10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________to______________

Commission File Number: 0-28298

ONYX PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3154463
(State or other jurisdiction of	(I.R.S. Employer ID Number)
incorporation or organization)

3031 Research Drive
Richmond, California 94806
(Address of principal executive offices)

(510) 222-9700
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the proceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X]    Yes    [   ]    No

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

[X]    Yes    [   ]    No

     Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date. The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 35,264,192 as of November 1, 2004.

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ONYX PHARMACEUTICALS, INC.

INDEX

	PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets – September 30, 2004 and December 31, 2003		3
Condensed Statements of Operations – Three and nine months ended September 30, 2004 and 2003		4
Condensed Statements of Cash Flows – Nine months ended September 30, 2004 and 2003		5
Notes to Condensed Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3. Quantitative and Qualitative Disclosures About Market Risk		25
Item 4. Controls and Procedures		25
PART II: OTHER INFORMATION
Item 1. Legal Proceedings		26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 3. Defaults Upon Senior Securities		26
Item 4. Submission of Matters to a Vote of Security Holders		26
Item 5. Other Information		26
Item 6. Exhibits		26
SIGNATURES		28
EXHIBIT 10.43
EXHIBIT 31.1
EXHIBIT 32.1

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ONYX PHARMACEUTICALS, INC.

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

CONDENSED BALANCE SHEETS

	September 30,			December 31,
	2004			2003
	(Unaudited)			(Note 1)
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	71,041		$	55,312
Marketable securities		159,165			50,088
Receivable from collaboration partner		1,503			584
Other current assets		2,667			2,461
Total current assets		234,376			108,445
Property and equipment, net		282			285
Other assets		474			408
	$	235,132		$	109,138
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	620		$	299
Payable to collaboration partner		18,289			13,632
Accrued restructuring		306			325
Accrued clinical trials and related expenses.		—			147
Accrued compensation		844			722
Other accrued liabilities		823			494
Total current liabilities		20,882			15,619
Advance from collaboration partner		20,000			20,000
Commitments and contingencies
Stockholders’ equity:
Common stock		35			30
Additional paid-in capital		430,887			277,577
Receivable from stock option exercises		—			(235	)
Accumulated other comprehensive (loss) income		(241	)		27
Accumulated deficit		(236,431	)		(203,880	)
Total stockholders’ equity		194,250			73,519
	$	235,132		$	109,138

See accompanying notes.

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ONYX PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(In thousands, except per share amounts)
Operating expenses:
Research and development	$	9,270		$	8,841		$	25,844		$	24,593
Marketing		859			195			2,619			504
General and administrative		2,045			1,353			5,960			4,218
Restructuring		—			944			258			4,145
Total operating expenses		12,174			11,333			34,681			33,460
Loss from operations		(12,174	)		(11,333	)		(34,681	)		(33,460	)
Interest income, net		910			254			2,130			562
Other expense – related party		—			—			—			(275	)
Net loss	$	(11,264	)	$	(11,079	)	$	(32,551	)	$	(33,173	)
Basic and diluted net loss per share	$	(0.32	)	$	(0.40	)	$	(0.96	)	$	(1.34	)
Shares used in computing basic and diluted net loss per share		34,905			27,777			34,064			24,791

See accompanying notes.

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ONYX PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine Months Ended
	September 30,
	2004			2003
	(In thousands)
Cash flows from operating activities:
Net loss	$	(32,551	)	$	(33,173	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		133			1,083
Noncash restructuring charges		258			2,394
Stock-based compensation to consultants		1,323			716
Loss on impairment of investment		—			275
Other		(34	)		3
Changes in assets and liabilities:
Receivable from collaboration partner		(919	)		(788	)
Other current assets		(1,028	)		(287	)
Other assets		(66	)		32
Accounts payable		321			(382	)
Accrued liabilities		52			52
Accrued clinical trials and related expenses		4,510			416
Accrued compensation		122			(832	)
Net cash used in operating activities		(27,879	)		(30,491	)
Cash flows from investing activities:
Purchases of marketable securities		(160,902	)		(50,491	)
Maturities of marketable securities		51,557			26,873
Capital expenditures		(130	)		(132	)
Proceeds from sale of fixed assets		581			—
Proceeds from repayment of note receivable		275			—
Net cash used in investing activities		(108,619	)		(23,750	)
Cash flows from financing activities:
Net proceeds from issuances of common stock		152,227			85,669
Net cash provided by financing activities		152,227			85,669
Net increase in cash and cash equivalents		15,729			31,428
Cash and cash equivalents at beginning of period		55,312			11,014
Cash and cash equivalents at end of period	$	71,041		$	42,442

See accompanying notes.

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ONYX PHARMACEUTICALS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)

Note 1. Basis of Presentation

     The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004, or for any other future operating periods.

     The condensed balance sheet at December 31, 2003 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

     Certain amounts in the prior periods have been reclassified from research and development expenses to marketing expenses to conform to the current period presentation.

     For further information, refer to the financial statements and footnotes thereto included in the Onyx Pharmaceuticals, Inc. (the “Company” or “Onyx”) Annual Report on Form 10-K for the year ended December 31, 2003.

Note 2. Stock-Based Compensation

     The Company has elected to continue to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), to account for employee stock options, because the alternative fair value method of accounting prescribed by Statement of Financial Accounting Standards No. (“SFAS”) 123, “Accounting for Stock-Based Compensation,” requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, no compensation expense is recognized when the exercise price of employee stock options equals the market price of the underlying stock on the date of grant.

     The pro forma information regarding net loss and loss per share prepared in accordance with SFAS 123, as amended, has been determined as if the Company had accounted for its employee stock options under the fair value method prescribed by SFAS 123. The fair value of options was estimated at the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Risk-free interest rate		3.12	%		1.77	%		2.90	%		2.34	%
Expected life	3.8 years			2.5 years			3.7 years			3.0 years
Expected volatility		0.55			0.78			0.58			0.89
Expected dividends	None			None			None			None
Weighted average option fair value	$	17.20		$	7.62		$	17.51		$	3.39

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ONYX PHARMACEUTICALS, INC.

     The following table illustrates the pro forma effects on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(In thousands, except per share amounts)
Net loss – as reported	$	(11,264	)	$	(11,079	)	$	(32,551	)	$	(33,173	)
Deduct: Total stock-based employee compensation determined under the fair value based method for all awards, net of related tax effects		(1,501	)		(312	)		(3,145	)		(1,241	)
Pro forma net loss	$	(12,765	)	$	(11,391	)	$	(35,696	)	$	(34,414	)
Net loss per share:
Basic and diluted net loss per share – as reported	$	(0.32	)	$	(0.40	)	$	(0.96	)	$	(1.34	)
Basic and diluted net loss per share – pro forma	$	(0.37	)	$	(0.41	)	$	(1.05	)	$	(1.39	)

Note 3. Net Loss Per Share

     Basic and diluted net loss per share have been computed using the weighted-average number of shares of common stock outstanding during the period. Potentially dilutive outstanding securities consisting of 2,745,088 stock options and warrants as of September 30, 2004 and 3,384,417 stock options and warrants as of September 30, 2003 were not included in the computation of diluted net loss per share because their effect would have been antidilutive.

Note 4. Comprehensive Loss

     Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) is comprised of unrealized holding gains and losses on the Company’s available-for-sale securities that are excluded from net loss and reported separately in stockholders’ equity. Comprehensive loss and its components are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(In thousands)
Net loss – as reported	$	(11,264	)	$	(11,079	)	$	(32,551	)	$	(33,173	)
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities		85			45			(268	)		31
Comprehensive loss	$	(11,179	)	$	(11,034	)	$	(32,819	)	$	(33,142	)

Note 5. Recent Accounting Pronouncements

     On March 31, 2004, the Financial Accounting Standards Board (“FASB”) issued an Exposure Draft, “Share-Based Payment – An Amendment of FASB Statements No. 123 and 95” (proposed FAS 123R). The proposed FAS 123R addresses the accounting for transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The proposed FAS 123R would eliminate the ability to account for share-based compensation transactions using APB 25 and generally would require instead that such transactions be accounted for using a fair-value based method. As proposed, companies would be required to recognize an expense for compensation cost related to share-based payment arrangements including stock options and employee stock purchase plans. The Company would be required to implement the proposed standard no later than the quarter that begins July 1, 2005. The cumulative effect of adoption, if any, applied on a modified prospective basis, would be measured and recognized on July 1, 2005. The Company is currently evaluating option valuation methodologies and assumptions in light of the proposed FAS

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ONYX PHARMACEUTICALS, INC.

123R related to employee stock options. Current estimates of option values using the Black-Scholes method may not be indicative of results from valuation methodologies ultimately adopted in the final rules.

Note 6. Sale of Equity Securities

     In February 2004, the Company sold 4,637,000 shares of common stock at a price of $33.75 per share in an underwritten public offering pursuant to an effective registration statement previously filed with the Securities and Exchange Commission. Also in February 2004, the underwriters for the offering purchased an additional 48,693 shares of the Company’s common stock to cover over-allotments at a price of $33.75 per shares. The Company received aggregate net cash proceeds of approximately $148.3 million from this public offering.

Note 7. Restructuring

     In June 2003, the Company announced the discontinuation of its therapeutic virus program and the termination of all internal research and development activities. The decision was part of a business realignment that placed an increased priority on the development of BAY 43-9006, Onyx’s lead product candidate that is being developed jointly with Bayer Pharmaceuticals Corporation. In 2003, the Company recorded an aggregate charge of $5.5 million associated with the restructuring, including a reduction in force of approximately 75 positions. The Company recorded an additional restructuring charge of $258,000 in the second quarter of 2004 due to a change in estimate related to the discontinued use and inability to sublet a portion of the Company’s leased facility. At December 31, 2003, the accrual for restructuring was $325,000. As of September 30, 2004, the accrual for restructuring was $306,000, consisting of charges related to the discontinued use of a portion of the Company’s leased facilities. The remaining accrued restructuring costs are expected to be fully paid by the second quarter of 2005.

Note 8. Facility Lease

     In August 2004, the Company entered into a new operating lease for 23,000 square feet of office space, which will serve as the Company’s new corporate headquarters. The lease expires on February 28, 2010 with a renewal option at the end of the lease for a period of three years. The lease for the Company’s current primary facility expires in April 2005, which the Company does not plan to renew.

     Minimum rental commitments under this operating lease are as follows (in thousands):

Months 1-12	$	353
Months 13-24		544
Months 25-36		557
Months 37-48		571
Months 49-60		585
Months 61-64		200
	$	2,810

Note 9. Related Party Transaction

     The Company had a loan receivable from a former employee for $275,000 that was repaid in August 2004 per the terms of the loan agreement.

Note 10. Subsequent Event

     In September 2004, the Company announced that Pfizer initiated Phase I clinical trials advancing a lead candidate from the cell cycle kinase collaboration that the Company has with Warner-Lambert, now a subsidiary of Pfizer. The initiation of human clinical trials triggered a $500,000 milestone payment to the Company, which Onyx received from Pfizer in October 2004. The Company will recognize the receipt of this milestone payment as revenue in the fourth quarter 2004.

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ONYX PHARMACEUTICALS, INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Overview

     We are a biopharmaceutical company dedicated to developing innovative therapies that target the molecular mechanisms that cause cancer. With our collaborators, we are developing small molecule, orally available drugs with the goal of changing the way cancer is treated.™ A common feature of cancer cells is the excessive activation of signaling pathways that cause abnormal cell proliferation. In addition, tumors require oxygen and nutrients from newly formed blood vessels to support their growth. The formation of these new blood vessels is a process called angiogenesis. We are applying our expertise to develop oral anticancer therapies designed to prevent cancer cell proliferation and angiogenesis by inhibiting proteins that signal or support tumor growth. By exploiting the genetic differences between cancer cells and normal cells, we aim to create novel anticancer agents that minimize damage to healthy tissue. Our lead drug candidate, BAY 43-9006, is currently in Phase III clinical development with our collaborator, Bayer Pharmaceuticals Corporation.

     BAY 43-9006 is a novel, orally available signal transduction inhibitor and is one of a new class of anticancer treatments that target growth signaling in cancer. BAY 43-9006 operates through dual mechanisms of action by inhibiting proliferation of cancer cells and inhibiting angiogenesis. Several drugs developed and owned by others, and approved by the U.S. Food and Drug Administration, or FDA, validate this treatment approach. However, BAY 43-9006 is the first small molecule agent to enter clinical trials directed against the enzyme RAF kinase to inhibit tumor cell proliferation. In addition, BAY 43-9006 displays activity that inhibits VEGFR-2 and PDGFR-ß, two key proteins involved in angiogenesis.

     We and Bayer are developing and, if approved, will market BAY 43-9006 under our collaboration agreement. Together with Bayer, we are conducting multiple clinical trials of BAY 43-9006. To date, we have treated over 1,000 patients. In October 2003, we announced the initiation of a pivotal Phase III clinical trial after a Special Protocol Assessment, or SPA, with the FDA, in patients with advanced renal cell carcinoma, also known as kidney cancer. In October 2004, we and Bayer further announced that we will pursue registration of BAY 43-9006 based on results from this Phase III trial and the data from our recently completed Phase II randomized discontinuation trial will be used to support the Phase III trial results. In addition, we also announced that, subject to FDA approval, we anticipate a United States launch for the product in 2006.

     We and Bayer have also announced that we will initiate pivotal trials next year in both malignant melanoma and hepatocellular, or liver, cancer. We and Bayer have completed Phase II clinical trials of Bay 43-9006 in kidney and liver cancer. The agent is also being studied in multiple Phase II clinical trials for the treatment of melanoma, breast, non-small cell lung and other cancers, as well as in multiple Phase Ib trials evaluating its use in combination with standard chemotherapy drugs.

     In collaboration with Warner-Lambert Company, now a subsidiary of Pfizer Inc, we identified a number of lead compounds that modulate the activity of key enzymes that regulate the process whereby a single cell replicates itself and divides into two identical new cells, a process known as the cell cycle. Mutations in genes that regulate the cell cycle are present in a majority of human cancers. In September 2004, we announced that Pfizer initiated Phase I clinical trials advancing a lead candidate from that collaboration, a small molecule cell cycle inhibitor targeting a cyclin-dependent kinase, CDK4. The initiation of human clinical trials triggered a $500,000 milestone payment to us, which we received from Pfizer in October 2004.

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ONYX PHARMACEUTICALS, INC.

     In February 2004, we sold 4,637,000 shares of our common stock at $33.75 per share in an underwritten public offering pursuant to an effective registration statement previously filed with the Securities and Exchange Commission. Also in February 2004, the underwriters for the offering exercised their over-allotment option and purchased an additional 48,693 shares of our common stock to cover over-allotments at a price of $33.75 per share. We received aggregate net cash proceeds of approximately $148.3 million from this public offering.

     We have not been profitable since inception and expect to incur substantial and increasing losses for the foreseeable future, due to expenses associated with the continuing development and commercialization of BAY 43-9006. We expect that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. As of September 30, 2004, our accumulated deficit was approximately $236.4 million.

     Our business is subject to significant risks, including the risks inherent in our development efforts, the results of the BAY 43-9006 clinical trials, our dependence on collaborative parties, uncertainties associated with obtaining and enforcing patents, the lengthy and expensive regulatory approval process, and competition from other products. For a discussion of these and some of the other risks and uncertainties affecting our business, see “Business Risks.” We currently have no products that have received marketing approval, and we have generated no revenues from the sale of products. We do not expect to generate revenues, if any, from the sale of proposed products until at least 2006 and expect that all of our revenues, if any, before 2006 will be generated from collaboration agreements.

Critical Accounting Policies and the Use of Estimates

     Critical accounting policies are those that require significant estimates, assumptions and judgments by management about matters that are inherently uncertain at the time that the financial statements are prepared such that materially different results might have been reported if other assumptions had been made. These estimates form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We consider certain accounting policies related to research and development expenses and use of estimates to be critical policies. Significant estimations used in 2004 included estimated charges related to our restructuring and assumptions used in the determination of stock-based compensation related to stock options granted to non-employees. Actual results could differ materially from these estimates. There have been no other changes to our critical accounting policies since we filed our 2003 Annual Report on Form 10-K with the Securities and Exchange Commission on March 15, 2004. For a description of our critical accounting policies, please refer to our 2003 Annual Report on Form 10-K.

