UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2011
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number:
0-28298
ONYX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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94-3154463
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(State or other jurisdiction of
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(I.R.S. Employer ID Number)
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incorporation or organization)
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249 East Grand Avenue
South San Francisco California, 94080
(Address of principal executive offices)
(650) 266-0000
(Registrants 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 preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
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Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). 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):
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Large accelerated filer
þ
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Accelerated filer
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Non-accelerated filer
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Smaller Reporting Company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
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No
þ
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date. The number of outstanding shares of the registrants common
stock, $0.001 par value, was 63,355,402 as of May 2, 2011.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ONYX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31,
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December 31,
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2011
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2010
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(Unaudited)
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(Note 1)
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(In thousands)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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211,171
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$
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226,340
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Marketable securities, current
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322,218
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322,973
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Restricted cash
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31,910
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Receivable from collaboration partners
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50,846
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51,412
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Prepaid expenses and other current assets
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17,982
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12,549
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Total current assets
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602,217
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645,184
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Marketable securities, non-current
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28,293
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28,555
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Property and equipment, net
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18,577
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10,822
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Intangible assets in-process research and development
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438,800
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438,800
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Goodwill
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193,675
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193,675
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Other assets
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18,178
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35,599
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Total assets
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$
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1,299,740
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$
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1,352,635
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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309
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$
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16
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Accrued liabilities
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14,987
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16,866
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Accrued clinical trials and related expenses
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16,308
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15,093
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Accrued compensation
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5,628
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9,251
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Escrow account liability
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31,634
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Total current liabilities
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37,232
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72,860
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Convertible senior notes due 2016
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155,136
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152,701
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Liability for contingent consideration
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264,953
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253,458
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Deferred tax liability
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157,090
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157,090
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Other liabilities
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25,740
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18,952
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Commitments and contingencies
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Stockholders equity:
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Common stock
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63
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63
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Additional paid-in capital
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1,249,775
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1,238,204
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Receivable from stock option exercises
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(551
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)
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(6
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Accumulated other comprehensive loss
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(1,140
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)
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(1,291
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Accumulated deficit
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(588,558
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)
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(539,396
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Total stockholders equity
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659,589
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697,574
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Total liabilities and stockholders equity
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$
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1,299,740
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$
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1,352,635
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See accompanying notes.
3
ONYX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Three Months Ended
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March 31,
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2011
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2010
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(In thousands, except per
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share amounts)
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Revenue:
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Revenue from collaboration agreement
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$
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67,145
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$
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62,903
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Total revenue
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67,145
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62,903
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Operating expenses:
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Research and development
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62,494
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43,575
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Selling, general and administrative
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34,471
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24,721
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Contingent consideration
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11,495
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3,448
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Total operating expenses
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108,460
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71,744
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Loss from operations
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(41,315
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(8,841
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Investment income, net
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649
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789
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Interest expense
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(5,002
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(4,724
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Other expense
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(3,462
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Loss before provision (benefit) for income taxes
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(49,130
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)
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(12,776
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Provision (benefit) for income taxes
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32
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(732
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Net loss
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$
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(49,162
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$
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(12,044
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Basic net loss per share
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$
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(0.78
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$
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(0.19
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Diluted net loss per share
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$
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(0.78
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$
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(0.19
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)
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Shares used in computing basic net loss per share
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63,008
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62,353
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Shares used in computing diluted net loss per share
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63,008
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62,353
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See accompanying notes.
4
ONYX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Three Months Ended March 31,
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2011
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2010
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(In thousands)
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Cash flows from operating activities:
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Net loss
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$
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(49,162
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)
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$
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(12,044
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Realized gains on sales of current marketable securities
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(4
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)
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Depreciation and amortization
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1,634
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634
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Stock-based compensation
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5,752
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5,121
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Amortization of convertible senior notes discount and debt issuance costs
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2,591
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2,313
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Changes in fair value of liability for contingent consideration
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11,495
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3,448
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Impairment of equity investment
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3,000
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Changes in operating assets and liabilities:
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Restricted cash
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(3
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)
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Receivable from collaboration partners
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566
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7,033
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Prepaid expenses and other current assets
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(5,419
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)
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(1,833
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)
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Other assets
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14,265
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96
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Accounts payable
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293
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(99
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)
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Accrued liabilities
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(1,879
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)
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(2,852
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)
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Accrued clinical trials and related expenses
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1,215
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58
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Accrued compensation
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(3,623
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)
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(7,127
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)
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Escrow liability
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(31,634
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)
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3
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Other liabilities
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6,788
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(188
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)
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Net cash used in operating activities
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(44,122
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)
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(5,440
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)
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Cash flows from investing activities:
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Purchases of marketable securities
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(143,579
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)
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(93,957
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)
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Sales of marketable securities
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56,802
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24,331
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Maturities of marketable securities
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87,935
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90,390
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Transfers from restricted cash
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31,910
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Capital expenditures
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(9,389
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)
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(59
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)
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Net cash provided by investing activities
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23,679
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20,705
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Cash flows from financing activities:
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Repurchases of restricted stock awards
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(180
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)
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(27
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)
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Net proceeds from issuances of common stock
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5,454
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2,959
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Net cash provided by financing activities
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5,274
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|
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2,932
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Net increase (decrease) in cash and cash equivalents
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(15,169
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)
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18,197
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Cash and cash equivalents at beginning of period
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226,340
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|
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107,668
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Cash and cash equivalents at end of period
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$
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211,171
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$
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125,865
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Supplemental cash flow data
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Cash paid during the period for income taxes
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$
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$
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612
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Cash paid during the period for interest
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$
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4,600
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$
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4,677
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See accompanying notes.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated 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. The condensed consolidated balance sheet at December 31,
2010 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. This Form 10-Q
should be read in conjunction with the Consolidated Financial Statements and accompanying Notes
contained in the Onyx Pharmaceuticals, Inc. (the Company or Onyx) Annual Report on Form 10-K
for the year ended December 31, 2010.
Significant Accounting Policies
As of March 31, 2011, there have been no material changes to the Companys significant accounting
policies, as compared to the significant accounting policies described in the Companys Annual
Report on Form 10-K for the year ended December 31, 2010.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Thus, actual results could differ from those estimates. 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, 2011 are
not necessarily indicative of the results that may be expected for the year ending December 31,
2011 or for any other future operating periods.
Principles of Consolidation
The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
Segment Reporting
The Company operates in one segment the discovery and development of novel cancer
therapies.
Recent Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Update (ASU) 2010-27,
Other Expenses (Topic 720): Fees Paid to the Federal Government
by Pharmaceutical Manufacturers
. This update addresses questions concerning how pharmaceutical
manufacturers should recognize and classify in the income statement fees mandated by the Patient
Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act
or Acts. The Acts impose an annual fee on the pharmaceutical manufacturing industry for each
calendar year beginning on or after January 1, 2011. An entitys portion of the annual fee is
payable no later than September 30 of the applicable calendar year and is not tax deductible. The
annual fee is payable to the U.S. Treasury once a pharmaceutical manufacturing entity has a gross
receipt from a branded prescription drug sale to any specified government program or in accordance
with coverage under any government program for each calendar year beginning on or after January 1,
2011. The Company does not expect that this accounting standard update will have any material
impact on its results of operations or financial position.
In December 2010, the FASB issued ASU 2010-28,
Intangibles Goodwill and Other When to perform
Step 2 of the Goodwill Impairment Test for Entities with Zero or Negative Carrying Amount
. ASU
2010-28 modifies goodwill impairment testing for entities with zero or negative carrying amounts.
The amendment requires these entities to perform Step 2 of the goodwill impairment test, which
involves comparing the current value and the current book value of goodwill. The difference between
these values represents the impairment amount which must be recognized in the current period. In
addition, an entity should consider whether there are any adverse qualitative factors indicating
that impairment exists. ASU 2010-28 is effective for interim and annual periods beginning on or
after December 15, 2010. Early adoption is not permitted. The Company is currently evaluating the
impact, if any, that the adoption may have on its results of operations or financial position.
6
In December 2010, the FASB issued ASU 2010-29,
Business Combinations Disclosure of Supplementary
Pro Forma Information for Business Combinations
. ASU 2010-29 clarifies the acquisition date that
should be used for reporting the pro forma revenue and earnings disclosure requirements for
business combination(s) when comparative financial statements are presented. The amendment
specifies that an entity should disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had occurred as of the beginning of
the comparable prior annual reporting period only. In addition, the amendment expands the
supplemental pro forma disclosures to include a description of the nature and amount of material,
nonrecurring pro forma adjustments that are directly attributable to the business combination(s).
ASU 2010-29 is effective for interim and annual periods beginning on or after December 15, 2010.
Early adoption is permitted. The Company does not expect the adoption will have any material impact
on its results of operations or financial position.
Note 2. Revenue from Collaboration Agreement
Nexavar is currently marketed and sold primarily in the United States, the European Union and other
territories worldwide for the treatment of unresectable liver cancer and advanced kidney cancer.
Nexavar also has regulatory applications pending in other territories internationally. The Company
co-promotes Nexavar in the United States with Bayer HealthCare Pharmaceuticals, Inc., or Bayer,
under collaboration and co-promotion agreements. In March 2006, the Company and Bayer entered into
an agreement to co-promote Nexavar in the United States. This agreement amends the collaboration
agreement and generally supersedes the provisions of the collaboration 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 which Bayer has exclusive marketing rights and the
Company shares equally in the profits or losses, excluding Japan. In the United States, under the
terms of the 2006 co-promotion agreement and consistent with the collaboration agreement, the
Company and Bayer share equally in the profits or losses of Nexavar, if any, in the United States,
subject only to the Companys continued co-funding of the development costs of Nexavar worldwide,
excluding Japan, and the Companys continued co-promotion of Nexavar in the United States.
The Companys collaboration agreement with Bayer will terminate when patents expire that were
issued in connection with product candidates discovered under the agreement, or at the time when
neither the Company nor Bayer are entitled to profit sharing under the agreement, whichever is
latest. The Companys co-promotion agreement with Bayer will terminate upon the earlier of the
termination of the Companys collaboration agreement with Bayer or the date products subject to the
co-promotion agreement are no longer sold by either party in the United States due to a permanent
product withdrawal or recall or a voluntary decision by the parties to abandon the co-promotion of
such products in the United States. Either party may also terminate the co-promotion agreement
upon failure to cure a material breach of the agreement within a specified cure period.
In addition, the Companys collaboration agreement with Bayer provides that if the Company were
acquired by another entity by reason of merger, consolidation or sale of all or substantially all
of the Companys assets, or if a single entity other than Bayer or its affiliate acquires ownership
of a majority of the Companys outstanding voting stock, and Bayer does not consent to the
transaction, then for 60 days following the transaction, Bayer may elect to terminate the
co-development and co-promotion rights under the collaboration agreement and convert the Companys
profit sharing interest under that agreement into a royalty based on any sales of Nexavar and other
collaboration products. The applicable royalty rate would be a function of expected profitability
of Nexavar for the remaining patent life of Nexavar. Also, either party may terminate the agreement
upon 30 days notice within 60 days of specified events relating to insolvency of the other party.
7
Revenue from collaboration agreement was $67.1 million and $62.9 million for the three months ended
March 31, 2011 and 2010, respectively, calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Onyxs share of collaboration commercial profit
|
|
$
|
59,580
|
|
|
$
|
55,084
|
|
Reimbursement of Onyxs shared marketing expenses
|
|
|
4,604
|
|
|
|
5,824
|
|
Royalty revenue
|
|
|
2,961
|
|
|
|
1,995
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
67,145
|
|
|
$
|
62,903
|
|
|
|
|
|
|
|
|
Note 3. Agreement with Ono Pharmaceutical Co., Ltd.
In September 2010, the Company entered into an exclusive license agreement with Ono Pharmaceutical
Co., Ltd., or Ono, granting Ono the right to develop and commercialize both carfilzomib and ONX
0912 for all oncology indications in Japan. The Company retains all development and
commercialization rights for other countries in the Asia Pacific region, as well as in all other
regions of the world, including the United States and Europe. The Company agreed to provide Ono
with development and commercial supply of carfilzomib and ONX 0912 on a cost-plus basis. Ono is
responsible for all development costs in support of regulatory filings in Japan as well as
commercialization costs it incurs. If regulatory approval for carfilzomib and/or ONX 0912 is
achieved in Japan, Ono is
obligated to pay the Company double-digit royalties on net sales of the licensed compounds in
Japan.
Global development work is conducted by Onyx at Onyxs discretion. A percentage of the costs
incurred by the Company for the global development of carfilzomib and ONX 0912 that may support
filings for regulatory approval in Japan are required to be reimbursed by Ono at cost. These
reimbursements are recorded as a reduction of operating expenses by the Company. For the three
months ended March 31, 2011, the reimbursement of global development costs was $3.0 million, which
reduced the Research and development expenses line item in the Condensed Consolidated Statement
of Operations.
Ono also agreed to pay the Company global development support and commercial milestone payments
based on the achievement of pre-specified criteria, which could total approximately $288.6 million
at current exchange rates. In April 2010, the FASB issued ASU No. 2010-17,
Milestone Method of
Revenue Recognition,
which states that entities can apply the milestone method of revenue
recognition to research or development arrangements if the milestones under the arrangements are
substantive and there is substantive uncertainty about whether the milestones will be achieved.
The Company adopted ASU No. 2010-17 effective January 2010 and determined that the milestones under
the agreement with Ono will not be accounted for under the milestone method of revenue recognition.
The milestones under the agreement with Ono do not meet the definition of a milestone under ASU
2010-17 because the achievement of these milestones is solely dependent on Onos performance and
not on any performance obligations of the Company. Revenue from the milestone payments will be
recognized if and when such payments become due because the Company does not expect to have any
outstanding performance obligations relating to these milestones at the time these milestones are
achieved.
The agreement will terminate upon the expiration of the royalty terms specified for each product.
In addition, Ono may terminate this agreement for certain scientific or commercial reasons with
advance written notice, and either party may terminate this agreement for the other partys uncured
material breach or bankruptcy.
Note 4. Agreement with S*BIO Pte Ltd.
In December 2008, the Company entered into a development, collaboration, option and license
agreement with S*BIO Pte Ltd., or S*BIO, pursuant to which the Company acquired options to license
rights to each of its novel Janus Kinase, or JAK, inhibitors, SB1518 (designated by the Company as
ONX 0803) and SB1578 (designated by the Company as ONX 0805). Under the terms of the agreement, the
Company obtained options, which if exercised, would have given it rights to exclusively develop and
commercialize ONX 0803 and ONX 0805 for all potential indications in the United States, Canada and
Europe. S*BIO would have retained responsibility for all development costs prior to the option
exercise, after which the Company would have assumed development costs for the United States,
Canada and Europe, subject to S*BIOs option to fund a portion of the development costs in return
for enhanced royalties on any future product sales.
Under the terms of the agreement, in December 2008, the Company made a $25.0 million payment to
S*BIO, of which the Company expensed $20.7 million as an up-front payment and recognized the
remaining amount of $4.3 million as a long-term equity investment. The equity investment is
accounted for under the cost method of accounting. In May 2010, the Company announced the expansion
of its agreement with S*BIO and provided an additional $20.0 million in funding to S*BIO to broaden
and accelerate the development program for ONX 0803 and ONX 0805. S*BIO agreed to utilize the
funding to continue to perform the clinical development of ONX 0803 and preclinical through
clinical development of ONX 0805. The Company capitalized the $20.0 million as prepaid research and
development expense in other long-term assets and amortized a portion of this amount as research
and development expense each period based on the actual expenses incurred by S*BIO for the
development of ONX 0803 and ONX 0805.
8
In May 2011, the Company entered into a Termination and Separation Agreement, or the Termination
Agreement, with S*BIO to terminate its collaboration agreement and amend the Companys rights with
respect to ONX 0803 and ONX 0805. Under the Termination Agreement, the Companys option rights to
ONX 0803 and ONX 0805, which it had not exercised, will revert to S*BIO and S*BIO will retain
responsibility for all development and commercialization of these compounds. The Company retained
its equity interest in S*BIO and, in addition to any value associated with its equity interest, may
receive up to $20.0 million from S*BIO based on agreed portions of any partnering revenue or future
royalty revenue related to ONX 0803 and ONX 0805, or proceeds from any acquisition of S*BIO.
As a result of the termination of the collaboration agreement with S*BIO,
the Company will no longer receive clinical development services subsequent to March 31, 2011 relating to the $20.0 million advance
funding payment provided to S*BIO in May 2010. The Company recorded a write-off of $12.7 million for the three months ended March 31,
2011 for the remaining unamortized balance of prepaid research and development expense relating to the advance funding payment.
In addition, the Company reassessed the fair value of its equity investment in S*BIO in accordance with Accounting Standards
Codification (ASC) 325-20-35,
InvestmentsOther
, and determined that it was impaired as of March 31, 2011. Accordingly, the
Company recorded an impairment charge of $3.0 million in the Other expense line item in the Condensed Consolidated Statement
of Operations for the three months ended March 31, 2011.
S*BIO qualifies as a variable interest entity, or VIE. However, the Company does not have the power
to direct the activities that most significantly impact the performance of S*BIO because S*BIO has
other compounds in development and has the decision making authority and the power to control the
clinical research of these compounds. Therefore, the Company is not considered the primary
beneficiary and consolidation is not required. The equity investment in S*BIO could result in the
Company absorbing losses up to the amount of its investment. The following is a summary of the
Companys remaining equity investment in S*BIO and the Companys maximum risk of loss as of March
31, 2011:
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011
|
|
|
Equity Investment
|
|
Risk of Loss
|
|
|
(In thousands)
|
S*BIO
|
|
$
|
1,250
|
|
|
$
|
1,250
|
|
Note 5. Acquisition of Proteolix
In November 2009, the Company acquired Proteolix Inc., or Proteolix, a privately-held
biopharmaceutical company located in South San Francisco, California. Proteolix focused primarily
on the discovery and development of novel therapies that target the proteasome for the treatment of
hematological malignancies, solid tumors and autoimmune disorders. Proteolixs lead compound,
carfilzomib, is a proteasome inhibitor currently in multiple clinical trials, including an advanced
Phase 2b clinical trial for patients with relapsed and refractory multiple myeloma. This
acquisition provided the Company with an opportunity to expand into the hematological malignancies
market.
Under the Agreement and Plan of Merger, or the Merger Agreement, the aggregate consideration paid
by the Company to former Proteolix stockholders at closing consisted of $276.0 million in cash,
less $27.6 million that was temporarily held in an escrow account subject to terms described below
under
Escrow Account Liability.
In addition, a $40.0 million earn-out payment, less $4.0 million
that was temporarily held in the escrow account, was made in April 2010 related to the achievement
of a development milestone. The escrow amounts were paid to the former Proteolix stockholders in
February 2011. The Company may be required to pay up to an additional $535.0 million in earn-out
payments as outlined below under
Liability for Contingent Consideration.
Goodwill
The excess of the consideration transferred over the fair values assigned to the assets acquired
and liabilities assumed was $193.7 million, which represents the goodwill amount resulting from the
acquisition. None of the goodwill is expected to be deductible for income tax purposes. The Company
tests goodwill for impairment on an annual basis or sooner, if deemed necessary. As of March 31,
2011, there were no changes in the recognized amount of goodwill resulting from the acquisition of
Proteolix.
9
Liability for Contingent Consideration
Under the terms of the Merger Agreement, the aggregate cash consideration paid to former Proteolix
stockholders at closing was $276.0 million and an additional $40.0 million earn-out payment was
made in April 2010, 180 days after completion of enrollment in an ongoing pivotal Phase 2b clinical
study involving relapsed and refractory multiple myeloma patients, known as the 003-A1 trial. The
Company may also be required to pay up to an additional $535.0 million in earn-out payments payable
in up to four installments upon the achievement of certain regulatory approvals for carfilzomib in
the United States and Europe within pre-specified timeframes. Under the Merger Agreement, the first
of these additional earn-out payments would be in the amount of $170.0 million if achieved by the
date originally contemplated, and would be triggered by accelerated marketing approval for
carfilzomib in the United States for relapsed/refractory multiple myeloma. In January 2011, the
Company entered into Amendment No. 1 to the Merger Agreement. Amendment No. 1 modifies this first
payment if the milestone is not achieved by the date originally contemplated on a sliding scale
basis, as follows:
|
|
|
if accelerated marketing approval in the United States for relapsed/refractory
multiple myeloma is achieved after the date originally contemplated, but within six
months of the original date, subject to extension under certain circumstances, then the
amount payable will be reduced to $130.0 million; and
|
|
|
|
|
if accelerated marketing approval in the United States for relapsed/refractory
multiple myeloma is achieved more than six months after the date originally contemplated,
but within 12 months of the original date, subject to extension under certain
circumstances, then the amount payable will be reduced to $80.0 million.
|
The remaining earn-out payments will continue to become payable in up to three additional
installments as follows:
|
|
|
$65.0 million would be triggered by specified marketing approval in the European
Union for relapsed/refractory multiple myeloma;
|
|
|
|
|
$150.0 million would be triggered by specified marketing approval in the United
States for relapsed multiple myeloma; and
|
|
|
|
|
$150.0 million would be triggered by specified marketing approval for relapsed
multiple myeloma in the European Union.
|
The range of the undiscounted amounts the Company could be required to pay for the remaining
earn-out payments is between zero and $535.0 million. On the acquisition date, the fair value of
the liability for the contingent consideration recognized was $199.0 million, of which $40.0
million related to the first milestone payment that was paid in full in April 2010 and the
remaining balance of $159.0 million was classified as a non-current liability in the Condensed
Consolidated Balance Sheet. The Company determined the fair value of the non-current liability for
the contingent consideration based on a probability-weighted discounted cash flow analysis. This
fair value measurement is based on significant inputs not observable in the market and thus
represents a Level 3 measurement within the fair value hierarchy. These inputs include the
probability of technical and regulatory success (PTRS) for unapproved product candidates
considering their stages of development. For the three months ended March 31, 2011, the fair value
of the non-current liability for contingent consideration increased by $11.5 million, of which $6.1
million was due to an increase in the PTRS and $5.4 million was due to the passage of time. The
increase in the PTRS was due to the expanded size and change in endpoint of our Phase 3 European
clinical trial, referred to as FOCUS, or the 011 trial, announced in March 2011.
Escrow Account Liability
In accordance with the Merger Agreement, 10% of each of the total cash consideration payment in
November 2009 and the first earn-out payment made to former Proteolix stockholders in April 2010
was temporarily placed in an escrow account to secure the indemnification rights of the Company and
other indemnitees with respect to certain matters, including breaches of representations,
warranties and covenants of Proteolix included in the Merger Agreement. This amount was reported as
restricted cash on the accompanying Condensed Consolidated Balance Sheets at December 31, 2010 and
was paid to former Proteolix stockholders in February 2011.
10
Note 6. Derivative Instruments
The Company has established a foreign currency hedging program to mitigate the foreign exchange
risk arising from transactions or cash flows that have a direct or underlying exposure in non-U.S.
Dollar denominated currencies and reduce volatility in the Companys cash flow and earnings. The
Company hedges a certain portion of anticipated Nexavar-related cash flows owed to the Company with
options, typically no more than one year into the future. The underlying exposures, both revenue
and expenses, in the Nexavar program are denominated in currencies other than the U.S. Dollar,
primarily the Euro and Japanese Yen. For purposes of calculating the cash flows due to or due from
the Company each quarter, the foreign currencies are converted into U.S. dollars based on average
exchange rates for the reporting period. The Company does not enter into derivative financial
contracts for speculative purposes.
In
accordance with ASC 815,
Derivatives and Hedging
, all
derivative instruments, such as foreign currency option contracts, are recognized on the Condensed
Consolidated Balance Sheet at fair value, taking into consideration current market rates and the
current creditworthiness of the counterparties or the Company, as applicable. Changes to the fair
value of derivative instruments are recorded in current earnings or accumulated other comprehensive
gain (loss) each period, depending on whether or not the derivative instrument is designated as
part of a hedging transaction and, if it is, the type of hedging transaction.
The Companys foreign currency options to hedge anticipated cash flows, where the underlying
exposures are the net of Euro-denominated revenues and expenses, are not
designated as hedging instruments under ASC 815
.
The changes in the fair value of these foreign
currency options are included in the Other expense line item in the Condensed Consolidated
Statements of Operations.
The foreign currency options used to hedge anticipated cash flows, where the underlying exposures
are Japanese Yen-denominated royalty income from the Nexavar program, are designated as cash flow
hedges. At the inception of the hedge, the Company documents the risk management objectives and the
nature of the risk being hedged, the hedged instrument and hedged item, as well as the manner in
which hedge effectiveness and ineffectiveness will be assessed. On a prospective and retrospective
basis, at least quarterly, the Company assesses hedge effectiveness based on the total changes in
the options cash flow. During the life of the hedge, the Company will periodically verify that
the critical terms of the hedging instrument continue to match the forecasted transaction, the
forecasted transaction is still probable in occurring at the same time as originally projected
based on the most recent forecasts, and the counterparties are still able to honor their
obligations under the hedge contract. Hedge ineffectiveness, both prospective and retrospective,
will be assessed by evaluating the dollar offset ratio of the dollar change in fair value or cash
flows of the hedging instrument with the amount of the dollar change in fair value or cash flows of
the perfectly effective hypothetical hedging instrument that has the terms that meet the
currency, notional amount, timing and credit criteria. The change in the fair value of the
hypothetical hedging instrument will be regarded as a proxy for the present value of the cumulative
change in the expected future cash flows on the hedged transaction. The ineffective portion of the
hedged instrument will be recognized in earnings. The amount of ineffectiveness is calculated as
the excess of the cumulative change in the fair value of the actual derivative over the cumulative
change in the fair value of the perfect hypothetical hedging instrument.
The effective component of the hedged instrument is recorded in accumulated other comprehensive
income (loss) (OCI) within stockholders equity as an unrealized gain or loss on the hedging
instrument. When the hedged forecasted transactions occur and the hedge instrument matures, the
unrealized gains and losses are reclassified into the Other expense line item in the Condensed
Consolidated Statement of Operations. The majority of the gains and losses related to the hedged
forecasted transactions reported in accumulated OCI at March 31, 2011 are expected to be
reclassified to other income (expense) within 6 months. At March 31, 2011, the Company had
outstanding foreign currency option contracts with maturity dates ranging from June 30, 2011 to
September 30, 2011 and U.S. Dollar notional amounts ranging from $2.1 million to $11.1 million.
11
At March 31, 2011, the fair value carrying amount of the Companys derivative instruments were
recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
March 31, 2011
|
|
|
March 31, 2011
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
(In thousands)
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency option contracts
|
|
Other current assets
|
|
$
|
70
|
|
|
Accrued liabilities
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as
hedges
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency option contracts
|
|
Other current assets
|
|
$
|
2
|
|
|
Accrued liabilities
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated
as hedges
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
72
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of derivative instruments on the Condensed Consolidated Balance Sheet and Condensed
Consolidated Statements of Operations for the three months ended March 31, 2011 was as follows:
|
|
|
|
|
|
|
Foreign Currency Option Contracts
|
|
|
Three Months Ended March 31, 2011
|
|
|
(In thousands)
|
Derivatives designated as hedges:
|
|
|
|
|
Net gain recognized in accumulated other comprehensive loss (effective
portion)
|
|
$
|
14
|
|
Net loss reclassified from accumulated other comprehensive loss to net loss
(effective portion) (1)
|
|
|
(33
|
)
|
Net gain (loss) recognized in net loss (ineffective portion) (1)
|
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
Net loss recognized in net loss (1)
|
|
|
(429
|
)
|
|
|
|
(1)
|
|
Classified in Other expense on the Condensed Consolidated Statement of Operations
|
The Company is exposed to counterparty credit risk on all of its derivative financial
instruments. The Company has established and maintained strict counterparty credit guidelines and
enters into derivative instruments only with financial institutions that are investment grade to
minimize the Companys exposure to potential defaults. The Company does not generally require
collateral to be pledged under these agreements. Refer to Note 7 for further information.
Note 7. Fair Value Measurements
In accordance with ASC 820-10,
Fair Value Measurements and Disclosures,
the Company measures
certain assets and liabilities at fair value on a recurring basis using the three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value. 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.
|
12
The Companys fair value hierarchies for its financial assets and liabilities (cash equivalents,
current and non-current marketable securities, derivative instruments, convertible senior notes and
current and non-current liabilities for contingent consideration), which require fair value
measurement on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011
|
|
|
|
(In thousands)
|
|
|
|
As reflected on the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unaudited balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sheet
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
28,762
|
|
|
$
|
28,762
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
28,762
|
|
Corporate and financial institutions debt
|
|
|
217,132
|
|
|
|
|
|
|
|
217,132
|
|
|
|
|
|
|
|
217,132
|
|
Auction rate securities
|
|
|
28,393
|
|
|
|
|
|
|
|
100
|
|
|
|
28,293
|
|
|
|
28,393
|
|
U.S. government agencies
|
|
|
96,626
|
|
|
|
|
|
|
|
96,626
|
|
|
|
|
|
|
|
96,626
|
|
U.S. treasury bills
|
|
|
57,945
|
|
|
|
57,945
|
|
|
|
|
|
|
|
|
|
|
|
57,945
|
|
Municipal bonds
|
|
|
30,558
|
|
|
|
|
|
|
|
30,558
|
|
|
|
|
|
|
|
30,558
|
|
Foreign currency option contracts
designated as hedges
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
Foreign currency option contracts not
designated as hedges
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
459,488
|
|
|
$
|
86,707
|
|
|
$
|
344,488
|
|
|
$
|
28,293
|
|
|
$
|
459,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for contingent consideration
|
|
$
|
264,953
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
264,953
|
|
|
$
|
264,953
|
|
Convertible senior notes due 2016 (face
value $230,000)
|
|
|
155,136
|
|
|
|
|
|
|
|
266,547
|
|
|
|
|
|
|
|
266,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
420,089
|
|
|
$
|
|
|
|
$
|
266,547
|
|
|
$
|
264,953
|
|
|
$
|
531,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
(In thousands)
|
|
|
|
As reflected on the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
balance sheet
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
20,932
|
|
|
$
|
20,932
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,932
|
|
Corporate and financial institutions debt
|
|
|
197,813
|
|
|
|
|
|
|
|
197,813
|
|
|
|
|
|
|
|
197,813
|
|
Auction rate securities
|
|
|
31,280
|
|
|
|
|
|
|
|
2,725
|
|
|
|
28,555
|
|
|
|
31,280
|
|
U.S. government agencies
|
|
|
99,294
|
|
|
|
|
|
|
|
99,294
|
|
|
|
|
|
|
|
99,294
|
|
U.S. treasury bills
|
|
|
78,916
|
|
|
|
78,916
|
|
|
|
|
|
|
|
|
|
|
|
78,916
|
|
Municipal bonds
|
|
|
37,160
|
|
|
|
|
|
|
|
37,160
|
|
|
|
|
|
|
|
37,160
|
|
Foreign currency option contracts
designated as hedges
|
|
|
89
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
89
|
|
Foreign currency option contracts not
designated as hedges
|
|
|
188
|
|
|
|
|
|
|
|
188
|
|
|
|
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
465,672
|
|
|
$
|
99,848
|
|
|
$
|
337,269
|
|
|
$
|
28,555
|
|
|
$
|
465,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for contingent consideration
|
|
$
|
253,548
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
253,548
|
|
|
$
|
253,548
|
|
Convertible senior notes due 2016 (face
value $230,000)
|
|
|
152,701
|
|
|
|
|
|
|
|
271,768
|
|
|
|
|
|
|
$
|
271,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
406,249
|
|
|
$
|
|
|
|
$
|
271,768
|
|
|
$
|
253,548
|
|
|
$
|
525,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities
Level 2 assets consist of debt securities issued by corporate and financial institutions and U.S.
government and municipal agencies. The fair value of these securities is estimated using a weighted
average price based on market prices from a variety of industry standard data providers, security
master files from large financial institutions and other third-party sources.
13
Level 3 assets include securities 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 for the majority of these securities
since then has failed. As of March 31, 2011, the fair value of each of these securities is
estimated utilizing a discounted cash flow analysis that considers interest rates, the timing
and amount of cash flows, credit and liquidity premiums, and the expected holding periods of these
securities. The following table provides a summary of changes in fair value of the auction rate
securities:
|
|
|
|
|
|
|
|
|
|
|
Auction Rate Securities
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Fair value at beginning of period
|
|
$
|
28,555
|
|
|
$
|
37,174
|
|
Redemptions
|
|
|
(350
|
)
|
|
|
(200
|
)
|
Transfer to Level 2
|
|
|
(100
|
)
|
|
|
(50
|
)
|
Change in valuation
|
|
|
188
|
|
|
|
444
|
|
|
|
|
|
|
|
|
Fair value at end of period
|
|
$
|
28,293
|
|
|
$
|
37,368
|
|
|
|
|
|
|
|
|
Transfers of auction rate securities from Level 3 to Level 2 are recognized when the Company
becomes aware of actual redemptions of such securities. In April 2011, $0.1 million of securities
were redeemed at par and have been classified as current marketable securities with a fair value of
$0.1 million based on the amount redeemed. As a result of the decline in fair value of the
Companys auction rate securities, which the Company believes is temporary and attributes to
liquidity rather than credit issues, the Company has recorded an unrealized loss of $1.2 million
included in the accumulated OCI line of stockholders equity. All of the auction rate securities
held by the Company at March 31, 2011 consist of securities collateralized by student loan
portfolios, which are
substantially guaranteed by the United States government. Any future fluctuation in fair value
related to the auction rate securities 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 decline in fair value is other than temporary, it will
record a charge to earnings as appropriate. The Company does not intend to sell these securities
and it is not more likely than not that the Company will be required to sell these securities prior
to the recovery of their amortized cost bases.
Foreign Currency Option Contracts
Level 2 assets and liabilities include foreign currency option contracts, which are reflected at
fair value. The Company has established a foreign currency hedging program to manage the economic
risk of its exposure to fluctuations in foreign currency exchange rates from the Nexavar program.
Refer to Note 6 for further information.
The Company has elected to use the income approach to value the derivatives, using observable Level
2 market expectations at the measurement date and standard valuation techniques to convert future
amounts to a single present amount assuming that participants are motivated, but not compelled to
transact. Level 2 inputs for the valuations are limited to quoted prices for similar assets or
liabilities in active markets and inputs other than quoted prices that are observable for the asset
or liability (specifically, LIBOR, cash rates, credit risk at commonly quoted intervals, spot and
forward rates). Mid-market pricing is used as a practical expedient for fair value measurements.
ASC 820 states that the fair value measurement of an asset or liability must reflect the
non-performance risk of the entity and the counterparty. Therefore, the impact of the
counterpartys creditworthiness, when in an asset position, and the Companys creditworthiness,
when in a liability position, has also been factored into the fair value measurement of the
derivative instruments and did not have a material impact on the fair value of these derivative
instruments. Both the counterparty and the Company are expected to continue to perform under the
contractual terms of the instruments.
14
Liability for Contingent Consideration
Level 3 liabilities include the acquisition-related non-current liability for contingent
consideration the Company recorded representing the amounts payable to former Proteolix
stockholders upon the achievement of specified regulatory approvals within pre-specified timeframes
for carfilzomib. The fair value of this Level 3 liability is estimated using a probability-weighted
discounted cash flow analysis and a discount rate that reflects the
uncertainty surrounding the expected outcomes, which the Company
believes is appropriate and representative of a market participant
assumption. Subsequent changes in the fair value of this liability are recorded
to the Contingent consideration expense line item in the Condensed Consolidated Statements of
Operations under operating expenses. For the three months ended March 31, 2011, the recognized
amount of the non-current liability for contingent consideration increased by $11.5 million
primarily as the result of the change in the PTRS, a significant input in the discounted cash flow
analysis used to calculate the fair value of the non-current liability, and also the passage of
time. Refer to
Liability for Contingent Consideration
in Note 5 for further details. The following
table provides a summary of the changes in the fair value of the non-current liability for
contingent consideration:
|
|
|
|
|
|
|
|
|
|
|
Liability for Contingent Consideration
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Fair value at beginning of period
|
|
$
|
253,458
|
|
|
$
|
200,528
|
|
Payments
|
|
|
|
|
|
|
(40,000
|
)
|
Change in valuation
|
|
|
11,495
|
|
|
|
3,448
|
|
|
|
|
|
|
|
|
Fair value at end of period
|
|
$
|
264,953
|
|
|
$
|
163,976
|
|
|
|
|
|
|
|
|
Transfers of these liabilities between Levels are recognized when the Company becomes aware of
changes in the circumstances causing the transfer. Refer to
Liability for Contingent Consideration
in Note 5 for further details.
