8-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 16, 2009

ONYX PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE
(State of incorporation) 0-28298
(Commission File No.) 94-3154463
(IRS Employer Identification No.)

2100 Powell Street
Emeryville, California 94608
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (510) 597-6500

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

On November 16, 2009, Onyx Pharmaceuticals, Inc. (“Onyx” or the “Company”) filed a Current Report on Form 8-K to report the completion of its acquisition of Proteolix, Inc. (“Proteolix”), a Delaware corporation, pursuant to the Agreement and Plan of Merger, dated as of October 10, 2009, (the “Merger Agreement”), among Proteolix, Profiterole Acquisition Corp., a wholly-owned subsidiary of Onyx (“Merger Sub”) and Shareholder Representative Services LLC, as the Stockholders’ Agent. Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Proteolix (the “Merger”) and Proteolix continued as the surviving corporation and a wholly-owned subsidiary of Onyx. Simultaneous with the Merger, Proteolix’s name was changed to Onyx Therapeutics, Inc. As a result of the Merger, Onyx Therapeutics is now a wholly-owned subsidiary of the Company. The Merger closed and became effective on November 16, 2009. As indicated in the original Form 8-K, this Form 8-K/A is being filed to provide the financial statements and pro forma financial statements required by Item 9.01 as set forth below, in accordance with Item 9.01(a) and Item 9.01(b) of Form 8-K. The financial statements and pro forma financial statements are filed as Exhibits 99.1, 99.2 and 99.3, and are included herein.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

1)

Proteolix’s historical audited balance sheets as of December 31, 2008 and 2007, and Proteolix’s historical audited statements of operations, cash flows and convertible preferred stock and stockholders’ deficit for each of the years ended December 31, 2008 and 2007, and for the period from October 15, 2002 (inception) to December 31, 2008 are attached hereto as Exhibit 99.1 and are included herein by reference.

2)

Proteolix’s historical unaudited balance sheet as of September 30, 2009, and Proteolix’s historical unaudited statements of operations and cash flows for the nine months ended September 30, 2009 and 2008, and for the period from October 15, 2002 (inception) to September 30, 2009 are attached hereto as Exhibit 99.2 and are included herein by reference.

(b)	Pro Forma Financial Information.
	The required pro forma financial information of the Company as of September 30, 2009 and for the nine months ended September 30, 2009 and for the year ended December 31, 2008, is attached hereto as Exhibit 99.3 and is included in its entirety herein by reference.

(d) Exhibits.

Exhibit
Number	Description of Document
23.1	Consent of Independent Auditors.
99.1	Audited financial statements of Proteolix as of and for the years ended December 31, 2008 and 2007, and for the period from October 15, 2002 (inception) to December 31, 2008 with Report of Independent Auditors.
99.2	Unaudited financial statements of Proteolix as of September 30, 2009, and for the nine months ended September 30, 2009 and 2008, and for the period from October 15, 2002 (inception) to September 30, 2009.
99.3	Unaudited pro forma financial information as of and for the nine months ended September 30, 2009 and for the year ended December 31, 2008.

Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: February 1, 2010	ONYX PHARMACEUTICALS, INC.
	By:	/s/ Matthew K. Fust
		Matthew K. Fust
		Executive Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit
Number	Description of Document
23.1	Consent of Independent Auditors.
99.1	Audited financial statements of Proteolix as of and for the years ended December 31, 2008 and 2007, and for the period from October 15, 2002 (inception) to December 31, 2008 with Report of Independent Auditors.
99.2	Unaudited financial statements of Proteolix as of September 30, 2009, and for the nine months ended September 30, 2009 and 2008, and for the period from October 15, 2002 (inception) to September 30, 2009.
99.3	Unaudited pro forma financial information as of and for the nine months ended September 30, 2009 and for the year ended December 31, 2008.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the following Registration Statements:

(1)	Registration Statement (Form S-3 No. 333-143825) of Onyx Pharmaceuticals, Inc.,
(2)	Registration Statement (Form S-3 No. 333-33322) of Onyx Pharmaceuticals, Inc.,
(3)	Registration Statement (Form S-8 No. 333-159496) pertaining to the 2005 Equity Incentive Plan of Onyx Pharmaceuticals, Inc.,
(4)	Registration Statement (Form S-8 No. 333-150928) pertaining to the 2005 Equity Incentive Plan of Onyx Pharmaceuticals, Inc.,
(5)	Registration Statement (Form S-8 No. 333-143309) pertaining to the 2005 Equity Incentive Plan and the 1996 Employee Stock Purchase Plan of Onyx Pharmaceuticals, Inc.,
(6)	Registration Statement (Form S-8 No. 333-134567) pertaining to the 1996 Employee Stock Purchase Plan of Onyx Pharmaceuticals, Inc.,
(7)	Registration Statement (Form S-8 No. 333-126089) pertaining to the 2005 Equity Incentive Plan, 1996 Equity Incentive Plan, and the 1996 Non-Employee Directors’ Stock Option Plan of Onyx Pharmaceuticals, Inc.,
(8)	Registration Statement (Form S-8 No. 333-120324) pertaining to the 1996 Equity Incentive Plan of Onyx Pharmaceuticals, Inc.,
(9)	Registration Statement (Form S-8 No. 333-110469) pertaining to the 1996 Equity Incentive Plan and the 1996 Non-Employee Directors’ Plan of Onyx Pharmaceuticals, Inc.,
(10)	Registration Statement (Form S-8 No. 333-96895) pertaining to the 1996 Equity Incentive Plan and the 1996 Employee Stock Purchase Plan of Onyx Pharmaceuticals, Inc.,
(11)	Registration Statement (Form S-8 No. 333-64706) pertaining to the 1996 Equity Incentive Plan and the 1996 Non-Employee Directors’ Stock Option Plan of Onyx Pharmaceuticals, Inc.,
(12)	Registration Statement (Form S-8 No. 333-48146) pertaining to the 1996 Equity Incentive Plan, the 1996 Non-Employee Directors’ Stock Option Plan and the Employee Stock Purchase Plan of Onyx Pharmaceuticals, Inc.,
(13)	Registration Statement (Form S-8 No. 333-84113) pertaining to the 1996 Equity Incentive Plan of Onyx Pharmaceuticals, Inc.,
(14)	Registration Statement (Form S-8 No. 333-60805) pertaining to the 1996 Equity Incentive Plan and the 1996 Employee Stock Purchase Plan of Onyx Pharmaceuticals, Inc.,
(15)	Registration Statement (Form S-8 No. 333-34681) pertaining to the 1996 Equity Incentive Plan, as amended, of Onyx Pharmaceuticals, Inc., and
(16)	Registration Statement (Form S-8 No. 333-04839) pertaining to the 1996 Equity Incentive Plan, the 1996 Employee Stock Purchase Plan, and the 1996 Non-Employee Directors’ Stock Option Plan of Onyx Pharmaceuticals, Inc.

of Onyx Pharmaceuticals, Inc. of our report dated May 26, 2009, with respect to the financial statements of Proteolix, Inc. (a development stage company) as of December 31, 2008 and 2007 and for each of the years then ended and for the period from October 15, 2002 (inception) to December 31, 2008 included in this Current Report on Form 8-K/A of Onyx Pharmaceuticals, Inc.

/s/ Ernst & Young LLP

Palo Alto, California
January 26, 2010

EX-99.1

Exhibit 99.1

Financial Statements

Proteolix, Inc. (A Development Stage Company)
Years Ended December 31, 2008 and 2007,
and for the Period From October 15, 2002 (Inception) to
December 31, 2008
With Report of Independent Auditors

Proteolix, Inc.
(A Development Stage Company)

Financial Statements

Years Ended December 31, 2008 and 2007, and
for the Period From October 15, 2002 (Inception) to December 31, 2008

Contents

Report of Independent Auditors	1
Audited Financial Statements
Balance Sheets	2
Statements of Operations	3
Statements of Convertible Preferred Stock and Stockholders’ Deficit	4
Statements of Cash Flows	6
Notes to Financial Statements	8

Report of Independent Auditors

The Board of Directors and Stockholders
Proteolix, Inc.

We have audited the accompanying balance sheets of Proteolix, Inc. (a development stage company) (the Company) as of December 31, 2008 and 2007, and the related statements of operations, convertible preferred stock and stockholders’ deficit, and cash flows for the years then ended and for the period from October 15, 2002 (inception) to December 31, 2008. 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. The financial statements for the period from October 15, 2002 (inception) to December 31, 2005, were audited by other auditors whose report, dated February 23, 2007, expressed an unqualified opinion on those statements. The financial statements for the period from October 15, 2002 (inception) to December 31, 2005, include a net loss of $12,647,173. Our opinion on the statements of operations, convertible preferred stock and stockholders’ deficit, and cash flows for the period from October 15, 2002 (inception) to December 31, 2008 and 2007, insofar as it relates to amounts for prior periods to December 31, 2005, is based solely on the report of other auditors.

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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Proteolix, Inc. (a development stage company) at December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended, and for the period from October 15, 2002 (inception) to December 31, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the financial statements, the Company’s recurring losses and negative cash flows from operations raise substantial doubt about its ability to continue as a going concern. Management’s plans as to these matters also are described in Note 1. The 2008 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Ernst & Young LLP

Palo Alto, California
May 26, 2009

1

Proteolix, Inc.
(A Development Stage Company)

Balance Sheets

	December 31
	2008			2007
Assets
Current assets:
Cash and cash equivalents	$	66,363,011		$	21,301,474
Other receivables		—			330,757
Prepaid and other current assets		228,636			420,495
Total current assets		66,591,647			22,052,726
Property and equipment, net		5,890,515			5,151,882
Other assets		113,185			133,261
Total assets	$	72,595,347		$	27,337,869
Liabilities, convertible preferred stock, and stockholders’ deficit
Current liabilities:
Accounts payable	$	301,417		$	2,375,470
Accrued liabilities		5,506,405			3,506,015
Accrued clinical expenses		2,514,266			816,083
Current portion of notes payable		4,667,571			324,009
Warrant liability		292,770			77,850
Deferred rent current portion		5,080			590,468
Total current liabilities		13,287,509			7,689,895
Long-term portion of deferred rent		5,319,115			3,180,550
Long-term portion of notes payable		6,972,306			90,337
Commitments and contingencies
Convertible preferred stock, $0.001 par value, issuable in series:
Series A: 18,345,000 shares authorized; 18,300,000 shares issued and outstanding at December 31, 2008 and 2007 (aggregate liquidation preference of $18,300,000 at December 31, 2008)		18,040,578			18,040,578
Series B: 26,600,000 shares authorized; 20,425,364 shares issued and outstanding at December 31, 2008 and 2007 (aggregate liquidation preference of $45,344,308 at December 31, 2008)		43,288,671			43,288,671
Series C: 30,000,000 shares authorized; 29,614,654 shares issued and outstanding at December 31, 2008 (aggregate liquidation preference of $78,774,979 at December 31, 2008)		78,532,721			—
Stockholders’ deficit:
Common stock, $0.001 par value; 170,945,000 shares authorized; 3,837,127 and 3,400,249 shares issued and outstanding at December 31, 2008 and 2007, respectively		3,833			3,400
Additional paid-in capital		815,227			395,977
Deficit accumulated during the development stage		(93,664,613	)		(45,351,539	)
Total stockholders’ deficit		(92,845,553	)		(44,952,162	)
Total liabilities, convertible preferred stock, and stockholders’ deficit	$	72,595,347		$	27,337,869

See accompanying notes.

