitive Proxy Statement filed not later than 120 days following the close of the fiscal year.

Item 11. Executive Compensation

        The information required under this item is hereby incorporated by reference from our 2002 Definitive Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

        The information required under this item is hereby incorporated by reference from our 2002 Definitive Proxy Statement.

Item 13. Certain Relationships and Related Transactions

        The information required under this item is hereby incorporated by reference from our 2002 Definitive Proxy Statement.

41

PART IV.

Item 14. Exhibits, Financial Statement Schedules and Reports On Form 8-K

(a)	(1)	Index to Financial Statements
		The Financial Statements required by this item are submitted in a separate section beginning on page 47 of this Report.
		Report of Ernst & Young LLP, Independent Auditors	47
		Balance Sheets	48
		Statements of Operations	49
		Statement of Stockholders' Equity	50
		Statements of Cash Flows	51
		Notes to Financial Statements	52
	(2)	Financial Statement Schedules
		Financial statement schedules have been omitted because the information required to be set forth therein is not applicable.
	(3)	Exhibits

Exhibit Number	Description of Document
3.1+	Restated Certificate of Incorporation of the Company.
3.2+	Bylaws of the Company.
3.3+	Certificate of Amendment to Amended and Restated Certificate of Incorporation.
4.1+	Reference is made to Exhibits 3.1 and 3.2.
4.2+	Specimen Stock Certificate.
4.3+	Warrant to Purchase Series C Preferred Stock issued to Lease Management Services, Inc. on December 30, 1993.
4.4+	Amended and Restated Information and Registration Rights Agreement dated May 30, 1994 and as amended through May 16, 1995.
4.5+	Preferred Stock Purchase Agreement between the Company and Warner-Lambert dated May 4, 1995.
4.6+	Stock Purchase Agreement, dated January 12, 1998, among the Company, International Biotechnology Trust plc and Lombard Odier & Cie.
10.1+*	Collaboration Agreement between Bayer Corporation (formerly Miles, Inc.) and the Company dated April 22, 1994.
10.1(i)+*	Amendment to Collaboration Agreement between Bayer Corporation and the Company dated April 4, 1996.
10.2+*	Research, Development and Marketing Collaboration Agreement between Warner-Lambert Company and the Company, dated May 2, 1995.
10.2(i)+	Waiver of Certain Rights under the Research, Development and Marketing Agreement by Warner-Lambert Company dated as of March 28, 1996.
10.3+*	Compound Library Access Agreement between Warner-Lambert Company and the Company dated May 2, 1995.
10.4+*	Research and License Agreement between Eli Lilly & Company and the Company dated May 15, 1995 and the Collaborative Research and License Agreement between Eli Lilly and the Company dated June 12, 1996.

42

10.5*	Technology Transfer Agreement dated April 24, 1992 between Chiron Corporation and the Company, as amended in the Chiron Onyx HPV Addendum dated December 2, 1992, in the Amendment dated February 1, 1994, in the Letter Agreement dated May 20, 1994 and in the Letter Agreement dated March 29, 1996.
10.6+	Scientific Advisory Board Consulting Agreement between Dr. Frank McCormick and the Company, as of March 29, 1996.
10.6(i)+	Letter Agreement for Consulting Services between Dr. Frank McCormick and the Company dated April 17, 1996.
10.7+	Promissory Note by Dr. Frank McCormick payable to the Company dated May 15, 1992.
10.8+	Promissory Notes by Dr. Frank McCormick payable to the Company dated November 1, 1993 and October 21, 1994.
10.9+	Letter Agreement between Dr. Gregory Giotta and the Company dated May 26, 1995.
10.13+	1996 Equity Incentive Plan.
10.14+	1996 Non-Employee Directors' Stock Option Plan.
10.15+	1996 Employee Stock Purchase Plan.
10.16+	Lease by and between Hall Properties, Inc. and the Company dated September 9, 1992, the First Amendment thereto dated April 21, 1993 and the Second Amendment thereto dated May 11, 1996.
10.17+	Form of Indemnity Agreement to be signed by executive officers and directors of the Company.
10.18+	Credit Terms and Conditions dated March 10, 1997 between the Company and Imperial Bank.
10.19+	Letter Agreement between Dr. Allan Balmain and the Company dated August 26, 1996, as amended March 13, 1997.
10.20+*	Amended and restated Research, Development and Marketing Collaboration Agreement dated May 2, 1995 between the Company and Warner-Lambert Company.
10.21+*	Research, Development and Marketing Collaboration Agreement dated July 31, 1997 between the Company and Warner-Lambert Company.
10.22+	Addendum to credit Terms and Conditions dated March 10, 1997 between the Company and Imperial Bank.
10.23+*	Amendment to the Amended and Restated Research, Development and Marketing Collaboration Agreement, dated December 15, 1997, between the Company and Warner-Lambert Company.
10.24+*	Amendment to Collaboration Agreement between Bayer Corporation and the Company dated February 1, 1999.
10.25+	Scientific Advisory Board Consulting Agreement effective September 10, 1999 between Allan Balmain and the Company including the First Amendment to Deed of Trust and Second Amended and Restated Promissory Note.
10.26+*	Collaboration Agreement between the Company and Warner-Lambert Company dated October 13, 1999 and effective September 1, 1999.
10.27+	Stock Put and Purchase Agreement between the Company and Warner-Lambert Company dated October 13, 1999 and effective September 1, 1999.
10.28+	Stock Purchase Agreement between the Company and the investors dated January 18, 2000.
10.29+	Third Amendment to Lease by and between the Metcalf Family Living Trust dated June 11, 1993 and the Company effective February 24, 2000.
10.30+	Employment Offer Letter between Helen Kim and the Company dated October 26, 1999.
10.31+*	Second Amendment to the Amended and Restated Research, Development and Marketing Agreement between Warner-Lambert and the Company dated May 2, 1995.

43

10.32+*	Second Amendment to Research, Development and Marketing Collaboration Agreement between Warner-Lambert and the Company dated July 31, 1997.
10.33+	Employment Offer Letter between Leonard E. Post, Ph.D. and the Company dated July 28, 2000.
10.34+**	Process Development and Manufacturing Agreement between XOMA (US) LLC and Onyx Pharmaceuticals, Inc., dated January 29, 2001.
10.35+	Form of Executive Change in Control Severance Benefits Agreement.
10.36+**	Amendment #1 to the Collaboration Agreement between the Company and Warner-Lambert dated August 6, 2001.
10.37+**	Amendment #3 to the Research, Development and Marketing Collaboration Agreement between the Company and Warner-Lambert dated August 6, 2001.
10.38+**	Amendment #3 to the Amended and Restated Research, Development and Marketing Collaboration Agreement between the Company and Warner-Lambert dated August 6, 2001.
23.1	Consent of Ernst & Young LLP, Independent Auditors.
24.1	Power of Attorney. Reference is made to page 45.

+

Filed as an exhibit to Onyx's Registration Statement on Form SB-2 (No. 333-3176-LA), Onyx's Annual Reports on Form 10-K (Commission File No. 0-28298) for the years ended December 31, 1997 and December 31, 1999, Onyx's Quarterly Reports on Form 10-Q for the quarters ended June 30, 1996, March 31, 1997, September 30, 1997, March 31, 1999, September 30, 1999, June 30, 2000, September 30, 2000, March 31, 2001 and September 30, 2001, Onyx's Current Report on Form 8-K filed on January 26, 1998, Onyx's Current Report on Form 8-K filed on March 1, 2000, and Onyx's Current Report on Form 8-K filed on February 23, 2001, and incorporated herein by reference.

*

Confidential treatment has been received for portions of this document.

**

Confidential treatment has been requested for portions of this document.

(b)

Reports on Form 8-K

        None

44

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Richmond, County of Contra Costa, State of California, on the 1^st day of April, 2002.

ONYX PHARMACEUTICALS, INC.
By:	/s/  HOLLINGS C. RENTON Hollings C. Renton Chairman of the Board, President and Chief Executive Officer

POWER OF ATTORNEY

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

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

Signature	Title	Date
/s/  HOLLINGS C. RENTON Hollings C. Renton	Chairman of the Board, President and Chief Executive Officer (Principal Executive and Financial Officer)	April 1, 2002
/s/  MARILYN E. WORTZMAN Marilyn E. Wortzman	Controller (Principal Accounting Officer)	April 1, 2002
/s/  WOLF BUSSE Wolf Busse	Director	April 1, 2002
/s/  PAUL GODDARD Paul Goddard	Director	April 1, 2002

45

/s/  MAGNUS LUNDBERG Magnus Lundberg	Director	April 1, 2002
/s/  GEORGE A. SCANGOS George A. Scangos	Director	April 1, 2002
/s/  NICOLE VITULLO Nicole Vitullo	Director	April 1, 2002
/s/  WENDELL WIERENGA Wendell Wierenga	Director	April 1, 2002

46

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Onyx Pharmaceuticals, Inc.

        We have audited the accompanying balance sheets of Onyx Pharmaceuticals, Inc. as of December 31, 2001 and 2000, and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Onyx Pharmaceuticals, Inc. at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

/S/ ERNST & YOUNG LLP

Palo Alto, California
February 22, 2002

47

ONYX PHARMACEUTICALS, INC.

BALANCE SHEETS

(In thousands, except share and per share amounts)

ASSETS

				December 31,
				2001			2000
Current Assets:
	Cash and cash equivalents			$	39,568		$	75,126
	Marketable securities				18,898			6,868
	Receivable from related party				—			2,254
	Other current assets				900			829
			Total current assets		59,366			85,077
Property and equipment, net					3,597			3,132
Notes receivable from related parties					319			322
Other assets					2,500			66
				$	65,782		$	88,597
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
	Accounts payable			$	671		$	2,056
	Accrued liabilities				1,079			1,038
	Accrued clinical trials and related expenses				6,810			3,109
	Accrued compensation				672			1,299
	Deferred revenue				1,465			3,183
	Long-term debt, current portion				—			183
		Total current liabilities			10,697			10,868
Long-term deferred revenue					—			833
Commitments
Stockholders' Equity:
	Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued and outstanding				—			—
	Common stock, $0.001 par value; 50,000,000 shares authorized; 18,529,929 and 17,962,332 shares issued and outstanding as of December 31, 2001 and 2000, respectively				19			18
	Additional paid-in capital				168,092			162,430
	Accumulated other comprehensive income				98			—
	Accumulated deficit				(113,124	)		(85,552	)
		Total stockholders' equity			55,085			76,896
				$	65,782		$	88,597

See accompanying notes.

48

ONYX PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

			Year Ended December 31,
			2001			2000			1999
Revenue:
	Contract revenue ($15,631, $23,854 and $11,718 from related parties during 2001, 2000 and 1999, respectively)		$	15,631		$	23,854		$	12,262
	Grant and other revenue			215			326			1,062
		Total revenue		15,846			24,180			13,324
Operating expenses:
	Research and development			39,927			26,879			23,627
	General and administrative			6,652			7,508			5,341
	Restructuring and other			812			—			—
		Total operating expenses		47,391			34,387			28,968
Loss from operations				(31,545	)		(10,207	)		(15,644	)
Interest income				3,224			2,860			1,158
Other income from a related party				750			—			—
Interest expense				(1	)		(132	)		(316	)
		Net loss	$	(27,572	)	$	(7,479	)	$	(14,802	)
Basic and diluted net loss per share			$	(1.50	)	$	(0.50	)	$	(1.29	)
Shares used in computing basic and diluted net loss per share				18,385			14,896			11,503

See accompanying notes.

49

ONYX PHARMACEUTICALS, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

(In thousands, except share and per share amounts)

			Common Stock									Accumulated Other Comprehensive Income
						Additional Paid-In Capital			Deferred Compensation					Accumulated Deficit			Total Stockholders' Equity
			Shares	Amount
Balances at December 31, 1998			11,452,457	$	11	$	85,073		$	(194	)	$	—	$	(63,271	)	$	21,619
	Exercise of stock options, net of repurchases, at prices ranging from $1.07 to $9.00 per share		72,577		1		211			—			—		—			212
	Amortization of deferred compensation		—		—		—			194			—		—			194
	Stock-based compensation, related to non-employee stock option grants		—		—		294			—			—		—			294
	Issuance of common stock pursuant to employee stock purchase plan		26,647		—		145			—			—		—			145
	Net loss		—		—		—			—			—		(14,802	)		(14,802	)
Balances at December 31, 1999			11,551,681		12		85,723			—			—		(78,073	)		7,662
	Exercise of stock options at prices ranging from $0.0071 to $16.25 per share		648,938		1		4,542			—			—		—			4,543
	Issuance of common stock for private placement, net of offering costs of $181		2,000,000		2		17,817			—			—		—			17,819
	Issuance of common stock to Warner-Lambert		279,470		—		5,000			—			—		—			5,000
	Issuance of common stock in connection with secondary public offering, net of issuance costs of $3,686		3,450,000		3		48,061			—			—		—			48,064
	Stock-based compensation, related to non-employee stock option grants		—		—		1,049			—			—		—			1,049
	Issuance of common stock pursuant to employee stock purchase plan.		32,243		—		238			—			—		—			238
	Net loss		—		—		—			—			—		(7,479	)		(7,479	)
Balances at December 31, 2000			17,962,332		18		162,430			—			—		(85,552	)		76,896
	Exercise of stock options at prices ranging from $0.7139 to $10.875 per share		70,456		—		479			—			—		—			479
	Issuance of common stock to Warner-Lambert, net of costs of $19		460,872		1		4,980			—			—		—			4,981
	Stock-based compensation, related to non-employee stock option grants		—		—		(55	)		—			—		—			(55	)
	Issuance of common stock pursuant to employee stock purchase plan		36,269		—		258			—			—		—			258
	Comprehensive loss:
		Change in unrealized gain on investments	—		—		—			—			98		—			98
		Net loss	—		—		—			—			—		(27,572	)		(27,572	)
	Comprehensive loss																	(27,474	)
Balances at December 31, 2001			18,529,929	$	19	$	168,092		$	—		$	98	$	(113,124	)	$	55,085

See accompanying notes.