Convertible Senior Notes due 2016
Level 2 liabilities consist of the Companys convertible senior notes due 2016. The fair value of
these convertible senior notes is estimated by computing the fair value of a similar liability
without the conversion option. Refer to Note 9 for further details on the fair value. In accordance
with ASC 825-10,
Financial Instruments
, the estimated market value of the Companys convertible
senior notes as of March 31, 2011 was $266.5 million. The Companys convertible senior notes are
not marked-to-market and are shown at their original issuance value net of the amortized discount
and the portion of the value allocated to the conversion option is included in
stockholders equity in the accompanying unaudited Condensed Consolidated Balance Sheet March 31,
2011.
Note 8. Marketable Securities
Marketable securities consist of securities that are classified as available for sale. 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 (loss) within
stockholders equity. The cost of a security sold or the amount reclassified out of accumulated
other comprehensive income (loss) into earnings is determined using specific identification. 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 weighted-average maturity of the Companys current marketable securities as of March
31, 2011 was approximately seven months.
15
Available-for-sale marketable securities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Agency bond investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
154,555
|
|
|
$
|
60
|
|
|
$
|
(43
|
)
|
|
$
|
154,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total agency bond investments
|
|
|
154,555
|
|
|
|
60
|
|
|
|
(43
|
)
|
|
|
154,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
247,718
|
|
|
|
115
|
|
|
|
(43
|
)
|
|
|
247,790
|
|
Non-current
|
|
|
29,475
|
|
|
|
|
|
|
|
(1,182
|
)
|
|
|
28,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate investments
|
|
|
277,193
|
|
|
|
115
|
|
|
|
(1,225
|
)
|
|
|
276,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale marketable securities
|
|
$
|
431,748
|
|
|
$
|
175
|
|
|
$
|
(1,268
|
)
|
|
$
|
430,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Agency bond investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
178,221
|
|
|
$
|
18
|
|
|
$
|
(29
|
)
|
|
$
|
178,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total agency bond investments
|
|
|
178,221
|
|
|
|
18
|
|
|
|
(29
|
)
|
|
|
178,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
237,547
|
|
|
|
175
|
|
|
|
(24
|
)
|
|
|
237,698
|
|
Non-current
|
|
|
29,925
|
|
|
|
|
|
|
|
(1,370
|
)
|
|
|
28,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate investments
|
|
|
267,472
|
|
|
|
175
|
|
|
|
(1,394
|
)
|
|
|
266,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale marketable securities
|
|
$
|
445,693
|
|
|
$
|
193
|
|
|
$
|
(1,423
|
)
|
|
$
|
444,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys investment portfolio includes $29.6 million of AAA rated auction rate securities that
are collateralized by student
loans. Since February 2008, these types of securities have experienced failures in the auction
process. However, a limited number of these securities have been redeemed at par by the issuing
agencies. 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 process, these securities are not
currently liquid. Of the $29.6 million of par value auction rate securities, $0.1 million of
securities were redeemed at par in April 2011. Therefore, the Company has classified a portion of
the auction rate securities with a fair value of $0.1 million, based on the amount redeemed in
April 2011, as current marketable securities and the remaining auction rate securities with an
estimated fair value of $28.3 million, based on a discounted cash flow model, as non-current
marketable securities on the accompanying unaudited Condensed Consolidated Balance Sheet at March
31, 2011. The Company has reduced the carrying value of the marketable securities classified as
non-current by $1.2 million through accumulated other comprehensive income or loss instead of
earnings because the Company has deemed the impairment of these securities to be temporary.
Note 9. Convertible Senior Notes due 2016
In August 2009, the Company issued, through an underwritten public offering, $230.0 million
aggregate principal amount of 4.0% convertible senior notes due 2016 (2016 Notes). The 2016 Notes
will mature on August 15, 2016 unless earlier redeemed or repurchased by the Company or converted.
The 2016 Notes bear interest at a rate of 4.0% per year, payable semi-annually in arrears on
February 15 and August 15 of each year, commencing on February 15, 2010.
The 2016 Notes are general unsecured senior obligations of the Company and rank equally in right of
payment with all of the Companys future senior unsecured indebtedness, if any, and senior in right
of payment to our future subordinated debt, if any.
The 2016 Notes will be convertible, under certain circumstances and during certain periods, at an
initial conversion rate of 25.2207 shares of common stock per $1,000 principal amount of the 2016
Notes, which is equivalent to an initial conversion price of approximately $39.65 per share of
common stock. The conversion rate is subject to adjustment in certain circumstances. Upon
conversion of a 2016 Note, the Company will deliver, at its election, shares of common stock, cash
or a combination of cash and shares of common stock.
16
Upon the occurrence of certain fundamental changes involving the Company, holders of the 2016 Notes
may require the Company to repurchase all or a portion of their 2016 Notes for cash at a price
equal to 100% of the principal amount of the 2016 Notes to be purchased, plus accrued and unpaid
interest to, but excluding, the fundamental change repurchase date.
Beginning August 20, 2013, the Company may redeem all or part of the outstanding 2016 Notes,
provided that the last reported sale price of the common stock for 20 or more trading days in a
period of 30 consecutive trading days ending on the trading day prior to the date the Company
provides the notice of redemption to holders of the 2016 Notes exceeds 130% of the conversion price
in effect on each such trading day. The redemption price will equal 100% of the principal amount of
the 2016 Notes to be redeemed, plus all accrued and unpaid interest, plus a make-whole premium
payment. The Company must make the make-whole premium payments on all 2016 Notes called for
redemption prior to August 15, 2016, including the 2016 Notes converted after the date the Company
delivered the notice of redemption.
The 2016 Notes are accounted for in accordance with ASC 470-20. Under ASC 470-20 issuers of certain
convertible debt instruments that have a net settlement feature and may be settled in cash upon
conversion, including partial cash settlement, are required to separately account for the liability
(debt) and equity (conversion option) components of the instrument. The carrying amount of the
liability component of any outstanding debt instrument is computed by estimating the fair value of
a similar liability without the conversion option. The amount of the equity component is then
calculated by deducting the fair value of the liability component from the principal amount of the
convertible debt instrument.
The following is a summary of the principal amount of the liability component of the 2016 Notes,
its unamortized discount and its net carrying amount as of March 31, 2011:
|
|
|
|
|
|
|
March 31, 2011
|
|
|
(In thousands)
|
Carrying amount of the equity component
|
|
$
|
89,468
|
|
Net carrying amount of the liability component
|
|
$
|
65,668
|
|
Unamortized discount of the liability component
|
|
$
|
74,864
|
|
The effective interest rate used in determining the liability component of the 2016 Notes was
12.5%. The application of ASC 470-20 resulted in an initial recognition of $89.5 million as the
debt discount with a corresponding increase to paid-in capital, the equity component, for the 2016
Notes. The debt discount and debt issuance costs are amortized as interest expense through August
2016. The cash interest expense for the three months ended March 31, 2011 for the 2016 Notes was
$2.3 million, relating to the 4.0% stated coupon rate. The non-cash interest expense relating to
the amortization of the debt discount for the 2016 Notes for the three months ended March 31, 2011
was $2.4 million.
Note 10. Stock-Based Compensation
The Company accounts for stock-based compensation to employees and directors by estimating the fair
value of stock-based awards using the Black-Scholes option-pricing model and amortizing the fair
value of the stock-based awards granted over the applicable vesting period. Total employee
stock-based compensation expenses were $5.4 million and $4.9 million for the three months ended
March 31, 2011, and March 31, 2010, respectively.
Note 11. Income Taxes
The Company calculates its quarterly income tax provision in accordance with ASC 740-270,
Income
Taxes
. 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 has established and continues to maintain a valuation allowance against the majority of its
deferred tax assets as the Company does not currently believe that realization of those assets is
more likely than not.
For the three months ended March 31, 2011, the Company recorded an income tax expense of $32,000
primarily related to state income taxes. For the three months ended March 31, 2010, the Company
recorded an income tax benefit of $732,000 principally related to its election to carryback net
operating losses under the Worker, Homeownership and Business Association Act of 2009. The election
enabled the Company to eliminate all federal Alternative Minimum Taxes (AMT) previously recorded in
2009.
17
There were no changes to the Companys unrecognized tax benefits for the three months ended March
31, 2011. The Company is in the process of completing an analysis of its tax credit carryforwards.
Any uncertain tax positions identified in the course of this analysis will not impact the
consolidated financial statements if the Company continues to maintain a full valuation allowance
on its deferred tax assets. The Companys policy for classifying interest and penalties associated
with unrecognized income tax benefits is to include such items as tax expense. No interest or
penalties have been recorded for the three months ended
March 31, 2011 or March 31, 2010.
The Company does not expect to have any significant changes to unrecognized tax benefits over the
next twelve months. The tax years from 1993 and forward remain open to examination by the federal
and state taxing authorities due to net operating loss and credit carryforwards. The Company is
currently not under examination by the Internal Revenue Service or any other taxing authorities.
Note 12. Net Loss per Share
Basic net loss per share amounts for each period presented were computed by dividing net loss by
the weighted-average number of shares of common stock outstanding. Diluted net loss per share for
each period presented was computed by dividing net loss plus interest on dilutive convertible
senior notes by the weighted-average number of shares of common stock outstanding during each
period plus all additional common shares that would have been outstanding assuming dilutive
potential common shares had been issued for dilutive convertible senior notes and other dilutive
securities.
Dilutive potential common shares for dilutive convertible senior notes are calculated based on the
if-converted method. Under the if-converted method, when computing the dilutive effect of
convertible senior notes, the numerator is adjusted to add back the amount of interest and debt
issuance costs recognized in the period and the denominator is adjusted to add the amount of shares
that would be issued if the entire obligation is settled in shares. As of March 31, 2011, the
Companys outstanding indebtedness consisted of its 4.0% convertible senior notes due 2016.
Dilutive potential common shares also include the dilutive effect of the common stock underlying
in-the-money stock options and are calculated based on the average share price for each period
using the treasury stock method. Under the treasury stock method, the exercise price of an option,
the average amount of compensation cost, if any, for future service that the Company has not yet
recognized when the option is exercised, are assumed to be used to repurchase shares in the current
period.
The computations for basic and diluted net loss per share were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands, except per share amounts)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss basic
|
|
$
|
(49,162
|
)
|
|
$
|
(12,044
|
)
|
|
Add: interest and issuance costs related to convertible senior notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss diluted
|
|
$
|
(49,162
|
)
|
|
$
|
(12,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
63,008
|
|
|
|
62,353
|
|
Dilutive effect of convertible senior notes
|
|
|
|
|
|
|
|
|
Dilutive effect of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding and dilutive potential common shares diluted
|
|
|
63,008
|
|
|
|
62,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.78
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.78
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
18
Under the if-converted method, 5.8 million potential common shares relating to the 2016 Notes
were not included in diluted net loss per share for the three months ended March 31, 2011 and March
31, 2010 because their effect would be anti-dilutive. Diluted net loss per share does not include
the effect of 4.1 million and 3.9 million stock-based awards that were outstanding during the three
months ended March 31, 2011 and March 31, 2010, respectively, because their effect would have been
anti-dilutive.
Note 13. Comprehensive Loss
Comprehensive loss is composed of net loss and other comprehensive income. Other comprehensive
income is comprised of unrealized holding gains and losses on the Companys available-for-sale
securities that are excluded from net income and reported separately in stockholders equity.
Comprehensive income (loss) and its components are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Net loss
|
|
$
|
(49,162
|
)
|
|
$
|
(12,044
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on available-for-sale securities
|
|
|
137
|
|
|
|
518
|
|
Change in unrealized gain (loss) on derivatives designated as hedges
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(49,011
|
)
|
|
$
|
(11,526
|
)
|
|
|
|
|
|
|
|
The activities in other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Increase in unrealized gain (loss) on available-for-sale securities
|
|
$
|
141
|
|
|
$
|
518
|
|
Reclassification adjustment for net gains on available-for-sale securities included in net loss
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on available-for-sale securities
|
|
$
|
137
|
|
|
$
|
518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
Increase in unrealized gain (loss) on derivatives designated as hedges
|
|
$
|
(19
|
)
|
|
$
|
|
|
Realized loss reclassified from accumulated other comprehensive income to net loss
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on derivatives designated as hedges
|
|
$
|
14
|
|
|
$
|
|
|
|
|
|
|
|
|
|
19
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following Managements 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. Through our internal research programs and in conjunction
with our collaborators, we are applying our expertise to develop and commercialize therapies
designed to exploit the genetic differences between cancer cells and normal cells. We are
continuing to expand our current commercialization opportunities for Nexavar
®
(sorafenib) tablets, along with our collaborator, Bayer HealthCare Pharmaceuticals Inc., or Bayer,
and we are developing carfilzomib, a selective proteasome inhibitor, for the potential treatment of
patients with multiple myeloma and solid tumors. Carfilzomib is a late-stage compound with the
potential for accelerated marketing approval in the United States based on our current clinical
trial data and assuming favorable regulatory outcomes. In addition, we continue to invest in our
development pipeline, with multiple clinical and preclinical stage product candidates.
Collaboration Agreement with Bayer
Our first commercially available product, Nexavar
®
(sorafenib) tablets, being developed with our
collaborator, Bayer HealthCare Pharmaceuticals, or Bayer, is approved by the United States Food and
Drug Administration, or FDA, for the treatment of patients with unresectable liver cancer and
advanced kidney cancer. Nexavar is a novel, orally available kinase inhibitor and is one of a new
class of anticancer treatments that target both cancer cell proliferation and tumor growth through
the inhibition of key signaling pathways. In December 2005, Nexavar became the first newly approved
drug for patients with advanced kidney cancer in over a decade. In November 2007, Nexavar was
approved as the first and is currently the only systemic therapy for the treatment of patients with
unresectable liver cancer. Nexavar is now approved in more than 100 countries for the treatment of
unresectable liver cancer and advanced kidney cancer. We and Bayer are also conducting clinical
trials of Nexavar in several important cancer types in addition to advanced kidney cancer and
unresectable liver cancer, including lung, thyroid, breast, ovarian and colon cancers.
We and Bayer are commercializing Nexavar, for the treatment of patients with unresectable liver
cancer and advanced kidney cancer. Nexavar has been approved and is marketed for these indications
in the United States and in the European Union, as well as other territories worldwide. In the
United States, we co-promote Nexavar with Bayer. Outside of the United States, Bayer manages all
commercialization activities. For the three months ended March 31, 2011, worldwide net sales of
Nexavar as recorded by Bayer were $235.5 million.
In collaboration with Bayer, we initially focused on demonstrating Nexavars ability to benefit
patients suffering from a cancer for which there were no or few established therapies. With the
approval of Nexavar for the treatment of unresectable liver cancer and advanced kidney cancer, the
two companies 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 also investigating the
administration of Nexavar with previously approved and investigational anticancer therapies in many
common cancers, with the objective of enhancing the anti-tumor activity of existing therapies
through combination with Nexavar.
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 rights and we share
profits equally. In Japan, Bayer funds all product development, and we receive a royalty on sales.
Our collaboration agreement with Bayer will terminate when patents expire that were issued in
connection with product candidates discovered under the agreement, or at the time when neither we
nor Bayer are entitled to profit sharing under the agreement, whichever is latest. Our co-promotion
agreement with Bayer will terminate upon the earlier of the termination of our collaboration
agreement with Bayer or the date products subject to the co-promotion agreement are no longer sold
by either party in the United States. Either party may also terminate the co-promotion agreement
upon failure to cure a material breach of the agreement within a specified cure period.
20
Our collaboration agreement with Bayer provides that if we are acquired by another entity by reason
of merger, consolidation or sale of all or substantially all of our assets, or if a single entity
other than Bayer or its affiliate acquires ownership of a majority of our outstanding voting stock,
and Bayer does not consent to the transaction, then for 60 days following the transaction, Bayer
may elect to terminate our co-development and co-promotion rights under the collaboration agreement
and convert our profit sharing interest under that agreement into a royalty based on any sales of
Nexavar and other collaboration products. The applicable royalty rate would be a function of
expected profitability of Nexavar for the remaining patent life of Nexavar. As of December 20,
2010, the fifth anniversary of the initial regulatory approval of Nexavar, in the event of an
acquisition transaction, we believe the economic value of a royalty amount should be substantially
equivalent to the economic value of the profit share interest for Nexavar during the remaining
patent life absent such an acquisition transaction. Bayer has informed us they do not agree with
this conclusion. Also, either party may terminate the agreement upon 30 days notice within 60 days
of specified events relating to insolvency of the other party.
Acquisition of Proteolix
In November 2009, we made a significant move towards achieving our goal in becoming a multi-product
portfolio company by acquiring Proteolix, Inc., or Proteolix, a privately-held biopharmaceutical
company located in South San Francisco, California. Proteolix focused primarily on the discovery
and development of novel therapies that target the proteasome for the treatment of hematological
malignancies, solid tumors and autoimmune disorders. This acquisition, which included carfilzomib,
has provided us with an opportunity to expand into the hematological malignancies market. The
aggregate cash consideration paid to former Proteolix stockholders at closing was $276.0 million
with another $40.0 million paid in April 2010 upon the achievement of a pre-specified milestone. In
addition, we may be required to pay up to an additional $535.0 million in earn-out payments upon
the receipt of certain regulatory approvals within pre-specified timeframes.
Licensing Agreement with Ono Pharmaceutical
In September 2010, we entered into an exclusive license agreement with Ono Pharmaceutical Co.,
Ltd., or Ono, granting Ono the right to develop and commercialize both carfilzomib and ONX 0912 for
all oncology indications in Japan. We retain development and commercialization rights for all other
countries. We agreed to provide Ono with development and commercial supply of carfilzomib and ONX
0912 on a cost-plus basis. Ono agreed to pay us development and commercial milestone payments based
on the achievement of pre-specified criteria. In addition, Ono agreed to share a percentage of
costs incurred by us for the global development of carfilzomib and ONX 0912 that support filings
for regulatory approval in Japan. The milestone and development support payments could total
approximately $288.6 million at current exchange rates. Ono is responsible for all development
costs in support of regulatory filings in Japan as well as commercialization costs it incurs. If
regulatory approval for carfilzomib and/or ONX 0912 is achieved in Japan, Ono is obligated to pay
us double-digit royalties on net sales of the licensed compounds in Japan. The agreement will
terminate upon the expiration of the royalty terms specified for each product. In addition, Ono may
terminate this agreement for certain scientific or commercial reasons with advance written notice,
and either party may terminate this agreement for the other partys uncured material breach or
bankruptcy.
Licensing Agreement with BTG
In November 2008, we entered into an agreement to license worldwide development and
commercialization rights to ONX 0801, previously known as BGC 945, from BTG International Limited,
or BTG, a London-based specialty pharmaceuticals company. ONX 0801 is in clinical development and
is believed to work by combining two established approaches to improve outcomes for cancer
patients, selectively targeting tumor cells through the alpha-folate receptor, which is
overexpressed in a number of tumor types, and inhibiting thymidylate synthase, a key enzyme
responsible for cell growth and division.
Development, Collaboration, Option and License Agreement with S*BIO
In December 2008, we entered into a development, collaboration, option and license agreement with
S*BIO Pte Ltd., or S*BIO, a Singapore-based company, pursuant to which we acquired options to
license rights to its novel Janus Kinase, or JAK, inhibitors, SB1518 (designated by Onyx as ONX
0803) and SB1578 (designated by Onyx as ONX 0805). Under the terms of the agreement, we obtained
options, which if exercised, would have given us rights to exclusively develop and commercialize
ONX 0803 and ONX 0805 for all potential indications in the United States, Canada and Europe. S*BIO
would have retained responsibility for all development costs prior to the option exercise, after
which we would have assumed development costs for the United States, Canada and Europe, subject to
S*BIOs option to fund a portion of the development costs in return for enhanced royalties on any
future product sales.
21
In May 2011, we entered into a Termination and Separation Agreement, or the Termination Agreement,
with S*BIO to terminate our collaboration agreement and amend our rights with respect to ONX 0803
and ONX 0805. Under the Termination Agreement, our option rights to ONX 0803 and ONX 0805, which
we had not exercised, will revert to S*BIO and S*BIO will retain responsibility for all development
and commercialization of these compounds. We retained our equity interest in S*BIO and, in addition
to any value associated with our equity interest, may receive up to $20.0 million from S*BIO based
on agreed portions of any partnering revenue or future royalty revenue related to ONX 0803 and ONX
0805, or proceeds from any acquisition of S*BIO.
Business Highlights
In the first quarter of 2011, we continued to execute on our value building strategy by increasing
worldwide sales of Nexavar as compared to the same period in 2010, and continued to invest in the
development and pre-launch commercialization of carfilzomib.
Nexavar
margins increased year over year, and sales of Nexavar as recorded by Bayer in
countries around the world increased from $214.4 million for the three months ended March 31, 2010
to $235.5 million for the three months ended March 31,
2011, driven by strong growth in the Asia-Pacific region,
particularly Japan and China.
In March 2011, we announced the expansion of our ongoing Phase 3 European clinical trial, referred
to as FOCUS, or the 011 trial, designed to evaluate the efficacy and tolerability of carfilzomib
in patients with refractory multiple myeloma relapsed after at least three prior regimens. The
modification of the trial includes two key enhancements: a change of the primary endpoint to
overall survival from progression free survival and an increase in patient enrollment to
approximately 300 from 84 in order to demonstrate a potential mortality benefit.
In April 2011, we moved to our new company headquarters at 249 East Grand Avenue, South San
Francisco, California.
In May 2011, we entered into a Termination and Separation Agreement with S*BIO under which our
option rights to ONX 0803 and ONX 0805, which we had not exercised, will revert to S*BIO.
Financial Highlights
Our operating results for the three months ended March 31, 2011 included revenue from the Nexavar
collaboration agreement of $67.1 million, an increase of $4.2 million, or 7%, from $62.9 million
for same period in 2010. The increase in revenue from the Nexavar collaboration agreement was
driven primarily by an increase in net sales of Nexavar.
Total operating expenses for the three months ended March 31, 2011 was $108.5 million, an increase
of $36.8 million, or 51%, from $71.7 million for the same period in 2010. The increase in operating
expenses was primarily driven by increases in research and development expenses of $18.9 million
and selling, general and administrative expenses of $9.8 million. The increase in research and
development expenses includes a $12.7 million expense for the three months ended March
31, 2011 to write-off the remaining balance of advance funding provided to S*BIO in May 2010 and
costs incurred for the development of carfilzomib, particularly the Phase 3 ASPIRE and FOCUS
trials. The increase in selling, general and administrative expenses was primarily due to planned
increases in employee headcount and related costs.
Cash, cash equivalents and current and non-current marketable securities at March 31, 2011 were
$561.7 million, a decrease of $16.2 million, or 3%, from $577.9 million at December 31, 2010. The
decrease is primarily attributable to net cash used in operations.
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. Actual
results may differ materially from these estimates. There have been
no significant or material changes to our critical
accounting policies or estimates since we filed our 2010 Annual Report on Form 10-K for the year ended December
31, 2010 with the Securities and Exchange Commission (SEC).
22
Results of Operations
Three months ended March 31, 2011 and 2010
Revenue
Nexavar, our only marketed product, was approved in the United States in December 2005. In
accordance with our collaboration agreement with Bayer, Bayer recognizes all revenue from the sale
of Nexavar. Accordingly, for the three months ended March 31, 2011 and 2010, we reported no product
revenue. For the three months ended March 31, 2011, Nexavar net sales recorded by Bayer were $235.5
million, primarily in the United States, the European Union and other territories worldwide and
includes the impact of the Patient Protection and Affordable Care Act, as amended by the Health
Care and Education Affordability Reconciliation Act. This represents an increase of $21.1 million,
or 10%, over Nexavar net sales of $214.4 million recorded by Bayer for the three months ended March
31, 2010.
Revenue from Collaboration Agreement
Nexavar is currently marketed and sold in the United States, most countries in the European Union
and other territories worldwide. We co-promote Nexavar in the United States with Bayer under
collaboration and co-promotion agreements. Under the terms of the co-promotion agreement and
consistent with the collaboration agreement with Bayer, we share equally in the profits or losses
of Nexavar worldwide, excluding Japan. 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. We and Bayer each bear our own sales force and medical science
liaison expenses. These expenses are not included in the calculation of the profits or losses of
the collaboration.
Revenue from collaboration agreement consists of our share of the pre-tax commercial profit
generated from our collaboration with Bayer, reimbursement of our shared marketing costs related to
Nexavar and royalty revenue. Under the collaboration, Bayer recognizes all sales of Nexavar
worldwide. We record revenue from collaboration agreement on a quarterly basis. Revenue from
collaboration agreement for the three months ended March 31, 2011 and 2010 is calculated as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Nexavar product revenue, net (as recorded by Bayer)
|
|
$
|
235,467
|
|
|
$
|
214,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nexavar revenue subject to profit sharing (as recorded by Bayer)
|
|
$
|
193,170
|
|
|
$
|
185,867
|
|
Combined cost of goods sold, distribution, selling, general and administrative expenses
|
|
|
74,010
|
|
|
|
75,698
|
|
|
|
|
|
|
|
|
Combined collaboration commercial profit
|
|
$
|
119,160
|
|
|
$
|
110,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onyxs share of collaboration commercial profit
|
|
$
|
59,580
|
|
|
$
|
55,084
|
|
Reimbursement of Onyxs shared marketing expenses
|
|
|
4,604
|
|
|
|
5,824
|
|
Royalty revenue
|
|
|
2,961
|
|
|
|
1,995
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
67,145
|
|
|
$
|
62,903
|
|
|
|
|
|
|
|
|
The increase in revenue from collaboration agreement for the three months ended March 31, 2011 from
the same period in 2010 is primarily a result of increased net sales of Nexavar as recorded by
Bayer in countries around the world, particularly in certain Asia-Pacific countries. Revenue from
collaboration agreement is directly affected by the increases and decreases in Nexavar net revenue,
over and above the associated cost of goods sold, distribution, selling and general administrative
expenses. In addition, prolonged or profound economic downturn may result in adverse changes to
product reimbursement and pricing and sales levels, which would harm our operating results. We
expect Nexavar sales and Bayers 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, particularly in certain Asia-Pacific countries.
23
Research and Development Expenses
Research and development expenses, as compared to the same period of the prior year, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change
|
|
|
March 31,
|
|
2011 vs 2010
|
|
|
2011
|
|
2010
|
|
$
|
|
%
|
|
|
(In thousands, except percentages)
|
Research and development
|
|
$
|
62,494
|
|
|
$
|
43,575
|
|
|
$
|
18,919
|
|
|
|
43
|
%
|
For the three months ended March 31, 2011, research and development expenses include costs to
develop our product candidates and our share of the research and development costs incurred for
Nexavar by Bayer and us under our cost sharing arrangement. In addition, research and development
expenses for the three months ended March 31, 2011 includes a $12.7 million expense to write-off
the remaining balance of the advance funding provided to S*BIO in May 2010. The remaining increase
in research and development expense was primarily due to investments in the development of
carfilzomib, particularly relating to our ongoing Phase 3 clinical trials, referred to as ASPIRE,
or the 009 trial, and FOCUS, or the 011 trial. The increase in research and development
expenses was partially offset by a $3.0 million reimbursement received from Ono. Under the terms of
the license agreement with Ono, a percentage of the global development costs we incur for the
development of carfilzomib and ONX 0912 is reimbursed by Ono. Refer to Note 3 for further
information.
A significant portion of our total research and development expenses, approximately 34% and 50% for
the three months ended March 31, 2011 and 2010, respectively, relates to our cost sharing
arrangement with Bayer and represents our share of the research and development costs incurred by
Bayer. As a result of the cost sharing arrangement between us and Bayer for research and
development costs, there was a net reimbursable amount of $19.4 million and $18.5 million due to
Bayer for the three months ended March 31, 2011 and 2010, respectively. Such amounts were recorded
based on invoices and estimates we receive from Bayer. When such invoices have not been received,
we must estimate the amounts owed to Bayer based on discussions with Bayer. For the periods covered
in the financial statements presented, there have been no significant or material differences
between actual amounts and estimates. However, if we underestimate or overestimate the amounts owed
to Bayer, we may need to adjust these amounts in a future period, which could have an effect on
earnings in the period of adjustment. As of March 31, 2011, our share of the Nexavar development
costs incurred to date under the collaboration was $619.9 million.
The major components of research and development costs include clinical manufacturing costs,
clinical trial expenses, non-refundable upfront payments, 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. Clinical trial expenses include, but are not limited
to, investigator fees, site costs, comparator drug costs and clinical
research organization costs. In addition, our cost accruals for clinical trials are based on estimates of the
services received and efforts expended pursuant to contracts with numerous clinical trial sites and
clinical research organizations. In the normal course of business, we contract with third parties
to perform various clinical trial activities in the on-going development of potential products. The
financial terms of these agreements are subject to negotiation and variation from contract to
contract and may result in uneven payment flows. Payments under the contracts depend on factors
such as the achievement of certain events, the successful enrollment of patients and the completion
of portions of the clinical trial or similar conditions. The objective of our accrual policy is to
match the recording of expenses in our financial statements to the actual services received and
efforts expended. As such, expense accruals related to clinical trials are recognized based on our
estimate of the degree of completion of the event or events specified in the specific clinical
study or trial contract. If we underestimate activity levels associated with various studies at a
given point in time, we could record significant research and development expenses in future
periods.
We expect our research and development expenses to increase substantially in future periods,
primarily as a result of costs incurred to develop carfilzomib. We are currently conducting Phase
3, Phase 2 and Phase 1b studies in relapsed multiple myeloma, a Phase 2b study in relapsed and
refractory multiple myeloma and Phase 1b/2 studies in multiple myeloma and relapsed solid tumors.
We also expect our research and development activities to include developing ONX 0801 and our other
product candidates. Additionally, the terms of the development and license agreement dated November
6, 2008 with BTG provide that we may be required to make payments to BTG of up to $65.0 million
upon the attainment of certain global development and regulatory milestones, plus additional
milestone payments upon the achievement of certain marketing approvals and commercial milestones.
24
Selling, General and Administrative Expenses
Selling, general and administrative expenses, as compared to the same period of the prior year were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change
|
|
|
March 31,
|
|
2011 vs 2010
|
|
|
2011
|
|
2010
|
|
$
|
|
%
|
|
|
(In thousands, except percentages)
|
Selling, general and administrative
|
|
$
|
34,471
|
|
|
$
|
24,721
|
|
|
$
|
9,750
|
|
|
|
39
|
%
|
The
increase in selling, general and administrative expenses was primarily due to planned
increases in employee headcount and related costs, legal costs, pre-launch costs for carfilzomib
and increased facilities-related costs. 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 related to Nexavar and increases in personnel and due to preparations for the
potential launches of carfilzomib in various territories.
Contingent Consideration Expense
Contingent consideration expense, as compared to the same periods of the prior year, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change
|
|
|
March 31,
|
|
2011 vs 2010
|
|
|
2011
|
|
2010
|
|
$
|
|
%
|
|
|
(In thousands, except percentages)
|
Contingent consideration
|
|
$
|
11,495
|
|
|
$
|
3,448
|
|
|
$
|
8,047
|
|
|
|
233
|
%
|
As a result of the acquisition of Proteolix in November 2009 under the terms of an Agreement and
Plan of Merger, or the Merger Agreement, which was entered into in October 2009, we made a payment
of $40.0 million in April 2010 and may be required to pay up to an additional $535.0 million
payable in up to four earn-out payments upon the achievement of certain regulatory approvals for
carfilzomib in the U.S. and Europe within pre-specified timeframes. Under the Merger Agreement, the
first of these additional earn-out payments would be in the amount of $170.0 million if achieved by
the date originally contemplated, and would be triggered by accelerated marketing approval for
carfilzomib in the United States for relapsed/refractory multiple myeloma. In January 2011, we
entered into Amendment No. 1 to the Merger Agreement. Amendment No. 1 modifies this first payment
if the milestone is not achieved by the date originally contemplated on a sliding scale basis, as
follows:
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|
|
if accelerated marketing approval in the United States for relapsed/refractory
multiple myeloma is achieved after the date originally contemplated, but within six
months of the original date, subject to extension under certain circumstances, then the
amount payable will be reduced to $130.0 million; and
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|
|
|
|
if accelerated marketing approval in the United States for relapsed/refractory
multiple myeloma is achieved more than six months after the date originally contemplated,
but within 12 months of the original date, subject to extension under certain
circumstances, then the amount payable will be reduced to $80.0 million.
|
The remaining earn-out payments will continue to become payable in up to three additional
installments as follows:
|
|
|
$65.0 million would be triggered by specified marketing approval in the European
Union for relapsed/refractory multiple myeloma;
|
|
|
|
|
$150.0 million would be triggered by specified marketing approval in the United
States for relapsed multiple myeloma; and
|
|
|
|
|
$150.0 million would be triggered by specified marketing approval for relapsed
multiple myeloma in the European Union.
|
We recorded a non-current liability for this contingent consideration related to the four earn-out
payments with a fair value of $265.0 million at March 31, 2011 based upon a discounted cash flow
model that uses significant estimates and assumptions, including the probability of technical and
regulatory success (PTRS) of the product candidate, carfilzomib. Contingent consideration expense
is due to the change in the fair value of the recognized amount of the non-current liability for
contingent consideration. For the three months ended March 31, 2011, the change in the fair value
resulted from an increase in the PTRS and the passage of time. The
increase in the PTRS was due to the expanded size and change in endpoint of our Phase 3 European
clinical trial, referred to as FOCUS, or the 011 trial, announced in March 2011. Any further
changes to these estimates and assumptions could significantly impact the fair values recorded for
this liability, resulting in significant charges to our Condensed Consolidated Statements of
Operations.
25
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 $0.6 million for the three months ended
March 31, 2011, a decrease of $0.2 million, or 25%, from $0.8 million in the same period in 2010.
These decreases were primarily due to lower effective interest rates in the market.
Interest Expense
Interest expense of $5.0 million for the three months ended March 31, 2011, primarily relates to
the 4.0% convertible senior notes due 2016 issued in August 2009, and includes non-cash imputed
interest expense of $2.4 million, as a result of the application of ASC 470-20.
Other Expense
Other expense of $3.5 million for the three months ended March 31,
2011 primarily relates to a $3.0 million expense recorded for the impairment of our equity investment in S*BIO. In accordance
with ASC 325-20-35, we reassessed the fair value of our equity investment in S*BIO and determined that our investment was impaired
and accordingly, recorded a $3.0 million expense associated with the impairment of this investment. Other expense also includes
$0.5 million related to net losses on certain foreign currency option contracts not designated as hedging instruments.
Liquidity and Capital Resources
With the exception of the profitability we achieved for the years ended December 31, 2009 and 2008,
we have incurred significant annual net losses since our inception, and we have relied primarily on
public and private financing to fund our operations.
At March 31, 2011, we had cash, cash equivalents and current and non-current marketable securities
of $561.7 million, compared to $577.9 million at December 31, 2010. The decrease is primarily
attributable to net cash used in operations.