2

Proteolix, Inc.
(A Development Stage Company)

Statements of Operations

							Period From
							October 15,
							2002
							(Inception) to
	Year Ended December 31						December 31,
	2008			2007			2008
Operating expenses:
Research and development	$	40,514,465		$	20,910,957		$	81,674,013
General and administrative		7,022,697			4,216,643			14,817,025
Loss from operations		(47,537,162	)		(25,127,600	)		(96,491,038	)
Interest income and other expense, net		460,692			3,157,442			4,329,559
Interest expense		(1,236,604	)		(50,559	)		(1,503,134	)
Net loss	$	(48,313,074	)	$	(22,020,717	)	$	(93,664,613	)

See accompanying notes.

3

Proteolix, Inc.
(A Development Stage Company)

Statements of Convertible Preferred Stock and Stockholders’ Deficit

																	Deficit
												Note					Accumulated
	Convertible											Receivable			Additional		During the			Total
	Preferred Stock					Common Stock						From			Paid-In		Development			Stockholders’
	Shares		Amount			Shares			Amount			Stockholders			Capital		Stage			Deficit
Balance at October 15, 2002 (inception)		—	$	—			—		$	—		$	—		$	—	$	—		$	—
Issuance of common stock for services at $0.001 per share in November 2003		—		—			300,000			300			—			—		—			300
Issuance of common stock to founders at $0.001 per share in November 2003		—		—			1,800,000			1,800			(1,800	)		—		—			—
Issuance of Series A convertible preferred stock at $1.00 per share for cash and promissory note of $25,000 from stockholders in December 2003, net of issuance costs of $242,040		10,478,571		10,211,531			—			—			—			—		—			—
Stock compensation associated with issuance of stock options to consultants		—		—			—			—			—			3,786		—			3,786
Net loss		—		—			—			—			—			—		(138,807	)		(138,807	)
Balance at December 31, 2003		10,478,571		10,211,531			2,100,000			2,100			(1,800	)		3,786		(138,807	)		(134,721	)
Payment of promissory note from stockholders for issuance of Series A convertible preferred stock warrants		—		25,000			—			—			1,800			—		—			1,800
Convertible preferred stock warrants issued to a lender in 2004		—		35,500			—			—			—			—		—			—
Net loss		—		—			—			—			—			—		(5,033,052	)		(5,033,052	)
Balance at December 31, 2004		10,478,571		10,272,031			2,100,000			2,100			—			3,786		(5,171,859	)		(5,165,973	)
Issuance of Series A convertible preferred stock at $1.00 per share for cash in July 2005, net of issuance costs of $17,382		7,821,429		7,804,047			—			—			—			—		—			—
Issuance of common stock for services at $1.00 per share		—		—			25,000			25			—			24,975		—			25,000
Issuance of common stock as a result of exercise of stock options at $0.10 per share		—		—			19,083			19			—			1,889		—			1,908
Net loss		—		—			—			—			—			—		(7,475,314	)		(7,475,314	)
Balance at December 31, 2005		18,300,000		18,076,078			2,144,083			2,144			—			30,650		(12,647,173	)		(12,614,379	)
Issuance of Series B convertible preferred stock at $2.22 per share for cash in May 2006, net of issuance costs of $159,529 and tranche liability		10,172,661		19,969,071			—			—			—			—		—			—
Issuance of Series B convertible preferred stock for services		67,567		149,998			—			—			—			—		—			—
Issuance of common stock upon exercise of stock options for cash of $0.10 per share		—		—			76,366			77			—			7,560		—			7,637
Issuance of common stock for cash at $0.10 per share		—		—			21,000			21			—			2,079		—			2,100
Repurchase of common stock at $0.001 per share		—		—			(94,905	)		(95	)		—			—		—			(95	)
Stock-based compensation for options issued to employees		—		—			—			—			—			8,998		—			8,998
Reclassification of Series A convertible preferred stock to preferred stock warrant liability upon adoption of FSP No. 150-5		—		(35,500	)		—			—			—			—		—			—
Net loss		—		—			—			—			—			—		(10,683,649	)		(10,683,649	)
Balance at December 31, 2006 (carried forward)		28,540,228		38,159,647			2,146,544			2,147			—			49,287		(23,330,822	)		(23,279,388	)

4

Proteolix, Inc.
(A Development Stage Company)

Statements of Convertible Preferred Stock and Stockholders’ Deficit (continued)

													Deficit
									Note				Accumulated
	Convertible								Receivable		Additional		During the			Total
	Preferred Stock				Common Stock				From		Paid-In		Development			Stockholders’
	Shares		Amount		Shares		Amount		Stockholders		Capital		Stage			Deficit
Balance at December 31, 2006 (brought forward)		28,540,228	$	38,159,647		2,146,544	$	2,147	$	—	$	49,287	$	(23,330,822	)	$	(23,279,388	)
Issuance of Series B convertible preferred stock at $2.22 per share for cash in May 2007, net of issuance costs of $51,759		10,185,136		22,559,242		—		—		—		—		—			—
Reclassification of convertible preferred stock tranche liability		—		610,360		—		—		—		—		—			—
Issuance of 1,253,705 shares of common stock upon exercise of stock options for cash of $0.15 per share		—		—		1,253,705		1,253		—		185,687		—			186,940
Issuance of warrants for 50,000 shares of common stock issued in connection with facility lease in June 2007		—		—		—		—		—		19,500		—			19,500
Stock-based compensation for options issued to employees		—		—		—		—		—		123,302		—			123,302
Stock compensation expense associated with issuance of stock options to consultants		—		—		—		—		—		18,201		—			18,201
Net loss		—		—		—		—		—		—		(22,020,717	)		(22,020,717	)
Balance at December 31, 2007		38,725,364		61,329,249		3,400,249		3,400		—		395,977		(45,351,539	)		(44,952,162	)
Issuance of Series C convertible preferred stock at $2.66 per share for cash in August 2008, net of issuance costs of $242,259		29,614,654		78,532,721		—		—		—		—		—			—
Issuance of common stock as a result of exercise of various stock options at $0.10, $0.22, $0.47, and $0.50 per share		—		—		436,877		433		—		92,007		—			92,440
Stock-based compensation for options issued to employees		—		—		—		—		—		304,210		—			304,210
Stock compensation expense associated with issuance of stock options to consultants		—		—		—		—		—		19,648		—			19,648
Issuance of warrants for 10,000 shares of common stock issued in connection with facility lease extension in February 2008		—		—		—		—		—		3,385		—			3,385
Net loss		—		—		—		—		—		—		(48,313,074	)		(48,313,074	)
Balance at December 31, 2008		68,340,018	$	139,861,970		3,837,126	$	3,833	$	—	$	815,227	$	(93,664,613	)	$	(92,845,553	)

See accompanying notes.

5

Proteolix, Inc.
(A Development Stage Company)

Statements of Cash Flows

							Period From
							October 15,
							2002
							(Inception) to
	Year Ended December 31						December 31,
	2008			2007			2008
Operating activities
Net loss	$	(48,313,074	)	$	(22,020,717	)	$	(93,664,613	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,383,399			528,155			3,071,595
Debt discount amortization		60,810			2,479			95,561
Stock-based compensation		323,858			141,503			478,145
Revaluation of preferred stock warrant liability		(55,350	)		(4,204	)		(13,000	)
Change in fair value of convertible preferred stock liability		—			(2,022,020	)		(1,844,347	)
Issuance of common stock in exchange for services		—			—			25,300
Issuance of Series B convertible preferred stock for services		—			—			149,998
Changes in operating assets and liabilities:
Prepaid and other current assets		192,005			(104,683	)		(208,990	)
Other assets		20,076			(20,109	)		(113,185	)
Accounts payable		(2,074,053	)		1,563,457			301,417
Accrued liabilities		3,698,573			3,516,382			8,020,671
Deferred rent		853,177			525,468			1,474,195
Net cash used in operating activities		(43,910,579	)		(17,894,289	)		(82,227,253	)
Investing activities
Purchase of property and equipment		(2,118,793	)		(4,986,784	)		(8,958,871	)
Proceeds received as lease incentive		1,030,757			2,819,243			3,850,000
Net cash used in investing activities		(1,088,036	)		(2,167,541	)		(5,108,871	)
Financing activities
Proceeds from issuance of Series A convertible preferred stock, net of issuance costs		—			—			18,040,578
Proceeds from issuance of Series B convertible preferred stock, net of issuance costs		—			22,559,242			44,983,020
Proceeds from issuance of Series C convertible preferred stock, net of issuance costs		78,532,721			—			78,532,721
Proceeds from issuance of common stock		92,440			186,940			292,730
Proceeds from issuance of notes payable		15,000,000			—			16,500,000
Repayment of notes payable		(3,565,009	)		(386,626	)		(4,649,914	)
Net cash provided by financing activities		90,060,152			22,359,556			153,699,135
Net increase in cash and cash equivalents		45,061,537			2,297,726			66,363,011
Cash and cash equivalents at beginning of period		21,301,474			19,003,748			—
Cash and cash equivalents at end of period	$	66,363,011		$	21,301,474		$	66,363,011

6

Proteolix, Inc.
(A Development Stage Company)

Statements of Cash Flows (continued)

					Period From
					October 15,
					2002
					(Inception) to
	Year Ended December 31				December 31,
	2008		2007		2008
Supplemental disclosure of cash flow information
Cash paid during the year for interest	$	1,140,160	$	50,677	$	1,366,856
Supplemental schedule of noncash investment and financing activities
Warrant for Series A convertible preferred stock issued in connection with notes payable	$	—	$	—	$	35,500
Warrant for Series B convertible preferred stock issued in connection with notes payable	$	270,270	$	—	$	270,270
Common stock warrants issued for facility lease	$	3,385	$	19,500	$	22,885
Issuance of Series B convertible preferred stock for services	$	—	$	—	$	149,998

See accompanying notes.