Recent Accounting Developments

     On March 31, 2004, the FASB issued an Exposure Draft, “Share-Based Payment – An Amendment of FASB Statements No.123 and 95” (proposed FAS 123R). The proposed FAS 123R addresses the accounting for transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The proposed FAS 123R would eliminate the ability to account for share-based compensation transactions using APB 25 and generally would require instead that such transactions be accounted for using a fair-value based method. As proposed, companies would be required to recognize an expense for compensation cost related to share-based payment arrangements including stock options and employee stock purchase plans. We would be required to implement the proposed standard no later than the quarter that begins July 1, 2005. The cumulative effect of adoption, if any, applied on a modified prospective basis, would be measured and recognized on July 1, 2005. We are currently evaluating option valuation methodologies and assumptions in light of the proposed FAS 123R related to employee stock options. Current estimates of option values using the Black-Scholes method may not be indicative of results from valuation methodologies ultimately adopted in the final rules.

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ONYX PHARMACEUTICALS, INC.

Results of Operations

Three and nine months ended September 30, 2004 and 2003

Research and Development Expenses

     Research and development expenses were $9.3 million for the three months ended September 30, 2004, a net increase of $429,000, or five percent, from the same period in 2003. In the three months ended September 30, 2004, expenses for Onyx’s share of the codevelopment costs with Bayer for the BAY 43-9006 program increased by $2.9 million as compared to the same period in 2003. BAY 43-9006 development costs during the third quarter of 2004 reflect increased expenditures from the Phase III clinical trial initiated in the fourth quarter of 2003 and the expansion of Phase Ib and Phase II clinical trials evaluating BAY 43-9006 in a number of different tumor types. The increase in BAY 43-9006 program expenses was offset by a $2.5 million decrease in the therapeutic virus program expenses as a result of the termination of the program in 2003. Research and development expenses were $25.8 million for the nine months ended September 30, 2004, a net increase of $1.3 million, or five percent, from the same period in 2003. In the nine months ended September 30, 2004, expenses for Onyx’s share of the codevelopment costs with Bayer for the BAY 43-9006 program increased by $10.8 million as compared to the same period in 2003 primarily due to the expansion into the Phase III clinical trial for BAY 43-9006. The increase in BAY 43-9006 program expenses was offset by a $9.5 million decrease in the therapeutic virus program expenses as a result of the 2003 termination of the program. Future cost savings from the discontinuation of our therapeutic virus program are expected to be offset by increased costs associated with advancing the clinical development of BAY 43-9006.

     Research and development expenses related to the orderly wind-down of the therapeutic virus program and the preservation of assets associated with this program for potential future divestiture or commercialization were $546,000 for the three months ended September 30, 2004, and $2.3 million for the nine months ended September 30, 2004. These expenses were comprised primarily of stock-based compensation and consulting fees for consultants retained in connection with the orderly wind-down of the virus program and preservation of related assets, sponsored research at the University of California, San Francisco related to the preservation of the program’s assets and outside services related to stability testing and storage of virus product related to the program.

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

     The following table summarizes our principal product development initiatives, including the related stages of development for each product in development and the research and development expenses recognized in connection with each product. The information in the column labeled “Phase of Development - - Estimated Completion” is only our estimate of the timing of completion of the current in-process development phases. The actual timing of completion of those phases could differ materially from the estimates provided in the table. For a discussion of the risks and uncertainties associated with the timing and cost of completing a product development phase, see our “Business Risks” section below.

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ONYX PHARMACEUTICALS, INC.

				Research and Development Expenses
				Three Months Ended				Nine Months Ended
				September 30,				September 30,
		Collabo-	Phase of Development-
Product	Description	rator	Estimated Completion	2004		2003		2004		2003
						(In thousands)
BAY 43-9006	Small Molecule Inhibitor of	Bayer		$	8,724	$	5,818	$	23,541	$	12,745
	tumor cell proliferation and		Phase I – 2002
	angiogenesis, targeting RAF		Phase II–Unknown
	Kinase, VEGFR-2 and PDGFR-ß		Phase III-Unknown
Therapeutic Virus		—			546		3,023		2,303		11,848
Program
	p53-Selective Replicating Virus		Phase II/III - (1)
	RB-Selective Replicating Virus		Preclinical - (1)
	RB-Selective Replicating Virus		Preclinical - (1)
	Armed with Anticancer Genes
Cell Cycle	Small Molecule Inhibitor of	Warner-	Phase I - Unknown		—		—		—		—
Kinases (2)	Cyclin-Dependent Kinase	Lambert
		Total Research and Development Costs		$	9,270	$	8,841	$	25,844	$	24,593

(1)	Program discontinued during the second quarter of 2003. See Note 7 to our condensed financial statements. Costs in 2004 relate to the orderly wind-down of the program and preservation of the related assets.
(2)	Warner-Lambert is responsible for research and development costs.

     The overall completion dates of our major research and development programs are estimates based on current information. The clinical development portion of these programs may span as many as seven to ten years, and estimation of completion dates or costs to complete would be highly speculative and subjective due to the numerous risks and uncertainties associated with developing biopharmaceutical products, including significant and changing government regulation, the uncertainty of future preclinical and clinical study results and uncertainties associated with process development and manufacturing as well as marketing. These risks and uncertainties make the reliable estimate of overall completion dates and total costs to complete development highly speculative. For additional discussion of factors affecting overall completion dates and total costs, see the “Business Risks” section below.

Marketing Expenses

     Marketing expenses consist primarily of salaries and employee benefits, consulting and other third-party costs, and allocations for overhead and occupancy costs. We reclassified $195,000 from research and development expenses to marketing expenses for the three months ended September 30, 2003, and $504,000 for the nine months ended September 30, 2003, to conform to the current period presentation. Marketing expenses were $859,000 for the three months ended September 30, 2004, a net increase of $664,000, from the same period in 2003. Marketing expenses were $2.6 million for the nine months ended September 30, 2004, a net increase of $2.1 million, from the same period in 2003. The increases for both the three-month and nine-month periods ended September 30, 2004 as compared to the same periods in the prior year were due to third-party costs and employee-related expenses as Onyx and Bayer establish a commercial infrastructure and engage in precommercial marketing activities. It is anticipated that marketing expenses will increase in future periods as we develop our marketing capabilities in order for us to copromote BAY 43-9006 with Bayer in the U.S. should BAY 43-9006 receive marketing approval.

General and Administrative Expenses

     General and administrative expenses consist primarily of salaries and employee benefits and corporate functional expenses. General and administrative expenses were $2.0 million for the three months ended September 30, 2004, a net increase of $692,000, or 51 percent, from the same period in 2003. General and administrative expenses were $6.0 million for the nine months ended September 30, 2004, a net increase of $1.7 million, or 41 percent, from the same period in 2003. The increases for both the three months and nine months ended September 30, 2004 as compared to the same periods in the

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prior year were related to consulting expenses, primarily for information systems, and costs related to satisfying the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We anticipate that general and administrative expenses may continue to increase modestly to support our growing infrastructure needs.

Restructuring

     In June 2003, we announced that we were discontinuing our therapeutic virus program and terminating all internal research and development activities. The decision was part of a business realignment that placed an increased priority on the development of BAY 43-9006. We recorded $5.5 million of restructuring expenses in 2003, including a reduction in force of approximately 75 positions. See Note 7 to our condensed financial statements included in this quarterly report for more description of our restructuring activities. We recorded additional restructuring charges of $258,000 in the second quarter of 2004 due to a change in estimate related to the discontinued use and inability to sublet a portion of our leased facility. We expect that the remaining accrued restructuring costs of $306,000 at September 30, 2004 will be fully paid by the second quarter of 2005 coincident with the termination of our lease obligation on our existing facility.

Interest Income, net

     Interest income increased $698,000 to $952,000 for the three months ended September 30, 2004, and increased $1.7 million to $2.2 million for the nine months ended September 30, 2004, from the same periods in 2003, primarily due to higher average cash and investment balances resulting from our February 2004 and July 2003 sale of equity securities from which we received approximately $222.0 million in net cash proceeds. Interest expense was immaterial for the periods presented.

Other Expense – Related Party

     In April 2003 based on a further round of financing completed by Syrrx, Inc., we recorded a write-down of $275,000 as “Other expense-related party” to reduce the carrying value of our investment in Syrrx to $375,000. We consider the reduction in carrying value of the investment to be other than temporary. We did not record any write-downs in the three months or nine months ended September 30, 2004.

Liquidity and Capital Resources

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

     At September 30, 2004, we had cash, cash equivalents, and marketable securities of $230.2 million, compared to $105.4 million at December 31, 2003. The increase of $124.8 million was attributable to our public offering completed in February 2004, which raised aggregate net cash proceeds of $148.3 million, as well as $3.9 million received from the exercise of stock options and warrants and $581,000 received from the sale of fixed assets. These sources of cash were partially offset by net cash used in operating activities of $27.9 million. The cash was used primarily for cofunding the clinical development program with Bayer for BAY 43-9006.

     Total capital expenditures for equipment and leasehold improvements for the nine months ended September 30, 2004, were $130,000. We currently expect to make expenditures for capital equipment and leasehold improvements of up to $1.5 million for the remainder of 2004 primarily relating to the anticipated move to our new corporate headquarters in the fourth quarter of 2004.

     We believe that our existing capital resources and interest thereon will be sufficient to fund our current and planned operations through the end of 2006. We anticipate that our codevelopment costs for the BAY 43-9006 program will increase over the next several years as the clinical trial program advances. In addition, marketing expenses are expected to increase as we and Bayer incur costs in anticipation of the commercial launch of BAY 43-9006. While these costs are unknown at the current time, we expect that we will need to raise additional capital to continue the cofunding of the program in future periods beyond 2006.

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     Changes in our research and development and marketing plans or other changes affecting our operating expenses may result in the expenditure of our resources before the end of 2006, and in any event, we will need to raise additional capital to fund our operations beyond 2006. We intend to seek this additional funding through public and private equity or debt financings, capital lease transactions or other available financing sources. Additional financing may not be available on acceptable terms, if at all. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or development programs or to obtain funds through collaborations with others that are on unfavorable terms or that may require us to relinquish rights to certain of our technologies, product candidates or products that we would otherwise seek to develop on our own.

     Our collaboration agreement with Bayer calls for Bayer to advance us creditable milestone-based payments. To date, Bayer has advanced us $20 million for achievement of specific milestones. Any funds advanced under the agreement are repayable out of a portion of our future profits and royalties, if any, from any products.

     In August 2004, we entered into an operating lease for 23,000 square feet of office space, which will serve as our new corporate headquarters. The lease expires on February 28, 2010 with a renewal option at the end of the lease for a period of three years. The lease for our current primary facility expires in April 2005, which we do not plan to renew.

     Our contractual obligations as of September 30, 2004, including the new facility lease, for the next five years and thereafter are as follows:

Contractual Obligations (1)	Payments Due by Period
			Less than		1-3		3-5		After 5
	Total		1 Year		Years		Years		Years
	(In thousands)
Operating leases, net of sublease income	$	3,203	$	684	$	1,104	$	1,160	$	255

(1) This table does not include any payments under research and development collaborations, as the amount and timing of such payments are not known. This table also does not include the obligation to repay the $20 million creditable milestone-based payments that we received from Bayer, because the repayment of these amounts is contingent upon Onyx generating profits or royalties on any products. Whether Onyx will ever generate any profits or royalties is not known at this time.

Business Risks

     BAY 43-9006 is our only product candidate currently in Phase II and Phase III clinical development, and our ability to discover and promote additional candidates to clinical development is constrained. If BAY 43-9006 is not successfully commercialized, we may be unable to identify and promote alternative product candidates and our business would fail.

     BAY 43-9006 is our only product candidate in Phase II and Phase III clinical development. In June 2003, following an unsuccessful search for new collaboration partners for our therapeutic virus product candidates, including ONYX-015 and ONYX-411, we announced that we were discontinuing the development of all therapeutic virus product candidates, eliminating all employee positions related to these candidates, and terminating all related research and manufacturing capabilities. As a result, we do not have internal research and preclinical development capabilities. Our remaining scientific and administrative employees are dedicated to managing our relationship with Bayer, and the development of BAY 43-9006, but are not actively discovering or developing new product candidates. As a result of the termination of our therapeutic virus program and drug discovery programs, we do not have a clinical development pipeline beyond BAY 43-9006. If BAY 43-9006 is not successful in clinical trials, does not receive marketing approval, or is not successfully commercialized, we may be unable to identify and promote alternative product candidates to clinical development, which would cause our business to fail.

     If our clinical trials fail to demonstrate the safety and effectiveness of BAY 43-9006, we will be unable to commercialize BAY 43-9006, and our business may fail.

     In collaboration with Bayer, we are conducting multiple clinical trials of BAY 43-9006. We have completed Phase I single-agent clinical trials of BAY 43-9006. We are currently conducting a number of Phase Ib clinical trials of BAY 43-9006 in combination with standard chemotherapeutic agents. Phase I trials are not designed to test the efficacy of a drug

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candidate but rather to test safety; to study pharmacokinetics, or how drug concentrations in the body change over time; to study pharmacodynamics, or how the drug candidate acts on the body over a period of time; and to understand the drug candidate’s side effects at various doses and schedules.

     With Bayer, we have completed Phase II clinical trials of BAY 43-9006 in kidney and liver cancer and are currently conducting Phase II clinical trials in breast, non-small cell lung and other cancers. Phase II trials are designed to explore the efficacy of a product candidate in several different types of cancers and are normally randomized and double-blinded to ensure that the results are due to the effects of the drug. We and Bayer have initiated a Phase III clinical trial to treat patients with advanced kidney cancer without conventional randomized Phase II clinical trial data. In October 2004, we and Bayer announced that we will pursue registration utilizing results from this trial, and pending FDA approval, we would anticipate a United States launch in 2006. We further announced that we completed the Phase II randomized discontinuation trial, and data from this trial will be used to support the Phase III trial results.

     We believe that any clinical trial to test patients with advanced kidney cancer designed to test the efficacy of BAY 43-9006, whether Phase II or Phase III, will involve a large number of patients to achieve statistical significance and will be expensive. We may conduct a lengthy and expensive clinical trial of BAY 43-9006 only to learn that this drug candidate is not an effective treatment. Historically, many companies have failed to demonstrate the effectiveness of pharmaceutical product candidates in Phase III clinical trials notwithstanding favorable results in Phase I or Phase II clinical trials. In addition, we may observe previously unforeseen adverse side effects.

     If efficacy of BAY 43-9006 is not demonstrated, or if previously unforeseen and unacceptable side effects are observed, we may not proceed with further clinical trials of BAY 43-9006. If we do not proceed with additional clinical trials of BAY 43-9006, we cannot seek regulatory approval of BAY 43-9006 with the FDA, which may cause our business to fail.

     In our clinical trials, we treat patients who have failed conventional treatments and who are in advanced stages of cancer. During the course of treatment, these patients may die or suffer adverse medical effects for reasons unrelated to BAY 43-9006. These adverse effects may impact the interpretation of clinical trial results, which could lead to an erroneous conclusion regarding the toxicity or efficacy of BAY 43-9006.

     We are dependent upon our collaborative relationship with Bayer to develop, manufacture and commercialize BAY 43-9006 and to obtain regulatory approval. There may be circumstances which delay or prevent the development and commercialization of BAY 43-9006.

     Our strategy for developing, manufacturing and commercializing BAY 43-9006 and obtaining regulatory approval depends in large part upon our relationship with Bayer. If we are unable to maintain our collaborative relationship with Bayer, we would need to undertake these development, manufacturing and marketing activities at our own expense, which would significantly increase our capital requirements and limit the indications we are able to pursue and could prevent us from commercializing BAY 43-9006.

     Under the terms of the collaboration agreement, we and Bayer are conducting multiple clinical trials of BAY 43-9006. We and Bayer must agree on the development plan for BAY 43-9006. If we and Bayer cannot agree, clinical trial progress could be significantly delayed or halted.

     Under our agreement with Bayer, we have the opportunity to fund 50 percent of clinical development costs worldwide except in Japan, where Bayer will fund 100 percent of development costs and pay us a royalty on sales. We are currently funding 50 percent of development costs for BAY 43-9006, and depend on Bayer to fund the balance of these costs. Our collaboration agreement with Bayer does not, however, create an obligation for either us or Bayer to fund the development of BAY 43-9006, or any other product candidate. If a party declines to fund development or ceases to fund development of a product candidate under the collaboration agreement, then that party will be entitled to receive a royalty on any product which is ultimately commercialized, but not to share in profits. Bayer could, upon 60 days notice, elect at any time to terminate its cofunding of the development of BAY 43-9006. If Bayer terminates its cofunding of BAY 43-9006 development, we may be unable to fund the development costs on our own and may be unable to find a new collaborator.