Our investment portfolio includes $29.6 million of AAA rated securities with an auction reset
feature (auction rate securities) that are collateralized by student loans. In April 2011, $0.1
million in securities were redeemed at par and, accordingly, we classified these securities as
current marketable securities in the accompanying unaudited Condensed Consolidated Balance Sheet at
March 31, 2011. Therefore, the remaining balance of auction rate securities is currently
outstanding in our investment portfolio. Since February 2008, these types of securities have
experienced failures in the auction process. However, a limited number of these securities have
been redeemed at par by the issuing agencies. 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. Based on the overall failure rate of
these auctions, the frequency of the failures, the underlying maturities of the securities, a
portion of which are greater than 30 years, and our belief that the market for these student loan
collateralized instruments may take in excess of twelve months to fully recover, we have classified
the remaining balance of auction rate securities as non-current marketable securities in the
accompanying unaudited Condensed Consolidated Balance Sheet at March 31, 2011. We have determined
the fair value to be $28.3 million for these securities, based on a discounted cash flow model, and
have reduced the carrying value of these marketable securities by $1.2 million through accumulated
other comprehensive income (loss) instead of earnings because we have deemed the impairment of
these securities to be temporary. Further adverse developments in the credit market could result in
an impairment charge through earnings in the future. The discounted cash flow model used to value
these securities is based on a specific term and liquidity assumptions. An increase in either of
these assumptions could result in a $1.2 million decrease in value. Alternatively, a decrease in
either of the assumptions could result in a $1.2 million increase in value.
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 do not intend to sell the securities and we believe it is not more likely than
not that we will be required to sell the securities prior to the recovery of their amortized cost
bases. We believe that, even after reclassifying these securities to non-current assets and the
possible requirement to hold all such securities for an indefinite period of time, our remaining
cash and cash equivalents and current investments will be sufficient to meet our anticipated
cash needs.
26
We believe that our existing capital resources and interest thereon will be sufficient to fund our
current and planned operations for at least the next twelve months. However, if we change our
development plans, including acquiring or developing additional product candidates or complementary
businesses, we may need additional funds sooner than we expect. We anticipate that we will incur
cash outlays to conduct and support additional clinical trials both currently underway and planned
for the development of carfilzomib and our other development candidates. We also expect to incur
cash outlays as we prepare for potential commercial launches of carfilzomib, should it receive
marketing approval. In addition, we anticipate that we will incur expenses for the development of
ONX 0801. Further, we may be obligated to make up to an additional $535.0 million of contingent
earn-out payments upon the achievement of regulatory approvals for carfilzomib in the U.S. and
Europe, payable in either cash or common stock, at our discretion. The terms of the development and
license agreement dated November 6, 2008 with BTG provide that we may be required to make payments
to BTG of up to $65.0 million upon the attainment of certain global development and regulatory
milestones, plus additional milestone payments upon the achievement of certain marketing approvals
and commercial milestones.
In April 2011, we moved to our new company headquarters at 249 East Grand
Avenue, South San Francisco, California. We entered into arrangements to lease and sublease these premises in July 2010, and will
continue to incur cash outlays associated with the lease and sublease of these premises. The total monthly base rent in the first year
for both the lease and sublease is approximately $294,000. The total obligations under both of these operating leases will be approximately
$45.9 million. We expect to cease the use of the premises we previously occupied in Emeryville, California and South San Francisco,
California in the second quarter of 2011 and expect to incur
estimated exit costs in the range of $13.5 million to $14.5 million relating
to the remaining lease terms of these premises, which expire in 2013 and 2014, respectively.
While most of our anticipated development costs are unknown at the current time, we may need to
raise additional capital to continue the funding of our product development programs and our
development plans in future periods beyond 2011. 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.
Off-Balance Sheet Arrangements
As of March 31, 2011, we did not have any material off-balance sheet arrangements (as defined in
Item 303(a)(4)(ii) of Regulation S-K).
Recent Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Update (ASU) 2010-27,
Other Expenses (Topic 720): Fees Paid to the Federal Government
by Pharmaceutical Manufacturers
. This update addresses questions concerning how pharmaceutical
manufacturers should recognize and classify in the income statement fees mandated by the Patient
Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act
or Acts. The Acts impose an annual fee on the pharmaceutical manufacturing industry for each
calendar year beginning on or after January 1, 2011. An entitys portion of the annual fee is
payable no later than September 30 of the applicable calendar year and is not tax deductible. The
annual fee is payable to the U.S. Treasury once a pharmaceutical manufacturing entity has a gross
receipt from a branded prescription drug sale to any specified government program or in accordance
with coverage under any government program for each calendar year beginning on or after January 1,
2011. We do not expect that this accounting standard update will have any material impact on our
results of operations or financial position.
In December 2010, the FASB issued ASU 2010-28,
Intangibles Goodwill and Other When to perform
Step 2 of the Goodwill Impairment Test for Entities with Zero or Negative Carrying Amount
. ASU
2010-28 modifies goodwill impairment testing for entities with zero or negative carrying amounts.
The amendment requires these entities to perform Step 2 of the goodwill impairment test, which
involves comparing the current value and the current book value of goodwill. The difference between
these values represents the impairment amount which must be recognized in the current period. In
addition, an entity should consider whether there are any adverse qualitative factors indicating
that impairment exists. ASU 2010-28 is effective for interim and annual periods beginning on or
after December 15, 2010. Early adoption is not permitted. We are currently evaluating the impact,
if any, that the adoption may have on our results of operations or financial position.
27
In December 2010, the FASB issued ASU 2010-29,
Business Combinations Disclosure of Supplementary
Pro Forma Information for Business Combinations
. ASU 2010-29 clarifies the acquisition date that
should be used for reporting the pro forma revenue and earnings disclosure requirements for
business combination(s) when comparative financial statements are presented. The amendment
specifies that an entity should disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had occurred as of the beginning of
the comparable prior annual reporting period only. In addition, the amendment expands the
supplemental pro forma disclosures to include a description of the nature and amount of material,
nonrecurring pro forma adjustments that are directly attributable to the business combination(s).
ASU 2010-29 is effective for interim and annual periods beginning on or after December 15, 2010.
Early adoption is permitted. We do not expect the adoption will have any material impact on our
results of operations or financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate 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. Under our 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 or decrease by 100 basis points, or
1%, as of March 31, 2011, the fair value of our portfolio would decline or increase, respectively,
by approximately $2.0 million. Additionally, a hypothetical increase or decrease of 1% in market
interest rates during the three months ended March 31, 2011 would have resulted in a change of $1.2
million in our net income for the three months ended March 31, 2011, respectively.
The table below presents the amounts and related weighted average interest rates of our cash
equivalents and marketable securities at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
December 31, 2010
|
|
|
|
|
Fair Value
|
|
Average
|
|
|
|
Fair Value
|
|
Average
|
|
|
Maturity
|
|
(In millions)
|
|
Interest Rate
|
|
Maturity
|
|
(In millions)
|
|
Interest Rate
|
Cash equivalents, fixed rate
|
|
0 - 3 months
|
|
$
|
108.9
|
|
|
|
0.13
|
%
|
|
0 - 3 months
|
|
$
|
113.9
|
|
|
|
0.48
|
%
|
Marketable securities, fixed rate
|
|
0 - 23 months
|
|
$
|
350.5
|
|
|
|
0.55
|
%
|
|
0 - 20 months
|
|
$
|
351.5
|
|
|
|
0.57
|
%
|
Liquidity Risk
Our investment portfolio includes $29.6 million of AAA rated auction rate securities collateralized
by student loans. In April 2011, $0.1 million in securities were redeemed at par and, accordingly,
we classified these securities as current marketable securities in the accompanying unaudited
Condensed Consolidated Balance Sheet at March 31, 2011. Therefore, the remaining balance of auction
rate securities is currently outstanding in our investment portfolio. Since February 2008,
securities of this type have experienced failures in the auction process. However, a limited number
of these securities have been redeemed at par by the issuing agencies. 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. Based on the
overall failure rate of these auctions, the frequency of the failures, the underlying maturities of
the securities, a portion of which are greater than 30 years, and our belief that the market for
these student loan collateralized instruments may take in excess of twelve months to fully recover,
we have classified the remaining balance of auction rate securities as non-current marketable
securities on the accompanying unaudited Condensed Consolidated Balance Sheet at March 31, 2011. We
have determined the fair value to be $28.3 million for these securities, based on a discounted cash
flow model, and have reduced the carrying value of these marketable securities by $1.2 million
through accumulated other comprehensive loss instead of earnings because we have deemed the
impairment of these securities to be temporary. We do not intend to sell the securities and we
believe it is not more likely than not that we will be required to sell the securities prior to the
recovery of their amortized cost bases.
28
Foreign Currency Exchange Rate Risk
A majority of Nexavar sales are generated outside of the United States, and a significant
percentage of Nexavar commercial and development expenses are incurred outside of the United
States. Our revenue from collaboration agreement is dependent on these foreign currency denominated
activities. As a result of these underlying non-U.S. Dollar denominated activities, fluctuations in
foreign currency exchange rates affect our operating results. 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 operating margins. The primary foreign currencies that we
are exposed to are the Euro and the Japanese Yen. A hypothetical increase or decrease of 1% in
exchange rates between the Euro and U.S. Dollar during the three months ended March 31, 2011 would
have resulted in a change in our net loss of $0.4 million based on our expected exposures. A
hypothetical increase or decrease of 1% in exchange rates between the Japanese Yen and U.S. Dollar
during the three months ended March 31, 2011 would have resulted in a change in our net loss of
$30,000 based on our expected exposures. For these currencies, we utilize average exchange rates
for the reporting period.
As we expand, we could be exposed to exchange rate fluctuation in other currencies. Exchange rates
between foreign currencies and U.S. dollars have fluctuated significantly in recent years and may
do so in the future. Commencing in the third quarter of 2010, we established a foreign currency
hedging program. The objective of the program is to mitigate the foreign exchange risk arising from
transactions or cash flows that have a direct or underlying exposure in non-U.S. Dollar denominated
currencies in order to reduce volatility in our cash flow and earnings. Currently, we hedge a
certain portion of our foreign currency exchange rate exposure with options, typically no more than
one year into the future. These derivative instruments, which include derivative instruments that
have been designated as hedges under ASC 815,
Derivatives and Hedging,
are intended to reduce the
effects of variations in our cash flow resulting from fluctuations in foreign currency exchange
rates. However, in certain circumstances, these derivative instruments may expose us to the risk of
financial loss. Our cash flows are denominated in U.S. Dollars.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures:
The Companys chief executive officer and chief
financial officer reviewed and evaluated the Companys 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 Companys principal executive officer and principal financial officer
concluded that the Companys disclosure controls and procedures were effective at the reasonable
assurance level as of March 31, 2011 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 Commissions rules and forms.
Changes in Internal Control over Financial Reporting:
There were no changes in the Companys
internal control over financial reporting during the quarter ended March 31, 2011 that have
materially affected, or are reasonably likely to materially affect, the Companys 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. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. 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.
Accordingly, our disclosure controls and procedures are designed to provide reasonable, not
absolute, assurance that the objectives of our disclosure control system are met and, as set forth
above, our principal executive officer and principal financial officer have concluded, based on
their evaluation as of the end of the period covered by this report, that our disclosure controls
and procedures were effective at the reasonable assurance level to ensure the information required
to be disclosed in this report is recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms.
29
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
In May 2009, we filed a complaint against Bayer Corporation and Bayer A.G. in the United States
District Court for the Northern District of California under the caption
Onyx Pharmaceuticals, Inc.
v. Bayer Corporation and Bayer AG
, Case No. CV09-2145 MHP (N.D. Cal.). In the complaint, we have
asserted our rights under the Collaboration Agreement to fluoro-sorafenib, an anti-cancer compound
that Bayer is developing and to which Bayer refers as regorafenib, its International Nonproprietary
Name. Fluoro-sorafenib has the same chemical structure as sorafenib (Nexavar), except that a single
fluorine atom has been substituted for a hydrogen atom. Bayer is currently conducting trials of
fluoro-sorafenib in mixed solid tumors, gastrointestinal stromal tumors (GIST), kidney, colorectal
and liver cancer and non-squamous non-small cell lung cancer (NSCLC) and has initiated a Phase 3
clinical trial in metastatic colorectal carcinoma and GIST. In the lawsuit, we allege that
fluoro-sorafenib was discovered during joint research between us and Bayer and we are seeking
monetary damages and a court ruling that we have certain rights to fluoro-sorafenib under the
collaboration agreement. Bayer has asserted that we have no such rights. In June 2010, we filed an
amended complaint to include an allegation that Bayer has prejudiced the value of Nexavar by reason
of its interest in other drugs, including fluoro-sorafenib. The trial is scheduled to begin in June
2011 in federal court in San Francisco, California.
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 2010 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 23, 2011.
Nexavar
®
is our only approved product and we may never obtain regulatory approval for
carfilzomib or any other future product candidate. If Nexavar fails and we are unable to develop,
obtain approval for and commercialize alternative product candidates our business would fail.
Nexavar is the only approved product that generated commercial revenues for the quarter ended March
31, 2011 and which we rely on to fund our operations. Unless we can successfully commercialize one
of our other product candidates, we will continue to rely on Nexavar to generate substantially all
of our revenues and fund our operations. All of our other product candidates are still development
stage and we may never obtain approval of or earn revenues from any of our product candidates.
Carfilzomib is in late stage clinical development and our other product candidates are in early
clinical stage. Successful development and commercialization of these compounds and our other
product candidates is highly uncertain and depends on a number of factors, many of which are beyond
our control. The New Drug Application, or NDA, for accelerated approval of carfilzomib may take
longer to file than we expect or may not be filed at all. We have limited experience managing
filing and managing regulatory filings and we may not succeed in obtaining accelerated approval, or
full approval of carfilzomib on anticipated timelines or at all.
Our stock price is volatile, our operating results are unpredictable, we have a history of losses
and we may be unable to sustain profitability.
Our stock price is volatile and is likely to continue to be volatile. A variety of factors may have
a significant effect on our stock price, including:
|
|
|
fluctuations in our results of operations;
|
|
|
|
|
results from or speculation about clinical trials or the regulatory status of Nexavar,
carfilzomib or other product candidates;
|
|
|
|
|
decisions or changes in policy by regulatory agencies, or changes in regulatory
requirements;
|
|
|
|
|
announcements by us regarding, or speculation about, our business development activities;
|
30
|
|
|
ability to accrue patients into clinical trials or submit regulatory filings;
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|
|
|
|
developments in our relationship with Bayer;
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|
|
|
|
changes in healthcare reimbursement policies or other government regulations;
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|
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|
changes in generally accepted accounting principles and changes in tax laws;
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|
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|
announcements by us or our competitors of innovations or new products;
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|
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|
sales by us of our common stock or debt securities; and
|
|
|
|
|
foreign currency fluctuations, which would affect our share of collaboration profits or
losses.
|
In the past, following our or Bayers announcements regarding lower than anticipated Nexavar sales
and disappointing clinical trials in melanoma and NSCLC, our stock price has declined, in some
cases significantly.
Our operating results and Nexavar sales will likely fluctuate from quarter to quarter and from year
to year, and are difficult to predict. Our operating expenses are highly dependent on expenses
incurred by Bayer and in certain regions are independent of Nexavar sales. We have to date
incurred 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
might incur operating losses in the future as we expand our development and commercial activities
for Nexavar and our product candidates. We expect to incur significant operating expenses
associated with the development activities of carfilzomib and additional products, including
potentially fluoro-sorafenib, if we prevail in our litigation against Bayer.
As a result of the acquisition of Proteolix, we may be required to pay up to an additional $535.0
million in four earn-out payments upon the receipt of certain regulatory approvals within
pre-specified timeframes. We recorded a liability for this contingent consideration for the four
earn-out payments with a fair value of $265.0 million at March 31, 2011 based upon a discounted
cash flow model that uses significant estimates and assumptions. Any changes to these estimates and
assumptions could significantly impact the fair values recorded for this liability resulting in
significant charges to our Condensed Consolidated Statements of Operations. Moreover, we may, at
our discretion, make any of the remaining earn-out payments in the form of cash, shares of Onyx
common stock or a combination thereof. If we elect to issue shares of our common stock in lieu of
making an earn-out payment in cash, this would have a dilutive effect on our common stock and could
cause the trading price of our common stock to decline.
It is, therefore, difficult for us to accurately forecast profits or losses. It is possible that in
some quarters our operating results could disappoint securities analysts or investors. Many
factors, including, but not limited to disappointing operating results and/or the other factors
outlined above, could cause the trading price of our common stock to decline, perhaps
substantially.
Our clinical trials for Nexavar or carfilzomib could take longer to complete than we project or may
not be completed at all, and we may never obtain regulatory approval for carfilzomib or any other
product candidate.
The timing of initiation and completion of clinical trials may be subject to significant delays
resulting from various causes, including actions by Bayer for Nexavar clinical trials, scheduling
conflicts with participating clinicians and clinical institutions, difficulties in identifying and
enrolling patients who meet trial eligibility criteria, modification of clinical trial designs, and
shortages of available drug supply for clinical and commercial purposes. We may face difficulties
developing relationships with carfilzomib development partners, including clinical research
organizations, contract manufacturing organizations, key opinion leaders and clinical
investigators. We may not complete clinical trials involving Nexavar, carfilzomib or any of our
other product candidates as projected or at all.
We may not have the necessary capabilities to successfully manage the execution and completion of
clinical trials in a way that leads to approval of Nexavar, carfilzomib or other product candidates
for their target indications. In addition, we rely on Bayer, academic institutions, cooperative
oncology organizations and clinical research organizations to conduct, supervise or monitor the
majority of clinical trials involving Nexavar and carfilzomib. We have less control over the timing
and other aspects of these clinical trials than if we conducted them entirely on our own. The
timing of review by regulatory authorities is uncertain. We may not
obtain priority review from the United States Food and Drug Administration, or FDA, for our application for
accelerated approval of carfilzomib, and we may not receive accelerated approval or any approval
for carfilzomib.
31
Development and commercialization of compounds that appear promising in research or development,
including Phase 2 clinical trials, may be delayed or fail to reach later stages of development or
the market for a variety of reasons including:
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nonclinical tests may show the product to be toxic or lack efficacy in animal models;
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clinical trial results may show the product to be less effective than desired or to have
harmful or problematic side effects;
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regulatory approvals may not be received, or may be delayed due to factors such as slow
enrollment in clinical studies, extended length of time to achieve study endpoints,
additional time requirements for data analysis or preparation of an IND, discussions with
regulatory authorities, requests from regulatory authorities for additional preclinical or
clinical data, analyses or changes to study design, including possible changes in acceptable
trial endpoints, or unexpected safety, efficacy or manufacturing or quality issues;
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difficulties formulating the product, scaling the manufacturing process or in validating
or getting approval for manufacturing;
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manufacturing costs, pricing or reimbursement issues, or other factors may make the
product uneconomical;
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proprietary or contractual rights of others and their competing products and technologies
may prevent our product from being developed or commercialized or may increase the cost of
doing so; and
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contractual rights of our collaborators or others may prevent our product from being
developed or commercialized or may increase the cost of doing so.
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Failure to successfully commercialize carfilzomib or to complete additional development of Nexavar
for these or any other reasons would significantly harm our business and could cause the trading
price of our common stock to decline significantly.
If Nexavar is not broadly adopted for the treatment of unresectable liver cancer, our business
would be harmed. If our ongoing and planned clinical trials fail to demonstrate that Nexavar is
safe and effective for additional indications or we are unable to obtain necessary approvals for
other uses, we will be unable to expand the commercial market for Nexavar and our business may
fail.
The rate of adoption of Nexavar for unresectable liver cancer 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 as liver
cancer patients typically have underlying liver disease and other comorbidities and can be 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 limited or
unavailable, 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 achieve the market potential of
Nexavar in this indication, which could harm our business. In addition, certain countries require
pricing to be established before reimbursement for this indication may be obtained and in some
Asian Pacific countries in particular, these approvals require prolonged negotiations with the
governments. In addition, we may not receive or maintain pricing approvals at favorable levels or
at all, which could harm our ability to broadly market Nexavar.
Nexavar has not been approved in any indications other than unresectable liver cancer and advanced
kidney cancer. We and Bayer are currently conducting a number of clinical trials of Nexavar;
however, our clinical trials may fail to demonstrate that Nexavar is safe and effective in other
indications, and Nexavar may not gain additional regulatory approval, which would limit the
potential market for the product causing our business to fail.
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. Bayer and Onyx have conducted Phase 3 trials
in melanoma and non-small cell lung cancer, or NSCLC that were not successful. In addition, in the
NSCLC Phase 3 trial, higher mortality was observed in the subset of patients with squamous cell
carcinoma of the lung treated with Nexavar and carboplatin and paclitaxel than in the subset of
patients treated with carboplatin and paclitaxel alone. Based on this observation, further
enrollment of squamous cell carcinoma of the lung was suspended from other 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 could potentially delay clinical trial enrollment and would reduce the number of patients that could
potentially receive Nexavar. Regulatory requirements change over time, including acceptable
clinical endpoints. We may be unable to satisfy new requirements or expectations of regulatory
authorities and hence, Nexavar may never be approved in additional indications.
32
We face intense competition and many of our competitors have substantially greater experience and
resources than we have.
We are engaged in a rapidly changing and highly competitive field. We are seeking to develop and
market oncology products that face significant competition from other products and therapies that
currently exist or are being developed.
Nexavar faces significant competition. There are many existing approaches used in the treatment of
unresectable liver cancer including alcohol injection, radiofrequency ablation, chemoembolization,
cryoablation and radiation therapy. Several other therapies are in development, including
Bristol-Myers Squibbs brivanib, a Vascular Endothelial Growth Factor Receptor 2 (VEGFR 2)
inhibitor and regorafenib, to which we refer as fluoro-sorafenib, a multiple kinase inhibitor, and
which is the subject of litigation between us and Bayer. If Nexavar is unable to compete or be
combined successfully with existing approaches or if new therapies are developed for unresectable
liver cancer, our business would be harmed.
There are several competing therapies approved for the treatment of advanced kidney cancer,
including Sutent, a multiple kinase inhibitor marketed in the United States, the European Union and
other countries by Pfizer; Torisel, an mTOR inhibitor marketed in the United States, the European
Union and other countries by Wyeth; Avastin, an angiogenesis inhibitor approved for the treatment
of advanced kidney cancer in the United States and the European Union and marketed by Genentech, a
member of the Roche Group; Afinitor, an mTOR inhibitor marketed in the United States and the
European Union by Novartis; and GlaxoSmithKlines Votrient, a multiple kinase inhibitor recently
approved by the FDA. Nexavars U.S. market share in advanced kidney cancer has declined following
the introduction of these products into the market. Bayer is conducting clinical trials of
fluoro-sorafenib in kidney cancer. We expect competition to increase as additional products are
approved to treat advanced kidney cancer. The successful introduction of other new therapies,
including generic versions of competing therapies, to treat advanced kidney cancer could
significantly reduce the potential market for Nexavar in this indication.
Beyond unresectable liver cancer and advanced kidney cancer, 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 Bayer, Pfizer, Roche, Wyeth, Novartis International AG,
Amgen, AstraZeneca PLC, Astellas Pharma Inc., GlaxoSmithKline, Eli Lilly and several others. A
number of companies have agents such as small molecules or antibodies targeting 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.
A demonstrated survival benefit is often an important element in determining standard of care in
oncology. We did not demonstrate a statistically significant overall survival benefit for patients
treated with Nexavar in our Phase 3 kidney cancer trial, which we believe was due in part to the
crossover of patients from placebo to Nexavar during the conduct of our pivotal clinical trial.
Competitors with statistically significant overall survival data could be preferred in the
marketplace. The FDA approval of Nexavar permits Nexavar to be marketed as an initial, or
first-line, therapy and subsequent lines of therapy for the treatment of advanced kidney cancer,
but approvals in some other regions do not. For example, the European Union approval indicates
Nexavar only for advanced kidney cancer patients that have failed prior cytokine therapy or whose
physicians deem alternate therapies inappropriate. We may be unable to compete effectively against
competitive products with broader or different marketing authorizations in one or more countries.
Nexavar may face challenges and competition from generic products. Generic manufacturers may file
Abbreviated New Drug Applications, or ANDAs, in the U.S. seeking FDA authorization to manufacture
and market generic versions of Nexavar, together with Paragraph IV certifications that challenge
the scope, validity or enforceability of the Nexavar patents. If Bayer or we fail to timely file a
lawsuit against any ANDA filer, that ANDA filer may not be subject to an FDA stay, and upon
approval of the ANDA, the ANDA filer may elect to launch a generic version of Nexavar, thereby
harming our business. Even if a lawsuit is timely filed, Bayer and we may be unable to successfully
enforce and defend the Nexavar patents and we may face generic competition prior to expiration of
the Nexavar patents in 2020.
Similarly, outside the United States, generic companies or other competitors may challenge the
scope, validity or enforceability of the Nexavar patents, requiring Bayer and us to engage in
complex, lengthy and costly litigation or other proceedings. Generic companies may develop, seek
approval for, and launch generic versions of Nexavar. For example, a generic version of Nexavar has
been launched in Peru and Cipla recently received approval to launch its version of sorafenib in
India at a price that is significantly less than that charged for Nexavar in India. Bayer has
ongoing litigations with Cipla, including a patent infringement case in India, and has requested
the court to issue an injunction against Cipla. Bayer may be unsuccessful in defending or
enforcing the Nexavar patents in one or more countries and could face generic competition prior to
expiration of the Nexavar patents, which would harm our business.
33
We have not developed or marketed products for any hematological cancer, including multiple
myeloma, and may be at a disadvantage to our competitors. Carfilzomib, if approved for multiple
myeloma, would compete directly with products marketed by Millennium Pharmaceuticals, Inc., a
wholly owned subsidiary of Takeda Pharmaceutical Company Limited, Celgene Corporation and
potentially against agents currently in development for treatment of this disease by Merck & Co.
Inc., Bristol-Myers Squibb, Keryx Biopharmaceuticals, Inc., Nereus Pharmaceuticals Cephalon, Inc.,
and other companies.
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:
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discovering and patenting products;
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undertaking preclinical testing and human clinical trials;
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obtaining FDA and other regulatory approvals;
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manufacturing products; and
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marketing and obtaining reimbursement for products.
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Accordingly, our competitors may be more successful than we in any or all of these areas.
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.
We are dependent upon our collaborative relationship with Bayer to further develop, manufacture and
commercialize Nexavar. Bayers interest in other anti-cancer drugs, including fluoro-sorafenib, may
reduce its incentive to develop and commercialize Nexavar.
Our success 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 may be unable to continue development, manufacturing and marketing activities at our own
expense. If we were able to do so on our own, this would significantly increase our capital and
infrastructure requirements, would necessarily impose delays on development programs, may limit the
indications we are able to pursue and could prevent us from effectively developing and
commercializing Nexavar. Disputes with Bayer may delay or prevent us from further developing,
manufacturing or commercializing or increasing the sales of Nexavar, and could lead to additional
litigation or arbitration against Bayer, which could be time consuming and expensive.
We are subject to a number of risks associated with our dependence on our collaborative
relationship with Bayer, including:
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the outcome of our pending lawsuit against Bayer and the development and
commercialization by Bayer of fluoro-sorafenib;
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decisions by Bayer regarding the amount and timing of resource expenditures for the
development and commercialization of Nexavar;
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possible disagreements as to development plans, clinical trials, regulatory marketing or
sales;
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our inability to co-promote Nexavar in any country outside the United States, which makes
us solely dependent on Bayer to promote Nexavar in foreign countries;
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Bayers right to terminate the collaboration agreement on limited notice in certain
circumstances involving our insolvency or material breach of the agreement;
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loss of significant rights if we fail to meet our obligations under the collaboration
agreement;
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adverse regulatory or legal action against Bayer resulting from failure to meet
healthcare industry compliance requirements in the promotion and sale of Nexavar, including
federal and state reporting requirements;
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changes in key management personnel at Bayer, including Bayers representatives on the
collaborations executive team; and
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disagreements with Bayer regarding interpretation or enforcement of the collaboration
agreement.
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We have limited ability to direct Bayer in its promotion of Nexavar and we may be unable to obtain
any remedy against Bayer. Bayer may not have sufficient expertise to promote or obtain
reimbursement for oncology products in foreign countries and may fail to devote appropriate
resources to this task. In addition, 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. We are at risk with respect to the success or failure of Bayers
commercial decisions related to Nexavar as well as the extent to which Bayer succeeds in the
execution of its strategy.
Bayers development of other products, including fluoro-sorafenib, may affect Bayers incentives to
develop and commercialize Nexavar that are different from our own. Our litigation against Bayer
regarding fluoro-sorafenib, may be time consuming and expensive, and may be a distraction to our
management. If it is ultimately determined that Onyx has no rights to fluoro-sorafenib and if Bayer
obtains approval for this product, it would likely compete with and cannibalize sales of Nexavar,
thereby harming our business. Bayer has disclosed a clinical development plan for fluoro-sorafenib
that includes tumor types for which Nexavar has been approved (renal cell carcinoma and
hepatocellular carcinoma), as well as tumor types for which Nexavar is in development (colorectal
cancer and NSCLC). In 2010, we filed an amended complaint in our pending litigation against Bayer
to include an allegation that Bayer has prejudiced the value of Nexavar by reason of its interest
in other drugs, including fluoro-sorafenib; Bayer may continue to prejudice the value of 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, further development of
Nexavar could be delayed and we may be unable to fund the development costs on our own and may be
unable to find a new collaborator.
In addition, Bayer has the right, which it is not currently exercising, to nominate a member 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 not be able to effectively control the election of all members of the board of
directors and determine all corporate actions.
Moreover, we are highly dependent on Bayer for timely and accurate information regarding any
revenues realized from sales of Nexavar and the costs incurred in developing and selling it, 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 be required to record adjustments 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.
Our collaboration agreement with Bayer will terminate when patents expire that were issued in
connection with product candidates discovered under that agreement, or at the time when neither we
nor Bayer are entitled to profit sharing under that agreement, whichever is later. The worldwide
patents and patent applications covering Nexavar are owned by Bayer and certain Nexavar patents are
licensed to us through our collaboration agreement. We have no control over the filing, strategy,
or prosecution of the Nexavar patent applications nor of enforcement or defense of the Nexavar
patents outside the United States.
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 or
unintended consequences from our currency contracts.
A majority of Nexavar sales are generated outside of the United States, and a significant
percentage of Nexavar commercial and development expenses are incurred outside of the United
States. Under our collaboration agreement, when these sales and expenses are translated into U.S.
dollars by Bayer in determining amounts payable to us or payable by us, we are exposed to
fluctuations in foreign currency exchange rates. In July 2010 we began entering into transactions
to manage our exposure to fluctuations in foreign currency exchange rates. Such transactions may
expose us to the risk of financial loss in certain circumstances, including instances in which
there is a change in the expected differential between the underlying exchange rate in the
contracts and actual exchange rate.
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The primary foreign currencies in which we have exchange rate fluctuation exposure are the Euro and
the Japanese Yen. As we expand our business geographically, we could be exposed to exchange rate
fluctuation in other currencies. Exchange rates between these currencies and the U.S. dollar 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 may be unsuccessful in launching, maintaining adequate supply or obtaining reimbursement for
carfilzomib, if it receives regulatory approval.
In order to commercialize carfilzomib, if approved, we must ensure an adequate supply chain,
including validation of commercial manufacturing processes, build capabilities for managed care and
reimbursement by private and public insurers, and expand our U.S. sales force and must develop and
maintain an international sales, marketing and distribution infrastructure. We have limited
experience building and maintaining a commercialization infrastructure in the U.S., no experience
in building such an infrastructure internationally, and no experience in building or maintaining a
supply chain or managed care and reimbursement infrastructure, which is difficult and time
consuming, and requires substantial financial and other resources. Factors that may hinder our
efforts to expand our U.S. presences and develop an international sales, marketing, supply chain,
managed care and distribution infrastructure include:
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inability to recruit, retain and effectively manage adequate numbers of effective
sales and marketing, supply chain and managed care personnel;
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inability to establish or maintain relationships with pharmaceutical manufacturers,
suppliers, wholesalers, insurers and distributors;
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delay in launch due to the need to validate manufacturing processes;
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inability to sufficiently manufacture adequate quantities of our products;
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the inability of sales personnel to obtain access to or convince adequate numbers of
physicians to prescribe our products;
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the lack of complementary products to be offered by sales personnel, which may put us
at a competitive disadvantage relative to companies with more extensive product lines;
and
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unforeseen delays, costs and expenses associated with creating international
capabilities, including an international sales and marketing organization and
international supply chain and reimbursement capabilities.
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If serious adverse side effects are associated with Nexavar or carfilzomib, our business could be
harmed.
The FDA-approved package insert for Nexavar includes several warnings relating to observed adverse
reactions. With continued commercial use of Nexavar and additional clinical trials of Nexavar, we
and Bayer have updated and expect to continue to update adverse reactions listed in the package
insert to reflect current information. 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. 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 plan to seek regulatory approval of
carfilzomib, and we expect that its package insert will include information related to safety and
adverse events.
If previously unforeseen and unacceptable side effects are observed in Nexavar or carfilzomib, we
may be unable to proceed with further clinical trials, to seek regulatory approval in one or more
indications, or to realize full commercial benefits of our products. In our clinical trials, we may
treat patients with Nexavar or carfilzomib as a single agent or in combination with other
therapies. During the course of treatment, these patients may die or suffer adverse medical effects
for reasons unrelated to our products, including adverse effects related to the products that are
administered in combination with our products. These adverse effects may impact the interpretation of clinical trial results, which could lead to adverse conclusions regarding the
toxicity or efficacy of Nexavar or carfilzomib.
36
We are dependent on Bayer and third parties to manufacture and distribute our products, and do not
have the manufacturing expertise or capabilities to manufacture or distribute any current or future
products.
Under our collaboration agreement with Bayer, Bayer has the manufacturing responsibility to supply
Nexavar for clinical trials and for commercialization. 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. In addition, we have manufacturing responsibility for carfilzomib and ONX 0912, which we
currently manufacture through third-party contract manufacturers, and have not yet established
back-up manufacturers for these compounds.
We lack the resources, experience and capabilities to manufacture Nexavar, carfilzomib or any other
product candidate on our own and would require substantial funds and time to establish these
capabilities. Consequently, we are, and expect to remain, dependent on third parties for
manufacturing. These parties may encounter difficulties and delays in production scale-up,
production yields, control and quality assurance, validation, regulatory status or shortage of
qualified personnel. They may not perform as agreed or may not continue to manufacture our products
for the time required to test or market our products. They may fail to deliver the required
quantities of our products or product candidates on a timely basis and at commercially reasonable
prices. For example, we utilize a sole manufacturer for carfilzomib, and if this manufacturer
became unable to deliver our required quantities of carfilzomib on a timely basis, or ceased
production, we would experience delays in the clinical trial schedule of our drugs and drug
candidates, the regulatory approval process, ability to timely ship product, and may be required to
find an alternative manufacturer. In addition, marketed drugs and their contract manufacturing
organizations are subject to continual review, including review and approval of their manufacturing
facilities and the manufacturing processes, which can result in delays in the regulatory approval
process. For example, in October 2010, we announced a delay in our planned NDA filing for
accelerated approval of carfilzomib from 2010 to no earlier than the middle of 2011. The delay was
based on pre-NDA discussions with the Chemistry, Manufacturing and Controls, or CMC, reviewing
division of the FDA regarding CMC information to support the commercial manufacturing of
carfilzomib.
In addition, discovery of previously unknown problems with a medicine may result in restrictions on
its permissible uses, or on the manufacturer, including withdrawal of the medicine from the market.
The FDA and similar foreign regulatory authorities may also implement additional new standards, or
change their interpretation and enforcement of existing standards and requirements for the
manufacture, packaging or testing of products at any time. Manufacturing processes and facilities
for pharmaceutical products are highly regulated. Regulatory authorities may chose not to certify
or may impose restrictions, or even shut down existing manufacturing facilities which they
determine are non-compliant. If we or our third party manufacturers are unable to comply, we may be
unable to obtain regulatory approval, or if we fail to maintain regulatory approval, this will
impair our ability to meet the market demand for our approved drugs, delay ongoing clinical trials
of our product candidates or delay our drug 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. In addition, we could be
subject to regulatory or civil actions or penalties that could significantly and adversely affect
our business.