50

ONYX PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

(In thousands)

					Year Ended December 31,
					2001			2000			1999
Cash flows from operating activities
	Net loss				$	(27,572	)	$	(7,479	)	$	(14,802	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization				1,619			1,460			2,030
		Income from the sale of assets to a related party.				(750	)		—			—
		Restructuring and other.				674			—			—
		Forgiveness of notes receivable.				16			47			150
		Stock-based compensation and amortization of deferred compensation				(55	)		1,049			488
		Changes in assets and liabilities:
			Receivable from related party			2,254			1,046			(3,300	)
			Other current assets			(266	)		(389	)		149
			Other assets			(1,705	)		(47	)		40
			Accounts payable			(1,385	)		(93	)		(222	)
			Accrued liabilities			(77	)		(156	)		(597	)
			Accrued clinical trials and related expenses			3,701			1,999			(1,066	)
			Accrued compensation			(744	)		49			(101	)
			Deferred revenue			(2,551	)		(1,865	)		2,563
				Net cash used in operating activities		(26,841	)		(4,379	)		(14,668	)
Cash flows from investing activities
	Purchases of short-term investments					(34,394	)		(11,074	)		(2,783	)
	Sales and maturities of short-term investments					22,462			5,998			11,783
	Capital expenditures					(2,323	)		(1,592	)		(1,300	)
	Notes receivable from related parties					3			37			113
				Net cash (used in) provided by investing activities		(14,252	)		(6,631	)		7,813
Cash flows from financing activities
	Payments on long-term debt					(183	)		(2,199	)		(2,199	)
	Net proceeds from issuances of common stock, net of repurchases					5,718			75,664			357
				Net cash provided by (used in) financing activities		5,535			73,465			(1,842	)
Net (decrease) increase in cash and cash equivalents						(35,558	)		62,455			(8,697	)
Cash and cash equivalents at beginning of year						75,126			12,671			21,368
				Cash and cash equivalents at end of year	$	39,568		$	75,126		$	12,671
Supplemental disclosure of cash flow information:
	Interest paid during the year				$	2		$	141		$	324
Supplemental disclosure of noncash investing activities:
	Sale of assets to a related party in exchange for preferred stock				$	750		$	—		$	—

See accompanying notes.

51

ONYX PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2001

Note 1. Summary of Significant Accounting Policies

The Company

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

Revenue Recognition

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

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

        Contract revenue also involves the Company providing research services on a best efforts basis to certain collaborative partners. The Company is reimbursed based on the costs associated with the number of full-time equivalent employees working on each specific contract. The Company recognizes revenue under these arrangements as the related research and development costs are incurred, which is generally on a ratable basis over the contract. Deferred revenue may result when the Company does not incur the required level of effort during a specific period in comparison to funds received under the respective contract.

        Milestone payments under collaboration arrangements are recognized as revenue upon achievement of the incentive milestone events, which represent the culmination of the earnings process, because the Company has no future performance obligations related to the payment. Milestone payments are triggered either by the results of Onyx's research efforts or by events external to the Company, such as regulatory approvals, the commencement of clinical trials or selection of candidates for drug development. Amounts received in advance are recorded as deferred revenue until the related milestone is achieved.

        Based on the October 1999 collaboration agreement with Warner-Lambert Company ("Warner-Lambert"), revenue related to the development expenses for ONYX-015 was recognized as the expenses were incurred. As of August 2001, the collaboration agreement was amended, and the Company is no longer receiving revenue from Warner-Lambert as reimbursement for development expenses incurred. In addition, the Company received a $5.0 million up-front payment in 1999, for which revenue has been deferred, and is being recognized systematically over the periods that the fees are earned, ranging from two to three years and four months.

52

        The Company received certain revenue from United States government grants that supported the Company's research effort in defined research projects. These grants generally provided for reimbursement of approved costs incurred as defined in the various grants. Revenue of $183,000, $245,000 and $431,000 was recognized in 2001, 2000 and 1999, respectively. Revenue associated with these grants was recognized as costs under each grant were incurred. These grants were terminated in 2001 and no further revenue will be recognized.

Use of Estimates and Reclassifications

        The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. In addition, certain amounts that were previously reported have been reclassified to conform to the current period presentation.

Research and Development

        In accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 2, "Accounting for Research and Development Costs," research and development costs are charged to expense when incurred. Research and development consists of costs incurred for independent and collaborative research and development. The major components of research and development costs include salaries and employee benefits, clinical manufacturing costs, clinical trial expenses, consulting and other third-party costs, supplies and materials, equipment depreciation and allocations of various overhead and occupancy costs. Research and development expenses under the collaborative research and development agreements approximate the revenue recognized under the collaboration agreements, exclusive of milestone payments and up-front license fees received.

Cash Equivalents and Marketable Securities

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

        Management determines the appropriate classification of securities at the time of purchase. At December 31, 2001 and 2000, all securities are designated as available-for-sale. Available-for-sale securities are carried at fair value, with any unrealized gains and losses reported in other comprehensive income/loss. The amortized cost of securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. The cost of securities sold is based on the specific identification method. The estimated fair values have been determined by the Company using available market information. Realized gains and losses and declines in value judged to be other than temporary for available-for-sale securities are included in the statements of operations. There were no realized gains or losses in each of the three years ended December 31, 2001, 2000 and 1999, respectively. In 2001, the Company

53

recorded a $98,000 unrealized gain. At December 31, 2000, the difference between the fair value and the amortized cost of available-for-sale securities was insignificant. Interest and dividends on securities classified as available-for-sale are included in interest income.

Property and Equipment

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

Other Long-Term Assets

        The Company holds certain private equity investments related to the sale and license of certain assets made to Syrrx, Inc. ("Syrrx") during November 2001 (See Note 7). Long-term investments are accounted for using the cost method of accounting and are periodically reviewed for impairment as described below. At December 31, 2001 and 2000, other long-term assets included $0.8 million and zero in long-term private equity investments, respectively.

Impairment of Long-Lived Assets

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

Stock-Based Compensation

        The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

        All stock option awards to non-employees are accounted for at the fair value of the consideration received or the fair value of the equity instrument issued, as calculated using the Black-Scholes model, in accordance with SFAS 123 and Emerging Issues Task Force Consensus No. 96-18, "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." The option arrangements are subject to periodic remeasurement over their vesting terms. The Company recognized a credit to compensation expense related to option grants to non-employees of $55,000 for the year ended December 31, 2001 primarily due to the decline in the Company's stock price in comparison to prior period stock prices. The Company recorded

54

compensation expense related to option grants to non-employees of $1.0 million for the year ended December 31, 2000, and $0.3 million for the year ended December 31, 1999.

Net Loss Per Share

        Basic and diluted net loss per share are presented in conformity with SFAS 128, "Earnings Per Share," for all periods presented. Basic net loss per share and diluted net loss per share have been computed using the weighted-average number of shares of common stock outstanding during the period. The following potentially dilutive outstanding securities were not considered in the computation of diluted net loss per share because they would be antidilutive for each of the years ended December 31:

	2001	2000	1999
	(In thousands)
Stock options	2,513	1,795	2,011

Comprehensive Loss

        Comprehensive loss is comprised of net loss and other comprehensive income. Other comprehensive income includes certain changes in stockholders' equity that are excluded from net loss. Other comprehensive income is comprised of unrealized holding gains and losses on the Company's available-for-sale securities, which were reported separately in stockholders' equity. Comprehensive loss and its components for years ended December 31 are as follows:

	2001			2000			1999
	(In thousands)
Net loss	$	(27,572	)	$	(7,479	)	$	(14,802	)
Net unrealized gain on available-for-sale securities		98			—			—
Comprehensive loss	$	(27,474	)	$	(7,479	)	$	(14,802	)

        The component accumulated other comprehensive income relates entirely to unrealized gains on available-for-sale securities and is $98,000 at December 31, 2001. There was no accumulated other comprehensive income at December 31, 2000.

Concentration of Credit Risk and Significant Research and Development Partners

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

        Onyx is also subject to risks related to changes in the value of the Company's private equity investment in Syrrx. Fluctuations in the market value of our long-term investment may result in other than temporary impairment charges. The Company would report this decline in Onyx's statement of operations.

55

        Onyx currently relies on two sources for the manufacturing of ONYX-015, Molecular Medicine LLC and XOMA. Onyx performs evaluations of these suppliers verifying their ability to provide the Company with ONYX-015 required for the Company's clinical trials.

        Onyx's research and development partners are currently concentrated in the United States and Germany and one partner accounted for 99 percent of revenue for the year ended December 31, 2001. Onyx performs evaluations of its partners' financial condition and does not require collateral for any of the related receivable balances.

Recently Issued Accounting Standards

        In July 2001, the FASB issued SFAS 141, "Business Combinations." SFAS 141 supersedes APB 16, "Business Combinations," and SFAS 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." SFAS 141 requires the purchase method of accounting for all business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company does not expect the adoption of SFAS 141 to have a material effect on its financial condition or results of operations.

        In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets." SFAS 142 supersedes APB 17, "Intangible Assets," and requires the discontinuance of goodwill amortization. In addition, SFAS 142 includes provisions regarding the reclassification of certain existing recognized intangibles as goodwill, reassessment of useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. SFAS 142 is required to be applied for fiscal years beginning after December 15, 2001, with certain early adoption permitted. The Company does not expect the adoption of SFAS 142 to have a material effect on its financial condition or results of operations.

        In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations." SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The Company does not expect the adoption of SFAS 143 to have a material effect on its financial condition or results of operations.

        In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. However, SFAS 144 retains the fundamental provisions of SFAS 121 for: 1) recognition and measurement of the impairment of long-lived assets to be held and used; and 2) measurement of long-lived assets to be disposed of by sale. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of SFAS 144 to have a material effect on its financial condition or results of operations.

56

Note 2. Collaboration Agreements

Warner-Lambert Company

        Effective September 1999, the Company entered into an agreement with Warner-Lambert for the purpose of developing and commercializing ONYX-015 and two armed therapeutic viruses. Under the terms of this agreement, the Company had the right to co-promote ONYX-015 and two armed virus products with Warner-Lambert in the United States and Canada. The Company also had the right to share equally in resulting profits or losses in these territories. Additionally, Warner-Lambert was responsible for commercializing the products in the rest of the world and was obligated to pay the Company a royalty on net sales in these markets. Warner-Lambert was also required to fully fund the research and preclinical development of the two armed virus product candidates.

        Under terms of the agreement, Warner-Lambert made an up-front payment of $5.0 million in October 1999, and the Company received the right to require Warner-Lambert to purchase an equity investment of $5.0 million in both 2000 and 2001. The Company exercised the first of its two rights in February 2000 by issuing 279,470 of its common shares to Warner-Lambert, and the Company exercised its second right in March 2001 by issuing 460,872 of its common shares to Warner-Lambert (See Note 7).

        In August 2001, the Company and Warner-Lambert amended the collaboration agreement for the development and commercialization of ONYX-015. The Company regained full rights to develop and commercialize ONYX-015 for head and neck cancer and other cancers that are treated via direct injections to the tumors and other local and regional routes of administration. Onyx is now funding all costs associated with these efforts and will retain all profit derived from worldwide sales of ONYX-015 in these indications, subject to the potential re-establishment of the original collaboration agreement. Warner-Lambert retains development rights for ONYX-015 for cancers where the drug is administered intravenously. The parties have discontinued the clinical trials for ONYX-015 administered intravenously, and Onyx will utilize all available drug supply for clinical trials in head and neck cancer as well as other clinical trials involving local or regional administration. Once adequate drug supply for the intravenous trials is available, Warner-Lambert will have the option to pursue the development and regulatory approval of ONYX-015 for intravenous administration at its own cost. If Warner-Lambert exercises its option and if ONYX-015 receives marketing approval for intravenous administration in the United States, Onyx and Warner-Lambert will re-establish the collaboration under the terms of the original collaboration agreement for all indications. At that time, Onyx and Warner-Lambert will co-promote ONYX-015 in the United States and Canada and will share equally in any resulting profits. Onyx and Warner-Lambert are continuing their collaboration for the research and development of a prodrug armed virus. The rights for research and development of a cytokine armed virus product have been acquired back from Warner-Lambert in November 2001.

        Revenue recognized under this agreement was $12.0 million, $18.6 million and $4.0 million for the years ended December 31, 2001, 2000 and 1999, respectively. The fiscal 2001 amounts included $10.4 million for research and clinical development funding and $1.6 million related to the amortization of the $5.0 million up-front payment received in 1999. The up-front payment has been included in deferred revenue and is being recognized over the applicable research and development periods when the fees are earned, ranging from two to three years and four months. The fiscal 2000 amounts included $12.9 million for research and clinical development funding, $3.7 million for a payment received upon the completion of a research milestone and $2.0 million related to the amortization of

57

the $5.0 million up-front payment. Revenue recognized in fiscal 1999 included $3.3 million for clinical development funding and $0.7 million related to the amortization of the up-front payment. Expenses related to this program were $14.2 million in 2001, $20.1 million in 2000 and $14.4 million in 1999. At December 31, 2000, Onyx held a $2.3 million receivable from Warner-Lambert related to Phase III clinical trials and other development studies for ONYX-015. At December 31, 2001, the receivable balance was zero.

Cell Cycle Agreement

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

        Revenues recognized under this agreement was $2.2 million, $2.5 million and $2.7 million for the years ended December 31, 2001, 2000 and 1999, respectively. Expenses related to this agreement were $1.4 million, $3.2 million and $3.0 million for the years ended December 31, 2001, 2000, and 1999, respectively.

Inflammation Agreement

        In July 1997, the Company entered into a research and development collaboration agreement with Warner-Lambert to discover and commercialize small molecule drugs for the treatment of acute and chronic inflammatory disorders. The obligations of the parties are similar to those agreed to under the cell cycle program agreement, and each party must dedicate a specified minimum number of researchers to the collaboration. The research term under the agreement ended in August 2001. Warner-Lambert may develop products identified during the research term, and the Company could receive milestone payments based on the clinical development and registration of any resulting products and royalties on worldwide sales of these marketed products.

        Revenues recognized under this agreement were $1.4 million, $2.7 million, and $3.3 million for the years ended December 31, 2001, 2000 and 1999, respectively. Expenses related to this agreement were $1.7 million, $2.8 million and $2.9 million for the years ended December 31, 2001, 2000, and 1999, respectively.

Bayer Corporation

        In May 1994, the Company entered into a research and development collaboration agreement with Bayer Corporation, to discover, develop and market compounds that inhibit the function, or modulate

58

the activity, of the ras signaling pathway or that appropriately modulate the activity of this pathway to treat cancer and other diseases. The Company and Bayer concluded collaborative research under this agreement in 1999. Based on this research, a development candidate, BAY 43-9006, a compound that inhibits ras signaling in cells by inhibiting raf kinase, was identified. Currently, Bayer and the Company are conducting various Phase I clinical trials in several countries.

        Prior to the commencement of clinical trials, Bayer paid all the costs of research and preclinical development of this drug candidate. Based on the agreement with Bayer, and with the initiation of Phase I clinical trials, the Company is currently co-funding 50 percent of clinical development costs worldwide, except Japan. Bayer will fund 100 percent of development costs in Japan and pay us a royalty on sales. If Onyx continues to co-fund and exercises its right to co-promote in the United States, profits or losses would be shared equally. If Onyx continues to co-fund but does not co-promote in the United States, Bayer would first receive a portion of the product revenues to repay Bayer for its commercialization infrastructure, before determining the Company's share of profits and losses. In other parts of the world except Japan, Bayer would also receive this preferential distribution. Based on Onyx's continued co-funding of development costs, Bayer will pay us $5.0 million at the initiation of Phase II clinical trials and $15.0 million at the initiation of Phase III clinical trials. These payments will be repayable to Bayer from Onyx's share of profits and royalties. At any time during product development, either company may terminate its participation in development costs, in which case the other party would retain exclusive rights to the product on a royalty-bearing basis. If Onyx does not continue to bear 50 percent of product development costs, Bayer would retain exclusive, worldwide rights to this product candidate and would pay royalties to Onyx on net sales.

        No revenues were recognized under this agreement in 2001 and 2000. Revenues recognized were $1.8 million for the year ended December 31, 1999. Onyx's share for funding the clinical development costs, which commenced in July 2000, was $5.5 million for 2001 and $2.3 million for 2000. Research expenses related to this contract were $0.3 million for the year ended December 31, 1999.

Eli Lilly and Company

        On May 15, 1995, the Company entered into a one-year collaborative research and license agreement with Eli Lilly and Company ("Eli Lilly") to discover and develop targets for drug discovery in the modulation of the BRCA1 breast cancer gene pathway. Research focused around the BRCA1 gene licensed by Eli Lilly from Myriad Genetics, Inc. Eli Lilly retains exclusive rights to the BRCA1 gene.

        On June 12, 1996, the agreement with Eli Lilly was expanded and extended through June 12, 1999. The agreement expired without being renewed in June 1999, and no further research is being undertaken on the project.

        Revenue recognized under this agreement was $0.5 million for the year ended December 31, 1999. Expenses related to this agreement were $0.6 million for the year ended December 31, 1999.

59

Note 3. Investments

        The following is a summary of available-for-sale marketable securities:

		Estimated Fair Value December 31,
		2001		2000
		(In thousands)
Cash equivalents:
	Money market funds	$	39,440	$	75,125
Short-term investments:
	U.S. corporate debt securities and commercial paper	$	18,898	$	6,868

        As of December 31, 2001, the difference between the fair value and the amortized cost of available-for-sale U.S. debt securities and commercial paper was $98,000. As of December 31, 2000, the difference between the fair value and the amortized cost of available-for-sale securities was insignificant. The average portfolio maturity is approximately ten months, and the contractual maturity of each of the investments does not exceed 18 months.

Note 4. Property and Equipment

        Property and equipment consist of the following:

	December 31,
	2001			2000
	(In thousands)
Machinery and equipment	$	9,643		$	8,369
Furniture and fixtures		614			589
Leasehold improvements		4,326			4,228
		14,583			13,186
Less accumulated depreciation and amortization		(10,986	)		(10,054	)
	$	3,597		$	3,132

        Depreciation expense was $1.6 million, $1.5 million and $2.0 million for the years ended December 31, 2001, 2000 and 1999, respectively.

Note 5. Long-Term Debt

        In March 1997, the Company borrowed $6.6 million under a line of credit arrangement with a bank that bore an interest rate of prime plus 1%. Equal monthly payments of principal plus interest were required in order to repay the outstanding balance by January 15, 2001. The line was repaid in full in January 2001.

60

Note 6. Facility Lease

        The Company occupies a total of approximately 50,000 square feet of office and laboratory space in its primary facility in Richmond, California. The lease expires in April 2005 with an option to extend the lease for an additional five years. The Company entered into a sublease with Syrrx to use 1,450 square feet of this facility and certain common areas for a six-month term commencing in November 2001. The sublease fee is $6,850 per month. Syrrx has one option to extend the term for up to an additional three months.

        The Company has also leased an additional 12,000 square feet of space in a secondary facility in Richmond, California. The lease for approximately 9,000 square feet expires in September 2010 with renewal options at the end of the lease for two subsequent five-year terms. The lease for 3,000 square feet in this facility expires in October 2003 with renewal options at the end of the lease term for three years and four years. The Company has determined that it no longer requires this space as a result of the reduction in force that was announced in October 2001 and has included an estimated write-off of the future obligations under these leases in Restructuring and Other Expenses (See Note 9). The Company is currently attempting to sublease all of the 12,000 square feet in this facility. Minimum annual rental commitments under all operating leases at December 31, 2001 are as follows (in thousands):

Year ending December 31:
2002	$	797
2003		811
2004		802
2005		333
2006		95
Thereafter		356
	$	3,194

        Rent expense for the years ended December 31, 2001, 2000 and 1999 was approximately $0.8 million, $0.6 million and $0.4 million, respectively.

Note 7. Related Party Transactions

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

        In November 2001, the Company sold and licensed to Syrrx assets from the Company's small molecules discovery program, including drug targets, related reagents and assays and compound libraries in exchange for Syrrx preferred stock valued at $0.8 million, which was recorded as other income. The value of the preferred stock was determined based on recent sales of the Syrrx preferred stock for cash. Onyx could also receive royalties on pharmaceutical products resulting from these assets. The chief executive officer of Syrrx is a member of Onyx's board of directors.

61

        The Company has loans with certain current and former employees of which approximately $0.3 million were outstanding at December 31, 2001 and 2000. These loans bear interest at rates ranging from 0.0% to 10.0% per annum.

Note 8. Stockholders' Equity

        In March 1996, the Board adopted the Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 100,000 shares of common stock. At the Company's annual meetings of stockholders in each of June 2000 and May 1998, an additional 75,000 shares were reserved for issuance under the Purchase Plan at each meeting. The Purchase Plan is designed to allow eligible employees of the Company to purchase shares of common stock through periodic payroll deductions. The price of common stock purchased under the Purchase Plan will be equal to 85 percent of the lower of the fair market value of the common stock on the commencement date of each offering period or the specified purchase date. Since inception, a total of 195,433 shares have been issued under the Purchase Plan.

        In March 1996, the Board amended and restated the 1992 Incentive Stock Plan, renamed it as the 1996 Equity Incentive Plan (the "Incentive Plan") and reserved 1,725,000 shares for issuance under the Incentive Plan. At the Company's annual meetings of stockholders in May 2001, June 2000, May 1999, May 1998 and May 1997, an additional 900,000, 400,000, 300,000, 300,000 and 600,000 shares, respectively, were reserved for issuance under the Incentive Plan. The Incentive Plan provides for grants to employees and consultants of the Company. The exercise price of options granted under the Incentive Plan is determined by the Board of Directors, but cannot be less than 100 percent of the fair market value of the common stock on the date of grant.

        In March 1996, the Board adopted the 1996 Non-Employee Directors' Stock Option Plan (the "Directors' Plan") and reserved 175,000 shares for issuance to provide for the automatic grant of options to purchase shares of common stock to non-employee directors of the Company. At the Company's annual meetings of stockholders in each of May 2001 and June 2000, an additional 75,000 shares were reserved for issuance under the Directors' Plan at each meeting.

62

        The following table summarizes option activity under all option plans:

		Outstanding Stock Options
		Shares Available		Number of Shares		Weighted Average Exercise Price
Balances at December 31, 1998		601,348		1,483,210		$	7.17
	Shares authorized	300,000		—			—
	Options granted	(811,850	)	811,850		$	6.99
	Options exercised	—		(74,912	)	$	2.83
	Options forfeited	208,701		(208,701	)	$	9.24
Balances at December 31, 1999		298,199		2,011,447		$	7.05
	Shares authorized	475,000		—			—
	Options granted	(791,600	)	791,600		$	14.60
	Options exercised	—		(648,938	)	$	7.06
	Options forfeited	359,453		(359,453	)	$	7.33
Balances at December 31, 2000		341,052		1,794,656		$	10.16
	Shares authorized	975,000		—			—
	Options granted	(1,141,415	)	1,141,415		$	7.72
	Options exercised	—		(70,456	)	$	6.76
	Options forfeited	352,887		(352,887	)	$	13.50
Balances at December 31, 2001		527,524		2,512,728		$	8.68

        The following table summarizes information about options outstanding and exercisable at December 31, 2001:

		Options Outstanding				Options Exercisable
Range of Exercise Prices		Number Outstanding	Weighted Average Contractual life Remaining (In years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$0.0714-$3.0688		132,506	2.3	$	0.61	132,506	$	0.61
$3.0689-$6.1375		627,108	9.0	$	5.11	622,108	$	5.11
$6.1376-$9.2063		637,675	7.3	$	7.62	636,841	$	7.62
$9.2064-$12.2750		875,775	7.7	$	10.90	830,775	$	10.86
$12.2751-$15.3438		56,687	7.7	$	13.74	56,687	$	13.74
$15.3439-$18.4125		134,925	7.9	$	16.22	134,925	$	16.22
$18.4126-$21.4812		6,749	7.0	$	19.78	6,749	$	19.78
$21.4813-$24.5500		13,078	7.4	$	23.38	13,078	$	23.38
$24.5501-$27.6188		26,632	3.2	$	25.25	26,632	$	25.25
$27.6189-$28.6250		1,593	0.2	$	28.15	1,593	$	28.15
	Total	2,512,728	7.6	$	8.68	2,461,894	$	8.63

63

        At December 31, 2001, December 31, 2000, and December 31, 1999, there were no shares subject to repurchase. As of December 31, 2001, the Company has reserved 3,094,819 common shares for future issuances under all stock option plans and the employee stock purchase plan.

        The Company recorded deferred compensation expense for the difference between the exercise price and the deemed fair value for financial statement presentation purposes of the Company's common stock, as determined by the Board of Directors, for options granted in 1995 and 1996. Such options were granted at $1.07 per share with a deemed fair value ranging from $1.14 to $5.50 per share. Deferred compensation of approximately $0.9 million was recorded in conjunction with the granting of these options. This compensation expense was amortized over the vesting period of the related options, generally one to four years. Deferred compensation was fully amortized in 1999. Amortization of $0.2 million was recorded in 1999.

        Pro forma information regarding net income and earnings per share is required by SFAS 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value of each option grant is estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

        Options granted at fair value:

	Year Ended December 31,
	2001	2000	1999
Risk-free interest rate	4.29%	6.32%	5.55%
Expected life	5.9 years	4.2 years	3.6 years
Expected volatility	0.94	1.00	0.80
Expected dividends	None	None	None
Weighted average option fair value	$2.17	$10.54	$4.07

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

        For purposes of pro forma disclosures, the estimated fair value of its employee stock options is amortized to expense over the options vesting period. The Company's pro forma information follows:

	Year Ended December 31,
	2001			2000			1999
	(In thousands, except per share amounts)
Pro forma net loss	$	(28,736	)	$	(10,216	)	$	(16,501	)
Pro forma net loss per share	$	(1.56	)	$	(0.69	)	$	(1.43	)

64

        No options were granted at below fair value for the years ended December 31, 2001, 2000 and 1999.

Note 9. Restructuring and Other

        In October 2001, the Company formally adopted and announced a restructuring plan aimed at reducing future operating costs to allow the Company to focus on its highest priority products in development. Specifically, the Company plans to focus its future spending on: (1) the development of ONYX-015 in order to expedite the product's time to market; (2) the development of BAY 43-9006 in collaboration with Bayer; and (3) the selection of the next development product candidate from its novel oncolytic virus platform. The Company recognized $0.8 million of restructuring and other charges. Of the $0.8 million, $0.4 million related to the impairment of certain long-lived assets, $0.3 million related to employee termination costs, and $0.1 million related to office closure costs. The Company reduced the size of its workforce by approximately 30 percent, primarily impacting the research and administrative functions and consisted of wage continuation and advance notice pay. Office closure costs included losses on operating leases. Asset impairments include leasehold improvements related to vacated facilities and equipment related to research and development programs not expected to continue. Of the $0.8 million of restructuring and other costs, $0.1 million was paid during the fourth quarter of 2001. The remaining accrued costs of $0.2 million at December 31, 2001 are comprised of $0.1 million employee termination costs that are expected to be paid by March 31, 2002 and $0.1 million related to office closure costs. Restructuring and other expenses in fiscal years 2000 and 1999 were zero.

Note 10. Income Taxes

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

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

	December 31,
	2001			2000
	(In thousands)
Net operating loss carryforwards	$	37,802		$	25,900
Tax credit carryforwards		5,074			4,100
Capitalized research and development		4,758			4,000
Other		1,475			500
Total deferred tax assets		49,109			34,500
Valuation allowance		(49,109	)		(34,500	)
Net deferred tax assets	$	—		$	—

65

        Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $14.6 million, $1.0 million and $6.3 million in the fiscal years 2001, 2000 and 1999, respectively.

        At December 31, 2001, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $107.5 million and $20.7 million, respectively, which expire in the years beginning 2003, if not utilized. At December 31, 2001, the Company has research and development credit carryforwards for federal income tax purposes of approximately $3.5 million, which expire in the years beginning 2008, if not utilized. At December 31, 2001, the Company has research and development credit carryforwards for state income tax purposes of approximately $2.0 million, which do not expire.

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

Note 11. Quarterly Financial Data (Unaudited)

	2001
	Dec. 31			Sept. 30			June 30			Mar. 31
	(In thousands, except per share data)
Total revenues	$	1,304		$	4,464		$	5,342		$	4,736
Net loss		(9,503	)		(6,937	)		(5,889	)		(5,243	)
Basic and diluted net loss per share		(0.51	)		(0.37	)		(0.32	)		(0.29	)

	2000
	Dec. 31			Sept. 30			June 30		Mar. 31
	(In thousands, except per share data)
Total revenues	$	4,338		$	4,995		$	9,010	$	5,837
Net loss		(3,333	)		(3,904	)		1,438		(1,680	)
Basic and diluted net loss per share		(0.19	)		(0.27	)		0.10		(0.12	)

66

EXHIBIT INDEX

Exhibit Number	Description of Document
3.1+	Restated Certificate of Incorporation of the Company.
3.2+	Bylaws of the Company.
3.3+	Certificate of Amendment to Amended and Restated Certificate of Incorporation.
4.1+	Reference is made to Exhibits 3.1 and 3.2.
4.2+	Specimen Stock Certificate.
4.3+	Warrant to Purchase Series C Preferred Stock issued to Lease Management Services, Inc. on December 30, 1993.
4.4+	Amended and Restated Information and Registration Rights Agreement dated May 30, 1994 and as amended through May 16, 1995.
4.5+	Preferred Stock Purchase Agreement between the Company and Warner-Lambert dated May 4, 1995.
4.6+	Stock Purchase Agreement, dated January 12, 1998, among the Company, International Biotechnology Trust plc and Lombard Odier & Cie.
10.1+*	Collaboration Agreement between Bayer Corporation (formerly Miles, Inc.) and the Company dated April 22, 1994.
10.1(i) +*	Amendment to Collaboration Agreement between Bayer Corporation and the Company dated April 4, 1996.
10.2+*	Research, Development and Marketing Collaboration Agreement between Warner-Lambert Company and the Company, dated May 2, 1995.
10.2(i)+	Waiver of Certain Rights under the Research, Development and Marketing Agreement by Warner-Lambert Company dated as of March 28, 1996.
10.3+*	Compound Library Access Agreement between Warner-Lambert Company and the Company dated May 2, 1995.
10.4+*	Research and License Agreement between Eli Lilly & Company and the Company dated May 15, 1995 and the Collaborative Research and License Agreement between Eli Lilly and the Company dated June 12, 1996.
10.5*	Technology Transfer Agreement dated April 24, 1992 between Chiron Corporation and the Company, as amended in the Chiron Onyx HPV Addendum dated December 2, 1992, in the Amendment dated February 1, 1994, in the Letter Agreement dated May 20, 1994 and in the Letter Agreement dated March 29, 1996.
10.6+	Scientific Advisory Board Consulting Agreement between Dr. Frank McCormick and the Company, as of March 29, 1996.
10.6(i)+	Letter Agreement for Consulting Services between Dr. Frank McCormick and the Company dated April 17, 1996.
10.7+	Promissory Note by Dr. Frank McCormick payable to the Company dated May 15, 1992.
10.8+	Promissory Notes by Dr. Frank McCormick payable to the Company dated November 1, 1993 and October 21, 1994.
10.9+	Letter Agreement between Dr. Gregory Giotta and the Company dated May 26, 1995.
10.13+	1996 Equity Incentive Plan.
10.14+	1996 Non-Employee Directors' Stock Option Plan.
10.15+	1996 Employee Stock Purchase Plan.
10.16+	Lease by and between Hall Properties, Inc. and the Company dated September 9, 1992, the First Amendment thereto dated April 21, 1993 and the Second Amendment thereto dated May 11, 1996.
10.17+	Form of Indemnity Agreement to be signed by executive officers and directors of the Company.
10.18+	Credit Terms and Conditions dated March 10, 1997 between the Company and Imperial Bank.
10.19+	Letter Agreement between Dr. Allan Balmain and the Company dated August 26, 1996, as amended March 13, 1997.

10.20+*	Amended and restated Research, Development and Marketing Collaboration Agreement dated May 2, 1995 between the Company and Warner-Lambert Company.
10.21+*	Research, Development and Marketing Collaboration Agreement dated July 31, 1997 between the Company and Warner-Lambert Company.
10.22+	Addendum to credit Terms and Conditions dated March 10, 1997 between the Company and Imperial Bank.
10.23+*	Amendment to the Amended and Restated Research, Development and Marketing Collaboration Agreement, dated December 15, 1997, between the Company and Warner-Lambert Company.
10.24+*	Amendment to Collaboration Agreement between Bayer Corporation and the Company dated February 1, 1999.
10.25+	Scientific Advisory Board Consulting Agreement effective September 10, 1999 between Allan Balmain and the Company including the First Amendment to Deed of Trust and Second Amended and Restated Promissory Note.
10.26+*	Collaboration Agreement between the Company and Warner-Lambert Company dated October 13, 1999 and effective September 1, 1999.
10.27+	Stock Put and Purchase Agreement between the Company and Warner-Lambert Company dated October 13, 1999 and effective September 1, 1999.
10.28+	Stock Purchase Agreement between the Company and the investors dated January 18, 2000.
10.29+	Third Amendment to Lease by and between the Metcalf Family Living Trust Dated June 11, 1993 and the Company effective February 24, 2000.
10.30+	Employment Offer Letter between Helen Kim and the Company dated October 26, 1999.
10.31+	Second Amendment to the Amended and Restated Research, Development and Marketing Agreement between Warner-Lambert and the Company dated May 2, 1995.
10.32+*	Second Amendment to Research, Development and Marketing Collaboration Agreement between Warner-Lambert and the Company dated July 31, 1997.
10.33+	Employment Offer Letter between Leonard E. Post, Ph.D. and the Company dated July 28, 2000.
10.34+**	Process Development and Manufacturing Agreement between XOMA (US) LLC and Onyx Pharmaceuticals, Inc., dated January 29, 2001.
10.35+	Form of Executive Change in Control Severance Benefits Agreement.
10.36+**	Amendment #1 to the Collaboration Agreement between the Company and Warner-Lambert dated August 6, 2001.
10.37+**	Amendment #3 to the Research, Development and Marketing Collaboration Agreement between the Company and Warner-Lambert dated August 6, 2001.
10.38+**	Amendment #3 to the Amended and Restated Research, Development and Marketing Collaboration Agreement between the Company and Warner-Lambert dated August 6, 2001.
23.1	Consent of Ernst & Young LLP, Independent Auditors.
24.1	Power of Attorney. Reference is made to page 45.

+

Filed as an exhibit to Onyx's Registration Statement on Form SB-2 (No. 333-3176-LA), Onyx's Annual Report on Form 10-K (Commission File No. 0-28298) for the year ended December 31, 1997, Onyx's Quarterly Reports on Form 10-Q for the quarters ended June 30, 1996, March 31, 1997, September 30, 1997, March 31, 2001 and September 30, 2001, Onyx's Current Report on Form 8-K filed on January 26, 1998, Onyx's Current Report on Form 8-K filed on March 1, 2000, and Onyx's Current Report on Form 8-K filed on February 23, 2001, and incorporated herein by reference.

*

Confidential treatment has been received for portions of this document.

**

Confidential treatment has been requested for portions of this document.

QuickLinks

PART I.

Item 1. Business

PART II.

Item 5. Market For Registrant's Common Stock and Related Stockholder Matters
Item 6. Selected Financial Data

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

PART III.

Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions

PART IV.

Item 14. Exhibits, Financial Statement Schedules and Reports On Form 8-K

SIGNATURES
POWER OF ATTORNEY
ONYX PHARMACEUTICALS, INC. BALANCE SHEETS (In thousands, except share and per share amounts)
ONYX PHARMACEUTICALS, INC. STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
ONYX PHARMACEUTICALS, INC. STATEMENT OF STOCKHOLDERS' EQUITY (In thousands, except share and per share amounts)
ONYX PHARMACEUTICALS, INC. STATEMENTS OF CASH FLOWS (In thousands)
ONYX PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2001
EXHIBIT INDEX

EX-10.5

QuickLinks -- Click here to rapidly navigate through this document

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

EXHIBIT 10.5

TECHNOLOGY TRANSFER AGREEMENT

THIS AGREEMENT is entered into as of the 24th day of April, 1992, by and between ONYX PHARMACEUTICALS, INC. ("Onyx") and CHIRON CORPORATION ("Chiron").

1.    Background.

(a)  Chiron is a Delaware corporation located at 4560 Horton Street, Emeryville, California. Chiron is active in the research, development, manufacture, and sale of pharmaceutical products, including vaccines, oncology products, diagnostic products and others. Cetus Oncology Corporation ("Cetus") is a wholly-owned subsidiary of Chiron and was named Cetus Corporation until March 6, 1992. Unless the context clearly requires otherwise, references to Chiron shall be deemed to include Cetus both as to rights and obligations; references to Cetus include only Cetus and its subsidiaries.

(b)  Dr. Frank McCormick is and has been an employee and officer of Chiron and has headed the Research department at Cetus, both prior to and after the acquisition of Cetus by Chiron. While employed at Cetus and Chiron, Dr. McCormick engaged in, among other things, research regarding molecular oncology, including the Field, defined below.

(c)  Onyx is a California corporation which desires to engage in research and other activities regarding oncology, and including activities heretofore carried on by Dr. McCormick and his co-workers at Cetus. Onyx therefore desires to employ certain of such co-workers and to receive a transfer of certain biological materials and research reagents, as well as to receive certain licenses as set forth herein. Chiron is willing to consent to such employment and to provide such licenses and transfers as set forth more fully below.

(d)  Effective as of March 13, 1992, Onyx and Chiron caused to be executed an "Agreement in Principle." The Agreement in Principle contemplated the execution of one or more definitive agreements intended to supersede the subject matter of such Agreement in Principle. This Technology Transfer Agreement is one such agreement. On even date herewith, the parties are also executing agreements relating to the financing of Onyx (the "Financing Agreement").

2.    Onyx Rights.

(a)  Chiron hereby grants the following licenses, all of which are granted expressly subject to the existing third-party contractual rights set forth in Appendix 4:

(i)  Chiron hereby grants to Onyx a worldwide, perpetual royalty-free license (including the right to sublicense) to the patents set forth in Appendix 2 hereto for all purposes whatsoever, including, but not limited to the rights to modify the subject matter thereof and to use, develop, make, and sell products thereunder, and to license or permit others to do any of the foregoing. The patent license granted herein shall extend to the existing patents and applications referenced, and to any divisional, continuation, or foreign counterpart application pertaining thereto, and to any patent issuing therefrom, but not to inventions made after the date hereof except as set forth below. From the Closing Date (as hereinafter defined) until [ * ] years thereafter, said license shall be exclusive to Onyx (and shall exclude Chiron to the extent of the covenant of Section 9 hereof) for use within the Field. Said license shall otherwise be non-exclusive.

1

(ii)  Chiron hereby grants Onyx a perpetual, royalty free [ * ] license (including the right to sublicense) as set forth in the first sentence in Section 2.a.i above to the Confidential Information of Chiron within the Field in Onyx' possession or disclosed to Onyx pursuant to Section 4.f hereof.

(iii)  Chiron hereby grants Onyx a perpetual, royalty-free, [ * ] license (without right to sublicense), under Cetus' patents and know-how, only for internal use in the Field in internal research, to manufacture and use the Cetus Substances and other substances in expressing substances found in the intracellular signalling pathway regulating cell proliferation (the "Cetus Substance Technology"). The Cetus Substance Technology shall be deemed Confidential Information pursuant to Section 12 hereof. With respect to any improvements, enhancements, or modifications to the Cetus Substance Technology developed by either Onyx or Chiron after the date hereof but prior to [ * ] years after the Closing Date, Onyx grants Chiron a perpetual, worldwide, royalty-free non-exclusive license, and Chiron grants Onyx the license set forth in the first sentence of this Section 2.a.iii.

(b)  Chiron shall not be obligated to maintain in force any patent or prosecute any application. If Chiron chooses to abandon or discontinue the prosecution or maintenance of any patent set forth on Appendix 2, Chiron shall notify Onyx of its intention, and Onyx may thereupon assume such prosecution or maintenance at its sole expense. Onyx' exercise of its rights under this section shall not operate to affect any party's rights hereunder or any party's interest in any intellectual property.

(c)  For six years after the Closing Date, if requested by Onyx, Chiron shall make available to Onyx its drug discovery services on commercially reasonable terms to be agreed upon by Onyx and Chiron negotiating in good faith, subject to any constraints imposed by contractual obligations or bona fide material proprietary information concerns arising out of then-existing arrangements of Chiron to provide drug discovery services to third parties. For three years after the Closing Date, if Chiron proposes (subject to the provisions of Section 9) to enter into any arrangements for screening targets identified in the Field, it shall first discuss in good faith with Onyx for a period of thirty days the possibility of Chiron instead providing such drug discovery services to Onyx. The failure of Onyx to enter into any such arrangement shall not be deemed a waiver of any part of Section 9.

3.    Personnel.

(a)  Onyx shall be entitled to recruit for employment by Onyx the employees set forth on Appendix 7 (the "Recruitment List"), substantially all of whom are presently working within the group headed by Dr. Frank McCormick (the "McCormick Group"). Such employees are expected to commence employment with Onyx effective as of the closing of Onyx's initial financing (the "Closing Date"). Onyx and Chiron shall continue to cooperate with regard to facilitating a smooth transition for such employees. Until the Closing Date, Chiron shall continue to pay or vest all salaries, benefits, vacation, pension obligations, and other similar compensation (including stock options and purchase rights) for such employees and shall permit such employees to leave intact their investments in applicable employee stock purchase plans (but not to make further investments) until the stock payout scheduled for June 30, 1992. Onyx intends to provide stock options to such employees as approved by the Board.

(b)  Effective as of the Closing Date, Onyx shall reimburse and make Chiron whole for any salaries, benefits, vacation, pension obligations, and other similar compensation and other expenses, if any, paid or accrued with respect to the period commencing April 8, 1992 with respect to any Chiron employee hired by Onyx from the Recruitment List and with respect to any employee on the Recruitment List not hired by Onyx and who, after a good faith effort by Chiron to place such person in other suitable employment at Chiron on notification that such person will

2

not be hired by Onyx, resigns or is terminated from Chiron. Onyx shall reimburse and make Chiron whole for any severance benefit or payment, if any, paid or accrued with respect to the period commencing March 13, 1992 with respect to any Chiron employee hired by Onyx from the Recruitment List and with respect to any employee on the Recruitment List not hired by Onyx and who, after a good faith effort by Chiron to place such person other suitable employment in Chiron on notification that such person will not be hired by Onyx, resigns or is terminated from Chiron.

(c)  Onyx shall not solicit any Chiron employee not on the Recruitment List, nor shall Chiron solicit any Onyx employees, during the period when Onyx shall be occupying Chiron facilities and for 180 days thereafter. Onyx shall not be liable for recruiting or soliciting any Chiron employee on the Recruitment List to join Onyx while this Technology Agreement is effective, even if it is subsequently terminated.

(d)  Onyx recognizes and acknowledges the existence of obligations of present and former employees of Chiron regarding confidentiality and invention assignments and shall not knowingly tolerate or seek to induce any breach of such obligations, or any disclosure or use of Chiron confidential information (except to the extent specifically permitted hereunder).

4.    Materials and Supplies.

(a)  To the extent it is legally able to do so in consideration of the contract rights of third parties, as identified on Appendix 4, and the proprietary rights of third parties based upon materials provided to Cetus, identified on Appendix 5, Chiron will deliver to Onyx without charge quantities equivalent to those maintained on hand in Cetus' previous work in the Field of the reagents, clones, expression systems, chemicals, biologics and other research materials set forth in Appendix 3 hereto (the "Materials"). As specified in Appendix 3, the Materials shall consist of: (i.) those specific only to the field of molecular oncology (the "Field") as defined in Appendix 1 hereto ("M.O. Materials"), (ii.) those in which Chiron retains a proprietary interest hereunder ("Cetus Substances"), and (iii.) those materials which are identical to those freely available from a commercial source or public repository and which are provided to Onyx without representation or constraint ("Courtesy Materials"). The transfer of any physical property under this Agreement shall not constitute a license to any intellectual property right of any party except as may be granted expressly herein or otherwise in writing. All Onyx employees at Chiron's facilities shall certify that no other materials have been removed from Chiron. All materials being transferred shall be duplicated in Chiron's Master Culture Collection for reference and use not inconsistent with this Agreement.

(b)  The Cetus Substances shall remain the personal property of Chiron Corporation, together with any part of, portion of, antibody to, or combination including such Cetus Substances; and further including, for those Cetus Substances which include genetic material, any progeny, copy, complement, transcription, expression product, mutant, hybrid, or genetic material thereof. Onyx' possession of the Cetus Substances shall constitute a bailment, and not a gift, and Onyx shall only use the Cetus Substances for the purposes set forth in this Agreement.