     Bayer manages the development of BAY 43-9006, including the FDA regulatory process and scope, size and schedule of clinical development. We are dependent on Bayer’s experience in filing and pursuing applications necessary to gain regulatory approvals. Bayer has limited experience in developing drugs for the treatment of cancer.

     Our collaboration agreement with Bayer calls for Bayer to advance us creditable milestone-based payments. To date, Bayer has advanced us $20 million for achievement of specific milestones. Any funds advanced under the agreement are repayable out of a portion of our future profits and royalties, if any, from any products.

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     Our collaboration agreement with Bayer terminates when patents expire that were issued in connection with product candidates discovered under that agreement, or upon the time when neither we nor Bayer are entitled to profit sharing under that agreement, whichever is later. Bayer holds the global patent applications related to BAY 43-9006. At present, it is anticipated that, if issued, the last to expire of the United States patents will expire in 2022, subject to possible patent-term extension, the entitlement to which and the term of which cannot presently be calculated.

     We are subject to a number of additional risks associated with our dependence on our collaborative relationship with Bayer, including:

• the amount and timing of expenditure of resources can vary because of decisions by Bayer;

• possible disagreements as to development plans, including clinical trials or regulatory approval strategy;

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

• loss of significant rights if we fail to meet our obligations under the collaboration agreement;

• withdrawal of support by Bayer following the development or acquisition by it of competing products; and

• possible disagreements with Bayer regarding the collaboration agreement or ownership of proprietary rights.

     Due to these factors and other possible disagreements with Bayer, we may be delayed or prevented from developing or commercializing BAY 43-9006, or we may become involved in litigation or arbitration, which would be time consuming and expensive.

     If Bayer’s business strategy changes, it may adversely affect our collaborative relationship.

     Bayer may change its business strategy. A change in Bayer’s business strategy may adversely affect activities under its collaboration agreement with us, which could cause significant delays and funding shortfalls impacting the activities under the collaboration and seriously harming our business.

     Provisions in our collaboration agreement with Bayer may prevent or delay a change in control.

     Our collaboration agreement with Bayer provides that, if Onyx is acquired by another entity by reason of merger, consolidation or sale of all or substantially all of our assets, and Bayer does not consent to the transaction, then for 60 days following the transaction, Bayer may elect to terminate Onyx’s codevelopment and copromotion rights under the collaboration agreement. If Bayer were to exercise this right, Bayer would gain exclusive development and marketing rights to the product candidates being developed under the collaboration agreement, including BAY 43-9006. If this happened, Onyx, or the successor to Onyx, would receive a royalty based on any sales of BAY 43-9006 and other collaboration products, rather than a share of any profits. In this case, Onyx or its successor would be permitted to continue cofunding development, and the royalty rate would be adjusted to reflect this continued risk-sharing by Onyx or its successor. These provisions of our collaboration agreement with Bayer may have the effect of delaying or preventing a change in control, or a sale of all or substantially all of our assets, or may reduce the number of companies interested in acquiring Onyx.

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

     Although for planning purposes we project the commencement, continuation and completion of clinical trials for BAY 43-9006, the actual timing of these events may be subject to significant delays relating to various causes, including actions by Bayer, scheduling conflicts with participating clinicians and clinical institutions, difficulties in identifying and enrolling patients who meet trial eligibility criteria, and shortages of available drug supply. We may not complete clinical trials involving BAY 43-9006 as projected or at all.

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     We rely on Bayer, academic institutions or clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving BAY 43-9006. We will have less control over the timing and other aspects of these clinical trials than if we conducted them entirely on our own. In addition, we may suffer a delay in the completion of any one of our clinical trials because of requests from the FDA to revise the size or scope of the clinical trial. Failure to commence or complete, or delays in, any of our planned clinical trials would prevent us from commercializing BAY 43-9006, and thus seriously harm our business.

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

     We will require substantial additional funds to conduct the costly and time-consuming clinical trials necessary to develop BAY 43-9006, pursue regulatory approval and commercialize this product candidate. Our future capital requirements will depend upon a number of factors, including:

• the size and complexity of our BAY 43-9006 program;

• decisions made by Bayer and Onyx to alter the size, scope and schedule of clinical development;

• our receipt of milestone-based payments;

• the ability to manufacture sufficient drug supply to complete clinical trials;

• progress with clinical trials;

• the time and costs involved in obtaining regulatory approvals;

• the cost involved in enforcing patent claims against third parties and defending claims by third parties (both of which are shared with Bayer);

• the costs associated with acquisitions or licenses or additional products;

• competing technological and market developments; and

• product commercialization activities.

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

     We believe that our existing capital resources and interest thereon will be sufficient to fund our current development plans through 2006. However, if we change our development plans, we may need additional funds sooner than we expect. In addition, we anticipate that our codevelopment costs for the BAY 43-9006 program will increase over the next several years as the Phase III clinical trial program advances, and new trials are initiated. While these costs are unknown at the current time, we expect that we will need to raise substantial additional capital to continue the cofunding of the BAY 43-9006 program in future periods. We may have to curtail our funding of BAY 43-9006 if we cannot raise sufficient capital. If we do not cofund development of BAY 43-9006, we will receive a royalty on future sales of any product that is ultimately commercialized, instead of a share of profits.

     The efficacy of RAF inhibition in the treatment of human cancer has not been established.

     As a part of BAY 43-9006’s dual mechanism of action, it is designed to act as a RAF inhibitor, blocking inappropriate growth signals in tumor cells by inhibiting RAF kinase, an enzyme involved in cancer cell growth. BAY 43-9006 is the first small molecule RAF inhibitor to reach the stage of clinical testing, and there is currently no direct evidence that the inhibition of RAF is an effective treatment for cancer in humans. BAY 43-9006 also inhibits VEGF and PDGF receptors, two key receptors involved in angiogenesis. In addition, the inhibition of RAF kinase has also been shown to have anti-

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angiogenic effects. BAY 43-9006 has been shown to inhibit angiogenesis and tumor growth in preclinical models. However, preclinical models to study anticancer activity of compounds are not necessarily predictive of sufficient clinical efficacy of these compounds in the treatment of human cancer to warrant a full commercial development program. BAY 43-9006 has also been tested in Phase I and Phase II human clinical trials, but the number of patients in these trials, and the design of the trials, did not lead to data that could be used as a pivotal trial for regulatory purposes. RAF inhibition, a method of action of BAY 43-9006, may ultimately fail as an effective treatment of cancer in humans, or BAY 43-9006 may not inhibit RAF sufficiently to be effective. If RAF inhibition is not an effective treatment of cancer in humans, BAY 43-9006 may have no commercial value as a drug candidate, which could seriously harm our business.

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

     Our net loss for the year ended December 31, 2001 was $27.6 million, for the year ended December 31, 2002 was $45.8 million, and for the year ended December 31, 2003 was $45.0 million. Our net loss for the nine months ended September 30, 2004 was $32.6 million. As of September 30, 2004, we had an accumulated deficit of approximately $236.4 million. We have incurred these losses principally from costs incurred in our research and development programs and from our general and administrative costs. We derived no revenues from product sales or royalties. We expect to incur significant and increasing operating losses over the next several years as we expand our clinical trial activities. We expect our operating losses to increase with our cofunding of ongoing BAY 43-9006 clinical trial costs under our collaboration agreement with Bayer.

     We do not expect to generate revenues from the sale of products for the foreseeable future, and we must repay the milestone-based advances we receive from Bayer from our future profits and royalties, if any. Our ability to achieve profitability depends upon success by us and Bayer in completing development of BAY 43-9006, obtaining required regulatory approvals and manufacturing and marketing the approved product.

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

     Under our collaboration agreement with Bayer, Bayer has the manufacturing responsibility to supply BAY 43-9006 for clinical trials and to support any commercial requirements. We lack the resources, experience and capabilities to manufacture BAY 43-9006 or any future product candidates on our own. We would require substantial funds to establish these capabilities. Consequently, we are dependent on third parties to manufacture our product candidates and products, if any. These parties may encounter difficulties in production scale-up, including problems involving production yields, quality control and quality assurance and shortage of qualified personnel. These third parties may not perform as agreed or may not continue to manufacture our products for the time required by us to successfully market our products. These third parties may fail to deliver the required quantities of our products, if any, or product candidates on a timely basis and at commercially reasonable prices. Failure by these third parties could delay our clinical trials and our applications for regulatory approval. If these third parties do not adequately perform, we may be forced to incur additional expenses to pay for the manufacture of products or to develop our own manufacturing capabilities.

     We have the right to copromote BAY 43-9006 in the United States, but we do not have significant marketing or sales experience or capabilities.

     We have the right under our collaboration agreement with Bayer to copromote BAY 43-9006 in the United States in conjunction with Bayer. In order to copromote BAY 43-9006, we will need to develop marketing and sales capabilities. We may not successfully establish marketing and sales capabilities or have sufficient resources to do so. If we do not develop marketing and sales capabilities, we may not meet our copromotion obligations under our collaboration agreement, which could result in our losing these copromotion rights. If we do develop such capabilities, we will compete with other companies that have experienced and well-funded marketing and sales operations, and we will incur additional expenses.

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

     Our future success will depend in large part on the continued services of our management personnel, including Hollings C. Renton, our Chairman, President and Chief Executive Officer, and each of our other executive officers. The loss of the

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services of one or more of our key employees could have an adverse impact on our business. We do not maintain key person life insurance on any of our officers, employees or consultants, other than for our chief executive officer. Any of our key personnel could terminate their employment with us at any time and without notice. We depend on our continued ability to attract, retain and motivate highly qualified personnel. We face competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities, and other research institutions.

     In 2003, we restructured our operations to reflect an increased priority on the development of BAY 43-9006 and discontinued our therapeutic virus program. As a result of the restructuring, we eliminated approximately 75 positions, including our entire scientific team associated with the therapeutic virus program. Our remaining scientific and administrative employees are engaged in managing our collaboration with Bayer to develop BAY 43-9006, but are not actively involved in new product candidate discovery. If we resume our research and development of other product candidates, we will either need to rehire these individuals or hire individuals with similar skills. If we cannot rehire these individuals or others with similar skills in a timely fashion, we will be unable to resume these activities.

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

     Even if our product development efforts are successful and even if the requisite regulatory approvals are obtained, BAY 43-9006 or any future product candidates that we may develop may not gain market acceptance among physicians, patients, healthcare payers and the medical community. A number of additional factors may limit the market acceptance of products including the following:

• rate of adoption by healthcare practitioners;

• types of cancer for which the product is approved;

• rate of a product’s acceptance by the target population;

• timing of market entry relative to competitive products;

• availability of alternative therapies;

• price of our product relative to alternative therapies;

• availability of third-party reimbursement;

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

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

     If BAY 43-9006 or any future product candidates that we may develop do not achieve market acceptance, we may lose our investment in that product candidate, which may cause our stock price to decline.

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

     We are engaged in a rapidly changing and highly competitive field. We are seeking to develop and market product candidates that will compete with other products and therapies that currently exist or are being developed. Many other companies are actively seeking to develop products that have disease targets similar to those we are pursuing. Some of these competitive product candidates are in clinical trials, and others are approved. Competitors that target the same tumor types as our BAY 43-9006 program and that have commercial products or product candidates in clinical development include Pfizer, Novartis, AstraZeneca PLC, OSI Pharmaceuticals, Inc., Genentech, Inc., and Abgenix, Inc., among others. Novartis, Pfizer and others have in clinical development for advanced kidney cancer small molecules targeting VEGF receptor tyrosine kinases and other enzymes. In addition, potential competition may come from agents that target Epidermal Growth Factor, or EGF, receptors and Vascular Endothelial Growth Factor, or VEGF, receptors. These agents include antibodies and small molecules. In particular, OSI Pharmaceuticals with Tarceva ^TM and AstraZeneca with IRESSA ^TM are developing small

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molecule inhibitors of the EGF receptor tyrosine kinase. IRESSA ™ has been approved in the United States. Companies working on developing antibody approaches include ImClone Systems, Inc. with Erbitux and Abgenix with antibodies targeting EGF receptors. Erbitux has been approved in the United States. Genentech has Avastin TM, an antibody targeting VEGF, which is now approved. We believe several companies have small molecule compounds in clinical development that target MEK, an enzyme that is also involved in the RAS signaling pathway. In addition, many other pharmaceutical companies are developing novel cancer therapies that, if successful, would also provide competition for or be used in combination with BAY 43-9006. We believe that other companies have inhibitors of kinases in preclinical or clinical development that could be potential competitors.

     Certain of these product candidates have recently been approved by the FDA. These and product candidates of other competitors now in clinical trials will compete directly with BAY 43-9006. Many of our competitors, either alone or together with collaborators, have substantially greater financial resources and research and development staffs. In addition, many of these competitors, either alone or together with their collaborators, have significantly greater experience than we do in:

• developing products;

• undertaking preclinical testing and human clinical trials;

• obtaining FDA and other regulatory approvals of products; and

• manufacturing and marketing products.

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

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

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

     We anticipate that we will face increased competition in the future as new companies enter our markets and as scientific developments surrounding other cancer therapies continue to accelerate. If BAY 43-9006 receives regulatory approval but cannot compete effectively in the marketplace, our business will suffer.

     We are subject to extensive government regulation, which can be costly, time consuming and subject us to unanticipated delays.

     Drug candidates under development are subject to extensive and rigorous domestic and foreign regulation. We have not received regulatory approval in the United States or any foreign market for BAY 43-9006 or any other product candidate.

     We expect to rely on Bayer to manage communications with regulatory agencies, including filing new drug applications and generally directing the regulatory approval process for BAY 43-9006. We and Bayer may not obtain necessary approvals from the FDA or other regulatory authorities. If we fail to obtain required governmental approvals, we will experience delays in or be precluded from marketing BAY 43-9006. If we have disagreements as to ownership of clinical trial results or regulatory approvals, and the FDA refuses to recognize us as holding, or having access to, the

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regulatory approvals necessary to commercialize our product candidates, we may experience delays in or be precluded from marketing products.

     The regulatory review and approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance, and may involve ongoing requirements for post-marketing studies. Additional or more rigorous governmental regulations may be promulgated that could delay regulatory approval of BAY 43-9006. Delays in obtaining regulatory approvals may:

• adversely affect the successful commercialization of BAY 43-9006;

• impose costly procedures on us;

• diminish any competitive advantages that we may attain; and

• adversely affect our receipt of revenues or royalties.

     In addition, problems or failures with the products of others, including our competitors, could have an adverse effect on our ability to obtain or maintain regulatory approval for BAY 43-9006.

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

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

• obtain patents;

• license technology rights from others;

• protect trade secrets;

• operate without infringing upon the proprietary rights of others; and

• prevent others from infringing on our proprietary rights.

     In the case of BAY 43-9006, the global patent applications related to this product candidate are held by Bayer, but licensed to us in conjunction with our collaboration agreement with Bayer. At present, it is anticipated that, if issued, the last to expire of the United States patents related to BAY 43-9006 will expire in 2022, subject to possible patent-term extension, the entitlement to which and the term of which cannot presently be calculated. Patent applications for BAY 43-9006 are also pending throughout the world. As of September 30, 2004, we owned or had licensed rights to 53 United States patents and 36 United States patent applications and, generally, foreign counterparts of these filings. Most of these patents or patent applications cover protein targets used to identify product candidates during the research phase of our collaborative agreements with Warner-Lambert or Bayer, or aspects of our now discontinued virus program. Additionally, we have corresponding patents or patent applications pending or granted in certain foreign jurisdictions.

     Our existing patent rights may not have a deterrent effect on competitors who are conducting or desire to commence competitive research programs with respect to the biological targets or fields of inquiry that we are pursuing. Although third parties may challenge our rights to, or the scope or validity of our patents, to date, we have not received any communications from third parties challenging our patents or patent applications covering our product candidates.

     The patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions. Our patents, or patents that we license from others, may not provide us with proprietary protection or competitive advantages against competitors with similar technologies. Competitors may challenge or circumvent our patents or patent applications. Courts may find our patents invalid. Due to the extensive time required for development, testing and

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ONYX PHARMACEUTICALS, INC.

regulatory review of our potential products, our patents may expire or remain in existence for only a short period following commercialization, which would reduce or eliminate any advantage the patents may give us.