Our success also 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:
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not provide us accurate or timely information regarding their inventories, the number of
patients who are using Nexavar or complaints about Nexavar;
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reduce their efforts or discontinue to sell or support or otherwise not effectively sell
or support Nexavar;
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not devote the resources necessary to sell Nexavar in the volumes and within the time
frames that we expect;
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be unable to satisfy financial obligations to us or others; and/or
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cease operations.
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37
We are subject to extensive government regulation, which can be costly, time consuming and subject
us to unanticipated delays. We may incur significant liability if it is determined that we are in
violation of federal and state regulations related to the promotion of drugs in the United States
or elsewhere.
If we have disagreements with Bayer regarding ownership of clinical trial results or regulatory
approvals for Nexavar, and the FDA refuses to recognize Onyx as holding, or having access to, the
regulatory approvals necessary to commercialize Nexavar, we may experience delays in or be
precluded from marketing Nexavar.
For carfilzomib, we are responsible for managing communications with regulatory agencies, including
filing investigational new drug applications, filing new drug applications, submission of
promotional materials and generally directing the regulatory processes. We have limited experience
directing such activities and may not be successful with our planned development strategies, on the
planned timelines, or at all. Even if carfilzomib or any other product candidate is designated for
fast track or priority review status or if we seek approval under accelerated approval (Subpart
H) regulations, such designation or approval pathway does not necessarily mean a faster development
process or regulatory review process or necessarily confer any advantage with respect to approval
compared to conventional FDA procedures. If we fail to conduct any required post-approval studies
or if the studies fail to verify that any of our product candidates are safe and effective, our FDA
approval could be revoked.
If we or Bayer 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.
To date, the FDA has approved Nexavar only for the treatment of advanced kidney cancer and
unresectable liver cancer. Physicians are not prohibited from prescribing Nexavar for the treatment
of diseases other than advanced kidney cancer or unresectable liver cancer, however, we and Bayer
are prohibited from promoting Nexavar for any non-approved indication, often called off label
promotion. The FDA and other regulatory agencies actively enforce regulations prohibiting off label
promotion and the promotion of products for which marketing authorization has not been obtained. A
company that is found to have improperly promoted an off label use 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 medical and
scientific communication concerning their products. We engage in the support of medical education
activities and engage investigators and potential investigators interested in 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.
The market may not accept our products and we may be subject to pharmaceutical pricing and
third-party reimbursement pressures.
Nexavar, carfilzomib or our product candidates that may be approved may not gain market acceptance
among physicians, patients, healthcare payers and/or the medical community or the market may not be
as large as forecasted. A significant factor that affects market acceptance of our products 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 payers, such as
government and private health insurers and managed care organizations. Third-party payers 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, carfilzomib, if
approved, or any other future product. Governments outside of the US may increase their use of
risk-sharing programs, which will only pay for a drug after it demonstrates efficacy in a given
patient. In addition, governments may increasingly rely on Heath Technology Assessments to
determine payment policy for cancer drugs. Health Technology Assessments are used by governments to
assess if health services are safe and cost-effective. In addition, the market for our products may
be limited by third-party payers who establish lists of approved products and do not provide
reimbursement for products not listed. If our products are not on the approved lists in one or more
countries, our sales may suffer. Non-government organizations can influence the use of our products
and reimbursement decisions for our products in the United States and elsewhere. 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.
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Nexavars success in Europe and other regions, particularly in Asia Pacific, will also depend
largely on obtaining and maintaining government reimbursement. For example, in Europe and in many
other international markets, most 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 sales and profitability of Nexavar. In addition, in Europe and 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. In the
Asia-Pacific region, excluding Japan, China leads in Nexavar sales, however, reimbursement
typically requires multiple steps. Also, in December 2009, health authorities in China published a
new National Reimbursement Drug List, or NRDL, which lists medicines that are expected to be sold
at government-controlled prices. There were no targeted oncology drugs, including Nexavar, on the
NRDL, however, we believe that the Ministry of Human Resource and Social Security, the group
responsible for developing the NDRL, plans to establish a mechanism and framework for reimbursement
of high-value innovative products, such as targeted oncology drugs. 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 and commercialization of our
products, including the following:
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rate of adoption by healthcare practitioners;
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treatment guidelines issued by government and non-government agencies;
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types of cancer for which the product is approved;
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rate of a products acceptance by the target patient population;
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timing of market entry relative to competitive products;
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availability of alternative therapies;
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price of our product relative to alternative therapies, including generic versions of our
products, or generic versions of innovative products that compete with our products;
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patients reliance on patient assistance programs, under which we provide free drug;
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extent of marketing efforts by us and third-party distributors or agents retained by us;
and
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side effects or unfavorable publicity concerning our products or similar products.
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If Nexavar, carfilzomib or any of our future products do not achieve market acceptance, we may not
realize sufficient revenues from product sales, which may cause our stock price to decline.
We may not be able to realize the potential financial or strategic benefits of our acquisition
of Proteolix, or any future business acquisitions or strategic investments, which could hurt our
ability to grow our business, develop new products or sell our products.
In 2009 we acquired Proteolix, and in the future we may enter into other acquisitions of, or
investments in, businesses, in order to complement or expand our current business or enter into a
new product area. Achieving the anticipated benefits of the Proteolix acquisition, or any future
acquisition, depends upon the successful integration of the acquired business operations and
personnel in a timely and efficient manner. The difficulties of integration include, among others:
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consolidating research and development operations;
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retaining key employees;
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consolidating corporate and administrative infrastructures, including integrating and
managing information technology and other support systems and processes;
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preserving relationships with third parties, such as regulatory agencies, clinical
investigators, key opinion leaders, clinical research organizations, contract manufacturing
organizations, licensors and suppliers;
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appropriately identifying and managing the liabilities of the combined company;
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utilizing potential tax assets of the acquired business; and
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managing risks associated with acquired facilities, including environmental risks and
compliance with laws regulating laboratories.
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We cannot assure stockholders that we will receive any benefits of the Proteolix acquisition or any
other merger or acquisition, or that any of the difficulties described above will not adversely
affect us. In addition, integration efforts, such as those for Proteolix, place a significant
burden on our management and internal resources, which could result in delays in clinical trial and
product development programs and otherwise harm our business, financial condition and operating
results.
Negotiations associated with an acquisition or strategic investment could divert managements
attention and other company resources. Any of the following risks associated with future
acquisitions or investments could impair our ability to grow our business, develop new products, or
sell Nexavar or carfilzomib, and ultimately could have a negative impact on our growth or our
financial results:
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difficulty in operating in a new or multiple new locations;
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difficulty in realizing the potential financial or strategic benefits of the transaction;
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difficulty in maintaining uniform standards, controls, procedures and policies;
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disruption of or delays in ongoing research, clinical trials and development efforts;
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diversion of capital and other resources;
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assumption of liabilities and unanticipated expenses resulting from litigation arising
from potential or actual business acquisitions or investments; and
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difficulties in entering into new markets in which we have limited or no experience and
where competitors in such markets have stronger positions.
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In addition, the consideration for any future acquisition could be paid in cash, shares of our
common stock, the issuance of convertible debt securities or a combination of cash, convertible
debt and common stock. If we make an investment in cash or use cash to pay for all or a portion of
an acquisition, our cash and investment balances would be reduced which could negatively impact our
liquidity, the growth of our business or our ability to develop new products. However, if we pay
the consideration with shares of common stock, or convertible debentures, the holdings of our
existing stockholders would be diluted. The significant decline in the trading price of our common
stock would make the dilution to our stockholders more extreme and could negatively impact our
ability to pay the consideration with shares of common stock or convertible debentures. We cannot
forecast the number, timing or size of future strategic investments or acquisitions, or the effect
that any such investments or acquisitions might have on our operations or financial results.
If we lose our key employees or are unable to attract or retain qualified personnel, our business
could suffer. Our recent move of our headquarters may cause additional disruption and turnover of
employees.
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. Any of our key personnel could terminate their
employment with us at any time and without notice. We depend on our continued ability to attract,
retain and motivate highly qualified personnel. We face competition for qualified individuals from
numerous pharmaceutical and biotechnology companies, universities and other research institutions.
In order to succeed in our research and development efforts, we will need to continue to hire
individuals with the appropriate scientific skills.
In April 2011, we moved our corporate headquarters from Emeryville, California to South San
Francisco, California. As a result, we expect to incur additional expenses, including exit costs,
and may encounter disruption of operations related to the move, all of which could have an adverse
effect on our financial condition and results of operations. In addition, relocation of our
corporate headquarters may make it more difficult to retain certain of our employees, and any
resulting need to recruit and train new employees could be disruptive to our business.
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Provisions in our collaboration agreement with Bayer may impact certain change in control
transactions.
Our collaboration agreement with Bayer provides that if we are acquired by another entity by reason
of merger, consolidation or sale of all or substantially all of our assets, or if a single entity
other than Bayer or its affiliate acquires ownership of a majority of the Companys outstanding
voting stock, and Bayer does not consent to the transaction, then for 60 days following the
transaction, Bayer may elect to terminate our 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, we, or our successor, would receive a royalty based
on any sales of Nexavar and other collaboration products, rather than a share of any profits. Under
the royalty formula, an acquisition transaction that occurred prior to the fifth anniversary of the
initial regulatory approval of Nexavar, or December 20, 2010, could have substantially reduced the
economic value derived from the sales of Nexavar to us or our successor as compared to the economic
value of the profit share interest we would have received absent such an acquisition. However, for
an acquisition transaction that closes after December 20, 2010, we believe the economic value of
the royalty amount, which would depend in part on the expected profitability of Nexavar for the
remaining patent life of Nexavar, could be substantially equivalent to the economic value of the
profit share interest for Nexavar during the remaining patent life absent such an acquisition
transaction. Bayer has notified us that they disagree with this conclusion.
The potential for disagreements and disputes with Bayer regarding interpretation and implementation
of these provisions could have the effect of delaying or preventing a change in control, or a sale
of all or substantially all of our assets, or could reduce the number of companies interested in
acquiring us. However, we believe that a reorganization transaction in which the persons who held
majority ownership of Onyx prior to the transaction continue to hold majority ownership of Onyx,
directly or through a parent company, after the transaction would be outside the scope of the
foregoing provision of the collaboration agreement. Moreover, we believe that a merger transaction
in which Onyx was the surviving entity would also be outside the scope of the foregoing provision
of the collaboration agreement.
Healthcare policy changes, including recently enacted legislation, may have a material adverse
effect on us.
Healthcare costs have risen significantly over the past decade. On March 23, 2010, the President
signed one of the most significant health care reform measures in decades. The Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation
Act (collectively, the Healthcare Reform Act), substantially changes the way health care is
financed by both governmental and private insurers, and significantly impacts the pharmaceutical
industry. The Healthcare Reform Act contains a number of provisions, including those governing
enrollment in federal healthcare programs, the increased use of comparative effectiveness research
on healthcare products, reimbursement and fraud and abuse changes, which will impact existing
government healthcare programs and will result in the development of new programs. A significant
portion of the U.S. Nexavar revenue recorded by Bayer is derived from U.S. government healthcare
programs, including Medicare. An expansion in the governments role in the U.S. healthcare industry
may lower reimbursements for pharmaceutical products and adversely affect our business and results
of operations. Furthermore, beginning in 2011, the Healthcare Reform Act will impose a
non-deductible excise tax on pharmaceutical manufacturers or importers who sell branded
prescription drugs, which includes innovator drugs and biologics (excluding orphan drugs or
generics) to U.S. government programs.
In addition to this recently enacted legislation, there are expected to be other proposals by
legislators at both the federal and state levels, regulators and third-party payors to keep
healthcare costs down while expanding individual healthcare benefits. Certain of these anticipated
changes could impose limitations on the prices we or our collaborators will be able to charge for
our products or the amounts of reimbursement available for these products from governmental
agencies or third-party payors or may increase the tax requirements for pharmaceutical companies
such as ours. While it is too early to predict what affect the recently enacted Health Reform Act
or any future legislation or regulation will have on us, such laws could have a material adverse
effect on our business, financial position and results of operations.
We may need additional funds, our future access to capital is uncertain, and unstable market and
economic conditions may have serious adverse consequences on our business.
We may need additional funds to conduct the costly and time-consuming activities related to the
development and commercialization of Nexavar and carfilzomib, including manufacturing, clinical
trials and regulatory approval. Also, we may need funds to develop our early stage product
candidates, to acquire rights to additional product candidates, or acquire new or complementary
businesses. Our future capital requirements will depend upon a number of factors, including:
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revenue from our product sales;
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global product development and commercialization activities;
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the cost involved in enforcing patents against third parties and defending claims by
third parties;
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the costs associated with acquisitions or licenses of additional products;
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the cost of acquiring new or complementary businesses;
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competing technological and market developments; and
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future fee and milestone payments to BTG and former stockholders of Proteolix.
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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 2011. However, if we change our development plans, acquire rights
to or license additional products, or seek to acquire new or complementary businesses, we may need
additional funds sooner than we expect. In addition, we anticipate that our expenses related to
carfilzomib and our share of expenses under our collaboration with Bayer will increase over the
next several years. While these costs are unknown at the current time, we may need to raise
additional capital and may be unable to do so.
Our general business may be adversely affected by the recent economic downturn and volatile
business environment and continued unpredictable and unstable market conditions. If the current
equity and credit markets do not sustain improvement or begin to deteriorate again, it may make any
necessary future debt or equity financing more difficult, more costly and more dilutive, and may
result in adverse changes to product reimbursement and pricing and sales levels, which would harm
our operating results. Failure to secure any necessary financing in a timely manner and on
favorable terms could have a material adverse effect on our growth strategy, financial performance
and stock price and could require us to delay or abandon clinical development plans or plans to
acquire additional technology. There is also a possibility that our stock price may decline, due in
part to the volatility of the stock market and the general economic downturn, such that we would
lose our status as a Well-Known Seasoned Issuer, which allows us to more rapidly and more
cost-effectively raise funds in the public markets.
Additionally, other challenges resulting from the current economic environment include fluctuations
in foreign currency exchange rates, global pricing pressures, increases in national unemployment
impacting patients ability to access drugs, increases in uninsured or underinsured patients
affecting their ability to afford pharmaceutical products and increased U.S. free goods to
patients. There is a risk that one or more of our current service providers, manufacturers and
other partners may not survive these difficult economic times, which would directly affect our
ability to attain our operating goals on schedule and on budget. Further dislocations in the credit
market may adversely impact the value and/or liquidity of marketable securities owned by us.
We incurred significant indebtedness through the sale of our 4.0% convertible senior notes due
2016, and we may incur additional indebtedness in the future. The indebtedness created by the sale
of the notes and any future indebtedness we incur exposes us to risks that could adversely affect
our business, financial condition and results of operations.
We incurred $230.0 million of senior indebtedness in August 2009 when we sold $230.0 million
aggregate principal amount of 4.0% convertible senior notes due 2016, or the 2016 Notes. We may
also incur additional long-term indebtedness or obtain additional working capital lines of credit
to meet future financing needs. Our indebtedness could have significant negative consequences for
our business, results of operations and financial condition, including:
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increasing our vulnerability to adverse economic and industry conditions;
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limiting our ability to obtain additional financing;
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requiring the dedication of a substantial portion of our cash flow from operations to
service our indebtedness, thereby reducing the amount of our cash flow available for other
purposes;
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limiting our flexibility in planning for, or reacting to, changes in our business; and
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placing us at a possible competitive disadvantage with less leveraged competitors and
competitors that may have better access to capital resources.
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We cannot assure stockholders that we will continue to maintain sufficient cash reserves or that
our business will continue to generate cash flow from operations at levels sufficient to permit us
to pay principal, premium, if any, and interest on our indebtedness, or that our cash needs will
not increase. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary
to make required payments, or if we fail to comply with the various requirements of the 2016 Notes,
or any indebtedness which we may incur in the future, we would be in default, which would permit
the holders of the 2016 Notes and such other indebtedness to accelerate the maturity of the notes
and such other indebtedness and could cause defaults under the 2016 Notes and such other
indebtedness. Any default under the notes or any indebtedness which we may incur in the future
could have a material adverse effect on our business, results of operations and financial
condition.
In the event the conditional conversion features of the 2016 Notes are triggered, holders of the
2016 Notes will be entitled to convert the 2016 Notes at any time during specified periods at their
option. If one or more holders elect to convert their 2016 Notes, unless we elect to satisfy our
conversion obligation by delivering solely shares of our common stock, we would be required to make
cash payments to satisfy all or a portion of our conversion obligation based on the applicable
conversion rate, which could adversely affect our liquidity. In addition, even if holders do not
elect to convert their 2016 Notes, we could be required under applicable accounting rules to
reclassify all or a portion of the outstanding principal of the 2016 Notes as a current rather than
long-term liability, which could result in a material reduction of our net working capital.
We face product liability risks and may not be able to obtain adequate insurance.
The sale of Nexavar and the use of it and other products and product candidates in clinical trials
expose us to product liability claims. In the United States, FDA approval of a drug may not offer
protection from liability claims under state law (i.e., federal preemption defense), the tort
duties for which may vary state to state. If we cannot successfully defend ourselves against
product liability claims, we may incur substantial liabilities or be required to limit
commercialization of Nexavar and/or future products.
We may not be able to maintain product liability 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.
Whether or not we are insured, a product liability claim or product recall may result in
significant losses. Regardless of merit or eventual outcome, product liability claims may result
in:
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decreased demand for a product;
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injury to our reputation;
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distraction of management;
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withdrawal of clinical trial volunteers; and
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loss of revenues.
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We or Bayer may not be able to protect or enforce our or their intellectual property and we may not
be able to operate our business without infringing 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, effectively maintained as trade secrets, or
otherwise protected as confidential information or know-how. We depend in part on our ability to:
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obtain patents;
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license technology rights from others;
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protect trade secrets;
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operate without infringing upon the proprietary rights of others; and
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prevent others from infringing on our proprietary rights, particularly generic drug
manufacturers.
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Patents and patent applications covering Nexavar are owned by Bayer. Those Nexavar patents that
arose out of our collaboration agreement with Bayer are licensed to us, including two United States
patents covering Nexavar and pharmaceutical compositions of Nexavar. Both patents will expire
January 12, 2020. These two patents are listed in the FDAs Approved Drug Product List (Orange
Book). Based on publicly available information, Bayer also has patents in several European
countries covering Nexavar, which will expire in 2020. Bayer has other patents and patent
applications 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 extension, 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. We cannot be certain that these
issued patents and future patents if they issue will provide adequate protection for Nexavar or
will not be challenged by third parties in connection with the filing of an ANDA, or otherwise.
Similarly, we cannot be certain that the patents and patent applications acquired in the Proteolix
acquisition, or licensed to us by any licensor, will provide adequate protection for carfilzomib or
any other product, or will not be challenged by third parties in connection with the filing of an
ANDA, or otherwise. The patents related to carfilzomib and 0912 will begin to expire in 2025 and
2027, respectively. Third parties may claim to have rights in the assets that we acquired with
Proteolix, including carfilzomib, or to have intellectual property rights that will be infringed by
our commercialization of the assets that we acquired with Proteolix. For example, an academic
institution has notified us that it believes carfilzomib is covered
by its intellectual property and that
it is owed certain payments. While we disagree with this academic institutions assertions and
will defend our position, such efforts could be expensive and time-consuming and ultimately may not
be successful. If third parties were to succeed in such claims, our business and company could be
harmed.
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. Third party patents may cover the materials, methods of treatment or dosage related to
our product, or compounds to be used in combination with our products; those third parties may make
allegations of infringement. We cannot provide assurances that our products or activities, or those
of our licensors or licensees, will not infringe patents or other intellectual property owned by
third parties. Competitors may have independently developed technologies similar or complementary
to ours, including compounds to be used in combination with our products. We may need to license
the right to use third-party patents and intellectual property to develop and market our product
candidates. We may be unable to 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 in
the United States Patent and Trademark Office. These activities are uncertain, making any outcome
difficult to predict and costly and may be a substantial distraction for our management team.
Bayer may have rights to publish data and information in which we have rights. In addition, we
sometimes engage individuals, entities or consultants, including clinical investigators, to conduct
research that may be relevant to our business. The ability of these third parties to publish or
otherwise publicly disclose information generated during the course of their research is subject to
certain contractual limitations; however, these contracts may be breached and we may not have
adequate remedies for any such breach. If we do not apply for patent protection prior to
publication or if we cannot otherwise maintain the confidentiality of our confidential information,
then our ability to receive patent protection or protect our proprietary information will be
harmed.
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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. The requirements for patentability may differ in certain
countries, particularly developing countries. In 2009, we became
aware that a third-party had filed an opposition proceeding with the Chinese patent office to invalidate the
patent that covers Nexavar. Unlike other countries, China has a heightened requirement for
patentability, and specifically requires a detailed description of medical uses of a claimed drug,
such as Nexavar. Bayer also has a patent in India that covers Nexavar. Cipla Limited, an Indian
generic drug manufacturer, applied to the Drug Controller General of India (DCGI) for market
approval for Nexavar, which Bayer sought to block based on its patent. Bayer sued the DCGI and
Cipla Limited in the Delhi High Court requesting an injunction to bar the DCGI from granting Cipla
Limited market authorization. The Court ruled against Bayer, stating that in India, unlike the
U.S., there is no link between regulatory approval of a drug and its patent status. Bayer appealed,
which it recently lost. Consequently, Bayer has appealed to the Indian Supreme Court, and has filed
a patent infringement suit against Cipla that is currently pending before the Delhi high court.
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 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.
If we use hazardous or potentially hazardous materials in a manner that causes injury or violates
applicable law, we may be liable for damages.
Our research and development activities involve the controlled use of hazardous or potentially
hazardous materials, including chemical, biological and radioactive materials. In addition, our
operations produce hazardous waste products. Federal, state and local laws and regulations govern
the use, manufacture, storage, handling and disposal of hazardous materials. We may incur
significant additional costs to comply with these and other applicable laws in the future. Also,
even if we are in compliance with applicable laws, we cannot completely eliminate the risk of
contamination or injury resulting from hazardous materials and we may incur liability as a result
of any such contamination or injury. In the event of an accident, we could be held liable for
damages or penalized with fines, and the liability could exceed our resources. We do not have any
insurance for liabilities arising from hazardous materials. Compliance with applicable
environmental laws and regulations is expensive, and current or future environmental regulations
may impair our research, development and manufacturing efforts, which could harm our business.
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 security becomes illiquid. In the event of an auction failure, we are not able to access these
funds until a future auction on these securities is successful. We have reclassified these
securities from current to non-current marketable securities, 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 marketable securities through an impairment charge to earnings.
Existing stockholders have significant influence over us.
Our executive officers, directors and 5% stockholders own, in the aggregate, approximately 21% 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.
45
Provisions in the indenture for the 2016 Notes may deter or prevent a business combination.
If a fundamental change occurs prior to the maturity date of the 2016 Notes, holders of the notes
will have the right, at their option, to require us to repurchase all or a portion of their notes.
In addition, if a fundamental change occurs prior to the maturity
date of 2016 Notes, we will in some cases be required to increase the conversion rate for a holder that elects
to convert its notes in connection with such fundamental change. In addition, the indenture for the
notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the
surviving entity assumes our obligations under the 2016 Notes. These and other provisions could
prevent or deter a third party from acquiring us even where the acquisition could be beneficial to
our stockholders.
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 a Delaware corporation 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 corporations outstanding voting stock, for three years following the
date that the stockholder acquired 15% or more of the corporations stock unless:
|
|
|
the board of directors approved the transaction where the stockholder acquired 15% or
more of the corporations stock;
|
|
|
|
|
after the transaction in which the stockholder acquired 15% or more of the corporations
stock, the stockholder owned at least 85% of the corporations 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:
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our board is classified into three classes of directors as nearly equal in size as
possible with staggered three-year terms;
|
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|
|
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;
|
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all stockholder actions must be effected at a duly called meeting of stockholders and not
by written consent;
|
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|
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
|
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|
|
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 officers employment is terminated within 24 months of a change in
control. 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.
46
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. (Removed and Reserved)
Item 5. Other Information.
Not applicable.
Item 6. Exhibits.
|
|
|
2.1(1)*
|
|
Agreement and Plan of Merger dated as of October 10, 2009 among the Company, Proteolix, Inc.,
Profiterole Acquisition Corp., and Shareholder Representative Services LLC.
|
|
|
|
2.2(2)
|
|
Amendment No. 1 to Agreement and Plan of Merger dated as of January 27, 2011 between the Company and
Shareholder Representative Services LLC.
|
|
|
|
3.1(3)
|
|
Restated Certificate of Incorporation of the Company.
|
|
|
|
3.2(4)
|
|
Amended and Restated Bylaws of the Company.
|
|
|
|
3.3(5)
|
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation.
|
|
|
|
3.4(6)
|
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation.
|
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|
|
4.1
|
|
Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
|
|
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|
4.2(3)
|
|
Specimen Stock Certificate.
|
|
|
|
4.3(7)
|
|
Indenture dated as of August 12, 2009 between the Company and Wells Fargo Bank, National Association.
|
|
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|
4.4(7)
|
|
First Supplemental Indenture dated as of August 12, 2009 between the Company and Wells Fargo Bank,
National Association.
|
|
|
|
4.5(7)
|
|
Form of 4.00% Convertible Senior Note due 2016.
|
|
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|
10.1(i)
|
|
Collaboration Agreement between Bayer Corporation (formerly Miles, Inc.) and the Company dated April
22, 1994.
|
|
|
|
10.13(v)+
|
|
Form of Stock Unit Award Grant Notice and Agreement between the Company and certain award recipients.
|
|
|
|
10.22(ii)
|
|
Amendment to Exhibit A of License and Supply Agreement dated as of October 12, 2005, by and between
CyDex Pharmaceuticals, Inc. (formerly CyDex, Inc.) and Proteolix, Inc., as amended.
|
|
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|
31.1(8)
|
|
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.
|
|
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|
31.2(8)
|
|
Certification of Chief 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(8)
|
|
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).
|
|
|
|
101***
|
|
The following materials from Registrants Quarterly Report on Form 10-Q for the quarter ended March
31, 2011, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed
Consolidated Balance Sheets at March 31, 2011 and December 31, 2010, (ii) Condensed Consolidated
Statements of Income for the Three Months Ended March 31, 2011 and 2010, (iii) Condensed
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010, and (iv)
Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.
|
47
|
|
|
|
|
Confidential treatment requested as to certain portions, which portions were omitted and
filed separately with the Securities and Exchange Commission.
|
|
*
|
|
Certain schedules related to identified agreements and persons have been omitted pursuant to
Item 601(b)(2) of Regulation S-K. The Company undertakes to furnish supplemental copies of any
of the omitted schedules upon request by the Securities and Exchange Commission.
|
|
+
|
|
Management contract or compensatory plan.
|
|
(1)
|
|
Filed as an exhibit to the Companys Current Report on Form 8-K filed on October 13, 2009.
|
|
(2)
|
|
Filed as an exhibit to the Companys Current Report on Form 8-K filed on February 2, 2011.
|
|
(3)
|
|
Filed as an exhibit to the Companys Registration Statement on Form SB-2 (No. 333-3176-LA).
|
|
(4)
|
|
Filed as an exhibit to Companys Current Report on Form 8-K filed on December 5, 2008.
|
|
(5)
|
|
Filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
|
|
(6)
|
|
Filed as an exhibit to the Companys Registration Statement on Form S-3 (No. 333-134565) filed on May 30, 2006.
|
|
(7)
|
|
Filed as an exhibit to Companys Current Report on Form 8-K filed on August 12, 2009.
|
|
(8)
|
|
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.
|
|
***
|
|
XBRL information is furnished and not filed or a part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Exchange Act of 1933, as
amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, and otherwise is not subject to liability under these sections.
|
48
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
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|
ONYX PHARMACEUTICALS, INC.
|
|
Date: May 10, 2011
|
By:
|
/s/ N. Anthony Coles
|
|
|
|
N. Anthony Coles
|
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|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
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|
|
Date: May 10, 2011
|
By:
|
/s/ Matthew K. Fust
|
|
|
|
Matthew K. Fust
|
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
49
EXHIBIT INDEX
|
|
|
2.1(1)*
|
|
Agreement and Plan of Merger dated as of October 10, 2009 among the Company, Proteolix, Inc.,
Profiterole Acquisition Corp., and Shareholder Representative Services LLC.
|
|
|
|
2.2(2)
|
|
Amendment No. 1 to Agreement and Plan of Merger dated as of January 27, 2011 between the Company and
Shareholder Representative Services LLC.
|
|
|
|
3.1(3)
|
|
Restated Certificate of Incorporation of the Company.
|
|
|
|
3.2(4)
|
|
Amended and Restated Bylaws of the Company.
|
|
|
|
3.3(5)
|
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation.
|
|
|
|
3.4(6)
|
|
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(3)
|
|
Specimen Stock Certificate.
|
|
|
|
4.3(7)
|
|
Indenture dated as of August 12, 2009 between the Company and Wells Fargo Bank, National Association.
|
|
|
|
4.4(7)
|
|
First Supplemental Indenture dated as of August 12, 2009 between the Company and Wells Fargo Bank,
National Association.
|
|
|
|
4.5(7)
|
|
Form of 4.00% Convertible Senior Note due 2016.
|
|
|
|
10.1(i)
|
|
Collaboration Agreement between Bayer Corporation (formerly Miles, Inc.) and the Company dated April
22, 1994.
|
|
|
|
10.13(v)+
|
|
Form of Stock Unit Award Grant Notice and Agreement between the Company and certain award recipients.
|
|
|
|
10.22(ii)
|
|
Amendment to Exhibit A of License and Supply Agreement dated as of October 12, 2005, by and between
CyDex Pharmaceuticals, Inc. (formerly CyDex, Inc.) and Proteolix, Inc., as amended.
|
|
|
|
31.1(8)
|
|
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(8)
|
|
Certification of Chief 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(8)
|
|
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).
|
|
|
|
101***
|
|
The following materials from Registrants Quarterly Report on Form 10-Q for the quarter ended March
31, 2011, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed
Consolidated Balance Sheets at March 31, 2011 and December 31, 2010, (ii) Condensed Consolidated
Statements of Income for the Three Months Ended March 31, 2011 and 2010, (iii) Condensed
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010, and (iv)
Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.
|
|
|
|
|
|
Confidential treatment requested as to certain portions, which portions were omitted and
filed separately with the Securities and Exchange Commission.
|
|
*
|
|
Certain schedules related to identified agreements and persons have been omitted pursuant to
Item 601(b)(2) of Regulation S-K. The Company undertakes to furnish supplemental copies of any
of the omitted schedules upon request by the Securities and Exchange Commission.
|
|
+
|
|
Management contract or compensatory plan.
|
|
(1)
|
|
Filed as an exhibit to the Companys Current Report on Form 8-K filed on October 13, 2009.
|
|
(2)
|
|
Filed as an exhibit to the Companys Current Report on Form 8-K filed on February 2, 2011.
|
50
|
|
|
(3)
|
|
Filed as an exhibit to the Companys Registration Statement on Form SB-2 (No. 333-3176-LA).
|
|
(4)
|
|
Filed as an exhibit to the Companys Current Report on Form 8-K filed on December 5, 2008.
|
|
(5)
|
|
Filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
|
|
(6)
|
|
Filed as an exhibit to the Companys Registration Statement on Form S-3 (No. 333-134565) filed on May 30, 2006.
|
|
(7)
|
|
Filed as an exhibit to Companys Current Report on Form 8-K filed on August 12, 2009.
|
|
(8)
|
|
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.
|
|
***
|
|
XBRL information is furnished and not filed or a part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Exchange Act of 1933, as
amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, and otherwise is not subject to liability under these sections.
|
51
Exhibit 10.1(i)
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF
THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
COLLABORATION AGREEMENT
BETWEEN
MILES INC.
AND
ONYX PHARMACEUTICALS, INC.
