e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2008


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 Number: 0-28298

ONYX PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)


Delaware		94-3154463

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

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

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

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

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date. The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 55,577,936 as of May 1, 2008.

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

CONDENSED BALANCE SHEETS


	March 31,			December 31,
	2008			2007
	(Unaudited)			(Note 1)
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	276,341		$	161,653
Short-term marketable securities		131,945			307,997
Receivable from collaboration partner		37,761			4,702
Prepaid expenses and other current assets		7,636			6,304

Total current assets		453,683			480,656
Long-term marketable securities		48,328			—
Property and equipment, net		2,840			3,146
Other assets		286			281


	$	505,137		$	484,083


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	191		$	271
Payable to collaboration partner		8,862			—
Accrued liabilities		4,516			2,065
Accrued clinical trials and related expenses		4,713			3,323
Accrued compensation		3,606			5,782

Total current liabilities		21,888			11,441

Advance from collaboration partner		30,372			39,234
Deferred rent and lease incentives		1,260			1,171

Commitments and contingencies

Stockholders’ equity:
Common stock		56			56
Additional paid-in capital		910,289			904,506
Receivable from stock option exercises		—			(23	)
Accumulated other comprehensive gain (loss)		(1,488	)		356
Accumulated deficit		(457,240	)		(472,658	)

Total stockholders’ equity		451,617			432,237


	$	505,137		$	484,083

See accompanying notes.

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)


	Three Months Ended March 31,
	2008			2007
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	15,418		$	(12,195	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Realized gains on sales of short-term marketable securities		(483	)		—
Depreciation and amortization		346			195
Stock-based compensation		4,838			3,397
Changes in operating assets and liabilities:
Receivable from collaboration partner		(33,059	)		224
Prepaid expenses and other current assets		(1,332	)		(217	)
Other assets		(5	)		(81	)
Accounts payable		(80	)		(128	)
Accrued liabilities		2,451			(671	)
Accrued clinical trials and related expenses		1,390			(4,232	)
Payable to collaboration partner		—			702
Accrued compensation		(2,176	)		(1,204	)
Deferred lease incentives		89			—

Net cash used in operating activities		(12,603	)		(14,210	)


Cash flows from investing activities:
Purchases of marketable securities		(69,558	)		(104,524	)
Sales of marketable securities		82,916			—
Maturities of marketable securities		113,004			100,628
Capital expenditures		(40	)		(590	)

Net cash provided by (used in) investing activities		126,322			(4,486	)


Cash flows from financing activities:
Purchases of treasury stock		(528	)		—
Net proceeds from issuances of common stock		1,497			5,075

Net cash provided by financing activities		969			5,075

Net increase (decrease) in cash and cash equivalents		114,688			(13,621	)
Cash and cash equivalents at beginning of period		161,653			94,413

Cash and cash equivalents at end of period	$	276,341		$	80,792

See accompanying notes.

NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008, or for any other future operating periods.

The condensed balance sheet at December 31, 2007 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

For further information, refer to the financial statements and footnotes thereto included in the Onyx Pharmaceuticals, Inc. (the “Company” or “Onyx” and the references “we,” “us” and “our”) Annual Report on Form 10-K for the year ended December 31, 2007 (the “2007 Annual Report”).

Note 2. Net Revenue from Unconsolidated Joint Business

Nexavar is currently marketed and sold primarily in the United States and the European Union for the treatment of advanced kidney cancer and liver cancer. Nexavar also has regulatory applications pending in other territories internationally. The Company co-promotes Nexavar in the United States with Bayer Healthcare Pharmaceuticals Corporation Inc., (Bayer) under collaboration and co-promotion agreements. In March 2006, the Company and Bayer entered into a Co-Promotion Agreement to co-promote Nexavar in the United States. This agreement amends the original 1994 Collaboration Agreement and supersedes the provisions of that agreement that relate to the co-promotion of Nexavar in the United States. Outside of the United States, the terms of the Collaboration Agreement continue to govern. Under the terms of the Co-Promotion Agreement and consistent with the Collaboration Agreement, the Company and Bayer will share equally in the profits or losses of Nexavar, if any, in the United States, subject only to the Company’s continued co-funding of the development costs of Nexavar worldwide, excluding Japan, and the Company’s continued co-promotion of Nexavar in the United States. In the United States, the Company contributes half of the overall number of sales force personnel required to market and promote Nexavar and half of the medical science liaisons to support Nexavar. The Company and Bayer each bears its own sales force and medical science liaison expenses. These expenses are not included in the calculation of the profits or losses of the collaboration. The collaboration was created through a contractual arrangement, not through a joint venture or other legal entity. In Japan, Bayer funds all product development, and the Company will receive a royalty on any sales.

The Company reports the amount due to or from Bayer to balance the companies’ economics under the Nexavar collaboration as a single line item. This line item consists of the Company’s share of the pretax collaboration profit or loss generated from the collaboration and the reimbursement of the Company’s shared marketing and research and development costs related to Nexavar. Under the collaboration, Bayer recognizes all revenue from the sale of Nexavar worldwide.

Prior to the first quarter of 2008, Onyx reported this line item as net expense due to (from) unconsolidated joint business. The amount generated from the collaboration plus the reimbursement of the Company’s shared marketing and research and development costs related to Nexavar have resulted in income from operations for the Company since the first quarter of 2007. Therefore, the Company is reporting this line item as net revenue from unconsolidated joint business beginning in 2008 instead of net expense due from unconsolidated joint business.

Net revenue from unconsolidated joint business was $37.7 and $3.0 million for the three months ended March 31, 2008 and 2007, respectively, calculated as follows:


	Three Months Ended March 31,
	2008		2007
	(In thousands)
Onyx’s share of collaboration profit (loss)	$	25,858	$	(4,430	)
Reimbursement of Onyx’s direct development and marketing expenses		11,880		7,455

Net revenue from unconsolidated joint business	$	37,738	$	3,025

The Company’s share of the development costs incurred since inception under the collaboration was $321.0 million as of March 31, 2008 and $235.6 million as of March 31, 2007.

Note 3. Stock-Based Compensation

The Company accounts for stock-based compensation to employees and directors in accordance with Statement of Financial Accounting Standards, or SFAS, No. 123(R), “Share-Based Payment,” (“SFAS 123(R)”), which was adopted January 1, 2006, utilizing the modified prospective transition method. Total employee stock-based compensation expense was $5.2 million and $3.0 million for the three months ended March 31, 2008 and 2007, respectively. The stock-based compensation expense for the three months ended March 31, 2008 includes $2.0 million for the modifications of stock-based awards relating to two employees. The terms of the modifications included accelerated vesting and the extension of the vesting period for stock-based awards previously granted.

Employee Stock Plans

In February 2008, the Board approved an amendment to the 2005 Equity Incentive Plan (Incentive Plan), subject to stockholder approval at the Company’s annual meeting of stockholders scheduled for May 14, 2008, to increase the number of shares of common stock authorized for issuance under the Incentive Plan by 3,100,000 shares, to a total of 12,260,045 shares.

Valuation Assumptions

As of March 31, 2008 and 2007, the fair value of stock-based awards for employee stock option awards and employee stock purchases made under the ESPP was estimated using the Black-Scholes option pricing model. The following weighted average assumptions were used:


	Three Months Ended
	March 31,
	2008		2007
Stock Option Plans:
Risk-free interest rate		2.85%		4.71%
Expected life	4.4 years		4.3 years
Expected volatility		64%		64%
Expected dividends	None		None
Weighted average option fair value		$ 16.87		$ 13.33

Stock Bonus Awards:
Expected life	3 years		3 years
Expected dividends	None		None
Weighted average fair value per share		$ 30.44		$ 24.84

ESPP:
Risk-free interest rate		4.95%		5.17%
Expected life	6 months		6 months
Expected volatility		64%		60%
Expected dividends	None		None
Weighted average shares fair value		$ 8.57		$ 4.97

Note 4. Income Taxes

The Company accounts for income taxes based upon Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company continues to carry a full valuation allowance on all of its deferred tax assets. The tax years 1992 through 2006 remain subject to examination by the taxing jurisdictions to which the Company is subject.

For the quarter ended March 31, 2008, in accordance with APB 28, “Interim Financial Reporting,” and Interpretation No. 18, “Accounting for Income Taxes in Interim Periods — and Interpretation of APB Opinion No. 28,” the Company elected to compute its income tax provision on a year-to-date basis instead of estimating its annual effective tax rate. Therefore, for the quarter ended March 31, 2008, the Company recorded a provision for income taxes of $309,000 related to income from operations. Based on the Company’s ability to fully offset federal taxable income by its net operating loss carryforwards, the Company’s estimated tax expense is principally related to federal alternative minimum tax, which results in an effective federal tax rate of approximately 2% for the quarter ended March 31, 2008.

Note 5. Net Income (Loss) Per Share

Basic net income (loss) per share amounts for each period presented were computed using the weighted average number of shares of common stock outstanding. Diluted net income (loss) per share amounts for each period presented were computed using the weighted average number of potentially dilutive common shares issuable in connection with stock-based awards and warrants under the treasury stock method. Dilutive net income per share does not include the effect of 612,700 stock-based awards that were outstanding during the three months ended March 31, 2008. These stock-based awards were not included in the computation of diluted net income per share because the proceeds received, if any, from such stock-based awards combined with the average unamortized compensation costs were greater than the average market price of our common stock, and, therefore, their effect would have been antidilutive. Potentially dilutive outstanding common shares consisting of 5,424,864 stock-based awards and warrants were not included in the computation of diluted net loss per share for the quarter ended March 31, 2007 because their effect would have been antidilutive.

