10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2002.

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                                     TO                                     .

Commission File No. 0-28298

Onyx Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

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

3031 Research Drive

Richmond, California 94806

(510) 222-9700

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

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

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

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

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

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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes þ     No o

      The aggregate market value of the voting stock held by nonaffiliates of the Registrant based upon the last trade price of the common stock reported on the Nasdaq National Market on June 30, 2002 was approximately $109,738,000.

      The number of shares of common stock outstanding as of March 17, 2003 was 23,729,675.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of Onyx’s Definitive Proxy Statement filed with the Commission pursuant to Regulation 14A in connection with the 2003 Annual Meeting are incorporated herein by reference into Part III of this report.

      Certain Exhibits filed with Onyx’s Registration Statement on Form SB-2 (Registration No. 333-3176-LA), as amended, Onyx’s Registration Statement on Form S-3 (Registration No. 333-89850), Onyx’s Annual Report on Form 10-K (Commission File No. 0-28298) for the years ended December 31, 1996, December 31, 1997, December 31, 1999 and December 31, 2001, Onyx’s Quarterly Reports on Form 10-Q for the quarters ended June 30, 1996, March 31, 1997, September 30, 1997, March 31, 1999, September 30, 1999, June 30, 2000, September 30, 2000, March 31, 2001, September 30, 2001, June 30, 2002 and September 30, 2002, Onyx’s Current Report on Form 8-K filed on January 26, 1998, Onyx’s Current Report on Form 8-K filed on March 1, 2000 and Onyx’s Current Report on Form 8-K filed on February 23, 2001, are incorporated by reference into Part IV of this Report.

PART I

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

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

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

Item 1.     Business

Overview

      We are developing innovative cancer treatment products utilizing two technology platforms: 1) small molecules that inhibit the proteins involved in excess growth signaling, and 2) therapeutic viruses that selectively replicate in cells with cancer-causing genetic mutations. We are developing a novel small molecule compound, BAY 43-9006, in collaboration with Bayer Pharmaceuticals Corporation. Utilizing our proprietary virus technology, we are developing ONYX-411, a second-generation product that targets cancers with abnormal function of the retinoblastoma, RB, tumor-suppressor gene, and Armed Therapeutic Virus^TM products.

      Together with Bayer, we are conducting multiple clinical trials of BAY 43-9006, an orally available agent designed to block the inappropriate growth signals in tumor cells by inhibiting Raf kinase, an enzyme activated by Ras to induce cancer cell growth. The Ras pathway is an important cascade of chemical signals that control cell division, and abnormal activation of this pathway is believed to play an integral role in the genesis of many cancers. Phase II clinical trials of BAY 43-9006 are underway for the treatment of hepatocellular, or liver, melanoma, renal and other cancers. These trials were initiated in August 2002 based on preliminary Phase I data showing safety as well as early evidence of antitumor activity. In addition, there are eight ongoing Phase Ib clinical trials focused on studying the agent in combination with a range of standard chemotherapeutics. We are also conducting a Phase I clinical trial in Canada in patients with acute myelogenous leukemia, or AML, and myelodysplastic syndrome, or MDS. We plan to initiate the first Phase III clinical trial of BAY 43-9006 by the end of 2003. Also in our small molecule program, Warner-Lambert Company, a subsidiary of Pfizer, Inc, continues a project from our previous cell cycle discovery research program, for a cell cycle inhibitor targeting a cyclin-dependent kinase expected to enter Phase I clinical trials in late 2003 or early 2004.

      We are developing human viruses that target tumor cells with specific genetic mutations. ONYX-411 is a human virus genetically engineered to selectively replicate in and kill cancer cells based on mutations or loss of function of the retinoblastoma, or RB, tumor suppressor gene. We have shown that ONYX-411 has anticancer activity in animal models. Other preclinical studies have demonstrated its activity following systemic, or intravenous, administration. In our Armed Therapeutic Virus^TM program, we have modified ONYX-411 to express a gene that makes the prodrug-converting enzyme, Cytosine Deaminase, or CD, and have shown in preclinical testing virus replication and CD expression selectively in the tumor, and very little in normal tissues. We intend to advance ONYX-411 toward clinical trials with the goal of filing an investigational new drug, or IND, application with the U.S. Food and Drug Administration, or FDA, in 2004. We are currently seeking a corporate collaborator to support the further development of products in our therapeutic virus program.

In January 2003, we suspended clinical development of ONYX-015, a human virus that targets tumor cells functionally defective in p53, pending the outcome of ongoing collaboration discussions.

Our Product Candidates

      We are developing or co-developing the product candidates listed below:

Product/Program	Technology	Indication	Status
BAY 43-9006	Small Molecule Inhibitor of Raf Kinase	Single-agent trials for Hepatocellular, Melanoma, Renal and other cancers	Phase II
		Eight combination trials with standard chemotherapy	Phase Ib
		Single-agent trial in Acute Myelogenous Leukemia, Myelodysplastic Syndrome	Phase I
Cell Cycle Kinases	Small Molecule Inhibitor/ Cyclin- Dependent Kinase	Multiple Tumor Types	Preclinical
ONYX-411	RB-Selective Replicating Virus	Multiple Tumor Types	Preclinical
Armed Therapeutic VirusTM Products	RB-Selective Replicating Viruses Armed with Anticancer Genes	Multiple Tumor Types	Preclinical

     BAY 43-9006

      The Ras gene and its related biochemical pathway, the Ras signaling pathway, play a key role in cell proliferation. In normal cell proliferation, when the Ras signaling pathway is activated, or “on,” it sends a signal telling the cell to grow and divide. When a gene in the Ras signaling pathway is mutated, the signal may not turn “off” as it should, causing the cell to continuously reproduce itself. Raf kinase is an enzyme in the pathway that Ras activates to signal cell growth. Other kinases in this part of the growth-signaling pathway include MEK and ERK. The Ras signaling pathway gets triggered by activation of growth factor receptors as well as through mutational activation of the Ras gene. We believe that the Ras signaling pathway plays an integral role in growth of some tumor types, and that inhibiting this pathway could have an effect on tumor growth. Mutations in a Ras gene occur in approximately 30 percent of all human cancers, including 90 percent of pancreatic cancer, 50 percent of colon cancer and 30 percent of non-small cell lung cancer. One form of Raf, BRAF, is activated by mutations in two-thirds of melanomas and smaller percentages of several other cancers. BAY 43-9006 is an orally active agent designed to block inappropriate growth signaling in cancer by inhibiting Raf kinase.

      Phase I Clinical Trials. To date, we have reported on 160 patients with advanced cancers treated in Phase I clinical trials conducted in Germany, Belgium, Canada and the United States. We presented the data from these trials at several scientific meetings during 2002, including the annual meeting of the American Society of Clinical Oncology, or ASCO, and the 2002 meeting of the European Organisation for Research and Treatment of Cancer-National Cancer Institute-American Association for Cancer Research, or EORTC-NCI-AACR. The objective of the Phase I studies was to test the safety, pharmacokinetics and pharmacodynamics of BAY 43-9006 when administered orally at various dosing regimens and schedules. Treated patients had advanced cancers including colorectal, hepatocellular, renal, breast, lung, ovarian and other cancers. Toxicities were generally mild to moderate, and included skin reactions, anorexia, fatigue and diarrhea. Patients enrolled in these trials have achieved serum BAY 43-9006 levels equivalent to the levels at which antitumor activity was seen in preclinical studies. In November 2002, we reported that 27 of 114 patients with advanced malignancies who were treated with higher doses were still on BAY 43-9006 after more than six months with no disease progression or serious treatment-related adverse events. Durable partial responses were

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observed in both an hepatocellular and a renal cell cancer patient. We plan to present the final analysis of the Phase I trial data in 2003.

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

      Phase Ib and Phase II Clinical Trials in Multiple Tumor Types. Together with Bayer, we are conducting multiple Phase Ib clinical trials focused on studying BAY 43-9006 in combination with a range of standard chemotherapeutics. We plan to present initial results from the first of these trials in 2003.

      Phase II Clinical Trials in Hepatocellular, Melanoma, Renal and Other Cancers. BAY 43-9006 entered single-agent Phase II clinical trials in August 2002 for the treatment of hepatocellular, melanoma, renal and other cancers. Data from these trials will be presented at upcoming scientific meetings and will be used by Onyx and Bayer to advance BAY 43-9006 toward its first Phase III clinical trial planned later this year.

     Cell Cycle Program

      In collaboration with Warner-Lambert, we identified a number of lead compounds that modulate the activity of key enzymes that regulate the process whereby a single cell replicates itself and divides into two identical new cells, a process known as the cell cycle. Mutations in genes that regulate the cell cycle are present in a majority of human cancers. Our small molecule discovery collaboration with Warner-Lambert ended in August 2001. However, Pfizer, the parent corporation of Warner-Lambert, is currently advancing a lead candidate from that collaboration — a small molecule cell cycle inhibitor targeting a cyclin-dependent kinase — and preparing to file an IND in late 2003 or early 2004.

     ONYX-411

      We believe that the RB pathway functions abnormally in most cancers. We have engineered human viruses to selectively replicate in and kill cancer cells based on defects in the function of the RB tumor suppressor gene in these cells. When Onyx’s engineered viruses infect these cancer cells, the virus growth cycle proceeds, and the cancer cells are killed. New viruses are then released and infect neighboring cancer cells, killing those cells and perpetuating the selective-cancer killing cycle. This process continues, amplifying the therapeutic effect.

      Our RB-selective virus, ONYX-411, is dependent on the functional status of the RB pathway. Preclinical data for ONYX-411 demonstrate tumor-killing activity in human cancers growing in mice, as well as enhanced safety compared to wild-type adenoviruses. Recently, ONYX-411 has demonstrated antitumor activity in animal models, in vivo, when administered systemically. In addition, its high degree of selectivity for tumor versus normal tissues makes ONYX-411 a promising delivery vehicle for expressing therapeutic genes specifically at the tumor site. Based on these preclinical data, we are advancing ONYX-411 toward clinical trials with the goal of filing an IND application in 2004.

     Armed Therapeutic Virus™ Products

      We are also developing therapeutic viruses with an inserted gene that contributes a cancer-fighting activity to that of the virus. These Armed Therapeutic Virus^TM product candidates are designed to selectively produce and amplify the concentration of anticancer agents within the tumor. Two different types of cancer-killing genes — those that code for prodrug-converting enzymes and those that code for immune-stimulating cytokines — are being studied. A number of anticancer chemotherapeutic agents are inactive forms of drugs, or prodrugs, that are converted to their active forms by specific chemical modifications. Specific enzymes, or prodrug-converting enzymes, are known to carry out this conversion. We developed a system to arm our therapeutic viruses such as ONYX-411 with genes that produce prodrug-converting enzymes. Using this strategy, we arm the virus with a single gene that produces an enzyme that converts an inactive prodrug into a toxic anticancer chemotherapeutic drug. As the virus replicates in the tumor mass, the enzyme is produced

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locally, and when the inactive prodrug is administered to the patient, it is activated preferentially at the tumor site. We believe that arming our viruses should enable the concentrated delivery of the anticancer chemotherapeutic drug to the tumor, thereby enhancing the therapeutic effect.

      We have constructed an ONYX-411 derivative armed with the prodrug-converting enzyme CD. Preclinical studies, reported in December 2002 at the annual International Conference on Gene Therapy of Cancer, demonstrated the ability of ONYX-411 to specifically deliver anticancer gene products to tumors following systemic administration. In these experiments, the modified ONYX-411 virus, when intravenously administered, resulted in virus replication and CD expression selectively in tumors, but not in normal tissues. We are also conducting research and development of particular genes that encode cytokines that activate an immune response in the tumor. This immune response may result either from the protein expressed by the gene itself, or from activation of a gene in the infected tumor cell’s genome. We are currently collaborating with Sangamo BioSciences, Inc. to develop novel cancer therapies using our therapeutic virus technology and Sangamo’s zinc finger DNA-binding transcription factor, or ZFP TF, technology. This effort is focused on developing a therapeutic virus armed with a ZFP TF that will enable the virus to induce expression of granulocyte macrophage colony-stimulating factor, or GM-CSF. The program’s goal is to induce a systemic antitumor immune response that will enhance the tumor-killing power of the virus.

     Inflammation Program

      In collaboration with Warner-Lambert, we identified a small molecule lead compound that inhibits an enzyme associated with inflammatory diseases. This collaboration ended in August 2001, and no further work is being done.

Status of ONYX-015

      ONYX-015 is a human virus that is genetically engineered to replicate only in cancer cells with abnormalities in p53 tumor suppressor gene function. In January 2003, we suspended clinical development of ONYX-015, pending the outcome of ongoing collaboration discussions. This decision was part of a business realignment that placed an increased priority on the development of BAY 43-9006. As a result, we halted Phase II and Phase III clinical studies of ONYX-015 for head and neck cancer, canceled plans to initiate a Phase II trial in metastatic colorectal cancer, put all manufacturing activity on hold, and reduced staff by approximately 25 percent. These steps were taken to reduce our ongoing burn rate and enhance our ability to meet our commitment to co-fund and co-develop BAY 43-9006 with Bayer.

     Status of Collaboration

      In September 2002, we cleared the way to seek a new collaborator for our therapeutic virus program when we reacquired all rights to ONYX-015 and an Armed Therapeutic Virus^TM product from Warner-Lambert. Our collaboration with Warner-Lambert began in September 1999 and was amended in August 2001. Although Warner-Lambert reserved certain rights to ONYX-015 intravenous administration at the time of the August 2001 amendment, Onyx had assumed all financial and development responsibility for the product. Therefore, our reacquisition of the remaining rights did not significantly affect our development expenses, nor did it include any future financial obligations to Warner-Lambert.

     Manufacturing Update

      In January 2001, we entered into a process development and manufacturing agreement for ONYX-015 with XOMA (US) LLC. The agreement called for XOMA to develop a large-scale production process for ONYX-015, produce clinical supplies, prepare the manufacturing facility for FDA review, and provide commercial supplies to us. Together with XOMA, we were able to scale up the manufacturing process 10-fold by late 2002. We met another key milestone in October 2002, when the FDA approved our amendment to the

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Chemistry, Manufacturing and Controls, or CMC, section of our IND application for ONYX-015, allowing us to use product manufactured at XOMA at a larger scale. With the suspension of ONYX-015 development in January 2003, we put all further scale-up activities on hold and are paying XOMA a facility fee to reserve manufacturing space and capabilities, pending the outcome of our current collaboration discussions.

     Status of Clinical Trials

      As of January 2003, clinical trials for ONYX-015 were halted, including all trials of ONYX-015 in head and neck cancer. In addition, we canceled plans to begin a Phase II trial in metastatic colorectal cancer. Currently, we have one ongoing clinical trial, which is focused on evaluating ONYX-015 in combination with Rituxan^TM. This study aims to determine whether Rituxan can inhibit the production of circulating antibodies that would neutralize the therapeutic virus, thus facilitating the systemic administration of adenoviruses in general. The results of this trial could prove useful to the development of Onyx’s entire portfolio of therapeutic viruses.

      Prior to our suspension of the program, more than 300 patients had received ONYX-015 in clinical trials for a variety of cancers. In earlier Phase II studies in head and neck cancer patients, ONYX-015 combined with chemotherapy produced what we believe are encouraging results. Early anecdotal signs of activity were also demonstrated in a Phase I/ II study of ONYX-015 plus chemotherapy in which ONYX-015 was administered through an artery leading to the liver in patients with liver metastases of colorectal cancer. Some patients receiving the highest dose experienced extended survival time compared with patients receiving lower doses, and signs of tumor shrinkage were seen in a few patients who had failed several regimens of chemotherapy. In addition, results from a Phase I/ II trial showed that some patients with oral leukoplakia, a premalignant growth in the oral cavity, had improvement in their lesions when ONYX-015 was administered as a mouthwash.

Business Strategy

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

      Elements of our strategy are to:

•  Develop and obtain regulatory and marketing approvals for BAY 43-9006 in various cancer indications. Together with Bayer, we are committed to developing this novel small molecule drug in multiple tumor indications. We and Bayer are conducting single-agent Phase II clinical trials and intend to initiate the first Phase III clinical trial in 2003. In addition, we have multiple Phase Ib clinical trials in various cancer indications using BAY 43-9006 in combination with widely used chemotherapeutic agents.

•  Develop ONYX-411 for the treatment of multiple tumor types. We are currently focused on completing preclinical testing of ONYX-411. We are advancing ONYX-411 toward clinical trials, with the goal of filing an IND in 2004.

•  Identify and develop Armed Therapeutic Virus™ products. We are developing Armed Therapeutic Virus products that incorporate prodrug-converting enzymes to selectively activate chemotherapeutic drugs at the tumor site and Armed Therapeutic Viruses incorporating cytokines.

•  Establish strategic product collaboration(s) for our therapeutic virus products. We believe that our therapeutic virus platform offers an opportunity to generate multiple development product candidates. We intend to establish strategic relationship(s) to reduce our ongoing burn rate and to ensure that product opportunities are fully maximized.

•  Retain substantial co-promotion rights to our products. We intend to build sales and marketing capabilities to promote our products in the United States. Our collaboration with Bayer offers us co-

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development, co-promotion and profit-sharing rights in the United States for BAY 43-9006. In new collaborations for the therapeutic virus products, we seek to retain co-promotion rights in the United States.

Collaborations

     Bayer

      Effective February 1994, we established a research and development collaboration agreement with Bayer to discover, develop and market compounds that inhibit the function, or modulate the activity, of the Ras signaling pathway or that appropriately modulate the activity of this pathway to treat cancer and other diseases. Bayer and we concluded collaborative research under this agreement in 1999, and based on this research, a development candidate, BAY 43-9006, was identified. This compound inhibits Ras signaling in cells by inhibiting Raf kinase. In our Raf kinase inhibitor program, Phase II clinical trials are underway in hepatocellular, melanoma, renal and other cancers, along with a Phase I trial in AML and MDS. Together with Bayer, we have also initiated multiple Phase Ib trials in various cancer indications evaluating BAY 43-9006 in combination with chemotherapeutic agents. With Bayer, we plan to begin the first Phase III clinical trial of BAY 43-9006 by the end of 2003. In 2002, we jointly reported on 160 patients treated in Phase I clinical trials in Germany, the United States, Canada and Belgium, and we plan to present the final analysis of the Phase I trial data in 2003.

      Bayer has paid all the costs of research and preclinical development of BAY 43-9006. Under our agreement with Bayer, we are currently co-funding 50 percent of mutually agreed clinical development costs worldwide, excluding Japan. Bayer will fund 100 percent of development costs in Japan and pay us a royalty on sales. If we continue to co-fund and we exercise our right to co-promote in the United States, we would share equally in profits or losses in this territory. If we continue to co-fund but do not co-promote in the United States, Bayer would first receive a portion of the product revenues to repay Bayer for its commercialization infrastructure, before determining our share of profits and losses. In other parts of the world except Japan, Bayer would also receive this preferential distribution.

      In addition, the agreement calls for creditable milestone-based payments, including $5 million received by Onyx in the third quarter of 2002 upon initiation of Phase II clinical studies. Based on our continued co-funding of development costs, Bayer will pay us $15 million upon initiation of Phase III studies, planned by the end of 2003. These amounts will be repayable to Bayer from any of our future profits and royalties. At any time during product development, either company may terminate its participation in development costs, in which case the other party would retain exclusive rights to the product on a royalty-bearing basis. If we do not continue to bear 50 percent of product development costs, Bayer would retain exclusive, worldwide rights to this product candidate and would pay royalties to us on net sales.

      In addition to the development candidate referred to above, Bayer’s chemists have optimized an additional lead compound identified in the course of the collaborative research. This continuing work has resulted in the identification of an inhibitor of Rho kinase. Rho kinase is also believed to be involved in the Ras signaling pathway leading to tumor growth. Bayer has asserted that we have no economic interest in this compound. Onyx believes otherwise. We are currently seeking to resolve the existing disagreement.

     Warner-Lambert: Cell Cycle

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

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compound, an inhibitor of a cyclin-dependent kinase, and is preparing to file an IND in late 2003 or early 2004.

     Warner Lambert: Inflammation

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

     Warner-Lambert: ONYX-015 and Armed Therapeutic Viruses™

      Effective September 1999, we entered into an agreement with Warner-Lambert for the purpose of developing and commercializing ONYX-015 and two armed therapeutic viruses. In September 2002, we terminated our agreement with Warner-Lambert and regained full rights to ONYX-015 and a CD-armed virus product. We have no further obligations to Warner-Lambert under this agreement, and Warner-Lambert has no further rights.

     Chiron Corporation

      Our business began in April 1992 by means of the transfer from Chiron to us of the drug discovery program being conducted at Chiron by Dr. Frank McCormick, our scientific founder, and his research team. Under an agreement between Chiron and us, Chiron has an option through April 2007 to receive an exclusive or co-exclusive royalty-bearing license to any diagnostic and vaccine product candidates we may develop. If Chiron does not exercise its option rights with respect to a particular product candidate, then prior to the completion of Phase II clinical trials, we may seek a third party licensor of that product, subject to a right of first refusal in favor of Chiron, and after the completion of Phase II clinical trials for product candidates, the related option rights of Chiron expire. Chiron has never exercised any right to receive a product license from us. We executed the agreement with Warner-Lambert concerning ONYX-015 and ONYX-015 armed viruses pursuant to a waiver letter from Chiron. In addition, we recently received a waiver letter from Chiron covering our RB-selective therapeutic viruses, including ONYX-411, and RB-selective Armed Therapeutic Virus^TM products. This agreement also includes a mechanism for our making proposals to Chiron for future collaborations. In these proposals, we would disclose to Chiron the material information known to us regarding the program and propose a set of commercial terms. If a proposal is made, and we and Chiron do not reach agreement within 60 days after we make the proposal, then we may, within 120 days thereafter, enter into an agreement with a third party on terms no more favorable, taken as a whole, than the terms that we offered to Chiron.

Marketing and Sales

      We currently have no marketing, sales or distribution capabilities, but we intend to build these capabilities to promote our products in the United States. We have retained co-promotion rights to BAY 43-9006 in the United States. We also expect to exploit relationships with one or more pharmaceutical companies with established marketing, sales and distribution capabilities and direct sales forces to market our products. We may be unable to negotiate co-promotion rights in the United States or may not establish in-house marketing, sales and distribution capabilities or relationships with third parties, and may not be successful in gaining market acceptance for our products.

Manufacturing

      In our collaborations in small molecule drug discovery, Bayer and Warner-Lambert are obligated to manufacture all small molecule drugs for clinical development and commercialization. At this time, we do not have internal manufacturing capabilities to supply small or large-scale clinical trials or commercial quantities of our therapeutic virus products. To manufacture our products for clinical trials or on a commercial scale, if

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we are required to or choose to do so, we will have to build or gain access to a manufacturing facility, which will require significant funds.

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

      In January 2001, we entered into a process development and manufacturing agreement with XOMA to provide us with clinical and commercial supplies of ONYX-015. The agreement called for XOMA to develop a large-scale production process for ONYX-015, produce clinical supplies, prepare the manufacturing facility for FDA review and provide commercial supplies to us. Together with XOMA, we were able to develop a process for the large-scale production of ONYX-015. In fall 2002, we completed the 10-fold scale up and demonstrated consistency in the larger-scale process. Our CMC amendment was approved by the FDA in October 2002. When we suspended development of ONYX-015 in January 2003, we put all further scale-up and manufacturing activities on hold, and are paying XOMA a facility fee to reserve manufacturing space and capabilities, pending the outcome of our current collaboration discussions. XOMA may terminate the agreement with 48 months’ notice for any reason.

Patents and Proprietary Rights

      We believe that patent and trade secret protection is crucial to our business and that our future will depend in part on our ability to obtain patents, maintain trade secret protection and operate without infringing the proprietary rights of others, both in the United States and other countries. In October 1997, we were awarded United States Patent No. 5,677,178 for claims covering the use of ONYX-015 for the treatment of functionally p53-deficient cancers. In April 1999, we were awarded European Patent No. 689,447, for claims covering the use of ONYX-015 for the treatment of functionally p53-deficient cancers. We were also awarded United States Patent No. 5,801,029, a broad methods of use patent, for claims covering the use of adenoviral mutants that kill functionally RB-deficient tumor cells and the corresponding European Patent No. 931830. Each of these patents includes claims covering armed viruses with anticancer genes. Further, we have made additional filings worldwide that claim adenoviruses that can be used to kill functionally deficient p53 or RB cancer cells, with or without a prodrug-converting enzyme. We were also awarded United States Patent No. 5,846,945, for claims covering compositions of matter that consist of ONYX-015 and a chemotherapeutic. As of December 31, 2002, we owned or had licensed rights to 47 United States patents and 46 United States patent applications, and generally, foreign counterparts of these filings. We have licensed patents and patent applications covering formulations of viruses, prodrug-converting enzymes and other technology useful in the conduct of our business.

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

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

      With respect to ONYX-015 and selectively-replicating viruses, we are aware of a patent application filed in the United States, Europe, Japan and Canada by General Hospital Corporation, an affiliate of Massachusetts General Hospital. This patent application is related to research involving a modified herpes simplex virus but it also includes broader claims that, if they were to issue, would cover ONYX-015 and other selectively-replicating viruses. We believe, and have received an opinion from outside counsel to the effect, that such broad claims made in the General Hospital patent application are not patentable. Consistent with this opinion is a review of the European patent status of the General Hospital patent application, which shows that it recently granted, and that the claims are restricted to herpes virus. Similarly, the Japanese patent examiner is requiring that General Hospital limit the claims to herpes viruses. However, General Hospital may receive broad claims in one or more countries, and we may not successfully challenge these claims. We may not obtain a license if this patent were to issue.

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

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

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

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

      Together with our licensors, we also rely on trade secrets to protect our combined technology; especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We protect our proprietary technology and processes, in part, by confidentiality agreements with our

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employees, consultants and collaborators. These parties may breach these agreements, and we may not have adequate remedies for any breach. Our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that we or our consultants or research collaborators use intellectual property owned by others in their work for us, we may have disputes with them or other third-parties as to the rights in related or resulting know-how and inventions.

Government Regulation

      Regulation by government authorities in the United States and other countries will be a significant factor in the manufacturing and marketing of any products that may be discovered or developed by us, or that may arise out of our research. We must obtain the requisite regulatory approvals by government agencies prior to commercialization of our products. We anticipate that our products will be subject to rigorous preclinical and clinical testing and premarket approval procedures by the FDA and similar health authorities in foreign countries. Various federal statutes and regulations also govern or influence the manufacturing, testing, labeling, storage, record keeping, marketing and promotion of such products.

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

•  preclinical studies;

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

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

•  the submission of a marketing application to the FDA; and

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

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

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

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

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

•  manufacture of the product;

•  testing;

•  quality assurance;

•  packaging;

•  storage;

•  documentation;

•  recordkeeping;

•  labeling;

•  advertising; and

•  marketing procedures.

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

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

•  warning letters;

•  civil penalties;

•  criminal prosecution;

•  injunctions;

•  seizure or recall of products;

•  total or partial suspension of production;

•  refusal of the government to grant approval; or

•  withdrawal of approval of our products.

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

•  the Occupational Safety and Health Act;

•  the National Environmental Policy Act;

•  the Toxic Substances Control Act;

•  the Resource Conservation and Recovery Act; and

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

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

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

Competition

      We are engaged in a rapidly changing and highly competitive field. Other products and therapies that currently exist or are being developed could compete or be used in combination with the products we are seeking to develop and market. Some of these competitive products are in clinical trials. Competitors that target the same tumor types as our BAY 43-9006 program in clinical development include Pfizer, Astra Zeneca PLC, OSI Pharmaceuticals, Inc., Genentech, Inc., and Abgenix, among others. Pfizer is conducting Phase II clinical trials with a small molecule targeting MEK kinase, an enzyme that is also involved in the Ras signaling pathway. 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 and Astra Zeneca are developing small molecule inhibitors of EGF receptor tyrosine kinase. These products, IRESSA™ and Tarceva™ are currently in Phase III clinical trials. IRESSA has been approved for commercial sale in Japan for non-small cell lung cancer. Companies working on developing antibody approaches include ImClone Systems, Inc. and Abgenix with antibodies targeting EGF receptors, and Genentech with an antibody targeting VEGF receptors. 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.

      There are many cancer gene therapy clinical trials, some of which are evaluating agents that may be competitive to our therapeutic viruses. One example is Advexin, or Adeno-p53, from Introgen Therapeutics, Inc. There are also other oncolytic viruses that may be competitive with our therapeutic viruses. One of these is Cell Genesys, Inc.’s oncolytic virus, CG7870, which is in Phase I/ II trials for prostate cancer patients with localized, recurrent disease.

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

•  product efficacy and safety;

•  the timing and scope of regulatory approvals;

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•  availability of supply;

•  marketing and sales capability;

•  reimbursement coverage;

•  price; and

•  patent position.

Employees

      As of December 31, 2002, we had 89 full-time employees of whom 20 hold Ph.D. or M.D. degrees. Of our employees, 64 are in research and development, and 25 are in corporate development, finance and administration. No employee of ours is represented by a labor union, and we consider our employee relations to be good. In January 2003, a staff reduction of approximately 25 percent was implemented as part of a corporate restructuring that involved suspending the development of ONYX-015, pending the outcome of collaboration discussions.

Item 2.     Properties

      We occupy a total of approximately 50,000 square feet of office and laboratory space in our primary facility in Richmond, California. The lease expires in April 2005 with an option to extend the lease for an additional five years.

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

Item 3.     Legal Proceedings

      We are not a party to any material legal proceedings.

Available Information

      We were incorporated in California in February 1992 and re-incorporated in Delaware in May 1996.

      We maintain a site on the worldwide web at www.onyx-pharm.com; however, information found on our website is not incorporated by reference into this report. We make available free of charge on or through our website our SEC filings, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

      In 2003, we intend to adopt a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions. We intend to post the text of our code of ethics on our website at www.onyx-pharm.com in connection with “Investor” materials. In addition, we intend to promptly disclose (1) the nature of any amendment to our code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified officers, the name of such person who is granted the waiver and the date of the waiver on our website in the future.

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ADDITIONAL BUSINESS RISKS

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

We intend to proceed to Phase III clinical trials with BAY 43-9006, which will be expensive and may fail to demonstrate the safety and effectiveness of this product candidate; without successful results from a Phase III clinical trial, we will be unable to commercialize BAY 43-9006, which will seriously harm our business.

      In collaboration with Bayer Pharmaceuticals Corporation, we are conducting multiple clinical trials of BAY 43-9006, which is an orally active small molecule Raf kinase inhibitor. We are currently conducting a number of Phase I clinical trials of BAY 43-9006 in combination with standard chemotherapeutic agents. Phase I trials are not designed to test the efficacy of a treatment candidate but rather to test the safety, pharmacokinetics and pharmacodynamics, and to understand the treatment candidate’s side effects at various dosing regimens and schedules.

      With Bayer, we are currently conducting single agent, open label Phase II clinical trials of BAY 43-9006 in liver, melanoma, renal and other cancers. Phase II trials are designed to explore the efficacy of a drug in several different types of cancers. We plan to initiate a Phase III clinical trial later this year. We believe that any clinical trial designed to test the efficacy of BAY 43-9006, whether Phase II or Phase III, will probably involve a large number of patients to achieve statistical significance and will be expensive. Therefore, we are planning to proceed directly to at least one Phase III clinical trial of BAY 43-9006 without randomized Phase II clinical trial data. 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 products in Phase III clinical trials notwithstanding favorable results in Phase I or Phase II clinical trials. In addition, we may observe previously unforeseen 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 will seriously harm our business.

      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.

      The process of obtaining FDA and other required regulatory approvals, including foreign approvals, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. We will not be able to market BAY 43-9006 unless we receive regulatory approval from the FDA or corresponding foreign regulatory agencies.

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

      Our strategy for developing, manufacturing and commercializing our products and obtaining regulatory approval depends in large part upon entering into and maintaining collaboration agreements with pharmaceutical companies or other collaborators. In particular, we are dependent on our relationship with Bayer related to the development and marketing of BAY 43-9006. If we are unable to maintain our collaborative relationship with Bayer and fail to establish new collaborative relationships, 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 programs we are able to pursue.

      In collaboration with Bayer, we are conducting multiple clinical trials of BAY 43-9006. We and Bayer will review results of the Phase I and the ongoing Phase II clinical trials prior to deciding follow-on Phase II and Phase III trials. We and Bayer must agree on the development plan for BAY 43-9006. If we and Bayer

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cannot agree, clinical trial progress could be significantly delayed. Bayer has paid all the costs of research and preclinical development of this drug candidate. Under our agreement with Bayer, we have the opportunity to co-fund 50 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 co-funding 50 percent of development costs, and depend on Bayer to co-fund the balance of these costs. 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. If our collaborative relationship with Bayer is terminated, we may not be able to obtain regulatory approval for BAY 43-9006 on our own. We and Bayer will not be able to market BAY 43-9006 unless we receive regulatory approval.

      Our collaboration agreement with Bayer calls for Bayer to advance us creditable milestone-based payments. Based on our continued co-funding of development costs, Bayer will advance us $15 million upon initiation of Phase III clinical trials, planned by the end of 2003. If Bayer elects to delay the initiation of Phase III clinical trials and the size and scope of Phase II clinical trials increase, our receipt of this $15 million advance will be delayed, which could cause us to suffer a funding shortfall and seriously harm our business.

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

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

•  disagreements as to development plans, including clinical trials or regulatory approvals, as well as ownership of results;

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

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

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

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

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

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

If a collaborator is involved in a business combination, or the collaborator’s business strategy changes, it may adversely affect our collaborative relationship.