TABLE OF CONTENTS
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Page
|
|
CHAPTER 1
|
|
|
2
|
|
Article
1
Defined Terms
|
|
|
2
|
|
1.1
Advertising and Education\
|
|
|
2
|
|
1.2
Advertising and Education Expense\
|
|
|
2
|
|
1.3
Affiliate\
|
|
|
2
|
|
1.4
Allocable Overhead Costs\
|
|
|
3
|
|
1.5
Allowable Expenses\
|
|
|
3
|
|
1.6
Analoging Program\
|
|
|
3
|
|
1.7
Back-Up Compound\
|
|
|
3
|
|
1.8
Clinical Development Period\
|
|
|
3
|
|
1.9
Collaboration Compound\
|
|
|
3
|
|
1.10
Collaboration Product\
|
|
|
4
|
|
1.11
Collaboration Revenue\
|
|
|
4
|
|
1.12
Control\
|
|
|
4
|
|
1.13
Cost of Goods Sold\
|
|
|
4
|
|
1.14
Co-Development\
|
|
|
4
|
|
1.15
Co-Development Costs\
|
|
|
5
|
|
1.16
Co-Development Plan\
|
|
|
5
|
|
1.17
Co-Promote\
|
|
|
5
|
|
1.18
Co-Promotion Program\
|
|
|
5
|
|
1.19
Co-Promotion Product\
|
|
|
5
|
|
1.20
Development Compound\
|
|
|
5
|
|
1.21
Distribution Costs\
|
|
|
5
|
|
1.22
Effective Date\
|
|
|
5
|
|
1.23
Field\
|
|
|
5
|
|
1.24
Field of Collaborative Research\
|
|
|
6
|
|
1.25
Information\
|
|
|
6
|
|
1.26
Joint Research and Development Committee
or
JRDC\
|
|
|
6
|
|
1.27
Lead Structure\
|
|
|
6
|
|
1.28
Marketing Plan\
|
|
|
6
|
|
1.29
Marketing Profit or Loss\
|
|
|
6
|
|
1.30
Miles Know-How\
|
|
|
6
|
|
1.31
Miles Patents\
|
|
|
6
|
|
1.32
Net Sales\
|
|
|
7
|
|
1.33
Onyx Know-How\
|
|
|
7
|
|
1.34
Onyx Patents\
|
|
|
7
|
|
1.35
Patent\
|
|
|
7
|
|
1.36
Preclinical Development Period\
|
|
|
7
|
|
1.37
Pre-Marketing Activities\
|
|
|
7
|
|
1.39
Post-Collaboration Compound\
|
|
|
8
|
|
1.40
Ras Pathway\
|
|
|
8
|
|
1.41
Ras Function\
|
|
|
8
|
|
1.42
Regulatory Approval\
|
|
|
8
|
|
1.43
Research\
|
|
|
8
|
|
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
1
|
|
|
|
|
|
|
Page
|
|
1.44
Research Plan\
|
|
|
8
|
|
1.45
Research Term\
|
|
|
8
|
|
1.46
Royalty-Bearing Product\
|
|
|
8
|
|
1.47
Selling and Promotion Expenses\
|
|
|
9
|
|
1.48
Sublicense Revenues\
|
|
|
9
|
|
1.49
Third Party\
|
|
|
9
|
|
1.50
Third Party Royalties\
|
|
|
9
|
|
CHAPTER 2
|
|
|
10
|
|
Article
2
Initial Payment And Board Representation
|
|
|
10
|
|
2.1
Purchase of Series D Preferred Stock.
|
|
|
10
|
|
2.2
Board Representation.
|
|
|
10
|
|
3.1
Joint Research and Development Committee.
|
|
|
11
|
|
3.2
Meetings of the JRDC.
|
|
|
11
|
|
3.3
Functions and Powers of the JRDC.
|
|
|
11
|
|
3.4
Obligations of Parties.
|
|
|
12
|
|
3.5
Project Leader.
|
|
|
12
|
|
3.6
General.
|
|
|
12
|
|
Article
4
- Licenses
|
|
|
13
|
|
4.1
Research Licenses.
|
|
|
13
|
|
4.2
Collaboration Product Commercialization Licenses.
|
|
|
13
|
|
4.3
Limitations on Exclusivity.
|
|
|
13
|
|
4.4
Royalty-Bearing Product Commercialization Licenses.
|
|
|
14
|
|
4.6
Onyx License After Research Termination.
|
|
|
14
|
|
CHAPTER 3
|
|
|
15
|
|
Article
5
Collaborative Research Program
|
|
|
15
|
|
5.1
Program Management.
|
|
|
15
|
|
5.2
Decision Points During Research.
|
|
|
15
|
|
5.3
Research Efforts and Expenses.
|
|
|
15
|
|
5.4
Annual Plan and Budget.
|
|
|
15
|
|
5.5
Extension of Research Term.
|
|
|
16
|
|
5.6
Termination of Research with Substitution of New
Research Target.
|
|
|
16
|
|
5.7
Consequences of Research Substitution.
|
|
|
16
|
|
5.8
Termination of Research by Miles.
|
|
|
17
|
|
5.9
Key Employee Departure.
|
|
|
17
|
|
Article
6
Specification of Research Field and Assays
|
|
|
19
|
|
6.1
Refinement of Field of Collaborative Research.
|
|
|
19
|
|
6.2
Restriction of the Field of Collaborative Research.
|
|
|
19
|
|
6.3
Specification of Ras Function Assay Standards.
|
|
|
20
|
|
Article
7
Allocation of Research Tasks
|
|
|
20
|
|
7.1
Onyx Research Obligations.
|
|
|
20
|
|
7.2
Miles Research Obligations.
|
|
|
20
|
|
7.3
Independent Funded Research Of Onyx Subject to Buy-Back.
|
|
|
21
|
|
7.4
Miles Buy-Back.
|
|
|
21
|
|
7.6
Conduct of Studies.
|
|
|
21
|
|
Article
8
Research Material and Information
|
|
|
22
|
|
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
2
|
|
|
|
|
|
|
Page
|
|
8.1
Rights In Materials
|
|
|
22
|
|
8.2
Acquisition of Third Party Technology.
|
|
|
22
|
|
Article
9
Research Funding
|
|
|
23
|
|
9.1
Miles Financial Support.
|
|
|
23
|
|
9.2
Minimum Level of Financial Support.
|
|
|
23
|
|
9.3
Restriction on Government Support.
|
|
|
23
|
|
9.4
Manner of Payments.
|
|
|
23
|
|
9.5
Application of Funds; Reporting.
|
|
|
23
|
|
9.6
Research Activities After Research Term.
|
|
|
24
|
|
Article
10
Research Reports
|
|
|
25
|
|
10.1
Information and Reports During Research.
|
|
|
25
|
|
10.2
Reports After Research Term.
|
|
|
25
|
|
CHAPTER 4
|
|
|
26
|
|
Article
11
Co-Development
|
|
|
26
|
|
11.1
Scope of Development.
|
|
|
26
|
|
11.2
Preclinical Investigation and Development.
|
|
|
26
|
|
11.3
Synthesis of Preclinical Materials.
|
|
|
26
|
|
11.4
Selection of Collaboration Compounds for Co-Development.
|
|
|
26
|
|
11.5
Budget for Development.
|
|
|
27
|
|
11.6
Performance of Co-Development.
|
|
|
27
|
|
11.7
Funding of Co-Development.
|
|
|
28
|
|
11.8
Development Payments.
|
|
|
28
|
|
11.9
Development Diligence.
|
|
|
29
|
|
11.10
Collaboration Product Information.
|
|
|
29
|
|
11.11
Use of Information.
|
|
|
29
|
|
11.12
Relationship With Chiron Product Rights.
|
|
|
29
|
|
11.13
Manufacture of Clinical Materials.
|
|
|
30
|
|
Article
12
Independent Development
|
|
|
30
|
|
12.1
Termination of Funding of Co-Development in Japan.
|
|
|
30
|
|
12.2
Termination of Funding of Co-Development Outside Japan.
|
|
|
30
|
|
12.3
No Refund of Co-Development Costs.
|
|
|
30
|
|
12.4
Independent Development.
|
|
|
30
|
|
CHAPTER 5
|
|
|
32
|
|
Article
13
Commercialization of Collaboration Products
|
|
|
32
|
|
13.1
Miles Exclusive Rights Outside the United States.
|
|
|
32
|
|
13.2
Miles Marketing Plan.
|
|
|
32
|
|
13.3
Financial Projections and Budget.
|
|
|
32
|
|
13.4
Onyx Option To Co-Promote.
|
|
|
32
|
|
13.5
Onyx Notice of Intent to Co-Promote.
|
|
|
32
|
|
13.6
Co-Promotion Program.
|
|
|
33
|
|
13.7
Co-Promotion Sales Efforts.
|
|
|
33
|
|
13.8
Co-Promotion Costs.
|
|
|
33
|
|
13.9
Training Program.
|
|
|
33
|
|
13.10
Advertising and Promotional Materials.
|
|
|
33
|
|
13.11
Onyx Marketing.
|
|
|
33
|
|
13.12
Price Setting in the United States.
|
|
|
34
|
|
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
3
|
|
|
|
|
|
|
Page
|
|
Article
14
Sales Responsibility
|
|
|
34
|
|
14.1
Sales and Distribution.
|
|
|
34
|
|
14.2
Responsibility.
|
|
|
34
|
|
14.3
Cost Allocations.
|
|
|
34
|
|
14.4
Allocation of Co-Promotion Costs.
|
|
|
34
|
|
Article
15
Royalty-Bearing Products
|
|
|
34
|
|
15.1
Commercialization and Marketing of Royalty-Bearing
Products.
|
|
|
35
|
|
Article
16
Compensation for Sales of Products
|
|
|
35
|
|
16.1
Determination and Allocation of Marketing Profit and
Loss with Respect to Sales Of Collaboration Products.
|
|
|
35
|
|
16.2
Royalty With Respect to Sales of Royalty-Bearing Products.
|
|
|
35
|
|
16.3
Special Distribution.
|
|
|
36
|
|
16.4
Research Termination.
|
|
|
37
|
|
16.5
Duration of Royalty Obligations: Royalty Step-Down.
|
|
|
37
|
|
16.6
Royalty for Post-Collaboration Compound Sales.
|
|
|
37
|
|
16.7
Royalty Payment Reports.
|
|
|
37
|
|
16.8
Royalty Offset.
|
|
|
37
|
|
16.9
Taxes.
|
|
|
38
|
|
16.10
Blocked Currency.
|
|
|
38
|
|
16.11
Foreign Exchange.
|
|
|
38
|
|
16.12
Payments to or Reports by Affiliates.
|
|
|
38
|
|
16.13
Sales By Sublicensees.
|
|
|
38
|
|
Article
17
Information and Reports During Marketing
|
|
|
39
|
|
17.1
Adverse Drug Events.
|
|
|
39
|
|
17.2
Records.
|
|
|
39
|
|
Article
18
Trademarks
|
|
|
39
|
|
18.1
Collaboration Product Trademarks.
|
|
|
39
|
|
18.2
Royalty-Bearing Product Trademarks.
|
|
|
40
|
|
18.3
Infringement Of Trademark.
|
|
|
40
|
|
18.4
Costs of Defense for Collaboration Product Trademarks.
|
|
|
40
|
|
Article
19
Manufacturing and Supply
|
|
|
40
|
|
19.1
Commercial Supply of Collaboration Products.
|
|
|
40
|
|
19.2
Labelling.
|
|
|
41
|
|
19.3
Commercial Supply of Royalty-Bearing Products.
|
|
|
41
|
|
19.4
Supply Shortages.
|
|
|
41
|
|
CHAPTER 6
|
|
|
42
|
|
Article
20
Inventions and Patents
|
|
|
42
|
|
20.1
Ownership of Research Products and Inventions.
|
|
|
42
|
|
20.2
Disclosure of Patentable Inventions.
|
|
|
42
|
|
20.3
Patent Prosecution.
|
|
|
42
|
|
20.4
Confidential Treatment.
|
|
|
43
|
|
Article
21
Infringement
|
|
|
43
|
|
21.1
Infringement By Third Parties for Collaboration Compound.
|
|
|
43
|
|
21.2
Infringement by Third Parties for Royalty-Bearing Products.
|
|
|
43
|
|
21.3
Third Party Claims Against Collaboration Compound.
|
|
|
44
|
|
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
4
|
|
|
|
|
|
|
Page
|
|
21.4
Allocation of Expense; Collaboration Compound or Product.
|
|
|
44
|
|
21.5
Third Party Claims Relating to Royalty-Bearing Products.
|
|
|
44
|
|
Article
22
Confidentiality
|
|
|
45
|
|
22.1
Confidentiality; Exceptions.
|
|
|
45
|
|
22.2
Authorized Disclosure.
|
|
|
46
|
|
22.3
Survival.
|
|
|
46
|
|
22.4
Termination of Prior Agreement.
|
|
|
46
|
|
22.5
Publications.
|
|
|
46
|
|
CHAPTER 7
|
|
|
47
|
|
Article
23
Federal State Tax Characterization
|
|
|
47
|
|
23.1
Tax Partnership.
|
|
|
47
|
|
23.2
Tax Matters Partner.
|
|
|
47
|
|
23.3
Tax Returns.
|
|
|
48
|
|
23.4
Inconsistent Treatment of Partnership Items.
|
|
|
48
|
|
23.5
Tax Partnership Elections.
|
|
|
48
|
|
23.6
Characterization of Certain Payments and Activities.
|
|
|
49
|
|
23.7
Capital Accounts.
|
|
|
49
|
|
23.8
Tax Partnership Allocations.
|
|
|
49
|
|
23.9
Liquidation.
|
|
|
51
|
|
23.10
Internal Revenue Service Notices.
|
|
|
51
|
|
23.11
Tax Partnership Audits and Litigation.
|
|
|
51
|
|
Article
24
Term and Termination
|
|
|
51
|
|
24.1
Term of Agreement.
|
|
|
51
|
|
24.2
Termination for Breach.
|
|
|
51
|
|
24.3
Termination for Other Reasons.
|
|
|
52
|
|
24.4
Acquisition of Onyx.
|
|
|
52
|
|
24.6
Accrued Rights: Surviving Obligations.
|
|
|
53
|
|
Article
25
Dispute Resolution
|
|
|
53
|
|
25.1
Disputes.
|
|
|
53
|
|
Article
26
Representations and Warranties; Exclusivity
|
|
|
54
|
|
26.1
Representations and Warranties.
|
|
|
54
|
|
26.2
Performance By Affiliates.
|
|
|
54
|
|
26.3
Exclusivity; Noncompetition Within the Field of
Collaborative Research.
|
|
|
54
|
|
Article
27
Products Liability and Indemnification
|
|
|
55
|
|
27.1
Indemnification for Sales of Royalty-Bearing Products.
|
|
|
55
|
|
27.2
Actions in Respect of Collaboration Products.
|
|
|
55
|
|
27.3
Indemnification for Negligence.
|
|
|
56
|
|
Article
28
Miscellaneous
|
|
|
56
|
|
28.1
Assignment.
|
|
|
56
|
|
28.2
Consents Not Unreasonably Withheld.
|
|
|
56
|
|
28.3
Retained Rights.
|
|
|
56
|
|
28.4
Force Majeure.
|
|
|
56
|
|
28.5
Further Actions.
|
|
|
56
|
|
28.6
No Trademark Rights.
|
|
|
56
|
|
28.7
Notices.
|
|
|
57
|
|
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
5
|
|
|
|
|
|
|
Page
|
|
28.8
Waiver.
|
|
|
58
|
|
28.9
Severability.
|
|
|
58
|
|
28.10
Counterparts.
|
|
|
58
|
|
28.11
Press Releases.
|
|
|
58
|
|
28.12
Entire Agreement.
|
|
|
58
|
|
28.13
Governing Law.
|
|
|
58
|
|
|
|
|
|
|
EXHIBITS
|
|
|
|
|
|
|
|
|
|
Exhibit A Diagram of Collaboration
|
|
|
|
|
Exhibit B Field of Collaborative Research
|
|
|
|
|
Exhibit C Research Plan
|
|
|
|
|
Exhibit D Measured Activity Qualifying as ras Positive Inhibition
|
|
|
|
|
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
6
COLLABORATION AGREEMENT
This
Collaboration Agreement
(the Agreement) is dated April 22, 1994, by and
between
Onyx Pharmaceuticals, Inc.
, a California corporation having its principal place of
business in Richmond, California (Onyx), and
Miles Inc
., an Indiana corporation having
its principal place of business in Pittsburgh, Pennsylvania (Miles). Each of Miles and Onyx are
sometimes referred to herein as the Party or, collectively, as the Parties.
In consideration of the covenants and promises contained in this Agreement, the Parties agree
as follows:
CHAPTER 1
DEFINITIONS
Capitalized words used in this Agreement shall have the meanings ascribed in the following
definitions, unless otherwise stated or defined in the Agreement.
Article
1
Defined Terms
1.1
Advertising and Education
means the advertising and promotion of Collaboration Products,
and related professional education, through any means, including, without limitation,
|
(i)
|
|
advertisements appearing in journals, newspapers, magazines or
other media, including direct mail and electronic media,
|
|
(ii)
|
|
seminars and conventions,
|
|
(iii)
|
|
sample packages of Collaboration Products, promotional
literature, visual aids, three dimensional promotional items, and other selling
materials,
|
|
(iv)
|
|
market research, and
|
|
(v)
|
|
symposia and opinion leader development activities; provided,
however, that such term shall exclude direct sales force activity.
|
1.2
Advertising and Education Expense
means costs,
[ * ]
incurred by a Party or for its
account which are specifically identifiable to the Advertising and Education of a Collaboration
Product and consistent with the Marketing Plan.
1.3
Affiliate
means (i) with respect to Miles, any entity that directly or indirectly Owns,
is Owned by, or is under common Ownership with, it, and (ii) with respect to Onyx, any entity that
directly or indirectly is Owned by it. As used in Section 1.3, Owns or Ownership means direct
or indirect possession of at least 50% of the outstanding voting securities of a corporation or a
comparable equity interest in any other type of entity, or, where the laws of the
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
jurisdiction in which such entity operates prohibits the ownership by a Party of 50% , such
ownership shall be at the maximum level of ownership allowed by such jurisdiction.
1.4
Allocable Overhead Costs
means the overhead costs of the functions that directly support
an activity under this Agreement, as determined using the same allocation methods that the Party
incurring such costs uses throughout its operations. In all cases, Allocable Overhead Costs shall
exclude
[ * ]
.
1.5
Allowable Expenses
means those expenses incurred subsequent to the receipt of Regulatory
Approval for marketing a Collaboration Product in a country and shall consist of:
(i) Cost of Goods Sold,
(ii) Distribution Costs,
(iii) Advertising and Education Expenses,
(iv) Selling and Promotion Expenses,
(v) Third Party Royalties,
(vi)
[ * ]
(vii)
[ * ]
1.6
Analoging Program
means a program conducted under the Research to prepare, assay, and
analyze chemical analogs to one or more specified Lead Structures or other compounds identified by
the JRDC during the Research, or otherwise conducted pursuant to Section 7.3.
1.7
Back-Up Compound
shall have the meaning described in Section 11.4.
1.8
Clinical Development Period
means, with respect to each Product, the period of
performance of the clinical and non-clinical investigations and other work necessary to and
directly in support of obtaining Regulatory Approval for marketing a Product, commencing
[ * ]
after a party has obtained regulatory approval to conduct human clinical trials
[ * ]
.
1.9
Collaboration Compound
means, except as provided below, any composition of matter:
|
(i)
|
|
that is discovered, identified or synthesized by or on behalf
of Onyx or Miles or an Affiliate of either of them, and is recognized for its
activity for inhibiting Ras Function as provided below,
[ * ]
; or
|
|
|
(ii)
|
|
as to which Onyx or Miles or an Affiliate of either of them
acquires rights from a Third Party,
[ * ]
, and which is recognized for its
activity for inhibiting Ras Function as provided below,
[ * ]
. As used herein,
the
|
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
2
|
|
|
activity of a composition of matter for inhibiting Ras Function will be
recognized if it satisfies the standard for a ras positive set forth in
Exhibit E, or such other specific activity in a particular assay or assays
within the Field of Collaborative Research established by the JRDC from time
to time pursuant to Section 6.3.
|
Notwithstanding the foregoing, the term Collaboration Compound shall not include:
|
(a)
|
|
any composition of matter marketed by Miles or an Affiliate of Miles as of the
Effective Date or as to which Miles or an Affiliate of Miles is conducting human
clinical trials or have approved the commencement of preclinical development (as
determined by the appropriate committee of Miles or an Affiliate of Miles), as of the
Effective Date;
|
|
(b)
|
|
any composition of matter owned by Miles or Onyx or an Affiliate of either of
them that would become subject to this Agreement by reason of an expansion of the Field
of Collaborative Research after the Effective Date but as to which marketing rights
have been granted to a Third Party prior to such expansion; or
|
(c) any composition of matter that is a Back-Up Compound after
[ * ]
following the end of the
Research Term.
1.10
Collaboration Product
means a Product as to which each Party has paid or is paying
one-half of the Co-Development Costs and is ready for commercialization pursuant to Article 13.
The term Collaboration Product excludes Royalty-Bearing Products.
1.11
Collaboration Revenue
means Net Sales of Collaboration Products plus Sublicense
Revenue.
1.12
Control
means possession of the ability to grant a license or sublicense as provided
for herein without violating the terms of any agreement or other arrangement with any Third Party.
1.13
Cost of Goods Sold
means
|
(i)
|
|
the standard unit cost of Collaboration Products in final
therapeutic form, calculated in accordance with reasonable cost accounting
methods of Miles, consistently applied by Miles as a manufacturer, plus
|
|
(ii)
|
|
[ * ]
also calculated in accordance with reasonable cost
accounting methods of Miles, consistently applied by Miles as a manufacturer,
but excluding items referred to in the following sentence. Costs of Goods Sold
shall exclude
[ * ]
.
|
1.14
Co-Development
means the clinical and non-clinical development of a Development
Compound into a Collaboration Product during the Preclinical and Clinical
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
3
Development Periods by
Miles and Onyx under the Co-Development Plan for the Development Compound worldwide excluding
Japan.
1.15
Co-Development Costs
means all costs and expenses,
[ * ]
identifiable to the
Co-Development of a Development Compound
|
(i)
|
|
after having obtained regulatory approval to conduct human
clinical trials (Clinical Development Period) in the country in question,
within the JRDC budget approved by the Parties, and
|
|
(ii)
|
|
for the Preclinical Development Period pursuant to Section
9.6(b).
|
Co-Development Costs include the cost of products manufactured for Co-Development activities as
determined in Section 11.13.
1.16
Co-Development Plan
means the world-wide plan prepared and managed by the JRDC and
approved by the Parties for the Preclinical and the Clinical Development Period of Development
Compounds as set forth in Section 11.1.
1.17
Co-Promote
means to promote jointly Co-Promotion Products through Miles, Onyx, and
their respective sales forces under a single trademark in the United States.
1.18
Co-Promotion Program
means the plan as set forth in Section 13.6 for Co-Promoting a
Co-Promotion Product in the United States.
1.19
Co-Promotion Product
means a Collaboration Product that is Co-Promoted and sold in the
United States.
1.20
Development Compound
means a Collaboration Compound selected by the JRDC, based upon
research results showing sufficient utility as a potential Product, for entry into the Preclinical
Development Period.
1.21
Distribution Costs
means the costs,
[ * ]
incurred by a Party or for its account,
specifically identifiable to the distribution of a Collaboration Product to a Third Party including
|
(i)
|
|
handling and transportation to fulfill orders (excluding such
costs, if any, treated as a deduction in the definition of Net Sales),
|
|
(ii)
|
|
customer services including order entry, billing and
adjustments, inquiry and credit and collection, and
|
|
(iii)
|
|
[ * ]
for the storage and distribution of Collaboration
Products.
|
1.22
Effective Date
means February 1, 1994.
1.23
Field
means the synthesis, discovery, use of and preclinical research upon
Collaboration Compounds and the clinical development, manufacture, use and sale of Products
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
4
for all human and animal therapeutic and/or prophylactic and/or diagnostic indications involving Ras
Pathway or Ras Function, subject to Section 11.12.
1.24
Field of Collaborative Research
means the specific programs, targets, and assays that
are selected for discovering inhibitors of Ras Pathway and Ras Function. As of the Effective Date,
the Field of Collaborative Research shall be as described on the attached Exhibit B, which shall be
amended by the Parties as the specific programs, targets, and assays within the Field of
Collaborative Research are modified and updated by the JRDC pursuant to Section 6.1. The Field of
Collaborative Research shall not include any molecular entities, programs, targets, or assays that
are not involved in the Ras Pathway or Ras Function.
1.25
Information
means information relating to the Field and/or the Field of Collaborative
Research, including, but not limited to, inventions, practices, methods, assays, know-how, test
data including pharmacological, toxicological and clinical test data, analytical and quality
control data, marketing, distribution, cost, sales, manufacturing, patent and legal data or
descriptions.
1.26
Joint Research and Development Committee
or
JRDC
means the committee described in
Section 3.1 of this Agreement.
1.27
Lead Structure
means a compound identified in the Research that meets a specific
minimum profile established by the JRDC and that is selected by the JRDC for entry into a program
conducted under the Research to prepare, assay, and analyze chemical analogs to one or more
specified Lead Structures or other compounds identified by the JRDC during the Research, or
otherwise conducted pursuant to Section 7.3.
1.28
Marketing Plan
means the plan for marketing and selling Collaboration Products,
described in Section 13.2.
1.29
Marketing Profit or Loss
means Net Sales of Collaboration Products plus Sublicense
Revenue less Allowable Expenses.
1.30
Miles Know-How
means Information which
(i) Miles discloses to Onyx or an Affiliate of Onyx under this Agreement, and
(ii)
is within the Control of Miles.
Miles Know-How shall exclude Miles Patents.
1.31
Miles Patents
means all Patents owned or Controlled by Miles or an Affiliate of Miles
that claim or cover Collaboration Compounds, the manufacture or use of Collaboration Compounds, or
methods or materials useful for discovering, identifying, or assaying for Collaboration Compounds,
where such Patents cover inventions made prior to the first anniversary of the end of the Research
Term.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
5
1.32
Net Sales
means gross receipts and any other consideration received by the selling
Party on account of sales of Products, less deductions of the following items:
|
(i)
|
|
trade, quantity and cash discounts or rebates, actually allowed and taken,
|
|
(ii)
|
|
credits or allowances given for rejection or return of
previously sold Product or outdated Product,
|
|
(iii)
|
|
any tax or other governmental charge borne by the selling
Party other than income tax levied on the sale, transportation or delivery of
Product, and
|
|
|
(iv)
|
|
any charges for packing, handling, freight, insurance and duty.
|
1.33
Onyx Know-How
means Information which
|
(i)
|
|
Onyx discloses to Miles or an Affiliate of Miles under this Agreement and
|
|
|
(ii)
|
|
is within the Control of Onyx.
|
Onyx Know-How shall exclude Onyx Patents.
1.34
Onyx Patents
means all Patents owned or Controlled by Onyx or an Affiliate of Onyx
that claim or cover Collaboration Compounds, the manufacture or use of Collaboration Compounds, or
methods or materials useful for discovering, identifying, or assaying for Collaboration Compounds,
where such Patents cover inventions made prior to the first anniversary of the end of the Research
Term.
1.35
Patent
means
(1) valid and enforceable Letters Patent in any and all countries relating to the Field
and/or the Field of Collaborative Research, including any extension (SPC), registration,
confirmation, reissue, continuation, division, continuation-in-part, re-examination or
renewal thereof, and
(2)
pending applications for any of the foregoing.
1.36
Preclinical Development Period
means the period of preclinical investigations and other
work performed on Development Compounds necessary to generate the data for clinical development as
set forth in Section 11.2.
1.37
Pre-Marketing Activities
means activities undertaken prior to Regulatory Approval in
preparation for the commercial launch of a Collaboration Product in a particular country, including
Advertising and Education, trademark prosecution and enforcement as provided in Article 18,
training as provided in Section
13.9, and pre-marketing clinical studies conducted to support the Collaboration Product and not as
part of an application for Regulatory Approval.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
6
1.38
Product
means any pharmaceutical form or dosage of, or diagnostic product based upon, a
Collaboration Compound.
1.39
Post-Collaboration Compound
means any composition of matter synthesized, identified or
discovered by Onyx or Miles:
(a) that is contained within a chemical genus as defined in any pending or issued claim
of any unexpired Miles Patent or Onyx Patent filed in
[ * ]
and as to which at least one
member of such chemical genus is a Collaboration Compound, and
(b) that is recognized for its activity for inhibiting Ras Function, as defined in
Section 1.11, by Onyx or Miles during the
[ * ]
period after
[ * ]
of the end of the
Research Term pursuant to Section 9.6 (d) (at a royalty rate pursuant to Section 16.6).
1.40
Ras Pathway
means all molecular entities that are part of or that regulate signal
transduction through
[ * ]
ras. This includes but is not restricted to ras,
[ * ]
. Ras Pathway
also includes molecules that directly or indirectly regulate the aforementioned
[ * ]
. Ras Pathway
also includes
[ * ]
.
Ras Pathway shall not include (by way of example and not limitation)
[ * ]
.
1.41
Ras Function
means
[ * ]
. Ras Function includes without restriction
[ * ]
.
1.42
Regulatory Approval
means any approvals (including pricing and reimbursement
approvals), licenses, registrations or authorizations of any federal, state or local regulatory
agency, department, bureau or other government entity, necessary for the manufacture, use, storage,
import, transport or sale, of Products in a country.
1.43
Research
means all work performed by the Parties
(a) within the Field of Collaborative Research during the Research Term; or
(b) with respect to Collaboration Compounds pursuant to Section 9.6.
1.44
Research Plan
means the plan setting forth the research objectives and the Parties
respective obligations in conducting the Research, as described in Section 5.1.
1.45
Research Term
means the period commencing on February 1, 1994 and continuing until
January 31, 1999, unless extended under Sections 5.5 or 5.6, or earlier terminated pursuant to
Section 5.8, 5.9, 24.2, 24.3 or 24.4.
1.46
Royalty-Bearing Product
means a Product
(a) that was not selected for Co-Development by the JRDC and that was independently
developed by a Party pursuant to Section 12.4 (at a rate pursuant to Section 16.2(c));
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
7
(b) that is sold in a country in which one Party did not participate in paying its
entire one-half share of the Co-Development Costs in that country pursuant to Section 12.1
and 12.2 (at a rate pursuant to Section 16.2 (a) and (b) respectively); or
(c) for which Miles declined to fund Research pursuant to Section 7.3 (at a rate pursuant to
Section 16.4).
1.47
Selling and Promotion Expenses
means costs,
[ * ]
incurred consistent with the budget
in the Marketing Plan, and specifically identifiable to the sales and/or promotion of Collaboration
Products to all markets and to the operation and maintenance of the sales personnel
[ * ]
.
1.48
Sublicense Revenues
means all revenues received from Third Parties as consideration for
the sublicensing of the manufacture, use and/or sale of Collaboration Products.
1.49
Third Party
means any entity other than Onyx or Miles and their respective Affiliates.
1.50
Third Party Royalties
means royalties payable to a Third Party in respect of the sale
or manufacture of Collaboration Products.
* * * *
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
8
CHAPTER
2
OVERVIEW OF COLLABORATION
Proteins and other effectors in the Ras Pathway are directly involved in control of cell
growth. Changes or mutations to components in the Ras Pathway have been shown to cause abnormal
cell growth, including certain cancers. Onyx has technology, materials, and expertise relating to
the modulation of Ras Function and to assays that can identify compounds having activities useful
in inhibiting Ras Function. Miles has an extensive library of chemical substances and natural
materials, and expertise in the research, development, and commercialization of pharmaceutical
compounds. The Parties desire to establish a broad collaboration in the Field to perform research
towards identifying and investigating substances that inhibit Ras Function and to develop and
commercialize substances identified in such process as pharmaceutical products for the treatment of
cancer and other human conditions and diseases. The Parties intend that this Agreement shall
establish such collaboration and determine the rights and obligations of each Party in conducting
all of the research, development, and marketing of products, and all other related activities,
under the collaboration. Attached as Exhibit A is a flowchart depicting in schematic form, the
various activities of the collaboration and the decision points in the progress of identifying,
researching, and developing Collaboration Products.
Article
2
Initial Payment And Board Representation
2.1
Purchase of Series D Preferred Stock.
Miles agrees to purchase, and Onyx agrees (subject
to the last sentence of this paragraph) to sell, 6,750,000 shares of Onyx Series D Preferred Stock
at a purchase price of Two Dollars ($2.00) per share pursuant to a Stock Purchase Agreement of even
date herewith, with the execution and performance of such Stock Purchase Agreement and the closing
of such purchase and sale to occur within thirty (30) days after the execution of this Agreement.
Promptly following execution of this Agreement, the parties shall cooperate to effect the closing
of such transaction. The parties recognize that to effect such sale of stock, Onyx is required to
obtain certain stockholder consents, and the parties shall cooperate to make such modifications to
the form of Stock Purchase Agreement as such stockholders may reasonably request, provided that
Miles shall not be obligated to approve any modifications which it deems adverse in the reasonable
exercise of its sole discretion.
2.2
Board Representation.
(a) Subject to the provisions of paragraph (b) below, Miles shall be entitled,
commencing on the date hereof, to appoint a representative to serve on the Onyx Board of
Directors, with the Miles representative to be approved in advance by the Onyx Board of
Directors. If the Miles representative is unable to attend one or more meetings of the Onyx
Board of Directors, he may designate an alternative Miles representative acceptable to Onyx
to attend such meeting(s) in a nonvoting, observer capacity. All information received by
such individuals from Onyx shall be subject to the non-disclosure obligations of Article 22
of this Agreement. The expenses of such Miles representative associated with attendance at
Onyx Board of Directors meetings will be borne by
[ * ]
.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
9
(b) The rights of Miles under this Section 2.3 shall expire upon the later to occur of
(i) the end of the Research Term, or, if the Parties then have Collaboration
Compound in clinical development, such later date on which the Parties do not have a
Collaboration Compound in clinical development, or
(ii) such date on which Miles owns less than twelve and one-half percent
(12.5%) of the then outstanding capital stock of Onyx on an as-converted,
fully-diluted basis.
Article
3
Management of Collaboration
3.1
Joint Research and Development Committee.
The collaboration between Miles, Onyx, and
their respective Affiliates under this Agreement shall be managed by a Joint Research and
Development Committee (the JRDC). The size of the JRDC may be determined from time to time;
initially it shall consist of six members, three each appointed by Onyx and Miles within ten days
after the Effective Date. Members of the JRDC shall be composed of senior officers or
representatives of each party authorized to make decisions with respect to matters within the scope
of the JRDCs authority. An alternate member designated by a Party may serve temporarily in the
absence of a permanent member designated by such Party. Each Party shall appoint and replace its
representatives to the JRDC, as appropriate during the collaboration. The JRDC shall operate by
consensus. Any deadlock shall be referred to the designated executive officers of Miles and Onyx
pursuant to Article 25 of this Agreement.
3.2
Meetings of the JRDC.
The JRDC shall hold meetings at such times as shall be determined
by a majority of the membership of the Committee, at least once a quarter. Notice of meetings
shall be given 30 days in advance to each member, stating the date, time and place of such meeting
and describing the proposed agenda of items to be discussed at such meeting. Either Party may
place items on the proposed agenda. Responsibility for arranging meetings will alternate between
the Parties, with Onyx having responsibility for the first meeting. The JRDC may conduct meetings
in person or by telephone conference; shall keep minutes reflecting actions taken at meetings; may
act without a meeting if prior to such action a written consent thereto is signed by all members of
the committee; and may amend or expand upon the foregoing procedures for its internal operation by
unanimous written consent. At each committee meeting all members shall review and sign the
then-current version of Exhibit B, and the Committee will retain copies of all such signed versions
of Exhibit B generated during the term of the Agreement.
3.3
Functions and Powers of the JRDC.
The activities of the Parties under this Agreement
shall be supervised and managed by the JRDC. The JRDC shall perform the specific functions set
forth in Chapters 2-7 of the Agreement if not stated otherwise, and in addition shall perform the
following general tasks in managing the collaboration:
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
10
(a) determine the overall strategy for the collaboration in the manner
contemplated by this Agreement;
(b) coordinate the activities of the Parties hereunder;
(c) prepare the Annual Plan for the Research (defined in Section 5.4) for each year
during the Research Term, including modifications and amendments to the Research Plan;
(d) review all work done under and results of the Research;
(e) determine the scope of the Field of Collaborative Research and establish the assay
standards used to determine Collaboration Compounds, under Article 6;
(f) review compounds under investigation in the Research for selection as Lead
Structures, and select Collaboration Compounds for Co-Development as Development Compounds;
(g) approve any agreements with Third Parties to be made by either or both Parties
regarding the subject matter of this Agreement (except with respect to Royalty-Bearing
Products and as otherwise expressly provided in this Agreement); and
(h) perform such other functions as appropriate to further the purposes of this
Agreement as determined by the Parties.
3.4
Obligations of Parties.
Onyx and Miles shall provide the JRDC and its authorized
representatives with reasonable access during regular business hours to all records, documents, and
Information relating to this collaboration which it may reasonably require in order to perform its
obligations hereunder, provided that if such documents are under a bona fide obligation of
confidentiality to a Third Party, then Onyx or Miles, as the case may be, may withhold access
thereto to the extent necessary to satisfy such obligation. During the Research Term, neither
party shall knowingly receive information which is relevant to the Field and/or the Field of
Collaborative Research under conditions which would preclude disclosure by reason of this Section
3.4.
3.5
Project Leader.
Each Party shall designate an overall project leader within ten days of
the execution of this Agreement. Such project leaders will be responsible for the day-to-day
worldwide coordination of the collaboration contemplated by this Agreement and will serve to
facilitate communication between the Parties relating to the collaboration. The project leaders
shall attend all meetings of the JRDC.
3.6
General.
In all matters related to the collaboration established by this Agreement, the
Parties shall be guided by standards of reasonableness in economic terms and fairness to each of
the Parties, striving to balance as best they can the legitimate interests and concerns of the
Parties and to realize the economic potential of the Products. In conducting
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
11
research, development, and commercialization activities under this Agreement neither Party shall prejudice
the value of a Product by reason of such Partys activities outside of the Field.
Article
4
- Licenses
4.1
Research Licenses.
(a) Onyx hereby grants Miles and its Affiliates a fully paid-up, worldwide license, without
the right to sublicense, under the Onyx Patents and Onyx Know-How
(i) to conduct the Research during the Research Term, and
(ii) to conduct research and development of Products under Section 9.6 following the Research
Term, provided, however, in each case that Miles and its Affiliates may only practice the Onyx
Know-How and Onyx Patents that relate directly to the Field of Collaborative Research as defined at
the time of such use.
Such license shall be exclusive except as to Onyx and its Affiliates.
(b) Miles hereby grants Onyx and its Affiliates a fully paid-up, worldwide license, without
the right to sublicense, under the Miles Patents and Miles Know-How
(i) to conduct the Research during the Research Term, and
(ii) to conduct research and development of Products under Section 9.6 following Research
Term, provided, however, in each case that Onyx and its Affiliates may only practice the Miles
Know-How and Miles Patents that relate directly to the Field of Collaborative Research as defined
at the time of such use.
Such license shall be exclusive except as to Miles and its Affiliates.
4.2
Collaboration Product Commercialization Licenses.
(a) Onyx hereby grants Miles and its Affiliates a worldwide, fully paid-up license, with the
right to grant sublicenses, under the Onyx Patents and the Onyx Know-How to develop, make, have
made, use, have used, sell and have sold Collaboration Products, subject to the terms and
conditions of this Agreement. Such license shall be exclusive except as to Onyx and its
Affiliates.