     We may not have been the first to make the inventions covered by each of our issued or pending patent applications, or we may not have been the first to file patent applications for these inventions. Competitors may have independently developed technologies similar to ours. We may need to license the right to use third-party patents and intellectual property to develop and market our product candidates. We may not acquire required licenses on acceptable terms, if at all. If we do not obtain these required licenses, we may need to design around other parties’ patents, or we may not be able to proceed with the development, manufacture or, if approved, sale of our product candidates. We may face litigation to defend against claims of infringement, assert claims of infringement, enforce our patents, protect our trade secrets or know-how, or determine the scope and validity of others’ proprietary rights. In addition, we may require interference proceedings declared by the United States Patent and Trademark Office to determine the priority of inventions relating to our patent applications. These activities, and especially patent litigation, are costly.

     Bayer may have rights to publish data and information in which we have rights. In addition, we sometimes engage individuals, entities or consultants to conduct research that may be relevant to our business. The ability of these individuals, entities or consultants to publish or otherwise publicly disclose data and other information generated during the course of their research is subject to certain contractual limitations. The nature of the limitations depends on various factors, including the type of research being conducted, the ownership of the data and information and the nature of the individual, entity or consultant. In most cases, these individuals, entities or consultants are, at the least, precluded from publicly disclosing our confidential information and are only allowed to disclose other data or information generated during the course of the research after we have been afforded an opportunity to consider whether patent and/or other proprietary protection should be sought. If we do not apply for patent protection prior to publication or if we cannot otherwise maintain the confidentiality of our technology and other confidential information, then our ability to receive patent protection or protect our proprietary information will be harmed.

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

     The use of BAY 43-9006 in clinical trials, and the sale of any approved products, exposes us to liability claims. Although we are not aware of any historical or anticipated product liability claims against us, if we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of BAY 43-9006.

     We believe that we have obtained reasonably adequate product liability insurance coverage for our clinical trials. We intend to expand our insurance coverage to include the commercial sale of BAY 43-9006 if marketing approval is obtained. However, the cost of insurance coverage is rising. We may not be able to maintain insurance coverage at a reasonable cost. We may not be able to obtain additional insurance coverage that will be adequate to cover product liability risks that may arise should one of our product candidates receive marketing approval. Regardless of merit or eventual outcome, product liability claims may result in:

• decreased demand for a product;

• injury to our reputation;

• withdrawal of clinical trial volunteers; and

• loss of revenues.

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

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

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ONYX PHARMACEUTICALS, INC.

     Our activities involve the controlled storage, use, and disposal of hazardous materials, including infectious agents, corrosive, explosive and flammable chemicals and various radioactive compounds. We are subject to federal, state, and local laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials.

     In the event of an accident, state or federal authorities may curtail our use of these materials and we could be liable for any civil damages that result, which may exceed our financial resources and may seriously harm our business. While we believe that the amount of insurance we carry is sufficient for typical risks regarding our handling of these materials, it may not be sufficient to cover pollution conditions or other extraordinary or unanticipated events. Additionally, an accident could damage, or force us to shut down, our operations. In addition, if we develop a manufacturing capacity, we may incur substantial costs to comply with environmental regulations and would be subject to the risk of accidental contamination or injury from the use of hazardous materials in our manufacturing process.

     Our stock price is volatile.

     The market price of our common stock has been volatile and is likely to continue to be volatile. For example, during the period beginning January 1, 2001 and ending September 30, 2004, the closing sales price for one share of our common stock reached a high of $58.75 and a low of $3.50. Factors affecting our stock price include:

• interim or final results of, or speculation about, clinical trials from BAY 43-9006;

• ability to accrue patients into clinical trials;

• success or failure in, or speculation about, obtaining regulatory approval by us or our competitors;

• public concern as to the safety and efficacy of our product candidates;

• developments in our relationship with Bayer;

• developments in patent or other proprietary rights;

• additions or departures of key personnel;

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

• published reports by securities analysts;

• statements of governmental officials; and

• changes in healthcare reimbursement policies.

     Existing stockholders have significant influence over us.

     Our executive officers, directors, and five-percent stockholders own, in the aggregate, approximately 45 percent of our outstanding common stock. As a result, these stockholders will be able to exercise substantial influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could have the effect of delaying or preventing a change in control of our company and will make some transactions difficult or impossible to accomplish without the support of these stockholders.

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

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ONYX PHARMACEUTICALS, INC.

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

     In the past, stockholders have often brought securities class action litigation against a company following a decline in the market price of its securities. This risk is especially acute for us, because biotechnology companies have experienced greater than average stock price volatility in recent years and, as a result, have been subject to, on average, a greater number of securities class action claims than companies in other industries. Following our recent announcement in October 2004 of Phase II clinical trial data in patients with advanced kidney cancer, our stock price declined significantly. Our closing stock price on the last trading day before the announcement was $40.81, and our closing stock price on the day of the announcement was $27.34. We may in the future be the target of securities class action litigation. Securities litigation could result in substantial costs, could divert management’s attention and resources, and could seriously harm our business, financial condition and results of operations.

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

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

• the board of directors approved the transaction where the stockholder acquired 15 percent or more of the corporation’s stock;

• after the transaction in which the stockholder acquired 15 percent or more of the corporation’s stock, the stockholder owned at least 85 percent of the corporation’s outstanding voting stock, excluding shares owned by directors, officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or

• on or after this date, the merger or sale is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder.

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

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

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

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

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

• special meetings of the stockholders may be called only by the chairman of the board, the chief executive officer, the board or 10 percent or more of the stockholders entitled to vote at the meeting; and

• no cumulative voting.

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

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ONYX PHARMACEUTICALS, INC.

     We have entered into change of control severance agreements with each of our executive officers. These agreements provide for the payment of severance benefits and the acceleration of stock option vesting if the executive officer’s employment is terminated within 13 months of a change in control of Onyx. These change of control severance agreements may have the effect of preventing a change of control.

     Failure to complete our assessment of the effectiveness of our internal control over financial reporting may subject us to regulatory sanctions and could result in a loss of public confidence, which could harm our operating results and our stock price.

     Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our year ending December 31, 2004, we will be required to include in our annual report our assessment of the effectiveness of our internal control over financial reporting and our audited financial statements as of the end of 2004. Furthermore, our independent registered public accounting firm will be required to attest to whether our assessment of the effectiveness of our internal control over financial reporting is fairly stated in all material respects and separately report on whether it believes we maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004. If we fail to timely complete our assessment, or if our independent registered public accounting firm cannot timely attest to our assessment, we could be subject to regulatory sanctions and a loss of public confidence in our internal control. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to timely meet our regulatory reporting obligations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The primary objective of our investment activities is to preserve principal while at the same time maximize the income we receive from our investments without significantly increasing risk. Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. This means that a change in prevailing interest rates may cause the principal amount of the investments to fluctuate. By policy, we minimize risk by placing our investments with high quality debt security issuers, limit the amount of credit exposure to any one issuer, limit duration by restricting the term, and hold investments to maturity except under rare circumstances. We maintain our portfolio of cash equivalents and marketable securities in a variety of securities, including commercial paper, money market funds, and investment grade government and non-government debt securities. Through our money manager, we maintain risk management control systems to monitor interest rate risk. The risk management control systems use analytical techniques, including sensitivity analysis. If market interest rates were to increase by 100 basis points, or 1%, as of September 30, 2004 rates, the fair value of our portfolio would decline by approximately $781,000.

     The table below presents the amounts and related weighted interest rates of our cash equivalents and marketable securities:

	September 30, 2004						December 31, 2003
	Maturity	Fair Value ($ in millions)		Average Interest Rate			Maturity	Fair Value ($ in millions)		Average Interest Rate
Cash equivalents, fixed rate	0-1 month	$	70.9		1.53	%	0-3 months	$	55.2		1.04	%
Marketable securities, fixed rate	0-18 months	$	159.2		1.90	%	0-19 months	$	50.1		1.49	%

     We did not hold any derivative instruments as of September 30, 2004, and we have not held derivative instruments in the past. However, our investment policy does allow us to use derivative financial instruments for the purposes of hedging foreign currency denominated obligations. Our cash flows are denominated in U.S. dollars.

Item 4. Controls and Procedures

     Evaluation of disclosure controls and procedures: The Company’s principal executive and financial officer reviewed and evaluated the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Company’s principal executive and financial officer concluded that the Company’s disclosure controls and procedures were sufficiently effective as of September 30, 2004 to ensure that information required to be disclosed by the Company in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and Form 10-Q.

     Changes in internal controls over financial reporting: There were no significant changes in the Company’s internal controls over financial reporting during the three months ended September 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

     Limitation on the effectiveness of controls: A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

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ONYX PHARMACEUTICALS, INC.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

            Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On July 19, 2004, we issued an aggregate 28,129 shares of our common stock to Quogue Capital, LLC pursuant to the cashless exercise of a warrant dated May 7, 2002 . The warrant was exercisable for a total of 37,037 shares of common stock and had an exercise price of $9.59 per share. In connection with the cashless exercise, the number of shares issuable under the warrant was reduced by 8,908 shares based on the operation of the cashless exercise provisions in the warrant. The issuance of the shares under this warrant was exempt from registration under the Securities Act of 1933 in reliance on Section 4(2) as a transaction not involving any public offering.

Item 3. Defaults Upon Senior Securities

            Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

            Not applicable.

Item 5. Other Information

     Consistent with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002, we are responsible for listing the non-audit services approved by our Audit Committee to be performed by Ernst & Young LLP, our independent registered public accounting firm. Non-audit services are defined as services other than those provided in connection with an audit or a review of our financial statements. The Audit Committee has approved our recurring engagements of Ernst & Young LLP for the following non-audit services: (1) preparation of tax returns, and tax advice in preparing for and in connection with the filings; (2) all work required to be performed by Ernst & Young LLP in connection with preparing and giving consents required to be given in connection with our filings with the Securities and Exchange Commission; (3) all work required to be performed by Ernst & Young LLP in connection with preparing and giving consents required to be given in connection with our planned filing with the Securities and Exchange Commission of a Form S-8 to register 600,000 shares of the Company’s common stock pursuant to the amendment to the Company’s 1996 Equity Incentive Plan approved at the Company’s annual meeting of stockholders; and (4) advice in preparing for the internal control documentation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

Item 6. Exhibits

     a)   Exhibits

3.1	Restated Certification of Incorporation of the Company. (1)
3.2	Bylaws of the Company. (1)
3.3	Certificate of Amendment to Amended and Restated Certification of Incorporation. (2)
4.1	Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2	Specimen Stock Certificate. (1)
10.43	Sublease between the Company and Siebel Systems, Inc. dated August 5, 2004.
31.1	Certification required by Rule 13a-14(a) or Rule 15d-14(a).

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ONYX PHARMACEUTICALS, INC.

32.1 Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). (3)

(1)	Filed as an exhibit to the registrant’s Registration Statement on Form SB-2 (No. 333-3176-LA).
(2)	Filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
(3)	This certification “accompanies” the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Onyx Pharmaceuticals, Inc. under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

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ONYX PHARMACEUTICALS, INC.

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 thereunto duly authorized.

	ONYX PHARMACEUTICALS, INC.
Date: November 8, 2004	By:	/s/ Hollings C. Renton
		Hollings C. Renton
		Chairman of the Board,
		President and Chief Executive Officer
		(Principal Executive and Financial Officer)
Date: November 8, 2004	By:	/s/ Marilyn E. Wortzman Marilyn E. Wortzman
		Vice President, Finance and Administration
		(Principal Accounting Officer)

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ONYX PHARMACEUTICALS, INC.

EXHIBIT INDEX

3.1	Restated Certification of Incorporation of the Company. (1)
3.2	Bylaws of the Company. (1)
3.3	Certificate of Amendment to Amended and Restated Certification of Incorporation. (2)
4.1	Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2	Specimen Stock Certificate. (1)
10.43	Sublease between the Company and Siebel Systems, Inc. dated August 5, 2004.
31.1	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
32.1	Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). (3)

(1)	Filed as an exhibit to the registrant’s Registration Statement on Form SB-2 (No. 333-3176-LA).
(2)	Filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
(3)	This certification “accompanies” the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Onyx Pharmaceuticals, Inc. under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

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EX-10.43

Exhibit 10.43

SUBLEASE

     THIS SUBLEASE (this “Sublease”), dated as of August 5, 2004 (the “Execution Date”), is entered into by and between SIEBEL SYSTEMS, INC., a Delaware corporation (“Sublandlord”), and ONYX PHARMACEUTICALS, INC., a Delaware corporation (“Subtenant”).

1. BASIC PROVISIONS.

     1.1 Sublease Premises: The “Sublease Premises” under this Sublease consists of approximately 23,222 rentable square feet located on the 12th floor in the building commonly known as Watergate Office Towers IV, located at 2100 Powell Street, Emeryville, California (“Building”). The Sublease Premises are a portion of those certain premises (“Master Premises”) containing approximately 298,089 rentable square feet which are demised pursuant to the Master Lease to Sublandlord. The Sublease Premises are depicted on Exhibit A to this Sublease.

     1.2 Master Landlord: CA-Emeryville Properties Limited, a Delaware limited partnership.

     1.3 Master Lease: Lease dated August 16, 1999 (“Original Lease”) as amended by (i) Amendment Number One to Lease, dated as of October 26, 2000 (“First Amendment”); (ii) Amendment Number Two to Lease dated as of June 29, 2001 (“Second Amendment”); and (iii) Third Amendment dated as of September 26, 2003, (“Third Amendment”), a copy of which is attached hereto as Exhibit B.

     1.4 Term: This Sublease shall begin on the Commencement Date and end on the Expiration Date (“Term”), unless terminated earlier in accordance with the terms and conditions of this Sublease. Promptly following a request therefor, Subtenant agrees to execute a Sublease Commencement Date Certificate in the form attached as Exhibit D setting forth the actual Commencement Date and the Expiration Date.

     1.5 Commencement Date: Estimated to be November 1, 2004, but in any case upon the date which is the later of (i) the date Sublandlord tenders possession of the Sublease Premises to Subtenant or (ii) the date the Master Landlord gives its consent to this Sublease, provided that, subject to Section 3.5, in the event that Subtenant occupies prior to the time Master Landlord grants its consent, the date such occupancy commences shall be the Commencement Date. Notwithstanding the foregoing, Subtenant shall have no obligation to accept possession of the Sublease Premises prior to October 15, 2004.

     1.6 Expiration Date: February 28, 2010.

     1.7 Base Rent: As of the Commencement Date, the schedule of Base Rent payable with respect to the Sublease Premises is as follows:

1

	Monthly
	Rate
	Per Square					Monthly
Months	Foot		Annual Base Rent			Base Rent
Months 1 – 12	$	1.90	$	529,461.60	*	$	44,121.80	*
Months 13-24	$	1.95	$	543,394.80		$	45,282.90
Months 25-36	$	2.00	$	557,328.00		$	46,444.00
Months 37-48	$	2.05	$	571,261.20		$	47,605.10
Months 49-60	$	2.10	$	585,194.40		$	48,766.20
Months 61-64	$	2.15	$	599,127.60		$	49,927.30

*Subject to abatement as provided in Section 4.7 below.

     1.8 Subtenant’s Share: Subtenant’s Share is deemed to be a fraction, the numerator of which is the rentable square footage of the Sublease Premises, and the denominator of which is the rentable square footage of the Master Premises. As of the Execution Date, Subtenant’s Share is 7.79% percent.

1.9  Subtenant’s Use: General office.

1.10	Subtenant’s Address:	2100 Powell Street, Suite 1200
		Emeryville, California 94608
		Attn: Greg Giotta
		Vice President, Chief Legal Counsel

1.11	Sublandlord’s Address:	2207 Bridgepointe Parkway
		San Mateo, California 94404
		Attn: Vice President, Real Estate and
		Facilities
	With a copy to:	2207 Bridgepointe Parkway
		San Mateo, California 94404
		Attn: Vice President, Legal Affairs
	and to:	Jones Lang LaSalle
		Two Mellon Center, Suite 925
		Pittsburgh, Pennsylvania 15212

     1.12 Security Deposit. $49,927.30

     1.13 Parking: Three (3) unreserved parking spaces per 1,000 rentable square feet (i.e., 69 unreserved parking spaces), subject to the terms of Section 2.4, below.

1.14 Brokers:	For Sublandlord:	Cushman & Wakefield and Jones Lang LaSalle
	For Subtenant:	Aegis Realty Partners

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     1.15 Definitions: Each of the terms in Section 1 is used in this Sublease as a defined term and has the meaning given in such section. Other capitalized words and phrases for which no definition is given in this Sublease shall have the meanings given them in the Master Lease. Unless otherwise indicated, all section references are to the sections of this Sublease.