7

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements

December 31, 2008

1. Organization and Summary of Significant Accounting Policies

Proteolix, Inc. (a development stage company) (the Company) is primarily engaged in the development of novel human therapeutic agents that target protein degradation pathways in cells for the treatment of cancer and other diseases. The Company was incorporated in the state of Delaware on October 15, 2002.

The Company’s operations are based in South San Francisco, California, and principal activities to date have involved laboratory research and preclinical development, raising capital, and recruiting personnel. Accordingly, the Company is considered to be in the development stage.

Liquidity Matters

In the course of its development activities, the Company has sustained operating losses and expects such losses to continue over the next several years. The Company’s ultimate success depends on the outcome of research and development activities, which are at an early stage. From October 15, 2002 (inception) to December 31, 2008, the Company has incurred cumulative net losses of $93,664,613. Management expects to incur additional losses in the future as it conducts research and development activities and clinical trials. Management believes that the Company’s cash and cash equivalents balance of $66,363,011 is adequate to fund operations into the early part of 2010. However, given the uncertainties of the outcomes of the Company’s ongoing clinical trials, there is no assurance the Company can achieve its projected operating results. Management intends to finance the Company’s operations through the issuance of additional equity, through various loans, and through strategic alliances with partners. Management believes such funding or alliances will be available; however, if such financing is not available at adequate levels or there is any delay in obtaining additional capital, the Company will need to reevaluate its operating plans and may be required to reduce expenses related to its operations, and/or delay the scope of its development programs.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The financial statements for the year ended December 31, 2008 do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.

8

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

1. Organization and Summary of Significant Accounting Policies (continued)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company invests its cash in bank deposits and money market mutual funds, which consist of U.S. treasury bills and repurchase obligations. The Company considers all highly liquid investments purchased with a maturity from the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents are stated at fair value. There have been no realized or unrealized gains or losses from October 15, 2002 (inception) to December 31, 2008.

Concentration of Credit Risk

Financial instruments that subject the Company to potential credit risk consist of demand deposit accounts and money market accounts. The Company maintains its cash and cash equivalents with financial institutions of high credit standing.

Fair Value of Financial Instruments

Cash equivalents are carried at fair value based upon market quotes for similar assets in active markets. The carrying value of the debt approximates fair value, based on management’s best estimates of the interest rates that would be available for similar debt obligations at December 31, 2008 and 2007.

9

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

1. Organization and Summary of Significant Accounting Policies (continued)

Fair Value Measurements

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157 (SFAS 157), Fair Value Measurements. In February 2008, the Financial Accounting Standards Board (the FASB) issued FASB Staff Position (FSP) No. SFAS 157-2, Effective Date of FASB Statement No. 157, which provides a one-year deferral of the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually.

The Company adopted the provisions of SFAS 157 on a prospective basis for financial assets and liabilities which require that the Company determine the fair value of financial assets and liabilities using the fair-value hierarchy established in SFAS 157. SFAS 157 describes three levels of inputs that may be used to measure fair value, as follows:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The adoption of SFAS 157 did not have a material impact on the Company’s results of operations and financial condition as of and for the year ended December 31, 2008.

Comprehensive Loss

SFAS No. 130, Reporting Comprehensive Income, requires disclosure of all components of comprehensive income (loss) on an annual and interim basis. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. Comprehensive loss does not differ from the reported net loss for the years ended December 31, 2008 and 2007, and for the period from October 15, 2002 (inception) to December 31, 2008.

10

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

1. Organization and Summary of Significant Accounting Policies (continued)

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, generally two to five years. Leasehold improvements are amortized over their estimated useful lives or the remaining lease term, whichever is shorter.

Long-Lived Assets

The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. If indicators of impairment exist, impairment loss is recognized when the total of the estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Through December 31, 2008, there have been no such impairment losses.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs consist of salaries and benefits, consulting fees, laboratory supplies, and facility costs, as well as fees paid to other entities that conduct certain research and development activities on behalf of the Company, and allocated overhead costs, including rent, equipment depreciation, and utilities.

Preclinical Study and Clinical Trial Accruals and Deferred Advance Payments

The Company estimates preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on its behalf. In recording service fees, the Company estimates the time period over which the related services will be performed and compares the level of effort expended through the end of each period to the cumulative expenses recorded and payments made for such services. As appropriate, the Company accrues additional service fees or defers any nonrefundable advance payments until the related services are performed. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust its accrual or deferred advance payment accordingly. If the Company later determines that it no longer expects the services associated with a deferred nonrefundable advance payment to be rendered, it charges the deferred, advance payment to expense in the period that such a determination is made.

11

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

1. Organization and Summary of Significant Accounting Policies (continued)

Income Taxes

The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Currently, there is no provision for income taxes, since the Company has incurred net losses to date. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) (SFAS 123(R)), Share-Based Payment, which replaces SFAS No. 123, Accounting for Stock-Based Compensation, supersedes Accounting Principles Board Opinion No. 25 (APB 25), and requires companies to recognize compensation expense for share-based payment arrangements, including stock options, using the prospective method. Prior to adoption, the Company used the intrinsic-value method under APB 25, Accounting for Stock Issued to Employees, to account for stock-based compensation and disclosed the impact of SFAS No. 123 within the footnote disclosures of the Company’s financial statements. Under the prospective method, the Company will continue to account for nonvested awards outstanding at the date of adoption of SFAS 123(R) in the same manner it had been accounting for them prior to adoption, for financial statement recognition purposes. All awards granted, modified, or settled after the date of adoption will be accounted for using the fair-value measurement, recognition, and attribution provisions of SFAS 123(R). SFAS 123(R) requires companies to estimate the fair value of stock-based payment awards on the date of the grant using an option-pricing model. The value of the awards expected to vest is recognized as expense over the applicable service periods, generally the vesting period. The Company recorded employee stock-based compensation expense of $304,210 and $123,302 for the years ended December 31, 2008 and 2007, respectively.

12

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

1. Organization and Summary of Significant Accounting Policies (continued)

The Company accounts for stock-based compensation to nonemployees under SFAS 123(R) and Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, using the Black-Scholes option-pricing model. The amounts recorded as stock-based compensation expense related to nonemployee stock options represent the value of the vested portion of the stock option granted to nonemployees, revalued at the vesting date using the Black-Scholes option-model. The stock-based compensation expense for options awarded to nonemployees is included in general and administrative and research and development expenses.

Convertible Preferred Stock Warrant Liability

Effective January 1, 2006, the Company adopted the provisions of the FASB FSP No. 150-5, Issuer’s Accounting Under Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable, an interpretation of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. Pursuant to FSP No. 150-5, freestanding warrants for shares that are either putable or redeemable are classified as liabilities on the balance sheet at fair value. Therefore, under SFAS No. 150, the freestanding warrants that are related to the purchase of the Company’s convertible preferred stock and the option to purchase the Company’s Series B convertible stock, are considered liabilities and should be recorded at the estimated fair value. At the end of each reporting period, changes in the estimated fair value during the period are recorded in interest income and other expense, net.

Upon the adoption of FSP No. 150-5 on January 1, 2006, the Company reclassified $35,500 for the estimated fair value of its warrants to purchase shares of its convertible preferred stock from stockholders’ deficit to a liability. For the years ended December 31, 2008 and 2007, the Company recorded $55,350 and $4,204, respectively, of other income for the decrease in the estimated fair value of the warrants. In accordance with SFAS No. 150, this reclassification was made as a change in accounting principle by initially measuring fair value warrants on the effective date, January 1, 2006. The Company will continue to adjust the liabilities for changes in the estimated fair value of the warrants until the earlier of the exercise of the warrants to purchase shares of convertible preferred stock, the completion of a liquidation event, including the completion of an initial public offering, at which time the liabilities will be reclassified to stockholders’ deficit, or the expiration of the warrant.

13

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

1. Organization and Summary of Significant Accounting Policies (continued)

In accordance with FSP No. 150-1 about an issuer’s accounting for freestanding financial instruments composed of more than one option or forward contract embodying obligations under SFAS No. 150, the Company recorded $2,022,020 as other income and $177,673 as other expense for the years ended December 31, 2007 and 2006, respectively, for the change in the estimated fair value of the Series B convertible preferred stock liability. In May 2007, the Company completed the second closing of Series B convertible preferred stock following the achievement of certain clinical milestones. The Company remeasured the fair value of the liability prior to the second close and recorded other income of $2,022,020 and reclassified $610,360 to convertible preferred stock.

Recent Accounting Pronouncements

On July 13, 2006, the FASB released FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109. The Interpretation clarifies the accounting for income taxes by establishing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on recognition, derecognition, measurement, classification of tax positions, interest and penalties, accounting in interim periods, and disclosures. Under FSP FIN 48-3 issued on December 30, 2008, the adoption of FIN 48 is deferred until fiscal years beginning after December 15, 2008 for nonpublic companies. FIN 48 is effective for the Company beginning January 1, 2009. The Company is currently assessing the impact the adoption of FIN 48 will have on its financial position and results of operations.

14

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

2. Fair Value Measurement

The Company’s financial assets and financial liabilities subject to fair value measurements on a recurring basis, and the levels of the inputs used in such measurements, are as follows as of December 31, 2008 (in thousands):

			Fair Value Measurement at Reporting Date Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
Description	2008		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Money market fund	$	64,569,985	$	64,569,985	$	—	$	—
Financial liabilities:
Warrant liability (1)	$	292,770	$	—	$	—	$	292,770

(1) Refer to Note 8, “Convertible Preferred Stock Warrants,” for valuation assumptions.

The following table presents the changes in liabilities measured at fair value on a recurring basis using Level 3 inputs for the year ended December 31, 2008:

	Preferred Stock Warrants
	Liability
Balance at January 1, 2008	$	77,850
Fair value of new warrant issued in connection with new borrowing (Note 5)		270,270
Realized gain included in other income		(55,350	)
Balance at December 31, 2008	$	292,770

15

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

3. Property and Equipment

Property and equipment consist of the following:

	December 31
	2008			2007
Leasehold improvements	$	5,037,213		$	3,982,512
Laboratory equipment		2,402,768			1,710,275
Computer equipment		696,480			575,612
Furniture and fixtures		536,730			303,427
Software		237,862			220,434
		8,911,053			6,792,260
Less accumulated depreciation and amortization		(3,020,538	)		(1,640,378	)
Property and equipment, net	$	5,890,515		$	5,151,882

Depreciation and amortization expense was $1,383,399, $528,155, and $3,071,595 for the years ended December 31, 2008 and 2007, and for the period from October 15, 2002 (inception) to December 31, 2008, respectively.

4. License Agreements

In November 2003, the Company entered into patent license agreements with two educational institutions where the Company’s founders serve as professors and were involved in the research and development of licensed patents. Under the terms of both agreements, the Company is required to pay royalties of 0.5% to 1.0% on the net revenue earned from licensed products, and a minimum annual license fee of $10,000 to each institution on the second anniversary of the effective date and on each anniversary thereafter. The Company has recorded research and development expenses for minimum royalties of $20,000, $20,000, and $101,666 for the years ended December 31, 2008 and 2007, and for the period from October 15, 2002 (inception) to December 31, 2008, respectively. An amount of $41,666 remains outstanding as of December 31, 2008, and is included in accrued liabilities.

In conjunction with the license agreements in 2003, the Company issued 125,000 shares of common stock at $0.001 per share and options to purchase 25,000 shares of common stock at $0.001 per share to each educational institution outside of the 2003 equity incentive plan. The shares granted pursuant to this option are fully vested and immediately exercisable.

16

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

4. License Agreements (continued)

In December 2007, the Company entered into a license agreement with a university for an exclusive, royalty-bearing license for certain patents, with the right to grant and authorize sublicenses, to make, have made, import, use, sell, and offer for sale any product covered by the licensed patent. In return for the license, the Company is obligated to pay and initial license royalty of $10,000 and an additional $65,000 after completing the evaluation period. Commencing on the third anniversary thereof, the Company is also required to pay annual maintenance fees in excess of $10,000 per year. In addition to an annual maintenance fee that begins on the third anniversary of the agreement, the Company may pay product royalties, sublicensing royalties, and milestone payments. The Company has recorded research and development expenses for the initial payment of $75,000 for the year ended December 31, 2008, and for the period from October 15, 2002 (inception) to December 31, 2008. At December 31, 2008, no amounts remain outstanding under this agreement.

In November 2003, the Company entered into consulting agreements with its two founders to serve on its scientific advisory board and to advise on its efforts to produce, develop, and market future products. Initial consulting periods are five years from the effective date, which can be extended automatically for successive one-year periods, and annual fees under the agreements are equal to $30,000 to each founder. The Company recorded and paid research and development expenses of $55,000, $60,000, and $300,000 for the years ended December 31, 2008 and 2007, and for the period from October 15, 2002 (inception) to December 31, 2008, respectively. The consulting agreements with the founders were terminated at the end of 2008.

In conjunction with the consulting agreements entered in November 2003, the Company also issued 1,279,000 shares of common stock at $0.001 per share under restricted stock purchase agreements to each founder. The amounts are being amortized over a five-year period, and at December 31, 2008 and 2007, the number of shares subject to vesting amounted to 19,185 and 249,405, respectively.

In July 2006, the Company entered into an agreement with a founder’s educational institution to settle reimbursable legal costs of approximately $250,000 incurred by that institution. In partial settlement, the Company issued 67,567 shares of Series B convertible preferred stock at $2.22 per share. In addition, during the year ended December 31, 2006, the Company accrued for the remaining $100,000 of reimbursable costs, which is outstanding as of December 31, 2008.

17

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

5. Notes Payable

In June 2004, the Company entered into a line of credit agreement with a financial institution, which provided for aggregate borrowings of up to $1,500,000 for equipment purchases. Borrowings under the equipment line of credit bear interest at the 36-month Treasury rate in effect on the funding date plus 4.5%, provided that in no event shall the rate be less than 6.75%, and are repayable in 48 equal monthly payments comprising both principal and interest. All borrowings under the line of credit agreement were collateralized by the purchased equipment. As of December 31, 2008, the Company had drawn aggregate equipment borrowings of $1,500,000.

In connection with the execution of the line of credit, the Company issued a warrant to purchase 45,000 shares of Series A convertible preferred stock. See Note 8 for more information about these warrants.

In February 2008, the Company entered into a loan agreement with a financing company under which the Company may borrow up to $20,000,000 for working capital purposes through February 11, 2009, at an annual interest rate of prime plus 2.5%. The financing is secured by all of the assets of the Company, excluding intellectual property.

In April 2008, the Company drew down $15,000,000 under the loan agreement. The loan will be repaid over a 36-month term with an interest rate of 10.25% per annum and a balloon payment of $427,500 at the end of the loan. In connection with the loan, the Company issued to the lender a warrant to purchase up to 540,540 shares of Series B convertible preferred stock at an exercise price of $2.22 per share, subject to adjustments reflected in the respective warrant agreement. See Note 8 for more information about these warrants. As of December 31, 2008, $5,000,000 remained available under the loan agreement.

18

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

5. Notes Payable (continued)

Future principal payments under the agreements are as follows at December 31, 2008:

Year ending December 31:
2009	$	5,906,974
2010		5,814,013
2011		1,881,003
Total future payments		13,601,990
Less interest		(1,751,902	)
Total principal payments		11,850,088
Less unamortized debt discount		(210,211	)
Less current portion of notes payable		(4,667,571	)
Total long-term portion	$	6,972,306

6. Commitments and Contingencies

In accordance with SFAS No. 5, Accounting for Contingencies, the Company recorded a liability of $250,000 at December 31, 2008, reflecting management’s best estimate of the amount owed related to disputed charges for services performed by a consultant during the year ended December 31, 2008. The Company is in the process of negotiating with the consultant and, accordingly, the final payment could differ from the estimate recorded at December 31, 2008.

The Company is subject to various claims and assessments in the ordinary course of business. None of these matters are expected to have a material adverse effect on the Company’s financial position or results of operations.

19

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

6. Commitments and Contingencies (continued)

Leases

The Company leases facilities under a noncancelable operating lease, which expires in November 2014. Future minimum lease payments under the noncancelable operating lease are as follows:

Year ending December 31:
2009	$	1,624,822
2010		2,371,038
2011		2,543,190
2012		2,727,069
2013		2,923,666
Thereafter		2,582,904
	$	14,772,689

The Company entered into a lease in June 2007 for its primary office and laboratory facilities in South San Francisco, California. In January 2008, the Company expanded its lease under this agreement to include additional office space. The lease term is for a period of seven years, with options to extend the lease for two additional one-year terms. Rent expense for the years ended December 31, 2008 and 2007, and for the period from October 15, 2002 (inception) to December 31, 2008, was $1,710,847, $1,273,602, and $4,557,802, respectively.

In connection with the lease agreement and the amendment, the landlord provided a tenant improvement allowance of approximately $3,850,000 to the Company. Under SFAS No. 13, Accounting for Leases, and FASB Technical Bulletin 88-1, Issues Relating to Accounting for Leases, the Company has recorded the tenant improvement allowance paid by the landlord as a leasehold improvement asset and a deferred rent liability on the balance sheets. The allowance is amortized as a reduction of rent expense over the period from when the improvements were placed in service until the end of their useful lives, which is the end of the lease term.

20

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

7. Convertible Preferred Stock

In May 2006, the Company entered into an agreement to sell shares of Series B convertible preferred stock at $2.22 per share. The shares were to be sold in two closings.

The first closing was completed in May 2006 in which 10,172,661 shares were sold for gross proceeds of approximately $22,583,000. In conjunction with the first closing, the purchasers of the Series B convertible preferred stock entered into an obligation to purchase additional Series B convertible preferred shares in a second closing. The second closing was contingent upon the Board of Directors’ approval of a certain clinical milestone following the recommendation of the chief executive officer. In accordance with FSP No. 150-1, the Company recorded a liability of $2,454,707 at the time of the initial closing.

The Company remeasured the fair value at December 31, 2006, and recorded an expense of $177,673. In May 2007, the Company completed the second closing following the achievement of the clinical milestone. The Company remeasured the fair value of the liability prior to the second closing and recorded other income of $2,022,020 and reclassified $610,360 to convertible preferred stock.

As part of the May 2007 second closing, the Company sold 10,185,136 shares of Series B convertible preferred stock at $2.22 per share for gross proceeds of approximately $22,611,000.

In August 2008, the Company issued 29,614,654 shares of Series C convertible preferred stock at $2.66 per share for gross proceeds of $78,774,980.

In August 2008, the Company amended its Certificate of Incorporation and increased the total number of authorized common and convertible preferred stock to 170,945,000 and 149,890,000 shares, respectively. The rights, preferences, and privileges of convertible preferred stockholders at December 31, 2008, are as follows:

     Voting Rights

Each share of Series A, Series B, and Series C convertible preferred stock has voting rights equal to an equivalent number of shares of common stock into which it is convertible and votes together as one class with the common stock. As long as at least 1,000,000 shares of the Series C convertible preferred stock and Series C-1 convertible preferred stock remain outstanding, the holders of the Series C preferred stock voting together as a single, separate

21

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

7. Convertible Preferred Stock (continued)

class, shall be entitled to elect one director. As long as at least 1,000,000 shares of the Series B convertible preferred stock the holders of the Series B convertible preferred stock and Series B-1 convertible preferred stock, voting together as a single, separate class, shall be entitled to elect two directors. As long as at least 2,600,000 shares of the Series A convertible preferred stock and Series A-1 convertible preferred stock remain outstanding, the holders of the Series A convertible preferred stock and Series A-1 convertible preferred stock, voting together as a single, separate class, shall be entitled to elect three directors. The holders of common stock, voting separately as a single class, shall be entitled to elect one director. The holders of the common stock and the preferred stock, voting together as a single class, shall be entitled to elect all other directors of the Company. Any vacancies on the Board of Directors shall be filled by a vote of the holders of the class that elected the director whose absence created such vacancy.

The Company shall not, without first obtaining the approval of the holders of at least 60% of the then-convertible preferred stock outstanding, voting together as a single, separate class, change the rights, privileges, and preferences of Series A, Series B, and Series C convertible preferred stockholders; amend or repeal any provision of the Certificate of Incorporation or the bylaws of the Company; increase or decrease the number of authorized shares of Series A, Series B, and Series C convertible preferred stock; create or issue any new class or series of securities having rights that are senior to, or pari passu with, the rights of the Series A, Series B, and Series C convertible preferred stock; consummate any liquidation; change the authorized number of directors of the Company; pay or declare a dividend on any shares of the Company’s capital stock other than a stock dividend on the common stock; repurchase shares of the Company’s stock, except shares subject to the right of repurchase by the Company; issue shares of convertible preferred stock other than pursuant to the stock purchase agreement; acquire all of the equity securities or substantially all of the assets of another entity, in exchange for the Company’s equity securities of more than 5% of the fully diluted valuation of the Company immediately after the closing; effect a reclassification or recapitalization of the outstanding capital stock of the Company; engage in any business other than the business engaged in by the Company in accordance with the Certificate of Incorporation; incur indebtedness in excess of $25,000,0000; or issue shares of Series A, Series B, or Series C convertible preferred stock, other than pursuant to the special mandatory conversion section in the Certificate of Incorporation.

22

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

7. Convertible Preferred Stock (continued)

Dividends

Holders of Series A, Series B, and Series C convertible preferred stock are entitled to receive noncumulative dividends at the per annum rate of $0.08 for Series A convertible preferred shares, $0.1776 per annum for Series B convertible preferred shares, and $0.2128 per annum for Series C convertible preferred shares, when, and if, declared by the Board of Directors. The holders of Series A, Series B, and Series C convertible preferred stock will also be entitled to participate in dividends on common stock, when, and if, declared by the Board of Directors, based on the number of shares of common stock held on an as-if-converted basis. The Board of Directors is under no obligation to declare dividends, and no dividends on convertible preferred stock or common stock have been declared by the Board from October 15, 2002 (inception) through December 31, 2008.

Liquidation

In the event of any liquidation, dissolution, or winding up of the Company, including a merger, acquisition, or sale of assets where the beneficial owners of the Company’s common stock and convertible preferred stock own less than 50% of the resulting voting power of the surviving entity, each share of Series A and Series B convertible preferred stock shall be converted into a right to receive, from the assets of the Company, the liquidation preference of $1.00 per share (for Series A convertible preferred stock), $2.22 per share (for Series B convertible preferred stock), and $2.66 per share (for Series C convertible preferred stock) plus declared or accumulated but unpaid dividends, before any payment shall be made or any assets distributed to the holders of common stock. If, upon the liquidation, the assets to be distributed among the holders of the Series A and Series B convertible preferred stockholders are insufficient to permit the payment to such holders of the full liquidation preference for their shares, then the entire assets of the Company legally available for distribution shall be distributed with equal priority and pro rata among the holders of the Series A, Series B, and Series C convertible preferred stock in proportion to the full preferential amount to which each such holder is entitled.

Any remaining assets of the Company shall be distributed with equal priority and pro rata among the holders of the Series A, Series B, and Series C convertible preferred stock and the common stock on an as-if-converted basis.

23

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

7. Convertible Preferred Stock (continued)

Conversion

Each share of Series A, B, and C convertible preferred stock is convertible, at the option of the holder, at any time after issuance, into such number of fully paid and nonassessable shares of common stock that is equal to $1.00 (as adjusted for stock splits, combinations, and reorganizations) for Series A, $2.22 for Series B divided by the conversion price, and $2.66 for Series C divided by the conversion price. The initial conversion price of Series A, B and C convertible preferred stock is $1.00 for Series A, $2.22 for Series B, and $2.66 for Series C, subject to adjustments. Each share of Series A, B, and C convertible preferred stock shall automatically be converted into shares of common stock at the then-effective conversion price for such shares immediately upon: (i) the affirmative vote of at least a majority of the outstanding Series A, B, and C convertible preferred stockholders, voting together as a single class; or (ii) the closing of a public offering at a price per share of at least $4.00 (as appropriately adjusted for any subsequent stock splits, stock dividends, reclassifications, or recapitalizations) and with net proceeds of at least $30,000,000 (after deducting offering and underwriting expenses).

All shares of preferred stock are redeemable in the event of a change of control at the applicable original purchase price per share. As the preferred stock is redeemable upon an event outside the control of the Company, the related amounts have been presented outside of stockholders’ equity (deficit), in accordance with EITF Topic D-98, Classification and Measurement of Redeemable Securities. The carrying value of preferred stock will be adjusted to redemption value if it becomes probable that a redemption will occur. Management does not believe that redemption is probable based on current business conditions.

8. Convertible Preferred Stock Warrants

At December 31, 2008 and 2007, the fair value of warrants were remeasured based upon the current reassessed fair value of the Company’s Series A and Series B convertible preferred stock and recorded as a liability.

During the years ended December 31, 2008 and 2007, and for the period from October 15, 2002 (inception) to December 31, 2008, $60,810, $2,479, and $95,559, respectively, have been amortized to interest expense.

24

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

8. Convertible Preferred Stock Warrants (continued)

The following table sets forth the fair value of the warrants:

	Date	Exercise		Shares as of				Fair Value as of
	Exercisable	Price per		December 31				December 31
Stock	to	Share		2008		2007		2008		2007
Series A convertible preferred stock	June 2014	$	1.00		45,000		45,000	$	22,500	$	77,850
Series B convertible preferred stock	February 2015	$	2.22		540,540		—	$	270,270	$	—

During 2007, the fair value of the warrant was determined using the Black-Scholes valuation model. During 2008, the preferred stock warrants liability was reported at the estimated fair value based on valuations prepared by the Company, with the assistance of independent consultants, using unobservable inputs, including the Company’s assumptions about projected revenues, expenses, cash flows, risk-based rates of return on projected cash flows, and volatility and marketability discounts applicable to the Company’s common and preferred stock.

The preferred stock warrants liability is adjusted to its fair value at the end of each reporting period. During the years ended December 31, 2008 and 2007, the Company recorded other income for the decrease in fair value of the warrants of $55,350 and $4,204, respectively.

9. Common Stock

The Company’s Certificate of Incorporation, as amended, authorizes the Company to issue 170,945,000 shares of $0.001 par value common stock. The holders of common stock are also entitled to receive dividends whenever funds are legally available, as of and when declared by the Board of Directors. There have been no dividends declared as of December 31, 2008.

Restricted Stock Purchases

There were 1,800,000 shares sold under restricted stock purchase agreements that are subject to vesting over a five-year period. These shares cannot be sold or transferred to another individual until vesting is complete. At December 31, 2008 and 2007, there were 24,435 and 317,655 shares, respectively, of common stock subject to restriction.

25

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

9. Common Stock (continued)

Stock Option Plan

In November 2003, the Company adopted the 2003 Equity Incentive Plan (the Plan) under which the Board of Directors may issue incentive and nonqualified stock options to employees, directors, and consultants. The Board of Directors has authority to determine to whom options will be granted, the number of shares, the term, and the exercise price. A total of 14,712,287 shares have been reserved for issuance under the Plan.

Options under the Plan may be granted for periods of up to 10 years and at prices no less than 85% of the fair value of the shares on the date of grant as determined by the Board of Directors, provided, however, that: (i) the exercise price of an incentive stock option (ISO) and nonqualified stock option (NSO) shall not be less than 100% and 85%, respectively, of the estimated fair value of the shares on the date of grant; and (ii) the exercise price of an ISO and NSO granted to a 10% stockholder shall no be less than 110% of the estimated fair value of the shares on the date of grant. Options become exercisable at a rate of not less than 20% per year over five years from the date of grant, except for grants to officers, directors, and consultants. The Plan allows for early exercise of options in certain instances. The term of the options is no longer than five years for an ISO for which the grantee owns greater than 10% of the voting power of all classes of stock, and no longer than 10 years for all other options.

26

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

9. Common Stock (continued)

A summary of the stock option activity under the Plan is as follows:

				Outstanding Options
							Weighted-
	Shares						Average
	Available			Number of			Exercise
	for Options			Shares			Price
Shares reserved at Plan inception		1,850,000			—		$	—
Options granted		(551,000	)		551,000		$	0.10
Options forfeited		18,667			(18,667	)	$	0.10
Options exercised		—			—		$	0.10
Balances, December 31, 2004		1,317,667			532,333		$	0.10
Options granted		(586,000	)		586,000		$	0.10
Options forfeited		180,417			(180,417	)	$	0.10
Options exercised		—			(19,083	)	$	0.10
Balances, December 31, 2005		912,084			918,833		$	0.10
Increase in authorized shares		2,204,916			—
Options granted		(915,000	)		915,000		$	0.14
Options forfeited		24,167			(24,167	)	$	0.10
Options exercised		—			(76,366	)	$	0.10
Balance, December 31, 2006		2,226,167			1,733,300		$	0.12
Increase in authorized shares		4,091,538			—
Options granted		(5,492,096	)		5,492,096		$	0.27
Options forfeited		84,599			(84,599	)	$	0.29
Options exercised		—			(1,253,705	)	$	0.15
Balances, December 31, 2007		910,208			5,887,092		$	0.25
Increase in authorized shares		6,565,833			—
Options granted		(5,071,408	)		5,071,408		$	0.49
Options forfeited		140,768			(140,768	)	$	0.44
Options exercised		—			(436,877	)	$	0.21
Balances, December 31, 2008		2,545,401			10,380,855		$	0.27

27

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

9. Common Stock (continued)

A summary of the total outstanding and vested options as of December 31, 2008, is as follows:

	Options Outstanding
			Weighted-Average		Number		Weighted-
	Number		Remaining Contractual		Vested and		Average
Exercise Price	Outstanding		Life (in Years)		Exercisable		Exercise Price
$0.1000		496,937		4.25		311,977	$	0.1000
$0.2200		3,977,610		8.07		1,210,685	$	0.2200
$0.4700		2,369,378		9.00		431,931	$	0.4700
$0.5000		3,536,930		9.81		147,955	$	0.5000
$0.5000		10,380,855		8.69		2,102,548	$	0.2733

Stock-Based Compensation

The estimated grant date fair value of employee stock options was calculated using the Black-Scholes valuation model, based on the following assumptions:

	2008			2007
Expected life (in years)		6.3			6.3
Risk-free interest rate		2.90	%		4.46	%
Volatility		63.60	%		61.20	%
Dividend yield		—			—

The weighted-average grant-date fair value of options granted during 2008 and 2007 was $0.31 and $0.17 per share, respectively. The intrinsic value of options exercised represents the excess of the stock price on the exercise date over the exercise price, multiplied by the number of options exercised. The total intrinsic value of the options at the time of exercise was $112,063 and $159,734 for 2008 and 2007, respectively. As of December 31, 2008 and 2007, there were 2,102,548 and 897,799 vested outstanding options, respectively, with a total aggregate intrinsic value of $476,740 and $242,884, respectively. The estimated fair value of employee stock options vested during the years ended December 31, 2008 and 2007, was $304,210 and $123,302, respectively, of which $147,818 and $48,266, respectively, was recorded as general and administrative expense and $156,391 and $75,036, respectively, was recorded as research and development expense in each year. As of December 31, 2008, the Company had employee stock-based compensation expense of $1,985,530 related to unvested stock options not yet recognized, which is expected to be recognized over an estimated weighted-average period of 3.98 years.