(b) Miles and its Affiliates hereby grants Onyx a fully paid-up license in the United States,
without the right to grant sublicenses, under the Miles Patents and Miles Know-How to develop, use
and sell Collaboration Products, subject to the terms and conditions of this Agreement. Such
license shall be exclusive except as to Miles and its Affiliates.
4.3
Limitations on Exclusivity.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
14
(a) As used in Sections 4.1 and 4.2, a license that is exclusive except as to the granting
Party means that the Party granting the license shall not grant any other entity (other than its
Affiliates) any license under such intellectual property rights with the right to practice within
the licensed field, but that otherwise such Party retains all its rights of ownership in such
licensed rights, including without limitation the right to practice such property rights, subject
only to the license granted.
(b) With respect to the Onyx Patents and Onyx Know-How that Onyx Controls pursuant to that
certain Technology Transfer Agreement between Onyx and Chiron Corporation dated April 24, 1992, as
amended (the Chiron Agreement), the exclusive licenses granted to Miles and its Affiliates by
Onyx under such Onyx rights pursuant to this Article 4 shall be exclusive or co-exclusive only to
the extent Onyx holds exclusive or co-exclusive rights under the Chiron Agreement.
4.4
Royalty-Bearing Product Commercialization Licenses.
(a) Onyx hereby grants Miles and its Affiliates an exclusive, royalty-bearing license, with
the right to grant sublicenses, under the Onyx Patents and the Onyx Know-How solely to develop,
make, have made, use, have used, sell and have sold Royalty-Bearing Products of Miles in such
countries where such products are deemed hereunder to be Royalty-Bearing Products, subject to the
terms and conditions of this Agreement.
(b) Miles hereby grants Onyx and its Affiliates an exclusive, royalty-bearing license, with
the right to grant sublicenses, under the Miles Patents and Miles Know-How solely to make, have
made, use, have used, sell and have sold Royalty-Bearing Products of Onyx in such countries where
such products are deemed hereunder to be Royalty Bearing Products, subject to the terms and
conditions of this Agreement.
4.5
Know-How Licenses Following The Research Term
. Each Party hereby grants the other Party
and its Affiliates a non-exclusive, world-wide, fully paid-up license to use the Know-How of the
Party granting such license for any purpose relating to the Ras Pathway or Ras Function.
4.6
Onyx License After Research Termination.
Miles hereby grants Onyx and its Affiliates an
exclusive royalty-bearing, worldwide license (the Termination License), with the right to grant
sublicenses, under the Miles Patents, and Miles Know-How at a rate pursuant to Section 16.4 solely
to discover and develop substances with activity in the Field of Collaborative Research and to
make, use and sell such substances; provided, however, that this Termination License may be
exercised by Onyx only in the event that Miles terminates the Research on or before
[ * ]
under
Section 5.6, 5.7 or 5.8. In the case of termination of Research and substitution under Sections
5.6 and 5.7, this license covers the Field of Collaborative Research as defined prior to such
substitution.
* * * *
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
13
CHAPTER 3
RESEARCH
Article
5
Collaborative Research Program
5.1
Program Management.
Miles and Onyx will conduct the Research on a collaborative basis
with the goal of discovering, synthesizing, and performing preclinical investigations on
Collaboration Compounds for clinical development into Products as rapidly as possible. The
Research will be supervised and managed by the JRDC. The Parties have agreed to the two-year
Research Plan attached as Exhibit C. The Parties will update the Research Plan for subsequent
years of the collaboration at least 120 days before the beginning of each calendar year. The
Research Plan also may be amended and updated by the JRDC at any time in view of the results of the
Research performed up to that time.
5.2
Decision Points During Research.
During the Research, the JRDC shall direct compounds and
other materials, including Collaboration Compounds, through the program of research investigation
and preclinical development work towards selection of Collaboration Compounds for Co-Development as
Development Compounds. The initial stage of this process shall be the development of assays and
the screening of compounds to determine which compounds should be selected as Lead Structures.
Identified Lead Structures will be further investigated, including performing Analoging Programs on
such Lead Structures, and performing needed pharmacology, drug optimization, further chemistry
investigation, and toxicology and pharmacokinetic investigations, as appropriate. Compounds
resulting from an Analoging Program will be further investigated under the Research to determine
which of such compounds are Collaboration Compounds. The Research is intended to generate results
and data sufficient to determine which compounds should be selected as Development Compounds for
preclinical development investigation (see Section 11.2).
5.3
Research Efforts and Expenses.
Each of the Parties will work diligently to carry out the
Research, to cooperate with the other Party in the conduct of the Research, and to achieve the
objectives of the Research, and shall maintain and utilize scientific staff, laboratories, offices
and other facilities consistent with such undertaking. Specific funding for performing the
Research is provided in Article 9. Each Party shall bear any of its own expenses incurred in
connection with the Research not provided for in Article 9 or otherwise in this Agreement.
Management of personnel, including their compensation and evaluation, will be the responsibility of
the Party which employs or engages such personnel.
5.4
Annual Plan and Budget.
At least 120 days prior to the beginning of a new calendar year
during the Research Term, the JRDC shall agree upon and provide to the Parties a plan (the Annual
Plan) setting forth each Partys research tasks and goals under the Research for that year and
setting a budget for such Research.
The Parties shall approve the budget in the Annual Plan, with such changes as they deem appropriate
and mutually approve.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
14
5.5
Extension of Research Term.
The Parties may agree to extend the Research Term by mutual
consent on such terms and conditions as the Parties may then agree.
5.6
Termination of Research with Substitution of New Research Target.
If prior to two and
one-half years after the Effective Date Miles determines that the program of Research on inhibition
of Ras Function is unlikely to prove successful in identifying products useful for treating cancer
and/or other hyperproliferative diseases, Miles may elect to substitute, as of February 1, 1997,
another Onyx research program in the field of oncology, if such program remains available for
collaboration, in place of the research on inhibition of Ras Function in the Research under this
collaboration. Miles may effect such substitution by giving Onyx at least six months written
notice, to be effective on February 1, 1997. Upon the effective date of such notice, the Onyx
research program in oncology covered by such notice shall be substituted into the collaboration
covered by this Agreement in the place of the then-existing Field of Collaborative Research. The
Parties shall meet in good faith to agree on a suitable amendment to this Agreement in order to
reflect such substitution, including by way of example revising the definitions of Research, Field,
Field of Collaborative Research, Collaboration Compound, and Post Collaboration Compound and
developing a new Research Plan, in order to conform this Agreement with the new research program
substituted by Miles. For purposes of determining the Research Term and the funding of the
Research with respect to such substituted target, upon the election of substitution by Miles under
this Section 5.6, the new Research shall be deemed to commence on February 1, 1997, with a new
five-year Research Term and including an annual $5,000,000 Research payment for each year of such
five year term.
5.7
Consequences of Research Substitution.
If Miles terminates, pursuant to Section 5.6, the
existing research project under the Research and substitutes another Onyx research program in its
place, then, after the effective date of the Miles notice of substitution:
(i) Miles shall no longer have any rights under Onyx Patents or Know-How, or with
respect to the Field of Collaborative Research as defined prior to such substitution,
(ii) Onyx may thereafter exercise the Termination License under Miles Patents and
Know-How, and granted to Onyx under Section 4.6;
(iii) Miles shall promptly return to Onyx or destroy all copies of Onyx Information and
any other confidential information belonging to Onyx (except to the extent such information
relates to the Field of Collaborative Research as newly defined after the substitution).
[
* ]
shall use due diligence in prosecuting and maintaining all
[ * ]
Patents arising from
inventions in the Research. In the event
[ * ]
declines to prosecute or maintain any such
[
* ]
Patent,
[ * ]
shall give
[ * ]
notice of such decision at least
[ * ]
prior to any
deadline or due date with respect to such patent.
[ * ]
shall then have the right to prosecute and maintain any such
[ * ]
Patent at its own expense.
[ * ]
shall authorize,
transfer and assign to
[ * ]
the right to enforce and defend all such
[ * ]
Patents within
the Field of Collaborative Research.
[ * ]
agrees to perform all acts deemed necessary or
desirable by
[ * ]
to permit and assist
[ * ]
, at
[ * ]
expense, in enforcing its rights
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
15
throughout the world in the
[ * ]
Patents arising from inventions in the Research and other
intellectual property rights arising from this collaboration. Such acts may include, but
are not limited to, execution of documents and assistance or cooperation in the enforcement,
including litigation or other legal proceedings, of applicable patents.
5.8
Termination of Research by Miles.
Except for termination of the Agreement under Section
23.2, Miles may terminate the Research only
(a) on the date
[ * ]
after the Effective Date, by giving Onyx at least
[ * ]
written
notice in advance of such termination, or
(b) pursuant to the provisions of Section 5.9.
If Miles terminates the Research hereunder, then:
|
(i)
|
|
Onyx may thereafter exercise the Termination License under Miles Patents and
Know-How granted to Onyx under Section 4.6;
|
|
(ii)
|
|
Miles shall promptly return to Onyx or destroy all copies of Onyx Information
and any other confidential information belonging to Onyx; and
|
|
(iii)
|
|
this Agreement, including all licenses granted to Miles under Article 4, shall
terminate effective as of such termination, subject to the survival of this Section,
Section 4.6, and the portions of this Agreement referred to in Section 24.5.
|
[ * ]
shall use due diligence in prosecuting and maintaining all
[ * ]
Patents arising from
inventions in the Research. In the event
[ * ]
declines to prosecute or maintain any such
[ * ]
Patent,
[ * ]
shall give
[ * ]
notice of such decision at least
[ * ]
prior to any deadline or due
date with respect to such patent.
[ * ]
shall then have the right to prosecute and maintain any
such
[ * ]
Patent at its own expense.
[ * ]
shall authorize, transfer and assign to
[ * ]
the
right to enforce and defend all such
[ * ]
Patents within the Field of Collaborative Research.
[ *
]
agrees to perform all acts deemed necessary or desirable by
[ * ]
to permit and assist
[ * ]
, at
[ * ]
expense, in enforcing its rights throughout the world in the
[ * ]
Patents arising from
inventions in the Research and other intellectual property rights arising from this collaboration.
Such acts may include, but are not limited to, execution of documents and assistance or cooperation
in the enforcement, including litigation or other legal proceedings, of applicable Patents.
5.9
Key Employee Departure.
If prior to two and one-half years after the Effective Date Dr.
Frank McCormick or Dr. Peter Myers ceases to be employed by Onyx, Onyx shall use diligent efforts
to find a research scientist to replace the departed employee. If Onyx is unable. to find such
replacement who is reasonably satisfactory to Miles within 180 days after Dr. McCormick or Dr.
Myers ceases to be employed by Onyx, then Miles may terminate this Agreement by giving Onyx 60 days
written notice.
If Miles terminates the Agreement under this Section, Onyx may thereafter exercise the
Termination License under Miles Patents and Know-How granted to Onyx and its Affiliates
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
16
under Section 4.6. In such a case, however, the Termination License is non-exclusive, and at a rate
pursuant to Section 16.4.
After termination Miles may continue the preclinical research and development work in the
Field of Collaborative Research as defined at the date of termination. For this reason, Onyx
hereby grants to Miles and its Affiliates a non-exclusive, royalty-bearing worldwide license under
the Onyx Patents and Know-How, solely to discover and develop substances with activity in the Field
of Collaborative Research and to make, use and sell such substances, at a royalty rate pursuant to
Section 16.4.
Such work by Miles after termination is deemed to be work under Section 7.3 such that Onyx
provides Information and Miles provides reports on results, may elect to prepare and file an IND
and to proceed with clinical trials, etc. Compounds thus independently investigated and developed
by Miles shall be deemed Royalty-Bearing Products of Miles; however, Onyx has an option for
buy-back pursuant to the provisions of Section 7.4. This paragraph applies only to compounds that
were physically available at the time of termination.
* * * *
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
17
Article
6
Specification of Research Field and Assays
6.1
Refinement of Field of Collaborative Research.
In executing this Agreement, the Parties
recognize that scientific understanding of Ras Function is still developing and will continue to
develop during the term of the Research. Further, the Parties recognize that a principal objective
of the Research, particularly in its early stages, is to develop further assays to identify
compounds which may be useful for inhibiting Ras Function. The JRDC shall periodically review the
definition of the Field of Collaborative Research and determine, with specific reference to
programs, targets, and assays then in existence or under development, which programs, targets, and
assays shall comprise the best areas for Research for discovering inhibitors of Ras Function. Such
programs, targets, or assays shall then be selected and included in the Field of Collaborative
Research, and any programs, targets, or assays determined no longer to be useful in identifying
compounds that inhibit Ras Function shall be removed from the Field of Collaborative Research by
the JRDC. Any changes to such Field of Collaborative Research by the JRDC shall be effected by
modification of the attached Exhibit B. In the event the JRDC expands the Field of Collaborative
Research to include other programs, targets, or assays, such expansion shall not affect any rights
or obligations of either Party with respect to Third Parties pursuant to agreements entered into
prior to such expansion. If Miles elects to substitute a different Onyx cancer program for the Ras
Function inhibition program, pursuant to Section 5.6, this Field of Collaboration Research will be
modified to reflect the new programs, targets, and assays included in the program covered by such
substitution, including revision of the attached Exhibit B.
6.2
Restriction of the Field of Collaborative Research.
If, under Section 6.1, the JRDC
removes certain programs, targets, or assays from the definition of Field of Collaborative
Research, then the licenses under the Patents and Know-How relating to such programs, targets, or
assays granted under Article 4 shall then terminate with respect to such programs, targets or
assays. Further, if one Party but not the other had a research program with respect to such
programs, targets, or assays prior to their inclusion in the Field of Collaborative Research (and
so advised the JRDC prior to such inclusion), such Party shall have the option
(a) to acquire the entire right, interest, and title in and to all know-how and Patents
jointly developed by the Parties during the course of the Research that relate directly to
such programs, targets, or assays removed by the JRDC from the Field of Collaborative
Research; and
(b) to obtain an exclusive, worldwide license to all know-how and Patents developed
solely by the other Party during the course of the Research that relate directly to such
programs, targets, or assays removed by the JRDC from the Field of Collaborative Research,
solely for purposes of developing and making, using and selling products based upon such
programs, targets and assays. Such option shall be exercisable for
[ * ]
after such JRDC
decision. If
[ * ]
is the Party exercising such option,
[ * ]
shall pay
[ * ]
for all
amounts expended in the Research directly for developing or discovering such
jointly-developed know-how, Patents, and inventions covered by the option
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
18
exercised, and shall pay
[ * ]
a commercially reasonable royalty up to
[ * ]
negotiated in
good faith for the exclusive license. If
[ * ]
exercises such option, it shall
[ * ]
.
6.3
Specification of Ras Function Assay Standards.
The JRDC shall specify the assays and the
level of measured activity under such assays in the Field of Collaborative Research that shall be
required by the Parties to establish that a specific compound exhibits a sufficient level of
activity in inhibiting Ras Function to qualify as a Collaboration Compound under Section 1.11. The
initial standards of measured activity for identifying a Collaboration Compound are set forth on
Exhibit E. It is anticipated that the specific assays and required level of activity established
hereunder by the JRDC for qualifying compounds as Collaboration Compounds under Sections 1.11 may
change by JRDC decision during the Research, as the Parties improve and refine their understanding
of Ras Function. Such changes shall be reflected by amendment of Exhibit E and shall take effect
on the date the amended Exhibit E is signed by both Parties. The Parties understand that if a
compound or material shows activity in assays within the Field of Collaborative Research, such
activity may support the Parties conducting further Research on such compound within the Field of
Collaborative Research, but such compound shall not qualify as a Collaboration Compound unless it
meets the requirements established by the JRDC under this Section 6.3.
Article
7
Allocation of Research Tasks
7.1
Onyx Research Obligations.
Onyx shall be primarily responsible for performing the
biological research components of the Research Plan, including investigation of new targets,
development of assays, and production of assay reagents. Onyx shall perform such primary screening
of compounds as the JRDC determines is appropriate. Such primary screening shall include compounds
and materials in the Miles and the Onyx library and collection selected by the JRDC for screening
by Onyx. To the extent assays in the Field of Collaborative Research are appropriate for
large-scale, high throughput primary screening of compounds, Miles shall perform such screening,
with Onyx assistance in transferring needed assay reagents and Onyx Information. Onyx will have a
right to perform
[ * ]
in the first year of the Research Term with
[ * ]
, in the second year with
[
* ]
and starting in the third year of the Research Term, up to
[ * ]
of the scientific full-time
equivalents (FTEs) funded by Miles at Onyx during the remainder of the Research Term under the
Miles funding. Onyx shall also have the right throughout the Research Term to perform
[ * ]
in the
Field of Collaborative Research
[ * ]
. Onyx also will perform
[ * ]
and will assist Miles in
performing preclinical investigations on Development Compounds in the Preclinical Development
Period, at Miles reasonable request. Onyx shall provide the number of FTEs to conduct the
Research as specified by the JRDC under the Annual Plan. Onyx may increase the size of its total
research team beyond that set forth in the Annual Plan, but shall not receive any payment under
Article 9 for any increase in Research effort which was not approved in advance by the JRDC.
7.2
Miles Research Obligations.
Miles shall provide to Onyx samples of a sufficient number
and range of materials from its library and collection, for screening by Onyx under the Research,
to enable Onyx to screen the
Miles prototype library, which is representative of the complexity and diversity of the Miles
library and collection. Onyx shall have the right to screen
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AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
19
any material from Miles where sampling or other data indicates likelihood of activity in the Field. Miles shall perform all pharmacology
research and such biological research as the JRDC may request. Miles shall perform the chemistry
required during the Research Term, except as performed by Onyx under Section 7.1. Onyx shall
provide Miles such information and materials relating to the Onyx assays as are necessary for Miles
to perform its chemistry obligations under the Research. Miles shall also perform such primary
screening of compounds as the JRDC determines is appropriate using assays within the Field of
Collaborative Research that can be utilized efficiently in large-scale, high throughput screening.
7.3
Independent Funded Research Of Onyx Subject to Buy-Back.
Onyx may perform independent
preclinical research and development work pursuant to Section 12.4 during the Research Term, or
pursuant to Section 9.6 after the Research Term,
[ * ]
. In those events, upon request by Onyx,
Miles shall provide all Information and materials reasonably requested by Onyx to assist in such
preclinical research and development work. During such work, Onyx shall provide Miles regular
reports on results, including any animal testing data and toxicology. Onyx may elect to prepare
and file an IND and to proceed with clinical trials and Clinical Development Period work. Onyx
shall deliver to Miles a copy of any IND packages. Subject to Miles rights under Section 7.4,
compounds independently investigated and developed by Onyx pursuant to this Section shall be deemed
Royalty-Bearing Products of Onyx. Research performed by Onyx following the Research Term shall not
be subject to buy-back rights of Miles except as provided in this Section 7.3 or Section 7.4, 7.5
or 9.6(b).
7.4
Miles Buy-Back.
If under Section 7.1 Onyx performs
[ * ]
chemistry or under Section 7.3
Onyx performs independent preclinical research and development work, Miles shall have an option to
reestablish the cooperation with Onyx in preclinical research and development work. Such option
may be exercised for any compound deriving from such preclinical research and development work at
any time up until 30 days following
[ * ]
by written notice to Onyx. If Miles exercises such
option, Miles shall pay Onyx, within
[ * ]
following notice of exercise of the option, an amount
equal to
[ * ]
of Onyx expenses in performing such independent preclinical research and
development work on such compound, through the date of the notice. In such a case any license
pursuant to Section 4.6 shall terminate and such compound shall be a Collaboration Compound. If
Miles does not exercise such option, such compounds thereafter shall be deemed Royalty-Bearing
Products of Onyx, and Onyx shall have the exclusive right to develop and market such compound under
Section 12.4.
7.5
Collaboration Compounds Developed After A Termination Under Section 5.9.
In the event
that following a termination under Section 5.9, either Party performs preclinical development of a
Collaboration Compound (including for this purpose any compound that was physically available at
that time and is later determined to satisfy the criteria of a Collaboration Compound) that had
been identified prior to such termination, the other Party shall retain buy-back rights to
reestablish a collaboration with respect to such Collaboration Compound under the terms and
conditions of Section 7.4.
7.6
Conduct of Studies.
All work and investigations done in connection with the Research
shall be carried out in compliance with any federal, state or local laws, regulations, or
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
20
guidelines governing the conduct of research at the site where such work is being conducted. Each
Party agrees to provide the other with all safety and other handling information and instructions
available to the disclosing Party relating to all materials transmitted to the other Party
hereunder.
Article
8
Research Material and Information
8.1
Rights In Materials
.
(a) Any compounds or other materials that are tested in the Research but do not become
Collaboration Compounds shall remain the sole and exclusive property of the Party that
brought such materials to the collaboration, and the other Party shall have no rights
therein, except as set forth in Section 8.1(c).
(b) Compounds synthesized in an Analoging Program shall be owned by the Party who
conducted the Analoging Program. If any compound generated under an Analoging Program is
discovered, at any time, to be a Collaboration Compound, then such Collaboration Compound
may be commercialized only as provided hereunder.
(c) Miles shall have the right, exercisable until
[ * ]
after the end of the Research
Term, to screen in any of Miles assays or screens any compound made by Onyx under an
Analoging Program
[ * ]
. If Miles desires to commercialize any such compound identified in
such screening as having pharmaceutical utility, Miles shall give Onyx written notice prior
to
[ * ]
after the end of the Research Term, specifying the compound and the proposed
indication to be developed. Thereafter, the Parties will meet in good faith to negotiate an
exclusive license agreement, including a commercially reasonable royalty and requirement of
diligence, under Onyx rights in such compound for such commercialization. The royalty
shall only be paid if and as long as such compound is covered by a valid claim of an Onyx
Patent. At
[ * ]
after the end of the Research Term, all rights to commercialize compounds
made by Onyx under such an Analoging Program shall return solely and exclusively to Onyx,
except with respect to any such compounds for which Miles gave prior written notice
hereunder. Miles agrees to notify Onyx promptly upon its determination at any time that it
no longer is interested in screening or commercializing any particular compound or compounds
made by Onyx under an Analoging Program. All rights in such compound or compounds then
shall be wholly owned by Onyx, and Miles option to screen with respect to such compound or
compounds shall immediately expire.
8.2
Acquisition of Third Party Technology.
If during the Research Term either Party becomes
aware of any technology (including compounds) of a Third Party that would be valuable to the
discovery, development or commercialization of Collaboration Compounds or Products, the Party will
provide such information to the JRDC. Within 60 days of such notification, the JRDC will determine
whether that technology should be brought into the Research. In the event that
acquisition of any Third Party technology would result in payment of royalties or other license
fees to a Third Party that would
[ * ]
, then the Parties shall decide jointly whether to acquire
such technology. No consent shall be required with regard to any
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AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
21
license for which a Party bears
the entire economic burden, and which does not otherwise impair such Partys performance under the
Agreement.
Article
9
Research Funding
9.1
Miles Financial Support.
Miles shall provide financial support for Onyx Research efforts
during the Research Term as set forth in each Annual Plan. Such support shall be provided for
[ *
]
scientific full-time equivalents (FTEs) annually over 5 years initially at the rate of
[ * ]
per
calendar year for each Onyx scientific FTE working on the Research under the Annual Plan, plus such
Third Party expenses to assist Onyx in performing the Research (such as in vivo animal studies) as
may be approved by the JRDC. Commencing with the calendar year 1995, such reimbursement rate shall
be adjusted each January 1 for inflation based on changes in the Bureau of Labor Statistics
Consumer Price Index for Urban Wage-earners San Francisco/Oakland from September 1993 to the
September immediately preceding such January 1. Upon the request of either Party during the
Research Term, the JRDC shall review the actual costs of Onyx incurred in connection with the
Research. Any such adjustment in the reimbursement rate shall have prospective effect only.
9.2
Minimum Level of Financial Support.
The minimum amount payable by Miles under Section 9.1
shall be US$
[ * ]
in the first year of the Research Term, US$
[ * ]
in each of the next
[ * ]
years
of the Research Term, and
[ * ]
in the
[ * ]
year of the Research Term. These amounts reflect the
total financial support for the
[ * ]
FTE annually over 5 years.
9.3
Restriction on Government Support.
Onyx shall not obtain any new governmental or other
third party support of the Research without the prior approval of Miles. Upon signing of this
Agreement, Onyx shall terminate all government grants it currently is receiving that cover research
in the Field of Collaborative Research. To the best of Onyx knowledge, none of the work done by
Onyx (or its predecessors) under government grants prior to the execution of this Agreement has
resulted in any Patents or patent applications owned or licensed by Onyx that claim subject matter
within the Field of Collaborative Research.
9.4
Manner of Payments.
Miles shall pay Onyx all funding under this Article 9 in U.S. Dollars
in quarterly payments as a lump sum on or before
[ * ]
each calendar quarter, with payment for the
period from the Effective Date through June 30, 1994 in the amount of
[ * ]
to be made within 10
days after the execution of this Agreement. Payment shall be made by wire transfer of immediately
available funds to an account designated in writing by Onyx. Unless otherwise agreed in writing by
Onyx and Miles, the amount of each installment (except for the first payment) shall be one-fourth
of the total annual budget for a particular year as approved by the JRDC under the Annual Plan.
9.5
Application of Funds; Reporting.
Onyx shall use the funds received by it under this
Article 9 solely for the purpose
of the Research. Onyx shall submit to the JRDC within 60 days after the end of each calendar year
of the Research Term a report advising the JRDC of the scientific FTEs and other efforts and
expenses applied by it to the Research during the preceding calendar year. In the event that such
report shows that Onyx did not expend some of the funds it
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AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
22
received hereunder, such amount shall be
applied as a credit towards the next payment of funds by Miles hereunder, or if no such further
payment is owed, shall be promptly refunded to Miles.
9.6
Research Activities After Research Term.
The Parties expect that both Parties may
continue to jointly conduct research and preclinical work on Collaboration Compounds not in
development after the end of the Research Term, with the intent of making proposals to the JRDC for
selection of such Collaboration Compounds for Co-Development into Products. Funding of such
preclinical work shall be as follows:
(a) For any Collaboration Compound in active Preclinical Development Period work as a
Development Compound at the end of the Research Term,
[ * ]
pay all costs approved by the
JRDC relating to the preclinical research and investigations by
[ * ]
in the Preclinical
Development Period.
[ * ]
shall reimburse
[ * ]
for its approved preclinical expenses
within
[ * ]
of the end of each quarter, based upon invoices submitted by
[ * ]
. If
[ * ]
declines to fund the preclinical work on such Development Compound,
[ * ]
may exercise its
rights under Section 7.3. Either Party may propose any such Collaboration Compound to the
JRDC for selection for Co-Development, as set forth in Section 11.4.
(b) For all Collaboration Compounds not under active investigation in the Preclinical
Development Period at the end of the Research Term, either Party may propose to the other
that the Parties conduct jointly funded preclinical research and investigation work on such
Collaboration Compound. If the Parties agree on such arrangement, such preclinical work and
Preclinical Development Period work shall be managed by the JRDC to facilitate bringing such
compound into the Clinical Development Period and to eliminate duplication of effort, with
[
* ]
paying for
[ * ]
of the expenses of such work, reconciled on a quarterly basis. If a
Party does not accept the other Partys proposal to perform joint preclinical work on such
Collaboration Compound, either Party may perform such work independently,
[ * ]
. In that
event, prior to conducting any independent Clinical Development Period work on such
Collaboration Compound, the Party conducting such independent preclinical work shall propose
the Collaboration Compound to the JRDC for selection for Co-Development under Section 11.4.
If the JRDC selects such Collaboration Compound for Co-Development, then the Party that did
not conduct the preclinical work on such Collaboration Compound shall pay the other Party
[
* ]
of that Partys expenses in conducting such independent preclinical work on that
compound. Thereafter, the Parties shall
[ * ]
, and shall conduct Co-Development of such
Collaboration Product as set forth in Chapter 4. The rights of a Party to buy back into a
Collaboration Compound being independently developed by the other Party under this Section
9.6(b) shall not expire until 30 days following
[ * ]
. If the JRDC does not then select
such compound for Co-Development, the Party desiring to develop such Collaboration Compound
may proceed with development independently pursuant to Section 12.4.
(c) For compounds that are under active investigation as part of the Research at the
end of the Research Term but have not yet been determined to be a Collaboration
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AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
23
Compound, the Parties shall have equal rights to continue work and commercialize any resulting
Products under the same arrangements as set forth in paragraph (b) above.
(d) The Party who is the owner of any pending or issued claim of an unexpired Patent
pursuant to Section 1.39 (a) claiming the chemical genus of compounds at least one of which
was identified as a Collaboration Compound and whose Patent covers a Post-Collaboration
Compound shall have the exclusive right to develop and market such Post-Collaboration
Compound worldwide, subject to a royalty pursuant to Section 16.6. The testing for
inhibiting Ras Function activity by Post-Collaboration Compounds shall be done by Onyx.
Article
10
Research Reports
10.1
Information and Reports During Research.
Onyx and Miles shall make available and
disclose to each other the Information and all other significant information, data, and results
known or developed by each party as of the Effective Date and during the Research Term, relating to
the Field and the Field of Collaborative Research. All discoveries or inventions made by either
Party in the Field and the Field of Collaborative Research, including without limitation
information regarding initial leads, activities of leads, derivatives, analogs, and results of in
vitro and in vivo studies, will be promptly disclosed to the other Party, with significant
discoveries or advances being communicated as soon as practicable after such information is
obtained or its significance is appreciated. Each Party shall also submit a written report to the
JRDC, at least once a quarter and at least three days prior to the JRDC meeting during such
quarter, summarizing the significant results, data, and information, including a list of all new
materials created, from the Research conducted by that Party during the previous quarter. Each
Party will use reasonable efforts not to communicate information to the other Party that has no
application to the Field. Each Party agrees to provide the other with access to review and make
copies of the raw data for any and all work carried out in the course of the Research, as
reasonably requested by the other Party to further the objectives of this Agreement.
10.2
Reports After Research Term.
Following the Research Term, each Party shall submit
reports to the JRDC on a quarterly basis regarding all work being done by such Party with respect
to Collaboration Compounds not yet in Development and other compounds under active investigation in
the Research as of the end of the Research Term, at a level of detail sufficient to enable the
other Party to understand the progress being made and to evaluate whether to participate in funding
such preclinical work under Section 9.6, and with respect to any efforts under Section 9.6(d)
towards identifying and developing Post-Collaboration Compounds.
* * * *
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
24
CHAPTER 4
PRODUCT DEVELOPMENT
Article
11
Co-Development
11.1
Scope of Development.
Development and commercialization by the Parties, or either of
them, of any and all Collaboration Compounds for any indication in the Field shall be conducted
solely as provided under this Agreement. All Co-Development will be supervised and managed by the
JRDC. The JRDC shall:
|
(i)
|
|
review all proposals under Section 11.4 and select Collaboration Compounds for
Co-Development into Collaboration Products;
|
|
(ii)
|
|
review and approve the world-wide plan for the Co-Development of each
Development Compound selected for Co-Development, including an annual budget subject to
approval by the Parties, the clinical plan, and selection of indications (the
Co-Development Plan); and
|
|
(iii)
|
|
approve all major decisions regarding Co-Development.
|
11.2
Preclinical Investigation and Development.
The JRDC shall select which Collaboration
Compounds in the Research shall enter the Preclinical Development Period as Development Compounds.
Development Compounds shall be evaluated and investigated under the Preclinical Development Period
to determine whether to select such Development Compounds for Co-Development. The Preclinical
Development Period shall be directed towards obtaining the data necessary or useful for selecting
specific Collaboration Compounds (that are Development Compounds) for Co-Development and for filing
the applications for approval to conduct human clinical trials. The Preclinical Development Period
includes the preclinical work needed to prepare the data necessary or useful for filing an IND (or
related applications) and for obtaining governmental approval to conduct human clinical trials on
such Development Compounds, such as
[ * ]
. Except as otherwise provided in the Annual Plan, Miles
shall perform all of the preclinical and regulatory work under the Preclinical Development Period.
Miles shall bear all costs and expenses related to the work in the Preclinical Development Period
(except as set forth in Section 9.6(b) with respect to preclinical work after the Research Term).
11.3
Synthesis of Preclinical Materials.
The cost of Collaboration Compounds synthesized for
use in the Research and the Preclinical Development Period, and related costs of process
development, shall be part of the Annual Plan and budget pursuant to Section 5.4. Materials used in
the Preclinical Development Period shall be manufactured by
[ * ]
, it being understood that Miles
will be the Party responsible for the development of manufacturing processes.
11.4
Selection of Collaboration Compounds for Co-Development.
Co-Development of a Development
Compound shall be initiated by its selection by the JRDC. At any time during the
Agreement, either Party may make a proposal to the JRDC that a
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AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
25
particular Collaboration Compound be selected for Co-Development. Such proposal shall include a summary of all research and preclinical
results upon which such Party bases its belief that such Collaboration Compound is appropriate for
Clinical Development Period work. Within 60 days of receipt of such proposal, the JRDC shall
review all such data and make its decision whether to select such Development Compound for
Co-Development hereunder. In the event that the JRDC needs more information to make its decision,
the JRDC shall inform the Party making the proposal, prior to the end of such 60 day period,
specifying the additional information needed. The JRDC and such Party shall cooperate to provide
the JRDC such additional information as quickly as possible. The JRDC then shall make its decision
as to such Collaboration Compound within 30 days of receiving such additional information. If the
JRDC selects a Collaboration Compound for Co-Development, such Co-Development shall commence with
work necessary for regulatory submission in the Preclinical Development Period to develop a
Collaboration Product. At that time, the JRDC may select an appropriate number of related
Collaboration Compounds to act as back-up compounds to the selected Development Compound (Back-Up
Compounds). Such Back-Up Compounds shall not be subject to independent development under Article
12, during the time that the related Development Compound is in Clinical Development. Such Back-Up
Compounds shall no longer be considered Back-Up Compounds
|
(a)
|
|
if the Back-Up Compounds cease to be in Co-Development (including by reason of
Regulatory Approval), or
|
|
(b)
|
|
within
[ * ]
after the end of the Research Term by decision of the JRDC, or
|
|
|
(c)
|
|
after
[ * ]
after the end of the Research Term.
|
11.5
Budget for Development.
Within 60 days after selection by the JRDC of a Collaboration
Compound for Co-Development the JRDC shall agree upon and provide to the Parties for approval a
budget for the Co-Development activities to be undertaken to achieve Regulatory Approval for such
Development Compound. The JRDC shall amend and update the Co-Development budget at least 90 days
prior to the beginning of a new calendar year while such Co-Development is ongoing, and shall
submit such amended budget to the Parties for approval, with such changes as they may deem
appropriate and mutually approve.
11.6
Performance of Co-Development.
The JRDC shall supervise Co-Development with the goal of
achieving Regulatory Approval of such Development Compound as quickly as possible. In all
countries and territories
[ * ]
, Miles shall have the primary responsibility for performing the
required tasks of Co-Development pursuant to the world-wide Co-Development Plan, including
conducting all clinical trials and obtaining all Regulatory Approvals necessary for marketing
Collaboration Products. Onyx shall assist Miles at Miles reasonable request in performing such
Co-Development tasks; provided, however, that Miles shall at all times have decision-making
authority and remain ultimately responsible for completion of all such tasks and obligations.
Miles (and Onyx, where appropriate) performance of such Co-Development obligations shall be under
the management and supervision of the JRDC, and each Party shall keep the JRDC informed as to all
significant work in Clinical Development Period hereunder.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
26
[ * ]
Miles and Onyx shall jointly participate in performing Co-Development tasks with equal participation by the
Parties to the extent practical, under the supervision of the JRDC. Subject to the principle of
equal participation, the Parties expect that such Co-Development will rely, to the extent it is
economically indicated, on the existing structure and capabilities of Miles for performing Clinical
Development Period tasks. Promptly after selection of a Collaboration Compound for Co-Development,
the Parties shall meet to define a specific mechanism for such joint Co-Development
[ * ]
.