2. DEMISE OF SUBLEASE PREMISES; LICENSE OF FURNITURE.

     2.1 Sublandlord hereby subleases the Sublease Premises to Subtenant, and Subtenant hereby subleases the Sublease Premises from Sublandlord, subject to the terms and conditions of this Sublease. Subtenant represents and warrants to Sublandlord that: (a) Subtenant is familiar with the provisions of the Master Lease insofar as it pertains to the Sublease Premises and Subtenant’s use and occupation thereof under this Sublease; (b) Subtenant has the right and power to execute and deliver this Sublease and to perform its obligations hereunder; (c) the person or persons executing this Sublease for Subtenant are fully authorized to so act and no other action is required to bind Subtenant to this Sublease; and (d) Subtenant is duly organized and in good standing in its state of formation and is authorized to conduct business in the state where the Sublease Premises are located.

     2.2 The Sublease hereunder also includes (i) the license to use, without charge, Sublandlord’s cubicles, and all other office furniture located within the Sublease Premises during the Term, a list of which is attached hereto and incorporated herein as Exhibit C (the “Furniture”); and (ii) the license to use the cabling within the Sublease Premises for access to Subtenant’s LAN and for internet access. Subtenant agrees that the Furniture is licensed in its “as is” condition, and that there are no representations or warranties by Sublandlord regarding the suitability for Subtenant’s use, the condition or any other matter relating to the Furniture. Notwithstanding anything to the contrary set forth herein, except to the extent caused by Subtenant or any of the Subtenant’s agents, employees, contractors or invitees, the Furniture shall be ready for normal office use, including being connected to data cable, to the extent required, as of the date Sublandlord delivers possession of the Sublease Premises to Subtenant. If the Furniture is not ready for normal office use and/or not connected to data cables as provided above, Sublandlord shall be responsible for any required modification to the Furniture at its cost and expense, provided that Subtenant has delivered written notice thereof to Sublandlord not later than ten (10) days following the Commencement Date. Notwithstanding the foregoing, Subtenant, and not Sublandlord, shall be responsible, at its cost, for any repairs or modifications to the Furniture arising out of or in connection with the specific nature of Subtenant’s business, the acts or omissions of Subtenant, its agents, employees or contractors, Subtenant’s reconfiguration of any of the Furniture, any repairs, alterations, additions or improvements performed by or on behalf of Subtenant, and any design or configuration of the Sublease Premises created by or for Subtenant which specifically results in the need for such repair or modification. Subtenant further agrees that the Furniture is in the configuration depicted on Exhibit A and if Subtenant desires to reconfigure any of the Furniture, Subtenant shall do so at its own cost and expense, subject to Sublandlord’s reasonable prior written approval of such reconfiguration; provided that no such approval shall be required for the reconfiguration of Furniture that is not attached or affixed to the Sublease Premises (e.g., chairs and

3

tables). Subtenant, at its sole cost and expense, shall maintain the Furniture in good condition and repair during the Term, reasonable wear and tear and any existing damage to such Furniture described on Exhibit A hereto excepted. In the event of any damage to the Furniture, Subtenant shall provide written notice to Sublandlord of such damage and Subtenant shall make any and all repairs that are necessary at Subtenant’s sole cost and expense. If Subtenant fails to make any required repairs to the Furniture for more than fifteen (15) days after notice from Sublandlord, Sublandlord may make the repairs, and Subtenant shall pay the reasonable cost of the repairs to Sublandlord within thirty (30) days after receipt of an invoice, together with an administrative charge in an amount equal to five percent (5%) of the cost of the repairs. At all times during the Term, Subtenant shall insure the Furniture for its full replacement value. Subtenant shall surrender the Furniture on the Expiration Date or earlier termination of this Sublease in the same condition as received, reasonable wear and tear excepted. This Sublease and the license rights granted in connection herewith shall not include any access to Sublandlord’s data center nor any right to require Sublandlord to provide any maintenance or repair or any technical or server support for any Furniture or any facilities within the Sublease Premises.

     2.3 Sublandlord may enter any part of the Sublease Premises at all reasonable hours, following reasonable prior notice (or in any emergency or suspected emergency, at any hour and without prior notice) (a) to inspect the Sublease Premises or to perform any obligations of Subtenant which Subtenant has failed to perform in accordance with the terms of this Sublease, or (b) to access the security panel located in the Sublease Premises, which controls Sublandlord’s internal security system or (c) to show the Sublease Premises to prospective lenders, subtenants and purchasers or at any time during the last six (6) months of the Term or when Subtenant is in default beyond the applicable notice and cure periods hereunder, to prospective subtenants and, if they are vacated, to prepare them for reoccupancy. Sublandlord shall take reasonable measures not to unreasonably interfere with Subtenant’s operations in connection with such entries.

     2.4 Subtenant shall have the right to use up to the number of Parking Spaces set forth in Section 1.13 on an unreserved basis during the Term. Subtenant may reduce the number of parking spaces used by Subtenant and subsequently increase the number of parking spaces, in each case by giving at least forty-five (45) days’ prior written notice to Sublandlord, together with any notice or other procedures required by any third party operator of the parking facility servicing the Building, and any requirements set forth in the Master Lease. Notwithstanding the foregoing, in no event shall Subtenant be entitled to use more than the number of Parking Spaces set forth in Section 1.13. Subtenant shall pay to Master Landlord directly the actual amount that Master Landlord charges Sublandlord for such Parking Spaces in accordance with Section 37 of the Master Lease.

     2.5 Subtenant shall have no right to expand or contract the Sublease Premises and no right of first refusal as to any other premises.

     2.6 Subtenant acknowledges that the Master Landlord has the right to terminate the Master Lease within ten (10) business days following Sublandlord’s request for Master Landlord’s consent to this Sublease. Any such exercise of Master Landlord’s recapture

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right shall not impose any liability on the part of Sublandlord under this Sublease. This Sublease shall automatically terminate upon the exercise by Master Landlord of such recapture right, and Sublandlord shall immediately return to Subtenant all deposits and prepaid rent paid to Sublandlord by Subtenant in connection with this Sublease.

3. SUBLEASE TERM.

     3.1 The Term of this Sublease shall commence on the Commencement Date specified in Section 1.5.

     3.2 If for any reason Sublandlord is delayed in delivery of the Sublease Premises to Subtenant, Sublandlord shall not be liable therefor, nor shall such failure affect the validity of this Sublease or the obligations of Subtenant hereunder, or extend the Expiration Date, but in such case the Commencement Date will not occur and Subtenant shall not be obligated to pay Rent until possession of the Sublease Premises are tendered to Subtenant.

     3.3 Unless sooner terminated or extended as provided herein, the Term shall end on the Expiration Date. However, this Sublease may be terminated prior to the Expiration Date if the Master Lease is terminated for any cause whatsoever (and Master Landlord does not require Subtenant to attorn), subject to the provisions of Section 16.4 below, or if this Sublease is terminated as otherwise provided for herein, in which case the Term shall end on such earlier termination. Other than as provided for below in Section 3.4 of this Sublease, Subtenant shall have no option to extend the Term of this Sublease or to elect an early termination of the Term.

     3.4 Subtenant shall have the right to extend the initial Term of this Sublease (the “Renewal Option”) for a period of three (3) years and twenty (20) days terminating on March 20, 2013 (the “Renewal Term”) (subject to any earlier termination pursuant to the terms of this Sublease) under the terms and conditions provided in this Sublease, if: (a) Sublandlord receives notice of exercise (“Exercise Notice”) not less than one hundred eighty (180) days or more than two hundred ten (210) days prior to the expiration of the initial Term; (b) Subtenant is not in default under this Sublease beyond any applicable cure periods at the time that Subtenant delivers its Exercise Notice; (c) no part of the Sublease Premises is sublet (other than pursuant to a Permitted Transfer, as defined in Section 9.3, below) at the time that Subtenant delivers its Exercise Notice; and (d) this Sublease has not been assigned (other than pursuant to a Permitted Transfer) prior to the date that Subtenant delivers its Exercise Notice.

          3.4.1 During the Renewal Term, the initial Base Rent shall be the Base Rent in effect at the expiration of the initial Term of this Sublease adjusted to reflect ninety-five percent (95%) of the current Fair Market Rate (defined below), as determined in accordance with this Section 3.4. Base Rent during the Renewal Term shall increase, if at all, in accordance with the increases assumed in the determination of Fair Market Rent. Subtenant shall pay Pass Through Costs and Other Charges for the Sublease Premises during the Renewal Term in accordance with the terms of this Sublease, except that the Base Year for the Renewal Term shall be calendar year 2010. Sublandlord and

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Subtenant shall have thirty (30) days after Sublandlord receives the Exercise Notice in which to seek to agree on the Renewal Term Initial Base Rent. If Sublandlord and Subtenant agree on the Renewal Term Initial Base Rent during such thirty (30) day period (or at any time thereafter), they shall immediately execute an amendment to this Sublease confirming the Renewal Term Initial Base Rent as so agreed, as the Base Rent for the first year of the Renewal Term.

          3.4.2 If Sublandlord and Subtenant are unable to agree on the Renewal Term Initial Base Rent within such thirty (30) day period, then within ten (10) days after the expiration of such thirty (30) day period, Sublandlord and Subtenant each, at its own cost and by giving notice to the other party, shall appoint a licensed commercial real estate appraiser with at least five (5) years’ full-time commercial appraisal experience in the geographical area of the Building (an “Appraiser”) to evaluate and set the Renewal Term Initial Base Rent. If either Sublandlord or Subtenant does not appoint an Appraiser within ten (10) days after the other party has given notice of the name of its Appraiser, the single Appraiser appointed shall be the sole Appraiser and shall set the Renewal Term Initial Base Rent. If two (2) Appraisers are appointed by Sublandlord and Subtenant as stated in this Section, they shall meet promptly, shall share between themselves all relevant comparable information in their possession, and attempt in good faith to set the Renewal Term Initial Base Rent. If the two (2) Appraisers are unable to agree within thirty (30) days after the second Appraiser has been appointed, they shall attempt to select a third Appraiser (the “Independent Appraiser”) meeting the qualifications stated in this Section within ten (10) days after the last day the two (2) Appraisers are given to set the Renewal Term Initial Base Rent. If they are unable to agree on the Independent Appraiser, either Sublandlord or Subtenant, by giving ten (10) days’ notice to the other party, can apply to the then Presiding Judge of the Superior Court of Alameda County for the selection of an Independent Appraiser who meets the qualifications stated in this Section. Sublandlord and Subtenant each shall bear one-half (1/2) of the cost of appointing the Independent Appraiser and of paying the Independent Appraiser’s fee. The Independent Appraiser shall be a person who has not previously acted in any capacity for either Sublandlord or Subtenant. Within thirty (30) days after the selection of the Independent Appraiser, the three appraisers shall meet and share among themselves all relevant comparable information in their possession, and attempt in good faith to set the Renewal Term Initial Base Rent by a majority decision of the three Appraisers. If after a reasonable period of discussion, a majority of the Appraisers is unable to agree upon the Renewal Term Initial Base Rent, the Independent Appraiser shall set a date and time for the simultaneous submission in writing by the two (2) other Appraisers to the Independent Appraiser of what amount, in their respective opinion, is the appropriate amount to be set as the Renewal Term Initial Base Rent (respectively referred to as an “Appraiser Submittal”). Once the Appraiser Submittals are so submitted, the Independent Appraiser shall select the Appraiser Submittal which most closely corresponds with what the Independent Appraiser believes is the appropriate amount to be set as the Renewal Term Initial Base Rent, as the Renewal Term Initial Base Rent. The Independent Appraiser shall not have the authority to reach any other decision than selecting one of the Appraiser Submittals or seek to encourage any agreement then being reached among the Appraisers as to the Renewal Term Initial Base Rent. If either Appraiser fails timely to submit its Appraiser Submittal to the

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Independent Appraiser, the single Appraiser Submittal timely submitted to the Independent Appraiser shall be adopted by the Independent Appraiser as the Renewal Term Initial Base Rent.

          3.4.3 After the Renewal Term Initial Base Rent for the first year of the Renewal Term has been set, the Appraisers shall notify Sublandlord and Subtenant and Sublandlord and Subtenant shall immediately execute an amendment to this Sublease (the “Renewal Amendment”) confirming the Renewal Term Initial Base Rent, as so determined, as the Base Rent for the first year of the Renewal Term. Subtenant shall execute and return the Renewal Amendment to Landlord within fifteen (15) days after Subtenant’s receipt of same, but, upon final determination of the Fair Market Rate applicable during the Renewal Term as described herein, an otherwise valid exercise of the Renewal Option shall be fully effective whether or not the Renewal Amendment is executed. If the determination of the Renewal Term Initial Base Rent is delayed beyond the date of commencement of the Renewal Term, Subtenant shall continue to pay Base Rent based upon the Base Rent for the last month of the initial Term of this Sublease. Upon the final determination of the Renewal Term Initial Base Rent, such determination shall be retroactive to the commencement date of the Renewal Term, and if such determination results in an underpayment of Base Rent by Subtenant, Subtenant shall pay to Sublandlord, within ten (10) days after such determination, any amount by which Subtenant may then have underpaid the Renewal Term Initial Base Rent for the portion of the Renewal Term which has then occurred. If such determination results in an overpayment of Base Rent by Subtenant, Sublandlord shall credit such overpayment against the next installment of Base Rent due under this Sublease and, to the extent necessary, any subsequent installments, until the entire amount of such overpayment has been credited against Base Rent.

          3.4.4 For purposes hereof, “Fair Market Rate” shall mean the arms length fair market annual rental rate per rentable square foot under renewal subleases and sublease amendments entered into on or about the date on which the fair market rent is being determined hereunder for space comparable to the Sublease Premises in the Building and in other Class “A” office buildings in the Watergate office project, EmeryStation North (5980 Horton Street) and EmeryStation One (5858 Horton Street) located in Emeryville, California. The determination of the Fair Market Rate shall take into account any material economic differences between the terms of this Sublease and any comparison sublease or sublease amendment, such as rent abatements, construction costs and other concessions and the manner, if any, in which the sublandlord under any such sublease is reimbursed for operating expenses and taxes.

          3.4.5 This Renewal Option is not transferable; the parties hereto acknowledge and agree that they intend that the aforesaid option to renew this Sublease shall be “personal” to Subtenant and any Permitted Transferee as set forth above and that in no event will any assignee or sublessee have any rights to exercise the aforesaid option to renew.

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          3.4.6 If and when the Renewal Option is exercised in accordance with this Section 3.4 or if Subtenant fails to exercise the Renewal Option, Subtenant shall have no further right to extend the Term of this Sublease.

     3.5 Provided that Master Landlord has consented to this Sublease and Subtenant has delivered to Sublandlord all prepaid rental, guaranties, certificates of insurance and Security Deposits, if any, required hereunder, Sublandlord will permit Subtenant access to the Sublease Premises prior to the Commencement Date. Such access shall be for solely the purpose of installing cabling, telephones, furniture and preparing the Sublease Premises for occupancy by Subtenant (subject to the requirements of the Master Lease), and not for the purpose of conducting business thereon. Any entry by Subtenant pursuant to this Section 3.5 shall be subject to all of the terms and conditions of this Sublease (and the provisions of the Master Lease incorporated herein), except that Subtenant shall not be required to pay any Base Rent or Pass-Through Costs with respect to the period of time prior to the Commencement Date when Subtenant occupies the Sublease Premises for such purposes. However, Subtenant shall for any Other Charges (as defined in Section 4.4) during such period. Subtenant shall coordinate such entry and work with Sublandlord so as to minimize any interference with Sublandlord’s business operations outside the Sublease Premises or within the Sublease Premises prior to the Commencement Date. Sublandlord may withdraw such permission to enter the Sublease Premises prior to the Commencement Date at any time that Sublandlord reasonably determines that such entry by Subtenant is causing a dangerous situation for Sublandlord, Subtenant or their respective contractors or employees, or if Sublandlord reasonably determines that such entry by Subtenant is hampering or otherwise preventing Sublandlord from delivering possession of the Sublease Premises to Subtenant at the earliest possible date.

4. RENT.

     4.1 The rent payable by Subtenant for the Sublease Premises shall consist of the Base Rent under Section 4.2, the Pass Through Costs under Section 4.3 and the Other Charges under Section 4.4. Base Rent, Pass Through Costs, Other Charges and any other sums payable by Subtenant under this Sublease are collectively referred to as “Rent.” Subtenant’s covenant to pay Rent shall be independent of every other covenant in this Sublease. Checks shall be sent to a/c #77-20068, Siebel Systems, Inc., Lockbox# 7203, Bank of America, 7203 Collection Center Drive, Chicago, Illinois 60693, unless otherwise modified in writing by Sublandlord.