28

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

9. Common Stock (continued)

Nonemployee Awards

Stock-based compensation expense related to stock options granted to nonemployees is recognized as the stock options are earned. In connection with the grant of stock options to nonemployees, the Company recorded stock-based compensation expense of $19,647, $18,201, and $41,634 during the years ended December 31, 2008 and 2007, and the period from October 15, 2002 (inception) to December 31, 2008, respectively.

The estimated fair value of the nonemployee awards was determined using the Black-Scholes valuation model using the following assumptions:

	Year Ended December 31
	2008			2007
Risk-free interest rate		3.00	%		4.46	%
Volatility		62	%		61	%
Dividend yield		—			—
Estimated term	8.25 — 10 years			10 years

Additional compensation will be recorded in future periods for the remaining unvested portions of the nonemployee option grants.

Common Stock Warrants

In connection with lease and construction agreements entered into during 2007 and 2008, the Company has issued warrants to purchase of 60,000 shares of common stock. The exercise price is $0.22 per share for 50,000 shares, and $0.47 per share for the remaining 10,000 shares. The warrants expire at the earlier of the closing of an initial public offering, the 10th anniversary date of the warrant in 2018, or termination of the organization. The fair value of the warrants issued in 2008 and 2007 was determined to be $3,385 and $19,500, respectively, and is included in stockholders’ deficit. The asset recorded for the common stock warrant is amortized over the life of the lease, as it is considered to be a lease cost that benefits the entire lease term. All of the common stock warrants remain outstanding at December 31, 2008.

29

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

10. Income Taxes

The significant components of deferred tax assets are as follows:

	2008			2007
Net operating loss carryforwards	$	31,527,000		$	12,404,000
Research and development credits		3,076,000			3,371,000
Capitalized cost		3,607,000			3,165,000
Other		2,566,000			1,958,000
		40,776,000			20,898,000
Valuation allowance		(40,776,000	)		(20,898,000	)
Net deferred tax assets	$	—		$	—

The Company has provided a full valuation allowance for its deferred tax assets at December 31, 2008 and 2007, due to the uncertainty surrounding the future realization of such assets.

The valuation allowance increased by $19,878,000 and $10,100,000 in 2008 and 2007, respectively, primarily due to tax credits and net operating losses. The Company has net operating loss carryforwards of approximately $79,145,000 and $79,141,000 for federal and state income tax purposes, respectively, at December 31, 2008. If not utilized, these federal and state carryforwards will begin to expire in the years 2024 and 2014, respectively. As of December 31, 2008, the Company also has research and development tax credit carryforwards of approximately $1,821,000 and $1,901,000 for federal and state income tax purposes, respectively. If not utilized, the federal carryforwards will expire in various amounts beginning in 2024, and the state credits can be carried forward indefinitely. The Tax Reform Act of 1986 limits the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a company. In the event the Company has a change in ownership, utilization of the carryforwards could be limited.

In accordance with FSP FIN 48-3, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises, the Company is deferring the adoption of FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, since it is required only for privately held Companies for fiscal years beginning after December 15, 2008.

30

Proteolix, Inc.
(A Development Stage Company)

Notes to Financial Statements (continued)

11. Subsequent Events

During the first quarter of 2009 the Company entered into a formal restructuring plan to lower the Company’s operating costs by reducing its headcount. A total of 29 employees were given notice of termination during the first quarter of fiscal 2009. The Company expects the total charge for the restructuring expense to be approximately $1,160,000.

31

EX-99.2

Exhibit 99.2

Financial Statements

Proteolix, Inc. (A Development Stage Company)

As of September 30, 2009 and for the nine months ended
September 30, 2009 and 2008, and for the period from
October 15, 2002 (inception) to September 30, 2009.

Proteolix, Inc.
(A Development Stage Company)

Financial Statements (Unaudited)

Contents

Balance Sheets (Unaudited)	1
Statements of Operations (Unaudited)	2
Statements of Cash Flows (Unaudited)	3
Notes to Unaudited Financial Statements	5

Proteolix, Inc.
(A Development Stage Company)

Balance Sheets

	September 30,			December 31,
	2009			2008
	(Unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	25,016,179		$	66,363,011
Prepaid and other current assets		275,227			228,636
Total current assets		25,291,406			66,591,647
Property and equipment, net		4,917,354			5,890,515
Other assets		75,457			113,185
Total assets	$	30,284,217		$	72,595,347
Liabilities, convertible preferred stock, and stockholders’ deficit
Current liabilities:
Accounts payable	$	1,957,148		$	301,417
Accrued liabilities		4,209,172			5,506,405
Accrued clinical expenses		5,061,431			2,514,266
Current portion of notes payable		5,009,302			4,667,571
Warrant liability		413,394			292,770
Deferred rent current portion		670,085			5,080
Total current liabilities		17,320,532			13,287,509
Long-term portion of deferred rent		4,775,873			5,319,115
Long-term portion of notes payable		3,159,463			6,972,306
Commitments and contingencies
Convertible preferred stock, $0.001 par value, issuable in series:
Series A: 18,345,000 shares authorized; 18,300,000 shares issued and outstanding at September 30, 2009 and December 31, 2008 (aggregate liquidation preference of $18,300,000)		18,040,578			18,040,578
Series B: 26,600,000 shares authorized; 20,425,364 shares issued and outstanding at September 30, 2009 and December 31, 2008 (aggregate liquidation preference of $45,344,308)		43,288,671			43,288,671
Series C: 30,000,000 shares authorized; 29,614,654 shares issued and outstanding at September 30, 2009 and December 31, 2008 (aggregate liquidation preference of $78,774,979)		78,532,721			78,532,721
Stockholders’ deficit:
Common stock, $0.001 par value; 170,945,000 shares authorized; 4,503,368 and 3,837,127 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively		4,503			3,833
Additional paid-in capital		1,562,035			815,227
Deficit accumulated during the development stage		(136,400,159	)		(93,664,613	)
Total stockholders’ deficit		(134,833,621	)		(92,845,553	)
Total liabilities, convertible preferred stock, and stockholders’ deficit	$	30,284,217		$	72,595,347

See accompanying notes.

1

Proteolix, Inc.
(A Development Stage Company)

Statements of Operations
(Unaudited)

							Period From
							October 15,
							2002
	Nine Months Ended						(Inception) to
	September 30,						September 30,
	2009			2008			2009
Operating expenses:
Research and development	$	33,893,900		$	28,020,569		$	115,567,913
General and administrative		6,550,029			5,017,291			21,367,054
Restructuring charges		1,160,038			—			1,160,038
Loss from operations		(41,603,967	)		(33,037,860	)		(138,095,005	)
Interest income and other expense, net		(112,347	)		343,855			4,217,212
Interest expense		(1,019,232	)		(831,403	)		(2,522,366	)
Net loss	$	(42,735,546	)	$	(33,525,408	)	$	(136,400,159	)

See accompanying notes.

2

Proteolix, Inc.
(A Development Stage Company)

Statements of Cash Flows
(Unaudited)

							Period From
							October 15,
							2002
	Nine Months Ended							(Inception) to
	September 30,						September 30,
	2009			2008			2009
Operating activities
Net loss	$	(42,735,546	)	$	(33,525,408	)	$	(136,400,159	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,190,548			990,348			4,262,143
Debt discount amortization		67,569			38,287			163,130
Stock-based compensation		513,587			208,785			991,732
Revaluation of preferred stock warrant liability		120,624			(55,350	)		107,624
Change in fair value of convertible preferred stock liability		—			—			(1,844,347	)
Issuance of common stock in exchange for services		—			—			25,300
Issuance of Series B convertible preferred stock for services		—			—			149,998
Changes in operating assets and liabilities:
Prepaid and other current assets		(49,117	)		82,370			(258,107	)
Other assets		37,728			7,499			(75,457	)
Accounts payable		1,655,731			(1,702,966	)		1,957,148
Accrued liabilities		1,249,932			2,051,988			9,270,603
Deferred rent		121,763			708,592			1,595,958
Net cash used in operating activities		(37,827,181	)		(31,195,855	)		(120,054,434	)
Investing activities
Purchase of property and equipment		(214,861	)		(2,077,465	)		(9,173,732	)
Proceeds received as lease incentive		—			1,030,757			3,850,000
Net cash used in investing activities		(214,861	)		(1,046,708	)		(5,323,732	)
Financing activities
Proceeds from issuance of convertible preferred stock, net of issuance costs		—			78,532,721			141,556,319
Proceeds from issuance of common stock		233,891			89,969			526,621
Proceeds from issuance of notes payable		—			15,000,000			16,500,000
Repayment of notes payable		(3,538,681	)		(2,444,408	)		(8,188,595	)
Net cash (used in) provided by financing activities		(3,304,790	)		91,178,282			150,394,345
Net (decrease) increase in cash and cash equivalents		(41,346,832	)		58,935,719			25,016,179
Cash and cash equivalents at beginning of period		66,363,011			21,301,474			—
Cash and cash equivalents at end of period	$	25,016,179		$	80,237,193		$	25,016,179

3

Proteolix, Inc.
(A Development Stage Company)

Statements of Cash Flows (continued)
(Unaudited)

					Period From
					October 15,
					2002
	Nine Months Ended				(Inception) to
	September 30,				September 30,
	2009		2008		2009
Supplemental disclosure of cash flow information
Cash paid during the year for interest	$	914,789	$	767,415	$	2,281,645
Supplemental schedule of noncash investment and financing activities
Warrant for Series A convertible preferred stock issued in connection with notes payable	$	—	$	—	$	35,500
Warrant for Series B convertible preferred stock issued in connection with notes payable	$	—	$	270,270	$	270,270
Common stock warrants issued for facility lease	$	—	$	3,385	$	22,885
Issuance of Series B convertible preferred stock for services	$	—	$	—	$	149,998

See accompanying notes.

