Note 2. Revenue from Collaboration Agreement

Collaboration Agreement with Bayer

Revenue from collaboration agreement consists of the Company’s share of the pre-tax commercial profit generated from its collaboration with Bayer HealthCare Pharmaceuticals, Inc., or Bayer; reimbursement of the Company’s shared marketing costs related to Nexavar; and royalty revenue. Under the collaboration, Bayer recognizes all sales of Nexavar worldwide. The Company records revenue from collaboration agreement on a quarterly basis. Revenue from collaboration agreement is derived by calculating net sales of Nexavar to third-party customers and deducting the cost of goods sold, distribution costs, marketing costs (including, without limitation, advertising and education expenses, selling and promotion expenses, marketing personnel expenses and Bayer marketing services expenses), Phase 4 clinical trial costs and allocable overhead costs. Reimbursement by Bayer of the Company’s shared marketing costs related to Nexavar and royalty revenue is also included in the “Revenue from collaboration agreement” line item in the accompanying statement of operations.

Nexavar is currently marketed and sold in more than 100 countries around the world for the treatment of unresectable liver cancer and advanced kidney cancer. Outside of the United States, excluding Japan, Bayer incurs all of the sales and marketing expenditures, and the Company reimburses Bayer for half of those expenditures. In addition, for sales generated outside of the United States, excluding Japan, the Company reimburses Bayer a fixed percentage of sales for their marketing infrastructure. Research and development expenditures on a worldwide basis, excluding Japan, are equally shared by both companies regardless of whether the Company or Bayer incurs the expense. Bayer has no obligation to pay royalties to the Company for sales of Nexavar in Japan.

The Company’s collaboration agreement with Bayer will terminate when patents expire that were issued in connection with product candidates discovered under the agreement, or at the time when neither we nor Bayer are entitled to profit sharing under the agreement, whichever is latest. The Company’s co-promotion agreement with Bayer will terminate upon the earlier of the termination of the Company’s collaboration agreement with Bayer or the date products subject to the co-promotion agreement are no longer sold by either party in the United States due to a permanent product withdrawal or recall or a voluntary decision by the parties to abandon the co-promotion of such products in the United States. Either party may also terminate the co-promotion agreement upon failure to cure a material breach of the agreement within a specified cure period. The Company’s agreement regarding regorafenib will terminate on a country-by-country basis when we are no longer entitled to receive royalties in a particular country. Refer to Note 4 “Royalty Revenue from Stivarga” for further details.

Revenue from collaboration agreement was $70.3 million for the three months ended March 31, 2013, compared to $72.0 million for the three months ended March 31, 2012, calculated as follows:

	Three Months Ended March 31,
	2013		2012
	(In thousands)

Onyx’s share of collaboration commercial profit	$	66,192	$	66,692
Reimbursement of Onyx’s shared marketing expenses	4,115		5,339
Revenue from collaboration agreement	$	70,307	$	72,031