     4.2 Subject to Subtenant’s right to the Abated Base Rent pursuant to Section 4.7 below, beginning on the Commencement Date and continuing thereafter on the first day of each calendar month during the Term, Subtenant shall pay to Sublandlord, in advance, and without notice, demand, deduction or offset, the monthly Base Rent specified in Section 1.7. If the Commencement Date is a day other than the first day of a calendar month, the Base Rent for the month in which the Commencement Date occurs will be prorated, based on a thirty (30) day month. Subtenant shall pay the fifth full month’s Base Rent on the Execution Date, subject to Subtenant’s right to the Abated Base Rent provided for in Section 4.7 of this Sublease.

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     4.3 Commencing as of January 1, 2006 and continuing throughout the Term, Subtenant also shall pay an amount equal to Subtenant’s Share of all amounts payable by Sublandlord under the Master Lease as “Operating Expenses”, insofar as applicable to the period encompassed by the Term and to the extent such amounts exceed the amounts payable as Operating Expenses for the base year 2005 (collectively, “Pass Through Costs”). To the extent Pass Through Costs are payable on a monthly estimated basis, the Operating Expenses with respect thereto shall be paid as and when Base Rent is due in an amount based on Master Landlord’s estimate and/or Sublandlord’s reasonable estimate; and upon any reconciliation of estimated and actual Pass Through Costs, the corresponding Pass Through Costs shall be adjusted between Sublandlord and Subtenant (with appropriate reimbursements or additional payments) within twenty (20) days after delivery to Subtenant of any reconciliation statement. For purposes of calculating Pass Through Costs, Sublandlord shall be entitled to rely conclusively on Master Landlord’s determination of estimated and actual Operating Expenses and shall be under no obligation to audit or verify the same. Commencing as of January 1, 2006, within a reasonable time following written request by Subtenant, Sublandlord shall provide Subtenant with a copy of the results of any audit conducted by Sublandlord with respect to Operating Expenses payable pursuant to the Master Lease and a copy of any annual statement of Operating Expenses provided by Master Landlord for the calendar year 2005 and/or any subsequent calendar year of the Term, provided that Subtenant’s right to receive the result of any audits in accordance with this Section shall be subject to any confidentiality requirements and limitations of Master Landlord.

     4.4 Throughout the Term, Subtenant also shall pay, within five (5) days after written notice, any other fees, charges or other sums payable with respect to the Sublease Premises (collectively, “Other Charges”) for: (a) excess or after hours utility consumption within the Sublease Premises; (b) excess, after hours or supplemental heating, ventilating or air conditioning service supplied to the Sublease Premises; (c) services or benefits supplied to the Sublease Premises at Subtenant’s request (or with Subtenant’s acquiescence) for which Master Landlord reserves any right to impose a fee or charge separate from the Pass Through Costs; (d) to reimburse Master Landlord or Sublandlord for taxes on personal property, equipment and fixtures located in or servicing the Sublease Premises during the Term; (e) to pay for any damage to the Building resulting from the act or omission of Subtenant or Subtenant’s agents, employees or invitees, subject to the subrogation provisions of Section 8.2 herein; and (f) amounts recoverable due to a default under the Master Lease which is the result of any Default or failure of performance by Subtenant under this Sublease. Sublandlord shall not assess any additional charge with respect to any of the Other Charges described in clauses (a), (b), (c) or (d) above.

     4.5 All Rent shall be paid to Sublandlord or to such other person or such other place as Sublandlord may from time to time designate in writing. If any Rent is not paid when due, Subtenant acknowledges that Sublandlord will incur additional administrative expenses and costs which are difficult or economically impractical to ascertain. Subtenant shall pay an administrative charge to Sublandlord equal to five percent (5%) of the delinquent amount for each thirty (30) days such payment is overdue. Neither demand for nor receipt of any late charge called for under this Sublease shall (i) operate to waive any default by Subtenant or provide a substitute for Subtenant’s full and timely performance of

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the obligation to pay Rent, or (ii) limit the exercise of any other right or remedy Sublandlord may have under this Sublease in case of Subtenant’s default.

     4.6 In the event of any casualty or condemnation affecting the Sublease Premises, Rent payable by Subtenant shall be proportionately abated, but only as to the portion of the Sublease Premises damaged or taken and only to the extent that Rent payable by Sublandlord is abated or reduced with respect to such portion of the Sublease Premises. In addition, in the event that Sublandlord receives an abatement of rent under the Master Lease as a result of an Essential Services Interruption pursuant to Section 15 of the Master Lease and the Sublease Premises is an Affected Area, Rent payable by Subtenant shall be proportionately abated, but only as to the portion of the Sublease Premises comprising an Affected Area. Subtenant shall have no right to terminate this Sublease in connection with any casualty or condemnation except to the extent that the Master Lease also is terminated as to the Sublease Premises.

     4.7 Notwithstanding anything in this Sublease to the contrary, so long as Subtenant is not in default under this Sublease beyond any applicable notice and cure period, Subtenant shall be entitled to an abatement of Base Rent with respect to the Sublease Premises, as originally described in this Sublease, in the amount of $44,121.80 per month for four (4) full calendar months of the Term, commencing with the first full calendar month of the Term (the “Abatement Period”). The maximum total amount of Base Rent abated with respect to the Sublease Premises in accordance with the foregoing shall equal $176,487.20 (the “Abated Base Rent”). Notwithstanding anything to the contrary set forth herein, Subtenant shall not be entitled to receive an Abated Base Rent during the continuance of an uncured default under this Sublease, provided that Subtenant’s right to receive such Abated Base Rent shall resume when and if such default is cured and Subtenant shall be entitled to a credit in the amount of the then remaining and unapplied portion of the Abated Base Rent against the next installment(s) of Base Rent until such time as Subtenant has been credited with the full amount of such unapplied Abated Base Rent. Only Base Rent shall be abated pursuant to this Section 4.7, as more particularly described herein, and all other Pass Through Costs and Other Charges, if any, shall remain as due and payable pursuant to the terms of this Sublease.

5. SECURITY DEPOSIT.

     5.1 On the Execution Date, Subtenant shall deposit with Sublandlord the Security Deposit in the amount specified in Section 1.12, as security for the full and faithful performance of every provision of this Sublease to be performed by Subtenant. The Security Deposit is not an advance Rent deposit, an advance payment of any other kind, or a measure of Sublandlord’s damage in case of Subtenant’s default. If Subtenant defaults with respect to any provision of this Sublease, including but not limited to the provisions relating to the payment of Rent and fails to cure such default during any applicable notice and cure period set forth herein, Sublandlord, without prejudice to any other right or remedy it may have, may use, apply or retain all or any part of the Security Deposit for the payment of any Rent or any other amount which Sublandlord may spend or become obligated to spend by reason of Subtenant’s default, to repair damages to any part of the Sublease Premises or the Building, to clean the Sublease Premises or to

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compensate Sublandlord for any other loss or damage which Sublandlord may suffer by reason of Subtenant’s default. Following any application of the Security Deposit, Subtenant shall, within five (5) days following Sublandlord’s demand, restore the Security Deposit to its full original amount, and Subtenant’s failure to restore the Security Deposit shall be deemed an event of default under this Sublease without further notice or cure period. In the event of bankruptcy or other insolvency proceedings filed by or against Subtenant, the Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Sublandlord for all periods prior to the effective date of such proceedings. Sublandlord shall not be required to keep the Security Deposit separate from its general funds, and Subtenant shall not be entitled to interest on the Security Deposit. If Subtenant shall fully and faithfully perform every provision of this Sublease to be performed by it, the Security Deposit or any unapplied balance thereof shall be returned to Subtenant within three (3) weeks following the Expiration Date or earlier termination of this Sublease. Subtenant waives the provisions of California Civil Code section 1950.7, and all other provisions of law now in force or that become in force after the date of execution of this Sublease, that provide that Sublandlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by Subtenant, or to clean the Premises. Sublandlord and Subtenant agree that Sublandlord may, in addition, claim those sums reasonably necessary to compensate Sublandlord for any other loss or damage to which Sublandlord is entitled under this Sublease, at law or in equity.

6. POSSESSION AND USE.

     6.1 Subject to Sublandlord’s obligations with respect to the Furniture pursuant to Section 2.2, Sublandlord subleases the Sublease Premises to Subtenant, and Subtenant accepts the Sublease Premises, strictly in their present “as-is” and “with all faults” condition. Sublandlord has no obligation to prepare, modify or alter the Sublease Premises, except to provide the Furniture in the configuration described on Exhibit A hereto and to install the cabling associated with the Furniture. Subtenant acknowledges that it has had full opportunity to inspect the condition of the Sublease Premises and Building and all laws, rules, regulations, and restrictions statutes, codes, regulations, ordinances, and restrictions of any municipal or governmental entity whether in effect now or later (“Laws”) relating to its use and condition. Subtenant is not relying on any statement, representation or warranty made by or for Sublandlord with respect to the Sublease Premises or such Laws. Subtenant, by acceptance of possession of the Sublease Premises, conclusively acknowledges the Sublease Premises to be in good order and repair and in a tenantable condition and acceptable for its intended use.

     6.2 The Sublease Premises shall be used and occupied solely for Subtenant’s Use as specified in Section 1.9. Subtenant’s use shall comply with the relevant provisions of the Master Lease and all applicable Laws. Subtenant shall not use or suffer or permit the Sublease Premises to be used for any other purpose.

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7. SERVICES, MAINTENANCE AND REPAIR OBLIGATIONS.

     7.1 Subtenant shall pay Subtenant’s Share of increases in utility costs over the cost of utilities during the Base Year as Pass Through Costs or Other Charges in accordance with Section 4. Master Landlord may charge Sublandlord for after-hours electrical and HVAC in accordance with Section 15 of the Master Lease. Sublandlord shall include in Other Charges (pursuant to Section 4.4 hereof) any such after-hours charge with respect to the Sublease Premises, without markup. Subtenant acknowledges that the Master Landlord may change such after-hours charges at any time, and that any such changes will be reflected in Other Charges. Sublandlord grants to Subtenant the right, so long as Subtenant is not in Default, to receive all of the services and benefits with respect to the Sublease Premises which are to be provided by Master Landlord under the Master Lease. Sublandlord shall have no duty to perform any obligations of Master Landlord which are, by their nature, the obligation of an owner or manager of real property. By way of illustration and not limitation, Sublandlord shall not be required to provide any services (including janitorial, utilities, heating, ventilation and air conditioning service, security, or use of common areas or parking facilities) or to perform any maintenance or repairs which Master Landlord is or may be required to provide or perform under the Master Lease. Sublandlord shall have no responsibility for or be liable to Subtenant for any default, failure or delay on the part of Master Landlord in the performance or observance by Master Landlord of any of its obligations under the Master Lease, nor shall such default by Master Landlord affect this Sublease or waive or defer the performance of any of Subtenant’s obligations under this Sublease, including without limitation the obligation to pay Rent; and Subtenant hereby expressly waives the provisions of any statute, ordinance or judicial decision, now or hereafter in effect, which would give Subtenant the right to make repairs at the expense of Sublandlord or Master Landlord, or to claim any actual or constructive eviction by virtue of any interruption in access, services or utilities to, or any failure to make repairs in or to, the Sublease Premises or the Building, including without limitation any rights under California Civil Code Sections 1932(1) and 1931(2), 1933(4), 1941 or 1942. Notwithstanding the foregoing, the parties do contemplate that Master Landlord will, in fact, perform its obligations under the Master Lease and in the event of any default or failure of such performance by Master Landlord, Sublandlord agrees that it will, upon notice from Subtenant, make demand upon Master Landlord to perform its obligations under the Master Lease. Sublandlord, however, shall have no obligation to sue the Master Landlord on Subtenant’s behalf or to terminate the Master Lease as a result of any such default or failure by Master Landlord.

     7.2 Subtenant shall maintain the Sublease Premises in a clean and orderly manner and condition, to the extent that Sublandlord is required to maintain the Sublease Premises under the Master Lease.

     7.3 Without limiting Subtenant’s obligations as incorporated from the Master Lease, Subtenant shall comply with all Laws and of all insurance bodies and their fire prevention engineers at any time in force, applicable to the use, condition, occupancy or modification of the Sublease Premises, including without limitation, all Laws promulgated or applicable as a result of the Americans with Disabilities Act. Without limiting the

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generality of the foregoing, Subtenant shall be responsible for all modifications (including structural modifications) to the Sublease Premises or Building triggered or required as a result of Subtenant’s particular use or modification of the Sublease Premises. All provisions of the Master Lease relating to the Subtenant’s or Sublandlord’s use of or liability arising from Hazardous Materials (as defined in Section 4.D of the Master Lease) are hereby incorporated herein, with the term “Subtenant” substituted for Tenant, except that Sublandlord is not assuming any responsibility or liability with respect to any Hazardous Materials brought onto the Premises by others or any liabilities of Master Landlord under the Master Lease.

8. SUBTENANT’S INSURANCE AND INDEMNITY.

     8.1 Throughout the Term, Subtenant shall procure and maintain, at its own cost and expense, such workers’ compensation, business interruption and commercial general liability insurance as is required to be carried by Tenant under the Master Lease, and such property insurance as is required to be carried by Tenant under the Master Lease to the extent such property insurance pertains to the Sublease Premises, all naming Sublandlord (and any of its designees), as well as Master Landlord, as additional insureds and loss payees in the manner required in the Master Lease. If the Master Lease requires the Tenant to insure leasehold improvements or Alterations (defined below), then Subtenant shall insure such leasehold improvements which are located in the Sublease Premises, as well as alterations in the Sublease Premises made by Subtenant. Subtenant shall furnish to Sublandlord a certificate of Subtenant’s insurance required under this Section 8.1 on or before the Commencement Date, or, if applicable, prior to accessing the Sublease Premises prior to the Commencement Date pursuant to Section 3.4. Subtenant’s general liability policies shall provide cross-liability coverage for Subtenant and Sublandlord (and any of its designees) to provide severability of interests, and the coverage afforded to Sublandlord must be as broad as that afforded to Subtenant. Within five (5) business days after any renewal or promptly upon any other request by Sublandlord, Subtenant shall furnish Sublandlord with copies of policies, or evidence of insurance, evidencing maintenance and renewal of the required coverage on ACORD 25 or other form reasonably acceptable to Sublandlord in its sole discretion, and a copy of the endorsement to Subtenant’s liability policy showing the additional insureds. In the event Subtenant does not maintain said insurance, Sublandlord may, in its sole discretion and without waiving any other remedies hereunder, upon not less than five (5) days’ prior written notice to Subtenant, procure said insurance and Subtenant shall pay to Sublandlord as rent the cost of said insurance plus a five percent (5%) administrative fee.

     8.2 Each party hereby waives claims against the other, and their respective agents, employees, successors, assignees, and subtenants, for damage to property owned by the waiving party where such damage is covered under any policy of property insurance maintained, without regard for the negligence or willful misconduct of the parties so released, so long as such waiver does not invalidate or adversely affect the waiving party’s property insurance; and each party shall obtain from its insurance carrier a waiver of its right of subrogation. Subtenant agrees to obtain, for the benefit of Master Landlord and Sublandlord, such waivers of subrogation rights from its insurer as are required of Sublandlord, as Tenant, under the Master Lease. Subtenant hereby waives

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claims against Master Landlord and Sublandlord for death, injury, loss or damage of every kind and nature, if and to the extent that Sublandlord, as Tenant, waives or releases such claims against Master Landlord under the Master Lease.

     8.3 To the fullest extent permitted by law, Subtenant waives all claims against Sublandlord for economic damages, damage to any property or injury or death of any person in, on or about the Sublease Premises arising at any time or from any cause other than to the extent resulting directly from the gross negligence or willful misconduct of Sublandlord. Subtenant agrees to protect, defend, indemnify and hold Sublandlord harmless from all claims, losses, damages, liabilities and expenses which Sublandlord may incur, or for which Sublandlord may be liable to Master Landlord, arising from (a) the use, modification or occupancy of the Sublease Premises or the Furniture during the Term, (b) the acts or omissions of Subtenant, its employees, agents, invitees, or contractors, and (c) any acts or events occurring in or about the Sublease Premises during the Term, which are the subject matter of any indemnity or hold harmless of Sublandlord, as Tenant, to Master Landlord under the Master Lease. Subtenant’s obligations to protect, defend, indemnify and hold harmless Sublandlord under this Section 8.3 are in no way conditioned upon either (i) Subtenant’s acts or omissions being a cause of any underlying claim, demand, action, loss or damage, or (ii) Sublandlord being free of negligence or wrongful conduct in connection therewith; provided, however, that Subtenant shall not be required to indemnify or hold Sublandlord harmless to the extent it is established that Sublandlord’s gross negligence or willful misconduct is the cause of any claim, demand, action, liability, expenses, loss or damage.