11.7
Funding of Co-Development.
Subject to an election as provided in Section 12.2 below,
each Party shall bear one-half of the Co-Development Costs for each Development Compound, for each
country throughout the world excluding Japan that the JRDC selects for Co-Development. Each Party
shall maintain accurate books and records of all costs and expenses allowable as Co-Development
Costs, within the budget of the Co-Development Plan approved by the Parties. Within 60 days after
the end of any calendar quarter, each Party shall submit to the JRDC a summary of all
Co-Development Costs incurred during that quarter with respect to such Development Compound,
including reasonable detail demonstrating the specific basis for the costs and expenses included in
the summary. The JRDC shall review all such expenses to determine if they fall within the annual
budget in the Co-Development Plan. Any amounts expended outside the approved annual budget shall
be borne by the Party making such expenditure, unless approved by JRDC and if so approved shall be
Co-Development Costs. With respect to the expenses within the annual budget of the Co-Development
Plan, the JRDC shall submit to the Party that bore less than half of the Co-Development Costs
within the budget for that quarter an invoice for the amount that Party must remit to the other
Party or bring that Partys share of the Co-Development Costs up to one-half for the previous
quarter. Such Party shall remit the amount on the invoice to the other Party within
[ * ]
of
receiving such invoice.
11.8
Development Payments.
Miles agrees to pay Onyx the amounts (Development Payments)
specified below. Such payments will occur with respect to each Development Compound during the
Clinical Development Period under the management of the JRDC as long as the Co-Development
continues. No payments under this Section shall be due for independent development pursuant to
Section 12.4. Miles shall make the following Development Payments:
(a) $5.0 million in consideration of research and development efforts to be undertaken
by Onyx pursuant to this Agreement following the first administration of a Development
Compound to a subject under a Phase II clinical trial. This amount shall be paid by wire
transfer within
[ * ]
after such administration.
(b) $15.0 million in consideration of research and development efforts to be undertaken
by Onyx pursuant to this Agreement following the first administration of a Development
Compound to a subject under a Phase III clinical trial. This amount shall be paid by wire
transfer within
[ * ]
after such administration.
(c) $10.0 million in consideration of research and development efforts to be undertaken
by Onyx pursuant to this Agreement following the filing of an NDA for a
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AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
27
Development Compound. This amount shall be paid by wire transfer within
[ * ]
after such
filing.
(d) $10.0 million in consideration of research and development efforts to be undertaken
by Onyx pursuant to this Agreement following the approval of an NDA for a Development
Compound or equivalent in any one of the following countries: France, Germany, Italy,
Spain, or the United Kingdom. This amount shall be paid by wire transfer within
[ * ]
after
such approval.
11.9
Development Diligence.
The Parties
[ * ]
and Miles
[ * ]
shall use diligent efforts to
complete the work in the Clinical Development Period of Collaboration Compounds selected for
Co-Development, and to file applications to obtain Regulatory Approval for Collaboration Products
in each country in which both Parties bear the Co-Development Costs for a particular Product. The
Parties shall own jointly
[ * ]
and Miles shall own solely in all other countries all regulatory
submissions and Regulatory Approvals.
11.10
Collaboration Product Information.
Miles and Onyx will disclose and make available to
each other all preclinical, clinical, regulatory, commercial and other information known by Miles
or Onyx or their respective Affiliates concerning Collaboration Products at any time during the
term of this Agreement. All significant information will be disclosed to the other Party promptly
after it is learned or its significance is appreciated. The Parties shall agree on an appropriate
mechanism, relying if possible on existing infrastructure, to maintain a database of clinical trial
data accumulated from all clinical trials and of adverse drug event information for all
Collaboration Products. Both Parties shall own (subject to Section 11.9 above) and have rights of
access to such database and information.
11.11
Use of Information.
Any information contained in reports made pursuant to this Article
11 or otherwise communicated between the Parties will be subject to the confidentiality provisions
of Article 22 below. Subject to such limitation, Miles may use any information obtained by it
pursuant to this Agreement for the purposes of obtaining Regulatory Approval for Products in
countries where Onyx is not participating in Co-Development of such Products.
11.12
Relationship With Chiron Product Rights.
The Parties recognize that Onyx has granted
Chiron prior rights relating to developing and commercializing
[ * ]
products, as defined in the
Chiron Agreement, and that all rights granted in this Agreement are subject to those prior rights.
In the event any Collaboration Compound introduced to the collaboration by Onyx or synthesized by
Onyx in the course of the Analoging Program pursuant to Section 8.1.(b) satisfies the definition of
a
[ * ]
product, Onyx shall provide notice to Chiron and comply with Chirons rights with respect
to such product. If as a result of such negotiation Chiron elects to develop and commercialize
such compound as a
[ * ]
product under the Chiron Agreement, then Miles and Onyx shall share
equally any Sublicensing Revenue received from Chiron with respect to such products. If Chiron
does not elect to commercialize such Collaboration Compound as a
[ * ]
product, such compound shall be developed, if at all, under this Agreement. Any Collaboration Compound
introduced to the collaboration by Miles or synthesized by Miles in the course of the Analoging
Program pursuant to Section 8.1(b) that satisfies the definition of a
[ * ]
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AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
28
product, shall not be provided to Chiron. Onyx agrees not to make any amendment to the Chiron Agreement or waive any
rights thereunder after the Effective Date which is adverse to the collaboration established by
this Agreement without the prior consent of Miles.
11.13
Manufacture of Clinical Materials.
Miles shall manufacture, or have manufactured, all
quantities of Collaboration Products required for clinical trials and obtaining Regulatory
Approvals. The specifications for such materials shall be established by the JRDC.
The cost of manufacturing such materials
[ * ]
shall be included within Co-Development Costs,
based on Miles then most current estimates of the final Cost of Goods Sold for such Products.
Article
12
Independent Development
12.1
Termination of Funding of Co-Development in Japan.
Onyx has selected not to bear its
share of the Co-Development Costs in Japan. Thus, the Development Compounds shall be deemed
Royalty-Bearing Products for Miles in Japan, but shall remain a Collaboration Product in the rest
of the world. Miles, if it bears the costs to continue work in Japan, shall have the exclusive
rights to develop and market such Products, subject to the payment of royalties pursuant to Section
16.2(b) below.
12.2
Termination of Funding of Co-Development Outside Japan.
Either Party may terminate
entirely its funding for conducting research and preclinical work on Collaboration Compounds not in
development after the end of the Research Term and/or its funding of CoDevelopment Costs for a
particular Development Compound, by giving the other Party 60 days written notice of that decision.
Such Party shall remain responsible for its share of all Co-Development Costs incurred up until
the effective date of such termination under the notice. Thereafter, the other Party may continue
work at its own expense, and the Product shall be deemed a Royalty-Bearing Product. Such Party
continuing work thereby shall obtain the worldwide (excluding Japan), exclusive right to develop
and market such Product, subject to payment to the terminating Party of a royalty on sales of such
Royalty-Bearing Product under Section 16.2(a).
12.3
No Refund of Co-Development Costs.
A Party shall not be entitled to any refund of any
Co-Development Costs it has borne under this Agreement, regardless of any election made under
Sections 12.1 or 12.2.
12.4
Independent Development.
If a Collaboration Compound is not selected by the JRDC as a
Development Compound for Co-Development or has been selected either as Development Compound or as
Back-Up Compound, for which, however, development has been discontinued, either Party may elect, by written
notice to the other Party, to develop such Collaboration Compound as a Product independently,
provided that such Party supported selection by the JRDC at the time the Collaboration Compound was
submitted to the JRDC for consideration. In addition, if Onyx performed independent research and
development on a compound under Section 7.3 and Miles did not exercise the option under Section
7.4, then Onyx may develop such compound as a Product independently. The Party performing such
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
29
independent Clinical Development Period work shall bear all related expenses. Such independently
developed Product shall be a Royalty-Bearing Product. The non-electing Party shall provide all
materials and Know-How relating to such Collaboration Compound as are reasonable to assist such
Party to perform such Clinical Development Period work. The Party that performs such independent
development shall pay a royalty to the other Party for sales of such Royalty-Bearing Product under
Section 16.2(c).
* * * *
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
EXCHANGE ACT OF 1933, AS AMENDED.
30
CHAPTER 5
MARKETING OF PRODUCTS
Article
13
Commercialization of Collaboration Products
13.1
Miles Exclusive Rights Outside the United States.
Outside the United States, Miles shall
have the exclusive right, subject to Section 13.11, to commercialize and market Collaboration
Products. Miles shall use reasonable diligence in marketing Collaboration Products outside the
United States and shall endeavor to maximize the economic value of the Products to the Parties.
Onyx shall cooperate and assist in such marketing at Miles reasonable request.
13.2
Miles Marketing Plan.
At least twelve months prior to the expected Regulatory Approval
of marketing a Collaboration Product, Miles shall develop for review a Marketing Plan setting forth
the world-wide plan for marketing and selling such Collaboration Product. Such Marketing Plan
shall also include a budget financial projections, as set forth in Section 13.3. Such Marketing
Plan will be updated by Miles at least 90 days
[ * ]
and at least 90 days prior to
[ * ]
the launch
of such Product. Onyx shall have the right to meet with Miles to discuss the marketing and selling
plans and strategies contained therein.
13.3
Financial Projections and Budget.
Each Marketing Plan shall include a detailed budget
for the marketing and selling of the Collaboration Product and financial projections for sales and
profitability. The financial projections will set forth projections over the first
[ * ]
years
following launch.
13.4
Onyx Option To Co-Promote.
Onyx has the right to Co-Promote with Miles in the United
States each Collaboration Product that receives Regulatory Approval, so long as Onyx paid one-half
of the Co-Development Costs incurred world-wide for such Collaboration Product excluding Japan.
13.5
Onyx Notice of Intent to Co-Promote.
For each Development Compound in Co-Development,
Miles shall give Onyx a presentation promptly after all Phase II clinical trials data have been
collected and analyzed. This presentation shall give an analysis of all relevant data about such
Development Compound, including results from all Clinical Development Period efforts and shall set
forth a detailed plan and budget for the remaining clinical development needed to obtain Regulatory
Approval and a proposed Marketing Plan for the United States after approval. Such presentation
shall be sufficiently detailed to permit Onyx to make an informed decision about Co-Promotion.
Within
[ * ]
after receipt of such presentation, Onyx shall provide the Miles written notice of
whether it elects to Co-Promote such Collaboration Product in the United States. If Onyx does not
elect to Co-Promote within such period or does not participate in the launch of the Product,
Miles shall have the exclusive right to commercialize and market such Collaboration Product in the
United States.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
31
13.6
Co-Promotion Program.
The JRDC shall determine the method of marketing the Co-Promotion
Products that is designed to maximize the economic value of such Products to the Parties. With
respect to each Collaboration Product that Onyx elects to Co-Promote under Section 13.5, Onyx and
Miles shall each work diligently, and use reasonable commercial efforts, to Co-Promote and
commercialize such Co-Promoted Products in the United States. The JRDC shall develop, oversee and
implement all such commercialization activities, giving equal position and opportunity to each
Party in Co-Promoting Products (the Co-Promotion Program). At least twelve months prior to the
introduction of each such Co-Promoted Product, the JRDC shall prepare a detailed plan for the
initial launch and the 12 month period following launch (Launch Year). Such Co-Promotion Program
shall be updated and approved on an annual basis not later than 90 days prior to each January 1
following launch.
13.7
Co-Promotion Sales Efforts.
Each Party contributes 50% of the overall level of sales
effort for each Co-Promotion Product. The JRDC shall work with the Parties to achieve a mutually
acceptable level of sales efforts, including numbers of sales representatives allocated.
13.8
Co-Promotion Costs.
The Co-Promotion Program for each Co-Promoted Product shall include
a budget, prepared by the JRDC and approved by the Parties, of the approved costs for all aspects
of Co-Promotion in the United States for such Co-Promoted Product (the Approved Co-Promotion
Costs). Approved Co-Promotion Costs may include:
[ * ]
with respect to such Co-Promoted Product.
13.9
Training Program.
The JRDC shall oversee the development of training programs covering
the Co-Promoted Products for the sales forces of each respective Party. The Parties agree to
utilize such training programs on an ongoing basis to assure a consistent, focused promotional
strategy. Training shall be carried out at a time which is mutually acceptable to the Parties, and
which is prior to but reasonably near the date on which Regulatory Approval is expected. As
additional members are added to the Parties respective sales forces, training will be given to
groups of the newly selected members at reasonable intervals of time. All training shall be
carried out by Miles. All training materials will be prepared and supplied by Miles.
13.10
Advertising and Promotional Materials.
The JRDC shall oversee the development of all
written sales, promotional, and advertising materials and all oral presentations relating to
Co-Promoted Products. All such written or visual materials, and oral presentations (where
applicable), shall comply with the general requirements of Article 18 relating to trademarks and
shall, if they identify either Party, describe Miles and Onyx as joining in a research
collaboration and the co-promotion of such Product, and shall display the Onyx and Miles names and
logos with equal
prominence (to the extent permitted by law). All such advertising and promotional materials will
be prepared and supplied by Miles.
13.11
Onyx Marketing.
In a country outside the United States and Japan where Onyx has a sales
force and it is legally permissible to co-promote products, Onyx may request that Miles permit Onyx
to co-promote Collaboration Products in such country. Miles shall consider such request in good
faith, and at its discretion may permit Onyx to perform such co-promotion under terms mutually
agreed to by the Parties.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
32
13.12
Price Setting in the United States.
Miles will have the sole right and responsibility
for establishing and modifying the terms and conditions with respect to the sale of the
Co-Promotion Product, including the
[ * ]
, any
[ * ]
and the like. In establishing such prices and
commercial terms, Miles shall seek to maximize the economic value of such Products to the Parties
over time.
Article
14
Sales Responsibility
14.1
Sales and Distribution.
For each Co-Promotion Product, Miles shall be responsible for
booking sales, warehousing, and distribution of all such Products, and for performing all services
related to Product distribution and customer service. If Onyx receives any orders for Co-Promotion
Product, it shall refer such orders to Miles to be filled.
14.2
Responsibility.
Unless otherwise agreed, Miles shall have the sole responsibility with
respect to the following:
(a) Handling all returns of the Co-Promotion Product. If a Co-Promotion Product is
returned to Onyx, it shall be shipped promptly to the facility responsible for shipment of
such product in the country in question, to the attention of the Returned Goods Department
or another location as may be designated by Miles.
(b) Handling all recalls of the Co-Promotion Products. Onyx will make available to
Miles, upon request, all of Onyx pertinent records which Miles may reasonably request to
assist Miles in effecting any recall.
(c) Handling all aspects of order processing, invoicing, distribution, inventory,
receivables and collection in respect of sales of Co-Promotion Products.
(d) Accounting for Collaboration Revenue. Miles shall properly manage and account for
all amounts received on account of sales of Co-Promotion Products.
14.3
Cost Allocations.
To the extent such costs are not
[ * ]
or otherwise allocated as
[ * ]
hereunder, all other costs incurred under Sections 14.1 and 14.2 shall be
[ * ]
.
14.4
Allocation of Co-Promotion Costs.
Miles, as the Party responsible for accounting under
Section 16.1, shall review all invoices submitted by the Parties as
[ * ]
relating to co-promotion
activities for Co-Promotion Products, and shall approve for reimbursement only those invoices for charges and costs that
constitute Approved Co-Promotion Costs. The Parties shall submit to Miles, on a quarterly basis,
invoices for the Approved Co-Promotion Costs incurred by them during the previous quarter. The
Approved Co-Promotion Costs and the costs pursuant to Section 13.9 and 13.10 shall be deducted as
[
* ]
from the Collaboration Revenue, in accordance with Section 16.1 below, in determining the
Marketing Profit or Marketing Loss.
Article
15
Royalty-Bearing Products
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
33
15.1
Commercialization and Marketing of Royalty-Bearing Products.
Each Party which has
exclusive rights in such countries where Products are deemed Royalty-Bearing Products shall conduct
the development and marketing of such Products in accordance with the Partys internal standards
with respect to matters such as development timetables, expenditures, pricing, promotion and
advertising, taking into account relevant parameters including market size, profit margins and
competition and in accordance with legal and regulatory requirements. Each Party shall use its own
discretion, based upon resources and other relevant parameters, to determine which countries are
selected to pursue the development and marketing of such Royalty-Bearing Products.
Article
16
Compensation for Sales of Products
16.1
Determination and Allocation of Marketing Profit and Loss with Respect to Sales Of
Collaboration Products.
Within
[ * ]
of the end of each of the
[ * ]
calendar quarters and
[ * ]
of the
[ * ]
quarter, Miles shall report to Onyx worldwide Collaboration Revenue received for each
Collaboration Product, on a country-by-country and Product-by-Product on a consolidated basis for
each such quarter. Furthermore Miles shall report to Onyx the
[ * ]
incurred by Miles and reported
to Miles pursuant to Section 14.4, on a country-by-country and Product-by-Product on a consolidated
basis during such quarter.
[ * ]
of the Net Sales of all Collaboration Products other than
Co-Promotion Products shall be an additional
[ * ]
to Miles to compensate Miles for the investment
and risk with respect to the sale and marketing of such Products. The Marketing Profit shall be
divided equally between Onyx and Miles, however, subject to Section 16.3 below. In addition, upon
receipt of such reports for the
[ * ]
quarter, Miles shall reconcile all reports for such calendar
year and shall direct the remittance of a reconciling payment between the Parties, as appropriate.
Marketing Profit shall be determined and allocated between the Parties for so long as
[ * ]
. In
the event that the
[ * ]
are greater than the
[ * ]
for a particular quarter, the difference shall
be deemed Marketing Loss, which shall be allocated in equal shares to each Party. Within
[ * ]
of
such allocation, Onyx shall reimburse Miles an amount which, when added to any unreimbursed
Allowable Expense borne by Onyx during the quarter, will be sufficient to allocate to Miles its
one-half share of the Marketing Loss for the quarter.
16.2
Royalty With Respect to Sales of Royalty-Bearing Products.
Sales by a Party or its
sublicensee of Royalty-Bearing Products shall require payment of royalties to the other Party as
determined under the following provisions:
(a)
Royalties After Termination of Co-Development.
For Collaboration Compounds that
are independently developed under Section 12.2 as Royalty-Bearing Products, the royalty to
be paid on Net Sales by the Party conducting such development is as follows:
(i) if the commencement of independent development occurred after the end of
the Research Term and prior to the commencement of the Clinical Development Period,
the royalty shall be at a rate of
[ * ]
to be negotiated in good faith, or
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
34
(ii) if the commencement of independent development occurred after the
commencement of the Clinical Development Period at the rate determined by the
following equation:
Royalty Rate =
[ * ]
(1) L % means
(i)
during the five year period after the Regulatory Approval of the
Royalty-Bearing Product,
[ * ]
and
(ii)
thereafter,
[ * ]
during the period after the fifth year after Regulatory
Approval of such Royalty-Bearing Product
[ * ]
(2) [ * ]
and
(3) [ * ]
(b)
Royalties For Product Sold in Japan.
For Collaboration Compounds, that are
independently developed under Section 12.1 as Royalty-Bearing Products in Japan, the royalty
to be paid on Net Sales is
(i) A rate of
[ * ]
if either (A) the compound in question has entered the
Preclinical Development Period prior to
[ * ]
or (B) such compound is not in the
Preclinical Development Period prior to
[ * ]
but
[ * ]
and
(ii) A rate of
[ * ]
in all other cases, depending on the stage of development,
such rate to be negotiated in good faith.
(c)
Royalties For Independently-Developed Products.
For Collaboration Compounds that
are independently developed under Section 12.4 above, Net Sales of such Royalty-Bearing
Products by such a Party or its sublicensee shall be subject to a royalty payable by such
Party to the other Party. Such royalty will be at a rate between
[ * ]
to be negotiated in
good faith by the Parties based on the following factors:
(i)
[ * ]
(ii)
[ * ]
and
(iii)
[ * ]
16.3
Special Distribution.
At the end of each calendar quarter, Miles shall be entitled to a
special distribution equal to the amounts of Development Payments made by Miles under Section 11.8
and not yet recovered by Miles under this Section 16.3. The amount of the distribution, however,
shall not exceed the sum of:
|
(i)
|
|
[ * ]
of the
[ * ]
of Marketing Profits for such quarter; and
|
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
35
|
(ii)
|
|
[ * ]
of the
[ * ]
from Royalty-Bearing Products for such
quarter; and
|
|
|
(iii)
|
|
if the end of the
[ * ]
concerned is also the end of the
[ *
]
,
[ * ]
of any Onyx Profit during
[ * ]
. As used herein, Onyx Profit means
any net profit reported by Onyx for financial accounting purposes, as
calculated by
[ * ]
.
|
|
|
|
|
Such distribution shall be effected within 60 days after the end of the
quarter in the following manner or manners, as necessary, in the following
order: (i)
[ * ]
; (ii)
[ * ]
; (iii)
[ * ]
; and (iv)
[ * ]
.
|
16.4
Research Termination.
In the event that Miles terminates the Research under Sections
5.6, 5.7, 5.8 and 5.9 and Onyx sells Products thereafter, then Onyx shall pay Miles a royalty on
Net Sales of such Products, at a commercially reasonable royalty rate up to
[ * ]
.
16.5
Duration of Royalty Obligations: Royalty Step-Down.
The royalty obligation under Section
16.2 shall terminate, with respect to sales of a particular Royalty-Bearing Product, on a
country-by-country basis on the later of: the expiration of the last to expire Patent right
covering such Product owned or Controlled by either Party or
[ * ]
years after the first commercial
sale of such Product. In the event such Product is sold in a country wherein there is no issued
and enforceable Patent owned or Controlled by either Party, covering the manufacture, use or sale
of such Product, then the royalty rate applicable to sales of such Product in such country shall be
[ * ]
rate otherwise specified in this Article.
16.6
Royalty for Post-Collaboration Compound Sales.
In the event a Party sells as a product a
Post-Collaboration Compound it owns, such Party shall pay the other Party a royalty of
[ * ]
of the
Net Sales of such product. Such royalty obligation shall terminate, on a country-by-country basis,
upon the last to expire Onyx Patent or Miles Patent covering such product through its chemical
genus claim.
16.7
Royalty Payment Reports.
Royalty payments under this Agreement shall be made to the
Party owed a royalty hereunder, or
its designee, quarterly within
[ * ]
following the end of each calendar quarter for which royalties
are due from the selling Party. Each royalty payment shall be accompanied by a report summarizing
the Net Sales of Royalty-Bearing Products during the relevant three-month period.
16.8
Royalty Offset.
A Party may offset, against any amounts owed to the other Party as
royalties hereunder due to its sales of Royalty-Bearing Products, the following expenses to the
extent incurred in the year for which such royalty amounts accrued:
(a)
[ * ]
of Third Party Royalties with respect to technology acquired under Section
8.2; and
(b)
[ * ]
of such Partys
(i) one-time settlement payment, and/or
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
38
(ii) ongoing Third Party Royalties required in respect of sales of such
Royalty-Bearing Products by reason of claims relating to Patents or Know-How
licensed from the other Party or developed under this Agreement, all under Section
21.5 with respect to such Partys defense of claims by a Third Party made against
such Party in respect of its making, using, or selling such Royalty-Bearing
Products; provided, however, that a Party may only offset against royalties owned to
the other Party with respect to any particular Product up to an aggregate of
[ * ]
royalties owed the other Party for such Product for the calendar year.
16.9
Taxes.
The Party receiving royalties shall pay any and all taxes levied on account of
royalties it receives under this Agreement. If laws or regulations require that taxes be withheld,
the selling Party will
|
(i)
|
|
deduct those taxes from the remittable royalty,
|
|
|
(ii)
|
|
timely pay the taxes to the proper taxing authority, and
|
|
|
(iii)
|
|
send proof of payment to the other Party within sixty (60)
days following that payment.
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The Parties agree to cooperate to obtain the benefit of any tax treaty with respect to such royalty
payments.
16.10
Blocked Currency.
In each country where the local currency is blocked and cannot be
removed from the country, at the election of the selling Party, royalties accrued in that country
shall be paid to the receiving Party in the country in local currency by deposit in a local bank
designated by the receiving Party.
16.11
Foreign Exchange.
For the purpose of computing royalties due upon the Net Sales of
Royalty-Bearing Products sold in a currency other than United States Dollars, such currency shall
be converted into United States Dollars at the
applicable conversion rate published in the Wall Street Journal on the date when the royalty
payment reports pursuant to Section 16.7 is made.
16.12
Payments to or Reports by Affiliates.
Any payment required under any provision of this
Agreement to be made to either Party or any report required to be made by any Party shall be made
to or by an Affiliate of that Party if designated by that Party as the appropriate recipient or
reporting entity.
16.13
Sales By Sublicensees.
In the event either Party grants licenses or sublicenses to
Third Parties to make or sell Royalty-Bearing Products, such licenses or sublicenses shall include
an obligation for the licensee or sublicensee to account for and report its Net Sales of such
Royalty-Bearing Products on the same basis as if such sales were made by the Party granting the
license or sublicense, and such Party shall pay royalties to the Party receiving royalties under
this Agreement as if the Net Sales of such Royalty-Bearing Products of the sublicensee were Net
Sales of the Party granting the license or sublicense.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
37
Article
17
Information and Reports During Marketing
17.1
Adverse Drug Events.
The Parties shall maintain and promptly provide to each other
information regarding adverse drug events with respect to Collaboration Products as follows:
(a) Each Party shall notify the other Party of any fatal or severe events occurring in
a given country and reported to it in respect of Collaboration Products within twenty-four
(24) hours of receipt of such report and immediately thereafter shall supply to the other
Party all further details which become available to the reporting Party with respect to any
such events;
(b) The Parties shall immediately decide who shall be responsible for notifying such
events reported to it to the appropriate health authorities in accordance with legal
requirements and governmental registrations applying the given country including reporting
to the medical and scientific community if appropriate;
(c) The Parties shall also keep informed each other on a quarterly basis of all other
events with regard to adverse reactions occurring in the countries in respect of
Collaboration Products.
17.2
Records.
Each Party shall keep or cause to be kept such records as are required to
determine in a manner consistent with generally accepted accounting principles in the United States
the sums or credits due under this Agreement, including, but not limited to,
[ * ]
At the request
(and expense) of either Party, the other Party and its sublicensees shall permit the requesting
Party or an independent certified public accountant appointed by such Party and reasonably
acceptable to the other Party, at reasonable times and upon reasonable notice, to examine those
records as may be necessary to:
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(i)
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determine, with respect to any calendar year ending not more
than three years prior to such Partys request, the correctness of any report
or payment made under this Agreement; or
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(ii)
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obtain information as to the royalty payable for any calendar
year. Any such examination shall be subject to Article 22. Results of any
such examination shall be made available to both Parties. The Party requesting
the audit shall bear the full cost of the performance of any such audit, unless
such audit discloses a variance of more than five percent (5%) from the amount
of the original report, royalty or payment calculation. In such case, the
Party being audited shall bear the full cost of the performance of such audit.
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Article
18
Trademarks
18.1
Collaboration Product Trademarks.
Collaboration Products shall be sold under trademarks
selected by agreement of the Parties and owned by
[ * ]
shall grant to
[ * ]
an
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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exclusive, royalty-free license
[ * ]
to use Collaboration Product trademarks, in addition to
[ * ]
use, for
Products developed in the Field.
[ * ]
shall bear all costs associated with the filing,
prosecution and maintenance of Collaboration Product trademarks. In the event a decision is made
to not maintain a Collaboration Product trademark,
[ * ]
shall give
[ * ]
notice to this effect;
after notice,
[ * ]
may request the assignment of such Collaboration Product trademark and may at
its expense maintain such Collaboration Product trademark. Each Party agrees to conform with the
customary guidelines of the licensing Party with respect to manner of use.
18.2
Royalty-Bearing Product Trademarks.
The Party selling a Royalty-Bearing Product shall
select and own trademarks covering such Royalty-Bearing Products in the countries of sale. Where a
Royalty-Bearing Product is a Collaboration Product in some other countries, the Party selling such
Royalty-Bearing Product may use the Product-specific trademark of such Collaboration Product.
18.3
Infringement Of Trademark. [ * ]
shall notify
[ * ]
promptly upon learning of any
actual, alleged or threatened infringement of a trademark specific to a Collaboration Product (the
Trademark) or of any unfair trade practices, trade dress imitation, passing off of counterfeit
goods, or like offenses. Upon learning of such offenses from
[ * ]
shall take all reasonable and
appropriate steps to protect, defend and maintain the Trademark for use by the Parties in
connection with the Collaboration Product.
18.4
Costs of Defense for Collaboration Product Trademarks.
All of the costs, expenses and
legal fees in bringing, maintaining and prosecuting any action to maintain, protect or defend a
Trademark which is specific to a Collaboration Product shall be an
[ * ]
, and any recovery shall be
[ * ]
.
Article
19
Manufacturing and Supply
19.1
Commercial Supply of Collaboration Products.
(a) Miles shall manufacture, or have manufactured, all Collaboration Products for worldwide
sales in conformance with the specifications set forth in the respective applications for
Regulatory Approval and any amendments or supplements thereto, and any substitutes. Subject to
subparagraphs (b) below, the
[ * ]
shall be kept by Miles as an
[ * ]
. Miles shall also be allowed
to keep as an
[ * ]
its
[ * ]
for each Collaboration Product (to the extent not recovered as
Co-Development Costs pursuant to Sections 11.3 and 11.13)
(i) incurred prior to the first commercial sale, without interest, in equal
quarterly amounts over a period of
[ * ]
years, commencing with the first commercial
sale of such Collaboration Product, and
(ii) incurred after the first commercial sale as they occur in each year.
(b) The Parties intend that Miles shall be the worldwide manufacturer of Collaboration
Products, unless Miles elects to use the services of a Third Party, but desire to assure Onyx that
the
[ * ]
are reasonable. If Onyx believes the
[ * ]
actually charged by Miles
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
39
may exceed a reasonable amount, it shall so advise Miles, and Miles shall confer with Onyx in good faith
regarding the Miles cost structure and accounting methodology and whether cost reducing
alternatives may be available. Following consultations with Onyx, Miles shall in good faith
determine whether any reductions in its
[ * ]
Sold are appropriate.
19.2
Labelling.
Co-Promotion Products shall bear Miles and Onyx company name on the labels,
packaging and package inserts with equal prominence to the extent permitted by law. The Parties
shall grant each other fully-paid licenses under their respective trademarks (and as approved by
the Parties at the time) as necessary to effect the Co-Promotion provided for in this Agreement.
All other Collaboration Products shall refer to the fact that the product was developed in
collaboration with Onyx, to the extent permitted by law.
19.3
Commercial Supply of Royalty-Bearing Products.
The Party selling Royalty-Bearing
Products shall be responsible for the manufacture of such Products. If requested by Onyx, Miles
shall consider in good faith any request by Onyx to act at its discretion as manufacturer of
Royalty-Bearing Products being sold by Onyx, on commercially reasonable terms.
19.4
Supply Shortages.
In the event that Miles is unable to manufacture sufficient quantities
of any Product to meet the requirements for Collaboration Products and Miles and Onyx
Royalty-Bearing Products, the Parties shall meet and discuss in good faith how to overcome such
shortage.
* * * *
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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CHAPTER 6
INTELLECTUAL PROPERTY RIGHTS
Article
20
Inventions and Patents
20.1
Ownership of Research Products and Inventions.
(a) Except as set forth in Section 20.1(b) below, each Party shall own the entire right, title
and interest in and to all know-how and patentable inventions made solely by the employees or
agents of such Party, and Patents covering such discoveries or inventions, subject to the terms of
this Agreement. Miles and Onyx shall each own an undivided one-half interest in all know-how,
compositions of matter, and inventions made jointly by employees or agents of both Parties under
the Research. Miles and Onyx shall each own an undivided one-half interest in Patents covering
such jointly-made inventions, with inventorship to be determined under the patent laws of the
jurisdiction where the relevant Patent application is filed. Miles and Onyx as joint owners each
shall have the right to grant licenses under such jointly owned Patents, only to the extent as
provided for in this Agreement.
(b) Notwithstanding the foregoing, in the event that (i) a Party
[ * ]
or (ii) a Party
[ * ]
,
and
[ * ]
then the Party
[ * ]
, shall be assigned all right, title and interest in and to all
know-how and patentable inventions associated with such
[ * ]
, subject to the terms of this
Agreement.
20.2
Disclosure of Patentable Inventions.
In addition to the disclosures required under
Sections 10.1 and 11.10, each Party shall submit a written report to the other within 60 days of
the end of each quarter describing any invention arising during the prior quarter in the course of
the collaboration which it believes may be patentable.
Each Party shall provide the other party with drafts of any patent application which discloses
a Collaboration Compound prior to filing, allowing adequate time for review and comment by the
other Party if possible; provided, however, the providing Party shall not delay the filing of any
patent application pursuant to Section 20.3 below.
20.3
Patent Prosecution.
The Parties intend to establish broad patent protection for
Collaboration Compounds and other patentable inventions arising from the Research. Miles shall
supervise and direct patenting of all patentable inventions conceived in the course of and within
the scope of the Research and reduced to practice during the Research Term or within one year
thereafter by employees of both Parties (the Inventions). Miles shall file and prosecute all
patent applications covering Inventions. All internal costs and expenses of prosecuting such
patent applications covering Inventions shall be borne by
[ * ]
. All
[ * ]
, for prosecuting such
applications on Inventions shall be paid by
[ * ]
and be
[ * ]
. Miles shall give Onyx copies of
all such applications and related correspondence, in sufficient time to allow Onyx reasonably to comment thereon. Miles shall
maintain all Patents that issue on such applications. The external costs and expenses in relation
thereto shall be borne by
[ * ]
and be
[ * ]
.
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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Each Party may make its own decision regarding filing and prosecuting applications for Patents
on inventions made solely by such Party, except with respect to inventions owned by the other Party
pursuant to Section 20.1(b), for which such other Party shall have the right to file and prosecute
patent applications. All such applications shall be
[ * ]
. Prior to such filing, the Parties will
consult with each other to facilitate uniformity and efficiency in the filing and prosecution of
applications to obtain Patents. Each Party shall be responsible for all costs of prosecuting and
maintaining any applications and patents it files hereunder. If a Party decides not to file or
maintain an application or patent in any country on an invention hereunder, it shall give the other
Party notice to this effect; after that notice, the other Party may, at its expense, file or
maintain such application or patent, and the first Party shall assign to such other Party the
rights in such application or patent.
20.4
Confidential Treatment.
All information disclosed under Sections 20.2 and 20.3 shall be
treated as confidential pursuant to Article 22.
Article
21
Infringement
21.1
Infringement By Third Parties for Collaboration Compound.
Miles and Onyx shall promptly
notify the other in writing of any alleged or threatened infringement of Patents relating to
Collaboration Compounds of which they become aware. The Parties shall determine how best to
prosecute any such infringement. If the Parties do not agree on whether or how to proceed with
enforcement activity within
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(i)
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[ * ]
following the notice of alleged infringement or
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(ii)
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[ * ]
before the time limit, if any, set forth in the
appropriate laws and regulations for the filing of such actions, whichever
comes first, then
[ * ]
, may each act in its own name to commence litigation
with respect to the alleged or threatened infringement. In the event a Party
brings an infringement action, the other Party shall cooperate fully,
including, if required to bring such action, the furnishing of a power of
attorney. Neither Party shall have the right to settle any patent
infringement litigation under this Section 21.1 in a manner that diminishes the
rights or interests of the other Party without the consent of such other Party.
The costs of any litigation commenced hereunder,
[ * ]
, but excluding
[ * ]
,
which are incurred after the designation of a Product for Co-Development but
prior to Regulatory Approval, shall be borne in the same manner as if such
costs were Co-Development Costs. Such costs that are incurred following
Regulatory Approval shall be
[ * ]
, reimbursed to the Party incurring such
expense. Any recovery realized as a result of such litigation shall be
[ * ]
.