Note 6. Comprehensive Income (Loss)

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


	Three Months Ended
	March 31,
	2008			2007
	(In thousands)
Net income (loss) — as reported		$ 15,418			$ (12,195	)
Other comprehensive income (loss):
Change in unrealized gain (loss) on available-for-sale securities		(1,844	)		73

Comprehensive income (loss)		$ 13,574			$ (12,122	)

Note 7. Cash Equivalents and Marketable Securities

Cash equivalents consist of highly liquid investments with original maturities of three months or less. Short-term and long-term investments consist of marketable securities and are classified as securities “available for sale” under Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” (“SFAS 115”). Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and shown separately as a component of accumulated other comprehensive income or loss within stockholders’ equity. The Company may pay a premium or receive a discount upon the purchase of marketable securities. Interest earned and gains realized on marketable securities and amortization of discounts received and accretion of premiums paid on the purchase of marketable securities are included in investment income.

The Company’s investment portfolio includes $50 million of AAA rated student loans with an auction reset feature (“auction rate securities”). Since February 2008, these types of securities have experienced failures in the auction process. As a result of the auction failures, interest rates on these securities reset at penalty rates linked to Libor or Treasury bill rates. The penalty rates are generally higher than interest rates set at auction. Due to the failures in the auction processes, these investments are not currently liquid. Therefore, the Company has reclassified these auction rate securities from short-term investments to long-term investments on the accompanying unaudited Condensed Balance Sheet at March 31, 2008. The Company has reduced the carrying value of these investments by $1.7 million through accumulated other comprehensive income or loss instead of earnings, which reflects a temporary impairment on these investments. Of the $50 million invested in failed auction rate securities, the Company estimates the fair value of these investments to be $48.3 million based on a discounted cash flow model.

Note 8. Long-Term Obligations

The Company received $40.0 million in development payments from Bayer pursuant to its collaboration agreement. These development payments contain no provision for interest. These development payments are repayable to Bayer from a portion of the Company’s share of collaboration profits after deducting certain contractually agreed upon expenditures. As of December 31, 2007, $766,000 of these development payments was repaid to Bayer leaving a remaining balance of $39.2 million. Based on the collaboration profit for the quarter ended March 31, 2008, $8.9 million was reclassified as a current liability on the Company’s accompanying balance sheet as of March 31, 2008.

Note 9. Recent Accounting Pronouncements

In December 2007, the Emerging Issues Task Force, or EITF, issued Issue No. 07-1, Accounting for Collaboration Arrangements Related to the Development and Commercialization of Intellectual Property” (“EITF 07-1”), which focuses on how the parties to a collaborative arrangement should account for costs incurred and revenue generated on sales to third parties, how sharing payments pursuant to a collaboration agreement should be presented in the income statement and certain related disclosure questions. EITF 07-1 is effective for all fiscal years ending after December 15, 2008. Upon

adoption of ETIF 07-1, the Company expects to revise the financial presentation by changing the classification of amounts in its Statement of Operations. This will have no impact on previously reported amounts of net income (loss) or net income (loss) per share.

Note 10. Fair Value Measurements

In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company has adopted the provisions of SFAS 157 as of January 1, 2008, for all financial assets and liabilities. The adoption of SFAS 157 did not materially impact the Company’s financial condition, results of operations, or cash flow.

SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, and requires that certain assets be measured at fair value on a recurring basis. The three tiers include:

	•		Level 1, defined as observable inputs such as quoted prices for identical assets in active markets;

	•		Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

	•		Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring management to develop its own assumptions based on best estimates of what market participants would use in pricing an asset or liability at the reporting date.

As of March 31, 2008, the Company’s fair value hierarchies for its financial assets, which require fair value measurement on a recurring basis under SFAS 157, are as follows:


	Level 1		Level 2		Level 3		Total
			(In thousands)
Money market funds	$	85,761	$	—	$	—	$	85,761
Commercial paper		—		99,824		—		99,824
Municipal bonds		—		—		48,328		48,328
U.S. government agencies		—		75,643		—		75,643
U.S. treasury bills		142,625		—		—		142,625

Total	$	228,386	$	175,467	$	48,328	$	452,181

Level 3 assets consist of student loans with an auction reset feature (“auction rate securities”), which are classified as available for sale securities and reflected at fair value. In February 2008, auctions began to fail for these securities and each auction since then has failed. Based on the overall failure rate of these auctions, the frequency of the failures, and the underlying maturities of the securities, a portion of which are greater than 30 years, the Company has classified auction rate securities as long-term assets on our balance sheet. As of March 31, 2008 the fair values of these securities are estimated utilizing a discounted cash flow model. The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets as of March 31, 2008:


	Municipal Bonds
	(In thousands)
Balance at December 31, 2007	$	50,000
Unrealized loss:
In other comprehensive income		(1,672	)
In earnings		—

Balance at March 31, 2008	$	48,328

As a result of the temporary decline in fair value for the Company’s auction rate securities, which the Company attributes to liquidity issues rather than credit issues, the Company has recorded an unrealized loss of $1.7 million in the accumulated other comprehensive income (loss) line of stockholders’ equity. All of the auction rate securities held by the Company at March 31, 2008, were in securities collateralized by student loan portfolios, which are substantially guaranteed by the United States government. Due to the Company’s belief that the market for these student loan collateralized instruments may take in excess of twelve months to fully recover, the Company has classified these investments as long-term on the unaudited Condensed Balance Sheet at March 31, 2008. Any future fluctuation in fair value related to these instruments that the Company deems to be temporary, including any recoveries of previous write-downs, will be recorded in accumulated other comprehensive income (loss). If the Company determines that any future valuation adjustment is other than temporary, it will record a charge to earnings as appropriate.

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. We use words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” and similar expressions to identify forward-looking statements. These statements appearing throughout our Form 10-Q are statements regarding our intent, belief, or current expectations, primarily regarding our operations. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including those set forth under Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q.

Overview

We are a biopharmaceutical company dedicated to developing innovative therapies that target the molecular mechanisms that cause cancer. With our collaborators, we are developing small molecule drugs with the goal of changing the way cancer is treated^TM. We are applying our expertise to develop and commercialize oral anticancer therapies designed to prevent cancer cell proliferation and angiogenesis by inhibiting proteins that signal or support tumor growth. By exploiting the genetic differences between cancer cells and normal cells, we aim to develop and market novel anticancer agents that minimize damage to healthy tissue. Our first commercially available product, Nexavar^® (sorafenib) Tablets, being developed with our collaborator, Bayer HealthCare Pharmaceuticals Inc., or Bayer, is approved in the United States, European Union and other territories worldwide, for advanced kidney cancer and liver cancer. Nexavar is a novel, orally available kinase and angiogenesis inhibitor, a new class of anticancer treatments that target signaling pathways important to the proliferation of cancer cells. In December 2005 Nexavar became the first newly approved systemic therapy for patients with advanced kidney cancer in over a decade. Subsequently, in the fourth quarter of 2007, Nexavar was approved as the first and is currently the only systemic therapy for the treatment of patients with liver cancer. With our collaborator, Bayer, we are commercializing Nexavar^{^®} (sorafenib) Tablets, for the treatment of patients with advanced kidney cancer and liver cancer. Nexavar is now approved in more than 70 countries for the treatment of advanced kidney cancer and in more than 40 countries for the treatment of liver cancer. In the United States, Bayer and Onyx co-promote Nexavar. Outside of the United States, Bayer manages all commercialization activities. For the quarters ended March 31, 2008 and 2007, worldwide net sales of Nexavar as recorded by Bayer were $151.9 and $60.9 million, respectively.

With the approval of Nexavar for the treatment of advanced kidney cancer and liver cancer, we and Bayer have established the Nexavar brand and created a global commercial oncology presence. In order to benefit as many patients as possible, we and Bayer are continuing to investigate the administration of Nexavar with previously approved anticancer therapeutics in other cancers and settings and in combination with existing therapies. We and Bayer have ongoing clinical trials in lung cancer, breast cancer and several other cancers.

We and Bayer are developing and marketing Nexavar under our collaboration and co-promotion agreements. We fund 50% of the development costs for Nexavar worldwide, excluding Japan. With Bayer, we co-promote Nexavar in the United States and share equally in any profits or losses. Outside of the United States, excluding Japan, Bayer has exclusive marketing and commercialization rights of Nexavar and we share profits equally. In Japan, Bayer funds all product development, and we will receive a royalty on any sales.

We have had significant losses since inception. Our ability to achieve continued and sustainable profitability is uncertain and is dependant on a number of factors. These factors include, but are not limited to, the level of patient demand for Nexavar, the ability of Bayer’s distribution network to process and ship product on a timely basis, investments in sales and marketing efforts to support the sales of Nexavar, Bayer and our investments in the research and development of Nexavar, fluctuations in foreign exchange rates, and expenditures we may incur to acquire additional products. Our operating results will likely fluctuate from fiscal quarter to fiscal quarter and from year to year, and are difficult to predict. Since inception, we have relied on public and private financings, combined with milestone payments from our collaborators to fund our operations and may continue to do so in future periods. As of March 31, 2008, our accumulated deficit was approximately $457.2 million.