9. ASSIGNMENT OR SUBLETTING.

     9.1 Except with the prior written consent of Sublandlord, which consent shall not be unreasonably withheld (and the consent of Master Landlord if required by the Master Lease), Subtenant shall not voluntarily, involuntarily or by operation of law (a) assign, convey or mortgage this Sublease or any interest under it; (b) allow any transfer thereof or any lien upon Subtenant’s interest by operation of law; (c) further sublet the Sublease Premises or any part thereof; or (d) permit the occupancy of the Sublease Premises or any part thereof by anyone other than Subtenant or a Permitted Transferee (as defined in Section 9.3 below) (collectively, a “Transfer”). Subtenant shall provide Sublandlord with not less than thirty (30) days prior notice of a proposed Transfer. With any request for consent to a Transfer, Subtenant will submit a copy of the proposed Transfer document to Sublandlord and notify Sublandlord of the proposed effective date of the Transfer, the name of the proposed transferee (accompanied by evidence of the nature, character, ownership, business, and financial condition of the transferee and its business), all terms and conditions (including rental and other consideration) of or relating to the Transfer and a general description of any proposed alterations. Sublandlord shall grant or deny its consent to the proposed Transfer within a commercially reasonable time following submission of Subtenant’s request accompanied by the information required herein, but in any event not later than twenty (20) days following such submission. Consent by Sublandlord to any Transfer shall not be a waiver of Sublandlord’s rights as to any subsequent Transfer. Any approved Transfer shall be expressly subject to the terms and conditions of the Master Lease. Upon Default while a Transfer is in effect,

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Sublandlord may collect directly from the transferee all sums becoming due to Subtenant under the Transfer and apply this amount against any sums due Sublandlord by Subtenant, and Subtenant hereby authorizes and directs any transferee to make payments directly to Sublandlord upon notice from Sublandlord. No direct collection by Sublandlord from any transferee shall constitute a novation or release of Subtenant, a consent to the Transfer or a waiver of the covenant prohibiting Transfers. In the event that Subtenant shall request Sublandlord’s consent to a Transfer, Subtenant shall pay Sublandlord’s processing costs and attorneys’ fees and costs incurred in reviewing such request, together with the fees and costs of Master Landlord in accordance with the terms of the Master Lease.

     9.2 If the consideration Subtenant receives for any Transfer (including key money and bonus money and any payment in excess of fair market value for services or assets provided or transferred in connection with the Transfer) exceeds the rent payable under this Sublease for the same period and portion of the Sublease Premises, then fifty percent (50%) of the excess shall be immediately due and payable by Subtenant to Sublandlord as Other Charges under this Sublease. Subtenant may deduct from the excess, on a straight-line basis, the following reasonable and customary expenses directly incurred by Subtenant attributable to the Transfer: (a) any alterations and tenant improvements, (b) tenant improvement allowances, (c) any brokerage commissions, (c) any attorneys’ fees costs, and (d) any processing costs and fees payable to Sublandlord and Master Landlord pursuant to Section 9.1 above. Subtenant shall allow Sublandlord to review and audit Subtenant’s book and records for the purpose of verifying Subtenant’s calculation of excess rent payable to Sublandlord.

     9.3 “Transfer” within the meaning of this Section shall not include any sublease or assignment of all or a portion of the Sublease Premises to any Affiliate (defined below) ) or to a successor to Subtenant by purchase, merger, consolidation or reorganization (a “Permitted Transfer”), if: (a) in the case of an assignment, such Affiliate assumes Subtenant’s obligations hereunder; (b) at least ten (10) business days prior to the effective date of such transfer Subtenant delivers to Sublandlord written notice of such transfer together with the information required herein; (c) the Transfer is not a subterfuge to avoid Subtenant’s obligations under this Sublease; (d) with respect to a Permitted Transfer to an Affiliate, the transferee has a tangible net worth at least equal to Subtenant’s either immediately before such transfer or as of the date of this Sublease, whichever is greater; (e) with respect to a purchase, merger, consolidation or reorganization or any Permitted Transfer which results in Subtenant ceasing to exist as a separate legal entity, (i) Subtenant’s successor shall own all or substantially all of the assets of Tenant, and (ii) Subtenant’s successor will have a tangible net worth at least equal to Subtenant’s either immediately before the proposed purchase, merger, consolidation or reorganization or as of the date of this Sublease, whichever is greater; and (f) Subtenant is not in Default hereunder or would, with the passage of time, be in Default hereunder. Any transferee that satisfies all of the foregoing as reasonably determined by Sublandlord may sometimes be referred to herein as a “Permitted Transferee”. For purposes of this Section 9.3, an “Affiliate” shall mean an entity controlled, controlling or under common control with Subtenant. Subtenant shall notify Sublandlord of any such Transfer to an Affiliate prior to its consummation. If requested by Sublandlord, Subtenant and such Permitted Transferee shall sign an assumption agreement in form and substance

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reasonably satisfactory to Sublandlord. If Sublandlord consents to any assignment of this Sublease or further subletting of the Sublease Premises, Sublandlord shall use reasonable efforts to obtain the consent of Master Landlord if required by the Master Lease. All costs of obtaining Master Landlord’s consent shall be borne by Subtenant. Sublandlord hereby waives its right to recapture the Sublease Premises in the event of a Transfer to a Permitted Transferee.

     9.4 No permitted assignment shall be effective and no permitted sublease shall commence unless and until any Default by Subtenant hereunder has been cured. No permitted assignment or subletting shall relieve Subtenant from Subtenant’s obligations and agreements under this Sublease, and Subtenant shall continue to be liable as a principal and not as a guarantor or surety, to the same extent as though no assignment or subletting had been made. Subtenant hereby waives the provisions of Section 1995.310 of the California Civil Code, or any similar or successor laws, now or hereinafter in effect, and all other remedies, including, without limitation, any right at law or equity to terminate this Sublease, on its own behalf and, to the extent permitted under all applicable Laws, on behalf of the proposed transferee. Any attempted Transfer in violation of this Section is voidable by Sublandlord.

10. ALTERATIONS.

     10.1 Subtenant shall not make any alterations in or additions to the Sublease Premises (“Alterations”) if to do so would constitute a default under the Master Lease (without regard to any requirement of notice or cure period). If Subtenant’s proposed Alterations would not constitute a default under the Master Lease, Sublandlord’s consent thereto shall nonetheless be required, but Sublandlord’s consent to such Alterations shall not be unreasonably withheld, and if Sublandlord consents thereto, Sublandlord shall use reasonable efforts to obtain the consent of Master Landlord, if such consent is required under the Master Lease. If Alterations by Subtenant are permitted or consented to, Subtenant shall comply with all of the covenants of Sublandlord, as Tenant, contained in the Master Lease pertaining to the installation and removal of such Alterations. In addition, Subtenant shall indemnify, defend and hold harmless Sublandlord against claim, liability, loss, cost, damage, liens and expense imposed on Sublandlord arising out of the installation and removal of Alterations by Subtenant. Sublandlord acknowledges that Subtenant desires to expand the size of the existing server room located within the Sublease Premises (the “Server Room Alterations”). The construction of the Server Room Alterations shall be subject to the terms of this Section 10 and further subject to the requirements of the Master Lease, including, without limitation, the requirement to obtain Master Landlord’s prior consent. Notwithstanding anything to the contrary set forth herein, Sublandlord reserves the right to require Subtenant to remove the Server Room Alterations prior to the Expiration Date and to restore the Sublease Premises to the condition existing prior to the making of the Server Room Alterations.

     10.2 If Subtenant performs any Alterations, Subtenant shall be obligated to remove such Alterations and restore the Sublease Premises to the condition existing on the Commencement Date (or on such earlier date as Subtenant first entered the Sublease Premises) if (a) the Master Lease requires such removal and restoration by Sublandlord or

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(b) subject to Section 12.2 hereof, Sublandlord reserved the right to require such removal at the time of its consent to such Alterations.

11. CASUALTY OR EMINENT DOMAIN.

     11.1 In the event of a fire or other casualty affecting the Building or the Sublease Premises, or of a taking of all or a part of the Building or the Sublease Premises under the power of eminent domain, Sublandlord shall be entitled to exercise any right it may have to terminate the Master Lease without first obtaining the consent or approval of Subtenant. If the Master Lease imposes on Sublandlord the obligation to repair or restore the Premises, the Building, and any leasehold improvements or alterations, Subtenant shall be responsible for repair or restoration of the Premises, the Building, and any leasehold improvements or alterations within the Sublease Premises to the extent the Sublandlord, as Tenant under the Master Lease, is obligated under the Master Lease. Subtenant also shall be obligated to restore or replace any Furniture so damaged or taken that is required to be insured by Subtenant pursuant to Section 2.2.

12. SURRENDER.

     12.1 On the Expiration Date, or upon the earlier termination of this Sublease or of Subtenant’s right to possession of the Sublease Premises, Subtenant will at once surrender and deliver up the Sublease Premises, together with all improvements thereon, to Sublandlord in as good condition and repair as when delivered to Subtenant, reasonable wear and tear, Master Landlord’s repair obligations and casualty excepted. Conditions existing because of Subtenant’s failure to perform maintenance, repairs or replacements as required of Subtenant under this Sublease shall not be deemed “reasonable wear and tear.” Subtenant shall surrender to Sublandlord all keys to the Sublease Premises and make known to Sublandlord the combination of all combination locks which Subtenant is permitted to leave on the Sublease Premises. If Subtenant exercises its Renewal Option, as defined below, then at the expiration or earlier termination of the Renewal Term and upon request of Sublandlord, Subtenant shall remove the cabling installed by Sublandlord for Subtenant under this Sublease and shall repair any injury or damage to the Sublease Premises which may result from such removal, and restore the Sublease Premises to the same condition as prior to the installation thereof.

     12.2 All Alterations in or upon the Sublease Premises made by Subtenant and not removed or required to be removed hereunder shall become a part of and shall remain upon the Sublease Premises upon such termination without compensation, allowance or credit to Subtenant. At Sublandlord’s written request Subtenant shall restore the Sublease Premises to their condition prior to the making of such Alterations and repair any damage occasioned by such removal or restoration. Within ten (10) days after receipt of Subtenant’s request, Sublandlord shall advise Subtenant in writing as to which portions of the Alteration are required to be removed hereunder. If Sublandlord advises Subtenant in writing that Subtenant is not required to remove a particular Alteration, Subtenant shall have no obligation to remove such Alteration. If Subtenant is permitted or required to remove any Alteration or a portion thereof, and Subtenant does not complete such removal in accordance with this Section, Sublandlord may remove the same (and repair any damage

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occasioned thereby), and dispose thereof, or at its election, warehouse the same. Subtenant shall pay the costs of such removal, repair and warehousing on demand, plus an administrative fee equal to five percent (5%) of such costs, on demand.

     12.3 Except as otherwise provided for in Section 12.1, as between Sublandlord and Subtenant, Subtenant shall not be required to remove any Alterations performed by Sublandlord prior to the Commencement Date (“Sublandlord Alterations”) or to restore the Sublease Premises to their condition prior to the making of such Sublandlord Alterations. If Sublandlord is required under the Master Lease to remove any Sublandlord Alterations performed prior to the Commencement Date, Subtenant shall permit Sublandlord to enter the Sublease Premises for a reasonable period of time prior to the expiration date of the Master Lease for the purpose of removing Sublandlord Alterations and restoring the Sublease Premises as required by the Master Lease; provided that any such entry shall be subject to Section 2.3.

     12.4 On or before the Expiration Date, or upon the earlier termination of the Sublease or of Subtenant’s right to possession of the Sublease Premises, Subtenant shall remove Subtenant’s articles of personal property incident to Subtenant’s business which are not affixed to the Sublease Premises (“Trade Fixtures”); provided, however that Subtenant shall repair any injury or damage to the Sublease Premises which may result from such removal, and shall restore the Sublease Premises to the same condition as prior to the installation thereof. If Subtenant does not remove Subtenant’s Trade Fixtures from the Sublease Premises on or before the Expiration Date or the earlier termination of Subtenant’s right to possession, Sublandlord may, at its option, remove the same (and repair any damage occasioned thereby and restore the Sublease Premises as aforesaid) and dispose thereof or warehouse the same, and Subtenant shall pay the cost of such removal, repair, restoration or warehousing, plus an administrative fee equal to five percent (5%) of such costs, to Sublandlord on demand, or Sublandlord may treat said Trade Fixtures as having been conveyed to Sublandlord with this Sublease acting as a Bill of Sale therefor, without further payment or credit by Sublandlord to Subtenant.

13. HOLDING OVER.

     13.1 Subtenant has no right to occupy the Sublease Premises or any portion thereof after the Expiration Date or after the earlier termination of this Sublease or of Subtenant’s right to possession hereunder. In the event Subtenant or any party claiming by, through or under Subtenant holds over, Sublandlord may exercise any and all remedies available to it at law or in equity to recover possession of the Sublease Premises, and to recover damages, including without limitation, damages payable by Sublandlord to Master Landlord by reason of such holdover.

     13.2 Without limiting Sublandlord’s rights under Section 13.1, for each and every month or partial month that Subtenant or any party claiming by, through or under Subtenant remains in occupancy of all or any portion of the Sublease Premises after the Expiration Date or after the earlier termination of this Sublease or of Subtenant’s right to possession, Subtenant shall pay, as minimum damages and not as a penalty, monthly Base Rent at a rate equal to one hundred fifty percent (150%) of the rate of Base Rent payable

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by Subtenant hereunder immediately prior to the Expiration Date or the earlier termination of this Sublease or of Subtenant’s right to possession, which holdover rate shall be prorated on a daily basis. The acceptance by Sublandlord of any lesser sum shall be construed as payment on account and not in satisfaction of damages for such holding over.

14. ENCUMBERING TITLE.

     14.1 Subtenant shall not do any act which in any way encumbers the title of Master Landlord in and to the Building nor shall the interest or estate of Master Landlord or Sublandlord be in any way subject to any claim by way of lien or encumbrance, whether by operation of law or by virtue of any express or implied contract by Subtenant, or by reason of any other act or omission of Subtenant. Any claim to, or lien upon, the Sublease Premises or the Building arising from any act or omission of Subtenant shall accrue only against the estate of Subtenant and shall be subject and subordinate to the paramount title and rights of Master Landlord and the Sublandlord.

     14.2 Without limiting the generality of Section 14.1, Subtenant shall not permit the Sublease Premises or the Building to become subject to any mechanics’, laborers’ or materialmen’s lien on account of labor or material furnished to Subtenant or claimed to have been furnished to Subtenant in connection with work of any character performed or claimed to have been performed on the Sublease Premises by, or at the direction or sufferance of, Subtenant. Sublandlord may cause such liens to be released by any means it deems proper, including payment, at Subtenant’s expense and without affecting Sublandlord’s rights.

15. SUBTENANT’S DEFAULT.

     15.1 Any one or more of following events shall be considered a “Default” by Subtenant, as such term is used in this Sublease:

          15.1.1 Subtenant shall be adjudged an involuntary bankrupt, or a decree or order approving, as properly filed, a petition or answer filed against Subtenant asking reorganization of Subtenant under the Federal bankruptcy laws as now or hereafter amended, or under the laws of any state, shall be entered, and any such decree or judgment or order shall not have been vacated or stayed or set aside within sixty (60) days from the date of the entry or granting thereof; or

          15.1.2 Subtenant shall file, or admit the jurisdiction of the court and the material allegations contained in, any petition in bankruptcy, or any petition pursuant or purporting to be pursuant to the Federal Bankruptcy laws now or hereafter amended, or Subtenant shall institute any proceedings for relief of Subtenant under any bankruptcy or insolvency laws or any laws relating to the relief of debtors, readjustment of indebtedness, re-organization, arrangements, composition or extension; or

          15.1.3 Subtenant shall make any assignment for the benefit of creditors or shall apply for or consent to the appointment of a receiver for Subtenant or any of the property of Subtenant; or

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          15.1.4 Subtenant shall admit in writing its inability to pay its debts as they become due; or

          15.1.5 The Sublease Premises are levied on by any revenue officer or similar officer; or

          15.1.6 A decree or order appointing a receiver of the property of Subtenant shall be made and such decree or order shall not have been vacated, stayed or set aside within thirty (30) days from the date of entry or granting thereof; or

          15.1.7 Subtenant shall abandon the Sublease Premises during the Term or assign this Sublease or further sublet of the Sublease Premises other than in strict accordance with Section 9; or

          15.1.8 Subtenant fails to make any payment of Rent required to be made by Subtenant as and when the same is due and such failure continues for five (5) days after written notice from Sublandlord; or

          15.1.9 Subtenant fails to secure insurance or to provide proper evidence of insurance as set forth in Section 8 of this Sublease or fails to keep the Sublease Premises or the Building free of lien claims as set forth in Section 14 of this Sublease and either such failure continues for more than five (5) days after written notice thereof to Subtenant; or

          15.1.10 Subtenant, by its act or omission, causes an event or condition under the Master Lease which either is a default thereunder or, subject only to the delivery of any required notice or passage of any cure or grace period, would constitute a default thereunder; or

          15.1.11 Subtenant fails to fulfill, keep, observe or perform any of the other covenants and obligations herein contained to be fulfilled, kept, observed and performed by Subtenant, and such failure continues for more than twenty (20) days after notice thereof in writing to Subtenant.