4

Proteolix, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements

September 30, 2009

1. Organization and Basis of Presentation

Proteolix, Inc., or the Company, is primarily engaged in the development of novel human therapeutic agents that target protein degradation pathways in cells for the treatment of cancer and other diseases. The Company was incorporated in the state of Delaware on October 15, 2002.

The Company’s operations are based in South San Francisco, California, and principal activities to date have involved laboratory research and preclinical development, raising capital, and recruiting personnel. Accordingly, the Company is considered to be in the development stage.

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009 or for any other future period.

The balance sheet at December 31, 2008 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed financial statements should be read in conjunction with the financial statements and notes thereto included in our audited financial statements for the year ended December 31, 2008.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

5

Proteolix, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)

1. Organization and Basis of Presentation (continued)

Income Taxes

On July 13, 2006, the FASB released FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109, or FIN 48 The Interpretation clarifies the accounting for income taxes by establishing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on recognition, derecognition, measurement, classification of tax positions, interest and penalties, accounting in interim periods, and disclosures. Under FSP FIN 48-3 issued on December 30, 2008, the adoption of FIN 48 was deferred until fiscal years beginning after December 15, 2008 for nonpublic companies. FIN 48 was effective for the Company beginning January 1, 2009. The result of the adoption had no material impact on its financial position and results of operations.

2. Fair Value Measurement

The Company’s financial assets and financial liabilities subject to fair value measurements on a recurring basis, and the levels of the inputs used in such measurements, are as follows as of September 30, 2009 and December 31, 2008:

	Fair Value Measurement at September 30, 2009 Using
	Quoted Prices in		Significant		Significant
	Active Markets for		Other Observable		Unobservable
	Identical Assets		Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)
Financial assets:
Money market fund	$	22,644,175	$	—	$	—
Financial liabilities:
Warrant liability	$	—	$	—	$	413,394

6

Proteolix, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)

2. Fair Value Measurement (continued)

	Fair Value Measurement at December 31, 2008 Using
	Quoted Prices in		Significant		Significant
	Active Markets for		Other Observable		Unobservable
	Identical Assets		Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)
Financial assets:
Money market fund	$	64,569,985	$	—	$	—
Financial liabilities:
Warrant liability	$	—	$	—	$	292,770

The following table presents the changes in liabilities measured at fair value on a recurring basis using Level 3 inputs for the nine month period ended September 30, 2009:

	Preferred Stock
	Warrants
	Liability
Balance at December 31, 2008	$	292,770
Unrealized loss included in other income		120,624
Realized gain/loss included in other income		—
Balance at September 30, 2009	$	413,394

3. Commitments and Contingencies

The Company recorded a liability of $285,000 and $250,000 at September 30, 2009 and December 31, 2008, reflecting management’s best estimate of the amount owed at each reporting date related to disputed charges for services performed by a consultant during the year ended December 31, 2008. The Company is in the process of negotiating with the consultant and, accordingly, the final payment could differ from the estimate recorded at September 30, 2009.

The Company is subject to various claims and assessments in the ordinary course of business. None of these matters are expected to have a material adverse effect on the Company’s financial position or results of operations.

7

Proteolix, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)

4. Equity Related Activity

A summary of the stock option activity under the 2003 Equity Incentive Plan (the Plan) is as follows:

				Outstanding Options
	Shares						Weighted-
	Available			Number of			Average
	for Options			Shares			Exercise Price
Balances, December 31, 2008		2,545,401			10,380,855		$	0.27
Increase in authorized shares		3,000,000			—
Options granted		(6,675,975	)		6,675,975		$	0.50
Options forfeited		2,494,308			(2,494,308	)	$	0.41
Options exercised		—			(666,442	)	$	0.35
Balances, September 30, 2009		1,363,734			13,896,080		$	0.42

A summary of the total outstanding and vested options as of September 30, 2009, is as follows:

	Options Outstanding
			Weighted-Average		Number
	Number		Remaining Contractual		Vested and
Exercise Price	Outstanding		Life (in Years)		Exercisable
$0.10		402,278		4.72		336,471
$0.22		3,072,178		6.62		1,541,855
$0.47		913,567		8.14		326,577
$0.50		9,508,057		9.35		1,226,264
$0.10 — $0.50		13,896,080		8.53		3,431,167

8

Proteolix, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)

4. Equity Related Activity (continued)

Stock-Based Compensation

The estimated grant date fair value of employee stock options was calculated using the Black-Scholes valuation model, based on the following assumptions:

	September 30,
	2009			2008
Expected life (in years)		6.3			6.3
Risk-free interest rate		2.85	%		3.16	%
Volatility		66.74	%		61.00	%
Dividend yield		—			—

The weighted-average grant-date fair value of options granted for the nine-month periods ending September 30, 2009 and 2008 was $0.31 and $0.28 per share, respectively. The estimated fair value of employee stock options vested during the nine-month periods ending September 30, 2009 and 2008, was $473,383 and $195,093, respectively, of which $179,027 and $93,294, respectively, was recorded as general and administrative expense and $294,356 and $101,799, respectively, was recorded as research and development expense in each period.

As of September 30, 2009, the Company had employee stock-based compensation expense of $3,675,468 related to unvested stock options not yet recognized. The amount is expected to be fully recorded as stock-based compensation expense in the fourth quarter of 2009 as the vesting of all outstanding stock options was accelerated upon the close of the acquisition by Onyx Pharmaceuticals. See footnote 6 Subsequent Events.

5. Restructuring Charges

During the first quarter of 2009 the Company entered into a formal restructuring plan to lower the Company’s operating costs by reducing its headcount. A total of 29 employees were given notice of termination during the first quarter of fiscal 2009. The total charge to restructuring expense was $1,160,038 for personnel related costs. As of September 30, 2009, all amounts have been paid and there is no unpaid balance related to the restructuring plan.

9

Proteolix, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)

6. Subsequent Events

Effective on November 16, 2009, Proteolix Inc. was acquired by Onyx Pharmaceuticals (Onyx), pursuant to the agreement and plan of merger, dated as of October 10, 2009. Under the terms of the transaction, Onyx made a $276 million cash payment upon closing of the transaction of which $27.6 million was placed in an escrow account and will be held until December 31, 2010 to secure the indemnification rights of Onyx and others with respect to certain matters. Additional payments include $40 million payable in 2010 based on the achievement of a development milestone and up to $535 million contingent upon the achievement of certain regulatory approvals for carfilzomib in the U.S. and Europe.

The Company has evaluated subsequent events through January 13, 2010, the date on which the financial statements were issuable and not beyond that date.

10

EX-99.3

Exhibit 99.3

Unaudited Pro Forma Financial Information as of and for the Nine Months Ended September 30, 2009 and for the Year Ended December 31, 2008.

Introduction to Unaudited Pro Forma Condensed Combined Financial Statements

     On November 16, 2009, Onyx Pharmaceuticals, Inc. (“Onyx” or the “Company”) completed its acquisition of Proteolix, Inc. (“Proteolix”), a privately held biopharmaceutical company focused on discovering and developing novel therapies that target the proteasome for the treatment of hematological malignancies and solid tumors.

     The merger is accounted for under the purchase method of accounting in accordance with the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 805, formerly known as Statement of Financial Accounting Standards No. 141R, “Business Combinations.” Under the purchase method of accounting, the total purchase price, calculated as described in Note 1 to these unaudited pro forma condensed combined financial statements, is allocated to the net tangible and intangible assets of Proteolix based on their estimated fair values. Management has made a preliminary allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on various estimates. A final determination of these estimated fair values will be based on the actual net tangible and intangible assets of Proteolix that existed as of the date of completion of the merger.

     These unaudited pro forma condensed combined financial statements have been prepared by management for illustrative purposes only and are not necessarily indicative of the condensed consolidated financial position or results of operations in future periods or the results that actually would have been realized had Onyx and Proteolix been a combined company during the specified periods. The pro forma adjustments are based on the preliminary information available at the time of the preparation of this document. The unaudited pro forma condensed combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, Onyx’s audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2008, Onyx’s unaudited condensed financial statements included in its Form 10-Q for the quarter ended September 30, 2009, which are incorporated by reference herein, and Proteolix’s audited financial statements for the year ended December 31, 2008 and Proteolix’s unaudited financial statements for the nine months ended September 30, 2009, which are included elsewhere herein.

ONYX PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2009
(in thousands)

	Historical						Pro forma			Pro forma as
	Onyx			Proteolix			adjustments			adjusted
ASSETS
Current assets:
Cash and cash equivalents	$	334,907		$	25,016		$	(276,000)	(a)	$	89,709
		—			—			5,786	(b)
Restricted cash		—			—			27,600	(c)		27,600
Marketable securities, current		469,763			—			—			469,763
Receivable from collaboration partner		51,444			—			—			51,444
Prepaid expenses and other current assets		7,389			275			—			7,664
Total current assets		863,503			25,291			(242,614	)		646,180
Marketable securities, non-current		38,410			—			—			38,410
Property and equipment, net		3,124			4,917			(300)	(d)		7,741
Goodwill		—			—			184,485	(e)		184,485
Intangible asset — in process research & development		—			—			438,800	(f)		438,800
Other assets		9,014			76			—			9,090
Total assets	$	914,051		$	30,284		$	380,371		$	1,324,706
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,347		$	1,957		$	—		$	3,304
Accrued liabilities		8,115			2,395			924	(g)		11,434
Accrued clinical trials and related expenses		6,758			5,062			—			11,820
Accrued compensation		6,668			1,814			1,963	(h)		10,445
Notes payable, current		—			5,009			—			5,009
Purchase consideration held in escrow account		—			—			27,600	(c)		27,600
Warrant liability		—			413			(413)	(i)		—
Deferred rent, current		—			670			(670)	(j)		—
Liability for contingent consideration, current		—			—			40,000	(k)		40,000
Total current liabilities		22,888			17,320			69,404			109,612
Liability for contingent consideration, non-current		—			—			159,000	(k)		159,000
Accrued property lease liability		—			—			4,682	(l)		4,682
Deferred rent and lease incentives		986			4,776			(4,776)	(j)		986
Convertible senior notes due 2016		141,559			—						141,559
Deferred tax liability		—			—			157,090	(m)		157,090
Notes payable, non-current		—			3,159			—			3,159
Commitments and contingencies
Convertible preferred stock		—			139,862			(139,862)	(n)		—
Stockholders’ equity:
Common stock		62			5			(5)	(n)		62
Receivable from stock option exercises		(315	)		—			—			(315	)
Additional paid-in capital		1,198,717			1,562			(1,562)	(n)		1,198,717
Accumulated other comprehensive loss		(808	)		—			—			(808	)
Accumulated deficit		(449,038	)		(136,400	)		136,400	(n)		(449,038	)
Total stockholders’ equity		748,618			(134,833	)		134,833			748,618
Total liabilities and stockholders’ equity	$	914,051		$	30,284		$	380,371		$	1,324,706

See accompanying notes to unaudited pro forma condensed combined financial statements

ONYX PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2009
(in thousands, expect per share amounts)

	Historical						Pro forma			Pro forma as
	Onyx			Proteolix			adjustments			adjusted
Revenue:
Revenue from collaboration agreement	$	183,074		$	—		$	—		$	183,074
Total operating revenue		183,074			—			—			183,074
Operating expenses:
Research and development		92,478			33,894			(90)	(1)		126,282
Selling, general and administrative		68,899			6,550			(23)	(1)		75,233
								(193)	(2)
Restructuring charges		—			1,160			—			1,160
Total operating expenses		161,377			41,604			(306	)		202,675
Income (loss) from operations		21,697			(41,604	)		306			(19,601	)
Investment income and other expense, net		3,108			(113	)		—			2,995
Interest expense		(2,255	)		(1,019	)		—			(3,274	)
Income (loss) before provision for income taxes		22,550			(42,736	)		306			(19,880	)
Provision (benefit) for income taxes		878			—			(878)	(3)		—
Net income (loss)	$	21,672		$	(42,736	)	$	1,184		$	(19,880	)
Net income (loss) per share:
Basic	$	0.37								$	(0.34	)
Diluted	$	0.37								$	(0.34	)
Shares used in computing net income (loss) per share:
Basic		58,201						—			58,201
Diluted		58,511						(310)	(4)		58,201

See notes to unaudited pro forma condensed combined financial statements

ONYX PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2008
(in thousands, expect per share amounts)

	Historical						Pro forma			Pro forma as
	Onyx			Proteolix			adjustments			adjusted
Revenue:
Revenue from collaboration agreement	$	194,343		$	—		$	—		$	194,343
Total operating revenue		194,343			—			—			194,343
Operating expenses:
Research and development		123,749			40,514			(120)	(5)		164,143
Selling, general and administrative		80,994			7,023			(30)	(5)		87,638
		—			—			(349)	(6)		—
Total operating expenses		204,743			47,537			(499	)		251,781
Income (loss) from operations		(10,400	)		(47,537	)		499			(57,438	)
Investment income and other expense, net		12,695			461			—			13,156
Interest expense		—			(1,237	)		—			(1,237	)
Income (loss) before provision for income taxes		2,295			(48,313	)		499			(45,519	)
Provision (benefit) for income taxes		347			—			(347)	(7)		—
Net income (loss)	$	1,948		$	(48,313	)	$	846		$	(45,519	)
Net income (loss) per share:
Basic	$	0.03								$	(0.81	)
Diluted	$	0.03								$	(0.81	)
Shares used in computing net income (loss) per share:
Basic		55,915									55,915
Diluted		56,765						(850)	(8)		55,915

See notes to unaudited pro forma condensed combined financial statements

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

1.	Basis of Presentation
	On November 16, 2009 (the Closing Date), Onyx completed the acquisition of Proteolix whereby Proteolix became a wholly-owned subsidiary of Onyx in a transaction accounted for using the purchase method of accounting in accordance with ASC Topic 805.
2.	Purchase Price
	The total consideration paid by Onyx to Proteolix security holders at closing consisted of $276.0 million in cash, of which $27.6 million was placed in an escrow account and will be held until December 31, 2010 to secure the indemnification rights of Onyx and other indemnitees with respect to certain matters, including breaches of representations, warranties and covenants of Proteolix included in the Merger Agreement. In addition, Onyx may be required to pay up to an additional $575.0 million in earnout payments upon the receipt of certain regulatory approvals and the satisfaction of other milestones. Subject to the terms and conditions set forth in the Merger Agreement, Onyx may, in its sole discretion, make any of the earnout payments (with the exception of the first earnout payment of $40.0 million) that become payable to former holders of Proteolix preferred stock in the form of cash, shares of Onyx common stock or a combination thereof.
	In accordance with ASC Topic 805, the contingent payment obligations are included in the purchase price allocation and are recorded as a current liability for the first earnout payment and a long-term liability for the remaining earnout payments at estimated fair value on the Closing Date. The estimated fair value of this long-term liability is based on management’s assessment of whether, as of the Closing Date, the specified milestone events would be achieved, and of the present value factors associated with the timing of the milestone achievement.
	In accordance with ASC Topic 805, management will remeasure the fair value of the contingent payment obligations at each reporting period, with any changes in fair value being recorded in the current period’s Consolidated Statement of Operations.
	For purposes of presentation in the unaudited pro forma condensed combined financial information, the estimated purchase price for Proteolix is $475.0 million, as follows (in thousands):

Cash consideration	$	276,000
Contingent consideration (earn-out payments) at estimated fair value:		199,000
Total consideration transferred	$	475,000

Under the purchase method of accounting, the total purchase price as shown in the table above is allocated to Proteolix’s net tangible and intangible assets based on their estimated fair values as of the Closing Date. The preliminary allocation of the purchase price to the net assets acquired is as follows (in thousands):

Net working capital (including cash)	$	19,849
Depreciable property and equipment		4,617
Additional liabilities assumed		(2,887	)
Current and non-current notes payable assumed		(8,168	)
Deferred tax liability		(157,090	)
Other long-term assets		76
Accrued property lease liability		(4,682	)
Intangible asset — in process research and development		438,800
Goodwill		184,485
Total net assets acquired	$	475,000

	The current and non-current notes payable assumed by Onyx as a result of the acquisition were subsequently paid off.
	In August 2009, the Company issued, through an underwritten public offering, $230.0 million aggregate principal amount of 4.0% convertible senior notes due 2016. The impact of the convertible senior notes was excluded from this presentation as Onyx had enough cash on hand for this acquisition.
3.	Unaudited Pro Forma Adjustments
	Pro forma adjustments are necessary to reflect the purchase price, to reflect amounts related to Proteolix’s net tangible and intangible assets at an amount equal to the estimated fair values on the Closing Date, to reflect changes in depreciation and amortization expense resulting from the estimated fair value adjustments to net tangible and intangible assets, and to reflect the income tax effect related to the pro forma adjustments.
	The pro forma combined income tax benefit does not necessarily reflect the amounts that would have resulted had Onyx and Proteolix filed consolidated income tax returns during the periods presented.
	Onyx has not identified any significant pre-merger contingencies where the related asset, liability or impairment is probable and the amount of the asset, liability or impairment can be reasonably estimated.

          Pro Forma Condensed Combined Balance Sheet as of September 30, 2009

(a)	Reflects the total cash consideration paid on the Closing Date to Proteolix security holders of $276.0 million.
(b)	Net proceeds from options exercised and redeemed of Proteolix security holders.
(c)	Of the total cash consideration, 10%, or $27.6 million, was placed in an escrow account and will be held until December 31, 2010 to secure the indemnification rights of Onyx and other indemnities with respect to certain matters, including breaches of representations, warranties and covenants of Proteolix included in the Agreement and Plan of Merger. Reflects the 10% amount recorded as restricted cash and an acquisition liability.
(d)	Reflects the adjustments to the historical amounts of Proteolix’s depreciable fixed assets to arrive at the estimated fair values on the Closing Date.
(e)	Reflects the portion of the purchase price allocated to goodwill based on the estimated fair value of the total purchase price consideration less the estimated fair values assigned to identifiable tangible and intangible assets acquired and liabilities assumed on the Closing Date.
(f)	Reflects the portion of the purchase price allocated to in-process research and development (IPR&D) intangible assets acquired as part of the acquisition based on the fair values assigned on the Closing Date.
(g)	Reflects the estimated fair value adjustments of liabilities assumed as a result of the acquisition totaling $0.9 million.
(h)	Reflects the accrual of change of control obligations for employees of Proteolix that became due at the Closing Date totaling $2.0 million.

(i)	Reflects the adjustment to the warrant liability for preferred shareholders that was eliminated as a result of the acquisition.
(j)	Reflects the elimination of Proteolix deferred rent to reflect its fair value of zero as a result of the acquisition.
(k)	Reflects the estimated fair value of the additional contingent consideration due to Proteolix security holders upon the achievement of specified milestones with a portion expected to be due in 2010 recorded as a current liability.
(l)	Reflects the estimated fair value of the liability associated with a Proteolix operating lease that had rent obligations greater than the market rate for similar facilities.
(m)	Reflects the estimated adjustments to net deferred taxes associated with the in-process research and development intangible asset recognized in the acquisition.
(n)	Reflects the elimination of Proteolix historical equity.

          Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2009

(1)	Reflects the elimination of depreciation expense recorded for nine months by Proteolix for the depreciable property and equipment written down to fair value as of the acquisition.
(2)	Reflects the adjustment to rent expense incurred by Proteolix for nine months due to amortization of the acquired lease liability relating to the difference between the rent obligation per the lease and an estimated market rent for similar facilities.
(3)	Reflects the elimination of the provision for income taxes resulting from the pro forma combined net loss.
(4)	Reflects the adjustment to diluted weighted average shares outstanding to equal the basic weighted average shares outstanding as a result of the pro forma combined net loss.

          Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2008

(5)	Reflects the elimination of depreciation expense recorded for the year by Proteolix for the depreciable property and equipment written down to fair value as of the acquisition.
(6)	Reflects the adjustment to rent expense incurred by Proteolix for the year due to amortization of the acquired lease liability relating to the difference between the rent obligation per the lease and an estimated market rent for similar facilities.
(7)	Reflects the elimination of the provision for income taxes resulting from the pro forma combined net loss.
(8)	Reflects the adjustment to diluted weighted average shares outstanding to equal the basic weighted average shares outstanding as a result of the pro forma combined net loss.