(c)  At Onyx' sole Charged Expense (as defined below), Chiron will use reasonable efforts to make the Materials set forth in Appendix 3 for Onyx' use hereunder. Chiron shall supply such Materials to Onyx in the same quantities and in the same manner as such Materials were previously provided for the McCormick Group. Chiron shall only be required to produce such Materials and supply Onyx with them until Onyx is reasonably able to make or obtain same for itself in like quantities and quality as required hereunder, and only until one year after the Closing Date. Onyx shall use reasonable efforts to develop such ability. Such materials shall be deemed Cetus Substances for the purposes of this Agreement unless made solely from M.O. Materials and/or Courtesy Materials. Chiron will provide reasonable assistance at Onyx' sole Charged

3

Expense in teaching Onyx how to make such Materials, but shall not be required to devote so much time to such assistance that Chiron' other work is materially adversely affected.

(d)  If a particular cell line in Onyx' possession should die out sooner than three years after the Closing Date, despite Onyx' reasonable efforts, Chiron will make reasonable efforts to resupply Onyx with a living sample of such cell line at Onyx' Charged Expense and provided such line is in Chiron's possession.

(e)  All equipment and Materials provided hereunder are provided 'as is' and WITHOUT ANY WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, TITLE, OR ANY WARRANTY THAT THEY DO NOT INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF ANOTHER. In no case shall Chiron be liable for any alleged injury or defect regarding the Materials or any equipment, nor shall any such injury or defect be deemed an event of breach under this Agreement.

(f)    To the extent not already in the possession of Onyx as a result of hiring former Chiron employees, Chiron will make reasonably available its employees to provide technical advice and consulting relating to the Field as requested by Onyx for a reasonable period not to exceed twenty person-days in the first three months after the Closing Date and ten person-days in each of the three succeeding three-month periods thereafter. Onyx shall make its employees reasonably available to Chiron for consultation at reasonable times for the purposes of enabling Chiron conveniently to retain the value of materials and technologies in the possession of former Chiron employees and in which Chiron has rights for a reasonable period not to exceed twenty person-days in the first three months after the Closing Date and ten person-days in each of the three succeeding three-month periods thereafter. Thereafter, for three years from the Closing Date, each party shall use reasonable efforts, and upon request, to accommodate and satisfy the technical consulting requirements of the other. Each party shall reimburse the other for the Charges for the time reasonably spent at such party's request in such consulting activities by the other's employees.

(g)  Chiron will make available to Onyx at its request for Onyx review and adoption, should it opt to do so, Cetus' generic manuals for safety procedures, handling and disposal of radioactive substances and genetic materials, personnel procedures, and the like. Onyx is under no obligation to adopt or follow any of Cetus' procedures. Onyx may, at its own risk, modify such materials for its own use, and may copy them, and may distribute them without charge provided that no identification of Cetus or Chiron is in such materials. All such information is provided without any warranty or representation whatsoever as to the accuracy, sufficiency, legal compliance, timeliness, or any other aspect thereof.

5.    Chiron Facility.

(a)  Following the Closing Date, Chiron shall allow Onyx to utilize the Chiron facilities currently occupied by the McCormick Group (the "Chiron Facility") at Onyx' Charged Expense. Onyx may, but need not, occupy the Chiron Facility for four months from the Closing Date and an additional five months thereafter provided that Onyx is undertaking reasonable efforts to relocate such group out of the Chiron Facility as promptly as reasonably possible. Subject to the foregoing, all Onyx personnel and property shall be vacated from Chiron's premises on at least two months' prior written notice from Chiron. Onyx shall, in any event, provide Chiron with not less than 30 days prior written notice of its vacation of the Facility.

(b)  Chiron will continue to maintain the Facility as it deems in good faith to be customary for the operation of the Onyx activities in the ordinary course of business and will provide normal operating services (including normal telephone usage (but excluding long-distance service), copier

4

supplies, janitorial services, normal utilities usage, normal provision of media and glassware and other services, including technical services, as was provided to its employees prior to the Closing Date). Such other services shall include, without limitation, access to information and computer systems (including both VAX and PC support), information services (including library access and literature searches), safety and security services (including biological and radiation safety and waste disposal), and access to cabinets, files, closets and other storage facilities at the Facility. Extraordinary usage of such services will be reimbursable to Chiron by Onyx, as a Charged Expense.

(c)  On Onyx' request and in any event prior to the last day of Onyx' occupancy of the Chiron Facility, Chiron and Onyx shall negotiate in good faith the purchase and sale of laboratory equipment used by the McCormick Group at fair market value. However, Chiron need not negotiate to sell any equipment which is not surplus to Chiron's needs or the sale of which at fair market value would cause Chiron to report a loss on the transaction. Onyx shall not be required to purchase equipment which is obsolete, which Onyx cannot utilize in its future business, or which cannot practicably be transported to Onyx' new facilities.

(d)  At no time may the number of Onyx employees (including contractors, consultants, and temporary employees, but excluding a reasonable number of temporary visitors) conducting Onyx activities at the Facility exceed 30 without the prior approval of Chiron, which shall not be withheld unreasonably. In addition, the use of the Chiron Facility shall be subject to such reasonable limitations as Chiron may impose from time to time in order to prevent unreasonable harm to Chiron' businesses after the Closing Date. Chiron may reallocate space as it deems fit in order reasonably to consolidate, to the extent possible, the space occupied by Onyx. If such restrictions or reallocations result in an unreasonable and material impairment to Onyx' ability to utilize the Chiron Facility, then Onyx may terminate its occupancy thereof, or the parties shall negotiate a reasonable adjustment to the terms of Onyx' occupancy or the compensation therefor. Any such reallocation shall be carried out in such a way as to minimize the disruption of Onyx' business. Each Onyx employee will be provided with and at all times while on Chiron' premises will be required to wear an identification badge which distinguishes such Onyx employee from Chiron employees.

(e)  While Onyx is located at the Chiron Facility, the publications in the Information Services Center (library) of Chiron shall be available to Onyx for review, reference, and duplication during normal business hours on a non-circulating basis. Onyx shall be responsible for any copyright royalty charges attributable to copies made by its personnel.

(f)    Chiron will not provide Onyx or Onyx employees (and Onyx will not provide Chiron) with administrative, treasury, legal, human resource, marketing, licensing, manufacturing or research and development services except as expressly set forth in this Technology Agreement.

(g)  Onyx shall obtain all needed permits and licenses required for the conduct of its business at the Chiron Facility, including by way of example, business licenses, permits relating to hazardous wastes, radiation, and the like, import and export permits, employment-related permits, and permits related to the operation of any equipment requiring same. To the extent legally permissible, Chiron shall reasonably cooperate with Onyx to permit Onyx to operate under the permits which Chiron has obtained or is required to obtain to operate the Facility and to obtain permits of its own, and Onyx shall reimburse Chiron for the incremental costs reasonably incurred by Chiron as a consequence of Onyx' operation under such permits.

(h)  Onyx shall comply with all applicable laws and regulations while at the Chiron Facility, and shall comply with all standard Chiron policies regarding building use, security, safety, and the like, provided that Chiron has notified Onyx of such policies reasonably in advance.

5

6.    Payments.

(a)  Costs and "Charged Expenses" paid, calculated or reimbursed under this Technology Agreement (collectively, "Charges") shall be calculated according to Generally Accepted Accounting Principles consistently applied in a manner which reasonably reflects the actual costs involved and in accordance with the regular costing methodology of such party. Upon request a party shall disclose its costing methodology to the other. Chiron's costing methodology is described in Appendix 6 hereto, but as applied to Onyx' Charges by Chiron, such methodology shall be modified to exclude legal department costs, except to the extent department services may be rendered under Section 8.f. Onyx shall keep Chiron informed, on a monthly basis, of its head-count while Onyx is occupying the Chiron Facility.

(b)  Charges to be paid hereunder shall be invoiced monthly, and shall be due and payable within thirty days of receipt of the invoice, except to the extent such Charges are the subject of a credit to Onyx hereunder or to the extent the other party has offsetting Charges hereunder. Invoiced Charges which are the subjects of such credits or offsets shall be acknowledged by the receiving party within thirty days of receipt and shall thereafter be presumed to be properly charged. Any Charge not paid within sixty days of the date of receipt of the applicable invoice shall bear interest at the lesser of 1.0% (one percent) per month or the legal rate, calculated from the date of receipt of the invoice therefor.

(c)  Either party may, at reasonable times and at its sole expense, engage an independent accountant to audit the books and records of the other party regarding the amounts of such Charges and payments. In the event that an error in favor of the auditing party is found, the other party shall make good the error and shall reimburse the auditing party for the actual cost of the auditor to the extent such costs are less than any error discovered.

(d)  The party receiving any property or service hereunder which may be subject to a sales, use, excise, value-added, or similar tax shall be responsible for such tax and shall pay it to the appropriate collecting agency or, where required by law, to the providing party.

(e)  Onyx shall receive a credit from Chiron in the amount of $350,000 to be applied to Chiron Charges to Onyx pursuant to Section 6 hereof, provided that such credit may only be applied to charges for items which do not require Chiron to incur third-party, out-of-pocket expense.

7.    Research Funding by Chiron.    In consideration of Onyx granting the rights set forth in Section 11 hereof, Chiron shall fund the future research activities of Onyx up to an amount equal to $3,600,000 plus the Timing Amount defined below (the "Total Funding Amount"). Except as set forth in this Agreement, such funding shall not entitle Chiron to the results of Onyx' research, or to a license, shop right, or similar right in any results of such research whether patented or not. The Total Funding Amount shall be payable by Chiron in accordance with the following schedule:

(a)  one million dollars ($1,000,000) of such amount shall be paid to Onyx on the Closing Date.

(b)  With respect to the period commencing on the Closing Date, and ending on December 31, 1992, Onyx shall have the right to request from time to time that Chiron make additional research funding payments to it in amounts equal to Onyx' research and other operating expenses (not including capital expenditures) in excess of said one million dollars, provided that such payments, when added to the payments made prior to such request pursuant to this subsection and subsection (a) above, shall not exceed the Total Funding Amount, and further provided that Onyx shall have funded its own expenses out of its own capital fund (including capital contributions) to the extent of at least one million dollars.

6

(c)  If the aggregate research funding payments made prior to January 1, 1993 by Chiron pursuant to subsections (a) and (b) above shall be less than the Total Funding Amount, Onyx shall have the right following such date to request from time to time that Chiron make additional research funding payments to it in amounts that, when added to the payments made prior to such request pursuant to this subsection 7.c and subsections (a) and (b) above shall not exceed an amount equal to the Total Funding Amount; provided, however, that, unless Onyx shall have exhausted all other cash then on hand (except for three months' reserves based on Onyx' anticipated rate of expenditure), including cash attributable to contributions made to its capital, Chiron shall not be obligated pursuant to this subsection to pay over more than $100,000 in any 30-day period. If at the time Onyx makes a request to Chiron for payment under this subsection it shall have exhausted all other cash then on hand excluding reserves as set forth above, Onyx shall be permitted to request, and Chiron shall be obligated to pay, amounts in excess of $100,000 for such 30-day period, up to the balance of the unpaid Total Funding Amount.

(d)  Chiron shall be obligated to make the payments referred to above within five business days of receiving any such request from Onyx. For purposes hereof, the term "Timing Amount" means the summation of the interest on the portion of the Total Funding Amount (including interest previously accrued) which, after the Closing Date, has not been paid or credited pursuant to Sections 6 or 7 and remains outstanding, as calculated monthly (based on the average unpaid portion of the Total Funding Amount over such month) at a rate equal to the monthly average of Donohue's money market average rate for the month to which such calculation applies.

8.    Contract Rights.

(a)  Chiron's obligations hereunder are expressly subject to the existing third-party rights binding Chiron, Cetus, or any affiliate or subsidiary thereof as referenced in Appendix 4, and copies or accurate summaries of them have been made available to agents of Onyx for review.

(b)  Chiron shall reasonably assist Onyx at its request and Charged Expense with regard to the transfer of the McCormick NIH grant (Number CA51992, entitled "Discovery of Drugs Inhibiting Ras Proteins, Project 4") and related subcontracts to Onyx effective on or about the Closing Date. Chiron shall not be liable for any inability or ineffectiveness of Dr. McCormick or his staff to timely perform any act needed to maintain in force or transfer such grant.

(c)  Upon request of Onyx, Chiron shall give Hoffmann-LaRoche ("HLR") notice to cancel its oncogene collaboration agreement with HLR and reasonably assist Onyx at its request and Charged Expense in renegotiating such agreement. To the extent, if any, that Chiron is required to continue to render services under such agreement, Onyx shall (at Chiron's request) perform them on Chiron's behalf and at Onyx' sole cost, except that Chiron shall tender to Onyx any additional payment made to Chiron by HLR on account of such services.

(d)  Prior to the execution of this Technology Agreement, Cetus had entered into numerous agreements with outside collaborators regarding research in the Field. By way of example, such agreements include agreements for the transfer of materials and confidential information to such collaborators, consulting and sponsored research agreements, and other agreements which may include obligations to disclose and license discoveries made by such collaborators in the Field. Chiron shall make good faith efforts to identify those Cetus contracts relating to work by outside collaborators in the Field (the "Field Collaboration Agreements"). To the extent Onyx employees may be former Cetus employees with knowledge of such agreements, Onyx shall assist in Chiron's efforts to identify such agreements. The parties shall use reasonable efforts to complete their identification of the Field Collaboration Agreements prior to August 8, 1992.

(e)  To the extent each Field Collaboration Agreement relates to research in the Field, Chiron shall make best efforts to assign same to Onyx, and Onyx shall make best efforts to assume, the

7

rights, duties, and obligations thereof. If a Field Collaboration Agreement is not assignable, or includes subject matter outside the Field in which Chiron has an interest and which cannot readily be separated, then Chiron may decline to assign such Field Collaboration Agreement to Onyx. Provided, however, that:

(i)  Chiron shall not be obligated to assign, nor shall Onyx be required to assume, any Field Collaboration Agreement which, by August 8, 1993, neither party has identified to the other as such a Field Collaboration Agreement and requested that such agreement be assigned and assumed, respectively.

(ii)  Onyx may decline to assume any Field Collaboration Agreement (except for the collaboration agreement with Dr. Johannes Bos) which assumption would impose on Onyx an obligation to provide a consideration to another party having a value and cost to Onyx reasonably expected to exceed $10,000. If Onyx declines to assume any Field Collaboration Agreement under this subsection ?, then the parties shall reasonably discuss an equitable arrangement with respect to the entire group of Field Collaboration Agreements.