      If a collaborator, particularly Bayer, is involved in a business combination, such as a merger, or is otherwise acquired, the newly combined entity may have different priorities for drug development and discovery than did the original collaborator.

      Similarly, a collaborator may change its business strategy even in the absence of a business combination. Any change in a collaborator’s business strategy may adversely affect that party’s willingness or ability to complete its obligations under its collaboration agreement with us, which could cause us to suffer significant delays and funding shortfalls, seriously harming our business.

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We do not have a collaborative relationship for development of our viral product candidates, we have suspended development of ONYX-015, including our clinical trials of ONYX-015, and may be unable to commercialize any of our viral product candidates without a new collaborative relationship.

      In September 2002, we and Warner-Lambert Company, a subsidiary of Pfizer, Inc, terminated our collaboration agreement for the development and commercialization of ONYX-015, and we regained all rights to ONYX-015 and an Armed Therapeutic Virus™ product. Since then, we have not found a new collaborative relationship for our viral programs. The costs of developing and commercializing ONYX-015 are significant, and we cannot fund the ONYX-015 program on our own. In January 2003, we announced a restructuring of our operations, halted all clinical studies of ONYX-015 for head and neck cancer, suspended all ONYX-015 manufacturing activity and reduced staff related to the ONYX-015 program. We may not find a suitable collaborator for ONYX-015 on acceptable terms, if at all. If we are unable to enter into a new collaborative agreement for ONYX-015, we will be unable to recommence the ONYX-015 project, will be unable to commercialize this product and will not realize revenue from it.

      We are also seeking collaborators for our other viral product candidates, such as ONYX-411. The costs of conducting even limited Phase I clinical trials of ONYX-411 and other viral product candidates are significant. If we are unable to find a collaborator for these viral product candidates, we will either have to forego their development, or fund their development on our own. Funding even a limited clinical trial of ONYX-411 on our own would pose a substantial drain on our financial resources.

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

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

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

•  the size and complexity of these programs;

•  our ability to establish and maintain collaboration agreements;

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

•  our receipt of milestone based payments;

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

•  progress with preclinical testing and clinical trials;

•  the time and costs involved in obtaining regulatory approvals;

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

•  competing technological and market developments; and

•  product commercialization activities.

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

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

      As of December 31, 2002, we had an accumulated deficit of approximately $158.9 million. We have incurred these losses principally from costs incurred in our research and development programs and from our general and administrative costs. We derived no significant revenues from product sales or royalties. We expect to incur significant and increasing operating losses over the next several years as we expand our

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research and development efforts, preclinical testing and clinical trial and manufacturing activities. We expect our operating losses to increase with our co-funding of ongoing BAY 43-9006 clinical trial costs under our collaboration agreement with Bayer. We expect that the amount of operating losses will fluctuate significantly from quarter to quarter as a result of increases or decreases in our research and development efforts, the establishment or termination of collaborations, the timing and amount of collaboration payments under the terms of our collaboration agreements, or the initiation, success or failure of clinical trials.

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

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

      We were established in April 1992 by means of a transfer from Chiron to us of the drug discovery program conducted at Chiron by Dr. Frank McCormick, our scientific founder, and his research team. Under the agreement executed at that time, we granted Chiron preferential rights to receive product licenses in the fields of diagnostics and vaccines, and also established a mechanism for our making proposals to Chiron for future collaborations. Chiron has advised us that it believes this mechanism requires us to offer gene therapy programs to Chiron before licensing any of these programs to a third party. We executed our agreement with Warner-Lambert for the development of ONYX-015 and two other virus products pursuant to a waiver letter from Chiron. In addition, we recently received a waiver letter from Chiron covering our RB-selective therapeutic viruses, including ONYX-411, and RB-selective Armed Therapeutic Virus^TM products. If Chiron does not grant us further waivers and asserts rights under the April 1992 agreement, or if disputes arise, we may encounter difficulties or delays in entering into future collaborations for other virus product candidates that have been armed with various genes.

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

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

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

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

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

      We lack the resources, experience and capabilities to manufacture our products on our own. We would require substantial funds to establish these capabilities. Consequently, we are dependent on third parties, including collaborative parties and contract manufacturers, to manufacture our products and product candidates. These parties may encounter difficulties in production scale-up, including problems involving production yields, quality control and quality assurance and shortage of qualified personnel. These third parties may not perform as agreed or may not continue to manufacture our products for the time required by us to successfully market our products. These third parties may fail to deliver the required quantities of our products

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or product candidates on a timely basis and at commercially reasonable prices. Failure by these third parties could delay our clinical trials and our applications for regulatory approval. If these third parties do not adequately perform, we may be forced to incur additional expenses to pay for the manufacture of our products or to develop our own manufacturing capabilities.

We have experienced problems in the past with the manufacture of ONYX-015, and currently have only a single source for its manufacture. This source may in the future be unable or unwilling to deliver the required quantities, and we may not be able to find replacement manufacturers.

      We are aware of only a limited number of manufacturers who we believe would have the ability and capacity to manufacture ONYX-015 or any other therapeutic viruses we may develop at a scale or of a quality commensurate with our clinical development needs. At the time of suspension of our ONYX-015 program, we relied on XOMA (US) LLC as the sole source for the manufacture of ONYX-015. In January 2003, we suspended ONYX-015 manufacturing operations at XOMA. If we resume the development of ONYX-015, we may not be able to resume manufacturing operations at XOMA in a timely or cost effective manner, or at all. Inability to receive sufficient supply of ONYX-015 from XOMA would delay or inhibit any resumption of our ONYX-015 clinical trials.

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

      We may enter into agreements with third parties to market and sell most of our products if we receive regulatory approval for a product. We may not be able to enter into marketing and sales agreements with others on acceptable terms, if at all. To the extent that we enter into marketing and sales agreements with other companies, our revenues, if any, will depend on the efforts of others. We also have the right under our collaboration agreement with Bayer to co-promote BAY 43-9006 in the United States in conjunction with Bayer. If we are unable to enter into third-party agreements or if we are exercising our rights to co-promote a product, then we will have to develop marketing and sales capabilities. We may not successfully establish marketing and sales capabilities or have sufficient resources to do so. If we do not develop marketing and sales capabilities, we may not meet our co-promotion obligations under our collaboration agreements, which could result in our losing these co-promotion rights.

      If we do develop such capabilities, we will compete with other companies that have experienced and well-funded marketing and sales operations and we will incur additional expenses.

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

      The loss of the services of one or more of our key employees could have an adverse impact on our business. We do not maintain key person life insurance on any of our officers, employees or consultants, other than for our chief executive officer. We depend on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We face competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities, and other research institutions. Because of the scientific nature of our business, we are highly dependent on principal members of our scientific and management staff.

      In January 2003, we restructured our operations to reflect an increased priority on the development of BAY 43-9006 and suspended the clinical development of ONYX-015. As a result, we reduced our workforce by approximately 25 percent, including 40 percent of our scientific team associated with the ONYX-015 program. If we resume the ONYX-015 program, we may need to re-hire these individuals, or hire individuals with similar skill sets. If we cannot re-hire these individuals or others with similar skill sets in a timely fashion, we may be unable to resume the ONYX-015 program.

      To pursue our other product development plans, we may need to hire additional management personnel and additional qualified scientific personnel to perform research and development, as well as personnel with

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expertise in clinical testing, government regulation and manufacturing. We may not successfully hire or retain qualified personnel.

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

      BAY 43-9006 is designed to act as a Raf inhibitor, blocking inappropriate growth signals in tumor cells by inhibiting Raf kinase, an enzyme that induces cancer cell growth. BAY 43-9006 is the first 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. The anticancer activity of BAY 43-9006 was studied using preclinical models. However, preclinical models to study anticancer activity of compounds are not necessarily predictive of clinical efficacy of these compounds in the treatment of human cancer sufficient to warrant a full commercial development program. BAY 43-9006 has also been tested in Phase I human clinical trials, but the number of patients in these trials was insufficient to draw statistically significant conclusions as to clinical efficacy of the compound. Raf inhibition, the method of action of BAY 43-9006, may ultimately fail as an effective treatment of cancer in humans. If Raf inhibition is not an effective treatment of cancer in humans, BAY 43-9006 will have no commercial value as a drug candidate, which could seriously harm our business.

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

      Therapeutic viruses are novel, and we are still determining the biological characteristics of these viruses. For example, in our clinical trials of ONYX-015, we achieved the best results when ONYX-015 was used in combination with standard chemotherapy drugs, but we are uncertain as to the reasons for and the nature of the interaction of the virus with these drugs. In addition, we are still investigating the response of the human immune system to our therapeutic viruses, and the immune system may play a role in limiting the tumor-killing effect of our therapeutic viruses. We also do not know the extent to which the human body may clear our therapeutic viruses from circulation in the bloodstream, and thereby limit the tumor-killing activity of our therapeutic viruses. Further, we are uncertain as to whether the killing activity of ONYX-015 is specific to cells having the abnormal function involving the p53 gene. Moreover, we do not understand all of the many factors that contribute to the formation of each individual patient’s cancer. These factors include not only the cancer type, but also the pressures within the tumor and the presence of normal cells and fibrous tissue within the tumor. These factors make each tumor unique. Because of the variety of factors, some cancer patients respond to a particular type of cancer therapy while others do not, even among patients with the same cancer type. The novelty and scientific uncertainties regarding our therapeutic viruses and the uniqueness of human cancers from patient to patient increase the risk that we will not successfully develop our product candidates or prove their safety and effectiveness in clinical trials. Even if we succeed in developing our product candidates, our product candidates may not have a therapeutic effect in a broad patient population.

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

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

•  rate of adoption by healthcare practitioners;

•  types of cancer for which the product is approved;

•  rate of our products’ acceptance by the target population;

•  timing of market entry relative to competitive products;

•  availability of alternative therapies;

•  price of our product relative to alternative therapies;

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•  availability of third-party reimbursement;

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

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

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

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

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

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

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

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

•  developing products;

•  undertaking preclinical testing and human clinical trials;

•  obtaining FDA and other regulatory approvals of products; and

•  manufacturing and marketing products.

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

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

      Developments by competitors may render our product candidates or technologies obsolete or noncompetitive. We face and will continue to face intense competition from other companies for collaborations with

20

pharmaceutical and biotechnology companies for establishing relationships with academic and research institutions, and for licenses to proprietary technology. These competitors, either alone or with collaborative parties, may succeed with technologies or products that are more effective than ours.

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

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

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

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

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

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

•  impose costly procedures on us or our collaborators;

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

•  adversely affect our receipt of revenues or royalties.

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

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

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

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

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

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

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

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

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

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

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

•  obtain patents;

•  license technology rights from others;

•  protect trade secrets;

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

•  prevent others from infringing on our proprietary rights.

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

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

      We may not have been the first to make the inventions covered by each of our issued or pending patent applications, or we may not have been the first to file patent applications for such inventions. Competitors may have independently developed technologies similar to ours. We may need to license the right to use third-party patents and intellectual property to develop and market our products. We may not acquire 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 sale of our products. We may face litigation to defend against claims of infringement, assert claims of infringement, enforce our patents, protect our trade secrets or know-how, or determine the scope and validity of others’ proprietary rights.

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

      Specifically, we are aware of patent applications filed in the United States and abroad that, if they were to issue, would cover ONYX-015 and other viruses that selectively replicate, including our RB-selective viruses. We are aware of patents that may affect our ability to produce and purify viruses. We are also aware of patent applications that claim enzymes for converting drugs to their active forms for treating disease, including

22

cancers, and claim methods of delivering the enzymes using a virus. We may be unable to commercialize our products affected by these patents, if any of these patents are issued and we are unable to:

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

•  design around the patent; or

•  negotiate a reasonable license under the patent.

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

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

•  decreased demand for a product;

•  injury to our reputation;

•  withdrawal of clinical trial volunteers; and

•  loss of revenues.

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

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

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

Our stock price is highly volatile.

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

•  results of clinical trials from BAY 43-9006;

•  ability to accrue patients into clinical trials;

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

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

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

•  developments in our relationship with collaborative parties;

•  developments in patent or other proprietary rights;

•  additions or departures of key personnel;

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

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•  published reports by securities analysts;

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

•  fluctuations in our operating results;

•  statements of governmental officials; and

•  changes in healthcare reimbursement policies.

Existing stockholders have significant influence over us.

      Our executive officers, directors and 5 percent stockholders own, in the aggregate, approximately 39 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.

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

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

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

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

24

	have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or
•	on or after this date, the merger or sale is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder.

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

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

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

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

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

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

•  no cumulative voting.

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

      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.

PART II

Item 5. Market for Registrant’s Common Stock and Related Stockholder Matters

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

	Common Stock
	2002				2001
	High		Low		High		Low
First Quarter	$	5.23	$	3.77	$	13.63	$	6.75
Second Quarter		8.40		4.70		11.97		5.38
Third Quarter		5.50		3.60		11.51		3.51
Fourth Quarter		7.19		3.59		5.99		3.50

      On March 17, 2003, the last reported sales price of our common stock on the Nasdaq National Market was $7.98 per share.

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Holders

      There were approximately 393 stockholders of our common stock as of March 17, 2003.

Dividends

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

Securities Authorized for Issuance Under Equity Compensation Plans

	Number of				Number of Securities
	Securities to be				Remaining Available for
	Issued Upon		Weighted-average		Future Issuance Under
	Exercise of		Exercise Price of		Equity Compensation
	Outstanding		Outstanding		Plans (excluding
	Options, Warrants		Options, Warrants		securities reflected in
Plan Category(1)	and Rights		and Rights		column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		2,749,951	$	7.57		609,257

(1)  We have no equity compensation plans not approved by security holders.

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Item 6. Selected Financial Data

Onyx Pharmaceuticals, Inc.

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

      The Statement of Operations Data for the years ended December 31, 2002, 2001 and 2000 and the Balance Sheet Data as of December 31, 2002 and 2001 have been derived from our audited financial statements included elsewhere in this report. The Statement of Operations Data for the years ended December 31, 1999 and 1998 and the Balance Sheet Data as of December 31, 2000, 1999 and 1998 have been derived from our audited financial statements that are not included in this report. Historical results are not necessarily indicative of future results. See the Notes to Financial Statements for an explanation of the method used to determine the number of shares used in computing basic and diluted net loss per share.

		Year Ended December 31,
		2002			2001			2000			1999			1998
					(In thousands, except per share data)
Statement of Operations Data:
Total revenue		$	2,715		$	15,846		$	24,180		$	13,324		$	11,314
Operating expenses:
	Research and development		43,792			39,927			26,879			23,627			25,383
	General and administrative		6,004			6,652			7,508			5,341			5,275
	Restructuring and other		—			812			—			—			—
Loss from operations			(47,081	)		(31,545	)		(10,207	)		(15,644	)		(19,344	)
Other income and expense, net			1,294			3,973			2,728			842			1,685
Net loss		$	(45,787	)	$	(27,572	)	$	(7,479	)	$	(14,802	)	$	(17,659	)
Basic and diluted net loss per share		$	(2.23	)	$	(1.50	)	$	(0.50	)	$	(1.29	)	$	(1.56	)
Shares used in computing basic and diluted net loss per share			20,535			18,385			14,896			11,503			11,289

	December 31,
	2002			2001			2000			1999			1998
				(In thousands)
Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	39,833		$	58,466		$	81,994		$	14,463		$	32,160
Total assets		46,241			65,782			88,597			21,628			37,207
Working capital		28,727			48,669			74,209			6,773			19,591
Advance from collaboration partner		5,000			—			—			—			—
Long-term debt, noncurrent portion		—			—			—			183			2,382
Accumulated deficit		(158,911	)		(113,124	)		(85,552	)		(78,073	)		(63,271	)
Total stockholders’ equity		28,784			55,085			76,896			7,662			21,619

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Overview

      We are engaged in the discovery and development of novel cancer therapies, and we have proprietary technologies that target the molecular basis of cancer. We are developing small molecule drugs, including BAY 43-9006 in co-development with Bayer Pharmaceuticals Corporation. BAY 43-9006 is an orally active agent that blocks the inappropriate growth signals in tumor cells by inhibiting Raf kinase, which is an enzyme activated by Ras to induce cancer cell growth. Together with Bayer, we initiated Phase II clinical trials of BAY 43-9006 in the second half of 2002 in patients with hepatocellular, or liver, melanoma, renal and other cancers. In addition, there are eight ongoing Phase Ib clinical trials focused on studying the agent in combination with a range of standard chemotherapeutic agents. We are also conducting a Phase I clinical trial in Canada in patients with acute myelogenous leukemia and myelodysplastic syndrome. We plan to initiate the first Phase III clinical trial of BAY 43-9006 by the end of 2003. Also in our small molecule program, Warner-Lambert Company, a subsidiary of Pfizer, Inc, continues research projects from our previously concluded cell cycle program, including a cell cycle inhibitor targeting a cyclin-dependent kinase that may enter Phase I clinical trials in late 2003 or early 2004.

      Our preclinical portfolio includes proprietary viruses and Armed Therapeutic Virus^TM products. We are developing human viruses that target tumor cells with specific genetic mutations. ONYX-411 is a human virus genetically engineered to selectively replicate in and kill cancer cells based on mutations or loss of function of the retinoblastoma, or RB, tumor suppressor gene. We have demonstrated that ONYX-411 has anticancer activity in animal models and have shown in other preclinical studies that ONYX-411 has activity following systemic, or intravenous, administration. We are advancing ONYX-411 toward clinical trials, with the goal of filing an investigational new drug, or IND, application with the U.S. Food and Drug Administration, or FDA, in 2004. We are currently seeking a corporate collaborator to support the further development of ONYX-411 and other products in our therapeutic virus program.

      In September 2002, we terminated our collaboration agreement with Warner-Lambert and regained full rights to develop and commercialize ONYX-015 and an Armed Therapeutic Virus™ product. The collaboration agreement had been amended in August 2001, and at that time we assumed all financial and development responsibility for ONYX-015. ONYX-015 is a human virus that targets tumor cells functionally defective in p53.

      In January 2003, we restructured our operations to reflect an increased priority on the development of BAY 43-9006 and suspended the development of ONYX-015, including clinical trials and manufacturing activities, pending the outcome of ongoing collaboration discussions. We also reduced staff levels by approximately 25 percent. We anticipate that we will recognize approximately $0.4 million of restructuring charges in the first quarter of 2003 primarily related to employee termination costs. We expect that the suspension of the ONYX-015 development program and the reduction in force will reduce our 2003 quarterly expenses, excluding restructuring and related one-time charges, to $9.0 million from $13.4 million in the fourth quarter of 2002.

      In February 2003, we raised gross proceeds of $10.0 million in a private placement of common stock at a price of $4.75 per share. In May 2002, we raised gross proceeds of $20.0 million in a private placement of

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common stock at a price of $6.75 per share and issued warrants to purchase 743,229 shares of our common stock at $9.59 per share.

      We have not been profitable since inception and expect to incur substantial and increasing losses for the foreseeable future, primarily due to expenses associated with the development and commercialization of BAY 43-9006. We expect that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. As of December 31, 2002, our accumulated deficit was approximately $158.9 million.

      Our business is subject to significant risks, including the risks inherent in our research and 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. We do not expect to generate revenues from the sale of proposed products in the foreseeable future. We expect that all of our revenues in the foreseeable future will be generated from collaboration agreements.

Critical Accounting Policies

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

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

•  persuasive evidence of an arrangement exists;

•  delivery has occurred or services rendered;

•  the fee is fixed or determinable; and

•  collectibility is reasonably assured.

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

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

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

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

      Research and Development Expense: In accordance with Financial Accounting Standards Board, or FASB, Statement of Financial Accounting Standards, or SFAS, No. 2, “Accounting for Research and Development Costs,” research and development costs are charged to expense when incurred. Research and development consists of costs incurred for independent and collaborative research and development activities. The major components of research and development costs include salaries and employee benefits, clinical manufacturing costs, clinical trial expenses, consulting and other third-party costs, supplies and materials, equipment depreciation and allocations of various overhead and occupancy costs. Research and development

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expenses under the collaborative research and development agreements approximated the revenue recognized under the collaboration agreements, exclusive of milestone payments and up-front license fees received.

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

Results of Operations

     Years Ended December 31, 2002, 2001 and 2000

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

		Year Ended December 31,
		2002		2001		2000
		(In millions)
Warner-Lambert:
	ONYX-015 and Armed Therapeutic Viruses	$	2.7	$	12.0	$	18.6
	Cell Cycle		—		2.2		2.5
	Inflammation		—		1.4		2.7
Bayer			—		—		0.1
	Total contract revenues		2.7		15.6		23.9
All other sources			—		0.2		0.3
	Total revenue	$	2.7	$	15.8	$	24.2

      In 2002, total revenue of $2.7 million reflected research funding for the therapeutic virus collaboration. Total revenue decreased by $13.1 million or 83 percent from 2001 to 2002. This decrease is primarily due to the termination of reimbursement for ONYX-015 development costs from Warner-Lambert as a result of the amended agreement announced in August 2001. Also in August 2001, our small molecule research collaborations concluded with Warner-Lambert, and we did not receive any further funding related to these programs after that date. In addition, based on the termination of the therapeutic virus research collaboration with Warner-Lambert in September 2002, no further funding was received for this program. Total revenue decreased by $8.3 million or 34 percent from 2000 to 2001. As mentioned above, this decrease is primarily due to the fact that we no longer received reimbursement for ONYX-015 development costs from Warner-Lambert after August 2001 and because the cell cycle and inflammation collaborations with Warner-Lambert concluded in August 2001. For fiscal year 2000, revenue also included $3.7 million received from Warner-Lambert upon the completion of a research milestone in the therapeutic virus research program. Currently, we do not expect to receive any contract revenue in 2003.

      Research and Development Expenses. Research and development consists of costs incurred for independent and collaborative research and development. Below are a summary of products and the related stages of development for each product in clinical development. The major components of research and development costs include salaries and employee benefits, clinical manufacturing costs, clinical trial expenses, consulting and other third-party costs, supplies and materials, equipment depreciation and allocations of various overhead and occupancy costs. The scope and magnitude of future research and development expenses are difficult to predict at this time given the number of studies that will need to be conducted for any of our potential products. In general, biopharmaceutical development involves a series of steps beginning with

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identification of a potential target and includes proof of concept in animals and Phase I, II and III clinical studies in humans, each of which is typically more expensive than the previous step. Success in development results in increasing expenditures, and the timing for completion of these steps may be uncertain.

Product/Program	Technology	Indication	Status
BAY 43-9006	Small Molecule Inhibitor of Raf Kinase	Single-agent trials for Hepatocellular, Melanoma, Renal and other cancers	Phase II
		Eight combination trials with standard chemotherapy	Phase Ib
		Single-agent trial in Acute Myelogenous Leukemia, Myelodysplastic Syndrome	Phase I
Cell Cycle Kinases	Small Molecule Inhibitor/ Cyclin- Dependent Kinase	Multiple Tumor Types	Preclinical
ONYX-411	RB-Selective Replicating Virus	Multiple Tumor Types	Preclinical
Armed Therapeutic VirusTM Products	RB-Selective Replicating Viruses Armed with Anticancer Genes	Multiple Tumor Types	Preclinical

      Research and development expenses were $43.8 million in 2002, a net increase of $3.9 million or 10 percent from 2001. $6.2 million of the increased expenses related to the co-development of BAY 43-9006 with Bayer due to multiple ongoing Phase I clinical trials and Phase II clinical trials initiated in the second half of 2002. Phase I clinical trials were initiated in July 2000, and effective with the commencement of clinical trials, we are currently funding 50 percent of BAY 43-9006 clinical development costs. $4.5 million of the increased expenses were attributable to development costs of ONYX-015, including process development and manufacturing expenses incurred under the agreement with XOMA (US) LLC, as well as increased costs for clinical trials for ONYX-015. The increase in expenses for our BAY 43-9006 and ONYX-015 development programs was partially offset by decreased expenses of $6.8 million for earlier-stage therapeutic virus and small molecule research programs, which were terminated in 2001. In December 2001, we restructured our research function and reduced staff levels by approximately 30 percent, which accounted for employee-related expense decreases in 2002. Research and development expenses were $39.9 million in 2001, an increase of $13.0 million or 49 percent from 2000. $9.5 million of the increase in expenses was attributable to development costs for ONYX-015, including process development and manufacturing expenses incurred under the agreement with XOMA. $3.4 million of the increased expenses related to the co-development and clinical trial costs of BAY 43-9006 with Bayer. We expect our research and development expenses in 2003 to decrease from 2002 levels. To meet the growing financial requirements of BAY 43-9006, in January 2003, we suspended the clinical development of ONYX-015, including clinical trials and manufacturing activities, and reduced staff levels by approximately 25 percent pending the outcome of ongoing collaboration discussions.

      Our product development programs may not result in any approved products. Product candidates that appear promising at early stages of development may not reach the market for a number of reasons. Product candidates may be found ineffective or cause harmful side effects during clinical trials, may take longer to progress through clinical trials than had been anticipated, may fail to receive necessary regulatory approvals and may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality. Furthermore, as part of our business strategy, we have entered into collaborative arrangements with third parties to develop and commercialize our product candidates, and it is uncertain which of our product candidates would be subject to future collaborative arrangements. Development activities are either controlled by or must be agreed to with collaborative parties. As a result, the impact on costs and timelines are uncertain. The risks and uncertainties associated with our research and development projects are discussed more fully in the section of this report titled “Additional Business Risks.” Because of these risks and uncertainties, we cannot predict when or whether we will successfully complete the development of our product candidates or the ultimate product development cost.

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      General and Administrative Expenses. General and administrative expenses were $6.0 million in 2002, a decrease of $0.6 million or 10 percent from 2001. The decrease was primarily related to a decline in employee-related expenses as a result of a restructuring and staff reductions at the end of 2001. General and administrative expenses were $6.7 million in 2001, a decrease of $0.9 million or 11 percent from 2000. The decrease was primarily due to a reduction in consulting expenses. It is anticipated that general and administrative expenses in 2003 may decrease slightly from 2002 expenses as a result of a restructuring and staff reductions that impacted the administrative functions in January 2003.

      Restructuring and Other. In October 2001, we formally adopted and announced a restructuring plan aimed at reducing future operating costs. We recognized $0.8 million of restructuring and other charges. Of the $0.8 million, $0.4 million related to the impairment of certain long-lived assets, $0.3 million related to employee termination costs, and $0.1 million related to office closure costs. We reduced the size of our workforce by approximately 30 percent, primarily impacting the research and administrative functions. Employee termination costs consisted of wage continuation and advance notice pay. Office closure costs included losses on operating leases and asset impairments including leasehold improvements related to vacated facilities and equipment related to research and development programs not expected to continue. There were no restructuring and other expenses in fiscal years 2002 and 2000.

      Interest Income, net. We had net interest income of $1.2 million in 2002, a decrease of $2.1 million from 2001, primarily due to lower average cash and investment balances. We had net interest income of $3.2 million in 2001, an increase of $0.5 million from 2000. The increase was principally due to the $48.1 million follow-on public offering of common stock in October 2000 and the $5.0 million common stock issuance to Warner-Lambert in March 2001, partially offset by cash used in operations, resulting in increased cash and investment balances and thus more interest income for fiscal year 2001.

      Other Income (Expense) — Related Party. In November 2001, we sold and licensed to Syrrx, Inc. assets from our small molecules discovery program, including drug targets, related reagents and assays, compound libraries and certain intellectual property rights in exchange for preferred stock valued at $0.8 million, which was recorded as other income. The preferred stock value was based on sales of Syrrx preferred stock for cash. In 2002, due to a further round of financing completed by Syrrx, we recorded $0.1 million as Other expense to reduce the value of our investment. We consider the reduction in value of the Syrrx investment to be other than temporary. There was no Other income (expense) — related party for fiscal year 2000. The chief executive officer of Syrrx is a member of our board of directors.

      Other Income. In 2002, we licensed assets from our small molecules discovery program to a third party for $0.2 million. This amount was recorded as Other income. There was no Other income for fiscal years 2001 and 2000.

Income Taxes

      Since our inception, we have incurred operating losses and accordingly have not recorded a provision for income taxes for any of the periods presented. As of December 31, 2002, our net operating loss carryforwards for federal income tax purposes were approximately $146.0 million and for state income tax purposes were approximately $50.0 million. We also had federal research and development tax credit carryforwards of approximately $3.5 million. Realization of these deferred tax assets are dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. If not utilized, the net operating loss and credit carryforwards will expire at various dates beginning in 2004. Utilization of net operating losses and credits may be subject to substantial annual limitations due to ownership change limitations provided by the Internal Revenue Code of 1986. The annual limitation may result in the expiration of our net operating loss and credit carryforwards before they can be used. Please read Note 12 of the Notes to the Financial Statements included in Item 8 of this Form 10-K for further information.

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Related Party Transactions

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

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

      In May 2002, we issued and sold 2,972,925 shares of common stock in a private placement to a current shareholder and several new investors, at a price of $6.75 per share, for gross proceeds of $20.0 million. We also issued warrants to purchase 743,229 shares of common stock at $9.59 per share. A member of our board of directors is a managing director of Domain Associates, L.L.C., one of the participants in the private placement.

      We have a loan with a former employee of which approximately $0.3 million was outstanding at December 31, 2002 and 2001. This loan bears interest at 5.98% per annum.

Liquidity and Capital Resources

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

      At December 31, 2002, we had cash, cash equivalents and marketable securities of $39.8 million, compared to $58.5 million at December 31, 2001, and $82.0 million at December 31, 2000. The decrease of $18.7 million in 2002 was primarily attributable to cash used in operating activities of $42.2 million and capital expenditures of $0.7 million. These uses of cash were partially offset by the private placement of common stock we completed in May 2002, which raised net proceeds of $19.0 million. In addition, we received a $5.0 million creditable milestone-based payment from Bayer in August 2002 upon initiation of Phase II clinical trials of BAY 43-9006. This payment will be repayable to Bayer from Onyx’s share of profits and royalties. The decrease of $23.5 million in 2001 was primarily attributable to cash used in operating activities of $26.8 million and capital expenditures of $2.4 million. These uses of cash were partially offset by the sale of our common stock to Warner-Lambert in March 2001, which raised $5.0 million.

      Our cash used in operations was $42.2 million in 2002, $26.8 million in 2001 and $4.4 million in 2000. The cash was used primarily for co-funding clinical development costs with Bayer for BAY 43-9006 and to fund development expenses including manufacturing and clinical trial costs for ONYX-015. Expenditures for capital equipment amounted to $0.7 million in 2002, as compared to $2.4 million in 2001, and $1.6 million in 2000. We currently expect to make expenditures for capital equipment and leasehold improvements of up to $1.0 million in 2003.

      We believe that our existing capital resources and interest thereon, proceeds from the $10.0 million private placement financing completed in February 2003 along with cost savings from the January 2003 suspension of ONYX-015 development will be sufficient to fund our current and planned operations through mid-2004. In addition, we anticipate that Bayer will pay us $15.0 million under our collaboration agreement during 2003 for the initiation of Phase III clinical trials for BAY 43-9006 based on our continued co-funding of development costs. Pursuant to our collaboration agreement, this amount is repayable to Bayer from our share of profits and royalties. If the initiation of the BAY 43-9006 Phase III clinical trials are delayed, and the size and scope of Phase II clinical trials of BAY 43-9006 are increased, our clinical program development costs may increase without receiving the advance from Bayer.

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      Changes in our research and development plans or other changes affecting our operating expenses may result in the expenditure of these resources before mid-2004, and in any event, we will need to raise substantial additional capital to fund our operations in future periods. We intend to seek this additional funding through collaborations, public and private equity or debt financings, capital lease transactions or other available financing sources. Additional financing may not be available on acceptable terms, if at all. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or development programs or to obtain funds through collaborations with others that are on unfavorable terms or that may require us to relinquish rights to certain of our technologies, product candidates or products that we would otherwise seek to develop on our own.

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

	Payments Due by Period
			Less than				After 3
Contractual Obligations(1)	Total		1 Year		1-3 Years		Years
	(In thousands)
Operating Leases, net of sublease income	$	1,646	$	699	$	947	$	0

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

      We have leases for 50,000 square feet of office and laboratory space in our main facility and 12,000 square feet of space in a secondary facility in Richmond, California. In December 2001, we determined that we no longer required the secondary facility as a result of a reduction in force. In September 2002, we entered into a sublease agreement for 9,000 square feet of space in this facility through September 2010, which is also the lease expiration date for this space. In March 2002, we entered into a sublease agreement for the remaining 3,000 square feet of space through October 2003, the lease expiration date for this space.

Recently Issued Accounting Standards

      In July 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring, discontinued operations, plant closings, or other exit or disposal activities. SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred. Previous guidance in Emerging Issues Task Force, or EITF, No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” required that a liability for an exit cost be recognized at the date of a company’s commitment to an exit or disposal plan. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated by a company after December 31, 2002. The adoption of SFAS 146 did not have a material impact on our financial position or results of operations.

      In November 2002, the FASB issued Interpretation No. 45, or FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others.” FIN 45 elaborates on the existing disclosure requirements for most guarantees, including residual value guarantees issued in conjunction with operating lease agreements. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligation it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. Our adoption of FIN 45 did not have a material impact on our results of operations and financial position.

      In November 2002, the FASB issued EITF No. 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF No. 00-21 addresses certain aspects of the accounting by a company for arrangements under which it will perform multiple revenue-generating activities. EITF No. 00-21 addresses when and how an arrangement involving multiple deliverables should be divided into separate units of accounting. EITF

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No. 00-21 provides guidance with respect to the effect of certain customer rights due to company nonperformance on the recognition of revenue allocated to delivered units of accounting. EITF No. 00-21 also addresses the impact on the measurement and/or allocation of arrangement consideration of customer cancellation provisions and consideration that varies as a result of future actions of the customer or the company. Finally, EITF No. 00-21 provides guidance with respect to the recognition of the cost of certain deliverables that are excluded from the revenue accounting for an arrangement. The provision of EITF No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We are currently evaluating the effect that the adoption of EITF No. 00-21 will have on our financial statements.

      In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation Transition and Disclosure.” SFAS 148 amends SFAS 123 “Accounting for Stock-Based Compensation” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The additional disclosure requirements of SFAS 148 are effective for fiscal years ending after December 15, 2002. We have elected to continue to follow the intrinsic value method of accounting as prescribed by Accounting Principles Board Opinion No. 25, or APB 25, “Accounting for Stock Issued to Employees,” to account for employee stock options. See Note 1 “Summary of Significant Accounting Policies” for disclosures required by SFAS 148.

      In January 2003, the FASB issued Interpretation No. 46, or FIN 46, “Consolidation of Variable Interest Entities” which addresses the accounting for certain off-balance sheet lease financing. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of FIN 46 is not expected to have a significant impact on our financial position and results of operations.

Item 7A.      Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

      Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. By policy, we place our investments with high quality debt security issuers, limit the amount of credit exposure to any one issuer, limit duration by restricting the term, and hold investments to maturity except under rare circumstances. We classify our cash equivalents or marketable securities as fixed rate if the rate of return on an instrument remains fixed over its term. As of December 31, 2002, all of our cash equivalents and marketable securities were classified as fixed rate.

      The table below presents the amounts and related weighted interest rates of our cash equivalents and marketable securities at December 31, 2002:

			Fair Value		Average
	Maturity		($ in millions)		Interest Rate
Cash equivalents, fixed rate		Daily	$	11.0		1.85	%
Marketable securities, fixed rate		0 – 15 months	$	28.8		2.18	%

Item 8.      Financial Statements and Supplementary Data

      Our Financial Statements and notes thereto appear on pages 43 to 62 of this Annual Report on Form 10-K.

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

      Not applicable.

PART III

Item 10.      Directors and Executive Officers of the Registrant

      The information required by this item concerning our directors and executive officers is incorporated by reference from our 2003 Definitive Proxy Statement filed not later than 120 days following the close of the fiscal year.

Item 11.      Executive Compensation

      The information required under this item is hereby incorporated by reference from our 2003 Definitive Proxy Statement.

Item 12.      Security Ownership of Certain Beneficial Owners and Management

      The information required under this item is hereby incorporated by reference from our 2003 Definitive Proxy Statement.

Item 13.      Certain Relationships and Related Transactions

      The information required under this item is hereby incorporated by reference from our 2003 Definitive Proxy Statement.

Item 14.      Controls and Procedures

      (a) 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 Exchange Act Rule 13a-14) as of a date within 90 days before the filing date of this Form 10-K. Based on that evaluation, the Company’s principal executive and financial officer concluded that the Company’s disclosure controls and procedures are effective in timely providing him with material information relating to the Company, as required to be disclosed in the reports the Company files under the Exchange Act.

      (b) Changes in internal controls: There were no significant changes in the Company’s internal controls or other factors that could significantly affect those controls subsequent to the date of the Company’s evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART IV

Item 15.      Exhibits, Financial Statement Schedules and Reports on Form 8-K

      (a)(1) Index to Financial Statements

      The Financial Statements required by this item are submitted in a separate section beginning on page 43 of this Report.

Report of Ernst & Young LLP, Independent Auditors
Balance Sheets
Statements of Operations
Statement of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements

36

      (2) Financial Statement Schedules

      Financial statement schedules have been omitted because the information required to be set forth therein is not applicable.

      (3) Exhibits

Exhibit
Number	Description of Document
3.1(1)	Restated Certificate of Incorporation of the Company.
3.2(1)	Bylaws of the Company.
3.3(1)	Certificate of Amendment to Amended and Restated Certificate of Incorporation.
4.1(1)	Reference is made to Exhibits 3.1 and 3.2.
4.2(1)	Specimen Stock Certificate.
4.3(1)	Warrant to Purchase Series C Preferred Stock issued to Lease Management Services, Inc. on December 30, 1993.
4.4(1)	Amended and Restated Information and Registration Rights Agreement dated May 30, 1994 and as amended through May 16, 1995.
4.5(1)	Preferred Stock Purchase Agreement between the Company and Warner-Lambert dated May 4, 1995.
4.6(2)	Stock Purchase Agreement, dated January 12, 1998, among the Company, International Biotechnology Trust plc and Lombard Odier & Cie.
10.1(1)*	Collaboration Agreement between Bayer Corporation (formerly Miles, Inc.) and the Company dated April 22, 1994.
10.1(i)(1)*	Amendment to Collaboration Agreement between Bayer Corporation and the Company dated April 4, 1996.
10.2(1)*	Research, Development and Marketing Collaboration Agreement between Warner-Lambert Company and the Company, dated May 2, 1995.
10.2(i)(1)	Waiver of Certain Rights under the Research, Development and Marketing Agreement by Warner-Lambert Company dated as of March 28, 1996.
10.3(1)*	Compound Library Access Agreement between Warner-Lambert Company and the Company dated May 2, 1995.
10.4(3)*	Research and License Agreement between Eli Lilly & Company and the Company dated May 15, 1995 and the Collaborative Research and License Agreement between Eli Lilly and the Company dated June 12, 1996.
10.5(4)*	Technology Transfer Agreement dated April 24, 1992 between Chiron Corporation and the Company, as amended in the Chiron Onyx HPV Addendum dated December 2, 1992, in the Amendment dated February 1, 1994, in the Letter Agreement dated May 20, 1994 and in the Letter Agreement dated March 29, 1996.
10.6(1)	Scientific Advisory Board Consulting Agreement between Dr. Frank McCormick and the Company, as of March 29, 1996.
10.6(i)(1)	Letter Agreement for Consulting Services between Dr. Frank McCormick and the Company dated April 17, 1996.
10.7(1)	Promissory Note by Dr. Frank McCormick payable to the Company dated May 15, 1992.
10.8(1)	Promissory Notes by Dr. Frank McCormick payable to the Company dated November 1, 1993 and October 21, 1994.
10.9(1)	Letter Agreement between Dr. Gregory Giotta and the Company dated May 26, 1995.
10.13(1)	1996 Equity Incentive Plan.
10.14(1)	1996 Non-Employee Directors’ Stock Option Plan.
10.15(1)	1996 Employee Stock Purchase Plan.
10.18(5)	Credit Terms and Conditions dated March 10, 1997 between the Company and Imperial Bank.

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Exhibit
Number	Description of Document
10.19(6)	Letter Agreement between Dr. Allan Balmain and the Company dated August 26, 1996, as amended March 13, 1997.
10.20(7)*	Amended and restated Research, Development and Marketing Collaboration Agreement dated May 2, 1995 between the Company and Warner-Lambert Company.
10.21(7)*	Research, Development and Marketing Collaboration Agreement dated July 31, 1997 between the Company and Warner-Lambert Company.
10.22(8)	Addendum to credit Terms and Conditions dated March 10, 1997 between the Company and Imperial Bank.
10.23(7)*	Amendment to the Amended and Restated Research, Development and Marketing Collaboration Agreement, dated December 15, 1997, between the Company and Warner-Lambert Company.
10.24(9)*	Amendment to Collaboration Agreement between Bayer Corporation and the Company dated February 1, 1999.
10.25(10)	Scientific Advisory Board Consulting Agreement effective September 10, 1999 between Allan Balmain and the Company including the First Amendment to Deed of Trust and Second Amended and Restated Promissory Note.
10.26(11)*	Collaboration Agreement between the Company and Warner-Lambert Company dated October 13, 1999 and effective September 1, 1999.
10.27(11)	Stock Put and Purchase Agreement between the Company and Warner-Lambert Company dated October 13, 1999 and effective September 1, 1999.
10.28(11)	Stock Purchase Agreement between the Company and the investors dated January 18, 2000.
10.29(12)	Third Amendment to Lease by and between the Metcalf Family Living Trust Dated June 11, 1993 and the Company effective February 24, 2000.
10.30(12)	Employment Offer Letter between Helen Kim and the Company dated October 26, 1999.
10.31(7)*	Second Amendment to the Amended and Restated Research, Development and Marketing Agreement between Warner-Lambert and the Company dated May 2, 1995.
10.32(7)*	Second Amendment to Research, Development and Marketing Collaboration Agreement between Warner-Lambert and the Company dated July 31, 1997.
10.33(13)	Employment Offer Letter between Leonard E. Post, Ph.D. and the Company dated July 28, 2000.
10.34(14)*	Process Development and Manufacturing Agreement between XOMA (US) LLC and Onyx Pharmaceuticals, Inc., dated January 29, 2001.
10.35(15)	Form of Executive Change in Control Severance Benefits Agreement.
10.36(16)*	Amendment #1 to the Collaboration Agreement between the Company and Warner-Lambert dated August 6, 2001.
10.37(16)*	Amendment #3 to the Research, Development and Marketing Collaboration Agreement between the Company and Warner-Lambert dated August 6, 2001.
10.38(16)*	Amendment #3 to the Amended and Restated Research, Development and Marketing Collaboration Agreement between the Company and Warner-Lambert dated August 6, 2001.
10.39(17)	Stock and Warrant Purchase Agreement between the Company and the investors dated May 6, 2002.
10.40(18)*	Amendment No. 1 to the Process Development and Manufacturing Agreement between the Company and XOMA (US) LLC dated April 15, 2002.
10.41(19)**	Amendment to the Collaboration Agreement between the Company and Warner-Lambert Company dated September 16, 2002.
23.1	Consent of Ernst & Young LLP, Independent Auditors.

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Exhibit
Number	Description of Document
24.1	Power of Attorney. Reference is made to page 40.
99.1	Certification pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002.

*	Confidential treatment has been received for portions of this document.
**	Confidential treatment has been requested for portions of this document.

(1)	Filed as an exhibit to Onyx’s Registration Statement on Form SB-2 (No. 333-3176-LA).
(2)	Filed as an exhibit to Onyx’s Current Report on Form 8-K filed on January 26, 1998.
(3)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(4)	Filed as an exhibit to Onyx’s Annual Report on Form 10-K for the year ended December 31, 2001.
(5)	Filed as an exhibit to Onyx’s Annual Report on Form 10-K for the year ended December 31, 1996.
(6)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
(7)	Filed herewith.
(8)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
(9)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

(10)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
(11)	Filed as an exhibit to Onyx’s Current Report on Form 8-K filed on March 1, 2000.
(12)	Filed as an exhibit to Onyx’s Annual Report on Form 10-K for the year ended December 31, 1999.
(13)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.
(14)	Filed as an exhibit to Onyx’s Current Report on Form 8-K filed on February 23, 2001.
(15)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
(16)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
(17)	Filed as an exhibit to Onyx’s Registration Statement on Form S-3 filed on June 5, 2002 (No. 333-89850).
(18)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
(19)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.

      (b) Reports on Form 8-K

      None

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Richmond, County of Contra Costa, State of California, on the 21st day of March, 2003.

ONYX PHARMACEUTICALS, INC.

By:  /s/ HOLLINGS C. RENTON

Hollings C. Renton

Chairman of the Board,

President and Chief Executive Officer

POWER OF ATTORNEY

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

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

Signature	Title	Date
/s/ HOLLINGS C. RENTON Hollings C. Renton	Chairman of the Board, President and Chief Executive Officer (Principal Executive and Financial Officer)	March 21, 2003
/s/ MARILYN E. WORTZMAN Marilyn E. Wortzman	Vice President, Finance (Principal Accounting Officer)	March 21, 2003
/s/ WOLF-DIETER BUSSE Wolf-Dieter Busse	Director	March 21, 2003
/s/ PAUL GODDARD Paul Goddard	Director	March 21, 2003
/s/ ANTONIO GRILLO-LÓPEZ Antonio Grillo-López	Director	March 22, 2003
/s/ MAGNUS LUNDBERG Magnus Lundberg	Director	March 21, 2003

40

Signature	Title	Date
/s/ GEORGE A. SCANGOS George A. Scangos	Director	March 21, 2003
/s/ NICOLE VITULLO Nicole Vitullo	Director	March 21, 2003
/s/ WENDELL WIERENGA Wendell Wierenga	Director	March 21, 2003

41

CERTIFICATION

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

      1.     I have reviewed this annual report on Form 10-K of Onyx Pharmaceuticals, Inc;

      2.     Based on my knowledge, this annual 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 annual report;

      3.     Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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-14 and 15d-14) for the registrant and we have:

      a)     designed such disclosure controls and procedures 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 annual report is being prepared;

      b)     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

      c)     presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

      5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

      a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

      b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

      6.     The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ HOLLINGS C. RENTON

_________________________________________
Hollings C. Renton

Chairman of the Board,

President and Chief Executive Officer

(Principal Executive and Financial Officer)

Dated: March 21, 2003

42

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders

Onyx Pharmaceuticals, Inc.

      We have audited the accompanying balance sheets of Onyx Pharmaceuticals, Inc. as of December 31, 2002 and 2001, and the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

      In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Onyx Pharmaceuticals, Inc. at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP

Palo Alto, California

February 21, 2003

43

ONYX PHARMACEUTICALS, INC.

BALANCE SHEETS

			December 31,
			2002			2001
			(In thousands, except share
			and per share amounts)
ASSETS
Current Assets:
	Cash and cash equivalents		$	11,014		$	39,568
	Marketable securities			28,819			18,898
	Other current assets			1,351			900
		Total current assets		41,184			59,366
Property and equipment, net				2,834			3,597
Notes receivable from related parties				275			319
Other assets				1,948			2,500
			$	46,241		$	65,782
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable		$	736		$	671
	Accrued liabilities			799			1,079
	Accrued clinical trials and related expenses			9,762			6,810
	Accrued compensation			1,160			672
	Deferred revenue			—			1,465
		Total current liabilities		12,457			10,697
Advance from collaboration partner				5,000			—
Commitments
Stockholders’ Equity:
	Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued and outstanding			—			—
	Common stock, $0.001 par value; 50,000,000 shares authorized; 21,614,624 and 18,529,929 shares issued and outstanding as of December 31, 2002 and 2001, respectively			22			19
	Additional paid-in capital			187,633			168,092
	Accumulated other comprehensive income			40			98
	Accumulated deficit			(158,911	)		(113,124	)
		Total stockholders’ equity		28,784			55,085
			$	46,241		$	65,782

See accompanying notes.

44

ONYX PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS

			Year Ended December 31,
			2002			2001			2000
			(In thousands, except per share amounts)
Revenue:
	Contract revenue from related parties		$	2,715		$	15,631		$	23,854
	Grant and other revenue			—			215			326
		Total revenue		2,715			15,846			24,180
Operating expenses:
	Research and development			43,792			39,927			26,879
	General and administrative			6,004			6,652			7,508
	Restructuring and other			—			812			—
		Total operating expenses		49,796			47,391			34,387
Loss from operations				(47,081	)		(31,545	)		(10,207	)
Interest income				1,159			3,224			2,860
Interest expense				—			(1	)		(132	)
Other income (expense) — related party				(100	)		750			—
Other income				235			—			—
	Net loss		$	(45,787	)	$	(27,572	)	$	(7,479	)
Basic and diluted net loss per share			$	(2.23	)	$	(1.50	)	$	(0.50	)
Shares used in computing basic and diluted net loss per share				20,535			18,385			14,896

See accompanying notes.

45

ONYX PHARMACEUTICALS, INC.

STATEMENT OF STOCKHOLDERS’ EQUITY

										Accumulated
			Common Stock				Additional			Other						Total
							Paid-In			Comprehensive			Accumulated			Stockholders’
			Shares		Amount		Capital			Income			Deficit			Equity
			(In thousands, except share and per share amounts)
Balances at December 31, 1999				11,551,681	$	12	$	85,723		$	—		$	(78,073	)	$	7,662
	Exercise of stock options at prices ranging from $0.0071 to $16.25 per share			648,938		1		4,542			—			—			4,543
	Issuance of common stock for private placement, net of offering costs of $181			2,000,000		2		17,817			—			—			17,819
	Issuance of common stock to Warner-Lambert			279,470		—		5,000			—			—			5,000
	Issuance of common stock in connection with secondary public offering, net of issuance costs of $3,686			3,450,000		3		48,061			—			—			48,064
	Stock-based compensation, related to non-employee stock option grants			—		—		1,049			—			—			1,049
	Issuance of common stock pursuant to employee stock purchase plan			32,243		—		238			—			—			238
	Net loss			—		—		—			—			(7,479	)		(7,479	)
Balances at December 31, 2000				17,962,332		18		162,430			—			(85,552	)		76,896
	Exercise of stock options at prices ranging from $0.7139 to $10.875 per share			70,456		—		479			—			—			479
	Issuance of common stock to Warner-Lambert, net of costs of $19			460,872		1		4,980			—			—			4,981
	Stock-based compensation, related to non-employee stock option grants			—		—		(55	)		—			—			(55	)
	Issuance of common stock pursuant to employee stock purchase plan			36,269		—		258			—			—			258
	Comprehensive loss:
		Change in unrealized gain on investments		—		—		—			98			—			98
		Net loss		—		—		—			—			(27,572	)		(27,572	)
	Comprehensive loss			—		—		—			—			—			(27,474	)
Balances at December 31, 2001				18,529,929		19		168,092			98			(113,124	)		55,085
	Exercise of stock options at prices ranging from $4.21 to $7.67 per share			81,044		—		52			—			—			52
	Issuance of common stock for private placement, net of costs of $1,044 and warrants valued at $4,378			2,972,925		3		19,020			—			—			19,023
	Stock-based compensation, related to non-employee stock option grants			—		—		326			—			—			326
	Issuance of common stock pursuant to employee stock purchase plan			30,726		—		143			—			—			143
	Comprehensive loss:
		Change in unrealized loss on investments		—		—		—			(58	)		—			(58	)
		Net loss		—		—		—			—			(45,787	)		(45,787	)
	Comprehensive loss			—		—		—			—			—			(45,845	)
Balances at December 31, 2002				21,614,624	$	22	$	187,633		$	40		$	(158,911	)	$	28,784

See accompanying notes.

46

ONYX PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

				Year Ended December 31,
				2002			2001			2000
				(In thousands)
Cash flows from operating activities
	Net loss			$	(45,787	)	$	(27,572	)	$	(7,479	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization			1,849			1,986			1,460
		Expense (income) — related party			100			(750	)		—
		Restructuring and other			—			674			—
		(Gain) loss on sale of fixed assets			(79	)		60			(1	)
		Forgiveness of notes receivable			16			16			47
		Stock-based compensation			326			(55	)		1,049
	Changes in assets and liabilities:
		Receivable from related party			—			2,254			1,046
		Other current assets			(468	)		(266	)		(389	)
		Other assets			52			(2,072	)		(47	)
		Accounts payable			65			(1,385	)		(93	)
		Accrued liabilities			(280	)		(77	)		(156	)
		Accrued clinical trials and related expenses			2,952			3,701			1,999
		Accrued compensation			488			(744	)		49
		Deferred revenue			(1,465	)		(2,551	)		(1,865	)
			Net cash used in operating activities		(42,231	)		(26,781	)		(4,380	)
Cash flows from investing activities
	Purchases of marketable securities				(35,382	)		(34,394	)		(11,074	)
	Sales and maturities of marketable securities				25,403			22,462			5,998
	Capital expenditures				(742	)		(2,400	)		(1,598	)
	Proceeds from sale of fixed assets				136			17			7
	Notes receivable from related parties				44			3			37
			Net cash used in investing activities		(10,541	)		(14,312	)		(6,630	)
Cash flows from financing activities
	Advance from collaboration partner				5,000			—			—
	Payments on long-term debt				—			(183	)		(2,199	)
	Net proceeds from issuances of common stock				19,218			5,718			75,664
			Net cash provided by financing activities		24,218			5,535			73,465
Net (decrease) increase in cash and cash equivalents					(28,554	)		(35,558	)		62,455
Cash and cash equivalents at beginning of year					39,568			75,126			12,671
			Cash and cash equivalents at end of year	$	11,014		$	39,568		$	75,126
Supplemental disclosure of cash flow information:
	Interest paid during the year			$	—		$	2		$	141
Supplemental disclosure of noncash investing activities:
	Sale of assets to a related party in exchange for preferred stock			$	—		$	750		$	—

See accompanying notes.

47

ONYX PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2002

Note 1.     Summary of Significant Accounting Policies

The Company

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

Revenue Recognition

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

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

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

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

      Based on the October 1999 collaboration agreement with Warner-Lambert Company, a subsidiary of Pfizer, Inc (“Warner-Lambert”), revenue related to the development expenses for ONYX-015 was recognized as the expenses were incurred. In August 2001, the collaboration agreement was amended, and the Company no longer received revenue from Warner-Lambert as reimbursement for development expenses incurred. In addition, the Company received a $5.0 million up-front payment in 1999, for which revenue was deferred, and was being recognized ratably over the periods that the fees were earned, ranging from two to three years and four months. The agreement with Warner-Lambert was terminated in September 2002, and the remaining $0.2 million balance of the up-front payment was recognized as revenue.

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

48

ONYX PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Use of Estimates

      The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

      Certain amounts have been reclassified to conform to the current period presentation.

Research and Development

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

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

Cash Equivalents and Marketable Securities

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

      Management determines the appropriate classification of securities at the time of purchase. At December 31, 2002 and 2001, all securities are designated as available-for-sale. Available-for-sale securities are carried at fair value, with any unrealized gains and losses reported in other comprehensive income/loss. The amortized cost of securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. The cost of securities sold is based on the specific identification method. The estimated fair values have been determined by the Company using available market information. Realized gains and losses and declines in value judged to be other than temporary for available-for-sale securities are included in the statements of operations. There were no realized gains or losses in each of the three years ended December 31, 2002, 2001 and 2000, respectively. The Company recorded a $58,000 unrealized loss in 2002 and a $98,000 unrealized gain in 2001. Interest and dividends on securities classified as available-for-sale are included in interest income.

Property and Equipment

      Property and equipment are stated on the basis of cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, generally two to five years. Leasehold

49

ONYX PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

improvements are amortized over the lesser of the lease term or the estimated useful lives of the related assets, generally three to ten years.

Other Long-Term Assets

      At December 31, 2002 and 2001, other long-term assets included $0.7 million and $0.8 million, respectively, in long-term private equity investments. The Company holds certain private equity investments related to the sale and license of certain assets made to Syrrx, Inc. (“Syrrx”) during November 2001 (See Note 8). This investment is accounted for using the cost method of accounting. The Company reviews the investment for other than temporary declines in fair value primarily based on analysis of Syrrx’s quarterly financial statements and recent financing activities.

Impairment of Long-Lived Assets

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

Stock-Based Compensation

      The Company 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 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 because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant.

      All stock option awards to non-employees are accounted for at the fair value of the consideration received or the fair value of the equity instrument issued, as calculated using the Black-Scholes model, in accordance with SFAS 123 and Emerging Issues Task Force Consensus No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” The option arrangements are subject to periodic remeasurement over their vesting terms. The Company recorded compensation expense related to option grants to non-employees of $0.3 million for the year ended December 31, 2002 and $1.0 million for the year ended December 31, 2000. The Company recognized a credit to compensation expense related to option grants to non-employees of $55,000 for the year ended December 31, 2001 primarily due to the decline in the Company’s stock price in comparison to prior period stock prices.

      The pro forma information regarding net loss and loss per share prepared in accordance with SFAS 123, as amended by SFAS 148, has been determined as if the Company had accounted for its employee stock options under the fair value method prescribed by SFAS 123 and the loss per share method under SFAS 128.

50

ONYX PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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:

      Options granted at fair value:

	Year Ended December 31,
	2002		2001		2000
Risk-free interest rate		2.90%		4.29%		6.32%
Expected life		2.9 years		5.9 years		4.2 years
Expected volatility		0.86		0.94		1.00
Expected dividends		None		None		None
Weighted average option fair value		$2.67		$2.17		$10.54

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

      For purposes of pro forma disclosures pursuant to SFAS 123 as amended by SFAS 148, the estimated fair value of employee stock options is amortized to expense over the options’ vesting period. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation:

		Year Ended December 31,
		2002			2001			2000
		(In thousands, except per share
		amounts)
Net loss — as reported		$	(45,787	)	$	(27,572	)	$	(7,479	)
Deduct: Total stock-based employee compensation determined under the fair value based method for all awards, net of related tax effects			1,747			1,164			2,737
Pro forma net loss		$	(47,534	)	$	(28,736	)	$	(10,216	)
Loss per share:
	Basic and diluted net loss per share — as reported		$(2.23	)		$(1.50	)		$(0.50	)
	Basic and diluted net loss per share — pro forma		$(2.31	)		$(1.56	)		$(0.69	)

      No options were granted at below fair value for the years ended December 31, 2002, 2001 and 2000.

Net Loss Per Share

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

51

ONYX PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

	Year Ended December 31,
	2002		2001		2000
	(In thousands)
Stock options		2,750		2,513		1,795
Stock warrants		743		—		—

Comprehensive Loss

      Comprehensive loss is comprised of net loss and other comprehensive (loss) income. Other comprehensive (loss) income includes certain changes in stockholders’ equity that are excluded from net loss. Other comprehensive (loss) income is comprised of unrealized holding gains and losses on the Company’s available-for-sale securities, which were reported separately in stockholders’ equity.

      The Balance Sheet component “Accumulated other comprehensive income” relates entirely to unrealized losses/gains on available-for-sale securities and is $40,000 at December 31, 2002 and $98,000 at December 31, 2001.

Concentration of Credit Risk and Significant Research and Development Collaborators

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

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

      Onyx’s research and development collaborators are currently concentrated in the United States and Germany and one former collaborator, Warner-Lambert, accounted for 100 percent of revenue for the year ended December 31, 2002. Onyx performs evaluations of its collaborators’ financial condition and does not require collateral for any of the related receivable balances.

Segment Reporting

      The Company operates in only one segment — the discovery and development of novel cancer therapies.

Recently Issued Accounting Standards

      In July 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring, discontinued operations, plant closings, or other exit or disposal activities. SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred. Previous guidance in Emerging Issues Task Force, (“EITF”) No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” required that a liability for an exit cost be recognized at the date of a company’s commitment to an exit or disposal plan. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated by a company after December 31, 2002. The Company’s adoption of SFAS 146 did not have a material impact on its financial position or results of operations.

      In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”) “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others.” FIN 45 elaborates on the existing disclosure requirements for most guarantees, including residual value guarantees issued in conjunction with operating lease agreements. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligation it assumes under

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that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company’s adoption of FIN 45 did not have a material impact on its results of operations and financial position.

      In November 2002, the FASB issued EITF No. 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF No. 00-21 addresses certain aspects of the accounting by a company for arrangements under which it will perform multiple revenue-generating activities. EITF No. 00-21 addresses when and how an arrangement involving multiple deliverables should be divided into separate units of accounting. EITF No. 00-21 provides guidance with respect to the effect of certain customer rights due to company nonperformance on the recognition of revenue allocated to delivered units of accounting. EITF No. 00-21 also addresses the impact on the measurement and/or allocation of arrangement consideration of customer cancellation provisions and consideration that varies as a result of future actions of the customer or the company. Finally, EITF No. 00-21 provides guidance with respect to the recognition of the cost of certain deliverables that are excluded from the revenue accounting for an arrangement. The provision of EITF No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is currently evaluating the effect that the adoption of EITF No. 00-21 will have on its financial statements.

      In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS 148 amends SFAS 123 “Accounting for Stock-Based Compensation” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The additional disclosure requirements of SFAS 148 are effective for fiscal years ending after December 15, 2002. The Company has elected to continue to follow the intrinsic value method of accounting as prescribed by APB 25, “Accounting for Stock Issued to Employees,” to account for employee stock options. See Note 1 “Summary of Significant Accounting Policies” for disclosures required by SFAS 148.

      In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”) “Consolidation of Variable Interest Entities” which addresses the accounting for certain off-balance sheet lease financing. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of FIN 46 is not expected to have a significant impact on the Company’s financial position and results of operations.

Note 2.     Collaboration Agreements

Bayer Corporation

      In May 1994, the Company entered into a research and development collaboration agreement with Bayer Pharmaceuticals Corporation, to discover, develop and market compounds that inhibit the function, or modulate the activity, of the Ras signaling pathway or that appropriately modulate the activity of this pathway to treat cancer and other diseases. The Company and Bayer concluded collaborative research under this agreement in 1999. Based on this research, a development candidate, BAY 43-9006, a compound that inhibits Ras signaling in cells by inhibiting Raf kinase, was identified. Currently, the Company and Bayer are conducting Phase II clinical trials in hepatocellular, or liver, melanoma, renal and other cancers. In addition, the Company and Bayer are conducting eight Phase Ib clinical trials with BAY 43-9006 in combination with a range of standard chemotherapeutics and a Phase I clinical trial in acute myelogenous leukemia and

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myelodysplastic syndrome. The Company and Bayer plan to initiate the first Phase III clinical trial of BAY 43-9006 by the end of 2003.

      Prior to the commencement of clinical trials, Bayer paid all the costs of research and preclinical development of this drug candidate. Based on the agreement with Bayer, and with the initiation of Phase I clinical trials, the Company is currently co-funding 50 percent of clinical development costs worldwide, except Japan. Bayer will fund 100 percent of development costs in Japan and pay us a royalty on sales. If Onyx continues to co-fund and exercises its right to co-promote in the United States, profits or losses would be shared equally. If Onyx continues to co-fund but does not co-promote in the United States, Bayer would first receive a portion of the product revenues to repay Bayer for its commercialization infrastructure, before determining the Company’s share of profits and losses. In other parts of the world except Japan, Bayer would also receive this preferential distribution. Based on Onyx’s continued co-funding of development costs, Bayer paid Onyx $5.0 million at the initiation of Phase II clinical trials in September 2002. If Onyx continues to co-fund development costs, Bayer will pay the Company $15.0 million at the initiation of Phase III clinical trials. These payments will be repayable to Bayer from Onyx’s share of profits and royalties. At any time during product development, either company may terminate its participation in development costs, in which case the other party would retain exclusive rights to the product on a royalty-bearing basis. If Onyx does not continue to bear 50 percent of product development costs, Bayer would retain exclusive, worldwide rights to this product candidate and would pay royalties to Onyx on net sales.

      Onyx’s share for funding the clinical development costs, which commenced in July 2000, was $11.4 million for 2002, $5.5 million for 2001 and $2.3 million for 2000.

Warner-Lambert Company

     Cell Cycle Agreement

      In May 1995, the Company entered into a research and development collaboration agreement with Warner-Lambert Company, a subsidiary of Pfizer, Inc, to discover and commercialize small molecule drugs that restore control of or otherwise intervene in the misregulated cell cycle in tumor cells. Under this agreement, the Company developed screening tests, or assays, for jointly selected targets and transferred these assays to Warner-Lambert for screening of their compound library to identify active compounds. The research term under the agreement ended in August 2001. Warner-Lambert is responsible for subsequent medicinal chemistry and preclinical investigations on the active compounds. Warner-Lambert is obligated to conduct and fund all clinical development, make regulatory filings and manufacture for sale the collaboration compounds. Warner-Lambert may develop products identified during the research term, and the Company could receive milestone payments based on the clinical development and registration of any resulting products and royalties on worldwide sales of these marketed products. The Company believes that Warner-Lambert has identified a small molecule lead compound of a cyclin-dependent kinase, and is preparing to file an IND in late 2003 or early 2004.

      Revenues recognized under this agreement were zero, $2.2 million and $2.5 million for the years ended December 31, 2002, 2001 and 2000, respectively. Expenses related to this agreement were zero, $1.4 million and $3.2 million for the years ended December 31, 2002, 2001, and 2000, respectively.

ONYX-015 and Armed Therapeutic Virus™ Products

      Effective September 1999, the Company entered into an agreement with Warner-Lambert for the purpose of developing and commercializing ONYX-015 and two armed therapeutic viruses. Under terms of the agreement, the Company received the right to require Warner-Lambert to purchase an equity investment of $5.0 million in both 2000 and 2001. The Company exercised the first of its two rights in February 2000 by

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issuing 279,470 of its common shares to Warner-Lambert, and the Company exercised its second right in March 2001 by issuing 460,872 of its common shares to Warner-Lambert (See Note 8).

      In August 2001, the Company and Warner-Lambert amended the collaboration agreement, and the Company regained full rights to develop and commercialize ONYX-015 for head and neck cancer and other cancers that are treated via direct injections to the tumors and other local and regional routes of administration. The amended agreement stated that Onyx would fund all costs associated with these efforts and retain all profit derived from worldwide sales of ONYX-015 in these indications, subject to the potential re-establishment of the original collaboration agreement. Warner-Lambert retained development rights for ONYX-015 for cancers where the drug is administered intravenously. Onyx and Warner-Lambert also agreed to continue their collaboration for the research and development of a prodrug armed virus. The rights for research and development of a cytokine armed virus product were reacquired from Warner-Lambert in November 2001.

      In September 2002, the Company terminated its agreement with Warner-Lambert and regained full rights to ONYX-015 and a prodrug armed virus product. All of Warner-Lambert’s remaining rights were returned to the Company without significantly affecting its development costs and without any future financial obligations to Warner-Lambert. In January 2003, the Company suspended development of ONYX-015, including clinical trials and manufacturing activities, pending the outcome of ongoing collaboration discussions concerning its therapeutic virus program.

      Revenue recognized under this agreement was $2.7 million, $12.0 million and $18.6 million for the years ended December 31, 2002, 2001 and 2000, respectively. The fiscal 2002 amount includes $2.0 million for research funding and $0.7 million related to the amortization of the $5.0 million up-front payment received in 1999. The up-front payment had been included in deferred revenue and was being recognized over the applicable research and development periods when the fees were earned, ranging from two to three years and four months. With the termination of the agreement in September 2002, the remaining deferred balance of $0.2 million was recognized as revenue. The fiscal 2001 amount included $10.4 million for research and clinical development funding and $1.6 million related to the amortization of the $5.0 million up-front payment. The fiscal 2000 amount included $12.9 million for research and clinical development funding, $3.7 million for a payment received upon the completion of a research milestone and $2.0 million related to the amortization of the $5.0 million up-front payment. Expenses related to this program were $2.4 million in 2002, $14.2 million in 2001 and $20.1 million in 2000.

Inflammation Agreement

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

      Revenues recognized under this agreement were zero, $1.4 million and $2.7 million for the years ended December 31, 2002, 2001 and 2000, respectively. Expenses related to this agreement were zero, $1.7 million and $2.8 million for the years ended December 31, 2002, 2001, and 2000, respectively.

Note 3.     XOMA (US) LLC

      In January 2001, the Company entered into a process development and manufacturing relationship with XOMA (US) LLC. Under the terms of the agreement, XOMA is developing a large-scale production process

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NOTES TO FINANCIAL STATEMENTS — (Continued)

and is manufacturing ONYX-015 for clinical trials and commercial production. The Company paid XOMA a $2.0 million up-front payment that is being amortized over five years. At December 31, 2002, $1.2 million is included in the caption “Other assets” in the accompanying balance sheet.

      With the suspension of ONYX-015 development in January 2003, the Company put all further manufacturing activities on hold and is paying XOMA a facility fee to reserve manufacturing space and capabilities, pending the outcome of current collaboration discussions. Should the Company decide to terminate the ONYX-015 program and the manufacturing relationship with XOMA, the remaining up-front payment may be impaired, which would require the Company to recognize an expense equal to the remaining unamortized balance sheet amount.

Note 4.     Investments

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

		Estimated Fair Value
		December 31,
		2002		2001
		(In thousands)
Cash equivalents:
	Money market funds	$	11,014	$	39,440
Marketable securities:
	U.S. corporate debt securities and commercial paper	$	28,819	$	18,898

      As of December 31, 2002 and 2001, the difference between the fair value and the amortized cost of available-for-sale marketable securities was $40,000 and $98,000, respectively. The average portfolio maturity is approximately ten months, and the contractual maturity of each of the investments does not exceed 15 months.

Note 5.     Property and Equipment

      Property and equipment consist of the following:

	December 31,
	2002			2001
	(In thousands)
Machinery and equipment	$	9,223		$	9,643
Furniture and fixtures		677			614
Leasehold improvements		4,354			4,326
		14,254			14,583
Less accumulated depreciation and amortization		(11,420	)		(10,986	)
	$	2,834		$	3,597

      Depreciation expense was $1.4 million, $1.6 million and $1.5 million for the years ended December 31, 2002, 2001 and 2000, respectively.

Note 6.     Long-Term Obligations

      In August 2002, the Company received a $5.0 million development payment from Bayer under its collaboration agreement for the initiation of Phase II clinical trials of BAY 43-9006 based on the Company’s continued co-funding of development costs. Pursuant to its collaboration agreement, this amount is repayable

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to Bayer from Onyx’s share of profits and royalties, if any. This amount is included in the caption “Advance from collaboration partner” in the accompanying balance sheet as of December 31, 2002.

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

Note 7.     Facility Lease

      The Company occupies a total of approximately 50,000 square feet of office and laboratory space in its primary facility in Richmond, California. The lease expires in April 2005 with an option to extend the lease for an additional five years. In November 2001, the Company entered into a sublease with Syrrx to use 1,450 square feet of this facility and certain common areas for a six-month term, and Syrrx exercised an option for an additional month. Syrrx paid the Company total subleasing fees of $47,950.

      The Company has leases for an additional 12,000 square feet of space in a secondary facility in Richmond, California. The Company determined that it no longer required this space as a result of a reduction in force in December 2001, and the Company included an estimated write-off of the future obligations under these leases in Restructuring and Other Expenses (See Note 11). The lease for approximately 9,000 square feet of space in this facility expires in September 2010 with renewal options at the end of the lease for two subsequent five-year terms. In September 2002, the Company entered into a sublease agreement for this space through September 2010. The lease for the additional 3,000 square feet of space in this facility expires in October 2003 with renewal options at the end of the lease term for three years and four years. In March 2002, the Company entered into a sublease agreement for this space through October 2003. Minimum annual rental commitments, net of sublease income, under all operating leases at December 31, 2002 are as follows (in thousands):

Year ending December 31:
	2003	$	699
	2004		706
	2005		241
	Thereafter		0
		$	1,646

      Rent expense, net of sublease income and restructuring, for the years ended December 31, 2002, 2001 and 2000 was approximately $0.7 million, $0.8 million and $0.6 million, respectively.

Note 8.     Related Party Transactions

      The Company has a loan with a former employee of which approximately $0.3 million was outstanding at December 31, 2002 and 2001. This loan bears interest at 5.98% per annum.

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

      In November 2001, the Company sold and licensed to Syrrx assets from the Company’s small molecules discovery program, including drug targets, related reagents and assays, compound libraries and certain intellectual property rights in exchange for Syrrx preferred stock valued at $0.8 million, which was recorded as other income. The value of the preferred stock was determined based on sales of Syrrx preferred stock for cash. The Company could receive royalties on pharmaceutical products resulting from these assets. In

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December 2002, due to a further round of financing completed by Syrrx, the Company recorded $0.1 million as Other expense to reduce the value of the investment. Management considers the reduction in value of the investment to be other than temporary. The chief executive officer of Syrrx is a member of Onyx’s board of directors.

      In May 2002, the Company issued 2,972,925 shares of common stock in a private placement to a current shareholder and several new investors, at a price of $6.75 per share, for gross proceeds of $20.0 million. The Company also issued warrants to purchase 743,229 shares of common stock at $9.59 per share. The fair value of the warrants was $4.4 million and was accounted for as a stock offering cost. A member of the Company’s board of directors is a managing director of Domain Associates, L.L.C., one of the participants in the private placement.

Note 9.     401(k) Plan

      The Company has a 401(k) Plan that covers substantially all of its employees. Under the 401(k) Plan, eligible employees may contribute up to 15 percent of their eligible compensation, subject to certain Internal Revenue Service restrictions. The Company does not match employee contributions in the 401(k) Plan.

Note 10.     Stockholders’ Equity

     Stock Options and Employee Stock Purchase Plan

      In March 1996, the Board of Directors adopted the Employee Stock Purchase Plan (the “Purchase Plan”) covering an aggregate of 100,000 shares of common stock. At the Company’s annual meetings of stockholders in each of May 2002, June 2000 and May 1998, an additional 75,000 shares were reserved for issuance under the Purchase Plan at each meeting. The Purchase Plan is designed to allow eligible employees of the Company to purchase shares of common stock through periodic payroll deductions. The price of common stock purchased under the Purchase Plan will be equal to 85 percent of the lower of the fair market value of the common stock on the commencement date of each offering period or the specified purchase date. Since inception, a total of 226,159 shares have been issued under the Purchase Plan.

      In March 1996, the Board amended and restated the 1992 Incentive Stock Plan, renamed it as the 1996 Equity Incentive Plan (the “Incentive Plan”) and reserved 1,725,000 shares for issuance under the Incentive Plan. At the Company’s annual meetings of stockholders in May 2002, May 2001, June 2000, May 1999, May 1998 and May 1997, an additional 400,000, 900,000, 400,000, 300,000, 300,000 and 600,000 shares, respectively, were reserved for issuance under the Incentive Plan. The Incentive Plan provides for grants to employees and consultants of the Company. The exercise price of options granted under the Incentive Plan is determined by the Board of Directors, but cannot be less than 100 percent of the fair market value of the common stock on the date of grant.

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

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      The following table summarizes option activity under all option plans:

		Outstanding Stock Options
								Weighted
								Average
		Shares Available			Number of Shares			Exercise Price
Balances at December 31, 1999			298,199			2,011,447		$	7.05
	Shares authorized		475,000			—			—
	Options granted		(791,600	)		791,600		$	14.60
	Options exercised		—			(648,938	)	$	7.06
	Options forfeited		359,453			(359,453	)	$	7.33
Balances at December 31, 2000			341,052			1,794,656		$	10.16
	Shares authorized		975,000			—			—
	Options granted		(1,141,415	)		1,141,415		$	7.72
	Options exercised		—			(70,456	)	$	6.76
	Options forfeited		352,887			(352,887	)	$	13.50
Balances at December 31, 2001			527,524			2,512,728		$	8.68
	Shares authorized		400,000			—			—
	Options granted		(815,802	)		815,802		$	4.95
	Options exercised		—			(81,044	)	$	0.62
	Options forfeited		497,535			(497,535	)	$	10.01
Balances at December 31, 2002			609,257			2,749,951		$	7.57

      The following table summarizes information about options outstanding and exercisable at December 31, 2002:

Options Outstanding								Options Exercisable
				Weighted Average
				Contractual life		Weighted				Weighted
		Number		Remaining		Average		Number		Average
Range of Exercise Prices		Outstanding		(In years)		Exercise Price		Exercisable		Exercise Price
$ 1.07 - $ 4.18			355,239		8.3	$	3.57		355,239	$	3.57
$ 4.20 - $ 4.87			451,337		9.2	$	4.63		421,337	$	4.65
$ 4.88 - $ 5.88			333,189		8.0	$	5.42		333,189	$	5.42
$ 5.91 - $ 6.69			277,874		8.5	$	6.47		262,874	$	6.48
$ 6.75 - $ 7.53			315,205		7.4	$	7.32		295,205	$	7.33
$ 7.54 - $10.00			451,690		7.1	$	9.32		451,690	$	9.32
$10.20 - $12.00			337,080		6.4	$	11.21		337,080	$	11.21
$12.06 - $25.19			224,337		7.4	$	15.38		209,337	$	15.62
$25.63 - $25.63			1,500		7.6	$	25.63		1,500	$	25.63
$27.44 - $27.44			2,500		7.7	$	27.44		2,500	$	27.44
	Total		2,749,951		7.8	$	7.57		2,669,951	$	7.59

      At December 31, 2002, December 31, 2001, and December 31, 2000, there were no shares subject to repurchase. As of December 31, 2002, the Company has reserved 3,458,049 common shares for future issuances under all stock option plans and the employee stock purchase plan.

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     Preferred Stock

      The Company’s amended and restated certificate of incorporation provides that the Company’s Board of Directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. As of December 31, 2002, the Company had 5,000,000 shares of preferred stock authorized at $0.001 par value, and no preferred shares were issued or outstanding.

     Warrants

      As of December 31, 2002, there are outstanding warrants to purchase an aggregate of 743,229 shares of the Company’s common stock. The warrants were issued in connection with a private placement financing in May 2002. The exercise price of these warrants is $9.59 per share. Any of the outstanding warrants may be exercised by applying the value of a portion of the warrant, which is equal to the number of shares issuable under the warrant being exercised multiplied by the fair market value of the security receivable upon the exercise of the warrant, less the per share price, in lieu of payment of the exercise price per share. The warrants will expire in May 2009, unless earlier exercised.

Note 11.     Restructuring and Other

      In October 2001, the Company formally adopted and announced a restructuring plan aimed at reducing future operating costs to allow the Company to focus on its highest priority products in development. The Company recognized $0.8 million of restructuring and other charges. Of the $0.8 million, $0.4 million related to the impairment of certain long-lived assets, $0.3 million related to employee termination costs, and $0.1 million related to office closure costs. The Company reduced the size of its workforce by approximately 30 percent, primarily impacting the research and administrative functions and consisted of wage continuation and advance notice pay. Office closure costs included losses on operating leases. Asset impairments included leasehold improvements related to vacated facilities and equipment related to research and development programs not expected to continue. For the years ended December 31, 2002 and 2001, the accrual for restructuring was approximately $31,000 and $0.2 million, respectively. Restructuring and other expenses in fiscal years 2002 and 2000 were zero.

Note 12.     Income Taxes

      Thee is no provision for income taxes, because the Company has incurred operating losses. The Company uses the liability method to account for income taxes as required by SFAS 109, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

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

	December 31,
	2002			2001
	(In thousands)
Net operating loss carryforwards	$	52,700		$	37,802
Tax credit carryforwards		5,390			5,074
Capitalized research and development		3,200			4,758
Other		2,510			1,475
Total deferred tax assets		63,800			49,109
Valuation allowance		(63,800	)		(49,109	)
Net deferred tax assets	$	—		$	—

      Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $14.7 million, $14.6 million and $1.0 million in the fiscal years 2002, 2001 and 2000, respectively.

      At December 31, 2002, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $146.0 million and $50.0 million, respectively, which expire in the years beginning 2004, if not utilized. At December 31, 2002, the Company has research and development credit carryforwards for federal income tax purposes of approximately $3.5 million, which expire in the years beginning 2008, if not utilized. At December 31, 2002, the Company has research and development credit carryforwards for state income tax purposes of approximately $2.9 million, which do not expire.

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

Note 13.     Subsequent Events

      In January 2003, the Company formerly adopted and announced a restructuring plan aimed at reducing future operating costs to allow the Company to focus its highest priority on the development of BAY 43-9006. In order to meet the growing financial requirements of BAY 43-9006, the Company suspended the development of ONYX-015, including clinical trials and manufacturing activities, pending the outcome of ongoing collaboration discussions. The Company also reduced staff levels by approximately 25 percent, which impacted the development and administrative functions. The Company anticipates that it will recognize approximately $0.4 million of restructuring charges in the first quarter of 2003 primarily related to employee termination costs. The Company expects that the suspension of the ONYX-015 development program and the reduction in force will reduce its 2003 quarterly expenses, excluding restructuring and related one-time charges, to $9.0 million from $13.4 million in the fourth quarter of 2002.

      In February 2003, the Company raised gross proceeds of $10.0 million in a private placement to select new institutional investors. The Company sold 2,105,263 shares of its common stock at a price of $4.75 per share.

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Note 14.     Quarterly Financial Data (Unaudited)

	2002
	Dec. 31			Sept. 30			June 30			Mar. 31
	(In thousands, except per share data)
Total revenues	$	—		$	1,178		$	707		$	830
Net loss		(13,297	)		(10,818	)		(11,879	)		(9,793	)
Basic and diluted net loss per share		(0.62	)		(0.50	)		(0.58	)		(0.53	)

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

62

EXHIBIT INDEX

Exhibit
Number			Description of Document
	3.1(1)		Restated Certificate of Incorporation of the Company.
	3.2(1)		Bylaws of the Company.
	3.3(1)		Certificate of Amendment to Amended and Restated Certificate of Incorporation.
	4.1(1)		Reference is made to Exhibits 3.1 and 3.2.
	4.2(1)		Specimen Stock Certificate.
	4.3(1)		Warrant to Purchase Series C Preferred Stock issued to Lease Management Services, Inc. on December 30, 1993.
	4.4(1)		Amended and Restated Information and Registration Rights Agreement dated May 30, 1994 and as amended through May 16, 1995.
	4.5(1)		Preferred Stock Purchase Agreement between the Company and Warner-Lambert dated May 4, 1995.
	4.6(2)		Stock Purchase Agreement, dated January 12, 1998, among the Company, International Biotechnology Trust plc and Lombard Odier & Cie.
	10.1(1)*		Collaboration Agreement between Bayer Corporation (formerly Miles, Inc.) and the Company dated April 22, 1994.
	10.1(i)(1)	*	Amendment to Collaboration Agreement between Bayer Corporation and the Company dated April 4, 1996.
	10.2(1)*		Research, Development and Marketing Collaboration Agreement between Warner-Lambert Company and the Company, dated May 2, 1995.
	10.2(i)(1)		Waiver of Certain Rights under the Research, Development and Marketing Agreement by Warner-Lambert Company dated as of March 28, 1996.
	10.3(1)*		Compound Library Access Agreement between Warner-Lambert Company and the Company dated May 2, 1995.
	10.4(3)*		Research and License Agreement between Eli Lilly & Company and the Company dated May 15, 1995 and the Collaborative Research and License Agreement between Eli Lilly and the Company dated June 12, 1996.
	10.5(4)*		Technology Transfer Agreement dated April 24, 1992 between Chiron Corporation and the Company, as amended in the Chiron Onyx HPV Addendum dated December 2, 1992, in the Amendment dated February 1, 1994, in the Letter Agreement dated May 20, 1994 and in the Letter Agreement dated March 29, 1996.
	10.6(1)		Scientific Advisory Board Consulting Agreement between Dr. Frank McCormick and the Company, as of March 29, 1996.
	10.6(i)(1)		Letter Agreement for Consulting Services between Dr. Frank McCormick and the Company dated April 17, 1996.
	10.7(1)		Promissory Note by Dr. Frank McCormick payable to the Company dated May 15, 1992.
	10.8(1)		Promissory Notes by Dr. Frank McCormick payable to the Company dated November 1, 1993 and October 21, 1994.
	10.9(1)		Letter Agreement between Dr. Gregory Giotta and the Company dated May 26, 1995.
	10.13(1)		1996 Equity Incentive Plan.
	10.14(1)		1996 Non-Employee Directors’ Stock Option Plan.
	10.15(1)		1996 Employee Stock Purchase Plan.
	10.16(3)		Lease by and between Hall Properties, Inc. and the Company dated September 9, 1992, the First Amendment thereto dated April 21, 1993 and the Second Amendment thereto dated May 11, 1996.
	10.17(1)		Form of Indemnity Agreement to be signed by executive officers and directors of the Company.

Exhibit
Number			Description of Document
	10.18(5)		Credit Terms and Conditions dated March 10, 1997 between the Company and Imperial Bank.
	10.19(6)		Letter Agreement between Dr. Allan Balmain and the Company dated August 26, 1996, as amended March 13, 1997.
	10.20(7)*		Amended and restated Research, Development and Marketing Collaboration Agreement dated May 2, 1995 between the Company and Warner-Lambert Company.
	10.21(7)*		Research, Development and Marketing Collaboration Agreement dated July 31, 1997 between the Company and Warner-Lambert Company.
	10.22(8)		Addendum to credit Terms and Conditions dated March 10, 1997 between the Company and Imperial Bank.
	10.23(7)*		Amendment to the Amended and Restated Research, Development and Marketing Collaboration Agreement, dated December 15, 1997, between the Company and Warner-Lambert Company.
	10.24(9)*		Amendment to Collaboration Agreement between Bayer Corporation and the Company dated February 1, 1999.
	10.25(10)		Scientific Advisory Board Consulting Agreement effective September 10, 1999 between Allan Balmain and the Company including the First Amendment to Deed of Trust and Second Amended and Restated Promissory Note.
	10.26(11)*		Collaboration Agreement between the Company and Warner-Lambert Company dated October 13, 1999 and effective September 1, 1999.
	10.27(11)		Stock Put and Purchase Agreement between the Company and Warner-Lambert Company dated October 13, 1999 and effective September 1, 1999.
	10.28(11)		Stock Purchase Agreement between the Company and the investors dated January 18, 2000.
	10.29(12)		Third Amendment to Lease by and between the Metcalf Family Living Trust Dated June 11, 1993 and the Company effective February 24, 2000.
	10.30(12)		Employment Offer Letter between Helen Kim and the Company dated October 26, 1999.
	10.31(7)*		Second Amendment to the Amended and Restated Research, Development and Marketing Agreement between Warner-Lambert and the Company dated May 2, 1995.
	10.32(7)*		Second Amendment to Research, Development and Marketing Collaboration Agreement between Warner-Lambert and the Company dated July 31, 1997.
	10.33(13)		Employment Offer Letter between Leonard E. Post, Ph.D. and the Company dated July 28, 2000.
	10.34(14)*		Process Development and Manufacturing Agreement between XOMA (US) LLC and Onyx Pharmaceuticals, Inc., dated January 29, 2001.
	10.35(15)		Form of Executive Change in Control Severance Benefits Agreement.
	10.36(16)*		Amendment #1 to the Collaboration Agreement between the Company and Warner-Lambert dated August 6, 2001.
	10.37(16)*		Amendment #3 to the Research, Development and Marketing Collaboration Agreement between the Company and Warner-Lambert dated August 6, 2001.
	10.38(16)*		Amendment #3 to the Amended and Restated Research, Development and Marketing Collaboration Agreement between the Company and Warner-Lambert dated August 6, 2001.
	10.39(17)		Stock and Warrant Purchase Agreement between the Company and the investors dated May 6, 2002.
	10.40(18)*		Amendment No. 1 to the Process Development and Manufacturing Agreement between the Company and XOMA (US) LLC dated April 15, 2002.
	10.41(19)*	*	Amendment to the Collaboration Agreement between the Company and Warner-Lambert Company dated September 16, 2002.
	23.1		Consent of Ernst & Young LLP, Independent Auditors.

Exhibit
Number		Description of Document
	24.1	Power of Attorney. Reference is made to page 40.
	99.1	Certification pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002.

*	Confidential treatment has been received for portions of this document.
**	Confidential treatment has been requested for portions of this document.

(1)	Filed as an exhibit to Onyx’s Registration Statement on Form SB-2 (No. 333-3176-LA).
(2)	Filed as an exhibit to Onyx’s Current Report on Form 8-K filed on January 26, 1998.
(3)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(4)	Filed as an exhibit to Onyx’s Annual Report on Form 10-K for the year ended December 31, 2001.
(5)	Filed as an exhibit to Onyx’s Annual Report on Form 10-K for the year ended December 31, 1996.
(6)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
(7)	Filed herewith.
(8)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
(9)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

(10)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
(11)	Filed as an exhibit to Onyx’s Current Report on Form 8-K filed on March 1, 2000.
(12)	Filed as an exhibit to Onyx’s Annual Report on Form 10-K for the year ended December 31, 1999.
(13)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.
(14)	Filed as an exhibit to Onyx’s Current Report on Form 8-K filed on February 23, 2001.
(15)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
(16)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
(17)	Filed as an exhibit to Onyx’s Registration Statement on Form S-3 filed on June 5, 2002 (No. 333-89850).
(18)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
(19)	Filed as an exhibit to Onyx’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.

EX-10.20 3 f88257exv10w20.htm EXHIBIT 10.20

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

EXHIBIT 10.20

AMENDED AND RESTATED RESEARCH,
DEVELOPMENT AND MARKETING
COLLABORATION AGREEMENT

     THIS AMENDED AND RESTATED RESEARCH, DEVELOPMENT AND MARKETING COLLABORATION AGREEMENT (the “Agreement”) is made and entered into by and between ONYX PHARMACEUTICALS, INC., a California corporation located at 3031 Research Drive, Richmond, California 94806 (“Onyx”), and WARNER-LAMBERT COMPANY, a Delaware corporation located at 201 Tabor Road, Morris Plains, New Jersey 07950 (“Warner”). This Agreement is executed on July 31, 1997 but is deemed by the parties to be effective as of May 2, 1995 and shall supersede and replace the original Research, Development and Marketing Agreement between Onyx and Warner dated as of May 2, 1995.

W I T N E S S E T H:

     WHEREAS, Onyx and Warner each has certain expertise in the discovery and development of agents acting in the field of cell cycle control; and

     WHEREAS, Warner and Onyx each wish to enter into a collaborative effort to share such expertise, to develop new expertise in the field of cell cycle control, to research together potential applications thereof and, if successful, to market certain of such applications (the “Collaboration”); and

     WHEREAS, Warner and Onyx entered into that certain Research, Development and Marketing Agreement dated as of May 2, 1995, and they now wish to amend and restate the terms of such agreement by entering into this Agreement, thereby superseding and replacing such earlier agreement;

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, covenants and conditions contained herein, Onyx and Warner agree as follows:

ARTICLE 1

DEFINITIONS

1.

     The following capitalized terms shall have the meanings indicated for purposes of this Agreement:

     “Affiliate” shall mean any corporation, association or other entity which directly or indirectly controls, is controlled by or is under common control with the party in question. As used herein the term “control” means possession of the power to direct, or cause the direction of, the management and policies of a corporation, association or other entity.

     “Collaboration Compound” shall mean any compound identified by either party during the Research Term or one year thereafter as showing sufficient activity against targets in the Field identified by the Research Management Committee in assays contributed to or developed under the Collaboration such that further research on such compound for such target is pursued, and any analogs or derivatives of such compounds whenever identified.

     “Collaboration Lead Compound” shall mean any Collaboration Compound selected by Warner for further development as provided in Section 5.1.

     “Collaboration Product” shall mean any Collaboration Lead Compound for which an IND or foreign equivalent application has been filed, as provided in Section 5.2.

     “Collaboration Product Exclusive Period” shall have the meaning set forth in Section 5.3.

     “Co-Promotion Country” shall mean the United States of America and its territories and possessions, including the Commonwealth of Puerto Rico.

     “Effective Date” shall mean May 2, 1995.

     “FDA” shall mean the United States Food and Drug Administration.

     “Field” shall mean research, drug discovery and development collaboration aimed at therapeutic agents to restore control of, or otherwise intervene in, misregulated cell cycle transitions in tumor cells, vascular smooth muscle cells, or other pathological conditions, in each case insofar as it relates to the targets listed below. Such agents may restore growth control and/or result in death of cells with aberrant control.

The Collaboration will seek to identify agents that modulate biological targets within the Field. The Collaboration will include all therapeutic benefits of such agents.

The Field will consist initially of [*] The Field shall also include the [*] The Field will also include [*]

2.

The parties may agree during the Term of the Research Collaboration to expand the Field by designating additional targets, and it is their intention to do so in the event logical extensions of the Field are identified and may be accommodated within the resource commitment of the parties. Such expansion will be in writing signed by all members of the Research Development Committee. However, neither party shall be obligated to agree to expand the Field.

Notwithstanding the general description of the Field provided above, the Field will exclude:

          (a)     All molecular entitles that are part of or that regulate [*] This includes but is not restricted to [*] This also includes molecules that directly or indirectly regulate the aforementioned molecules, [*] This also includes [*] This exception shall not include (by way of example and not limitation) [*]

     [*] shall mean therapeutics where the active agent is [*] [*] specifically excludes [*]

     “IND” shall mean an Investigational New Drug Application.

     “Invention” shall mean any invention, idea, data, know-how or material that is discovered or reduced to practice during the Term of this Agreement [*] and that relates to the discovery, design, synthesis, delivery, development, testing, use, manufacture or sale of agents acting in the Field.

     “Know-How” shall mean Onyx Know-How and/or Warner Know-How, as the case may be.

     “MHW” shall mean the Ministry of Health and Welfare of Japan.

     “NDA” shall mean a New Drug Application.

     “Net Sales” shall mean the gross amount invoiced by a party hereto or one of its Affiliates to customers who are not Affiliates of the selling party for all Products sold to such customers, less the following deductions calculated in accordance with United States generally accepted accounting principles and Warner’s (or Onyx’s, as the case may be) normal internal accounting standards consistently applied: (i) trade, quantity and cash discounts or rebates; (ii) credits, rebates, charge-back rebates, reimbursements or similar payments granted or given to wholesalers and other distributors, buying groups, healthcare insurance carriers, governmental agencies and other institutions, provided that such provisions will not grant a preference or otherwise favor other products of Warner or Onyx, as the case may be, if based on the fact that a royalty may be payable hereunder; (iii) credits or allowances for rejection or return of such Product previously sold; (iv) any tax, tariff, duty or other governmental charge (other than an income tax) levied on the

3.

sale, transportation or delivery of a Product and borne by the seller thereof; (v) payments or rebates paid in connection with state or federal Medicare, Medicaid or similar programs; (vi) any charge for freight or insurance; and (vii) allowance for bad debt expense. Any such deductions, if not for amounts actually incurred or allowed with respect to the specific Products sold, shall be no greater than the pro rata amount allocable to such Product, based on the invoices for similar pharmaceutical products sold by the selling party, of the total amount of such deductions allowed or incurred for all such similar products. In the event that the selling party recognizes revenue due to excess balance sheet reserves associated with the net sales deductions described above, the pro rata amount of such revenue allocable to the Product shall be deemed Net Sales hereunder, at the time such revenue is recognized.

     “Onyx Know-How” shall mean all technology, inventions, information, data, know-how, compounds and materials that (i) are not Onyx Patents, (ii) Onyx owns or otherwise has the right to license to Warner and (iii) relate to the discovery, design, synthesis, delivery, development, testing, use, manufacture or sale of agents with activity in the Field. Excluded from “Onyx Know-How” are compounds and information relating to compounds that have been identified by Onyx as candidates for cGLP/cGMP studies on or before the Effective Date, or are hereafter so identified without material application of information provided by Warner or developed by either party pursuant to the Collaboration.

     “Onyx Lead Compound” shall mean a Collaboration Compound that Onyx obtains the right to develop independently as provided in Section 5.3.

     “Onyx Patents” shall mean all United States and foreign patents that are owned by Onyx or that Onyx otherwise has the right to license to Warner and that relate to the discovery, design, synthesis, delivery, development, testing, use, manufacture or sale of agents with activity in the Field, including, without limitation, all reissues, extensions, substitutions, confirmations, registrations, revalidations, additions, continuations, continuations-in-part, and divisions thereof. Excluded from “Onyx Patents” are patents and patent applications that claim compounds and information relating to compounds that have been identified by Onyx as candidates for cGLP/cGMP studies on or before the Effective Date, or are hereafter so identified without material application of information provided by Warner or developed pursuant to the Collaboration.

     “Onyx Product” shall have the meaning set forth in Section 5.3.

     “Onyx Product Exclusive Period” shall have the meaning set forth in Section 5.4.

     “Patents” shall mean, Onyx Patents and/or Warner Patents, as the case may be.

4.

     “Products” shall mean Collaboration Products and/or Onyx Products, as applicable.

     “Research Management Committee” shall mean that entity organized and acting pursuant to Section 3.1.

     “Research Plan” shall have the meaning set forth in Section 2.1.

     “Term of Co-Promotion” for a Collaboration Product shall mean the period beginning upon the first commercial sale of a Collaboration Product in the Co-Promotion Country and [*]

     “Term of this Agreement” shall mean the period from the Effective Date until the expiration of all licenses granted pursuant to this Agreement or until this Agreement is otherwise terminated pursuant to its terms.

     “Term of the Research Collaboration” shall have the meaning set forth in Section 1.3.

     “Warner Know-How” shall mean all technology, inventions, information, data, know-how, compounds and materials that (i) are not Warner Patents, (ii) Warner owns or otherwise has the right to license to Onyx and (iii) relate to the discovery, design, synthesis, delivery, development, testing, use, manufacture or sale of agents with activity in the Field. Excluded from “Warner Know-How” are (i) Warner’s high-volume screening technology and (ii) compounds and information relating to compounds that have been identified by Warner as candidates for cGLP/cGMP studies on or before the Effective Date, or are hereafter so identified without material application of information provided by Onyx or developed by either party pursuant to the Collaboration.

     “Warner Patents” shall mean all United States and foreign patents that are owned by Warner or that Warner otherwise has the right to license to Onyx and that relate to the discovery, design, synthesis, delivery, development, testing, use, manufacture or sale of agents with activity in the Field, including, without limitation, all reissues, extensions, substitutions, confirmations, registrations, revalidations, additions, continuations, continuations-in-part, and divisions thereof. Excluded from “Warner Patents” are patents and patent applications that claim (i) Warner’s high volume screen technology and (ii) compounds and information relating to compounds that have been identified by Warner as candidates for cGLP/cGMP studies on or before the Effective Date, or are hereafter so identified without material application of information provided by Onyx or developed pursuant to the Collaboration.

5.

ARTICLE 2

RESEARCH PROGRAM

     2.1     Undertaking and Scope. From time to time the Research Management Committee will agree on the general direction of the research to be performed hereunder. The correspondence and other material documenting such agreement are collectively referred to herein as the “Research Plan.” Each party agrees to use its best efforts to perform the activities detailed in the Research Plan, in a professional and timely manner. Onyx agrees to use its best efforts at its cost [*] to (i) develop and transfer to Warner [*] screening assays [*] of the Term of the Research Collaboration for specific targets in the Field selected by the Research Management Committee, (ii) supply protein required to run such screens and (iii) provide for the testing of substantially all of Onyx’s compound library in such screens. Onyx shall not knowingly provide or perform research on any compounds the use of which would require a royalty or other payment to any third party, unless the Research Management Committee agrees that such compound should be provided and the parties agree in writing how such royalty or other payment will be paid. Warner agrees to use its best efforts at its cost (including the cost of any royalties or other amounts payable by Warner to third parties) to (i) screen substantially all of its compound library with such screens provided by Onyx and (ii) conduct medicinal chemistry and animal pharmacology as the Research Management Committee deems appropriate. Promptly after the Effective Date, Onyx and Warner will disclose to each other all information possessed by it relevant to the Field and necessary or helpful to perform the work described in the Research Plan (except to the extent precluded by the pre-existing confidentiality obligations described on Schedule 1 hereto). During the Term of the Research Collaboration, or one year thereafter, the Research Management Committee and either party individually may from time to time declare any compound that meets the definition therefor in Article 1 to be a Collaboration Compound. Notwithstanding the foregoing, neither party will be required to offer the other party any compounds or information relating to compounds that have been identified as candidates for cGLP/cGMP studies on or before the Effective Date, or are hereafter so identified without material application of information provided by the other party or developed pursuant to the Collaboration. Neither party shall be required to screen under this Collaboration or to offer to the other party any information regarding any compounds identified as having activity in pathways expressly excluded from the Field, if so identified prior to being designated a “Collaboration Compound” hereunder.

     2.2     Personnel and Resources. Each party agrees to commit the personnel, facilities, expertise and other resources needed to perform this Agreement in accordance with its terms; provided, however, that neither party warrants that the Collaboration shall achieve any of the research objectives contemplated by them. During the Term of the Research Collaboration, Warner and Onyx will each maintain at its cost an average of 15

6.

full-time equivalents (“FTEs”) devoted to cooperative work under the Research Plan. During the first-year of the Term of the Research Collaboration Warner need maintain only 10 such FTEs; provided however, that Warner will staff at higher levels in later periods to achieve an average of 15 FTEs during the Term of the Research Collaboration, unless such term is terminated early as permitted hereunder. The scientific priorities and direction of such staff of both parties will be determined by the Research Management Committee. Such staff will include, as appropriate, scientists in the areas of mass screening, molecular biology, biochemistry, biochemical pharmacology, cancer and cardiovascular pharmacology, synthetic chemistry (including peptide synthesis), computer-assisted drug design, and analytical chemistry (e.g., NMR spectroscopy).

     2.3     Term of the Research Collaboration. Work under the Research Plan will commence as of the date of this Agreement and, unless terminated earlier by either party pursuant to the terms of this Agreement or extended by mutual agreement of the parties, will terminate on the third anniversary hereafter (as terminated, expired or extended, the “Term of the Research Collaboration”).

     2.4     Rights to Know-How and Patents for Research. Each party hereby grants and agrees to grant to the other a non-exclusive, royalty-free license to use such party’s Know-How and Patents that are conceived or reduced to practice prior to the [*] anniversary of the end of the Term of the Research Collaboration for (a) research and development purposes in the Field and (b), beginning [*] after termination of the Term of the Research Collaboration, research and development outside of the Field; provided, however, that the granting party may terminate such licenses granted by it immediately upon its termination of this Agreement for cause. Notwithstanding the foregoing, neither party is granted any interest in the other’s compounds (or analogs or derivatives thereof) except as specifically set forth in this Agreement. In the event that one party does nonetheless conceive or reduce to practice any invention that is comprised of the other party’s compound (or analog or derivative thereof) and if such invention is not in the Field, such party will promptly assign its entire interest therein exclusively to the other party without charge and will not be entitled to any milestones, royalties or other consideration in connection therewith.

     2.5     Collaboration Expenses. [*] the costs and expenses of work done pursuant to the Collaboration at [*]

     2.6     New Zealand Research Work. Onyx acknowledges that Warner has amended its existing agreement with the Auckland Division, Cancer Society of New Zealand, Inc. (“CSNZ”), dated December 15, 1988 (as amended, the “Warner/CSNZ Agreement”), to expand the field of research to be jointly conducted by Warner and CSNZ to include the research in the cell cycle field which is the focus of the collaborative research project being conducted pursuant to this Agreement. Onyx is willing to permit

7.

Warner to conduct such research under the Warner/CSNZ Agreement, subject to the following terms:

     (a)     As used in this Section 2.6, the term “Additional Research” shall have the meaning set forth in Section 1.04a of the Warner/CSNZ Agreement.

     (b)      The term “Collaboration Compounds” as used in this Agreement shall also include any compounds identified as a result of the Additional Research conducted by CSNZ or Warner in collaboration with CSNZ pursuant to the Warner/CSNZ Agreement. Any work performed by CSNZ and Warner under such Additional Research shall be considered to be work performed by the parties pursuant to this Agreement.

     (c)     For the avoidance of doubt, and notwithstanding any other interpretation of the Agreement, Warner and Onyx hereby agree that the royalties payable by Warner under Section 6.3 shall not be reduced by any royalty or other payments payable by Warner to CSNZ pursuant to the Warner/CSNZ Agreement, whether by offset, credit or otherwise.

ARTICLE 3

COMMITTEES

     3.1     Research Management Committee. Warner and Onyx will each appoint up to 4 representatives to a research management committee (the “Research Management Committee”), which will oversee the operational aspects of performing the Research Plan. The Research Management Committee will assure that agendas and minutes are prepared for each of its meetings. The personnel, facilities, expertise and other resources of each party to be used in performance of the Research Plan shall be established by the Research Management Committee. The Research Management Committee will meet quarterly, or more frequently if mutually agreed. Warner’s and Onyx’s initial representatives to the Research Management Committee will be appointed by each of them promptly after the date of this Agreement. All actions taken and decisions made by the Research Management Committee shall be by unanimous agreement. A party may change any of its appointments to the Research Management Committee at any time upon giving written notice to the other party.

     3.2     Marketing Committee. At the time that Warner appoints a committee to plan the marketing of a Collaboration Product (the “Marketing Committee”), it shall promptly inform Onyx and for so long as Onyx has the right to co-promote such Collaboration Product, Onyx shall have the authority to appoint one of its employees as a non-voting member of such committee. Onyx’s non-voting member of the Marketing Committee will have the right to attend all meetings of the Marketing Committee and will

8.

be kept current on the plans and proceedings of the Marketing Committee. All actions taken and decisions made by the Marketing Committee shall be under the direction and control of Warner. A party may change any of its appointments to the Marketing Committee at any time upon giving written notice to the other party.

     3.3     Meetings. The Research Management Committee and the Marketing Committee may meet by telephone or in person at such times as are agreeable to the members of each such committee. Attendance at meetings shall be at the respective expense of the participating parties. Warner and Onyx shall alternate the right to determine the location of each meeting of the Research Management Committee, with Onyx determining the location of the first meeting of such committee. Warner shall determine the location of all meetings of the Marketing Committee.

     3.4     SAB Attendance. During the Term of this Agreement, Warner will be entitled to have up to three of its representatives attend all meetings of Onyx’s Scientific Advisory Board that relate directly to the Field and such other general symposia that do not contain confidential information outside the Field of Onyx or of any third party to which Onyx owes a duty of confidentiality that would be breached by Warner’s attendance. Onyx will provide Warner reasonable advance notice of all such meetings and will provide Warner copies of all written material given to the members of the Scientific Advisory Board in connection with such meetings. Attendance at such meetings by Warner’s representatives will be at Warner’s expense. As a condition of such attendance and access to such written material, Warner will execute appropriate confidentiality agreements with respect to information disclosed at such meetings and in such written material.

ARTICLE 4

PATENTS, KNOW-HOW, RIGHTS AND INVENTIONS

     4.1     Rights to Inventions.

          (a)     Ownership of all Inventions and any other technology, information, data, know-how, compounds and material developed, discovered or made hereunder shall be determined in accordance with United States laws of inventorship. The owner (the “Inventor”) of any Invention shall have the right, at its option and expense, to prepare, file and prosecute in its own name any patent applications with respect to any Invention owned by it and to maintain any patents issued. In connection therewith, the non-Inventor party agrees to cooperate with the Inventor at the Inventor’s expense in the preparation and prosecution of all such patent applications and in the maintenance of any patents issued. This obligation shall survive the expiration or termination of this Agreement.

9.

          (b)     The parties will co-own technology, inventions, information, data, know-how, compounds and materials (whether or not patentable) that relate to [*] and that are developed in connection with performance of the Research Plan (“[*] Inventions”). The parties will cooperate in the joint filing of patent applications claiming [*] Inventions. The parties will negotiate in good faith regarding the collaborative commercial exploitation of the [*] Inventions; provided, however, that each party will retain an undivided ownership interest in the [*] Inventions and will be free to exploit the same without obligation to the other party.

     4.2     Joint Inventions. Inventions that are jointly invented by Onyx and Warner will be jointly owned by them; however, [*] will have the rights and responsibilities of the “Inventor” as described in this Article 4 in respect of any such patentable, jointly owned Inventions and [*] shall have the rights and responsibilities of a non-Inventor therein. [*] shall pay all expenses in connection with its preparation, filing and prosecution of patent applications that claim patentable, jointly owned Inventions. [*] shall from time to time notify [*] of the amount of such expenses and [*] shall promptly thereafter pay [*] of its out-of-pocket expenses. As used in the preceding sentence “out-of-pocket expenses” shall mean direct costs, excluding internal labor costs. Onyx may elect in writing to disclaim all interest in any jointly invented Invention, in which case (i) such Invention will be solely owned by Warner and Onyx will co-operate to assure Warner’s sole ownership, (ii) Onyx will have no further interest in such Invention, by ownership, license or otherwise and (iii) [*] the date that Warner receives Onyx’s written disclaimer. Warner may elect in writing to disclaim all interest in any jointly invented Inventions, in which case (i) such Invention will be solely owned by Onyx and Warner will co-operate to assure Onyx’s sole ownership, (ii) Warner will have no further interest in such Invention, by ownership, license or otherwise and (iii) [*]

     4.3     Protection of Patent Rights.  (a)      The Inventor shall keep the other party currently informed of all steps to be taken in the preparation, prosecution and maintenance of all of its patents and patent applications which claim an Invention and shall furnish the other party with copies of patents and applications, amendments thereto and other related correspondence relating to such Invention to and from patent offices and permit the other party to offer its comments thereon before the Inventor makes a submission to a patent office which could materially affect the scope or validity of the patent coverage that may result. The non-Inventor party shall offer its comments promptly. Onyx and Warner shall each promptly notify the other of any infringement and/or unauthorized use of an Invention which comes to its attention.

          (b)     The non-Inventor party may request in writing that the Inventor take specific, reasonable actions to (i) prepare, file or prosecute a patent application with respect to an Invention, (ii) maintain any patents issued with respect to an Invention, (iii) protect against abandonment of a patent or application which claims an Invention or (iv)

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obtain a discontinuance of an infringement or unauthorized use of such patent or application. If such actions are not undertaken within thirty days of the Inventor’s receipt of such written request and timely pursued thereafter, the Inventor shall permit, and the non-Inventor party at its option and expense may undertake, such actions. The party not undertaking such actions shall fully cooperate with the other party and shall provide to the other party whatever assignments and other documents that may be needed in connection therewith. The party not undertaking such actions may require a suitable indemnity against all damages, costs and expenses and impose such other reasonable conditions as such party’s advisors may require.

          (c)      If either party commences any actions or proceedings (legal or otherwise) pursuant to this Section, it shall prosecute the same vigorously at its expense and shall not abandon or compromise them or fail to exercise any rights of appeal without giving the other party the right to take over their conduct at its own expense. The party finally conducting legal actions or proceedings against an alleged infringer or other party shall be entitled to any damages or costs awarded against such infringer or other party.

     4.4     Allegations of Infringement by Third Parties. In the event that Warner or Onyx receives notice that any action by either of them under this Agreement is alleged to be a violation of the patent or other intellectual property rights of a third party, it shall notify the other party to this Agreement, and they shall jointly determine an appropriate response and course of action. The costs of such defense, and any damages, costs or expenses resulting from such action, shall be paid [*] The Research Management Committee will decide whether or not to continue any activity following notice that such activity may be a violation of the patent or other intellectual property rights of a third party.

ARTICLE 5

DESIGNATION OF LEAD COMPOUNDS AND MARKETING RIGHTS

     5.1     Designation of Lead Compound. From time to time, Warner may formally designate one or more Collaboration Compounds for further development, and such designated compounds shall be deemed Collaboration Lead Compounds. Such designation shall be made under Warner’s then current standards for declaring one of its own compounds a “lead compound.” Such designation generally indicates that Warner has identified such compound as a candidate for cGLP/cGMP studies. Warner will pursue the research and development of each Collaboration Lead Compound at its own expense and under its sole direction. Warner will provide Onyx quarterly, written updates regarding the status of each Collaboration Lead Compound.

     5.2     Collaboration Product. Each Collaboration Lead Compound shall be referred to herein as a “Collaboration Product” from and after filing of an IND in respect

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of such compound with the FDA or the filing of its equivalent in any foreign country other than Japan. The preparation, filing and prosecution of IND’s, NDA’s and other regulatory filings required to be filed with the FDA and its foreign equivalents (other than in Japan) in regard to any Collaboration Product will be at the sole expense of, in the name of and under the direction of Warner. Warner does not warrant that any regulatory filings will actually be filed or, if filed, will be approved.

     5.3     Independent Development. From time to time, Onyx may request Warner in writing to undertake specific research and development regarding a Collaboration Compound or to declare a Collaboration Compound to be a Collaboration Lead Compound. Warner will notify Onyx within [*] of receiving Onyx’s written request if it determines before such date that it will not undertake such specific research and development (or declare such Collaboration Compound to be a Collaboration Lead Compound) within [*] of such request (“Warner’s Notice to Decline”). If Warner does not so notify Onyx within such [*] period, it will periodically review Onyx’s request and if it determines not to undertake such specific research and development (or declare such Collaboration Compound to be a Collaboration Lead Compound) then it shall promptly so notify Onyx (also, “Warner’s Notice to Decline”). After either (i) receipt of Warner’s Notice to Decline, or (ii) if Warner does not so notify Onyx and if Warner does not itself undertake the requested action within [*] of Onyx’s written request, then the date [*] after Warner’s receipt of Onyx’s written request, then Onyx shall undertake continued research and development (including the specific research and development requested by Onyx in its request to Warner) of such Collaboration Compound independently (an “Onyx Lead Compound”), at its sole cost and under its sole direction. Onyx may not utilize the services of the personnel committed to the Collaboration pursuant to Section 2.2 in performance of research or development of an Onyx Lead Compound. Onyx may declare no more than [*] Onyx Lead Compounds during the Term of this Agreement. Onyx will keep Warner currently informed of all material information in its research and development of each Onyx Lead Compound and will allow Warner to comment on the direction of such research and development. Each Onyx Lead Compound is referred to herein as an “Onyx Product” from and after filing of an IND in respect of such compound with the FDA or the filing of its equivalent in any foreign country other than Japan. Onyx will provide Warner a complete and accurate copy of the proposed filing, together with any additional information that Warner may request regarding the relevant Onyx Lead Compound, at least [*] prior to submitting such filing to the FDA or its foreign equivalent. Onyx will be entitled to commercialize any Onyx Product at its sole direction, alone or with another partner, subject to Section 5.4 and the other terms of this Agreement.

     5.4     Warner’s Re-engagement Option. Warner may elect in writing to Onyx to resume the research and development of an Onyx Lead Compound at its own cost and under its sole direction at any time prior to [*] in respect of such compound. In such

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event, such Onyx Lead Compound shall immediately become a Collaboration Lead Compound for all purposes under this Agreement. Promptly after Warner makes such election, Warner will pay Onyx [*] Onyx’s costs incurred for research and development of such Onyx Lead Compound. For purposes of this Section, Onyx’s cost for research and development will mean (i) Onyx’s “Burdened Cost” (as defined below) for each professional research and development FTE (not including the personnel committed to the Collaboration pursuant to Section 1.2) dedicated to the research and development of such Onyx Lead Compounds (with appropriate adjustment for staff members not fully dedicated to such work or not working a full year) and (ii) payments made to unaffiliated third parties, each to the extent incurred in connection with the relevant compound on or after its declaration as an Onyx Lead Compound and to the extent reasonably supported by invoices, time sheets or other appropriate records. The “Burdened Cost” for each Onyx FTE shall mean [*] for work performed during 1995, and will be revised for work performed during each succeeding calendar year by the change in the Consumer Price Index (as determined by the United States of America Department of Labor) during the preceding calendar year (except that the Burdened Cost for work performed during 1996 will be revised only by the change in the Consumer Price Index from the Effective date to December 31, 1995).

ARTICLE 6

LICENSES AND ROYALTIES

     6.1     Grant by Onyx. Onyx hereby grants and agrees to grant to Warner exclusive, worldwide (except for Japan) licenses under the Onyx Patents solely to make, have made, use and sell (with the right to sublicense) each compound designated as a Collaboration Lead Compound or as a Collaboration Product. Such licenses with respect to a Collaboration Lead Compound are co-exclusive between Onyx and Warner. Such licenses with respect to a Collaboration Product are exclusive even as to Onyx.

     6.2     Grant by Warner. Warner hereby grants and agrees to grant to Onyx exclusive, worldwide (except for Japan) licenses under the Warner Patents solely to make, have made, use and sell (with the right to sublicense) each compound designated as an Onyx Lead Compound or as an Onyx Product. Such licenses with respect to an Onyx Lead Compound are co-exclusive between Onyx and Warner. Such licenses with respect to an Onyx Product are exclusive even as to Warner.

     6.3     Royalties Payable by Warner. In part consideration for all rights granted to Warner and efforts undertaken by Onyx hereunder, Warner will pay Onyx [*] of Net Sales as a royalty on worldwide sales (except for Japan) of Collaboration Products. If at the time of the first commercial sale of such Product in such country a Patent exists that is necessary to sell such Product in such country, or if at any time after such sale a composition of matter Patent necessary to sell such Collaboration Product issues in such

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country, such [*] royalty shall be payable in respect of sales in such country until the later of (a) the expiration of the last such Patent to expire and (b) the date such [*] royalty would expire under the provisions of the following sentence assuming that such Patent did not exist. Subject to the terms of the preceding sentence, if in a particular country there is never an issued Patent that is necessary to sell such Product in such country, then such [*] royalty will be payable, for sales of such Product in such country, until the earliest of (x) the later to occur of (i) the [*] anniversary of such first sale in such country and (ii) expiration of the last Patent necessary to make or use such Product in such country, which Patent was in existence on the date of such first commercial sale, (y) the first calendar quarter in which the sale in such country by any one entity (together with its Affiliates), other than Warner or its Affiliates or licensees, of one or more products containing the same active ingredient as such Product, constitutes [*] or more of all units sold in such country containing such active ingredient and (z) the first calendar quarter in which the sale in such country by any entities (taken in the aggregate), other than Warner or its Affiliates or licensees, of one or more products containing the same active ingredient as the Product, constitutes [*] or more of all units sold in such country containing such active ingredient (the period from first commercial sale in each country until the earlier of (x), (y) and (z) above is referred to herein as the “Collaboration Product Exclusive Period”). In the case of (y) and (z) above, the [*] royalty will terminate as to Net Sales of Product sold on or after the day following the end of the triggering calendar quarter. Warner will pay Onyx [*] and [*] of Net Sales as a royalty on sales of Collaboration Products in each country (except for Japan) for the [*], respectively, following (a) such final Patent expiration (in the event that the required Patent necessary to sell such Product in such country existed on the date of first commercial sale or issued thereafter) or (b) the end of the Collaboration Product Exclusive Period (if no such Patent existed or issued thereafter, and provided that the Collaboration Product Exclusive Period lasted at least [*] years); provided, however, that no such royalty will be payable in respect of Collaboration Products sold without the use of one or more trademarks developed by Warner for such Product during the time that the [*] royalty was applicable.

     6.4     Royalties Payable by Onyx. Onyx will pay Warner [*] of Net Sales as a royalty on worldwide sales (except for Japan) of Onyx Products. If at the time of the first commercial sale of such Product in such country a Patent exists that is necessary to sell such Product in such country, or if at any time after such sale a composition of matter Patent necessary to sell such Collaboration Product issues in such country, such [*] royalty shall be payable in respect of sales in such country until the later of (a) the expiration of the last such Patent to expire and (b) the date such [*] royalty would expire under the provisions of the following sentence assuming that such Patent did not exist. Subject to the terms of the preceding sentence, if in a particular country there is never an issued Patent that is necessary to sell such Product in such country, then such [*] royalty will be payable, for sales of such Product in such country, until the earliest of (x) the later

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to occur of (i) the [*] anniversary of such first sale in such country and (ii) expiration of the last Patent necessary to make or use such Product in such country, which Patent was in existence on the date of such first commercial sale, (y) the first calendar quarter in which the sale in such country by any one entity (together with its Affiliates), other than Warner or its Affiliates or licensees, of one or more products containing the same active ingredient as the Product, constitutes [*] or more of all units sold in such country containing such active ingredient and (z) the first calendar quarter in which the sale in such country by any entities (taken in the aggregate), other than Onyx or its Affiliates or licensees, of one or more products containing the same active ingredient as the Product, constitutes [*] or more of all units sold in such country containing such active ingredient (the period from first commercial sale in each country until the earliest of (x), (y) and (z) above is referred to herein as the “Onyx Product Exclusive Period”). In the case of (y) and (z) above, the [*] royalty will terminate as to Net Sales of Product sold on or after the day following the end of the triggering calendar quarter. Onyx will pay Warner [*] of Net Sales as a royalty on sales of Onyx Products in each country (except for Japan) for the [*], respectively, following (a) such final Patent expiration (in the event that the required Patent necessary to sell such Product in such country existed on the date of first commercial sale or issued thereafter) or (b) the end of the Onyx Product Exclusive Period (if no such Patent existed or issued thereafter, and provided that the Onyx Product Exclusive Period lasted at least [*] years); provided, however, that no such royalty will be payable in respect of an Onyx Product sold without the use of one or more trademarks developed by Onyx for such Product during the time that the [*] royalty was applicable.

     6.5     Currency of Payment. All payments to be made under this Agreement shall be made in United States dollars in the United States to a bank account designated by the party to be paid. Royalties earned shall first be determined in the currency of the country in which they are earned and then converted to its equivalent in United States currency. Such conversion shall be based on the average buying rates of exchange for the currencies involved into the currency of the United States quoted by Citibank (or its successor in interest) in New York, New York at the close of business on each business day of the quarterly period in which the royalties were earned.

     6.6     Payment and Reporting. The royalties due under Section 6.3 or Section 6.5 shall be paid quarterly, within 45 days after the close of each calendar quarter immediately following each quarterly period in which such royalties are earned, or earlier if practical. With each such quarterly payment, the payor shall furnish the payee a royalty statement, setting forth on a country-by-country basis the total number of units and Net Sales of each royalty-bearing Product made, used and/or sold hereunder for the quarterly period for which the royalties are due. In addition, the payor shall furnish such a royalty statement on a country-by-country basis for the first quarter during which payor makes sales of Product for which no royalty payment in respect of such country is due hereunder, and shall state the basis for such sales then being free of royalty obligations

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hereunder. The payor shall thereafter have no further obligation to report the number of units or Net Sales of such Product made, used and/or sold in such country.

     6.7     Records. The royalty paying party shall keep accurate books and accounts of record in connection with the manufacture, use and/or sale by or for it of the Products hereunder in sufficient detail to permit accurate determination of all figures necessary for verification of royalty obligations set forth in this Article 6. Such records shall be maintained for a period of 3 years from the end of each year in which sales occurred. The payee, at its expense, through a certified public accountant, shall have the right to access such books and records for the sole purpose of verifying the royalty statements; such access shall be conducted after reasonable prior notice by the payee to the payor during the payor’s ordinary business hours and shall not be more frequent than once during each calendar year. Said accountant shall not disclose to the payee or any other party any information except that which should properly be contained in a royalty report required under this Agreement. If such accounting determines that a party’s error resulted in the other party receiving at least 5% less than properly due in respect of any quarter, then the party in error will reimburse such amount and reimburse the other party for the costs of such accounting (including the fees and expenses of the certified public accountant).

     6.8     Taxes Withheld. Any income or other tax that one party hereunder, its Affiliates or sublicensees is required to withhold (the “Withholding Party”) and pay on behalf of the other party hereunder (the “Withheld Party”) with respect to the royalties payable under this Agreement shall be deducted from and offset against said royalties prior to remittance to the Withheld Party; provided, however, that in regard to any tax so deducted, the Withholding Party shall give or cause to be given to the Withheld Party such assistance as may reasonably be necessary to enable the Withheld Party to claim exemption therefrom or credit therefor, and in each case shall furnish the Withheld Party proper evidence of the taxes paid on its behalf.

     6.9     Computation of Royalties. All sales of Onyx Products between Onyx and any of its Affiliates and sublicensees shall be disregarded for purposes of computing royalties under this Article 6, but in such instances royalties shall be payable only upon sales to unlicensed third parties. Nothing herein contained shall obligate Onyx to pay Warner more than one royalty on any unit of an Onyx Product. All sales of Collaboration Products between Warner and any of its Affiliates and sublicensees shall be disregarded for purposes of computing royalties under this Article 6, but in such instances royalties shall be payable only upon sales to unlicensed third parties. Nothing herein contained shall obligate Warner to pay Onyx more than one royalty on any unit of a Collaboration Product or a Warner Product.

     6.10     Licenses to Affiliates. Each party shall, at the other party’s request, sign license and/or royalty agreements directly with the other party’s Affiliates and sublicensees in those situations where such agreements would not decrease the amount of

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royalties which would be owed hereunder. Such agreements shall contain the same language as contained herein with appropriate changes in parties and territory. No such license and/or royalty agreement will relieve Warner or Onyx, as the case may be, of its obligations hereunder, and such party will guarantee the obligations of its Affiliate or sublicensee in any such agreement. Royalties received directly from one party’s Affiliates and sublicensees shall be credited towards such party’s royalty obligations under Section 6.3 or 6.5 hereof, as applicable.

     6.11     Restrictions on Payment. The obligation to pay royalties under this Agreement shall be waived and excused to the extent that statutes, laws, codes or government regulations in a particular country prevent such royalty payments by the seller of Products; provided, however, that if legally permissible, the seller of Products shall pay the royalties owed to the other party hereto by depositing such amounts in a bank account in such country that has been designated by the party owed such royalties.

ARTICLE 7

CO-PROMOTION OF COLLABORATION PRODUCTS

     7.1     Co-Promotion Rights. Onyx will have the right to co-promote each Collaboration Product in the Co-Promotion Country during the Term of Co-Promotion pursuant to the terms and conditions hereof.

     7.2     Election or Revocation of Co-Promotion Right. Warner will give Onyx at least [*] prior written notice of the anticipated first commercial sale of a Collaboration Product in the Co-Promotion Country. Onyx will notify Warner in writing at least [*] prior to such anticipated first commercial sale whether it elects to exercise its right to co-promote such Collaboration Product in such Co-Promotion Country beginning with the date of first commercial sale. If Onyx fails timely to give such notice to Warner, it shall be deemed to have waived its rights to co-promote. Onyx may terminate the Term of Co-Promotion at any time following [*] month’s written notice to Warner. The Term of Co-Promotion can not be reinstated after delivery of such notice.

     7.3     Onyx’s Promotional Percentage. If Onyx elects to exercise its co-promotion rights pursuant to Section 7.2, the Marketing Committee will meet and determine procedures whereby Onyx will supply up to [*] but not less than [*] of the sales efforts (including details, if determined to be an appropriate sales activity) for the relevant Collaboration Product in the Co-Promotion Country. Warner will compensate Onyx for such effort at the lesser of (i) [*] and (ii) [*] Prior to initiation of the Term of Co-Promotion in the Co-Promotion Country, the parties will negotiate in good faith and agree on appropriate accounting procedures and payment terms to (i) confirm each party’s performance of its required sales effort, (ii) calculate the costs for each party to provide its sales effort and (iii) compensate Onyx as required by this Section.

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     7.4     Marketing and Marketing Plans. Each Collaboration Product will be marketed with one label and will bear one or more trademarks owned by Warner. The Marketing Committee will be responsible for developing and approving marketing plans and the advertising and other promotional materials to be used in co-promoting each Collaboration Product. Warner will be responsible for obtaining acceptance of each Collaboration Product on formularies, if applicable. Warner will keep Onyx informed of and will solicit and consider in good faith Onyx’s opinions regarding strategies for obtaining formulary acceptance.

     7.5     Promotional Materials. Onyx shall not create any promotional or advertising materials for Collaboration Products. Onyx shall disseminate only those promotional and advertising materials which have been provided or approved for Onyx’s use by Warner. Warner shall supply timely to Onyx, at Warner’s cost, quantities of promotional materials needed by Onyx to exercise its rights under this Agreement. Onyx shall not, and shall cause its employees, representatives and agents not, to make any claims or representations in respect of the Collaboration Products that have not been approved by Warner.

     7.6     No Delegation. Onyx may use only its own employees or the employees of one or more of its subsidiaries in the course of exercising its co-promotion rights under this Agreement.

     7.7     Returns. Warner shall be responsible for handling all returns relating to Collaboration Products. Any Collaboration Product returned to Onyx shall be shipped by Onyx to the address designated by Warner with shipping costs authorized by Warner to be paid by Warner.

     7.8     Orders. All customer orders for Collaboration Products shall be received and executed by Warner. Onyx shall transmit any such orders that it receives to Warner no later than the following business day.

     7.9     Samples. Each of the parties will keep accurate records as to the distribution of samples of Collaboration Products and comply with all applicable laws, rules and regulations dealing with the distribution of samples.

     7.10     Completion of Sales. All sales of Collaboration Products will be completed, distributed, accounted for, billed and booked by Warner at prices established by Warner.

     7.11     Training. Consistent with the marketing plans established by the Marketing Committee, but not less than [*] prior to the commencement of the Term of Co-Promotion for each Collaboration Product, Warner shall provide, at Onyx’s expense,

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reasonable access to its sales training staff and facilities for appropriate, initial training of the Onyx sales force.

     7.12     Exchange of Marketing Information. From time-to-time the Marketing Committee will develop call lists, schedules, and other appropriate information for the purpose of determining the physicians and other persons involved in the drug purchase decision-making process to whom Onyx and Warner, respectively, may detail each Collaboration Product. The parties agree to cooperate in finding an inexpensive and expeditious way to provide a call list and other information indicating the identity of those physicians and other persons involved in the decision-making process regarding the purchase of pharmaceuticals.

ARTICLE 8

FDA

     8.1     Side Effects. Each party shall promptly advise the other by telefax or overnight delivery service addressed to the attention of its Vice President, Medical Affairs (or, in Onyx’s case, the party with similar responsibilities), of any unexpected side effect, adverse reaction or injury which has been brought to that party’s attention at any place and which is alleged to have been caused by a Collaboration Product. Warner shall have all rights and responsibility to report such side effect, adverse reaction or injury to regulatory authorities and others as appropriate.

     8.2     Regulatory and other Inquiries. Upon being contacted by the FDA or any drug regulatory agency for any regulatory purpose pertaining to this Agreement or to a Collaboration Product, Onyx and Warner shall immediately notify and consult with one another and Warner shall provide a response as it deems appropriate. Warner shall have sole responsibility for responding to all inquiries to Warner or Onyx regarding the benefits, side effects and other characteristics of Collaboration Products.

     8.3     Product Recall. In the event that Warner or Onyx determines that an event, incident or circumstance has occurred which may result in the need for a recall or other removal of any Collaboration Product or any lot or lots thereof from the market, it shall advise and consult with the other party with respect thereto. Warner shall make the final determination to recall or otherwise remove the Collaboration Product or any lot or lots thereof from the market and shall be responsible for the cost and expense of notifying customers and the cost and expense associated with return of the recalled Collaboration Product from a customer. Onyx shall have no such rights or responsibilities in respect of territories outside of the Co-Promotion Country.

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     8.4     Responsibility if not Co-Promoting. Onyx will have the rights and responsibilities referred to in this Article 8 only during the Term of Co-Promotion and for [*] thereafter.

ARTICLE 9

RESEARCH FUNDING AND MILESTONES

     9.1     Research Funding. Warner will pay Onyx the following amounts on the following dates during the Term of the Research Collaboration in consideration for work performed by Onyx prior to the Effective Date and to provide support for Onyx’s work under the Research Plan:

The Effective Date	$	250,000
Three month anniversary of the Effective Date	$	250,000
Six month anniversary of the Effective Date	$	750,000
Nine month anniversary of the Effective Date	$	250,000
Twelve month anniversary of the Effective Date	$	1,000,000
Fifteen month anniversary of the Effective Date	$	250,000
Eighteen month anniversary of the Effective Date	$	250,000
Twenty-one month anniversary of the Effective Date	$	500,000
Twenty-four month anniversary of the Effective Date	$	1,500,000
Twenty-seven month anniversary of the Effective Date	$	250,000
Thirty month anniversary of the Effective Date	$	250,000
Thirty-three month anniversary of the Effective Date	$	666,667
	$	6,166,667

     9.2     Milestones. (a) Warner will pay Onyx the following amounts with respect to the first Collaboration Product to achieve each stated milestone:

Commencement of Phase I clinical trials by or on behalf of Warner anywhere in the world	[*]
Commencement of Phase II clinical trials by or on behalf of Warner anywhere in the world	[*]
Commencement of Phase III clinical trials by or on behalf of Warner anywhere in the world	[*]
The FDA’s acceptance for filing of an NDA	[*]

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Acceptance for filing of an MAA applicable to any of the following countries: (i) United Kingdom, (ii) Spain, (iii) Italy, (iv) France and (v) Germany (each a “Major European Country”)	[*] country, up to
	[*] total
Approval by the FDA of an NDA		[*]
Approval of an MAA applicable to a Major European Country	[*] country, up to
	[*] total

          (b)      Warner will pay Onyx [*] upon the approval by the FDA of an NDA for the second and each subsequent Collaboration Product so approved and [*] upon the approval of an MAA applicable to each Major European Country, up to [*], for the second and each subsequent Collaboration Product so approved.

          (c)     Onyx will pay Warner [*] upon the approval by the FDA of an NDA for each Onyx Product and [*] upon the approval of an MAA applicable to each Major European Country, up to [*] for each Onyx Product.

ARTICLE 10

CONFIDENTIALITY

     10.1     Confidentiality. (a) Except as specifically permitted hereunder, each party hereby agrees to hold in confidence and not use on behalf of itself or others all data, samples, technical and economic information (including the economic terms hereof), commercialization, clinical and research strategies and know-how provided by the other party (the “Disclosing Party”) during the Term of this Agreement and all data, results and information developed pursuant to the Collaboration and solely owned by the other party (collectively the “Confidential Information”), except that the term “Confidential Information” shall not include:

               (i)      information that is or becomes part of the public domain through no fault of the non-Disclosing Party or its Affiliates;

               (ii)     information that is obtained after the date hereof by the non-Disclosing Party or one of its Affiliates from any third party which is lawfully in possession of such Confidential Information and not in violation of any contractual or legal obligation to the Disclosing Party with respect to such Confidential Information;

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               (iii)     Information that is known to the non-Disclosing Party or one or more of its Affiliates prior to disclosure by the Disclosing Party, as evidenced by the non-Disclosing Party’s written records; and

               (iv)      information that is necessary to be disclosed to any governmental authorities or pursuant to any regulatory filings, provided that in such case the non-Disclosing Party notifies the Disclosing Party reasonably in advance of such disclosure and cooperates with the Disclosing Party to minimize the scope or content of such disclosure.