Our business is subject to significant risks, including the risks inherent in our development efforts, the results of the Nexavar clinical trials, the marketing of Nexavar as a treatment for patients in approved indications, our dependence on collaborative parties, uncertainties associated with obtaining and enforcing patents, the lengthy and expensive regulatory approval process and competition from other products. For a discussion of these and some of the other risks and uncertainties affecting our business, see Item 1A “Risk Factors” of this Quarterly Report on
Form 10-Q.

Critical Accounting Policies and the Use of Estimates

Critical accounting policies are those that require significant estimates, assumptions and judgments by management about matters that are inherently uncertain at the time that the financial statements are prepared such that materially different results might have been reported if other assumptions had been made. These estimates form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We consider certain accounting policies related to net revenue from unconsolidated joint business, stock-based compensation, research and development expenses and use of estimates to be critical policies. Significant estimations used in 2008 included assumptions used in the determination of stock-based compensation related to stock options granted, net revenue from unconsolidated joint business, and research and development expenses. Actual results could differ materially from these estimates. There were no changes to our critical accounting policies since we filed our Annual Report on Form 10-K, for the year ended December 31, 2007, with the Securities and Exchange Commission, or SEC. For a description of our critical accounting policies, please refer to our 2007 Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Results of Operations

Three months ended March 31, 2008 and 2007

Revenue

Nexavar, our only marketed product, was approved in the U.S. in December 2005. In accordance with our collaboration agreement with Bayer, Bayer recognizes all revenue from the sale of Nexavar. As such, for the three months ended March 31, 2008 and March 31, 2007, we reported no revenue. For the three months ended March 31, 2008, Nexavar net sales recorded by Bayer were $151.9 million, primarily in the United States and the European Union. This represents an increase of $91.0 million or 149% over Nexavar net sales of $60.9 million recorded by Bayer for the quarter ended March 31, 2007.

Net Revenue from Unconsolidated Joint Business

Nexavar is currently marketed and sold in the United States, several countries in the European Union and other countries worldwide. We co-promote Nexavar in the United States with Bayer under a collaboration agreement. Under the terms of the collaboration agreement, we share equally in the profits or losses of Nexavar, if any, in the United States, subject only to our continued co-funding of the development costs of Nexavar worldwide, excluding Japan, and our continued promotion of Nexavar in the United States. In the United States, we contribute half of the overall number of sales force personnel required to market and promote Nexavar and half of the medical science liaisons to support Nexavar. Onyx and Bayer each bears its own sales force and medical science liaison expenses. These expenses are not included in the calculation of the profits or losses of the collaboration.

We report the amount due to or from Bayer to balance the companies’ economics under the Nexavar collaboration as a single line item. This line item consists of Onyx’s share of the pretax collaboration profit (loss) generated from the collaboration plus the reimbursement of Onyx’s marketing and research and development costs related to Nexavar. Net revenue from unconsolidated joint business for the three months ended March 31, 2008 and 2007 is calculated as follows:


	Three Months Ended March 31,
	2008		2007
	(In thousands)
Product revenue, net (as recorded by Bayer)	$	151,896	$	60,881
Combined cost of goods sold, distribution, selling, general and administrative expenses		62,703		36,450
Combined research and development expenses		37,478		33,290

Combined collaboration profit (loss)	$	51,715	$	(8,859	)


Onyx’s share of collaboration profit (loss)	$	25,858	$	(4,430	)
Reimbursement of Onyx’s direct development and marketing expenses		11,880		7,455

Net revenue from unconsolidated joint business	$	37,738	$	3,025

For the three months ended March 31, 2008 and 2007, net revenue from unconsolidated joint business was $37.7 and $3.0, respectively. The increase in net revenue from unconsolidated joint business is primarily due to an increase in Nexavar product sales recognized by Bayer offset by increases in the combined commercial expenses to support the launch of Nexavar around the world and increased development expenses for Nexavar primarily related to the breast cancer program.

Net revenue due from unconsolidated joint business increases with increases in the profitability of the collaboration and with increases in the amount of reimbursement for our direct development and marketing expenses. We expect Bayer’s and our shared Nexavar research and development expenses to increase in future periods as the companies develop Nexavar for indications beyond liver and advanced kidney cancer. With the approval of Nexavar in the European Union and pending approvals in other international territories, we also expect Bayer’s and our shared cost of goods sold, distribution, selling and general administrative expense to increase as Bayer continues to expand Nexavar marketing and sales activities outside of the United States.

Research and Development Expenses

Research and development expenses were $7.4 million for the three months ended March 31, 2008, a net increase of $1.9 million, or 35%, from $5.5 million in the same period in 2007. The increase is primarily due to the increase in activities in our breast cancer program for Nexavar partially offset by a decrease in activities in the melanoma program for Nexavar.

The major components of research and development costs include clinical manufacturing costs, clinical trial expenses, consulting and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials, and allocations of various overhead and occupancy costs. We expect research and development expenses to increase as we increase clinical development activity related to Nexavar.

Together with Bayer, we have implemented a broad-based global development strategy for Nexavar that implements simultaneous clinical programs currently designed to expand the number of approved indications of Nexavar and evaluate the use of Nexavar in new and/or novel combinations. Our global development plan has included major Phase 3 studies in lung, kidney and liver in the past, and currently includes additional major Phase 3 clinical trials in metastatic melanoma comparing the administration of Nexavar in combination with the chemotherapeutics carboplatin and paclitaxel, as well as Nexavar with standard chemotherapeutic agents in non-small cell lung cancer. The completion dates of these trials are currently unknown. As of March 31, 2008, our share of the Nexavar development costs incurred to date under the collaboration were $321.0 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $19.8 million for the three months ended March 31, 2008, a net increase of $6.7 million from $13.1 million in the same period in 2007. This increase is due to Onyx incurring more of the shared marketing expenses in the United States and an increase in headcount in the commercial and administrative functions, including

executive and corporate development, to support our planned growth. The quarter ended March 31, 2008 included non-recurring employee related expenses consisting of $2 million for modifications of previously granted stock-based awards for two employees and $2 million for compensation, search fees and other expenses related to the transition of the chief executive officer.

Selling, general and administrative expenses consist primarily of salaries, employee benefits, consulting, advertising and promotion expenses, other third party costs, corporate functional expenses and allocations for overhead and occupancy costs. We expect our selling, general and administrative expenses to increase due to increases in marketing expenses relating to Nexavar and increases in personnel.

Investment Income

Investment income consists of interest income and realized gains or losses from the sale of marketable equity investments. We had investment income of $5.3 million for the three months ended March 31, 2008, an increase of $1.8 million from $3.5 million in the same period in 2007. The increase was primarily due to higher average investment balances for the three months ended March 31, 2008.

Liquidity and Capital Resources

Since our inception, we have incurred significant losses, and we have relied primarily on public and private financing, combined with milestone payments received from our collaborations to fund our operations.

At March 31, 2008, we had cash, cash equivalents and short and long-term marketable securities of $456.6 million, compared to $469.7 million at December 31, 2007. The decrease of $13.1 million was primarily attributable to net cash used in operations of $12.6 million. This use of cash was partially offset by proceeds of $1.5 million received from the issuance of common stock through stock option exercises and the employee stock purchase plan during the three-month period ended March 31, 2008.

Our collaboration agreement with Bayer calls for creditable milestone-based payments. These amounts are interest-free and are repayable to Bayer from a portion of any of our profits and royalties. We received a total of $40.0 million of milestone payments from Bayer in connection with the approval of Nexavar. As of December 31, 2007, $766,000 of these development payments was repaid to Bayer leaving a remaining balance of $39.2 million. Based on the collaboration profit for the three months ended March 31, 2008, $8.9 million has been reclassified as a current liability on our accompanying balance sheet as of March 31, 2008.

Total capital expenditures, primarily for furniture and information technology software, for the three-month period ended March 31, 2008, were approximately $40,000. We currently expect to make capital expenditures of approximately $3.7 million for the remainder of 2008 for leasehold improvements, furniture and equipment, and information technology software.

Our investment portfolio includes $50 million of AAA rated student loans with an auction reset feature (“auction rate securities”). Since February 2008, these types of securities have experienced failures in the auction process. As a result of the auction failures, interest rates on these securities reset at penalty rates linked to Libor or Treasury bill rates. The penalty rates are generally higher than interest rates set at auction. Due to failures in the auction processes, these investments are not currently liquid. Therefore, we have reclassified these auction rate securities from short-term investments to long-term investments on our accompanying unaudited Condensed Balance Sheet at March 31, 2008. We have reduced the carrying value of these investments by $1.7 million through accumulated other comprehensive income or loss instead of earnings, which reflects a temporary impairment on these investments. Of the $50 million invested in failed auction rate securities, we estimate the fair value of these investments to be $48.3 million based on a discounted cash flow model. Further adverse developments in the credit market could result in an impairment charge through earnings.

Currently, we believe these investments are not other-than-temporarily impaired as all of them are substantially backed by the federal government, but it is not clear in what period of time they will be settled. We believe that, even after reclassifying these securities to long-term assets and the possible requirement to hold all such securities for an indefinite period of time, our remaining cash and cash equivalents and short-term investments will be sufficient to meet our anticipated cash needs for at least the next twelve months.

We believe that our existing capital resources and interest thereon will be sufficient to fund our current and planned operations beyond 2009. However, if we change our development plans, including acquiring additional product candidates or complementary businesses, we may need additional funds sooner than we expect. In addition, we anticipate that our co-development costs for the Nexavar program may increase over the next several years as we continue to fund our share of the clinical development program and prepare for potential product launches throughout the world. These costs are currently unknown, but in the future we may need to raise additional capital to continue to co-fund the program beyond 2009. We intend to seek any required 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 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.

Recently Issued Accounting Standards

In addition, there were several critical recently issued accounting standards, described in our 2007 Annual Report, which we have adopted as of January 1, 2008. These included EITF 07-3, “Accounting for Advance Payments for Goods or Services to be Used in Future Research and Development Activities,” SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115,” and SFAS 157, “Fair Value Measurements.” None of these accounting standards have materially impacted the financial condition, results of operations, or cash flow of the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The primary objective of our investment activities is to preserve principal while at the same time maximize the income we receive from our investments without significantly increasing risk. Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. This means that a change in prevailing interest rates may cause the principal amount of the investments to fluctuate. By policy, we minimize risk by placing our investments with high quality debt security issuers, limit the amount of credit exposure to any one issuer, limit duration by restricting the term, and hold investments to maturity except under rare circumstances. We maintain our portfolio of cash equivalents and marketable securities in a variety of securities, including commercial paper, money market funds, and investment grade government and non-government debt securities. Through our money managers, we maintain risk management control systems to monitor interest rate risk. The risk management control systems use analytical techniques, including sensitivity analysis. If market interest rates were to increase by 100 basis points, or 1%, as of March 31, 2008, the fair value of our portfolio would decline by approximately $395,000.

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


	March 31, 2008						December 31, 2007
				Average						Average
		Fair Value		Interest				Fair Value		Interest
	Maturity	(In millions)		Rate			Maturity	(In millions)		Rate
Cash equivalents, fixed rate	0 – 3 months	$	271.9		2.64	%	0 – 2 months	$	160.0		4.79	%
Marketable securities, fixed rate	0 – 24 months	$	180.3		3.19	%	0 – 12 months	$	308.0		4.75	%

We did not hold any derivative instruments as of March 31, 2008, and we have not held derivative instruments in the past. However, our investment policy does allow us to use derivative financial instruments for the purposes of hedging foreign currency denominated obligations. Our cash flows are denominated in U.S. dollars.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures: The Company’s chief executive officer and chief financial officer reviewed and evaluated the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2008 to ensure the information required to be disclosed by the Company in this Quarterly Report on Form 10-Q is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control over Financial Reporting: There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls: Internal control over financial reporting may not prevent or detect all errors and all fraud. Also, projections of any evaluation of effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any material legal proceedings.

Item 1A. Risk Factors

You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties described below contain forward-looking statements, and our actual results may differ materially from those discussed here. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. Each of these risk factors could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock.

We have marked with an asterisk (*) those risk factors below that reflect material changes from the risk factors included in our 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2008.

Nexavar^{^®} (sorafenib) tablets is our only product, and we do not have any other product candidates in Phase 2 or Phase 3 clinical development. If Nexavar is not commercially successful, we may be unable to develop and commercialize alternative product candidates and our business would fail.

Nexavar is our only product. We do not have internal research or preclinical development capabilities. Our scientific and administrative employees are primarily dedicated to the development and commercialization of Nexavar and managing our relationship with Bayer rather than discovering or developing new product candidates. Thus, we do not have a clinical development pipeline beyond Nexavar. If Nexavar is not commercially successful, we may be unable to develop and commercialize alternative product candidates to later stage clinical development and commercialization, which would cause our business to fail.

There are competing therapies approved for the treatment of advanced kidney cancer, and there are several competing therapies in development for advanced kidney cancer and liver cancer. We expect the number of approved therapies to increase, which could harm the prospects for Nexavar.

There are several competing therapies approved for the treatment of kidney cancer and, in addition, several companies are developing novel multi-kinase inhibitors, antiangiogenic agents and other targeted therapies for the treatment of kidney cancer. The market is highly competitive, and we expect the competition to increase as additional products are approved to treat this type of cancer, which could lead to a decrease in our market share.

For example, Sutent, a multi-kinase inhibitor marketed by Pfizer, was approved in 2006 in the United States, the European Union and other countries for treating patients with advanced kidney cancer and Gleevec-resistant gastrointestinal stromal tumors, or GIST. Results of a randomized Phase 3 trial comparing Sutent to interferon, or IFN, in treatment-naïve patients with advanced kidney cancer showed a median, progression free survival, or PFS, of 11 months for patients receiving Sutent compared to 5 months for patients receiving IFN. Pfizer also has an earlier stage compound, AG-013736, a multi-kinase inhibitor, which is in clinical development and is being evaluated in kidney cancer patients.

Wyeth received an approval in May 2007 to market Torisel, an mTOR inhibitor, for the treatment of patients with advanced kidney cancer. In June 2006, results of a randomized Phase 3 trial comparing Torisel to IFN to both agents combined in treatment-naïve, poor-prognosis advanced kidney cancer patients were reported. The primary endpoint of the study was overall survival. The reported median overall survival was 10.9 months for Torisel alone as compared to 7.3 months for interferon. Wyeth has also initiated a Phase 2/3 trial in second line RCC, which compares Torisel to Nexavar. The results of this trial could impact our competitiveness in RCC.

Genentech’s Avastin was approved by the European Union for the treatment of patients with advanced kidney cancer in combination with IFN. The approval was based on results reported from a Phase 3 randomized trial in treatment-naïve advanced kidney cancer patients comparing treatment with Avastin and IFN to treatment with IFN alone. The reported PFS for patients who received the combination was 10 months as compared to 5 months for those patients receiving IFN alone.

In addition, GlaxoSmithKline and Novartis also have agents in randomized Phase 3 clinical trials for second-line advanced kidney cancer. Pazopanib, a multi-kinase inhibitor, and RAD-001, an mTOR inhibitor, are both expected to have results from these Phase 3 trials in 2008. In February 2008, Novartis announced that an independent review committee had stopped a late-stage trial of its experimental kidney cancer drug everolimus, previously known as RAD001, because the study had met its goal of progression-free survival in advanced kidney cancer patients.

In December 2006, we announced the results of the Phase 2 clinical trial comparing Nexavar to IFN, which did not demonstrate PFS was favorable for patients who received Nexavar. Products that have shown efficacy as compared to IFN or interleukin-2, or IL-2, or in treatment naïve-patients may be preferred by the medical community.

Further, survival may become the most important element in determining standard of care. While we did not demonstrate a statistically significant overall survival benefit for patients treated with Nexavar in our Phase 3 kidney cancer trial, we believe the outcome was impacted by the cross over of patients from placebo to Nexavar beginning in April 2005. Competitors with statistically significant overall survival data could be preferred in the marketplace, which could impair our ability to successfully market Nexavar.

The use of any particular therapy may limit the use of a competing therapy with a similar mechanism of action. The FDA approval of Nexavar permits Nexavar to be used as an initial, or first-line, therapy for the treatment of advanced kidney cancer, but some other approvals do not. For example, the European Union approval indicates Nexavar only for advanced kidney cancer patients that have failed prior therapy or whose physicians deem alternate therapies inappropriate.

The successful introduction of other new therapies to treat kidney cancer or liver cancer could significantly reduce the potential market for Nexavar in these indications. There are also competing therapies in development for liver cancer. Decreased demand for Nexavar would harm our ability to realize revenue and profits from Nexavar, which could cause our stock price to fall.

Although Nexavar has been approved in the United States, European Union and other territories for the treatment of patients with liver cancer, adoption may be slow or limited for a variety of reasons including the geographic distribution of the patient population, the current treatment paradigm for liver cancer patients and the underlying liver disease present in most liver cancer patients. If Nexavar is not broadly adopted for the treatment of liver cancer, our business would be harmed.

Nexavar has been approved in the United States, the European Union and many other countries as the first systemic treatment for liver cancer. The rate of adoption and the ultimate market size will be dependent on several factors including educating treating physicians on the appropriate use of Nexavar and the management of patients who are receiving Nexavar. This may be difficult due to patients typically having underlying liver disease and comorbidities in addition to their liver cancer and often being treated by a variety of medical specialists. In addition, screening, diagnostic and treatment practices can vary significantly by region. Further, liver cancer is common in many regions in the developing world where the healthcare systems are limited and reimbursement for Nexavar is not available, which will likely limit or slow adoption. If we are unable to change the treatment paradigms for this disease, we may be unable to successfully commercialize Nexavar for this indication, which could harm our business.

If our ongoing and planned clinical trials fail to demonstrate that Nexavar is safe and effective or we are unable to obtain necessary regulatory approvals, we will be unable to expand the commercial market for Nexavar and our business may fail.*

In collaboration with Bayer, we are conducting multiple clinical trials of Nexavar. We are currently conducting a number of clinical trials of Nexavar alone or in combination with other anticancer agents in kidney, liver, non-small cell lung, breast, melanoma, and other cancers including a number of Phase 3 clinical trials.

Phase 3 trials are designed to more rigorously test the efficacy of a product candidate and are normally randomized and double-blinded. Phase 3 trials are typically monitored by independent data monitoring committees, or DMC, which periodically review data as a trial progresses. A DMC may recommend that a trial be stopped before completion for a number of reasons including safety concerns, patient benefit or futility. Our clinical trials may fail to demonstrate that Nexavar is safe and effective, and Nexavar may not gain additional regulatory approval, which would limit the potential market for the product causing our business to fail.

While we and Bayer have received marketing approval for Nexavar in the United States, the European Union and other geographies, to treat liver cancer, many regulatory authorities have not completed their review of the submissions and any review may not result in marketing approval by these other authorities in this indication. In addition, though Nexavar is approved for the treatment of patients with liver cancer in the European Union and elsewhere, certain countries require pricing to be established before reimbursement for this indication may be obtained. We may not receive pricing approvals at favorable levels or at all, which could harm our ability to broadly market Nexavar.

Nexavar has not been approved in cancer types other than kidney and liver cancer. Success in one or even several cancer types does not indicate that Nexavar would be approved or have successful clinical trials in other cancer types. For example, in February 2006 we and Bayer initiated a Phase 3 clinical trial in combination with carboplatin and paclitaxel in patients with non-small cell lung cancer, or NSCLC, and this trial failed to show Nexavar’s efficacy in treating NSCLC. In February 2008, this clinical trial was stopped early following a planned interim analysis when the independent DMC concluded that the study would not meet its primary endpoint of improved overall survival. Although other NSCLC trials are ongoing, Nexavar may never be approved for this indication. In addition, higher mortality was observed in the subset of patients with squamous cell carcinoma of the lung treated with Nexavar and carboplatin and paclitaxel versus those treated with carboplatin and paclitaxel alone. Based on this observation, further enrollment of squamous cell carcinoma of the lung has been suspended from ongoing NSCLC trials sponsored by us. Other cancer types with a histology similar to squamous cell carcinoma of the lung may yield a similar adverse treatment outcome. If so, patients having this histology may be excluded from ongoing and future clinical trials, which would reduce the number of patients that could potentially receive Nexavar.

Further, many companies have failed to demonstrate the effectiveness of pharmaceutical product candidates in Phase 3 clinical trials notwithstanding favorable results in Phase 1 or Phase 2 clinical trials. In addition, if previously unforeseen and unacceptable side effects are observed, we may not proceed with further clinical trials of Nexavar. In our clinical trials, we may 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 Nexavar. These adverse effects may impact the interpretation of clinical trial results, which could lead to an erroneous conclusion regarding the toxicity or efficacy of Nexavar.

We are dependent upon our collaborative relationship with Bayer to manufacture and to further develop and commercialize Nexavar. There may be circumstances that delay or prevent the development and commercialization of Nexavar.

Our strategy for developing, manufacturing and commercializing Nexavar depends in large part upon our relationship with Bayer. If we are unable to maintain our collaborative relationship with Bayer, we would need to undertake development, manufacturing and marketing activities at our own expense. This would significantly increase our capital and infrastructure requirements, may limit the indications we are able to pursue and could prevent us from effectively developing and commercializing Nexavar.

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

•

adverse decisions by Bayer regarding the amount and timing of resource expenditures for the development and commercialization of Nexavar;

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

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

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

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

	•		changes in key management personnel at Bayer that are members of the collaboration’s executive team; and

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

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

Our collaboration agreement with Bayer terminates when patents expire that were issued in connection with product candidates discovered under that agreement, or upon the time when neither we nor Bayer are entitled to profit sharing under that agreement, whichever is later. Bayer holds the global patent applications related to Nexavar. The patents and patent applications covering Nexavar are owned by Bayer, but licensed to us through our collaboration agreement with Bayer. Bayer has a United States patent that covers pharmaceutical compositions of Nexavar, which will expire in 2022. Bayer also has a European patent that covers Nexavar, which will expire in 2020. Bayer has other patent applications that are pending worldwide that cover Nexavar alone or in combination with other drugs for treating cancer.

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

We are engaged in a rapidly changing and highly competitive field. We are seeking to develop and market Nexavar to compete with other products and therapies that currently exist or are being developed. Many other companies are actively seeking to develop products that have disease targets similar to those we are pursuing. Some of these competitive product candidates are in clinical trials and others are approved. Competitors that target the same tumor types as our Nexavar program and that have commercial products or product candidates at various stages of clinical development include Pfizer, Genentech, Inc., Wyeth, Novartis International AG, Amgen, AstraZeneca PLC, OSI Pharmaceuticals, Inc., GlaxoSmithKline, Imclone Systems and several others. A number of companies have agents such as small molecules or antibodies targeting Vascular Endothelial Growth Factor, or VEGF; VEGF receptors; Epidermal Growth Factor, or EGF; EGF receptors; and other enzymes. In addition, many other pharmaceutical companies are developing novel cancer therapies that, if successful, would also provide competition for Nexavar.

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

	•		developing products;

	•		undertaking preclinical testing and human clinical trials;

	•		obtaining FDA and other regulatory approvals of products; and

	•		manufacturing and marketing products.

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

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

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

We anticipate that we will face increased competition in the future as new companies enter our markets and as scientific developments surrounding other cancer therapies continue to accelerate. We have made significant expenditures toward the development of Nexavar and the establishment of a commercialization infrastructure. If Nexavar cannot compete effectively in the marketplace, we may be unable to realize sufficient revenue from Nexavar to offset our expenditures toward its development and commercialization, and our business will suffer.

Our operating results are unpredictable and may fluctuate. If our operating results are below the expectations of securities analysts or investors, the trading price of our stock could decline.

Our operating results will likely fluctuate from fiscal quarter to fiscal quarter and from year to year, and are difficult to predict. Due to a highly competitive environment with existing and emerging products in new markets, Nexavar sales will be difficult to predict from period to period. Our operating expenses are largely independent of Nexavar sales in any particular period. We believe that our quarterly and annual results of operations may be negatively affected by a variety of factors. These factors include, but are not limited to, the level of patient demand for Nexavar, the ability of Bayer’s distribution network to process and ship product on a timely basis, fluctuations in foreign currency exchange rates, investments in sales and marketing efforts to support the sales of Nexavar, Bayer and our investments in the research and development of Nexavar and expenditures we may incur to acquire additional products.

In addition, as a result of our adoption of SFAS 123(R), we must measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award, and recognize the cost as an expense over the employee’s requisite service period. As the variables that we use as a basis for valuing these awards change over time, the magnitude of the expense that we must recognize may vary significantly. Any such variance from one period to the next could cause a significant fluctuation in our operating results.

It is, therefore, difficult for us to accurately forecast profits or losses. As a result, it is possible that in some quarters our operating results could be below the expectations of securities analysts or investors, which could cause the trading price of our common stock to decline, perhaps substantially.

The market may not accept our products and pharmaceutical pricing and reimbursement pressures may reduce profitability.

Nexavar or any future product candidates that we may develop may not gain market acceptance among physicians, patients, healthcare payors and/or the medical community or the market may not be as large as forecasted. One factor that may affect market acceptance of Nexavar or any future products we may develop is the availability of third-party reimbursement. Our commercial success may depend, in part, on the availability of adequate reimbursement for patients from third-party healthcare payors, such as government and private health insurers and managed care organizations. Third-party payors are increasingly challenging the pricing of medical products and services, especially in global markets, and their reimbursement practices may affect the price levels for Nexavar. In addition, the market for Nexavar may be limited by third-party payors who establish lists of approved products and do not provide reimbursement for products not listed. If Nexavar is not on the approved lists, our sales may suffer. Changes in government legislation or regulation, such as the Medicare Act, including Medicare Part D, or changes in private third-party payors’ policies towards reimbursement for our products may reduce reimbursement of our product costs and increase the amounts that patients have to pay themselves. There are also non-government organizations that can influence the use of Nexavar and reimbursement decisions for Nexavar. For example, the National Comprehensive Cancer Network, or NCCN, a not-for-profit alliance of cancer centers has issued guidelines for the use of Nexavar in the treatment of advanced kidney cancer and unresectable liver cancer. These guidelines may affect treating physicians’ use of Nexavar in treatment-naïve advanced kidney and liver cancer patients.

Nexavar’s success in Europe will also depend largely on obtaining and maintaining government reimbursement because, in many European countries, patients will not use prescription drugs that are not reimbursed by their governments. Negotiating prices with governmental authorities can delay commercialization by twelve months or more. Even if reimbursement is available, reimbursement policies may adversely affect our ability to sell our products on a profitable basis. For example, in Europe as in many international markets, governments control the prices of prescription pharmaceuticals and expect prices of prescription pharmaceuticals to decline over the life of the product or as volumes increase. Further reimbursement policies are subject to change due to economic, political or competitive factors. We believe that this will continue into the foreseeable future as governments struggle with escalating health care spending.

A number of additional factors may limit the market acceptance of products including the following:

	•		rate of adoption by healthcare practitioners;

	•		treatment guidelines issued by government and non-government agencies;

	•		types of cancer for which the product is approved;

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

	•		timing of market entry relative to competitive products;

	•		availability of alternative therapies;

	•		price of our product relative to alternative therapies;

	•		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 Nexavar or any future product candidates that we may develop do not achieve market acceptance, we may not realize sufficient revenues from product sales, which may cause our stock price to decline.

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 ongoing clinical trials, the actual timing of these events may be subject to significant delays relating to various causes, including actions by Bayer, scheduling conflicts with participating clinicians and clinical institutions, difficulties in identifying and enrolling patients who meet trial eligibility criteria and shortages of available drug supply. We may not complete clinical trials involving Nexavar as projected or at all.

We and Bayer are launching a broad, multinational Phase 2 program in advanced breast cancer. The program is being coordinated primarily by Onyx and designed and led by an international group of experts in the field of breast cancer and includes multiple randomized Phase 2 trials. Onyx has not conducted a clinical trial that has led to an NDA filing. Consequently, we may not have the necessary capabilities to successfully manage the execution and completion of these planned clinical trials in a way that leads to approval of Nexavar for the target indication. In addition, we rely on Bayer, academic institutions, cooperative oncology organizations and clinical research organizations to conduct, supervise or monitor most clinical trials involving Nexavar. We have less control over the timing and other aspects of these clinical trials than if we conducted them entirely on our own. Failure to commence or complete, or delays in our planned clinical trials would prevent us from commercializing Nexavar in indications other than kidney cancer and liver cancer, and thus seriously harm our business.

If serious adverse side effects are associated with Nexavar, approval for Nexavar could be revoked, sales of Nexavar could decline, and we may be unable to develop Nexavar as a treatment for other types of cancer.

The FDA-approved package insert for Nexavar for the treatment of patients with advanced kidney cancer and unresectable liver cancer includes several warnings relating to observed adverse reactions. These include, but are not limited to, cardiac ischemia and/or infarction; incidence of bleeding; hypertension which may occur early in the therapy; hand-foot skin reaction and rash; and some instances of gastrointestinal perforations. Other treatment-emergent adverse reactions observed in patients taking Nexavar include, but are not limited to, diarrhea, fatigue, abdominal pain, weight loss, anorexia, alopecia, nausea and vomiting. With continued and potentially expanded commercial use of Nexavar and additional clinical trials of

Nexavar, we and Bayer anticipate we will routinely update adverse reactions listed in the package insert to reflect current information. For example, subsequent to the initial FDA approval, we and Bayer updated the package insert to include additional information on new adverse reactions reported by physicians using Nexavar. If additional adverse reactions emerge, or a pattern of severe or persistent previously observed side effects is observed in the Nexavar patient population, the FDA or other international regulatory agencies could modify or revoke approval of Nexavar or we may choose to withdraw it from the market. If this were to occur, we may be unable to obtain approval of Nexavar in additional indications and foreign regulatory agencies may decline to approve Nexavar for use in any indication. Any of these outcomes would have a material adverse impact on our business. In addition, if patients receiving Nexavar were to suffer harm as a result of their use of Nexavar, these patients or their representatives may bring claims against us. These claims, or the mere threat of these claims, could have a material adverse effect on our business and results of operations.

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

Drug candidates under development and approved for marketing are subject to extensive and rigorous domestic and foreign regulation. We have received regulatory approval for the use of Nexavar in the treatment of advanced kidney and liver cancer in the United States, the European Union and a number of foreign markets, and we are developing Nexavar for several additional indications.

We rely on Bayer to manage communications with regulatory agencies, including filing new drug applications and generally directing the regulatory processes for Nexavar. We and Bayer may not obtain necessary additional approvals from the FDA or other regulatory authorities. If we fail to obtain required governmental approvals, we will experience delays in or be precluded from marketing Nexavar in particular indications or countries. The FDA or other regulatory authorities may approve only limited label information for the product. The label information describes the indications and methods of use for which the product is authorized, and if overly restrictive, may limit our and Bayer’s ability to successfully market any approved product. 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 product candidates, we may experience delays in or be precluded from marketing products.

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

After Nexavar and any other products we may develop are marketed, the products and their manufacturers are subject to continual review. Later discovery of previously unknown problems with Nexavar or manufacturing and production by Bayer or other third parties may result in restrictions on Nexavar, including withdrawal of Nexavar from the market. In addition, problems or failures with the products of others, before or after regulatory approval, including our competitors, could have an adverse effect on our ability to obtain or maintain regulatory approval for Nexavar. If we fail to comply with applicable regulatory requirements, we could be subject to penalties, including fines, suspensions of regulatory approval, product recall, seizure of products and criminal prosecution.

We are dependent on the efforts of Bayer to market and promote Nexavar.

Under our collaboration and co-promotion agreements with Bayer, we and Bayer are co-promoting Nexavar in the United States. If we continue to co-promote Nexavar, and continue to co-fund development in the United States, we will share equally in profits or losses, if any, in the United States.

We do not, however, have the right to co-promote Nexavar in any country outside the United States, and we are dependent solely on Bayer to promote Nexavar in foreign countries where Nexavar is approved. In all foreign countries, except Japan, Bayer will first receive a portion of the product revenues to repay Bayer for its foreign commercialization infrastructure, before determining our share of profits and losses. In Japan, we will receive a royalty on any sales of Nexavar.

We have limited ability to direct Bayer in its promotion of Nexavar in foreign countries where Nexavar is approved. Bayer may not have sufficient experience to promote oncology products in foreign countries and may fail to devote appropriate resources to this task. If Bayer fails to adequately promote Nexavar in foreign countries, we may be unable to obtain any remedy against Bayer. If this were to happen, sales of Nexavar in any foreign countries where Nexavar is approved may be harmed, which would negatively impact our business.

Similarly, Bayer may establish a sales and marketing infrastructure for Nexavar outside the United States that is too large and expensive in view of the magnitude of the Nexavar sales opportunity or establish this infrastructure too early in view of the ultimate timing of potential regulatory approvals. Since we share in the profits and losses arising from sales of Nexavar outside of the United States, rather than receiving a royalty (except in Japan), we are at risk with respect to the success or failure of Bayer’s commercial decisions related to Nexavar as well as the extent to which Bayer succeeds in the execution of its strategy.

We are dependent on the efforts of and funding by Bayer for the development Nexavar.

Under the terms of the collaboration agreement, we and Bayer must agree on the development plan for Nexavar. If we and Bayer cannot agree, clinical trial progress could be significantly delayed or halted. Further, if we or Bayer cease funding development of Nexavar under the collaboration agreement, then that party will be entitled to receive a royalty, but not to share in profits. Bayer could, upon 60 days notice, elect at any time to terminate its co-funding of the development of Nexavar. If Bayer terminates its co-funding of Nexavar development, we may be unable to fund the development costs on our own and may be unable to find a new collaborator, which could cause our business to fail.

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

Under our collaboration agreement with Bayer, Bayer has the manufacturing responsibility to supply Nexavar for clinical trials and to support our commercial requirements. However, should Bayer give up its right to co-develop Nexavar, we would have to manufacture Nexavar, or contract with another third party to do so for us. We lack the resources, experience and capabilities to manufacture Nexavar or any future product candidates on our own and would require substantial funds to establish these capabilities. Consequently, we are, and expect to remain, dependent on third parties to manufacture our product candidates and products. 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 or product candidates on a timely basis and at commercially reasonable prices. Failure by these third parties could impair our ability to meet the market demand for Nexavar, and could delay our ongoing clinical trials and our applications for regulatory approval. If these third parties do not adequately perform, we may be forced to incur additional expenses to pay for the manufacture of products or to develop our own manufacturing capabilities.

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

Bayer may change its business strategy. Decisions by Bayer to either reduce or eliminate its participation in the oncology field, or to add competitive agents to its portfolio, could reduce its financial incentive to promote Nexavar. A change in Bayer’s business strategy may adversely affect activities under its collaboration agreement with us, which could cause significant delays and funding shortfalls impacting the activities under the collaboration and seriously harming our business.

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

Our net loss for the years ended December 31, 2007, 2006 and 2005 was $34.2 million, $92.7 million and $95.2 million, respectively. As of March 31, 2008, we had an accumulated deficit of approximately $457.2 million. We have incurred

these losses principally from costs incurred in our research and development programs, from our general and administrative costs and the development of our commercialization infrastructure. We may continue to incur operating losses as we and Bayer expand our development and commercial activities.

We have made significant expenditures towards the development and commercialization of Nexavar and may never realize sufficient product sales to offset these expenditures. Our ability to achieve and maintain consistent profitability depends upon success by us and Bayer in marketing the approved product, completing development of Nexavar and obtaining the required regulatory approvals.

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 key employees may have an adverse impact on our business unless or until we hire a suitably qualified replacement. We do not maintain key person life insurance on any of our officers, employees or consultants. Any of our key personnel could terminate their employment with us at any time and without notice. We depend on our continued ability to attract, retain and motivate highly qualified personnel. We face competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities and other research institutions. If we resume our research and development of product candidates other than Nexavar, we will need to hire individuals with the appropriate scientific skills. If we cannot hire these individuals in a timely fashion, we will be unable to engage in new product candidate discovery activities.

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

We may need additional funds to conduct the costly and time-consuming clinical trials necessary to develop Nexavar for additional indications, pursue regulatory approval, commercialize Nexavar in Europe and the rest of the world and acquire rights to additional product candidates. Our future capital requirements will depend upon a number of factors, including:

	•		revenue from our product sales;

	•		global product development and commercialization activities;

	•		the cost involved in enforcing patent claims against third parties and defending claims by third parties;

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

	•		competing technological and market developments; and

	•		repayment of our of milestone-based advances.

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

We believe that our existing capital resources and interest thereon will be sufficient to fund our current development plans beyond 2009. However, if we change our development plans, acquire rights to or license additional products or if Nexavar is not accepted in the marketplace, we may need additional funds sooner than we expect. In addition, we anticipate that our share of expenses under our collaboration with Bayer may increase over the next several years as we continue our share of funding for the Nexavar clinical development program and expansion of commercial activities for Nexavar throughout the world. While these costs are unknown at the current time, we may need to raise additional capital to continue the co-funding of the Nexavar program through and beyond 2009.