(f)    Chiron shall, at Onyx' request and Charged Expense, provide Onyx with contract administration services for the Field Collaboration Agreements and for similar agreements of Onyx made after the date hereof. Such services shall include drafting, negotiating and tracking such agreements and the obligations thereof. Chiron shall not be liable for any error or omission in rendering such services, nor shall any employee thereof be deemed to be acting as an agent or attorney of Onyx. Chiron may terminate its services hereunder on forty-five days' notice to Onyx.

9.    Covenant Not to Re-Establish Research Program.

(a)  Except as set forth in this Section 9, commencing as of the Effective Date of this Agreement and continuing for three years after the Closing Date, Chiron covenants on behalf of itself and those entities it controls not to continue or establish directly or indirectly a specific research program in the Field on behalf of itself or third parties, provided without limitation, however, that this covenant shall not prevent the fulfilling of the existing contractual obligations set forth on Appendix 4 or engaging in incidental research efforts wherein no individual or group of scientists engages in a material effort directed toward investigations in the Field. Whether or not the following activities may fall within the scope of Chiron's covenant under this Section 9.a., the parties expressly except them as follows:

(b)  Except as set forth in the penultimate sentence of Section 9.c, nothing in this Section 9 affects Chiron's right to continue to employ generally applicable drug discovery or design methodologies, including, without limitation, the random peptide discovery work, the "peptoid" methodology, or other drug discovery techniques developed by Protos or by Dr. James Devlin at Cetus.

(c)  Further, nothing in this Section 9 affects Chiron's activities attendant to the commercializing of any pharmaceutical, including licensing, performing pre-clinical evaluations, engaging in human clinical trials, manufacturing process development, formulation, stability studies, pharmaceutical manufacture, marketing, and sales, whether the pharmaceutical product was developed by Cetus, Chiron, or another party and licensed to one of them, and whether or not such product arose within the Field. Neither shall this section be construed to prohibit any research into intercellular substances and activities and products thereof, nor the discovery and development of any substance or activity which may have some activity relating to the Field where such discovery was incidental to research not in the Field, nor the discovery, design or development for third parties of any substance, except as set forth below. Notwithstanding the foregoing or anything else contained herein to the contrary, in no event shall Chiron perform drug discovery services in the Field on its own behalf or on behalf of third parties involving the mass

8

screening of compounds for the inhibition of the proteins set forth in the definition of the Field as listed on Appendix 1 during the period ending three years after the Closing Date without the prior written consent of Onyx, which will not be unreasonably withheld. Onyx shall be deemed to be reasonable in withholding such consent if such screening involves targets that are directly competitive with specific targets that Onyx is developing or has definitive plans to develop.

(d)  Without expanding the provisions of Section 9.a, the parties acknowledge that one or more third parties may develop or may have developed proprietary positions (as evidenced by patent applications, title to otherwise unavailable research substances, and/or protectable trade secrets) with respect to targets discovered (without the assistance of Chiron otherwise in violation of the terms of this Agreement) in the Field. It shall not be deemed a breach of Chiron's covenants hereunder for Chiron to collaborate scientifically with such parties relating to such target(s), with the goal of developing a commercializable product for Chiron or others to market. Such collaboration may include, for example, design of antibody or antisense materials responsive and/or interactive with said target(s) in or outside of the Field, joint strategizing on additional Field research relating to such target(s) to be performed by such third party, sequencing, expression, and cloning services and the like, examination of the activity of potential therapeutic substances in vitro and in vivo. The entry into such a collaboration by Chiron shall not act to excuse Chiron from its obligations regarding mass screening as set forth in Section 9.c, nor shall Chiron thereby be excused from its obligations regarding screening under Section 2.c.

9

10.    Collaboration Opportunities.

(a)  Upon request by either party, and to the extent not inconsistent with either party's then-existing business and contractual obligations, the parties shall meet from time to time to discuss in good faith the possibility of the following arrangements:

(i)  The use of Chiron's sales and marketing operation for the distribution of Onyx' therapeutic drugs on commercially reasonable terms.

(ii)  The entry of the parties into one or more scientific collaborations.

(b)  The parties acknowledge that they are currently engaged in such good-faith discussions regarding [ * ] and regarding [ * ] (in which technologies Onyx is obtaining no rights under the present Technology Agreement). Additionally, the parties are engaged in good-faith discussions regarding collaboration in the field of [ * ].

(c)  Until the conclusion of the parties' discussions regarding the foregoing potential collaborations, Chiron may elect to leave Onyx in possession of various substances not defined as Materials to be transferred hereunder. Such substances, including without limitation [ * ] systems and [ * ] related substances, shall be held by Onyx in trust for Chiron, any use thereof shall be for Chiron's sole benefit, and such substances shall be returned to Chiron at Chiron's request, all unless the parties subsequently agree otherwise.

11.    Chiron Rights.

(a)  Chiron shall have the rights as set forth below with respect to the following discoveries of Onyx and the patents thereon ("Special Products"):

(i)  "Diagnostics," which include any product or process having utility in [ * ], including without limitation [ * ].

(ii)  "Vaccines," which include any substance intended to [ * ], and which further include any substance which is intended to [ * ]. Any license or strategic partnership regarding [ * ] will include a right of Onyx to co-market any products developed thereunder.

(iii)  "Gene Therapy," which includes any product or process having utility with respect to [ * ].

(b)  For a period of fifteen years from the Closing Date, Chiron shall have the option ("Option Right") to one or more exclusive, reasonable royalty-bearing licenses with respect to one or more developments in the fields of Diagnostics or Vaccines.

(i)  If Chiron chooses to exercise its Option Right from time to time, it shall deliver a written "Notice of Exercise" to Onyx, specifying the Special Product(s) as to which such exercise has been made. Within thirty days after the delivery of each such Notice of Exercise, the parties shall meet in good faith to negotiate the terms of a license to such Special Product. At Onyx' option, to be declared within forty-five days of receipt of the Notice of Exercise, Onyx may delay the time for determining the reasonable royalty rate to the date of the commencement of Phase II clinical trials of the first product subject to such exercise. If, by the ninetieth day after delivery of the Notice of Exercise, the parties have not agreed on all terms for a license (except for royalty rate if delayed pursuant to the preceding sentence), and except as set forth in the section immediately following, Chiron may, at its option, thereafter submit the terms of the license to arbitration. The Arbitrator(s) in such a case shall determine a reasonable royalty (unless delayed) and other customary license terms based on relevant industry standards, the value and scope of patent coverage, and the respective contributions of the parties to the value of the finished product. At the request of either party, the Arbitrator shall also resolve as part of such arbitration, and impose as part of the license terms,

10

reasonable and customary diligence provisions and obligations on Chiron with respect to the commercialization and the promotion, marketing and sale of the Special Product(s) then being licensed. If the royalty rate is to be determined after the occurrence of a later event, it may be arbitrated separately at that time.

(ii)  In addition, at the request of either party, the Arbitrator shall determine with respect to any given Special Product whether Chiron then is reasonably able to promptly commercialize (directly and/or indirectly through its normal distribution channels or other third parties with whom Chiron has entered into agreements contemplating such commercialization) the rights to be exclusively licensed hereunder and to meet reasonable and customary milestone requirements so as to provide Onyx with a reasonable return with respect to that Special Product. If the Arbitrator finds in the negative as to the question immediately preceding, then as to the Special Product in question, Chiron's license rights hereunder shall be exclusive but for the right of Onyx (or its licensee as set forth below) to commercialize the Special Product, and Chiron's royalty and other license obligations to Onyx shall be appropriately and equitably reduced to take into account the co-exclusive rights being retained by Onyx. Such a co-exclusive right retained by Onyx shall include the right either to commercialize the Special Product world-wide (directly and/or indirectly through its normal distribution channels or third parties), or, with respect to any given country the right to license such rights, in Onyx' place and to its exclusion, to no more than one third party.

(iii)  If, pursuant to the preceding Section 11.b.i, Onyx and Chiron have failed to reach agreement on all license terms within ninety days of the Notice of Exercise, then within fifteen days of such ninetieth day, Onyx may give notice to Chiron of its intent to seek to market a license to the Special Product subject to such exercise to a third party and may, for ninety days after such notice of intent, discuss a license to the Special Product with third parties. Upon such notice, Chiron's right to arbitrate a license shall be tolled. If Onyx receives a bona fide offer to enter into a license with a third party (the "Outside License") within such ninety days, it shall disclose all of the particulars of such offer to Chiron, tender to Chiron the right to accept such terms modified only as necessary to permit them to be reasonably capable of being accepted by Chiron while providing substantially equivalent benefit to Onyx, and Chiron may within sixty days of such disclosure and offer, accept such terms. If Chiron fails to accept such terms or to enter into such a license, then Onyx may enter into the Outside License with the offeror within sixty days of Chiron's election. If Onyx shall not have executed the definitive agreement for such an Outside License, or if Onyx does not receive an offer for an Outside License, then the period for Chiron to initiate arbitration as set forth in the preceding section shall commence at the end of such sixty days.

(iv)  Onyx may terminate the foregoing Option Rights as to specific Special Products when Onyx has completed Phase II human clinical trials thereof without having theretofore agreed to provide rights to such product to any third party, by providing Chiron with not less than 90 days' written notice and fully disclosing all relevant information then in Onyx' possession regarding such product, and if Chiron has been afforded, and has refused, a fair opportunity to participate in the commercialization thereof as set forth in this Section 11.

(c)  At any time, Chiron may propose that Onyx enter into a strategic relationship with respect to a Special Product. Upon receipt of such proposal, Onyx and Chiron shall thereafter meet to discuss such relationship in good faith for a period of thirty days. Onyx shall not be obligated to enter into any such relationship.

(d)  At any time, Onyx may propose that Chiron enter into a business or product development relationship with respect to a Special Product. Upon such proposal, Onyx shall disclose all relevant information regarding such Special Product, and the parties shall thereafter meet in good faith to

11

negotiate such a relationship. As to any such proposal, if, after 60 days, Chiron and Onyx have failed to reach agreement on such a relationship with respect to such Special Product, then, for 120 days Onyx may enter into such a relationship with another party on terms no more favorable when taken as a whole to such third party than those offered by Onyx to Chiron.

(e)  Any Arbitration under this Agreement shall be conducted in San Francisco under the auspices and according to the commercial rules of the American Arbitration Association before a single neutral arbitrator. Discovery shall be allowed on good cause shown.

12.    Confidentiality.

(a)  Each party shall maintain in strict confidence and shall not use or disclose the Confidential Information of the other party except to the extent expressly set forth herein or as the other party may grant express permission in writing. Each party's confidentiality obligations hereunder shall expire three years after the later of (i.) the date Onyx entirely vacates the premises of Chiron or (ii.) the date such information is first disclosed to the other party.

(b)  "Confidential Information" shall mean all information of either party which is in the possession of the other party or its employees, or which may come into their possession through disclosure or through inadvertent or casual communications which may take place during the location of either party's personnel at the premises of Chiron, and shall be deemed to include without limitation all technical information, research strategies, findings, genetic sequence, patent applications, business plans, and commercial information, whether or not specifically identified as confidential and regardless or the from in which such information may be embodied. Confidential Information shall not include:

(i)  Information which is known generally to the relevant public through no fault of the receiving party;

(ii)  Information which is received from a third party as a matter of right and without breach of a duty to the disclosing party;

(iii)  Information which was in the possession of the receiving party prior to receipt from the disclosing party, as evidence by contemporaneously-written documentation and except for such information received by Onyx personnel on account of prior employment with Chiron; or

(iv)  Information which is independently developed by the receiving party, as evidenced by contemporaneous documentation, without use of or reference to any Confidential Information of the disclosing party.

13.    Scientific Contact.

(a)  Periodically, and not less than once per year, appropriate scientific personnel designated by Chiron and Onyx respectively shall meet in a scientific conference (1) to review the Field generally, (2) to disclose (consistent with confidentiality obligations) third-party collaborations and other third-party activities in the Field, and (3) to the extent neither party's business is damaged thereby, to discuss the ongoing investigations and progress of Onyx in its work and to consider possible areas of mutual scientific interest.

(b)  Partially in order to assist in keeping Chiron reasonably apprised of the progress of work at Onyx, including work in the Field and work which may be subject to Chiron's rights hereunder, Chiron may, at its own sole expense, and subject to Onyx' approval not to be unreasonably withheld, appoint a representative to Onyx' Scientific Advisory Board. To the extent neither party's business is damaged thereby, such representative may participate in the same activities as the other members of the Advisory Board.

12

14.    Term and Termination.    This Agreement shall continue in force indefinitely unless terminated according to the terms hereof.

(a)  Sections 3 ("Personnel"), 4.b (regarding Cetus Substances), 12 ("Confidentiality") and 15 ("Indemnity") shall survive any termination of this Technology Agreement. Any rights which accrued to either party prior to such termination shall be preserved, including the right of either party to receive a payment and the rights of Chiron in certain Special Products as set forth in Section 11 as to which Chiron has previously exercised its Option Rights. Chiron may, in terminating this Technology Agreement, give Onyx notice that the provisions of Section 2.a (except for improvements to Cetus Substance Technology made after the date of termination) shall survive termination, in which case the Option Rights to all Special Products shall also survive termination. Otherwise, Chiron must exercise its Option Rights, if at all, within [ * ] of the date of termination, and they shall thereafter terminate.

(b)  Either party may terminate this Agreement on written notice as follows:

(i)  Sixty days after the filing of a voluntary or involuntary petition of bankruptcy regarding the other party (which petition is not dismissed within sixty days), or Onyx seeking any similar judicial protection from creditors, or making an assignment for the benefit of creditors.

(ii)  Immediately on notice that the other party is suspended, winds up or otherwise ceases to do business.

(iii)  Immediately upon the other party purporting in writing to assign this Technology Agreement or any rights thereunder to a third party other than in accord with the express terms of this Technology Agreement.

(iv)  Thirty days after the other party has been notified of a material breach of this Technology Agreement or of the Financing Agreement but has failed to cure such breach.

(v)  Immediately upon termination of the Financing Agreement before all equity to be invested in Onyx as contemplated by the Financing Agreement has been so invested.

(c)  Upon termination of this Agreement, (i.) Onyx shall deliver to Chiron all Materials (except Courtesy Materials and M.O. Materials) in Onyx' possession, custody or control, and Chiron shall be entitled to immediate possession of said Materials (unless Chiron has elected not to terminate the provisions of Section 2.a), and (ii.) Onyx shall vacate Chiron's facility within thirty days of receipt of the notice of termination, unless Onyx is in default of its obligation to pay for its occupancy, in which case Onyx shall vacate immediately, and (iii.) Onyx shall pay all amounts due to Chiron, net of any amounts due from Chiron to Onyx hereunder.

(d)  Upon a Change of Control, Chiron shall be entitled upon [ * ] notice, to terminate the provision of certain services to Onyx, namely, [ * ] "Change of Control" means: the acquisition of more than 50% of the voting power of all outstanding shares of Onyx stock by a single entity or combination of entities acting in concert; the merger or sale of Onyx; a transaction which ends Onyx' publicly-owned status; the acquisition of more than 15% of the voting power of all outstanding shares of Onyx by a competitor of Chiron; or a sale of substantially all the assets of Onyx.