          (b)      The obligations of this Section 10.1 shall survive the expiration or termination of this Agreement.

     10.2     Publicity. All publicity, press releases and other announcements relating to this Agreement or the transactions contemplated hereby shall be reviewed in advance by, and subject to the approval of, both parties; provided, however, that either party may (i) publicize the existence and general subject matter of this Agreement without the other party’s approval and (ii) disclose the terms of this Agreement insofar as required to comply with applicable securities laws, provided that in the case of such securities disclosures the disclosing party notifies the other party reasonably in advance of such disclosure and cooperates to minimize the scope and content of such disclosure.

     10.3     Publication. The parties shall cooperate in appropriate publication of the results of research and development work performed pursuant to this Agreement, but subject to the predominating interest to obtain patent protection for any patentable subject matter. To this end, it is agreed that prior to any public disclosure, the party proposing disclosure shall send the other party a copy of the information to be disclosed, and shall allow the other party [*] from the date of receipt in which to determine whether the information to be disclosed contains subject matter for which patent protection should be sought prior to disclosure. If notification is not received during the [*] period, the party proposing disclosure shall be free to proceed with the disclosure. If due to a valid business reason or a belief by the nondisclosing party that the disclosure contains subject matter for which a patentable invention should be sought, then prior to the expiration of the [*] period, the nondisclosing party shall so notify the disclosing party, who shall then delay public disclosure of the information for an additional period of up to [*] to permit the preparation and filing of a patent application on the subject matter to be disclosed or other action to be taken. The party proposing disclosure shall thereafter be free to publish or disclose the information. The determination of authorship for any paper shall be in accordance with accepted scientific practice. In no event may any publication or other disclosure contain a party’s Confidential Information without such party’s prior written consent.

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ARTICLE 11

JAPAN

     11.1     Japanese Company. Neither party may license any of its Patents or Know-How to, or otherwise collaborate in the Field with, any person or other entity for use in Japan, except pursuant to an agreement mutually acceptable to Onyx and Warner (the “Japanese Company Agreement”). Onyx and Warner will work together to select a Japanese company to collaborate with (the “Japanese Company”) and to hold negotiations with the Japanese Company regarding the terms of the Japanese Company Agreement.

     11.2     Japanese Company Agreement. Warner agrees that it will accept any proposed Japanese Company Agreement that includes the following provisions: (i) [*] provided, however, that [*] (ii) [*] (iii) [*] (iv) [*] (v) [*] (vi) [*] provided, however, that this provision shall not apply to (a) any compound identified by the Japanese Company as a candidate for cGLP/cGMP studies before the effective date of the Japanese Company Agreement, or analogs or derivatives thereof not identified pursuant to any collaboration between Onyx and the Japanese Company or (b) any compound identified after the [*] anniversary of the term of the research collaboration under such agreement; and further provided that this provision will apply to compounds identified during the term of the research collaboration under such agreement or [*] thereafter, and any derivatives or analogs of such compounds whenever identified, and (vii) [*] For purposes of clause (i) of this section, any dispute about the [*] that cannot be resolved by good faith negotiations between senior executive officers of Onyx and Warner will be resolved by the decision of an investment bank familiar with valuations of privately-held biotechnology companies selected by the parties in good faith agreement, with the cost of performing such valuation borne equally by the parties.

     11.3     Absence of Agreement. If Onyx does not execute an agreement in the Field with a Japanese company pursuant to Sections 11.1 or 11.2, then neither party shall market or license others to market any Collaboration Compounds in the Field in Japan without the consent of the other party.

ARTICLE 12

REPRESENTATIONS AND WARRANTIES

     12.1     Legal Authority. Each party represents and warrants to the other that it has the legal power, authority and right to enter into this Agreement and to perform its respective obligations set forth herein.

     12.2     No Conflicts. Each party represents and warrants that as of the date of this Agreement it is not a party to any agreement or arrangement with any third party or under

23.

any obligation or restriction, including pursuant to its Certificate of Incorporation or By-Laws, which in any way limits or conflicts with its ability to fulfill any of its obligations under this Agreement.

     12.3     Others Bound. Each party represents and warrants that anyone performing services under this Agreement on its behalf shall be bound by all of the conditions of this Agreement, to the extent necessary to give full effect to this Agreement.

     12.4     Third Party Rights. Each party represents and warrants that to the best of its knowledge its performance of the work under the Collaboration as contemplated by this Agreement will not infringe the patent, trade secret or other proprietary rights of any third party except insofar as any infringement may relate to technology, data or information provided by the other party hereunder.

     12.5     Survival. The foregoing representations and warranties shall survive the execution, delivery and performance of this Agreement, notwithstanding any investigation by or on behalf of either party.

     12.6     Disclaimer. Except as otherwise expressly stated herein, Warner hereby disclaims any warranty expressed or implied as to any Onyx Product sold or placed in commerce by or on behalf of Onyx. Except as otherwise expressly stated herein, Onyx hereby disclaims any warranty expressed or implied as to any Collaboration Product sold or placed in commerce by or on behalf of Warner.

     12.7     Exclusivity. Except pursuant to the Japanese Company Agreement, during the Term of the Research Collaboration and for one year thereafter (i) neither party will conduct any research or development in the Field except pursuant to this Agreement, (ii) neither party will license (or otherwise permit access to) any of its Patents or Know-How for research or development in the Field to (or otherwise collaborate on research or development in the Field with) any other person or entity and (iii) Onyx will not license (or otherwise permit access to) any assay developed by it pursuant to the Collaboration to any other person or entity. In respect of (i), above, each party shall have the right to conduct its own research and development in the Field during the one year following the end of the Term of the Research Collaboration, provided that all results of such work discovered during such period (including without limitation compounds and assays), and analogs and derivatives of compounds identified during such period whenever identified, are promptly disclosed to the other party and are covered by the licenses granted under Sections 1.4, 5.1 and 5.2, as applicable.

ARTICLE 13

TERMINATION

24.

     13.1     Termination for Breach. In the event of a material breach of the provisions of this Agreement described below, the breaching party shall have 30 days after receipt of written notice from the non-breaching party to cure such breach.

          (a)      In the event of an uncured material breach of Article 2, the non-breaching party may terminate the Term of the Research Collaboration.

          (b)      In the event of an uncured material breach of Section 6.3 by Warner in respect of a Collaboration Product, Onyx may (i) terminate the licenses granted by it pursuant to Section 6.1 in respect of such Product and (ii) require Warner to grant it an exclusive (even as to Warner), worldwide license (with the right to sublicense) under the Patents relating to such Product and owned or controlled by Warner, to the extent necessary to make, use or sell such Product.

          (c)      In the event of an uncured material breach of Section 6.5 by Onyx in respect of an Onyx Product, Warner may (i) terminate the licenses granted by it pursuant to Section 6.2 in respect of such Product and (ii) require Onyx to grant it an exclusive (even as to Onyx), worldwide license (with the right to sublicense) under the Patents relating to such Product and owned or controlled by Onyx, to the extent necessary to make, use or sell such Product.

          (d)     In the event of an uncured material breach by Onyx of any provision of Article 7, Warner may immediately terminate the Term of Co-Promotion.

     13.2     Effect of Bankruptcy. If either party files a voluntary petition in bankruptcy, is adjudicated a bankrupt, makes a general assignment for the benefit of creditors, admits in writing that it is insolvent or fails to discharge within 15 days an involuntary petition in bankruptcy filed against it, then the other party will have 60 days to determine whether or not (a) the Term of the Research Collaboration shall immediately terminate and/or (b) the Term of Co-Promotion shall immediately terminate.

     13.3     Termination of Co-Promotion Rights. Warner may terminate Onyx’s right to co-promote Collaboration Products hereunder if (i) any entity or person in the pharmaceutical industry directly or indirectly acquires ownership or control of more than 50% of Onyx’s voting capital stock or substantially all of its assets or (ii) Onyx develops or acquires a financial interest in any product that could compete with any Collaboration Product as to which product an NDA has been filed with or approved by the FDA.

     13.4     Remedies. In the event of any breach of any provision of this Agreement, in addition to the termination rights set forth herein, each party shall have all other rights and remedies at law or equity to enforce this Agreement.

25.

     13.5     Voluntary Termination. Warner may terminate this Agreement by providing written notice thereof to Onyx on the eighteen month anniversary of the Effective Date. In such event, the Term of this Agreement will automatically terminate, and Warner’s obligation to purchase stock on the second anniversary of the Effective Date under the Preferred Stock Purchase Agreement dated the date hereof will also terminate. Notwithstanding the termination of the Term of this Agreement, (i) Warner will make all research payments to Onyx that are due before the second anniversary of the Effective Date pursuant to Section 9.1 (payable on the dates that such payments are due) and shall make a termination payment of [*] on the second anniversary of the Effective Date, (ii) Warner will grant Onyx an exclusive (even as to Warner), world-wide, fully-paid, perpetual license under Warner’s Patents and Warner’s Know-How discovered or reduced to practice prior to the one year anniversary of the termination of the Term of this Agreement that are necessary to make, use and sell any Collaboration Compound for therapeutic or diagnostic use in the Field, (iii) the licenses granted under Section 6.1 will terminate and (iv) the licenses granted to Warner under Section 2.4 will terminate.

ARTICLE 14

GENERAL PROVISIONS

     14.1     Indemnification. Each of Warner and Onyx agrees to indemnify and hold harmless the other party and its Affiliates and their respective employees, agents, officers, directors and permitted assigns (such party’s “Indemnified Group”) from and against any claims, judgments, expenses (including reasonable attorney’s fees), damages and awards (collectively a “Claim”) arising out of or resulting from (i) its negligence or misconduct in regard to any Product, (ii) a breach of any of its representations or warranties hereunder or (iii) the manufacture, use or sale of a Collaboration Product (in the case of Warner) or an Onyx Product (in the case of Onyx), except to the extent that such Claim arises out of or results from the negligence or misconduct of a party seeking to be indemnified and held harmless or the negligence or misconduct of a member of such party’s Indemnified Group. A condition of this obligation is that, whenever an indemnified party has information from which it may reasonably conclude an incident has occurred which could give rise to a Claim, such indemnified party shall immediately give notice to the indemnifying party of all pertinent data surrounding such incident and, in the event claim is made or suit is brought, all indemnified parties shall assist the indemnifying party and cooperate in the gathering of information with respect to the time, place and circumstances and in obtaining the names and addresses of any injured parties and available witnesses. No indemnified party shall, except at its own cost, voluntarily make any payment or incur any expense in connection with any such Claim or suit without the prior written consent of the indemnifying party. The obligations set forth in this Section shall survive the expiration or termination of this Agreement.

26.

     14.2     Assignment. This Agreement shall not be assignable by either party without the prior written consent of the other party, such consent not to be unreasonably withheld. In no event will any assignment relieve the assigning party of its obligations hereunder. This Agreement shall be binding upon and, subject to the terms of the foregoing sentence, inure to the benefit of the parties’ successors, legal representatives and assigns. Notwithstanding the foregoing, Warner may assign this Agreement to any of its wholly-owned subsidiaries or any entity succeeding to a majority of its Parke-Davis business, and either party may assign this Agreement to its successor in connection with any merger, consolidation or sale of all or substantially all of its assets.

     14.3     Non-Waiver. The waiver by either of the parties of any breach of any provision hereof by the other party shall not be construed to be a waiver of any succeeding breach of such provision or a waiver of the provision itself.

     14.4     Research Dispute Resolution. The parties recognize that the collaborative research program under the Research Plan may require the resolution of certain issues or the negotiation of additional agreements in the future. In the event the Research Management Committee is unable to resolve a dispute under the Research Plan, either party may have the dispute referred to the President of Onyx and the senior officer of Warner’s pharmaceutical business for good faith resolution.

     14.5     Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of New York, other than those provisions governing conflicts of law.

     14.6     Partial Invalidity. If and to the extent that any court or tribunal of competent jurisdiction holds any of the terms or provisions of this Agreement, or the application thereof to any circumstances, to be invalid or unenforceable in a final nonappealable order, the parties shall use their best efforts to reform the portions of this Agreement declared invalid to realize the intent of the parties as fully as practical, and the remainder of this Agreement and the application of such invalid term or provision to circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each of the remaining terms and provisions of this Agreement shall remain valid and enforceable to the fullest extent of the law.

     14.7     Notice. Any notice to be given to a party under or in connection with this Agreement shall be in writing and shall be (i) personally delivered, (ii) delivered by a nationally recognized overnight courier or (iii) delivered by certified mail, postage prepaid, return receipt requested to the party at the address set forth below for such party:

27.

To Warner:	To Onyx:
Senior Vice President, Research Parke-Davis Pharmaceutical     Research Division, Warner-Lambert Company 2800 Plymouth Road Ann Arbor, MI 48105	Hollings Renton President & CEO Onyx Corporation 3031 Research Drive Building A Richmond, CA 94806
with a copy to:	with a copy to:
President, Parke-Davis United States and Mexico Warner-Lambert Company 201 Tabor Road Morris Plains, NJ 07950	Robert L. Jones, Esq. Cooley Godward LLP 5 Palo Alto Square 4th Floor Palo Alto, CA 94306
and a copy to:
Vice President and General Counsel Warner-Lambert Company 201 Tabor Road Morris Plains, NJ 07950

or to such other address as to which the party has given notice thereof. Such notices shall be deemed given upon receipt.

     14.8     Vaccines and Diagnostics. Pursuant to an Agreement, between Chiron Corporation (“Chiron”) and Onyx, dated April 24, 1992, Chiron has certain rights to Vaccines and Diagnostics developed by Onyx. Warner and Onyx agree that, notwithstanding any other term or provision of this Agreement to the contrary, neither party shall license to the other any Patents or Know-How to make, use or sell Vaccines or Diagnostics. Furthermore, each party hereto may make, use or sell Vaccines and Diagnostics in the Field without obligation to the other party, including as relates to payment of milestones and royalties. As used in this Section, (i) “Vaccines” shall mean [*] and (ii) “Diagnostics” shall mean [*]

     14.9     Headings. The headings appearing herein have been inserted solely for the convenience of the parties hereto and shall not affect the construction, meaning or interpretation of this Agreement or any of its terms and conditions.

28.

     14.10     No Implied Licenses or Warranties. No right or license under any patent application, issued patent, know-how or other proprietary information is granted or shall be granted by implication. All such rights or licenses are or shall be granted only as expressly provided in the terms of this Agreement. Neither party warrants the success of any clinical or other studies undertaken by it.

     14.11     Force Majeure. No failure or omission by the parties hereto in the performance of any obligation of this Agreement shall be deemed a breach of this Agreement nor shall it create any liability if the same shall arise from any cause or causes beyond the reasonable control of the affected party, including, but not limited to, the following, which for purposes of this Agreement shall be regarded as beyond the control of the party in question: acts of nature; acts or omissions of any government; any rules, regulations, or orders issued by any governmental authority or by any officer, department, agency or instrumentality thereof; fire; storm; flood; earthquake; accident; war; rebellion; insurrection; riot; invasion; strikes; and lockouts or the like; provided that the party so affected shall use its best efforts to avoid or remove such causes or nonperformance and shall continue performance hereunder with the utmost dispatch whenever such causes are removed.

     14.12     Survival. The representations and warranties contained in this Agreement as well as those rights and/or obligations contained in the terms of this Agreement which by their intent or meaning have validity beyond the term of this Agreement shall survive the termination or expiration of this Agreement.

     14.13     Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to the subject matter contained herein and supersedes any and all prior agreements, understandings and arrangements whether oral or written between the parties relating to the subject matter hereof. This Agreement will control in the event of any conflict between this Agreement and the Research Plan.

     14.14     Amendments. No amendment, change, modification or alteration of the terms and conditions of this Agreement shall be binding upon either party unless in writing and signed by the party to be charged.

     14.15     Independent Contractors. It is understood that both parties hereto are independent contractors and engage in the operation of their own respective businesses, and neither party hereto is to be considered the agent or partner of the other party for any purpose whatsoever. Neither party has any authority to enter into any contracts or assume any obligations for the other party or make any warranties or representations on behalf of the other party.

29.

     14.16     Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first above written.

	ONYX PHARMACEUTICALS, INC.		WARNER-LAMBERT COMPANY
By:	/s/ Hollings C. Renton	By:	/s/ Ronald M. Cresswell
Name:	Hollings C. Renton	Name:	Ronald M. Cresswell
Title:	President & CEO	Title:	Vice President and Chairman Parke-Davis Pharmaceutical Research Warner-Lambert Company

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

30.

AMENDED AND RESTATED
RESEARCH, DEVELOPMENT AND MARKETING
COLLABORATION AGREEMENT

DATED AS OF MAY 2, 1995

BETWEEN

ONYX PHARMACEUTICALS, INC.

AND

WARNER-LAMBERT COMPANY

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

TABLE OF CONTENTS

		PAGE
ARTICLE 1.	DEFINITIONS		1
ARTICLE 2.	RESEARCH PROGRAM		5
2.1	Undertaking and Scope		5
2.2	Personnel and Resources		6
2.3	Term of the Research Collaboration		7
2.4	Rights to Know-How and Patents for Research		7
2.5	Collaboration Expenses		7
ARTICLE 3.	COMMITTEES		7
3.1	Research Management Committee		7
3.2	Marketing Committee		8
3.3	Meetings		8
3.4	SAB Attendance		8
ARTICLE 4.	PATENTS, KNOW-HOW, RIGHTS AND INVENTIONS		9
4.1	Rights to Inventions		9
4.2	Joint Inventions		9
4.3	Protection of Patent Rights		10
4.4	Allegations of Infringement by Third Parties		10
ARTICLE 5.	DESIGNATION OF LEAD COMPOUNDS AND      MARKETING RIGHTS		11
5.1	Designation of Lead Compound		11
5.2	Collaboration Product		11
5.3	Independent Development		11
5.4	Warner’s Re-engagement Option		12
ARTICLE 6.	LICENSES AND ROYALTIES		13
6.1	Grant by Onyx		13
6.2	Grant by Warner		13
6.3	Royalties Payable by Warner		13
6.4	Royalties Payable by Onyx		14
6.5	Currency of Payment		15
6.6	Payment and Reporting		15
6.7	Records		15
6.8	Taxes Withheld		16
6.9	Computation of Royalties		16
6.10	Licenses to Affiliates		16

i.

TABLE OF CONTENTS
(CONTINUED)

			PAGE
	6.11	Restrictions on Payment		16
ARTICLE 7.		CO-PROMOTION OF COLLABORATION PRODUCTS		17
	7.1	Co-Promotion Rights		17
	7.2	Election or Revocation of Co-Promotion Right		17
	7.3	Onyx’s Promotional Percentage		17
	7.4	Marketing and Marketing Plans		17
	7.5	Promotional Materials		18
	7.6	No Delegation		18
	7.7	Returns		18
	7.8	Orders		18
	7.9	Samples		18
	7.10	Completion of Sales		18
	7.11	Training		18
	7.12	Exchange of Marketing Information		18
ARTICLE 8.		FDA		19
	8.1	Side Effects		19
	8.2	Regulatory and other Inquiries		19
	8.3	Product Recall		19
	8.4	Responsibility if not Co-Promoting		19
ARTICLE 9.		RESEARCH FUNDING AND MILESTONES		20
	9.1	Research Funding		20
	9.2	Milestones		20
ARTICLE 10.		CONFIDENTIALITY		21
	10.1	Confidentiality		21
	10.2	Publicity		22
	10.3	Publication		22
ARTICLE 11.		JAPAN		23
	11.1	Japanese Company		23
	11.2	Japanese Company Agreement		23
	11.3	Absence of Agreement		24
ARTICLE 12.		REPRESENTATIONS AND WARRANTIES		24
	12.1	Legal Authority		24
	12.2	No Conflicts		24

ii.

TABLE OF CONTENTS
(CONTINUED)

			PAGE
	12.3	Others Bound		24
	12.4	Third Party Rights		24
	12.5	Survival		25
	12.6	Disclaimer		25
	12.7	Exclusivity		25
ARTICLE 13				25
	13.1	Termination for Breach		25
	13.2	Effect of Bankruptcy		26
	13.3	Key Personnel		26
	13.4	Termination of Co-Promotion Rights		26
	13.5	Remedies		27
	13.6	Voluntary Termination		27
ARTICLE 14.		GENERAL PROVISIONS		27
	14.1	Indemnification		27
	14.2	Assignment		28
	14.3	Non-Waiver		28
	14.4	Research Dispute Resolution		28
	14.5	Governing Law		28
	14.6	Partial Invalidity		28
	14.7	Notice		29
	14.8	Vaccines and Diagnostics		29
	14.9	Headings		30
	14.10	No Implied Licenses or Warranties		30
	14.11	Force Majeure		30
	14.12	Survival		30
	14.13	Entire Agreement		30
	14.14	Amendments		31
	14.15	Independent Contractors		31
	14.16	Counterparts		31

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

iii.

SCHEDULE 1

PRE-EXISTING CONFIDENTIALITY OBLIGATIONS

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

EX-10.21 4 f88257exv10w21.htm EXHIBIT 10.21

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

EXHIBIT 10.21

RESEARCH, DEVELOPMENT AND MARKETING
COLLABORATION AGREEMENT

     THIS RESEARCH, DEVELOPMENT AND MARKETING COLLABORATION AGREEMENT (the “Agreement”) is made and entered into effective as of July 31, 1997, by and between ONYX PHARMACEUTICALS, INC., a California corporation located at 3031 Research Drive, Richmond, California 94806 (“Onyx”), and WARNER-LAMBERT COMPANY, a Delaware corporation located at 201 Tabor Road, Morris Plains, New Jersey 07950 (“Warner”).

W I T N E S S E T H:

     WHEREAS, Onyx and Warner each has certain expertise in the discovery and development of agents acting in the field of inflammation; and

     WHEREAS, Warner and Onyx each wish to enter into a collaborative effort to share such expertise, to develop new expertise in the field of inflammation, auto immunity and related pathological conditions, to research together potential applications of such expertise as applied to specific protein targets to identify potentially useful drug candidates and, if successful, to market such drugs (the “Collaboration”);

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, covenants and conditions contained herein, Onyx and Warner agree as follows:

ARTICLE 1

DEFINITIONS

     The following capitalized terms shall have the meanings indicated for purposes of this Agreement:

     “1995 Agreement” shall mean the Research, Development and Marketing Collaboration Agreement between Onyx and Warner dated May 2, 1995, as amended.

     “Affiliate” shall mean any corporation, association or other entity which directly or indirectly controls, is controlled by or is under common control with the party in

1

question. As used herein the term “control” means possession of the power to direct, or cause the direction of, the management and policies of a corporation, association or other entity.

     “Collaboration Compound” shall mean any compound identified by either party during the Research Term (or one year thereafter) as showing sufficient activity against targets in the Field identified by the Research Management Committee in assays contributed to or developed under the Collaboration such that further research on such compound for such target is pursued, and any analogs or derivatives of such compounds whenever identified.

     “Collaboration Lead Compound” shall mean any Collaboration Compound selected by Warner for further development as provided in Section 5.1.

     “Collaboration Product” shall mean any Collaboration Lead Compound for which an IND or foreign equivalent application has been filed, as provided in Section 5.2.

     “Collaboration Product Exclusive Period” shall have the meaning set forth in Section 6.4(b).

     “Effective Date” shall mean the date of this Agreement first written above.

     “FDA” shall mean the United States Food and Drug Administration.

     “Field” shall mean research, drug discovery and development of therapeutic agents that regulate, treat or prevent inflammation, autoimmunity and/or other pathological conditions via the agonism, antagonism or other biochemical interaction with one or more of the following molecular targets: [*] including [*] and other kinases implicated in septic shock, and Wiscott-Aldrich Syndrome Protein (WASP).

     The parties may agree during the Research Term to expand the Field by designating additional targets, and it is their intention to do so in the event logical extensions of the Field are identified and may be accommodated within the resource commitment of the parties. Such expansion will be in writing signed by all members of the Research Development Committee. However, neither party shall be obligated to agree to expand the Field.

     For the avoidance of doubt, the parties agree that the Field will exclude:

(a)	[*]
(b)	All molecular entities that are part of or that regulate [*] This also includes [*] This also includes [*] This exclusion shall not include [*]
(c)	[*] except for the specific biological targets identified above;

2

(d)	[*]
(e)	[*]
(f)	[*]
(g)	[*]
(h)	[*]
(i)	[*] and
(j)	[*]

     [*] shall mean therapeutics where the active agent is [*] specifically excludes [*]

     “IND” shall mean an Investigational New Drug Application.

     “Invention” shall mean any invention, idea, data, know-how or material that is discovered or reduced to practice during the Term of this Agreement [*] and that relates to the discovery, design, synthesis, delivery, development, testing, use, manufacture or sale of agents acting in the Field.

     “Know-How” shall mean Onyx Know-How and/or Warner Know-How, as the case may be.

     “MHW” shall mean the Ministry of Health and Welfare of Japan.

     “NDA” shall mean a New Drug Application.

     “Net Sales” shall mean the gross amount invoiced by a party hereto or one of its Affiliates to customers who are not Affiliates of the selling party for all Products sold to such customers, less the following deductions calculated in accordance with United States generally accepted accounting principles and Warner’s (or Onyx’s, as the case may be) normal internal accounting standards consistently applied: (i) trade, quantity and cash discounts or rebates; (ii) credits, rebates, charge-back rebates, reimbursements or similar payments granted or given to wholesalers and other distributors, buying groups, healthcare insurance carriers, governmental agencies and other institutions, provided that such provisions will not grant a preference or otherwise favor other products of Warner or Onyx, as the case may be, if based on the fact that a royalty may be payable hereunder; (iii) credits or allowances for rejection or return of such Product previously sold; (iv) any tax, tariff, duty or other governmental charge (other than an income tax) levied on the sale, transportation or delivery of a Product and borne by the seller thereof; (v) payments or rebates paid in connection with state or federal Medicare, Medicaid or similar programs; (vi) any charge for freight or insurance; and (vii) allowance for bad debt

3

expense. Any such deductions, if not for amounts actually incurred or allowed with respect to the specific Products sold, shall be no greater than the pro rata amount allocable to such Product, based on the invoices for similar pharmaceutical products sold by the selling party, of the total amount of such deductions allowed or incurred for all such similar products. In the event that the selling party recognizes revenue due to excess balance sheet reserves associated with the net sales deductions described above, the pro rata amount of such revenue allocable to the Product shall be deemed Net Sales hereunder, at the time such revenue is recognized.

     “Onyx Know-How” shall mean all technology, inventions, information, data, know-how, compounds and materials that (i) are not Onyx Patents, (ii) Onyx owns or otherwise has the right to license to Warner and (iii) relate to the discovery, design, synthesis, delivery, development, testing, use, manufacture or sale of agents with activity in the Field. Excluded from “Onyx Know-How” are compounds and information relating to compounds that have been identified by Onyx as candidates for cGLP/cGMP studies on or before the Effective Date, or are hereafter so identified without material application of information provided by Warner or developed by either party pursuant to the Collaboration.

     “Onyx Lead Compound” shall mean a Collaboration Compound that Onyx obtains the right to develop independently as provided in Section 5.3.

     “Onyx Patents” shall mean all United States and foreign patents that are owned by Onyx or that Onyx otherwise has the right to license to Warner and that relate to the discovery, design, synthesis, delivery, development, testing, use, manufacture or sale of agents with activity in the Field, including, without limitation, all reissues, extensions, substitutions, confirmations, registrations, revalidations, additions, continuations, continuations-in-part, and divisions thereof. Excluded from “Onyx Patents” are patents and patent applications that claim compounds and information relating to compounds that have been identified by Onyx as candidates for cGLP/cGMP studies on or before the Effective Date, or are hereafter so identified without material application of information provided by Warner or developed pursuant to the Collaboration.

     “Onyx Product” shall have the meaning set forth in Section 5.3.

     “Onyx Product Exclusive Period” shall have the meaning set forth in Section 6.6(b).

     “Patents” shall mean Onyx Patents and/or Warner Patents, as the case may be.

     “Products” shall mean Collaboration Products and/or Onyx Products, as applicable.

4

     “Research Management Committee” shall mean that entity organized and acting pursuant to Section 3.1.

     “Research Plan” shall have the meaning set forth in Section 2.1.

     “Research Term” shall have the meaning set forth in Section 2.3.

     “Term of this Agreement” shall mean the period from the Effective Date until the expiration of all licenses granted pursuant to this Agreement or until this Agreement is otherwise terminated pursuant to its terms.

     “Warner Know-How” shall mean all technology, inventions, information, data, know-how, compounds and materials that (i) are not Warner Patents, (ii) Warner owns or otherwise has the right to license to Onyx and (iii) relate to the discovery, design, synthesis, delivery, development, testing, use, manufacture or sale of agents with activity in the Field. Excluded from “Warner Know-How” are (i) Warner’s high-volume screening technology and (ii) compounds and information relating to compounds that have been identified by Warner as candidates for cGLP/cGMP studies on or before the Effective Date, or are hereafter so identified without material application of information provided by Onyx or developed by either party pursuant to the Collaboration.

     “Warner Patents” shall mean all United States and foreign patents that are owned by Warner or that Warner otherwise has the right to license to Onyx and that relate to the discovery, design, synthesis, delivery, development, testing, use, manufacture or sale of agents with activity in the Field, including, without limitation, all reissues, extensions, substitutions, confirmations, registrations, revalidations, additions, continuations, continuations-in-part, and divisions thereof. Excluded from “Warner Patents” are patents and patent applications that claim (i) Warner’s high volume screen technology and (ii) compounds and information relating to compounds that have been identified by Warner as candidates for cGLP/cGMP studies on or before the Effective Date, or are hereafter so identified without material application of information provided by Onyx or developed pursuant to the Collaboration.

ARTICLE 2

RESEARCH PROGRAM

     2.1     Undertaking and Scope. From time to time the Research Management Committee will agree on the general direction of the research to be performed hereunder. The correspondence and other material documenting such agreement are collectively referred to herein as the “Research Plan.” Each party agrees to use its best efforts to perform the activities detailed in the Research Plan, in a professional and timely manner. Onyx agrees to use its best efforts at its cost (including the cost of any royalties or other amounts payable by Onyx to third parties) to (i) develop and transfer to Warner [*]

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screening assays per each year of the Research Term for specific targets in the Field selected by the Research Management Committee, (ii) supply protein required to run such screens and (iii) provide for the testing of substantially all of Onyx’s compound library in such screens. Onyx shall not knowingly provide or perform research on any compounds the use of which would require a royalty or other payment to any third party, unless the Research Management Committee agrees that such compound should be provided and the parties agree in writing how such royalty or other payment will be paid. Warner agrees to use its best efforts at its cost [*] to (i) screen substantially all of its compound library with such screens provided by Onyx and (ii) conduct medicinal chemistry and animal pharmacology as the Research Management Committee deems appropriate. Promptly after the Effective Date, Onyx and Warner will disclose to each other all information possessed by it relevant to the Field and necessary or helpful to perform the work described in the Research Plan. During the Research Term, or one year thereafter, the Research Management Committee and either party individually may from time to time declare any compound that meets the definition therefor in Article 1 to be a Collaboration Compound. Notwithstanding the foregoing, neither party will be required to offer the other party any compounds or information relating to compounds that have been identified as candidates for cGLP/cGMP studies on or before the Effective Date, or are hereafter so identified without material application of information provided by the other party or developed pursuant to the Collaboration. Neither party shall be required to screen under this Collaboration or to offer to the other party any information regarding any compounds identified as having activity in pathways expressly excluded from the Field, if so identified prior to being designated a “Collaboration Compound” hereunder.

     2.2     Personnel and Resources. Each party agrees to commit the personnel, facilities, expertise and other resources needed to perform this Agreement in accordance with its terms; provided, however, that neither party warrants that the Collaboration shall achieve any of the research objectives contemplated by them. During the Research Term, Warner and Onyx will each maintain at its cost an average of about ten (10) full-time equivalents (“FTEs”) devoted to cooperative work under the Research Plan. At the beginning of the first-year of the Research Term, Onyx need maintain only 5 such FTEs; with Onyx adding additional FTEs as needed to reach 10 FTEs actively working on the research by January 1998. The scientific priorities and direction of such staff of both parties will be determined by the Research Management Committee. Such staff will include, as appropriate, scientists in the areas of [*]

     2.3     Research Term. Work under the Research Plan will commence as of the date of this Agreement and, unless terminated earlier by either party pursuant to the terms of this Agreement or extended by mutual agreement of the parties, will terminate on the third anniversary hereafter (as terminated, expired or extended, the “Research Term”). At least thirty (30) days prior to the 24-month anniversary of the Effective Date, Onyx will provide Warner a written research proposal for continuation of the research project beyond the initial Research Term. Promptly after Onyx provides such proposal,the

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Research Management Committee will conduct a formal review of such proposal and of the status and success of the parties’ work on the Research Plan. By the 24-month anniversary of the Effective Date (the “Evaluation Date”), Warner shall decide in its sole discretion whether to extend the collaborative research under the research proposal beyond the initial three year term for at least one additional year, or not to extend the collaborative research beyond such initial term, in which case the Agreement shall terminate at the end of such initial three year Research Term. If Warner does not elect in writing to extend the Research Term beyond such initial three year term, then commencing on or promptly after the Evaluation Date the work conducted by Onyx and Warner will be wound down and ended in an orderly twelve month phase out period, ending on the first anniversary of the Evaluation Date, with Onyx continuing the research efforts using [*] FTEs over such period. During such phase-out period, Warner will be obligated to pay Onyx a total of [*] to support Onyx’s research efforts using [*] FTEs over such phase-out period, which amounts shall be paid in four equal installments in advance over such year, commencing on the Evaluation Date, in lieu of the last four research funding payments as specified in Section 8.2.