While Nexavar has received marketing approvals in several countries outside of the United States, it has not been approved in all of these foreign countries and may receive limited marketing approval or may be denied marketing approval in additional countries.

In December 2005, the FDA granted full approval for the treatment of patients with advanced kidney cancer. In July 2006, the European Commission granted marketing authorization for Nexavar for the treatment of patients with advanced kidney

cancer who have failed prior interferon-alpha or interleukin-2 based therapy or are considered unsuitable for such therapy. To date, Nexavar has received approvals in over 70 territories worldwide including the United States and all of the major European countries for the treatment of advanced kidney cancer. In the fourth quarter of 2007, Nexavar was approved by the FDA and European Union for the treatment of patients with liver cancer.

While Nexavar is currently approved in Europe for the treatment of liver cancer, reimbursement discussions for this indication are ongoing in several European countries. Nexavar is also approved for liver cancer in Canada, several Latin American countries and currently only in a limited number of Asian countries, including Korea. In addition, Bayer has filed for the liver cancer indication in a number of regions, including Asia, notably, China and Taiwan. Additional foreign regulatory authorities may not, however, be satisfied with the safety and efficacy data submitted in support of these foreign applications for liver cancer, which could result in non-approval, a requirement of additional clinical trials, further analysis of existing data or a restricted use of Nexavar. Lack of marketing approval in a particular country would prevent us from selling Nexavar in that country, which could harm our business. In addition, we and Bayer will be required to negotiate the price of Nexavar with European governmental authorities in order for Nexavar to be eligible for government reimbursement. In many European countries, patients will not use prescription drugs that are not reimbursable by their governments. European price negotiations could delay commercialization in a particular country by twelve months or more. In some countries, where liver cancer is common, the healthcare systems are limited and reimbursement for Nexavar is not available, which will limit or slow adoption.

If the specialty pharmacies and distributors that we and Bayer rely upon to sell our products fail to perform, our business may be adversely affected.

Our success depends on the continued customer support efforts of our network of specialty pharmacies and distributors. A specialty pharmacy is a pharmacy that specializes in the dispensing of medications for complex or chronic conditions, which often require a high level of patient education and ongoing management. The use of specialty pharmacies and distributors involves certain risks, including, but not limited to, risks that these specialty pharmacies and distributors will:

	•		not provide us with accurate or timely information regarding their inventories, the number of patients who are using Nexavar or complaints about Nexavar;

	•		not effectively sell or support Nexavar;

	•		reduce their efforts or discontinue to sell or support Nexavar;

	•		not devote the resources necessary to sell Nexavar in the volumes and within the time frames that we expect;

	•		be unable to satisfy financial obligations to us or others; and

	•		cease operations.

Any such failure may result in decreased product sales and profits, which would harm our business.

We or Bayer may not be able to protect our intellectual property, which gives us the power to exclude third parties from using Nexavar, or we may not be able to operate our business without infringing upon the intellectual property rights of others.

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

	•		obtain patents;

	•		license technology rights from others;

	•		protect trade secrets;

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

	•		prevent others from infringing on our proprietary rights.

In the case of Nexavar, the global patent applications related to this product candidate are held by Bayer, but licensed to us in conjunction with our collaboration agreement with Bayer. Bayer has a United States Patent that covers pharmaceutical compositions of Nexavar which will expire in 2022. Based on a review of the public patent databases, Bayer also has a European Patent that covers Nexavar, which will expire in 2020. Bayer has other patent applications that are pending worldwide that cover Nexavar alone or in combination with other drugs for treating cancer. Certain of these patents may be

subject to possible patent-term extensions, either in the U.S. or abroad, the entitlement to and the term of which cannot presently be calculated, in part because Bayer does not share with us information related to its Nexavar patent portfolio. As of March 31, 2008, we owned or had licensed rights to 60 United States patents and 27 United States patent applications and, generally, the foreign counterparts of these filings. Most of these patents or patent applications cover protein targets used to identify product candidates during the research phase of our collaborative agreements with Warner-Lambert Company, now Pfizer, or Bayer, or aspects of our now discontinued virus program. Additionally, we have corresponding patents or patent applications pending or granted in certain foreign jurisdictions.

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

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

Limited foreign intellectual property protection and compulsory licensing could limit our revenue opportunities.*

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Some companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. Many countries, including certain countries in Europe and developing countries, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, Bayer, the owner of the Nexavar patent estate, may have limited remedies if the Nexavar patents are infringed or if Bayer is compelled to grant a license of Nexavar to a third party, which could materially diminish the value of those patents that cover Nexavar. If compulsory licenses were extended to include Nexavar, this could limit our potential revenue opportunities. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patent and other intellectual property protection, which may make it difficult to stop infringement. Many countries limit the enforceability of patents against government agencies or government contractors. These factors could also negatively affect our revenue opportunities in those countries.

We may incur significant liability if it is determined that we are promoting the “off-label” use of drugs or are otherwise found in violation of federal and state regulations in the United States or elsewhere.

Physicians may prescribe drug products for uses that are not described in the product’s labeling and that differ from those approved by the FDA or other applicable regulatory agencies. Off-label uses are common across medical specialties. Physicians may prescribe Nexavar for the treatment of cancers other than advanced kidney cancer or liver cancer, although neither we nor Bayer are permitted to promote Nexavar for the treatment of any indication other than advanced kidney cancer or liver cancer. The FDA and other regulatory agencies have not approved the use of Nexavar for any other indications. Although the FDA and other regulatory agencies do not regulate a physician’s choice of treatments, the FDA and other regulatory agencies do restrict communications on the subject of off-label use. Companies may not promote drugs for off-label uses. Accordingly, prior to approval of Nexavar for use in any indications other than advanced kidney cancer or liver cancer, we may not promote Nexavar for these indications. The FDA and other regulatory agencies actively enforce regulations prohibiting promotion of off-label uses and the promotion of products for which marketing clearance has not been obtained. A company that is found to have improperly promoted off-label uses may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions.

Notwithstanding the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities allow companies to engage in truthful, non-misleading, and non-promotional speech concerning their products. We engage in the support of medical education activities and communicate with investigators and potential investigators regarding our clinical trials. Although we believe that all of our communications regarding Nexavar are in compliance with the relevant regulatory requirements, the FDA or another regulatory authority may disagree, and we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions.

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

The sale of Nexavar and its ongoing use in clinical trials exposes us to liability claims. Although we are not aware of any historical or anticipated product liability claims against us, if we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of Nexavar.

We believe that we have obtained reasonably adequate product liability insurance coverage that includes the commercial sale of Nexavar and our clinical trials. However, the cost of insurance coverage is rising. We may not be able to maintain insurance coverage at a reasonable cost. We may not be able to obtain additional insurance coverage that will be adequate to cover product liability risks that may arise should a future product candidate receive marketing approval. Regardless of merit or eventual outcome, product liability claims may result in:

	•		decreased demand for a product;

	•		injury to our reputation;

	•		withdrawal of clinical trial volunteers; and

	•		loss of revenues.

Thus, whether or not we are insured, a product liability claim or product recall may result in significant losses.

If we do not receive timely and accurate financial and market information from Bayer regarding the development and sale of Nexavar, we may be unable to accurately report our results of operations.

Due to our collaboration with Bayer, we are highly dependent on Bayer for timely and accurate information regarding the costs incurred in developing and selling Nexavar, and any revenues realized from its sale, in order to accurately report our results of operations. If we do not receive timely and accurate information or incorrectly estimate activity levels associated with the co-promotion and development of Nexavar at a given point in time, we could record significant additional expense in future periods and may be required to restate our results for prior periods. Such inaccuracies or restatements could cause a loss of investor confidence in our financial reporting or lead to claims against us, resulting in a decrease in the trading price of shares of our common stock.

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

Our collaboration agreement with Bayer provides that if Onyx is acquired by another entity by reason of merger, consolidation or sale of all or substantially all of our assets, and Bayer does not consent to the transaction, then for 60 days following the transaction, Bayer may elect to terminate Onyx’s co-development and co-promotion rights under the collaboration agreement. If Bayer were to exercise this right, Bayer would gain exclusive development and marketing rights to the product candidates developed under the collaboration agreement, including Nexavar. If this happens, Onyx, or the successor to Onyx, would receive a royalty based on any sales of Nexavar and other collaboration products, rather than a share of any profits which could substantially reduce the economic value derived from the sales of Nexavar to Onyx or its successor. These provisions of our collaboration agreement with Bayer may have the effect of delaying or preventing a change in control, or a sale of all or substantially all of our assets, or may reduce the number of companies interested in acquiring Onyx.

Accounting pronouncements may affect our future financial position and results of operations.

There may be new accounting pronouncements or regulatory rulings, which may have an effect on our future financial position and results of operations. For example, in December 2004, the Financial Accounting Standards Board, or FASB, issued a revision of Statement of Financial Accounting Standards, or SFAS, No. 123, “Accounting for Stock-Based Compensation.” The revision is referred to as “SFAS 123(R) — Share-Based Payment,” which supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and requires companies to recognize compensation expense, using a fair-value based method, for costs related to share-based payments including stock options and stock issued under our employee stock plans. We adopted SFAS 123(R) using the modified prospective basis on January 1, 2006. The adoption of SFAS 123(R) had a material adverse impact on our results of operations and our net loss per share. For example, as a result of our adoption of SFAS 123(R), for the quarter ended March 31, 2008 our net income decreased by $5.2 million, or $0.09 per basic and diluted share, and for the quarter ended March 31, 2007 our net loss increased by $3.0 million, or $0.06 per share. Similar to SFAS 123(R), the FASB could issue other new accounting pronouncements that could affect our future financial position and results of operations.

Our stock price is volatile.

Our stock price is volatile and is likely to continue to be volatile. In the period beginning January 1, 2004 and ending March 31, 2008, our stock price ranged from a high of $59.50 and a low of $10.44. A variety of factors may have a significant affect on our stock price, including:

	•		fluctuations in our results of operations;

	•		interim or final results of, or speculation about, clinical trials of Nexavar, such as the announcement that we and Bayer had stopped the Phase 3 clinical trial of Nexavar in combination with carboplatin and paclitaxel in patients with NSCLC;

	•		decision by regulatory agencies, or changes in regulatory requirements;

	•		ability to accrue patients into clinical trials;

	•		developments in our relationship with Bayer;

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

	•		changes in healthcare reimbursement policies;

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

	•		government regulation;

	•		developments in patent or other proprietary rights or litigation brought against us;

	•		sales by us of our common stock or debt securities, including sales under our committed equity financing facility arrangement with Azimuth;

	•		foreign currency fluctuations, which would affect our share of collaboration profits or losses; and

	•		general market conditions.

Existing stockholders have significant influence over us.

Our executive officers, directors and 5% stockholders own, in the aggregate, approximately 20% 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, which it is not currently exercising, 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, ownership and voting arrangements, our officers, directors, principal stockholders and collaborator may be able to effectively control the election of all members of the board of directors and determine all corporate actions.

A portion of our investment portfolio is invested in auction rate securities, and if auctions continue to fail for amounts we have invested, our investment will not be liquid. If the issuer of an auction rate security that we hold is unable to successfully close future auctions and their credit rating deteriorates, we may be required to adjust the carrying value of our investment through an impairment charge to earnings.*

A portion of our investment portfolio is invested in auction rate securities. The underlying assets of these securities are student loans substantially backed by the federal government. Due to adverse developments in the credit markets, beginning in February 2008 these securities have experienced failures in the auction process. When an auction fails for amounts we have invested, the investment becomes illiquid. In the event of an auction failure, we are not able to access these funds until a future auction on these investments is successful. We have reclassified these securities from short-term to long-term investments, and if the issuer is unable to successfully close future auctions and their credit rating deteriorates, we may be required to adjust the carrying value of the investment through an impairment charge to earnings.

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. In December 2006, following our announcement that a Phase 3 trial administering Nexavar or placebo tablets in combination with the chemotherapeutic agents carboplatin and paclitaxel in patients with advanced melanoma did not meet its primary endpoint, our stock price declined significantly. Similarly, following our announcement in February 2008 that one of our Phase 3 trials for non-small cell lung cancer had been stopped because and independent DMC analysis concluded that it did not meet its primary endpoint of improved overall survival, our stock price declined significantly. We may in the future be the target of securities class action litigation. Securities litigation could result in substantial costs, could divert management’s attention and resources, and could seriously harm our business, financial condition and results of operations.

Our operating results could be adversely affected by product sales occurring outside the United States and fluctuations in the value of the United States dollar against foreign currencies.

A significant percentage of Nexavar sales are generated outside of the United States. Nexavar sales and operating expenses denominated in foreign currencies could affect our operating results as foreign currency exchange rates fluctuate. Changes in exchange rates between these foreign currencies and the U.S. Dollar will affect the recorded levels of our assets and liabilities as foreign assets and liabilities are translated into U.S. Dollars for presentation in our financial statements, as well as our net sales, cost of goods sold, and operating margins. The primary foreign currency in which we have exchange rate fluctuation exposure is the European Union Euro. As we expand, we could be exposed to exchange rate fluctuation in other currencies. Exchange rates between these currencies and U.S. Dollars have fluctuated significantly in recent years and may do so in the future. Hedging foreign currencies can be difficult, especially if the currency is not freely traded. We cannot

predict the impact of future exchange rate fluctuations on our operating results. We currently do not hedge any foreign currencies

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% of its assets with any stockholder, including all affiliates and associates of the stockholder, who owns 15% or more of the corporation’s outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation’s stock unless:

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

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

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

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

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

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

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

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

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

	•		no cumulative voting.

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

We have entered into change in 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 24 months of a change in control of Onyx. The change in control severance agreements may have the effect of preventing a change in control.

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

None.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits


3.1 (1)		Restated Certificate of Incorporation of the Company.

3.2 (2)		Bylaws of the Company.

3.3 (3)		Certificate of Amendment to Amended and Restated Certificate of Incorporation.

3.4 (4)		Certificate of Amendment to Amended and Restated Certificate of Incorporation.

4.1		Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.

4.2 (1)		Specimen Stock Certificate.

10.21 (5) +		Bonuses for Fiscal Year 2007 and Base Salaries for Fiscal Year 2008 for Named Executive Officers.

10.22 (6) +		Employment Agreement between the Company and N. Anthony Coles, M.D., dated as of February 22, 2008.

10.23 (6) +		Executive Change in Control Severance Benefits Agreement between the Company and N. Anthony Coles, M.D., dated as of February 22, 2008.

10.24 (6) +		Retirement Agreement between the Company and Hollings C. Renton, dated as of February 22, 2008.

31.1 (7)		Certification of Chief Executive Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2 (7)		Certification of Principal Financial Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1 (7)		Certifications required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).


+		Management contract or compensatory plan.

(1)		Filed as an exhibit to the Company’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 May 25, 2007.

(3)		Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

(4)		Filed as an exhibit to the Company’s Registration Statement on Form S-3 (No. 333-134565) filed on May 30, 2006.

(5)		Filed as an exhibit to Onyx’s Current Report on Form 8-K filed on February 8, 2008.

(6)		Filed as an exhibit to Onyx’s Current Report on Form 8-K filed on February 26, 2008.

(7)		This certification “accompanies” the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Onyx Pharmaceuticals, Inc.

EXHIBIT INDEX


3.1 (1)		Restated Certificate of Incorporation of the Company.

3.2 (2)		Bylaws of the Company.

3.3 (3)		Certificate of Amendment to Amended and Restated Certificate of Incorporation.

3.4 (4)		Certificate of Amendment to Amended and Restated Certificate of Incorporation.

4.1		Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.

4.2 (1)		Specimen Stock Certificate.

10.21 (5) +		Bonuses for Fiscal Year 2007 and Base Salaries for Fiscal Year 2008 for Named Executive Officers.

10.22 (6) +		Employment Agreement between the Company and N. Anthony Coles, M.D., dated as of February 22, 2008.

10.23 (6) +		Executive Change in Control Severance Benefits Agreement between the Company and N. Anthony Coles, M.D., dated as of February 22, 2008.

10.24 (6) +		Retirement Agreement between the Company and Hollings C. Renton, dated as of February 22, 2008.

31.1 (7)		Certification of Chief Executive Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2 (7)		Certification of Principal Financial Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1 (7)		Certifications required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).


+		Management contract or compensatory plan.

(1)		Filed as an exhibit to the Company’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 May 25, 2007.

(3)		Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

(4)		Filed as an exhibit to the Company’s Registration Statement on Form S-3 (No. 333-134565) filed on May 30, 2006.

(5)		Filed as an exhibit to Onyx’s Current Report on Form 8-K filed on February 8, 2008.

(6)		Filed as an exhibit to Onyx’s Current Report on Form 8-K filed on February 26, 2008.

(7)		This certification “accompanies” the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Onyx Pharmaceuticals, Inc. under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.


	Page
PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Balance Sheets — March 31, 2008 and December 31, 2007		3

Condensed Statements of Operations — Three months ended March 31, 2008 and 2007		4

Condensed Statements of Cash Flows — Three months ended March 31, 2008 and 2007		5

Notes to Condensed Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3. Quantitative and Qualitative Disclosures About Market Risk		17

Item 4. Controls and Procedures		17

PART II: OTHER INFORMATION

Item 1. Legal Proceedings		18

Item 1A. Risk Factors		18

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		32

Item 3. Defaults Upon Senior Securities		32

Item 4. Submission of Matters to a Vote of Security Holders		32

Item 5. Other Information		33

Item 6. Exhibits		33

SIGNATURES
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1


	Three Months Ended
	March 31,
	2008		2007
	(In thousands, except per
	share amounts)
Net revenue from unconsolidated joint business	$	37,738	$	3,025
Operating expenses:
Research and development		7,438		5,534
Selling, general and administrative		19,844		13,183

Total operating expenses		27,282		18,717

Income (loss) from operations		10,456		(15,692	)
Investment income		5,271		3,497

Income (loss) before income taxes		15,727		(12,195	)
Provision for income taxes		309		—

Net income (loss)	$	15,418	$	(12,195	)


Net income (loss) per share:
Basic	$	0.28	$	(0.26	)

Diluted	$	0.27	$	(0.26	)


Shares used in computing net income (loss) per share:
Basic		55,388		46,278

Diluted		56,566		46,278



	ONYX PHARMACEUTICALS, INC.

Date: May 6, 2008	By:	/s/ N. Anthony Coles

		N. Anthony Coles
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: May 6, 2008	By:	/s/ Gregory W. Schafer

		Gregory W. Schafer
		Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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		under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.