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21.2
Infringement by Third Parties for Royalty-Bearing Products.
If any Patent in the Onyx
Patents or the Miles Patents, which covers a Royalty-Bearing Product, is infringed by a Third Party
in the country where such Royalty-Bearing Product is being sold, the Party to this
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
42
Agreement first having knowledge of such infringement shall promptly notify the other in writing. The notice shall
set forth the facts of that infringement in reasonable detail.
The Party who is selling such Royalty-Bearing Product shall have the primary right, but not
the obligation, to institute, prosecute, and control any action or
proceeding with respect to such infringement of such Patents. If such Party fails to bring an action or proceeding within a period
of
[ * ]
after receiving notice of that infringement, then the other Party may bring and control
any such action. If a Party brings any such action or proceeding, the other Party agrees to be
joined as a party plaintiff and to give the first Party reasonable assistance and authority to file
and prosecute the suit. The other Party also may choose to be represented in any such action by
counsel of its own choice, at its own expense.
The costs and expenses of the Party bringing suit under this Section shall be reimbursed first
out of any damages or other monetary awards recovered in such action. Any remaining damages shall
be retained by the Party that brought the suit, provided that, if the Party selling the relevant
Royalty-Bearing Product brought the suit,
[ * ]
.
No settlement or consent judgement or other voluntary final disposition of a suit under this
Section may be entered into without the joint consent of Onyx and Miles.
21.3
Third Party Claims Against Collaboration Compound.
If a Third Party asserts that a
patent or other right owned by it is infringed by the manufacture, use or sale of any Collaboration
Compound, the Party first obtaining knowledge of such a claim shall immediately provide the other
Party notice of such claim and the related facts in reasonable detail. In such event, the Parties
shall determine how best to control the defense of any such claim with respect to such
Collaboration Compounds. In the event the Parties cannot agree on the defense of any such claim,
[
* ]
shall have the right to control such defense with respect to the Collaboration Compounds in
issue in all countries
[ * ]
;
[ * ]
shall have the right to control such defense. Onyx and Miles
will cooperate in defending all such actions. Each party shall have the right to be represented
separately by counsel of its own choice. The entity that controls the defense of a given claim
with respect to Collaboration Products shall control settlement of such claim; provided, however,
that no settlement shall be entered into without the consent of a Party if such settlement would
adversely affect the interests of such Party.
21.4
Allocation of Expense; Collaboration Compound or Product.
The expenses of patent
defense, settlement and judgements pursuant to Section 21.3, with respect to sales of Collaboration
Products, shall be a shared expense of the Parties. Such costs incurred after the designation of a
Product for Co-Development but prior to Regulatory Approval shall be
[ * ]
. Such costs incurred
following Regulatory Approval shall be
[ * ]
.
21.5
Third Party Claims Relating to Royalty-Bearing Products.
Where use of Patents or
Know-How of one Party results in a claim for patent infringement against the other Party for its
sales of Royalty-Bearing Products, then the selling Party shall have the first right, but not
obligation, to defend such claim, at its own expense, and to control settlement of such claim;
provided, however, that no settlement shall be entered into without the written consent of the
non-selling Party if such settlement would adversely affect its interests. In the event the
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
43
selling Party does not undertake such defense within
[ * ]
of notice of such claim, then the other
Party may defend and settle such claim, at its own expense; provided, however, that no settlement
shall be entered into without the written consent of the selling Party if such settlement would
adversely affect its interests.
One-time settlement payments and on-going Third Party Royalties required in respect of the
manufacture, use, or sale of Royalty-Bearing Products hereunder may be offset against royalties
owed the other Party, but only to the extent permitted under Section 16.8.
Article
22
Confidentiality
22.1
Confidentiality; Exceptions.
(a) Except to the extent expressly authorized by this Agreement or otherwise agreed in
writing, the Parties agree that, during the periods set forth in (b), the receiving Party
shall keep confidential and shall not publish or otherwise disclose or use for any purpose,
other than as provided for in this Agreement, any Information, and other materials furnished
to it by the other Party pursuant to this Agreement (collectively, Confidential
Information).
(b) The restrictions in Section 22.1(a) shall apply:
(i) during the Research Term and for seven years thereafter, as to all Confidential
Information except to such Information pursuant to (ii) below; and
(ii) with respect to Confidential Information directly relating to Collaboration
Compounds, Collaboration Products, or Royalty-Bearing Products in research, development or
being marketed, for so long as such products remain in research, development or being
marketed and for 5 years thereafter.
(c) The restrictions under this Section 22.1 shall not apply to the extent that it can
be established by the receiving Party that such Confidential Information:
(i) was already known to the receiving Party, other than under an obligation of
confidentiality, at the time of disclosure by the other Party;
(ii) was generally available to the public or otherwise part of the public domain at
the time of its disclosure to the receiving Party;
(iii) became generally available to the public or otherwise part of the public domain
after its disclosure and other than through any act or omission of the receiving Party in
breach of this Agreement; or
(iv) was disclosed to the receiving Party, other than under an obligation of confidentiality,
by a third party who had no obligation to the disclosing Party not to disclose such information to
others.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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22.2
Authorized Disclosure.
Each Party may disclose Confidential Information hereunder to the
extent such disclosure is reasonably necessary in filing or prosecuting patent applications,
prosecuting or defending litigation, complying with applicable governmental regulations or
conducting preclinical or clinical trials, provided that if a Party is required by law or
regulation to make any such disclosure of the other Partys Confidential Information it will,
except where impracticable for necessary disclosures, (for example, in the event of medical
emergency), give reasonable advance notice to the other Party of such disclosure requirement and,
except to the extent inappropriate in the case of patent applications, will use its reasonable
efforts to secure confidential treatment of such Confidential Information required to be disclosed
and to minimize the extent of such disclosure. Each Party also may disclose to its collaborators,
under confidentiality obligations,
(i) Confidential Information developed by such Party during the course of this
collaboration, and
(ii) Confidential Information relating to Royalty-Bearing Products being developed
and/or sold by that Party after such time as the other Party no longer has any right
to return such Royalty-Bearing Product to the collaboration as a Collaboration
Product.
22.3
Survival.
This Article 22 shall survive the termination or expiration of this Agreement.
22.4
Termination of Prior Agreement.
This Agreement supersedes all previous confidentiality
agreements between the Parties and their respective Affiliates. All confidential information
exchanged between the Parties and their respective Affiliates under such agreements shall be deemed
Confidential Information and shall be subject to the terms of this Article 22.
22.5
Publications.
Except as required by law, each Party agrees that it shall not publish or
present the results of studies carried out as part of the Research and Co-Development without the
opportunity for prior review by the other Party. Each Party shall provide to the other the
opportunity to review any proposed abstracts, manuscripts or presentations (including information
to be presented verbally) which relate to the Field of Collaborative Research at least 14 days
prior to their intended submission for publication. The Party receiving such proposed abstract,
manuscript or presentation shall respond in writing within such time period with either approval of
the proposed material or a specific statement of concern, based upon either the need to seek patent
protection or concern regarding competitive
disadvantage arising from the proposal. In the event of concern, the submitting Party agrees not
to submit such abstract or manuscript for publication or to make such presentation until the other
Party is given a reasonable period of time (not to exceed 30 days) to seek patent protection for
any material in such publication or presentation which it believes is patentable or to resolve any
other issues. Each Party also agrees to delete from any such abstract or manuscript any
Confidential Information of the other Party upon its reasonable request based upon the commercial
value of the secrecy of such information.
* * * *
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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CHAPTER 7
GENERAL PROVISIONS
Article
23
Federal State Tax Characterization
23.1
Tax Partnership.
(a)
To the extent defined below, the arrangement established by this Agreement shall be
treated by the Parties as a partnership solely for federal and state income tax purposes,
under Subchapter K of Chapter I of Subtitle A of the Internal Revenue Code of 1986, as
amended (the Code), and any similar state statute. Such tax partnership shall hereinafter
be referred to as the Tax Partnership.
(b)
The characterization of the relationship between the Parties as a partnership is
for the tax purposes set forth herein only and not for the purposes of the partnership law
of any state or for any other purpose. The provisions of this Article 23 do not alter or
amend any other provision of this Agreement, but merely establish the income tax accounting
and reporting methods of the arrangement. The provisions of this Article 23 do not create
any additional rights or obligations between the Parties except as expressly provided herein
and do not, and are not intended to, create any rights in third parties against either
Party. This Article 23 shall not be used by either Party to construe the remainder of the
Agreement nor shall either Party seek to introduce this Article 23 into evidence with
respect to any matter arising between them under the remainder of the Agreement except as to
federal and state income tax issues relating to the Tax Partnership activities of the
Parties during the term of this Tax Partnership. In the event of a conflict or
inconsistency between the terms and conditions of this Article 23 and the terms and
conditions of the remainder the Agreement, the terms and conditions of the remainder of the
Agreement shall govern and control, except in respect of federal and state income tax issues
of the Tax Partnership.
(c)
The Tax Partnerships activities shall consist only of Research, Co-Development,
jointly funded work and commercialization under Sections 9.6(b) and 9.6(c) of this
Agreement, and production and marketing of Collaboration Products and Co-Promotion Products,
as the foregoing terms are defined in Article 1 of this Agreement. Independent Development
activities pursued by one Party, under Sections 12.1 through 12.4 of this Agreement, work
performed independently at a Partys own expense after the other Party does not accept a
proposal to perform joint preclinical work under Sections 9.6(b) and 9.6(c) of this
Agreement, production and marketing of Royalty-Bearing Products, and activities under the
licenses described in Sections 4.6, 6.1 and 8.1(c) of this Agreement shall not constitute
Tax Partnership activities.
23.2
Tax Matters Partner.
Miles is designated Tax Matters Partner (TMP), as defined in
Section 6231(a)(7) of the Code. The TMP shall use its reasonable efforts to comply
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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with the responsibilities outlined in this Article 23 and in Sections 6221 through 6233 of the Code (including any Treasury regulations promulgated
thereunder).
23.3
Tax Returns.
(a) TMP shall file all federal and state income tax returns required to be filed by the
Tax Partnership. For purposes of the tax filings contemplated by this Article 23, the Tax
Partnership name shall be Miles-Onyx.
(b) TMP shall prepare and submit drafts of all Tax Partnership returns to the Parties
as soon as reasonably practical in advance of the due date to permit review by the Parties
prior to filing. If a Party disagrees with the proposed treatment of an item on the return
prepared by the TMP, the Parties shall promptly seek to resolve the disagreement through
good faith discussions. If the dispute cannot be so resolved, the Parties shall engage the
services of a mutually agreeable nationally recognized law or accounting firm to resolve the
matter. The firms decision on such matter shall be binding on the Parties. Such firms
fee shall be
[ * ]
. If the dispute has not been resolved by the due date of the particular
return, the TMP shall timely file the particular return and the content of the return as
filed shall be determined by the TMP in its sole discretion. Upon resolution of the dispute
between the Parties, if such resolution provides for the reporting of any item which is
inconsistent with the manner in which such item was reported on the return as filed by the
TMP, the TMP shall prepare and file an amended return using the agreed basis of reporting.
TMP may file such requests for extensions of time to file any returns as it deems
appropriate.
(c) The Parties agree to maintain and provide to the TMP all information necessary for
the preparation and support of all Tax Partnership tax returns. Such information shall be
provided to the TMP within a reasonable time and in a reasonable manner by each Partys
personnel at each Partys separate expense.
23.4
Inconsistent Treatment of Partnership Items.
If either Party intends to file a notice of
inconsistent treatment under Section 6222(b) of the Code, such Party shall, at least thirty (30)
days prior to the filing of such notice, notify the other Party of such intent and the manner in
which the Partys intended treatment of a Tax Partnership item is (or may be) inconsistent with the
treatment of that item by the Tax Partnership, and advise the other Party of the reasons therefor.
23.5
Tax Partnership Elections.
The Parties hereby grant TMP the authority to make all
necessary tax elections for the Tax Partnership. In particular, the TMP is authorized to make the
following elections under the Code and regulations and any similar state statutes:
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(i)
|
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[ * ]
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(ii)
|
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Adopt the
[ * ]
accounting;
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(iii)
|
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Compute the allowance for depreciation, if any, under
[ * ]
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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(iv)
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Amortize start-up expenditures, if any, over a
[ * ]
period in
accordance with Code Section 195(b) and any similar state statutes;
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(v)
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Amortize organization costs, if any, over a
[ * ]
period in
accordance with Code Section 709(b) and any similar state statutes;
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(vi)
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Treat research and experimentation expenditures as a deduction
[ * ]
in accordance with Code Section 174(a)(1); and
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(vii)
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Elect to adjust the basis of the
[ * ]
pursuant to Code
Sections 734, 743 and 754.
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23.6
Characterization of Certain Payments and Activities.
Direct payments made between the
Parties and direct receipt of revenue by one Party shall, when appropriate to effect the intent of
this Article 23, be considered to have been contributed to or received by, as the case may be, and
paid out by, the Tax Partnership. Research activities shall be considered performed by the Parties
as members of the Tax Partnership.
23.7
Capital Accounts.
Tax Partnership capital accounts will be maintained for each Party by
TMP in full compliance with Section 1.704-1(b)(2)(iv) of the Treasury regulations.
23.8
Tax Partnership Allocations.
(a) Except as otherwise provided in this Section, the allocation for income tax
purposes of specific items of income, gain, loss, deduction or credit of the Tax
Partnership, as computed for income tax purposes shall be made to the Party receiving the
economic benefit or bearing the economic burden of such items pursuant to this Agreement.
Pursuant to, but not in limitation of, the application of this principle: (i)
[ * ]
and
(ii)
[ * ]
. The allocations contemplated by this paragraph shall take into account that the
items being allocated must be computed pursuant to applicable income tax principles, while
the profit and loss proportioned under Chapter 5 of this Agreement are determined in certain
respects on a different basis. For example to the extent a Party is able to claim credit
under Chapter 5 for an expense incurred by an Affiliate that is nondeductible by the Tax
Partnership, there may have to be an allocation to that Party of an equivalent amount of
gross income (solely for income tax purposes) to carry out the intent of this Article 23.
Similarly, to the extent revenue is calculated under Chapter 5 to include
[ * ]
that is not
includable in the income of the Tax Partnership, an equivalent amount of gross income
(solely for income tax purposes) may have to be allocated to the other Party.
(b) Notwithstanding paragraph (a) of this Section, all research and experimentation
expenditures, as defined in Code Section 174 and the applicable Treasury regulations, of the
Tax Partnership shall be allocated to
[ * ]
, to the extent
[ * ]
has provided funds under
this Agreement through the end of the year in which the expenditures were incurred. The
credit for increasing research activities under Code Section 41 available to the Tax
Partnership shall be allocated in the same manner as the expense generating the credit.
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
48
(c)
[ * ]
shall be allocated an amount of gross income of the Tax Partnership each year
equal to the amount of distributions received by
[ * ]
under Section 16.3.
(d) In accordance with Section 704(c) of the Code and underlying Treasury Regulations,
income, gain, loss and deduction with respect to any property contributed to the Tax
Partnership by a party shall, solely for tax purposes, be allocated among the Parties so as
to take account of any variation between the adjusted basis of such property to the Tax
Partnership for federal income tax purposes and its fair market value as of the date of
contribution.
(e) Notwithstanding the above paragraphs of this section, the following allocations
shall be made in the following order:
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(i)
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Such special allocation, if any, shall be made
as is necessary to comply with the minimum gain chargeback requirement
in Section 1.704-2 of the Treasury regulations.
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(ii)
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Such special allocation, if any, shall be made
as is necessary to comply with the qualified income offset requirement
in Section 1.704-l(b)(2)(ii)(d) of the Treasury regulations.
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(f) The provisions of paragraph (e) of this Section 23.8 are intended to comply with
certain requirements of the Treasury regulations. To the extent possible, all allocations
in paragraph (e) of this Section 23.8 shall be offset with other such allocations or with
additional special allocations under this paragraph. TMP shall make such special
allocations under this Section 23.8 so that, to the extent possible, each Partys capital
account equals the amount that would have resulted if no special allocations had been made
under paragraph (e) of this Section 23.8.
(g) In the event that the Internal Revenue Service (IRS) or the tax authority having
jurisdiction under any state income tax statute does not permit allocations of Tax
Partnership tax items in a manner consistent with the intentions of the Parties as reflected
in this Article 23, and such allocations are not so made, as a result thereof, the Parties
agree to make such equitable adjustments as will place each Party in the same or
substantially the same position, on an after tax basis, as if the allocations had been
permitted. Notwithstanding the above, neither Party shall be required to pay the other
Party any amount under this paragraph except to the extent that and until the proposed
paying Party has benefitted (that is, the paying Partys income tax payments have been
reduced or its refunds received have been increased) from the reallocation caused by the IRS
or similar state tax agency, and any payments to be made in equitable adjustment under this
paragraph shall be limited to the after tax benefit received by the paying Party as result
of such reallocation (such payments to be adjusted to recognize the tax benefit or detriment
which results from the payment of an equitable adjustment under this paragraph). Such
payment, before adjustment for tax effect, shall bear interest at the overpayment rate
determined under Section 6621(a)(1) of the Code, compounded daily, from the due date
(determined without regard to extensions of time to file) of the
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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receiving Partys corporate income tax return for the taxable year for which reallocation
occurs, to the day immediately preceding the day upon which the payment is made.
23.9
Liquidation.
Upon liquidation of this Tax Partnership pursuant to Code Section 708,
distributions to the Parties shall be made in amounts equal to the positive capital accounts of the
Parties. To the extent necessary to effectuate the economic arrangement established by this
Agreement, transfers effected in connection with any liquidation of the Tax Partnership not
consistent with the Parties respective capital accounts shall be considered to be transfers of
distributed property between the Parties subsequent to all liquidating distributions and shall
occur outside of the Tax Partnership.
23.10
Internal Revenue Service Notices.
(a) The Parties shall furnish TMP with such information (including, without limitation,
information specified in Section 6230(e) of the Code) as it may reasonably request to permit
it to provide the IRS with sufficient information to allow proper notice from the IRS to the
Parties in accordance with Section 6223 of the Code.
(b) TMP shall provide to the Parties within a reasonable time copies of all notices,
correspondence and other communications forwarded by the IRS to the TMP or the Tax
Partnership.
23.11
Tax Partnership Audits and Litigation.
If an audit of any of the Tax Partnerships tax
returns should occur, TMP may, in its reasonable discretion, retain such accountants and tax
lawyers as it deems necessary in response to such audit. The cost of such professionals, as well
as a reasonable charge for the time spent by the TMP on the audit, administrative appeal and, if
necessary, litigation of the issues raised in the audit, shall be borne by
[ * ]
.
Article
24
Term and Termination
24.1
Term of Agreement.
This Agreement shall commence as of the Effective Date and, unless
sooner terminated as provided herein, shall continue in effect until the latest of
(a) the end of the Research Term,
(b) the expiration of the last to expire of the Patents licensed under this
Agreement, or
(c) the date on which the Parties are no longer entitled to receive a share of
Marketing Profit on any Collaboration Product.
24.2
Termination for Breach.
If either party materially breaches this Agreement during the
Research Term, which breach is not cured within 60 days of written notice thereof from the
non-breaching Party, then all licenses and sublicenses granted the breaching Party under this
Agreement shall terminate, and the breaching Party shall grant to the non-breaching Party an
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
50
exclusive, worldwide, royalty-free license, with
the right to sublicense, under the breaching Partys Patents and Know-How, to make, have made, use,
have used, sell, and have sold products. The breaching Party shall deliver to the non-breaching
Party such relevant materials relating to such breaching Partys Know-How as are necessary or
useful to the exercise by the non-breaching Party of the license hereunder. The breaching Party
hereby authorizes, transfers and assigns to the non-breaching Party the right to prosecute,
maintain and defend all jointly owned Patents licensed hereunder, to the exclusion of the breaching
Party within the Field, in the event of such uncured breach. The breaching Party shall be liable
for any damages resulting from its breach, costs and attorneys fees, and the non-breaching Party
shall be relieved from its obligations under this Agreement except as provided in Article 22.
24.3
Termination for Other Reasons.
In the event either Party shall:
(a) become insolvent or bankrupt;
(b) make an assignment for the benefit of its creditors;
(c) appoint a trustee or receiver for itself for all or a substantial part of
its property;
(d) have any case of proceeding commenced or other action taken by or against
itself in bankruptcy;
(e) seek liquidation, dissolution, a winding-up arrangement, composition or
readjustment of its debts;
(f) seek any other relief under any bankruptcy, insolvency, reorganization or
other similar aa or law of any jurisdiction, now or hereafter in effect; or
(g) have issued against itself a warrant of attachment, execution, distraint or
similar process against any substantial part of its property of the other Party;
then within 60 days of the event, the other Party may, at its sole option, either (i) terminate
this Agreement upon thirty (30) days written notice to the other party; or (ii) continue the
performance of this Agreement thereafter.
24.4
Acquisition of Onyx.
(a)
In the event that (i) Onyx is acquired by another entity by reason of merger,
consolidation or sale of all or substantially all of its assets (except for a reorganization
transaction in which the persons who held majority ownership of Onyx prior to the transaction
continue to hold majority ownership of Onyx, directly or through a parent company, after the
transaction) or (ii) a single entity other than Miles or an Affiliate of Miles acquires ownership
of a majority of the outstanding voting stock of Onyx, without the consent of Miles (in either
case,
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
51
an Onyx Acquisition), then within 60 days after the event, Miles may, at its sole option, either
continue this Agreement without change or exercise the rights set forth in subparagraph (b) below.
(b)
In the event of an Onyx Acquisition, Miles may elect to terminate the Research (which
termination shall be effective 60 days following the occurrence of the Onyx Acquisition), terminate
the co-promotion rights of Onyx (including without limitation termination of any co-marketing
rights or co-promotion rights with respect to Products that Miles may have granted to Onyx outside
of the United States), and, except as set forth below, have exclusive development and marketing
rights with respect to Collaboration Compounds. Thereafter, any Collaboration Compound that is
marketed by Miles as a Product shall be a Royalty-Bearing Product for which royalties will be due
under Sections 16.2(a), (b) or (c), as appropriate. Notwithstanding the characterization of such
Products as Royalty-Bearing Products for all purposes of marketing, Onyx (or the acquiring party as
the case may be) shall continue to have the right to fund Co-Development Costs for Collaboration
Compounds so as to increase the royalty rate payable with respect to the sale of the resulting
Products. In the event that Onyx had commenced independent development of a Collaboration Compound
under Sections 7.3, 9.6 or 12.2 prior to the Onyx Acquisition, then Miles may obtain hereunder the
exclusive marketing rights to such compounds only by exercising, within 60 days, its buy-back
rights in accordance with Sections 7.4 or 9.6 (and only if such rights had not previously lapsed).
Otherwise, Onyx shall retain exclusive marketing rights to such Collaboration Compounds as
Royalty-Bearing Products of Onyx.
(c)
In the event of an Onyx Acquisition, the licenses provided for in Section 4.1(a), 4.4(a)
and 4.5 shall survive, and the other licenses provided for in Article 4 shall terminate, except to
the extent necessary for Onyx to develop and market Royalty-Bearing Products of Onyx, as provided
under Section 24.4(b).
24.5
Surviving Rights.
The following provisions of this Agreement shall survive termination
of the Agreement, in addition to any provisions which survive by their terms: Articles 1, 20, 21,
22, 25, 27 and 28.
24.6
Accrued Rights: Surviving Obligations.
Termination, relinquishment or expiration of the
Agreement for any reason shall be without prejudice to any rights which shall have accrued to the
benefit of either party prior to such termination, relinquishment or expiration, including damages
arising from any breach hereunder. Such termination, relinquishment or expiration shall not
relieve either Party from obligations which are expressly indicated to survive termination or
expiration of the Agreement.
Article
25
Dispute Resolution
25.1
Disputes.
The Parties recognize that disputes as to certain matters may from time to
time arise during the term of this Agreement which relate to either Partys rights and/or
obligations hereunder. The Parties shall follow the procedures set forth in this Article 25 to
facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual
cooperation and to attempt to avoid litigation between the Parties.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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Any disputes among the members of the JRDC, or other disputes among the Parties, that cannot
be resolved by good faith negotiation, shall be referred, by written notice from either Party to
the other, to the respective officers of the Parties designated below (or their successors).
For Miles: President of the Pharmaceutical Division
For Onyx: Chief Executive Officer
Such executive officers shall negotiate in good faith to achieve a resolution to the dispute
referred to them, within 30 days after such notice is received. In the event the designated
executive officers are not able to resolve such dispute within such 30-day period, either Party may
then invoke any other remedies available to it in law or equity. Any dispute or controversy
arising out of or related to this Agreement which is not resolved between the Parties shall be
submitted to a United States state or federal court of competent jurisdiction and appropriate
venue.
Article
26
Representations and Warranties; Exclusivity
26.1
Representations and Warranties.
Each Party hereby represents and warrants to the other
that this Agreement is a legal and valid obligation binding upon such Party and enforceable in
accordance with its terms. The execution, delivery and performance of and the rights granted under
this Agreement by such Party does not conflict with any agreement, instrument or understanding,
written or oral, to which it is a Party or by which it is bound, nor violate any law or regulation
of any court, governmental body or administrative or other agency having jurisdiction over it.
26.2
Performance By Affiliates.
The Parties recognize that each may perform some or all of
its obligations under this Agreement through Affiliates, provided, however, that each Party shall
remain responsible and be guarantor of the performance by such Affiliates and shall cause such
Affiliates to comply with the provisions of this Agreement in connection with such performance.
Each Party waives any obligation on the other Party to seek performance by such Partys Affiliate
before the other Party may enforce the foregoing guaranty.
26.3
Exclusivity; Noncompetition Within the Field of Collaborative Research.
During the
Research Term, neither Onyx nor Miles shall, directly or indirectly, conduct, have conducted or
fund any research, development, regulatory, manufacturing or commercialization activity with the
Field of Collaborative Research, except pursuant to this Agreement. In addition, during the
Research Term,
(i) each Party shall disclose to the other on an ongoing basis all of its activities
within the Field of Collaborative Research, and
(ii) neither Party shall, without the prior consent of the JRDC, hold any discussions
with any Third Party relating to commercial (as opposed to scientific)
activities within the Field of Collaborative Research. Except as specifically provided
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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herein, all activities of the Parties outside of the Field and the Field of Collaborative
Research are outside of the scope of this Agreement.
During the Research Term, neither Party shall enter into any corporate strategic partner
transaction in which such agreement is in conflict with this Agreement.
Article
27
Products Liability and Indemnification
27.1
Indemnification for Sales of Royalty-Bearing Products.
With respect to each
Royalty-Bearing Product in the countries where such product is sold, each Party selling such
Royalty-Bearing Product hereby agrees to defend, indemnify, and hold harmless the other Party and
its directors, officers, employees, and agents from and against any and all suits, claims, actions,
demands, liabilities, damages, costs, expenses and/or loss, including reasonable legal expenses and
attorneys fees (Losses), resulting directly or indirectly from the manufacture, use, handling,
storage, sale or other disposition of such Royalty-Bearing Products by such Party, or its agents or
sublicensees, except to the extent such Losses result from
(i) the negligence of the other Party, or
(ii) actions or claims referred to under Section 21.5 (which are treated thereunder).
In the event that such other Party seeks indemnification under this Section 27.1, it shall inform
the Party selling the Royalty-Bearing Product of such claim as soon as practicable after it
receives notice of the claim, shall permit such selling Party to assume direction and control of
the defense of the claim (including the right to settle the claim solely for monetary
consideration), and shall cooperate as requested (at the expense of such selling Party) in the
defense of the claim.
27.2
Actions in Respect of Collaboration Products.
With respect to each Collaboration Product
in the countries where such product is sold, the Parties agree that all Losses resulting directly
or indirectly from the manufacture, use, handling, storage, sale or other disposition of such
Collaboration Products (Shared Losses) shall be Allowable Expenses, except to the extent such
Losses result from
(i) the negligence of a Party, or
(ii) actions or claims referred to under Section 21.3 (which are treated
thereunder).
Each Party agrees to notify the other Party promptly upon learning of any claim, action, suit or
demand that may result in a Shared Loss. The JRDC shall determine how to defend any such claim or
action. In the event the JRDC cannot agree on such defense, Onyx shall have the right to defend
all such actions within the United States, and Miles shall have the right to defend all other such
actions.
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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27.3
Indemnification for Negligence.
Each Party hereby agrees to defend, indemnify, and hold
harmless the other Party and its directors, officers, employees, and agents from and against any
and all Losses resulting directly or indirectly from the indemnifying Partys negligence in the
manufacture, use, handling, storage, sale or other disposition of Collaboration Products.
Article
28
Miscellaneous
28.1
Assignment.
(a) Either Party may assign any of its rights or obligations under this Agreement in
any country to any Affiliates; provided, however, that such assignment shall not relieve the
assigning Party of its responsibilities for performance of its obligations under this
Agreement.
(b) Neither Onyx nor Miles may assign its rights or obligations under this Agreement or
its ownership interest in Onyx Patents or Miles Patents, respectively, or in Patents owned
jointly by Onyx and Miles to a non-Affiliate without the prior written consent of the other
Party, except that (subject to compliance with the provisions of Section 24.4), either Onyx
or Miles may assign this Agreement and its Patents in connection with any merger,
consolidation, or sale of all or substantially all of its assets.
28.2
Consents Not Unreasonably Withheld.
Whenever provision is made in this Agreement for
either Party to secure the consent or approval of the other, that consent or approval shall not
unreasonably be withheld or delayed, and whenever in this Agreement provision is made for one Party
to object to or disapprove a matter, such objection or disapproval shall not unreasonably be
exercised.
28.3
Retained Rights.
Nothing in this Agreement shall limit in any respect the right of
either Party to conduct research and development with respect to and market products outside the
Field using such Partys technology or intellectual property rights.
28.4
Force Majeure.
Neither Party shall lose any rights hereunder or be liable to the other
Party for damages or losses on account of failure of performance by the defaulting Party if the
failure is occasioned by government action, war, fire, explosion, flood, strike, lockout, embargo,
act of God, or any other similar cause beyond the control of the defaulting Party, provided that
the Party claiming force majeure has exerted all reasonable efforts to avoid or remedy such force
majeure; provided, however, that in no event shall a Party be required to settle any labor dispute
or disturbance.
28.5
Further Actions.
Each Party agrees to execute, acknowledge and deliver such further
instruments, and to do all such other acts, as may be necessary or appropriate in order to carry
out the purposes and intent of this Agreement.
28.6
No Trademark Rights.
Except as otherwise provided herein, no right, express or implied,
is granted by the Agreement to use in any manner the name Onyx or Miles, or any
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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other trade name or trademark of the other Party or
its Affiliates in connection with the performance of the Agreement.
28.7
Notices.
All notices hereunder shall be in writing and shall be deemed given if
delivered personally or by facsimile transmission (receipt verified), telexed, mailed by registered
or certified mail (return receipt requested), postage prepaid, or sent by express courier service,
to the Parties at the following addresses (or at such other address for a party as shall be
specified by like notice; provided, that notices of a change of address shall be effective only
upon receipt thereof):
If to Onyx, addressed to:
ONYX PHARMACEUTICALS, INC.
3031 Research Drive, Bldg. A
Richmond, CA 94806
Attention: Chief Executive Officer
Telephone: (510) 222-9700
Telecopy: (510) 222-9758
With copy to:
COOLEY GODWARD CASTRO HUDDLESON & TATUM
Five Palo Alto Square, 4th Floor
Palo Alto, CA 94306
Attention: Robert L. Jones, Esq.
Telephone: (415) 843-5000
Telecopy: (415) 857-0663
If to Miles, addressed to:
MILES INC.
Pharmaceutical Division
400 Morgan Lane
West Haven, CT 06516
Attention: Joseph A. DArco, Esq.
Telephone: (203) 937-2401
Telecopy: (203) 937-2795
With a copy to:
JONES, DAY, REAVIS & POGUE
One Mellon Bank Center
31st Floor
500 Grant Street
Pittsburgh, PA 15219
Attention: Charles A. Schliebs
Telephone: (412) 394-7924
Telecopy: (412) 394-7959
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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28.8
Waiver.
Except as specifically provided for herein, the waiver from time to time by
either of the Parties of any of their rights or their failure to exercise any remedy shall not
operate or be construed as a continuing waiver of same or of any other of such Partys rights or
remedies provided in this Agreement.
28.9
Severability.
If any term, covenant or condition of this Agreement or the application
thereof to any Party or circumstance shall, to any extent, be held to be invalid or unenforceable,
then
(i) the remainder of this Agreement, or the application of such term, covenant or condition to
Parties or circumstances other than those as to which it is held invalid or unenforceable, shall
not be affected thereby and each term, covenant or condition of this Agreement shall be valid and
be enforced to the fullest extent permitted by law; and
(ii) the Parties hereto covenant and agree to renegotiate any such term, covenant or
application thereof in good faith in order to provide a reasonably acceptable alternative to the
term, covenant or condition of this Agreement or the application thereof that is invalid or
unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to
be effectuated.
28.10
Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and the same
instrument.
28.11
Press Releases.
The Parties agree to consult with each other prior to the issuance of
any press releases that discuss aspects of the collaboration and obtain prior consent to any press
release,
provided
that in any event either Party may make press releases required by law,
including without limitation compliance with securities laws (in which case the disclosing Party
shall still consult with the other Party prior to issuance of the press release). Each Party shall
endeavor to comment immediately on any proposed press release submitted to it by the other Party.
28.12
Entire Agreement.
This Agreement sets forth all the covenants, promises, agreements,
warranties, representations, conditions and understandings between the Parties hereto and
supersedes and terminates all prior agreements and understanding between the Parties. There are no
covenants, promises, agreements, warranties, representations conditions or understandings, either
oral or written, between the Parties other than as set forth herein and therein. No subsequent
alteration, amendment, change or addition to this Agreement shall be binding upon the Parties
hereto unless reduced to writing and signed by the respective authorized officers of the Parties.
28.13
Governing Law.
Resolution of all disputes arising out of or related to this Agreement
or the performance, enforcement, breach or termination of this Agreement and any
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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remedies relating thereto, shall be governed by and construed under the substantive laws of the State of California,
as applied to Agreements executed and performed entirely in the State of California by residents of
the State of California, without regard to conflicts of law rules and excluding the United Nations Convention on Sale of
Goods.
* * * *
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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In Witness Whereof,
the Parties have executed this Agreement in duplicate originals
by their proper officers as of the date and year first above written.
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Onyx Pharmaceuticals, Inc.
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Miles Inc.
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By:
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/s/ Hollings C. Renton
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By:
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/s/ Horst Wallrabe
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Title: President and Chief Executive Officer
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Title: /s/ blank
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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EXHIBIT A
Diagram of Collaboration
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EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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PHARMACEUTICALS BG
International Cooperation
and Licensing
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Cooperation with Onyx in Oncology
Structure of Cooperation
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Exhibit A (1)
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[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
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PHARMACEUTICALS BG
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Cooperation with Onyx in Oncology
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Exhibit A (2)
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International Cooperation
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Ownership of compounds during
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and Licensing
|
|
and after the RESEARCH TERM
|
|
|
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
|
|
|
|
|
PHARMACEUTICALS BG
|
|
Cooperation with Onyx in Oncology
|
|
Exhibit A (3)
|
International Cooperation
|
|
Ownership of compounds during
|
|
|
and Licensing
|
|
and after the RESEARCH TERM
|
|
|
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
EXHIBIT B
Field of Collaborative Research
Programs
:
[ * ]
Targets
:
[ * ]
Assays
:
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
EXHIBIT C
Research Plan
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
[ * ] Year Research Plan
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
Screening [ * ]
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
Profiles: [ * ]
Compounds
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.
EXHIBIT D
Measured Activity Qualifying as ras Positive Inhibition
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED.