Agreement with Ono Pharmaceutical Co., Ltd.

6 Months Ended

Jun. 30, 2011

License Development And Commercialization Agreement [Abstract]

Agreement with Ono Pharmaceutical Co., Ltd.

Note 3. Agreement with Ono Pharmaceutical Co., Ltd.

In September 2010, the Company entered into an exclusive license agreement with Ono Pharmaceutical Co., Ltd., or Ono, granting Ono the right to develop and commercialize both carfilzomib and ONX 0912 for all oncology indications in Japan. The Company retains all development and commercialization rights for other countries in the Asia Pacific region, as well as in all other regions of the world, including the United States and Europe. The Company agreed to provide Ono with development and commercial supply of carfilzomib and ONX 0912 on a cost-plus basis. Ono is responsible for all development costs in support of regulatory filings in Japan as well as commercialization costs it incurs. If regulatory approval for carfilzomib and/or ONX 0912 is achieved in Japan, Ono is obligated to pay the Company double-digit royalties on net sales of the licensed compounds in Japan.

Global development work is conducted by Onyx at Onyx’s discretion. A percentage of the costs incurred by the Company for the global development of carfilzomib and ONX 0912 that may support filings for regulatory approval in Japan are required to be reimbursed by Ono at cost. These reimbursements are recorded as a reduction of operating expenses by the Company. For the three and six months ended June 30, 2011, the reimbursement of global development costs was $4.4 million and $7.4 million, respectively, which reduced the “Research and development expenses” line item in the Condensed Consolidated Statement of Operations.

Ono also agreed to pay the Company global development support and commercial milestone payments based on the achievement of pre-specified criteria, which could total approximately $289.3 million at current exchange rates. In April 2010, the FASB issued ASU No. 2010-17, Milestone Method of Revenue Recognition, which states that entities can apply the milestone method of revenue recognition to research or development arrangements if the milestones under the arrangements are substantive and there is substantive uncertainty about whether the milestones will be achieved. The Company adopted ASU No. 2010-17 effective January 2010 and determined that the milestones under the agreement with Ono will not be accounted for under the milestone method of revenue recognition. The milestones under the agreement with Ono do not meet the definition of a milestone under ASU 2010-17 because the achievement of these milestones is solely dependent on Ono’s performance and not on any performance obligations of the Company. Revenue from the milestone payments will be recognized if and when such payments become due because the Company does not expect to have any outstanding performance obligations relating to these milestones at the time these milestones are achieved.

The agreement will terminate upon the expiration of the royalty terms specified for each product. In addition, Ono may terminate this agreement for certain scientific or commercial reasons with advance written notice, and either party may terminate this agreement for the other party’s uncured material breach or bankruptcy.