15.    Indemnity.    Onyx shall indemnify, defend and hold harmless Chiron, its affiliates, and their agents, employees, officers, and directors from and against any and all claims, liabilities, loses, costs, damages and expenses (including actual attorneys fees and costs) of every kind nature and description (collectively "Claims") which may be payable by virtue of, or be based upon, or arise out of, or result from the activities of Onyx whether pursuant to this Technology Agreement or in breach thereof, or otherwise, including without limitation any claim of personal injury, workers compensation, or the like

13

(whether arising from an incident at Chiron or not), violation of any patent, copyright, trademark, trade secret or other intellectual property right by Onyx, or any failure of Onyx to obtain any needed permit, license, or government approval or the like for carrying out its business and research operations, provided, however, that Onyx shall not be required to so indemnify to the extent that it is found by a court of competent jurisdiction that Claims were caused by the intentional misconduct or gross negligence of Chiron or to the extent such Claims arose from the breach by Chiron of its contractual obligations to another party.

16.    Miscellaneous.

(a)Governing Law. This Technology Agreement shall be governed by the laws of the State of California. The parties hereby irrevocably submit to the jurisdiction to the courts sitting in the counties of San Francisco and Alameda.

(b)Severability. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions of this Agreement shall continue in full force without being impaired or invalidated in any way, to the maximum extent possible consistent with the intent of the parties in entering into this Agreement.

(c)  Entire Agreement. This Technology Agreement sets forth the entire agreement of the parties with regard to the subject matter set forth herein and supersedes all prior agreements, discussions, and understandings between Chiron and Onyx. The previous undertakings by Institutional Venture Partners and Avalon Ventures regarding personnel and confidentiality, and by Dr. Frank McCormick additionally regarding certain employment matters, shall remain in full force and effect.

(d)  Amendments and Waiver. This Technology Agreement may only be amended by a written instrument executed by the parties hereto. No waiver of any right under this Agreement shall be deemed effective unless set forth in a writing signed by the party charged with such waiver, and no waiver of any breach or failure to perform shall be deemed to be a waiver of any future breach or failure to perform or of any other provision of this Agreement.

(e)  Force Majeure. Each party shall be excused from the performance of its obligations if such performance is prevented by circumstances beyond its reasonable control. Such excuse from performance shall continue until 30 days after the termination of such circumstances. Circumstances beyond the reasonable control of a party include, without limitation, acts of God, acts, regulations or laws of any government including any orders, injunctions or similar rulings of any court or governmental commission or agency, war, civil commotion, damage to or destruction of production facilities or materials by fire, earthquake, storm or other disaster, epidemic and failure of public utilities or common carriers. The party claiming to be affected by any such circumstances shall give immediate notice to the other party, giving full particulars thereof.

(f)    Agency. Neither party shall under any circumstance be deemed an agent, representative, partner or employee of the other, and neither may enter into any contracts or commitments in the name of or on behalf the other.

(g)  Assignability by Onyx. Onyx may not assign this Technology Agreement or any rights hereunder to any other party without Chiron's express written consent, which may be withheld in Chiron's sole discretion. However, Onyx may assign this Agreement to a successor to the business of Onyx to which this Agreement pertains without Chiron's consent, except that the provisions of Section 2.a.iii (license to Cetus Substance Technology) shall terminate, and Onyx shall return to Chiron all Cetus Substances.

(h)  Notices. Any notice or other communication required or permitted to be given to any party under this Agreement shall be given in writing and shall be delivered by hand or by

14

registered mail postage prepaid and return receipt requested, addressed to each party at the following address or such other address as may be designated by such party by notice pursuant to this Section 16.h:

To Chiron:	President, Chiron Corporation 4560 Horton Street Emeryville, California 94608 cc: General Counsel
To Onyx:	President, c/o Heller, Ehrman Attn: Michael O'Donnell 525 University Avenue Palo Alto, California 94301

(i)    Disclosures Regarding Patents. To the knowledge of Chiron's attorneys and officers: Chiron owns sufficient title in the patents set forth in Appendix 2 to grant the rights granted herein, and no written charge of patent infringement has been made against Chiron with respect to the operations of the McCormick Group in the Field, and Chiron has not caused to be prepared any opinion of counsel respecting the validity or enforceability of any patent believed by Chiron to bear on the operations of the McCormick Group in the Field. Upon request of Onyx, in anticipation of the transfer of this Agreement to a third party pursuant to Section 16.g, but without a license to the Cetus Substances or the Cetus Substance Technology, Chiron shall prepare a list of issued or published patents reasonably believed to bear on such Substances and/or Technology, which list shall be furnished within 30 days of Onyx' request, but shall be without prejudice to Chiron.

(j)    Construction. This Technology Agreement is the result of mutual negotiations and drafting, and any ambiguities are not to be construed strictly against either party. The captions in this Agreement are for convenience only, and shall not be used to define, limit, or extend the terms hereof.

(k)  Third Parties. This Technology Agreement is intended and shall to benefit solely Chiron and Onyx, and no third party shall be a beneficiary hereunder.

(l)    Authority. The undersigned parties represent that they are authorized to enter into this Agreement.

(m)  Costs and Expenses. Onyx shall reimburse Chiron for its reasonable attorneys fees in connection with the negotiation of this Technical Agreement, the Financial Agreement, and the Agreement in Principle, provided, however, that Onyx need not reimburse such fees to the extent that the aggregate amount thereof exceeds $5,000.

(n)  Press Releases and Publicity. Any press release about the formation of Onyx will be jointly approved by Chiron and Onyx and will be issued on a simultaneous basis by both parties. Neither party shall use the name of the other in any publicity, advertising, or marketing material without the consent of the other, which shall not be unreasonably withheld.

(o)  Multiple Counterparts. This Technology Agreement may be executed in one or more counterparts, each of which shall be an original, and all of which shall constitute one instrument.

15

IN WITNESS WHEREOF, the undersigned have executed this TECHNOLOGY AGREEMENT as of the date first-above written.

CHIRON CORPORATION, on behalf of itself and Cetus Oncology Corporation		ONYX PHARMACEUTICALS, INC.
By:	/s/ Hollings C. Renton	By:	/s/ S. D. Colella
Name:	Hollings C. Renton	Name:	S. D. Colella
Title:	President	Title:	CEO

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

APPENDIX 1

DEFINITION OF FIELD

"Field" shall mean:

The study of the intracellular regulatory pathway controlling cell proliferation [ * ]. The Field further includes [ * ] for use as therapeutic agents for neoplastic disorders.

By way of example, [ * ].

Notwithstanding the foregoing, the Field does not include the study of [ * ].

I-1

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

APPENDIX 2

PATENTS

Case No. Serial No. Filing Date	Title	Status	Inventors
2182 652,752 9/19/84	PEPTIDE ANTIBODIES AND THEIR USE IN DETECTING ONCOGENE PRODUCTS	Abandoned	F. McCormick G. Wong R. Clark N. Arnheim D. Nitecki
2182A 871,089 6/5/86	PEPTIDE ANTIBODIES AND THEIR USE IN DETECTING ONCOGENE PRODUCTS	Abandoned	Same as above
2182.1 661,909 10/17/84	PEPTIDE ANTIBODIES AND THEIR USE IN DETECTING ONCOGENE PRODUCTS	Issued; U.S. Patent No. 4,798,787	F.McCormick G.Wong R.Clark
2182.1A 871,088 8/15/86	PEPTIDE ANTIBODIES AND THEIR USE IN DETECTING ONCOGENE PRODUCTS	Abandoned	F.McCormick G.Wong R.Clark N.Arnheim D.Nitecki
2188 661,686 10/17/84	PEPTIDE ANTIBODIES AND THEIR USE IN DETECTING ONCOGEN PRODUCTS	Issued; U.S. Patent No. 4,762,706	F.McCormick G.Wong R.Clark N.Arnheim D.Nitecki J.Feramisco
2188A 938,598 12/5/86	PEPTIDE ANTIBODIES AND THEIR USE IN DETECTING ONCOGENE PRODUCTS	Abandoned	Same as above
2450 216,888 7/8/88	COMPOSITIONS FOR DETECTING RAS GENE PROTEINS AND CANCER THERAPEUTICS	Allowed; awaiting issuance	F.McCormick K.Koths R.Halenbeck M.Trahey
2450A 672,348 3/20/91	COMPOSITIONS FOR DETECTING RAS GENE PROTEINS AND CANCER THERAPEUTICS	Pending	F.McCormick K.Koths R.Halenbeck M.Trahey

2-1

2465 230,761 8/10/88	GAP GENE SEQUENCES AND DIAGNOSTIC USES THEREOF	Abandoned	G.Martin G.Wong F.McCormick
2465.1 260,807 10/21/88	GAP GENE SEQUENCES AND DIAGNOSTIC USES THEREOF	Abandoned	G.Wong G.Martin F.McCormick B.Rubinfeld E.O'Rourke R.Clark
2465.1A 774,644 10/11/91	GAP GENE SEQUENCES AND DIAGNOSTIC USES THEREOF	Pending	G.Wong G.Martin F.McCormick B.Rubinfeld E.O'Rourke R.Clark
2465.2 396,910 8/21/89	PEPTIDE SEQUENCES, AND DIAGNOSTIC AND THERAPEUTIC USES THEREOF	Abandoned	F.McCormick G.Wong P.Polakis B.Rubinfeld
2465.2A 776,878 10/16/91	PEPTIDE SEQUENCES, AND DIAGNOSTIC AND THERAPEUTIC USES THEREOF	Pending	F.McCormick G.Wong P.Polakis B.Rubinfeld
2465.3 624,299 8/14/90	NATIVE TYPE II GAP, METHODS FOR PURIFYING VARIOUS GAPS AND USES OF GAPS TO DIAGNOSE CANCER	Pending	R.Halenbeck K.Koths F.McCormick B.Rubinfeld E.O'Rourke R.Clark G.Wong G.Martin
2564 502,332 3/30/90	PURIFIED RAP GAPS AND USES THEREOF	Pending	P.Polakis B.Rubinfeld F.McCormick
2564.1 642,801 1/18/91	PURIFIED RAP GAPS, RAP GAP SEOUENCES AND USES THEREOF	Pending	P.Polakis F.McCormick B.Rubinfeld
2594 702,771 5/17/91	PURIFICATION AND CLONING OF P62	Pending	G.Wong F.McCormick

2-2

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

APPENDIX 3

LIST OF MATERIALS

M.O. Materials:

[ * ]

Courtesy Materials:

Courtesy Materials shall be negotiated in good faith at Onyx' request. In general, such materials will include those freely available from commercial sources or public repositories, and which Cetus or Chiron customarily provides to other companies without commercial restrictions or licensing rights. The following materials, to the extent they are agreed to be appropriate as Courtesy Materials, may be included in such definition:

[ * ].

Cetus Substances:

Any Material not otherwise classified by Chiron shall be deemed to be a Cetus Substance. Until otherwise thus classified, the following Materials are included in the definition of Cetus Substances:

[ * ].

3-1

APPENDIX 4

IDENTIFICATION OF THIRD PARTY CONTRACTS

        The following contracts have been identified in good faith and in view of the expressed intention of Onyx to engage in activities in the Field and to commercialize the results of such activities. Chiron shall not be required to transfer any license right, know-how, or material, or perform any other act which triggers a liability under any of the following:

[ * ].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

4-1

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

APPENDIX 5

IDENTIFICATION OF THIRD PARTY MATERIALS

        Notwithstanding their inclusion elsewhere, the following items have been identified by Dr. McCormick or others as having been received from third parties as gifts or otherwise without restriction as a courtesy from the donor, or they are presently suspected to be based on such substances. Chiron shall review the circumstances of such receipts and, to the extent it deems itself legally able to give such items to Onyx, shall reclassify such items as Materials. Until such time, to the extent, if any, that Onyx is in possession of such substances, or any other substances not deemed Materials hereunder, such substances shall be deemed to be held in trust for Chiron and shall be delivered to Chiron at its request:

[ * ].

5-1

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

APPENDIX 6

PROJECT COSTING METHODS
MAJOR PRINCIPLES

        Chiron's current (December 1991) project costing methods include the following accounting practices:

•

[ * ]

6-1

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

APPENDIX 7

RECRUITMENT LIST

Iris Albert
Gideon Bollag (NCI post doc not on Chiron head count)
Clayton Casipit
Robin Clark
Leah Conroy
Simon Cook
Walter Crosier
Mazie Coyne
Ellen Freed
Jonathon Graves
Jim Litts
Susan MacDonald
George Martin
Peter McCabe
Frank McCormick
Susan Munemitsu
Gwynn Pardee
Paul Polakis
Denise Ramirez
Bonnee Rubinfeld
Maria Ruggieri
Brian Souza
Yi-Eve Ting
Lelia Wu

        Onyx waives the provisions of the Agreement in Principle and the Definitive Agreement prohibiting Chiron from competitively recruiting Leah Conroy or otherwise attempting to dissuade her from leaving Chiron.

7-1

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

CHIRON—ONYX HPV ADDENDUM

THIS ADDENDUM is entered into as of December 2, 1992 by and between ONYX PHARMACEUTICALS, INC. ("Onyx") and CHIRON CORPORATION ("Chiron"), and it is an addendum to that certain Technology Transfer Agreement between the parties referenced below.

1.    Background

1.1  Effective as of April 24, 1992, Chiron and Onyx entered into a Technology Transfer Agreement ("TTA") which, among other things, provided for the transfer of certain rights and materials to Onyx, certain payments to Onyx, and the grant of rights and options in certain of Onyx's inventions, all as set forth in the TTA.

1.2  Chiron did not transfer to Onyx Chiron's rights regarding Human Papilloma Virus ("HPV"), but instead retained such rights, and Onyx agreed to hold any of Chiron's materials relating thereto in trust for Chiron.

1.3  Onyx has, using such materials, continued to develop information, assays, and techniques regarding HPV, and Chiron and Onyx now desire to enter into a collaboration regarding HPV, and Chiron is willing to provide support for the collaboration, as set out more particularly below.

2.    Collaboration

2.1  Field. The "Field" of the collaboration shall be therapeutic products for HPV which operate by [ * ].

2.2  Activities. Chiron and Onyx shall jointly and separately perform investigations in the Field as reasonably determined by mutual agreement and as modified from time to time by mutual consent.

2.3  Conferences. In addition to the regular interaction between those personnel directly involved in the Collaboration, Chiron and Onyx shall, not less than quarterly, meet to exchange scientific information relating to the Field and to the Collaboration.

2.4  Staffing. Chiron shall devote at least [ * ] to collaboration activities in the Field. Onyx shall devote [ * ] to collaboration activities in the Field. Each party shall identify to the other the personnel involved in such research, which personnel shall be reasonably acceptable to all parties.