     15.2 Upon the occurrence of any one or more Defaults, Sublandlord may exercise any remedy against, and recover such amounts from, Subtenant as Master Landlord may exercise or be entitled to for default by Tenant under the Master Lease, which provisions of the Master Lease are hereby incorporated herein by reference. Without limiting the generality of the foregoing, Sublandlord may exercise the damage remedies available under California Civil Code Sections 1951.2 and 1951.4 or any similar or successor statute which provides that a lessor may continue a lease in effect and recover damages as they become due.

16. PROVISIONS REGARDING MASTER LEASE.

     16.1 This Sublease and all rights of the parties hereunder are subject and subordinate to the Master Lease. The parties hereby acknowledge, each to the other, that it is not practical in this Sublease to enumerate all of the rights and obligations of the

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various parties under the Master Lease and specifically to allocate those rights and obligations in this Sublease. Accordingly, in order to afford to Subtenant the benefits of this Sublease and of those provisions of the Master Lease which by their nature are intended to benefit the party in possession of the Sublease Premises, and in order to protect Sublandlord against a Default by Subtenant which might cause a default by Sublandlord under the Master Lease, Sublandlord and Subtenant covenant and agree as set forth in this Article 16.

     16.2 Except as expressly set forth in this Sublease to the contrary or modified herein, or otherwise excluded, the provisions of the Master Lease are hereby expressly incorporated into this Sublease with the term “Sublandlord” substituted for Landlord, the term “Subtenant” substituted for Tenant and the term “Sublease substituted for Lease and the term “Sublease Premises” substituted for “Premises”. Notwithstanding the foregoing, Sublandlord and Subtenant agree that Sublandlord shall not be responsible or liable to Subtenant for the performance or nonperformance of any obligations of Master Landlord under the Master Lease, including, without limitation, providing any insurance, performing any services, providing any utilities or other similar services, performing any maintenance or making any improvements or repairs, compliance with any laws with respect to the Sublease Premises and/or taking any other action relating to the operation, maintenance, repair, alteration or servicing of the Sublease Premises that Master Landlord may have agreed to provide, furnish, make, comply with, or take, or cause to be provided, furnished, made, complied with or taken under the Master Lease.

     16.3 Except as otherwise expressly provided in this Sublease, Subtenant shall perform all affirmative covenants and shall refrain from performing any act which is prohibited by the negative covenants of the Master Lease, where the obligation to perform or refrain from performing is by its nature imposed upon the party in possession of the Sublease Premises. If practicable, Subtenant shall perform affirmative covenants which are also covenants of Sublandlord under the Master Lease (including, without limitation, providing any notices) at least five (5) days prior to the date when Sublandlord’s performance is required under the Master Lease. Subject to Section 2.3 above, Sublandlord shall have the right to enter the Sublease Premises to cure any Default by Subtenant under this Section.

     16.4 It is expressly agreed that: (a) if the Master Lease should terminate prior to the Expiration Date of this Sublease, Sublandlord shall have no liability to Subtenant, except as expressly set forth herein; and (b) to the extent the Master Lease grants Sublandlord any discretionary right to terminate the Master Lease, whether due to casualty, condemnation, by election by Sublandlord or otherwise, Sublandlord shall be entitled to exercise or not exercise such right in its sole and absolute discretion and without liability to Subtenant. Notwithstanding the foregoing, if the Master Lease should terminate as a result of a voluntary termination of the Master Lease by Sublandlord, Sublandlord shall, upon written request by Subtenant, execute a quitclaim bill of sale to Subtenant for consideration of $1.00 from Subtenant for the Furniture, without representation or warranty as to title, condition, or suitability or fitness for Subtenant’s use. In the event of such voluntary termination by Sublandlord, Sublandlord shall give Subtenant not less than thirty (30) days’ prior written notice of such termination and

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Sublandlord shall use commercially reasonable efforts to obtain an nondisturbance agreement or a direct lease between Master Landlord and Subtenant for a term that is of the same duration as the then remaining Term. In the event Master Landlord agrees to enter into a nondisturbance agreement or a direct lease with Subtenant, then until the Expiration Date set forth in Section 1.6, Sublandlord shall be obligated to pay to Master Landlord the difference, calculated on a monthly basis, between the Base Rent payable under this Sublease and the base rent payable under the direct lease between Master Landlord and Subtenant (the “Base Rent Differential”), which Base Rent Differential shall be agreed upon in writing between Master Landlord and Sublandlord. Subtenant hereby acknowledges and agrees that (i) Sublandlord shall have no obligation to pay any Base Rent Differential beyond the Expiration Date set forth in Section 1.6 and (ii) Sublandlord shall have no liability to Subtenant in the event that, despite Sublandlord’s commercially reasonable efforts, Master Landlord is unwilling to enter into a nondisturbance agreement or a direct lease with Subtenant. Notwithstanding the foregoing, to the extent the Master Lease grants Sublandlord a discretionary right to terminate the Master Lease as a result of casualty, condemnation or a default by Master Landlord under the Master Lease, Sublandlord shall be entitled to exercise or not exercise such right in its sole and absolute discretion without any liability to Subtenant and without any obligation to pay any Base Rent Differential described above.

     16.5 Any non-liability, release, indemnity or hold harmless provision in the Master Lease for the benefit of Master Landlord shall be deemed to apply under this Sublease and inure to the benefit of both Sublandlord and Master Landlord.

     16.6 If Subtenant desires to take any action which requires the consent of Master Landlord under the terms of the Master Lease, then, notwithstanding anything to the contrary herein: (a) Sublandlord, independently, shall have the same rights of approval or disapproval as Master Landlord has under the Master Lease; (b) Subtenant shall not take any such action until it obtains the consent of both Sublandlord and Master Landlord; and (c) Subtenant shall request that Sublandlord obtain Master Landlord’s consent on Subtenant’s behalf and Sublandlord shall use commercially reasonable efforts to obtain such consent. Subtenant shall pay all costs reasonably incurred by Sublandlord in seeking or procuring Master Landlord’s consent. Any approval or consent required of Sublandlord conclusively shall be deemed reasonably withheld if approval or consent also is required of the Master Landlord, and Master Landlord fails to give Master Landlord’s approval or consent.

     16.7 Subtenant shall protect, defend, indemnify and hold harmless Sublandlord from any and all liability, damages, liabilities, claims, proceedings, actions, demands and costs (including reasonable attorneys’ fees) resulting, directly or indirectly, from Subtenant’s Default under this Sublease.

     16.8 Notwithstanding anything to the contrary contained herein, the following provisions of the Master Lease shall not apply to the benefit of Subtenant and are excluded from this Sublease: Sections 1 (Premises), 2 (Possession and Lease Commencement), 3 (Term), 8.B(5) (Self-Insurance; Deductibles), 8.D (Landlord’s Indemnification), 19 (Security Deposit), Section 21A(3) (Permitted Transfer), 39.A (Base Rent), 39.B (Option

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to Renew), 39C (One-Time Option to Expand), 39.D (Right of First Opportunity), 39.E (One-Time Decrease of Initial Premises) 39.G (Signage), 39.H (Letter of Credit), 39.I (BOMA Method of Measurement), 39.K (Early Access) and Exhibit C of the Original Lease; Sections 1(c), 2 (Rent), 3 (Security Deposit), 5 (Tenant Improvements), 6 (Early Access), 7 (Assignment and Subletting), 8 (BOMA Method of Measurement), and 10 (Security System) of the First Amendment; the entire Second Amendment, other than Section 4 thereof; and Sections II (Base Rent), IV (Representation) and V (Other Pertinent Provisions) of the Third Amendment.

     16.9 Sublandlord agrees, upon prior written request of Subtenant, to (a) notify Master Landlord if Master Landlord has failed to perform any of its obligations with respect to the Sublease Premises pursuant to the terms of the Master Lease, and (b) use commercially reasonable efforts, at Subtenant’s sole cost and expense, to cause Master Landlord to provide, furnish, or comply with any of Master Landlord’s obligations under the Master Lease (provided, however, that Sublandlord shall not be obligated to use such efforts or take any action which, in Sublandlord’s judgment, might give rise to a default by Sublandlord under the Master Lease or which require Sublandlord to institute legal proceedings against Master Landlord). Sublandlord shall use commercially reasonable efforts to perform its obligations under the Master Lease pursuant to the terms of the Master Lease.

17. MASTER LANDLORD’S CONSENT.

     17.1 This Sublease and the obligations of the parties hereunder are expressly conditioned upon Sublandlord’s obtaining the prior written consent hereto by Master Landlord. Subtenant shall promptly deliver to Sublandlord any non-confidential information reasonably requested by Master Landlord with respect to the nature and operation of Subtenant’s business and/or the financial condition of Subtenant.

     17.2 Sublandlord and Subtenant hereby agree, for the benefit of Master Landlord, that this Sublease and Master Landlord’s consent hereto shall not (a) create privity of contract between Master Landlord and Subtenant; (b) be deemed to have amended the Master Lease in any regard (unless Master Landlord shall have expressly agreed writing to such amendment); or (c) be construed as a waiver of Master Landlord’s right to consent to any assignment of the Master Lease by Sublandlord or any further subletting of the Sublease Premises, or as a waiver of Master Landlord’s right to consent to any assignment by Subtenant of this Sublease or any subletting of the Sublease Premises or any part thereof.

18. NOTICES.

     18.1 All notices which may or are required to be given by either party to the other shall be in writing and shall be deemed given when received or refused if personally delivered, or if sent by United States registered or certified mail, postage prepaid, return receipt requested, or if sent by a nationally recognized overnight commercial courier service providing receipted delivery, in any such case (a) if to Subtenant, addressed to Subtenant at the address specified in Section 1.10 or at such other place as Subtenant may

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from time to time designate by notice in writing to Sublandlord or (b) if for Sublandlord, addressed to Sublandlord at the address specified in Section 1.11 or at such other place as Sublandlord may from time to time designate by notice in writing to Subtenant. Each party agrees promptly to deliver to the other party a copy of any notice, demand, request, consent or approval received from Master Landlord.

     18.2 Any notice delivered by Sublandlord in connection with, or as a precondition to, a Default by Subtenant shall be in lieu of and not in addition to any notice to pay rent or notice to perform covenant required under law.

19. MISCELLANEOUS.

     19.1 Each party warrants to the other that it has had no dealings with any broker or agent in connection with this Sublease, except those Brokers specified in Section 1.14 above. Each party covenants to protect, defend, indemnify and hold harmless the other party from and against any and all costs (including reasonable attorneys’ fees), expense or liability for any compensation, commission and charges claimed by any broker or other agent, other than the Brokers, with respect to this Sublease or the negotiation thereof on behalf of such indemnifying party. Sublandlord shall pay any commissions or fees owing to Brokers with respect to this Sublease to Jones Lang LaSalle pursuant to the terms of a separate written agreement.

     19.2 Sublandlord shall not be responsible for providing any security to the Sublease Premises.

     19.3 In the event that any action is brought by either party to enforce the terms of this Sublease, the prevailing party shall be entitled to reasonable attorneys’ fees and costs.

     19.4 This Sublease is the entire agreement between the parties regarding its subject matter and supersedes any prior oral or written agreements among them regarding the subject matter contained herein.

     19.5 No waiver of any provision of this Sublease or consent to any action shall constitute a waiver of any other provision of this Sublease or consent to any other action. No waiver or consent shall constitute a continuing waiver or consent, or commit a party to provide a future waiver, unless such provision is expressly set forth in writing. Any waiver given by a party shall be void if the party requesting such waiver has not provided a full and complete disclosure of all material facts relevant to the waiver requested.

     19.6 The terms of this Sublease have been negotiated by the parties hereto and the language used in this Sublease shall be deemed to be the language chosen by the parties hereto to express their mutual intent. The parties acknowledge and agree that each party and its counsel have reviewed and revised this Sublease and that no rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall be employed in the interpretation of this Sublease.

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     19.7 This Sublease is subject to amendment only by a writing that makes reference to this Sublease and is signed by all parties hereto.

     19.8 This Sublease may be executed in counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same instrument.

     19.9 Sublandlord shall provide and cause to be installed at Sublandlord’s sole cost and expense, subject to any approval rights of Master Landlord pursuant to the Master Lease, the initial listing of Subtenant’s name in the Building directory and at the entry to the Sublease Premises. Such signage shall consist of Building standard materials and shall comply with current Building specifications.

     19.10 Sublandlord shall, within ten (10) business days after receipt of a written request from Subtenant but not more often than twice during the Term, execute and deliver a commercially reasonable estoppel certificate to Subtenant providing a certification as to the status of this Sublease, the existence of any defaults by Subtenant hereunder, and the amount of Rent that is due and payable hereunder.

     19.11 Sublandlord hereby represents and warrants to Subtenant that (a) the Master Lease is in full force and effect, (b) each individual executing this Sublease on behalf of Subtenant is authorized to do so on behalf of Subtenant and (c) to Sublandlord’s actual knowledge, (i) there exists no default on the part of Sublandlord or Master Landlord under the Master Lease and (ii) there exists no event which, with notice and/or the passage of time would constitute and event of default under the Master Lease. For purposes of this Section, “Sublandlord’s actual knowledge” shall be deemed to mean and limited to the current actual knowledge of Linda Jansen, Vice President, Facilities and Real Estate, at the time of execution of this Sublease and not any implied, imputed, or constructive knowledge of said individual or of Sublandlord or any parties related to or comprising Sublandlord and without any independent investigation or inquiry having been made or any implied duty to investigate or make any inquiries; it being understood and agreed that such individual shall have no personal liability in any manner whatsoever hereunder or otherwise related to the transactions contemplated hereby.

[SIGNATURE PAGE FOLLOWS]

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     IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease on the dates set forth below, intending to be bound hereby.

SUBLANDLORD:

SIEBEL SYSTEMS, INC.,
a Delaware corporation

By:	/s/ Jeffrey T. Amann
Name:	Jeffrey T. Amann
Its:	Senior Vice President and General Counsel
Date:	8/5/04

SUBTENANT:

ONYX PHARMACEUTICALS, INC.,
a Delaware corporation

By:	/s/ Hollings C. Renton
Name:	Hollings C. Renton
Its:	Chairman and CEO
Date:	August 3, 2004

EX-31.1

ONYX PHARMACEUTICALS, INC.

CERTIFICATION

Exhibit 31.1

     I, Hollings C. Renton, Chairman of the Board, President and Chief Executive Officer of Onyx Pharmaceuticals, Inc., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Onyx Pharmaceuticals, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	[Reserved;]
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 8, 2004

/s/ Hollings C. Renton

Hollings C. Renton

Chairman of the Board, President and Chief Executive Officer

(Principal Executive and Financial Officer)

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EX-32.1

ONYX PHARMACEUTICALS, INC.

EXHIBIT 32.1

CERTIFICATION

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), Hollings C. Renton, Chairman of the Board, President and Chief Executive Officer of Onyx Pharmaceuticals, Inc. (the “Company”), hereby certifies that, to the best of his knowledge:

1.	The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2004, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and
2.	The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Periodic Report and results of operations of the Company for the period covered by the Periodic Report.

Dated: November 8, 2004

/s/ Hollings C. Renton

Hollings C. Renton

Chairman of the Board,

President and Chief Executive Officer

(Principal Executive and Financial Officer)

A signed original of this written statement required by Rule 13(a)-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350) has been provided to Onyx Pharmaceuticals, Inc. and will be retained by Onyx Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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