     2.4     Rights to Know-How and Patents for Research. Each party hereby grants and agrees to grant to the other a non-exclusive, royalty-free license to use such party’s Know-How and Patents that are conceived or reduced to practice prior to the [*] anniversary of the end of the Research Term for (a) research and development purposes in the Field and (b), beginning [*] after termination of the Research Term, research and development outside of the Field; provided, however, that the granting party may terminate such licenses granted by it immediately upon its termination of this Agreement for cause. Notwithstanding the foregoing, neither party is granted any interest in the other’s compounds (or analogs or derivatives thereof) except as specifically set forth in this Agreement. In the event that one party does nonetheless conceive or reduce to practice any invention that is comprised of the other party’s compound (or analog or derivative thereof) and if such invention is not in the Field, such party will promptly assign its entire interest therein exclusively to the other party without charge and will not be entitled to any milestones, royalties or other consideration in connection therewith.

     2.5     Collaboration Expenses. [*] the costs and expenses of work done pursuant to the Collaboration at [*]

ARTICLE 3

COMMITTEES

     3.1     Research Management Committee. Warner and Onyx will each appoint up to 4 representatives to a research management committee (the “Research Management Committee”), which will oversee the operational aspects of performing the Research Plan. The Research Management Committee will assure that agendas and minutes are prepared for each of its meetings. The personnel, facilities, expertise and other resources

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of each party to be used in performance of the Research Plan shall be established by the Research Management Committee. The Research Management Committee will meet quarterly, or more frequently if mutually agreed. Warner’s and Onyx’s initial representatives to the Research Management Committee will be appointed by each of them promptly after the date of this Agreement. All actions taken and decisions made by the Research Management Committee shall be by unanimous agreement. A party may change any of its appointments to the Research Management Committee at any time upon giving written notice to the other party.

     3.2     Meetings. The Research Management Committee may meet by telephone or in person at such times as are agreeable to the members of each such committee. Attendance at meetings shall be at the respective expense of the participating parties. Warner and Onyx shall alternate the right to determine the location of each meeting of the Research Management Committee, with Onyx determining the location of the first meeting of such committee.

     3.3     SAB Attendance. During the Term of this Agreement, Warner will be entitled to have up to three (3) of its representatives attend all meetings of Onyx’s Scientific Advisory Board that relate directly to the Field and such other general symposia that do not contain confidential information outside the Field of Onyx or of any third party to which Onyx owes a duty of confidentiality that would be breached by Warner’s attendance. Onyx will provide Warner reasonable advance notice of all such meetings and will provide Warner copies of all written material given to the members of the Scientific Advisory Board in connection with such meetings. Attendance at such meetings by Warner’s representatives will be at Warner’s expense. As a condition of such attendance and access to such written material, Warner will execute appropriate confidentiality agreements with respect to information disclosed at such meetings and in such written material. The Warner representatives provided for herein shall not be in addition to the representatives provided for under Section 2.4 of the 1995 Agreement, though different individuals from Warner may attend different meetings depending on the subject matter.

ARTICLE 4

PATENTS, KNOW-HOW, RIGHTS AND INVENTIONS

     4.1     Rights to Inventions.

          (a)     Ownership of all Inventions and any other technology, information, data, know-how, compounds and material developed, discovered or made hereunder shall be determined in accordance with United States laws of inventorship. The owner (the “Inventor”) of any Invention shall have the right, at its option and expense, to prepare, file and prosecute in its own name any patent applications with respect to any Invention owned by it and to maintain any patents issued. In connection therewith, the non-

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Inventor party agrees to cooperate with the Inventor at the Inventor’s expense in the preparation and prosecution of all such patent applications and in the maintenance of any patents issued. This obligation shall survive the expiration or termination of this Agreement.

          (b)     The parties will co-own technology, inventions, information, data, know-how, compounds and materials (whether or not patentable) that relate to [*] and that are developed in connection with performance of the Research Plan (“[*] Inventions”). The parties will cooperate in the joint filing of patent applications claiming [*] Inventions. The parties will negotiate in good faith regarding the collaborative commercial exploitation of the [*] Inventions; provided, however, that each party will retain an undivided ownership interest in the [*] Inventions and will be free to exploit the same without obligation to the other party.

     4.2     Joint Inventions. Inventions that are jointly invented by Onyx and Warner will be jointly owned by them; however, [*] will have the rights and responsibilities of the “Inventor” as described in this Article IV in respect of any such patentable, jointly owned Inventions, and [*] shall have the rights and responsibilities of a non-Inventor therein. [*] shall pay all expenses in connection with its preparation, filing and prosecution of patent applications that claim patentable, jointly owned Inventions. [*] shall from time to time notify [*] of the amount of such expenses, and [*] shall promptly thereafter pay [*] of its out-of-pocket expenses. As used in the preceding sentence “out-of-pocket expenses” shall mean direct costs, excluding internal labor costs. Onyx may elect in writing to disclaim all interest in any jointly invented Invention, in which case (i) such Invention will be solely owned by Warner, and Onyx will co-operate to assure Warner’s sole ownership, (ii) Onyx will have no further interest in such Invention, by ownership, license or otherwise and (iii) [*] the date that Warner receives Onyx’s written disclaimer. Warner may elect in writing to disclaim all interest in any jointly invented Inventions, in which case (i) such Invention will be solely owned by Onyx, and Warner will co-operate to assure Onyx’s sole ownership, (ii) Warner will have no further interest in such Invention, by ownership, license or otherwise and (iii) [*]

     4.3     Protection of Patent Rights.

          (a)     The Inventor shall keep the other party currently informed of all steps to be taken in the preparation, prosecution and maintenance of all of its patents and patent applications which claim an Invention and shall furnish the other party with copies of patents and applications, amendments thereto and other related correspondence relating to such Invention to and from patent offices and permit the other party to offer its comments thereon before the Inventor makes a submission to a patent office which could materially affect the scope or validity of the patent coverage that may result. The non-Inventor party shall offer its comments promptly. Onyx and Warner shall each promptly notify the other of any infringement and/or unauthorized use of an Invention which comes to its attention.

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           (b)     The non-Inventor party may request in writing that the Inventor take specific, reasonable actions to (i) prepare, file or prosecute a patent application with respect to an Invention, (ii) maintain any patents issued with respect to an Invention, (iii) protect against abandonment of a patent or application which claims an Invention or (iv) obtain a discontinuance of an infringement or unauthorized use of such patent or application. If such actions are not undertaken within thirty days of the Inventor’s receipt of such written request and timely pursued thereafter, the Inventor shall permit, and the non-Inventor party at its option and expense may undertake, such actions. The party not undertaking such actions shall fully cooperate with the other party and shall provide to the other party whatever assignments and other documents that may be needed in connection therewith. The party not undertaking such actions may require a suitable indemnity against all damages, costs and expenses and impose such other reasonable conditions as such party’s advisors may require.

          (c)     If either party commences any actions or proceedings (legal or otherwise) pursuant to this Section, it shall prosecute the same vigorously at its expense and shall not abandon or compromise them or fail to exercise any rights of appeal without giving the other party the right to take over their conduct at its own expense. The party finally conducting legal actions or proceedings against an alleged infringer or other party shall be entitled to any damages or costs awarded against such infringer or other party.

     4.4     Allegations of Infringement by Third Parties. In the event that Warner or Onyx receives notice that any action by either of them under this Agreement is alleged to be a violation of the patent or other intellectual property rights of a third party, it shall notify the other party to this Agreement, and they shall jointly determine an appropriate response and course of action. The costs of such defense, and any damages, costs or expenses resulting from such action, shall be paid [*] of all such costs relating to allegations that it was aware of prior to the Effective Date. The Research Management Committee will decide whether or not to continue any activity following notice that such activity may be a violation of the patent or other intellectual property rights of a third party.

ARTICLE 5

DESIGNATION OF LEAD COMPOUNDS AND MARKETING RIGHTS

     5.1     Designation of Lead Compound.

          (a)     From time to time, Warner may formally designate one or more Collaboration Compounds for further development, and such designated compounds shall be deemed Collaboration Lead Compounds. Such designation shall be made under Warner’s then current standards for declaring one of its own compounds a “lead compound.” Such designation generally indicates that Warner has identified such compound as a candidate for cGLP/cGMP studies. Warner will pursue the research and

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development of each Collaboration Lead Compound at its own expense and under its sole direction. Warner will provide Onyx quarterly, written updates regarding the status of each Collaboration Lead Compound.

          (b)     In the event Warner decides to pursue commercialization of a Collaboration Product in Japan, [*] If [*] and if [*] then it shall [*]

     5.2     Collaboration Product. Each Collaboration Lead Compound shall be referred to herein as a “Collaboration Product” from and after filing of an IND in respect of such compound with the FDA or the filing of its equivalent in any foreign country. The preparation, filing and prosecution of IND’s, NDA’s and other regulatory filings required to be filed with the FDA and its foreign equivalents in regard to any Collaboration Product will be at the sole expense of, in the name of and under the direction of Warner. Warner does not warrant that any regulatory filings will actually be filed or, if filed, will be approved.

     5.3     Independent Development. From time to time, Onyx may request Warner in writing to undertake specific research and development regarding a Collaboration Compound or to declare a Collaboration Compound to be a Collaboration Lead Compound. Warner will notify Onyx within [*] of receiving Onyx’s written request if it determines before such date that it will not undertake such specific research and development (or declare such Collaboration Compound to be a Collaboration Lead Compound) within [*] of such request (“Warner’s Notice to Decline”). If Warner does not so notify Onyx within such [*] period, it will periodically review Onyx’s request and if it determines not to undertake such specific research and development (or declare such Collaboration Compound to be a Collaboration Lead Compound) then it shall promptly so notify Onyx (also, “Warner’s Notice to Decline”). After either (i) receipt of Warner’s Notice to Decline, or (ii) if Warner does not so notify Onyx and if Warner does not itself undertake the requested action within [*] of Onyx’s written request, then the date [*] after Warner’s receipt of Onyx’s written request, then Onyx shall undertake continued research and development (including the specific research and development requested by Onyx in its request to Warner) of such Collaboration Compound independently (an “Onyx Lead Compound”), at its sole cost and under its sole direction. Onyx may not utilize the services of the personnel committed to the Collaboration pursuant to Section 2.2 in performance of research or development of an Onyx Lead Compound. Onyx may declare no more than [*] Onyx Lead Compounds during the Term of this Agreement. Onyx will keep Warner currently informed of all material information in its research and development of each Onyx Lead Compound and will allow Warner to comment on the direction of such research and development. Each Onyx Lead Compound is referred to herein as an “Onyx Product” from and after filing of an IND in respect of such compound with the FDA or the filing of its equivalent in any foreign country other than Japan. Onyx will provide Warner a complete and accurate copy of the proposed filing, together with any additional information that Warner may request regarding the relevant Onyx

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Lead Compound, at least [*] prior to submitting such filing to the FDA or its foreign equivalent. Onyx will be entitled to commercialize any Onyx Product at its sole direction, alone or with another partner, subject to Section 5.4 and the other terms of this Agreement.

     5.4     Warner’s Re-engagement Option. Warner may elect in writing to Onyx to resume the research and development of an Onyx Lead Compound at its own cost and under its sole direction at any time prior to [*] in respect of such compound. In such event, such Onyx Lead Compound shall immediately become a Collaboration Lead Compound for all purposes under this Agreement. Promptly after Warner makes such election, Warner will pay Onyx [*] Onyx’s costs incurred for research and development of such Onyx Lead Compound. For purposes of this Section, Onyx’s cost for research and development will mean (i) Onyx’s “Burdened Cost” (as defined below) for each professional research and development FTE (not including the personnel committed to the Collaboration pursuant to Section 2.2) dedicated to the research and development of such Onyx Lead Compounds (with appropriate adjustment for staff members not fully dedicated to such work or not working a full year) and (ii) payments made to unaffiliated third parties, each to the extent incurred in connection with the relevant compound on or after its declaration as an Onyx Lead Compound and to the extent reasonably supported by invoices, time sheets or other appropriate records. The “Burdened Cost” for each Onyx FTE shall mean [*] for work performed during 1997, and will be revised for work performed during each succeeding calendar year by the change in the Consumer Price Index (as determined by the United States of America Department of Labor) during the preceding calendar year (except that the Burdened Cost for work performed during 1998 will be revised only by the change in the Consumer Price Index from the Effective date to December 31, 1997).

ARTICLE 6

LICENSES AND ROYALTIES

     6.1     Grant by Onyx. Onyx hereby grants and agrees to grant to Warner exclusive, worldwide licenses under the Onyx Patents solely to make, have made, use and sell (with the right to sublicense) each compound designated as a Collaboration Lead Compound or as a Collaboration Product. Such licenses with respect to a Collaboration Lead Compound are co-exclusive between Onyx and Warner. Such licenses with respect to a Collaboration Product are exclusive even as to Onyx.

     6.2     Grant by Warner. Warner hereby grants and agrees to grant to Onyx exclusive, worldwide licenses under the Warner Patents solely to make, have made, use and sell (with the right to sublicense) each compound designated as an Onyx Lead Compound or as an Onyx Product. Such licenses with respect to an Onyx Lead Compound are co-exclusive between Onyx and Warner. Such licenses with respect to an Onyx Product are exclusive even as to Warner.

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     6.3     Royalties Payable by Warner. In part consideration for all rights granted to Warner and efforts undertaken by Onyx hereunder, Warner will pay Onyx [*] of Net Sales as a royalty on worldwide sales of Collaboration Products. If at the time of the first commercial sale of such Product in such country a Patent exists that is necessary to sell such Product in such country, or if at any time after such sale a composition of matter Patent necessary to sell such Collaboration Product issues in such country, such [*] royalty shall be payable in respect of sales in such country until the later of (a) the expiration of the last such Patent to expire and (b) the date such [*] royalty would expire under the provisions of the following sentence assuming that such Patent did not exist. Subject to the terms of the preceding sentence, if in a particular country there is never an issued Patent that is necessary to sell such Product in such country, then such [*] royalty will be payable, for sales of such Product in such country, until the earliest of (x) the later to occur of (i) the [*] anniversary of such first sale in such country and (ii) expiration of the last Patent necessary to make or use such Product in such country, which Patent was in existence on the date of such first commercial sale, (y) the first calendar quarter in which the sale in such country by any one entity (together with its Affiliates), other than Warner or its Affiliates or licensees, of one or more products containing the same active ingredient as such Product, constitutes [*] or more of all units sold in such country containing such active ingredient and (z) the first calendar quarter in which the sale in such country by any entities (taken in the aggregate), other than Warner or its Affiliates or licensees, of one or more products containing the same active ingredient as the Product, constitutes [*] or more of all units sold in such country containing such active ingredient (the period from first commercial sale in each country until the earlier of (x), (y) and (z) above is referred to herein as the “Collaboration Product Exclusive Period”). In the case of (y) and (z) above, the [*] royalty will terminate as to Net Sales of Product sold on or after the day following the end of the triggering calendar quarter. Warner will pay Onyx [*] and [*] of Net Sales as a royalty on sales of Collaboration Products in each country (except for Japan) for the [*] respectively, following (a) such final Patent expiration (in the event that the required Patent necessary to sell such Product in such country existed on the date of first commercial sale or issued thereafter) or (b) the end of the Collaboration Product Exclusive Period (if no such Patent existed or issued thereafter, and provided that the Collaboration Product Exclusive Period lasted at least seven years); provided, however, that no such royalty will be payable in respect of Collaboration Products sold without the use of one or more trademarks developed by Warner for such Product during the time that the [*] royalty was applicable.

     6.4     Royalties Payable by Onyx. Onyx will pay Warner [*] of Net Sales as a royalty on worldwide sales of Onyx Products. If at the time of the first commercial sale of such Product in such country a Patent exists that is necessary to sell such Product in such country, or if at any time after such sale a composition of matter Patent necessary to sell such Collaboration Product issues in such country, such [*] royalty shall be payable in respect of sales in such country until the later of (a) the expiration of the last such Patent to expire and (b) the date such [*] royalty would expire under the provisions of the

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following sentence assuming that such Patent did not exist. Subject to the terms of the preceding sentence, if in a particular country there is never an issued Patent that is necessary to sell such Product in such country, then such [*] royalty will be payable, for sales of such Product in such country, until the earliest of (x) the later to occur of (i) the [*] anniversary of such first sale in such country and (ii) expiration of the last Patent necessary to make or use such Product in such country, which Patent was in existence on the date of such first commercial sale, (y) the first calendar quarter in which the sale in such country by any one entity (together with its Affiliates), other than Warner or its Affiliates or licensees, of one or more products containing the same active ingredient as the Product, constitutes [*] or more of all units sold in such country containing such active ingredient and (z) the first calendar quarter in which the sale in such country by any entities (taken in the aggregate), other than Onyx or its Affiliates or licensees, of one or more products containing the same active ingredient as the Product, constitutes [*] or more of all units sold in such country containing such active ingredient (the period from first commercial sale in each country until the earliest of (x), (y) and (z) above is referred to herein as the “Onyx Product Exclusive Period”). In the case of (y) and (z) above, the [*] royalty will terminate as to Net Sales of Product sold on or after the day following the end of the triggering calendar quarter. Onyx will pay Warner [*] of Net Sales as a royalty on sales of Onyx Products in each country (except for Japan) for the [*] respectively, following (a) such final Patent expiration (in the event that the required Patent necessary to sell such Product in such country existed on the date of first commercial sale or issued thereafter) or (b) the end of the Onyx Product Exclusive Period (if no such Patent existed or issued thereafter, and provided that the Onyx Product Exclusive Period lasted at least [*] years); provided, however, that no such royalty will be payable in respect of an Onyx Product sold without the use of one or more trademarks developed by Onyx for such Product during the time that the [*] royalty was applicable.

     6.5     Third-Party Royalties. Warner understands and agrees that Onyx has pre-existing royalty obligations to the third parties listed on Schedule 1 with respect to certain in-licensed Onyx Patents. In the event that the use and sale of Collaboration Products triggers such pre-existing third-party royalty obligations, [*] responsible for payment of [*] of such third-party royalties, and [*] will pay [*] Until the expiration of Warner royalty obligation pursuant to Section 6.4, Onyx shall not modify the pre-existing royalty rates disclosed on Schedule 1 without the prior written consent of Warner.

     6.6     Currency of Payment. All payments to be made under this Agreement shall be made in United States dollars in the United States to a bank account designated by the party to be paid. Royalties earned shall first be determined in the currency of the country in which they are earned and then converted to its equivalent in United States currency. Such conversion shall be based on the average buying rates of exchange for the currencies involved into the currency of the United States quoted by Citibank (or its successor in interest) in New York, New York at the close of business on each business day of the quarterly period in which the royalties were earned.

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     6.7     Payment and Reporting. The royalties due under Section 6.3 or Section 6.5 shall be paid quarterly, within 45 days after the close of each calendar quarter immediately following each quarterly period in which such royalties are earned, or earlier if practical. With each such quarterly payment, the payor shall furnish the payee a royalty statement, setting forth on a country-by-country basis the total number of units and Net Sales of each royalty-bearing Product made, used and/or sold hereunder for the quarterly period for which the royalties are due. In addition, the payor shall furnish such a royalty statement on a country-by-country basis for the first quarter during which payor makes sales of Product for which no royalty payment in respect of such country is due hereunder, and shall state the basis for such sales then being free of royalty obligations hereunder. The payor shall thereafter have no further obligation to report the number of units or Net Sales of such Product made, used and/or sold in such country.

     6.8     Records. The royalty paying party shall keep accurate books and accounts of record in connection with the manufacture, use and/or sale by or for it of the Products hereunder in sufficient detail to permit accurate determination of all figures necessary for verification of royalty obligations set forth in this Article VI. Such records shall be maintained for a period of 3 years from the end of each year in which sales occurred. The payee, at its expense, through a certified public accountant, shall have the right to access such books and records for the sole purpose of verifying the royalty statements; such access shall be conducted after reasonable prior notice by the payee to the payor during the payor’s ordinary business hours and shall not be more frequent than once during each calendar year. Said accountant shall not disclose to the payee or any other party any information except that which should properly be contained in a royalty report required under this Agreement. If such accounting determines that a party’s error resulted in the other party receiving at least 5% less than properly due in respect of any quarter, then the party in error will reimburse such amount and reimburse the other party for the costs of such accounting (including the fees and expenses of the certified public accountant).

     6.9     Taxes Withheld. Any income or other tax that one party hereunder, its Affiliates or sublicensees is required to withhold (the “Withholding Party”) and pay on behalf of the other party hereunder (the “Withheld Party”) with respect to the royalties payable under this Agreement shall be deducted from and offset against said royalties prior to remittance to the Withheld Party; provided, however, that in regard to any tax so deducted, the Withholding Party shall give or cause to be given to the Withheld Party such assistance as may reasonably be necessary to enable the Withheld Party to claim exemption therefrom or credit therefor, and in each case shall furnish the Withheld Party proper evidence of the taxes paid on its behalf.

     6.10     Computation of Royalties. All sales of Onyx Products between Onyx and any of its Affiliates and sublicensees shall be disregarded for purposes of computing royalties under this Article VI, but in such instances royalties shall be payable only upon

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sales to unlicensed third parties. Nothing herein contained shall obligate Onyx to pay Warner more than one royalty on any unit of an Onyx Product. All sales of Collaboration Products between Warner and any of its Affiliates and sublicensees shall be disregarded for purposes of computing royalties under this Article VI, but in such instances royalties shall be payable only upon sales to unlicensed third parties. Nothing herein contained shall obligate Warner to pay Onyx more than one royalty on any unit of a Collaboration Product or a Warner Product.

     6.11     Licenses to Affiliates. Each party shall, at the other party’s request, sign license and/or royalty agreements directly with the other party’s Affiliates and sublicensees in those situations where such agreements would not decrease the amount of royalties which would be owed hereunder. Such agreements shall contain the same language as contained herein with appropriate changes in parties and territory. No such license and/or royalty agreement will relieve Warner or Onyx, as the case may be, of its obligations hereunder, and such party will guarantee the obligations of its Affiliate or sublicensee in any such agreement. Royalties received directly from one party’s Affiliates and sublicensees shall be credited towards such party’s royalty obligations under Section 6.3 or 6.5 hereof, as applicable.

     6.12     Restrictions on Payment. The obligation to pay royalties under this Agreement shall be waived and excused to the extent that statutes, laws, codes or government regulations in a particular country prevent such royalty payments by the seller of Products; provided, however, that if legally permissible, the seller of Products shall pay the royalties owed to the other party hereto by depositing such amounts in a bank account in such country that has been designated by the party owed such royalties.

ARTICLE 7

FDA

     7.1     Side Effects. Each party shall promptly advise the other by telefax or overnight delivery service addressed to the attention of its Vice President, Medical Affairs (or, in Onyx’s case, the party with similar responsibilities), of any unexpected side effect, adverse reaction or injury which has been brought to that party’s attention at any place and which is alleged to have been caused by a Collaboration Product or an Onyx Product. Warner, with respect to Collaboration Products, and Onyx, with respect to Onyx Products, shall have all rights and responsibility to report such side effect, adverse reaction or injury to regulatory authorities and others as appropriate.

     7.2     Regulatory and other Inquiries. Upon being contacted by the FDA or any drug regulatory agency for any regulatory purpose pertaining to this Agreement or to a Collaboration Product, Onyx and Warner shall immediately notify and consult with one another and Warner shall provide a response as it deems appropriate. Warner shall have sole responsibility for responding to all inquiries to Warner or Onyx regarding the

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benefits, side effects and other characteristics of Collaboration Products, and Onyx shall have sole responsibility for responding to all inquiries to Warner or Onyx regarding the benefits, side effects and other characteristics of Onyx Products.

     7.3     Product Recall. Warner shall have the responsibility for, and make the final determination regarding, any recall or other removal of the Collaboration Product or any lot or lots thereof from the market and shall be responsible for the cost and expense of notifying customers and the cost and expense associated with return of the recalled Collaboration Product from a customer. Onyx shall have the responsibility for, and make the final determination regarding, any recall or other removal of the Onyx Product or any lot or lots thereof from the market and shall be responsible for the cost and expense of notifying customers and the cost and expense associated with return of the recalled Onyx Product from a customer.

ARTICLE 8

RESEARCH FUNDING FEES AND MILESTONES

     8.1     License Fees. Warner will pay Onyx a noncreditable license fee of $2,000,000 payable in three installments as specified below:

First Payment Date	$	500,000
January 1, 1999	$	1,000,000
January 1, 2000	$	500,000

     As used herein, the “First Payment Date” shall mean the date that is the earlier of (a) the seven (7) month anniversary of the Effective Date, or (b) the date Onyx hires a Project Director who is approved by Warner, as provided in Section 11.3(a), but in no event shall such date be earlier than January 1, 1998.

     8.2     Research Funding. Warner will pay Onyx the following amounts on the following dates during the Research Term in consideration for work performed by Onyx prior to the Effective Date and to provide support for Onyx’s work under the Research Plan:

Later of six month anniversary of the Effective Date or January 1, 1998	$	129,000
Nine month anniversary of the Effective Date	$	562,000
Twelve month anniversary of the Effective Date	$	562,000
Fifteen month anniversary of the Effective Date	$	562,000
Eighteen month anniversary of the Effective Date	$	562,000
Twenty-one month anniversary of the Effective Date	$	562,000
Twenty-four month anniversary of the Effective Date	$	562,000
Twenty-seven month anniversary of the Effective Date	$	562,000

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Thirty month anniversary of the Effective Date	$	562,000
Thirty-three month anniversary of the Effective Date	$	562,000
	$	5,187,000

    8.3      Milestones.

          (a)     Warner will pay Onyx the following amounts with respect to the first Collaboration Product to achieve each stated milestone:

Certification by the RMC that the first screening assay has been completed and the hits analyzed	[*]
Commencement of Phase I clinical trials by or on behalf of Warner anywhere in the world	[*]
Commencement of Phase II clinical trials by or on behalf of Warner anywhere in the world	[*]
Commencement of Phase III clinical trials by or on behalf of Warner anywhere in the world	[*]
The FDA’s acceptance for filing of an NDA	[*]
Acceptance for filing of an MAA applicable to any of the following countries: (i) United Kingdom, (ii) Spain, (iii) Italy, (iv) France and (v) Germany (each a	[*]	country, up to
“Major European Country”)	[*]	total
Approval by the FDA of an NDA	[*]
Approval of an MAA applicable to a Major European	[*]	country, up to
Country	[*]	total
Approval by the MHW of the Collaboration Product in Japan (subject to Warner retaining rights in Japan under Section 5.1(b))	[*]

          (b)     Warner will pay Onyx [*] upon the approval by the FDA of an NDA for the second and each subsequent Collaboration Product so approved and [*] upon the approval of an MAA applicable to each Major European Country, up to [*] for the second and each subsequent Collaboration Product so approved, provided each such Collaboration Product is a different chemical entity.

          (c)     Subject to Warner retaining rights in Japan under Section 5.1(b), Warner will pay Onyx [*] upon the approval by the MHW of the second and each subsequent Collaboration Product so approved in Japan, provided each such Collaboration Product is a different chemical entity.

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          (d)     Onyx will pay Warner [*] upon the approval by the FDA of an NDA for each Onyx Product and [*] upon the approval of an MAA applicable to each Major European Country, up to [*] and [*] upon approval by the MHW in Japan.

ARTICLE 9

CONFIDENTIALITY

     9.1     Confidentiality.

          (a)     Except as specifically permitted hereunder, each party hereby agrees to hold in confidence and not use on behalf of itself or others all data, samples, technical and economic information (including the economic terms hereof), commercialization, clinical and research strategies and know-how provided by the other party (the “Disclosing Party”) during the Term of this Agreement and all data, results and information developed pursuant to the Collaboration and solely owned by the other party (collectively the “Confidential Information”), except that the term “Confidential Information” shall not include:

               (i)       information that is or becomes part of the public domain through no fault of the non-Disclosing Party or its Affiliates;

               (ii)      information that is obtained after the date hereof by the non-Disclosing Party or one of its Affiliates from any third party which is lawfully in possession of such Confidential Information and not in violation of any contractual or legal obligation to the Disclosing Party with respect to such Confidential Information;

               (iii)     Information that is known to the non-Disclosing Party or one or more of its Affiliates prior to disclosure by the Disclosing Party, as evidenced by the non-Disclosing Party’s written records; and

               (iv)     information that is necessary to be disclosed to any governmental authorities or pursuant to any regulatory filings, provided that in such case the non-Disclosing Party notifies the Disclosing Party reasonably in advance of such disclosure and cooperates with the Disclosing Party to minimize the scope or content of such disclosure.

          (b)     The obligations of this Section 9.1 shall survive the expiration or termination of this Agreement.

     9.2     Publicity. All publicity, press releases and other announcements relating to this Agreement or the transactions contemplated hereby shall be reviewed in advance by, and subject to the approval of, both parties; provided, however, that either party may (i) publicize the existence and general subject matter of this Agreement without the other party’s approval and (ii) disclose the terms of this Agreement insofar as required to

19

comply with applicable securities laws, provided that in the case of such securities disclosures the disclosing party notifies the other party reasonably in advance of such disclosure and cooperates to minimize the scope and content of such disclosure.

     9.3     Publication. The parties shall cooperate in appropriate publication of the results of research and development work performed pursuant to this Agreement, but subject to the predominating interest to obtain patent protection for any patentable subject matter. To this end, it is agreed that prior to any public disclosure, the party proposing disclosure shall send the other party a copy of the information to be disclosed, and shall allow the other party [*] from the date of receipt in which to determine whether the information to be disclosed contains subject matter for which patent protection should be sought prior to disclosure. If notification is not received during the [*] period, the party proposing disclosure shall be free to proceed with the disclosure. If due to a valid business reason or a belief by the nondisclosing party that the disclosure contains subject matter for which a patentable invention should be sought, then prior to the expiration of the [*] period, the nondisclosing party shall so notify the disclosing party, who shall then delay public disclosure of the information for an additional period of up to [*] to permit the preparation and filing of a patent application on the subject matter to be disclosed or other action to be taken. The party proposing disclosure shall thereafter be free to publish or disclose the information. The determination of authorship for any paper shall be in accordance with accepted scientific practice. In no event may any publication or other disclosure contain a party’s Confidential Information without such party’s prior written consent.

ARTICLE 10

REPRESENTATIONS AND WARRANTIES

     10.1     Legal Authority. Each party represents and warrants to the other that it has the legal power, authority and right to enter into this Agreement and to perform its respective obligations set forth herein.

     10.2     No Conflicts. Each party represents and warrants that as of the date of this Agreement it is not a party to any agreement or arrangement with any third party or under any obligation or restriction, including pursuant to its Certificate of Incorporation or By-Laws, which in any way limits or conflicts with its ability to fulfill any of its obligations under this Agreement.

     10.3     Others Bound. Each party represents and warrants that anyone performing services under this Agreement on its behalf shall be bound by all of the conditions of this Agreement, to the extent necessary to give full effect to this Agreement.

     10.4     Third Party Rights. Each party represents and warrants that to the best of its knowledge its performance of the work under the Collaboration as contemplated by

20

this Agreement will not infringe the patent, trade secret or other proprietary rights of any third party except insofar as any infringement may relate to technology, data or information provided by the other party hereunder.

     10.5     Survival. The foregoing representations and warranties shall survive the execution, delivery and performance of this Agreement, notwithstanding any investigation by or on behalf of either party.

     10.6     Disclaimer. Except as otherwise expressly stated herein, Warner hereby disclaims any warranty expressed or implied as to any Onyx Product sold or placed in commerce by or on behalf of Onyx. Except as otherwise expressly stated herein, Onyx hereby disclaims any warranty expressed or implied as to any Collaboration Product sold or placed in commerce by or on behalf of Warner.

     10.7     Exclusivity. During the Research Term and for one year thereafter (i) neither party will conduct any research or development in the Field except pursuant to this Agreement, (ii) neither party will license (or otherwise permit access to) any of its Patents or Know-How for research or development in the Field to (or otherwise collaborate on research or development in the Field with) any other person or entity and (iii) Onyx will not license (or otherwise permit access to) any assay developed by it pursuant to the Collaboration to any other person or entity. In respect of (i), above, each party shall have the right to conduct its own research and development in the Field during the one year following the end of the Research Term, provided that all results of such work discovered during such period (including without limitation compounds and assays), and analogs and derivatives of compounds identified during such period whenever identified, are promptly disclosed to the other party and are covered by the licenses granted under Sections 2.4, 6.1 and 6.2, as applicable.

ARTICLE 11

TERMINATION

     11.1     Termination for Breach. In the event of a material breach of the provisions of this Agreement described below, the breaching party shall have 30 days after receipt of written notice from the non-breaching party to cure such breach.

          (a)     In the event of an uncured material breach of Article II, the non-breaching party may terminate the Research Term.

          (b)     In the event of an uncured material breach of Section 6.3 by Warner in respect of a Collaboration Product, Onyx may (i) terminate the licenses granted by it pursuant to Section 6.1 in respect of such Product and (ii) require Warner to grant it an exclusive (even as to Warner), worldwide license (with the right to sublicense) under the

21

Patents relating to such Product and owned or controlled by Warner, to the extent necessary to make, use or sell such Product.