2.5  Term. The term of the Collaboration shall be from the effective date hereof until [ * ]. At Chiron's option, the term of the Collaboration may be extended in successive [ * ] terms through [ * ] upon notice given [ * ] prior to expiration of the term and tender of consideration equal to [ * ] per additional month.

3.    Rights

3.1  Collaboration Developments. The "Collaboration Developments" include any assay, invention, improvement, method, or composition of matter relating to the Field which is first conceived or reduced to practice by either party during the term of the Collaboration, or by Onyx prior to such term using the Chiron Background Properties. Collaboration Developments include samples of biological materials created during the term of the Collaboration as well.

3.2  Chiron Background Properties. The Chiron Background Properties are the secrets, know-how, and biological materials obtained from Chiron and relating to HPV which Onyx has

1

had in its possession prior to the effective date hereof. Chiron Background Properties further include such items in Chiron's possession which, in Chiron's opinion will be useful in investigations in the Field and which may be disclosed or transferred to Onyx without breach of a duty to a third party (including [ * ]).

3.3  Disclosures. Chiron and Onyx shall promptly disclose to each other any Chiron Background Properties and Collaboration Developments promptly upon execution hereof or promptly upon the making thereof. Such disclosure shall include samples of all biological materials relevant to same.

3.4  Patent Rights. Subject to Section 5.2, in addition to the rights granted Chiron in the TTA, the parties shall each have a co-exclusive right to any patent on any Collaboration Development. Specifically, ownership of patents on Collaboration Developments shall be determined by inventorship according to United States law, and the applications therefor will be prosecuted as set forth below. Each party shall be the sole licensee in the Field of the other party's interest in such patents, and each party shall have a non-exclusive license to use the non-patented Collaboration Developments of the other in the Field or outside of it, which licenses, and the license to the [ * ] Patents, may be assigned entirely with respect to each individual territory, and with respect to each commercially distinct product, in such party's place, and to its exclusion, to a third party, and each party, or its permitted assignee, may under its licenses engage in collaborative research activities, joint development and/or co-promotion of such product with a third-party development partner.

3.5  Prosecution of Patents. The parties shall cooperate reasonably in the prosecution of any patent on any Collaboration Development, the expenses of which prosecution shall [ * ] and which prosecution shall be undertaken by counsel mutually acceptable to both parties. If a party elects not to fund prosecution of any patent application, then the other party may continue the prosecution thereof at its sole expense and shall own all right, title, and interest thereto, with the non-electing party retaining only a non-exclusive, nontransferable, and non-sublicenseable "shop right" to practice the patented invention.

3.6  Chiron Background Properties. During the Collaboration, Onyx may use the Chiron Background Properties for the purposes of the Collaboration. Upon the termination of the Collaboration, provided that Onyx has delivered to Chiron all improvements thereof (which Chiron shall be free to use), and subject to any third-party restrictions on use thereof Onyx shall be free to use such Chiron Background Properties without further obligation to Chiron.

3.7  [ * ] Patents. The "[ * ] Patents" are those patents jointly owned by Chiron and [ * ] relating to HPV, serial numbers [ * ], any division, continuation, reissue or foreign counterparts thereof. Chiron is the co-owner of the [ * ] Patents and holds an option to an exclusive license thereto. Upon termination of the Collaboration, Chiron shall grant to Onyx, at Chiron's option either:

3.7.1    a royalty-free non-exclusive license to the [ * ] Patents; or

3.7.2    a non-exclusive sublicense to the [ * ] Patents at the same royalty rate which Chiron is obligated to pay the licensor thereof, including a pro-rata share of any fixed or up-front fees, but in no event shall Onyx be required to pay on terms less favorable than those given any other sublicensee, and Chiron shall provide Onyx with notice of Chiron's election promptly upon Chiron's exercise or non-exercise of its option with the licensor thereof.

4.    Payments

4.1  Total Funding Amount. In consideration of the rights granted herein, Chiron hereby increases the Total Funding Amount in the TTA by [ * ].

2

4.2  Loan Payment Delay. [ * ] of Onyx's debt currently due and payable to Chiron shall not become payable until [ * ] (except, at Chiron's option, as an offset against the final portion of the amounts due to Onyx under the TTA), prior to payment, such debt shall bear the same interest rate as that borne by the unpaid portion of the Total Funding Amount.

4.3  Inducement of Chiron Research. Onyx shall, in consideration of Chiron's participation in the Collaboration, have no right to receive [ * ] any payments pursuant to Section 7.c of the TTA in excess of [ * ](apart from payments received on account of 1992 activities). This Section 4.3 shall not affect the Total Funding Amount.

5.    Commercial Collaboration

5.1  Intent. The parties intend, during the term of the Collaboration, to negotiate in good faith the possible long-term commercial collaboration regarding the development of a commercial therapeutic for HPV.

5.2  Exclusive Discussions. During the term of the Collaboration, each party. shall not initiate, engage in, or continue discussions with any outside party regarding a possible collaboration regarding therapeutic products for HPV in the Field, other than ordinary scientific collaborations with non-profit entities, such as universities.

5.3  Right of First Refusal. For a period of [ * ] following the conclusion of the term of the Collaboration, as such term may be extended, Onyx shall not enter into any agreement with any third party which includes any right to commercialize any product in the Field unless Onyx has first disclosed the terms of such agreement to Chiron and offered Chiron the opportunity to enter into an agreement having identical (or, where identical terms are impractical, materially similar) terms and Chiron has failed to accept such offer within [ * ] of such offer.

6.    Relationship to TTA. This Addendum is an amendment to and a part of the TTA, defined above, and shall be subject to all of its terms. No provision of the TTA shall be deemed modified unless expressly inconsistent with the terms hereof.

CHIRON CORPORATION		ONYX PHARMACEUTICALS, INC.
By:	/s/ W. Moos Walter Moos Vice President	By:	/s/ Nancy U. Kamir
		Name:	Nancy U. Kamir
		Title:	VP, Corporate Development

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

3

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

AMENDMENT TO TECHNOLOGY TRANSFER AGREEMENT

THIS AMENDMENT TO TECHNOLOGY TRANSFER AGREEMENT (the "Agreement"), is made as of February 1, 1994, by and between ONYX PHARMACEUTICALS, INC., of Richmond, California ("Onyx") and CHIRON CORPORATION, of Emeryville, California ("Chiron"), to amend the terms of the TECHNOLOGY TRANSFER AGREEMENT dated April 24, 1992, between Onyx and Chiron (the "Transfer Agreement").

RECITALS

WHEREAS, the parties hereto desire to amend the Transfer Agreement to extend the period during which certain patent rights are licensed solely to Onyx with respect specifically to rap Gap, in exchange for the release of Chiron from its covenants in the Transfer Agreement against certain research activities in the Field (as defined in the Transfer Agreement); and

WHEREAS, the parties desire to amend the notice provisions of the Transfer Agreement and to reach agreement with respect to specific confidentiality and material transfer obligations.

NOW THEREFORE, in reliance upon and in consideration of the following undertakings, the parties agree as follows:

1.    The third and fourth sentences of Section 2.a.i of the Transfer Agreement are hereby amended to read in their entirety as follows:

"From the Closing Date (as hereinafter defined) until January 1, 1999, said license shall be a sole license to Onyx for use in the Field with respect to all referenced patents and applications to the extent that they claim subject matter relating to rap Gap or the use of rap Gap in the Field. From the Closing Date until three years thereafter, said license for use in the Field shall be (i) exclusive with respect to such rap Gap subject matter, and (ii) otherwise sole and co-exclusive with Chiron, (and shall exclude Chiron only to the extent of the covenants in Section 9), and said license shall thereafter be non-exclusive (except as set forth in the immediately preceding sentence)."

2.    The first sentence of Section 2.b of the Transfer Agreement is hereby amended to read in its entirety as follows:

"Chiron shall not be obligated to maintain in force any patent or prosecute any application, except that Chiron agrees to be reasonably diligent in the prosecution of all pending applications that claim subject matter relating to rap Gap or the use of rap Gap in the Field until and unless it chooses to abandon or discontinue the prosecution or maintenance of any such patent or application.

3.    The first sentence of Section 9.a of the Transfer Agreement is hereby amended to read in its entirety as follows:

"Onyx hereby agrees that Chiron may conduct its own research activities in the Field, subject to the license granted to Onyx. However, except as set forth in this Section 9, commencing as of the Effective Date of this Agreement and continuing for three years after the Closing Date, Chiron covenants on behalf of itself and those entities it controls not to establish or conduct directly or indirectly a specific research program in the Field with respect to any aspect of the ras pathway on behalf of any unaffiliated third parties, provided without limitation, however,

1

that this covenant shall not prevent the fulfilling of the existing contractual obligations set forth on Appendix 4 or engaging in incidental research efforts wherein no individual or group of scientists engages in a material effort directed toward investigations of the ras pathway in the Field."

4.    The penultimate sentence in Section 9.c of the Transfer Agreement is hereby amended to read in its entirety as follows:

"Notwithstanding the foregoing or anything else contained herein to the contrary, in no event shall Chiron perform drug discovery services in the Field relating to the ras pathway or any proteins or components thereof on behalf of third parties involving the mass screening of compounds for the inhibition of the proteins in the ras pathway during the period ending three years after the Closing Date without the prior written consent of Onyx, which will not be unreasonably withheld."

5.    Section 9.c of the Transfer Agreement is hereby amended to add the following new sentence at the end of the paragraph that read in their entirety:

"Pursuant to Sections 10 and 13 hereof, until February 1, 1999, Chiron agrees to advise Onyx from time to time of the existence of any research program it may undertake directed to the identification of substances having activity with respect to rap Gap or otherwise to the use of rap Gap in the Field and to consider in good faith any proposal Onyx may make for the establishment of a research and development collaboration under which Onyx (alone or with a corporate partner) may fund such program and acquire rights to commercialize any such product."

6.    The notice provisions of Section 16.h of the Transfer Agreement are hereby amended with respect to notice to Onyx as follows:

"To Onyx:

Onyx Pharmaceuticals, Inc.
3031 Research Drive, Bldg. A
Richmond, California 94806
Attention: President

with a copy to:

Robert L Jones, Esq.
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square, 4th Floor
Palo Alto, CA 94306"

7.    Except as specifically amended under this Agreement, the Transfer Agreement shall remain in full force and effect.

8.    Chiron hereby consents under section 12 of the Transfer Agreement, to the disclosure of Chiron Confidential Information to a third party pharmaceutical company with whom Onyx enters a collaboration agreement in the Field, provided that such collaboration agreement shall impose confidentiality obligations on such third party with respect to non-disclosure of the Chiron Confidential Information at least as restrictive as the obligations applicable to Onyx in Section 12 of the Transfer Agreement. Chiron further agrees that all Materials listed on Appendix 3 may be used and transferred by Onyx, to the extent that such Materials are not proprietary to Chiron.

9.    Upon the request of either party, the parties hereto agree to meet and discuss in good faith any other amendments to the Transfer Agreement necessary to accommodate the reasonable needs or circumstances of such party.

10.  This Agreement shall be governed by the laws of the State of California as those laws are applied to contracts entered into and to be performed entirely in California by California residents.

11.  This Agreement contains the final, complete and exclusive agreement of the parties relative to the subject matter hereof and may not be changed, modified, amended or supplemented except by a written instrument signed by both parties.

2

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

ONYX PHARMACEUTICALS, INC.		CHIRON CORPORATION
By:	/s/ Hollings C. Renton	By:	/s/ William Green
Name:	Hollings C. Renton	Name:	William G. Green
Title:	President and CEO	Title:	Senior Vice President

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

3

Chiron Corporation
4560 Horton Street
Emeryville, CA 94608-2916

May 20, 1994

Mr. Hollings C. Renton
President
ONYX Pharmaceuticals
3031 Research Drive
Richmond, CA 94806

Re:

Farnesyl Transferase

Dear Hollings:

        I am writing to confirm our understanding with respect to farnesyl transferase and the Technology Transfer Agreement between Onyx Pharmaceuticals, Inc. ("Onyx") and Chiron Corporation ("Chiron") dated as of April 24, 1992, as amended ("the Agreement"). Each of the terms used in this letter with initial capitalization has the same meaning as in the Agreement.

        Notwithstanding Section 9.c of the Agreement, Onyx agrees that Chiron may perform drug discovery services in the Field on its own behalf or on behalf of third parties, involving the mass screening of compounds for the inhibition of farnesyl transferase.

        If the foregoing is consistent with your understanding, please sign and return the enclosed copy of this letter.

		Sincerely
		/s/ William Green William G. Green Senior Vice President and General Counsel
cc:	W. Moos
AGREED: ONYX PHARMACEUTICALS
By:	/s/ Hollings C. Renton
Its:	President and CEO

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

Onyx Pharmaceuticals
3031 Research Drive, Bldg. A
Richmond, CA 94806

March 29, 1996
sent via facsimile on this date

William Green, Esq.
General Counsel
Chiron Corporation
4560 Horton Street
Emeryville, CA 94608

Re:

Limited Waiver re Onyx Virus Program

Dear Bill:

By this letter agreement, Chiron Corporation and Onyx Pharmaceuticals hereby agree that the provisions of Section II.a.iii of the Technology Transfer Agreement between Chiron and Onyx dated April 24, 1992, as amended, shall not apply to the Onyx program of replicating viruses useful for killing tumor cells deficient in p53 function, or to the Onyx discoveries, developments and inventions that comprise such program, or to patents claiming such discoveries, developments and inventions.

If you are in agreement with the foregoing, please execute the enclosed copy of this letter agreement as indicated below, and return the signed copy to me in the enclosed envelope. Thank you for your attention to this matter.

Sincerely,		ACCEPTED AND AGREED:
ONYX PHARMACEUTICALS, INC.		CHIRON CORPORATION
By:	/s/ Hollings C. Renton Hollings C. Renton President and Chief Executive Officer	By:	/s/ William Green William Green General Counsel

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.

QuickLinks

EXHIBIT 10.5

TECHNOLOGY TRANSFER AGREEMENT

EX-23.1

EXHIBIT 23.1

Consent of Ernst & Young LLP, Independent Auditors

        We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-49285, No. 333-46366, No. 333-37144 and No. 333-33322) and the Registration Statements on Form S-8 (No. 333-64706, No. 333-60805, No. 333-48146, No. 333-84113, No. 333-04839 and No. 333-34681) pertaining to the 1996 Employee Stock Purchase Plan, the 1996 Non-Employee Directors' Stock Option Plan and the 1996 Equity Incentive Plan of Onyx Pharmaceuticals, Inc. of our report dated February 22, 2002, with respect to the financial statements of Onyx Pharmaceuticals, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2001.

/s/  ERNST & YOUNG LLP

Palo Alto, California
March 29, 2002