          (c)     In the event of an uncured material breach of Section 6.5 by Onyx in respect of an Onyx Product, Warner may (i) terminate the licenses granted by it pursuant to Section 6.2 in respect of such Product and (ii) require Onyx to grant it an exclusive (even as to Onyx), worldwide license (with the right to sublicense) under the Patents relating to such Product and owned or controlled by Onyx, to the extent necessary to make, use or sell such Product.

     11.2     Effect of Bankruptcy. If either party files a voluntary petition in bankruptcy, is adjudicated a bankrupt, makes a general assignment for the benefit of creditors, admits in writing that it is insolvent or fails to discharge within 15 days an involuntary petition in bankruptcy filed against it, then the other party will have 60 days to determine whether or not the Research Term shall immediately terminate.

     11.3     Key Personnel.

          (a)     Promptly after the Effective Date, Onyx shall recruit and hire an employee (the “Project Director”) to have overall responsibility for the success of the collaboration. Warner shall have the right to approve the hiring of such Project Director prior to such hiring, which approval shall not be unreasonably withheld or delayed. In the event that Onyx has not hired such Project Director approved by Warner by the six month anniversary of the Effective Date, then by notice delivered to Onyx during the one week period after such date, Warner may voluntarily terminate the Research Term, effective immediately, if in its sole opinion it does not wish to continue the Research Plan without such employee. Such termination shall terminate all obligations to make any payments under Sections 8.1, 8.2 and 8.3, except that Warner shall remain obligated to make payment for any milestones under Section 8.3(a) that were earned prior to the effective date of such termination. If the first screening assay has been transferred by Onyx but the hits have not yet been analyzed by Warner prior to the termination date, then the first [*] milestone is still due to Onyx once the hits are analyzed by Warner, which analysis shall be performed diligently. In addition, if Warner and Onyx mutually agree to do so, then the work conducted by Onyx may be wound down and ended in an orderly six month phase out period after the date of such termination, during which time Onyx will make best efforts to transfer specified assays currently under development at Onyx, and Warner shall pay Onyx a total of [*] to support such research efforts, in two equal quarterly payments commencing upon such termination. Onyx agrees further to hire [*] as a consultant on the project hereunder for [*] following the Effective Date.

          (b)     In the event that on or before the second anniversary of the Effective Date [*] or the Project Director (i) is physically and mentally capable of overseeing Onyx’s work under the Research Plan but (ii) for any reason fails to oversee such work, then Onyx shall immediately notify Warner thereof and Onyx will have up to six months

22

after such failure to hire a replacement for [*] or the Project Director, as applicable (the “Search Period”). By notice delivered to Onyx during the one week period after the end of the Search Period, Warner may voluntarily terminate the Research Term, effective 90 days after the end of the Search Period, if in its sole opinion it does not wish to continue the Research Plan with such replacement (or with [*] or the Project Director if they become available again). Warner will be required to make any license fee payments under Section 8.1 and research funding payments under Section 8.2 that come due on or before the effective date of such termination, and Onyx will continue to be obligated under the terms of Section 2.2 during such period.

          (c)     In the event Warner terminates the Research Term under this Section 11.3, then the term “Collaboration Compound” as used under this Agreement shall, in addition to the definition provided in Article 1 hereof, be deemed to cover any compound whose activity in the Field was initially identified based on screening in assays transferred to Warner by Onyx under this Agreement. Onyx and Warner will be released from the provisions of Section 10.7 immediately upon termination of the Research Term pursuant to this Section 11.3.

     11.4     Remedies. In the event of any breach of any provision of this Agreement, in addition to the termination rights set forth herein, each party shall have all other rights and remedies at law or equity to enforce this Agreement.

     11.5     Voluntary Termination. Warner may terminate this Agreement by providing written notice thereof to Onyx on the eighteen month anniversary of the Effective Date. In such event, the Term of this Agreement will automatically terminate. Notwithstanding the voluntary termination of the Term of this Agreement, Warner will make all research payments to Onyx that are due before the second anniversary of the Effective Date pursuant to Section 8.2 (payable on the dates that such payments are due). If Warner terminates the Agreement under this Section 11.5, then: (i) Warner will grant Onyx an exclusive (even as to Warner), world-wide, fully-paid, perpetual license under Warner’s Patents and Warner’s Know-How discovered or reduced to practice prior to the one year anniversary of the termination of the Term of this Agreement that are necessary to make, use and sell any Collaboration Compound for therapeutic or diagnostic use in the Field, (ii) the licenses granted under Section 6.1 will terminate and (iii) the licenses granted to Warner under Section 2.4 will terminate.

ARTICLE 12

GENERAL PROVISIONS

     12.1     Indemnification. Each of Warner and Onyx agrees to indemnify and hold harmless the other party and its Affiliates and their respective employees, agents, officers, directors and permitted assigns (such party’s “Indemnified Group”) from and against any claims, judgments, expenses (including reasonable attorney’s fees), damages

23

and awards (collectively a “Claim”) arising out of or resulting from (i) its negligence or misconduct in regard to any Product, (ii) a breach of any of its representations or warranties hereunder or (iii) the manufacture, use or sale of a Collaboration Product (in the case of Warner) or an Onyx Product (in the case of Onyx), except to the extent that such Claim arises out of or results from the negligence or misconduct of a party seeking to be indemnified and held harmless or the negligence or misconduct of a member of such party’s Indemnified Group. A condition of this obligation is that, whenever an indemnified party has information from which it may reasonably conclude an incident has occurred which could give rise to a Claim, such indemnified party shall immediately give notice to the indemnifying party of all pertinent data surrounding such incident and, in the event claim is made or suit is brought, all indemnified parties shall assist the indemnifying party and cooperate in the gathering of information with respect to the time, place and circumstances and in obtaining the names and addresses of any injured parties and available witnesses. No indemnified party shall, except at its own cost, voluntarily make any payment or incur any expense in connection with any such Claim or suit without the prior written consent of the indemnifying party. The obligations set forth in this Section shall survive the expiration or termination of this Agreement.

     12.2     Assignment. This Agreement shall not be assignable by either party without the prior written consent of the other party, such consent not to be unreasonably withheld. In no event will any assignment relieve the assigning party of its obligations hereunder. This Agreement shall be binding upon and, subject to the terms of the foregoing sentence, inure to the benefit of the parties’ successors, legal representatives and assigns. Notwithstanding the foregoing, Warner may assign this Agreement to any of its wholly-owned subsidiaries or any entity succeeding to a majority of its Parke-Davis business, and either party may assign this Agreement to its successor in connection with any merger, consolidation or sale of all or substantially all of its assets.

     12.3     Non-Waiver. The waiver by either of the parties of any breach of any provision hereof by the other party shall not be construed to be a waiver of any succeeding breach of such provision or a waiver of the provision itself.

     12.4     Research Dispute Resolution. The parties recognize that the collaborative research program under the Research Plan may require the resolution of certain issues or the negotiation of additional agreements in the future. In the event the Research Management Committee is unable to resolve a dispute under the Research Plan, either party may have the dispute referred to the President of Onyx and the senior officer of Warner’s pharmaceutical business for good faith resolution.

     12.5     Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of New York, other than those provisions governing conflicts of law.

24

     12.6     Partial Invalidity. If and to the extent that any court or tribunal of competent jurisdiction holds any of the terms or provisions of this Agreement, or the application thereof to any circumstances, to be invalid or unenforceable in a final nonappealable order, the parties shall use their best efforts to reform the portions of this Agreement declared invalid to realize the intent of the parties as fully as practical, and the remainder of this Agreement and the application of such invalid term or provision to circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each of the remaining terms and provisions of this Agreement shall remain valid and enforceable to the fullest extent of the law.

     12.7     Notice. Any notice to be given to a party under or in connection with this Agreement shall be in writing and shall be (i) personally delivered, (ii) delivered by a nationally recognized overnight courier or (iii) delivered by certified mail, postage prepaid, return receipt requested to the party at the address set forth below for such party:

To Warner:		To Onyx:
Senior Vice President, Research		Hollings Renton
Parke Davis Pharmaceutical		President & CEO
	Research Division,	Onyx Corporation
Warner Lambert Company		3031 Research Drive
2800 Plymouth Road		Building A
Ann Arbor, MI 48105		Richmond, CA 94806
with a copy to:		with a copy to:
President, Parke Davis		Robert L. Jones, Esq.
	United States and Mexico	Cooley Godward LLP
Warner Lambert Company		5 Palo Alto Square
201 Tabor Road		4th Floor
Morris Plains, NJ 07950		Palo Alto, CA 94306
and a copy to:
Vice President and General Counsel
Warner Lambert Company
201 Tabor Road
Morris Plains, NJ 07950

     or to such other address as to which the party has given notice thereof. Such notices shall be deemed given upon receipt.

     12.8     Vaccines and Diagnostics. Pursuant to an Agreement, between Chiron Corporation (“Chiron”) and Onyx, dated April 24, 1992, Chiron has certain rights to Vaccines and Diagnostics developed by Onyx. Warner and Onyx agree that,

25

notwithstanding any other term or provision of this Agreement to the contrary, neither party shall license to the other any Patents or Know-How to make, use or sell Vaccines or Diagnostics. Furthermore, each party hereto may make, use or sell Vaccines and Diagnostics in the Field without obligation to the other party, including as it relates to payment of milestones and royalties. As used in this Section, (i) “Vaccines” shall mean [*] and (ii) “Diagnostics” shall mean [*]

     12.9     Headings. The headings appearing herein have been inserted solely for the convenience of the parties hereto and shall not affect the construction, meaning or interpretation of this Agreement or any of its terms and conditions.

     12.10     No Implied Licenses or Warranties. No right or license under any patent application, issued patent, know-how or other proprietary information is granted or shall be granted by implication. All such rights or licenses are or shall be granted only as expressly provided in the terms of this Agreement. Neither party warrants the success of any clinical or other studies undertaken by it.

     12.11     Force Majeure. No failure or omission by the parties hereto in the performance of any obligation of this Agreement shall be deemed a breach of this Agreement nor shall it create any liability if the same shall arise from any cause or causes beyond the reasonable control of the affected party, including, but not limited to, the following, which for purposes of this Agreement shall be regarded as beyond the control of the party in question: acts of nature; acts or omissions of any government; any rules, regulations, or orders issued by any governmental authority or by any officer, department, agency or instrumentality thereof; fire; storm; flood; earthquake; accident; war; rebellion; insurrection; riot; invasion; strikes; and lockouts or the like; provided that the party so affected shall use its best efforts to avoid or remove such causes or nonperformance and shall continue performance hereunder with the utmost dispatch whenever such causes are removed.

     12.12     Survival. The representations and warranties contained in this Agreement as well as those rights and/or obligations contained in the terms of this Agreement which by their intent or meaning have validity beyond the term of this Agreement shall survive the termination or expiration of this Agreement.

     12.13     Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to the subject matter contained herein and supersedes any and all prior agreements, understandings and arrangements whether oral or written between the parties relating to the subject matter hereof. This Agreement will control in the event of any conflict between this Agreement and the Research Plan.

     12.14     Amendments. No amendment, change, modification or alteration of the terms and conditions of this Agreement shall be binding upon either party unless in writing and signed by the party to be charged.

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     12.15     Independent Contractors. It is understood that both parties hereto are independent contractors and engage in the operation of their own respective businesses, and neither party hereto is to be considered the agent or partner of the other party for any purpose whatsoever. Neither party has any authority to enter into any contracts or assume any obligations for the other party or make any warranties or representations on behalf of the other party.

     12.16     Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first above written.

Onyx Pharmaceuticals, Inc.	Warner-Lambert Company
By: /s/ Hollings C. Renton Name: Hollings C. Renton Title: President & CEO	By: /s/ Ronald M. Cresswell Name: Ronald M. Cresswell Title: Vice President and Chairman Parke-Davis Pharmaceutical Research Warner-Lambert Company

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

27

SCHEDULE 1

PRE-EXISTING THIRD-PARTY ROYALTY OBLIGATIONS

1	)	Research and Option Agreement Between the Research Foundation of State University of New York and ONYX Pharmaceuticals dated January 1, 1996.
		Royalty cap of [*] on net sales of products arising from research sponsored by Onyx.
2	)	Option Agreement with the Babraham Institute dated September 25, 1995 and extended on May 13, 1996.
		Royalty of [*] of the end user price of a product arising from work performed by Dr. Len Stephens for or in collaboration with Onyx.

     [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

RESEARCH, DEVELOPMENT AND MARKETING

COLLABORATION AGREEMENT

DATED AS OF JULY    , 1997

BETWEEN

ONYX PHARMACEUTICALS, INC.

AND

WARNER-LAMBERT COMPANY

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

TABLE OF CONTENTS

			PAGE
ARTICLE 1		DEFINITIONS		1
ARTICLE 2		RESEARCH PROGRAM		5
	2.1	Undertaking and Scope		5
	2.2	Personnel and Resources		6
	2.3	Research Term		6
	2.4	Rights to Know-How and Patents for Research		7
	2.5	Collaboration Expenses		7
ARTICLE 3		COMMITTEES		7
	3.1	Research Management Committee		7
	3.2	Meetings		7
	3.3	SAB Attendance		8
ARTICLE 4		PATENTS, KNOW-HOW, RIGHTS AND INVENTIONS		8
	4.1	Rights to Inventions		8
	4.2	Joint Inventions		8
	4.3	Protection of Patent Rights		9
	4.4	Allegations of Infringement by Third Parties		10
ARTICLE 5		DESIGNATION OF LEAD COMPOUNDS AND MARKETING RIGHTS		10
	5.1	Designation of Lead Compound		10
	5.2	Collaboration Product		10
	5.3	Independent Development		11
	5.4	Warner's Re-engagement Option		11
ARTICLE 6		LICENSES AND ROYALTIES		12
	6.1	Grant by Onyx		12
	6.2	Grant by Warner		12
	6.3	Royalties Payable by Warner		12
	6.4	Royalties Payable by Onyx		13
	6.5	Third-Party Royalties		13
	6.6	Currency of Payment		14

-i-

TABLE OF CONTENTS
(CONTINUED)

			PAGE
	6.7	Payment and Reporting		14
	6.8	Records		14
	6.9	Taxes Withheld		14
	6.10	Computation of Royalties		15
	6.11	Licenses to Affiliates		15
	6.12	Restrictions on Payment		15
ARTICLE 7		FDA		15
	7.1	Side Effects		15
	7.2	Regulatory and other Inquiries		15
	7.3	Product Recall		16
ARTICLE 8		RESEARCH FUNDING FEES AND MILESTONES		16
	8.1	License Fees		16
	8.2	Research Funding		16
	8.3	Milestones		17
ARTICLE 9		CONFIDENTIALITY		18
	9.1	Confidentiality		18
	9.2	Publicity		18
	9.3	Publication		18
ARTICLE 10		REPRESENTATIONS AND WARRANTIES		19
	10.1	Legal Authority		19
	10.2	No Conflicts		19
	10.3	Others Bound		19
	10.4	Third Party Rights		19
	10.5	Survival		19
	10.6	Disclaimer		19
	10.7	Exclusivity		20
ARTICLE 11		TERMINATION		20
	11.1	Termination for Breach		20

-ii-

TABLE OF CONTENTS
(CONTINUED)

			PAGE
	11.2	Effect of Bankruptcy		20
	11.3	Key Personnel		21
	11.4	Remedies		21
	11.5	Voluntary Termination		22
ARTICLE 12		GENERAL PROVISIONS		22
	12.1	Indemnification		22
	12.2	Assignment		22
	12.3	Non-Waiver		23
	12.4	Research Dispute Resolution		23
	12.5	Governing Law		23
	12.6	Partial Invalidity		23
	12.7	Notice		23
	12.8	Vaccines and Diagnostics		24
	12.9	Headings		24
	12.10	No Implied Licenses or Warranties		24
	12.11	Force Majeure		24
	12.12	Survival		25
	12.13	Entire Agreement		25
	12.14	Amendments		25
	12.15	Independent Contractors		25
	12.16	Counterparts		25

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

-iii- EX-10.23 5 f88257exv10w23.htm EXHIBIT 10.23

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

EXHIBIT 10.23

AMENDMENT

          AMENDMENT dated December 15, 1997 (this “Amendment”), to the Amended and Restated Research, Development and Marketing Collaboration Agreement between Onyx Pharmaceuticals, Inc., a California corporation (“Onyx”) and Warner-Lambert Company, a Delaware corporation (“Warner”), which Amended and Restated Agreement (the “Agreement”) was executed during July 1997.

W I T N E S S E T H:

          WHEREAS, Onyx and Warner desire, among other things to modify the field of their cell cycle control collaboration under the Agreement, extend the term of the Agreement and modify their mutual rights under the Agreement to Japan,

          NOW, THEREFORE, the parties hereby agree as follows:

          1.     Definitions. (a) Capitalized terms used but not defined in this Amendment will have the meanings ascribed thereto in the Agreement.

               (b) The following definitions are hereby added to Article 1 of the Agreement:

“Generation 1 Collaboration Compounds” shall mean Collaboration Compounds that are initially identified under the Collaboration as having activity against any of the following targets: [*].

“Generation 2 Collaboration Compounds” shall mean Collaboration Compounds that are initially identified under the Collaboration as having activity against any targets in the Field other than those set forth in the definition of Generation 1 Collaboration Compounds.

          2.     Field. The definition of “Field” found in Article 1 of the Agreement is hereby amended by deleting the third and all later paragraphs thereof in their entirety and replacing the same by the following:

Field

1.

The Field will consist of [*]. The field shall also include [*] The Field will also include the [*] as well as targets that control the activity of [*]

Exclusions

Notwithstanding the general description of the Field provided above, the Field will exclude:

(a) All molecular entities that are part of or that regulate [*] This includes but is not restricted to [*] This also includes molecules that directly or indirectly regulate the aforementioned molecules, [*] This also includes [*] This exception shall not include (by way of example and not limitation) [*]

3.     Term of Research Collaboration. Section 2.3 of the Agreement is hereby deleted in its entirety and replaced by the following:

        2.3      Research Term. Work under the Research Plan will commence as of May 2, 1995 and, unless terminated earlier by either party pursuant to the terms of this Agreement or extended by mutual agreement of the parties, will terminate on the sixth anniversary thereafter (as terminated, expired or extended, the “Term of the Research Collaboration”). At least thirty (30) days prior to the five-year anniversary of the Effective Date, Onyx will provide Warner a written research proposal for continuation of the research project beyond such initial six-year Term of the Research Collaboration. Promptly after Onyx provides such proposal, the Research Management Committee will conduct a formal review of such proposal and of the status and success of the parties’ work on the Research Plan. By the five-year anniversary of the Effective Date (the “Evaluation Date”), Warner shall decide in its sole discretion whether to extend the collaborative research under the research proposal beyond the initial six-year term for at least one additional year, or not to extend the collaborative research beyond such initial term, in which case the Agreement shall terminate at the end of such initial six-year Term of the Research Collaboration. If Warner does not elect in writing to extend the Term of the Research Collaboration beyond such initial six-year term, then commencing on or promptly after the Evaluation Date, the work conducted by Onyx and Warner will be wound down and ended in an orderly twelve-month phase-out period, ending on the first anniversary of the Evaluation Date, with Onyx continuing the research efforts using [*] FTEs over such period. During such phase-out period, Warner will be obligated to pay Onyx a total of [*] to support Onyx’s research efforts using [*] FTEs over such phase-out period, which amounts shall be paid in four equal installments in advance over such year, commencing on the Evaluation Date, in lieu of the last four research funding payments as specified in Section 9.1. Furthermore, during the phase-out period, Warner may modify or eliminate its FTE and other commitments under Section 2.2 in its sole discretion. In the event of a phase-out during the

2.

final year of the Term of the Research Collaboration, the terms of this Section 2.3 will supersede those of Section 2.2.

          4.     Research Funding. Section 9.1 of the Agreement is hereby amended by the addition of the following funding commitments:

May 2, 1998	$	562,500
August 2, 1998		562,500
November 2, 1998		562,500
February 2, 1999		843,750
May 2, 1999		843,750
August 2, 1999		843,750
November 2, 1999		843,750
February 2, 2000		843,750
May 2, 2000		843,750
August 2, 2000		843,750
November 2, 2000		843,750
February 2, 2001		843,750
	$	9,281,250

          5.     Generation 1 Milestones. The phrase “Collaboration Product” found throughout Section 9.2(a) and Section 9.2(b) of the Agreement is hereby deleted in each instance and replaced by the phrase “Generation 1 Collaboration Product.” The parenthetical “(provided that each such Generation 1 Collaboration Product is a different chemical entity)” is hereby added immediately after the two places where the word “approved” is found in Section 9.2(b) of the Agreement.

          6.     Generation 2 Milestones. The following is hereby added as a new Section 9.3 of the Agreement:

9.3   Generation 2 Collaboration Products. (a) Warner will pay Onyx the following amounts with respect to the first Generation 2 Collaboration Product to achieve each stated milestone:

Commencement of Phase I clinical trials by or on behalf of Warner anywhere in the world	[*]
Commencement of Phase II clinical trials by or on behalf of Warner anywhere in the world	[*]
Commencement of Phase III clinical trials by or on behalf of Warner anywhere in the world	[*]
The FDA’s acceptance for filing of an NDA	[*]
Acceptance for filing of an MAA applicable to any of the following countries: (i) United Kingdom, (ii)

3.

Spain, (iii)Italy, (iv) France and (v) Germany (each a “Major European Country”)	[*]
	country up to
	[*] total
Approval by the FDA of an NDA	[*]
Approval of an MAA applicable to a Major European Country	[*]
	country, up to
	[*] total

(b) Warner will pay Onyx [*] upon the approval by the FDA of an NDA for the second and each subsequent Generation 2 Collaboration Product so approved (provided that each such Generation 2 Collaboration Product is a different chemical entity) and [*] upon the approval of an MAA applicable to each Major European Country, up to [*] for the second and each subsequent Collaboration Product so approved (provided that each such Generation 2 Collaboration Product is a different chemical entity).

(c) Warner will pay Onyx [*] upon certification by the Research Management Committee that the first screening assay for the Generation 2 Targets has been completed and the hits analyzed.

             7.   Japanese Milestones. The following is hereby added as a new Section 9.4 of the Agreement:

Section 9.4 Japanese Milestones. (a) Warner will pay Onyx the following amounts with respect to the first Collaboration Product to achieve each stated milestone:

Commencement of Phase I clinical trials by or on behalf of Warner in Japan	[*]
Commencement of Phase II clinical trials by or on behalf of Warner in Japan	[*]
Commencement of Phase III clinical trials by or on behalf of Warner in Japan	[*]
Acceptance for filing by the MHW of an MAA in Japan	[*]

(b) Warner will pay Onyx [*] upon approval of each Collaboration Product for sale in Japan by the MHW, provided each such Collaboration Product is a different chemical entity.

4.

            8.   Japan. The parenthetical “(except for Japan)” found in Sections 6.1, 6.2, 6.3 and 6.4 of the Agreement is in each instance hereby deleted. The phrase “other than Japan” found in the antepenultimate sentence of Section 5.3 of the Agreement is hereby deleted. Sections 11.1, 11.2 and 11.3 of the Agreement are hereby deleted in their entirety.

            9.   Exclusivity. Section 12.7 of the Agreement is hereby deleted in its entirety and replaced by the following:

            12.7    Exclusivity.

        "(a)    Except as otherwise provided in subsection (b) below, during the Term of the Research Collaboration and for one year thereafter (i) neither party will conduct any research or development in the Field except pursuant to this Agreement, (ii) neither party will license (or otherwise permit access to) any of its Patents or Know-How for research or development in the Field to (or otherwise collaborate on research or development in the Field with) any other person or entity and (iii) Onyx will not license (or otherwise permit access to) any assay developed by it pursuant to the Collaboration to any other person or entity. In respect of (i), above, each party shall have the right to conduct its own research and development in the Field during the one year following the end of the Term of the Research Collaboration, provided that all results of such work discovered during such period (including without limitation compounds and assays), and analogs and derivatives of compounds identified during such period whenever identified, are promptly disclosed to the other party and are covered by the licenses granted under Sections 1.4, 5.1 and 5.2, as applicable.

        "(b)    If Warner elects at the Evaluation Date, as provided in Section 2.3, not to extend the Term of the Research Collaboration beyond the end of the initial six year Term of the Research Collaboration, then as of the Evaluation Date the provisions of subsection (a) above will be modified as follows: (i) the phrase “during the Term of the Research Collaboration and for one year thereafter” in the first sentence of subsection (a) shall be modified to read “during the Term of the Research Collaboration and for six months thereafter;” (ii) for any new targets in the Field (the “New Targets”) that Onyx proposed to Warner, in the written research proposal submitted by Onyx to Warner under Section 2.3, to be the subject of the Research Collaboration (i.e., targets within the Field that are not, as of the Evaluation Date, the subject of collaborative research under the Research Collaboration) then commencing at the end of the Term of the Research Collaboration and thereafter, the restrictions in subsections 12.7(b)(i) and 12.7(b)(ii) shall not apply to all such New Targets; and (iii) the last sentence of subsection (a) shall only apply for six months after the end of the Term of the Research Collaboration, and shall not apply to any work conducted by a party after the end of the Term of the Research Collaboration with respect to New Targets, or to any results of such work (including without limitation compounds and assays, and analogs and derivatives of compounds identified).”

5.

        IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized officers as of the date first written above.

ONYX PHARMACEUTICALS, INC.	WARNER-LAMBERT COMPANY
By:  /s/ Hollings C. Renton	By:  /s/ Wendell Wieranga, Ph.D.
Name:    Hollings C. Renton	Name:    Wendell Wieranga, Ph.D.
Title:      President and CEO	Title:    Senior Vice President, Worldwide Preclinical Research, Development and Technologies Parke-Davis Pharmaceutical Research

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

6. EX-10.31 6 f88257exv10w31.htm EXHIBIT 10.31

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

EXHIBIT 10.31

SECOND AMENDMENT TO THE AMENDED AND RESTATED RESEARCH, DEVELOPMENT AND MARKETING COLLABORATION AGREEMENT BETWEEN ONYX PHARMACEUTICALS, INC., A DELAWARE CORPORATION (“ONYX”), and WARNER-LAMBERT COMPANY, A DELAWARE CORPORATION (“WARNER”)

     THIS SECOND AMENDMENT (“Second Amendment”) between Onyx and Warner, which Agreement was amended and restated July 1997, the AMENDED AND RESTATED RESEARCH, DEVELOPMENT AND MARKETING COLLABORATION AGREEMENT as amended by that certain Amendment dated December 15, 1997 (as amended, the “Agreement”), dated as of May 2, 1995, is entered into and made effective March 1, 2000. Onyx and Warner may be referred to herein individually as “Party,” or collectively, as the “Parties.”

RECITALS

     WHEREAS, Onyx and Warner desire to amend the Agreement to modify the scope, personnel, resources, term, and research funding.

     NOW, THEREFORE, in consideration of the covenants contained in this Second Amendment, the Parties hereby agree as follows:

1.	Section 2.1, Undertaking and Scope, is amended to delete only the fourth (4th) sentence, and replace it with the following:
	Onyx agrees to use its best efforts at its cost [*] to supply protein required to run screening assays relating to biochemical targets, which targets were identified and transferred to Warner prior to the Effective Date of this Amendment.
2.	Section 2.2 Personnel and Resources, is amended to delete only the second (2nd) sentence, and replace it with the following: From the effective date of the Agreement until March 1, 2000, Warner and Onyx will each maintain at their cost an average of fifteen (15) full-time equivalents (“FTEs”) devoted to cooperative work under the Research Plan. Starting March 1, 2000 until the end of the Term of the Research Collaboration, the number of FTEs that Onyx shall devote to the cooperative work shall be reduced to nine (9). The number of FTEs may, however, be increased up to eighteen (18) by the Research Management Committee provided there is a concomitant reduction in the number of FTEs that are working on the Research, Development and

1.

	Marketing Collaboration Agreement pertaining to Inflammation (“Inflammation Agreement”), having an effective date of July 31, 1997.
3.	Section 2.3, Term of the Research Collaboration, is hereby deleted in its entirety and replaced by the following:
	2.3 Research Term. Work under the Research Plan will commence as of May 2, 1995 and, unless terminated earlier by either party pursuant to the terms of this Agreement or extended by mutual agreement of the Parties, will terminate on August 31, 2001.
4.	Section 9.1, Research Funding, is amended to delete the months May 2, 2000 through February 2, 2001 and substitute therefor the following:

June 1, 2000	$	431,750
Sept. 1, 2000	$	506,250
Dec. 1, 2000	$	506,250
Mar. 1, 2001	$	506,250
June 1, 2001	$	337,500

5. Except as otherwise specifically set forth herein, all of the terms and conditions of the Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed by their duly authorized officers as of the date first written above.

ONYX PHARMACEUTICALS, INC.		WARNER-LAMBERT COMPANY
By:	/s/ Hollings C. Renton	By:	/s/ Peter B. Corr
Name:	Hollings C. Renton	Name:	Peter B. Corr, Ph.D.
Title:	President & CEO	Title:	Corporate Vice-President, Warner-Lambert Company President, Parke-Davis Pharmaceutical Research & Development

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

2. EX-10.32 7 f88257exv10w32.htm EXHIBIT 10.32

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

EXHIBIT 10.32

SECOND AMENDMENT TO THE RESEARCH, DEVELOPMENT AND MARKETING COLLABORATION AGREEMENT BETWEEN ONYX PHARMACEUTICALS, INC., A DELAWARE CORPORATION (“ONYX”), and WARNER-LAMBERT COMPANY, A DELAWARE CORPORATION (“WARNER”).

     THIS SECOND AMENDMENT (“Second Amendment”) to the RESEARCH, DEVELOPMENT AND MARKETING COLLABORATION AGREEMENT (“Agreement”), having an effective date of July 31, 1997, between Onyx and Warner, which Agreement was first amended on August 2, 1999 to extend its term one year, is entered into and made effective March 1, 2000. Onyx and Warner may be referred to herein individually as “Party,” or collectively, as the “Parties.”

RECITALS

     WHEREAS, Onyx and Warner desire to amend the Agreement to modify the scope, personnel, resources, term and research funding.

     NOW, THEREFORE, in consideration of the covenants contained in this Second Amendment the Parties hereby agree as follows:

1.	Section 2.1, Undertaking and Scope, is amended to delete only the fourth (4th) sentence, and replace it with the following:
	Onyx agrees to use its best efforts at its cost [*] to supply protein required to run screening assays relating to biochemical targets, which targets were identified and transferred to Warner prior to the Effective Date of this amendment.
2.	Section 2.2, Personnel and Resources, is amended to delete only the second (2nd) sentence, and replace it with the following:
	From the effective date of the Agreement until March 1, 2000 Warner and Onyx will each maintain at their cost an average of ten (10) full-time equivalents (“FTEs”) devoted to cooperative work under the Research Plan. Starting March 1, 2000 until the end of the Term of the Research Collaboration, the number of FTEs that Onyx shall devote to the cooperative work shall be reduced to nine (9). The number of FTEs may, however, be increased up to eighteen (18) by the

1.

	Research Management Committee provided there is a concomitant reduction in the number of FTEs that are working on the Amended and Restated Research, Development and Marketing Collaboration Agreement pertaining to the Cell Cycle (“Cell Cycle Agreement”), dated May 2, 1995.
3.	Section 2.3, Term of the Research Collaboration, is hereby deleted in its entirety and replaced by the following:
	2.3 Research Term. Work under the Research Plan will commence as of July 31, 1997 and, unless terminated earlier by either party pursuant to the terms of this Agreement or extended by mutual agreement of the Parties, will terminate on August 31, 2001.
4.	Section 8.2, Research Funding is amended to extend the payment schedule as follows:

July 1, 2000	$	450,000
Oct 1, 2000	$	506,250
Jan 1, 2001	$	506,250
Apr 1, 2001	$	506,250
July 1, 2001	$	506,250

5. Except as otherwise specifically set forth herein, all of the terms and conditions of the Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed by their duly authorized officers as of the date first written above.

ONYX PHARMACEUTICALS, INC.		WARNER-LAMBERT COMPANY
By:	/s/ Hollings C. Renton	By:	/s/ Peter B. Corr
Name:	Hollings C. Renton	Name:	Peter B. Corr, Ph.D.
Title:	President & CEO	Title:	Corporate Vice-President, Warner-Lambert Company President, Parke-Davis Pharmaceutical Research & Development

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

2. EX-23.1 8 f88257exv23w1.htm EXHIBIT 23.1

EXHIBIT 23.1

Consent of Ernst & Young LLP, Independent Auditors

     We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-89850, No. 333-49285, No. 333-46366, No. 333-37144 and No. 333-33322) and the Registration Statements on Form S-8 (No. 333-96895, No. 333-64706, No. 333-60805, No. 333-48146, No. 333-84113, No. 333-04839 and No. 333-34681) pertaining to the 1996 Employee Stock Purchase Plan, the 1996 Non-Employee Directors’ Stock Option Plan and the 1996 Equity Incentive Plan of Onyx Pharmaceuticals, Inc. of our report dated February 21, 2003, with respect to the financial statements of Onyx Pharmaceuticals, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2002.

/s/ Ernst & Young LLP                  

Palo Alto, California
March 21, 2003

EX-99.1 9 f88257exv99w1.htm EXHIBIT 99.1

EXHIBIT 99.1

CERTIFICATION

Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. § 1350, as adopted), 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 Annual Report on Form 10-K for the period ended December 31, 2002, to which this Certification is attached as Exhibit 99.1 (the “Annual Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
2.	The information contained in the Annual Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Annual Report and results of operations of the Company for the period covered by the Annual Report.

Dated: March 21, 2003

/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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