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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549





FORM 10-K



|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------

For the Fiscal Year Ended December 31, 2007

OR



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

For the Transition period from
 to
.

Commission file number: 0-31265





TELIK, INC.

(Exact name of Registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 93-0987903                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

3165 Porter Drive, Palo Alto, CA 94304

(Address of principal executive offices) (Zip Code)

Registrants telephone number, including area code:    (650) 845-7700

Securities registered
pursuant to Section 12(b) of the Act:



|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of Each Class                     |  | Name of Each Exchange on Which Registered
|Common Stock, $0.01 par value per share |  | Nasdaq Global Market                     

Securities registered pursuant to Section 12(g) of the Act: None

(Title of Class)





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  x    NO   ̈

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    YES   ̈    NO  x

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  x    NO   ̈

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

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



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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act.).    YES   ̈    NO  x

The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $77,080,092 as of June 30, 2007, based upon the closing sale price on the Nasdaq Global Market reported on
June 29, 2007. The determination of affiliate status for the purposes of this calculation is not necessarily a conclusive determination for other purposes. The calculation excludes approximately 29,758,315 shares held by directors, officers and
stockholders whose ownership exceeded five percent of the Registrants outstanding Common Stock as of June 30, 2007. Exclusion of these shares should not be construed to indicate that such person controls, is controlled by or is under
common control with the Registrant.

There were 52,968,617 shares of Registrants Common Stock issued and outstanding as of
February 22, 2008.





DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the definitive proxy statement to be filed on or before April 30, 2008 with the Securities and Exchange Commission pursuant to Regulation 14A for the
Registrants Annual Meeting of Stockholders. Except with respect to the information specifically incorporated by reference in this Form 10-K, the proxy statement is not deemed to be filed as part hereof.









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TELIK, INC.

2007 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS



|                     |  |          |  |                                                                                                                 |  |     
|-------------------- |  | -------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|                     |  |          |  |                                                                                                                 |  | Page
|PART I               |  |         
|                     |  |          | 
|                     |  | Item 1.  |  | Business                                                                                                        |  | 4   
|                     |  |          | 
|                     |  | Item 1A. |  | Risk Factors                                                                                                    |  | 18  
|                     |  |          | 
|                     |  | Item 1B. |  | Unresolved Staff Comments                                                                                       |  | 29  
|                     |  |          | 
|                     |  | Item 2.  |  | Properties                                                                                                      |  | 29  
|                     |  |          | 
|                     |  | Item 3.  |  | Legal Proceedings                                                                                               |  | 30  
|                     |  |          | 
|                     |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                             |  | 30  
|                     | 
|PART II              |  |         
|                     |  |          | 
|                     |  | Item 5.  |  | Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 31  
|                     |  |          | 
|                     |  | Item 6.  |  | Selected Financial Data                                                                                         |  | 33  
|                     |  |          | 
|                     |  | Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 34  
|                     |  |          | 
|                     |  | Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 44  
|                     |  |          | 
|                     |  | Item 8.  |  | Financial Statements and Supplementary Data                                                                     |  | 45  
|                     |  |          | 
|                     |  | Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 45  
|                     |  |          | 
|                     |  | Item 9A. |  | Controls and Procedures                                                                                         |  | 45  
|                     |  |          | 
|                     |  | Item 9B  |  | Other Information                                                                                               |  | 47  
|                     | 
|PART III             |  |         
|                     |  |          | 
|                     |  | Item 10. |  | Directors, Executive Officers and Corporate Governance                                                          |  | 48  
|                     |  |          | 
|                     |  | Item 11. |  | Executive Compensation                                                                                          |  | 48  
|                     |  |          | 
|                     |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                                                  |  | 49  
|                     |  |          | 
|                     |  | Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                       |  | 49  
|                     |  |          | 
|                     |  | Item 14. |  | Principal Accountant Fees and Services                                                                          |  | 49  
|                     | 
|PART IV              |  |         
|                     |  |          | 
|                     |  | Item 15. |  | Exhibits and Financial Statement Schedules                                                                      |  | 50  
|                     | 
|SIGNATURES           |  | 53      
|                     | 
|FINANCIAL STATEMENTS |  |         
|                     |  |          | 
|                     |  |          |  | Report of Independent Registered Public Accounting Firm                                                         |  | 55  
|                     |  |          | 
|                     |  |          |  | Balance Sheets                                                                                                  |  | 56  
|                     |  |          | 
|                     |  |          |  | Statements of Operations                                                                                        |  | 57  
|                     |  |          | 
|                     |  |          |  | Statements of Stockholders Equity                                                                              |  | 58  
|                     |  |          | 
|                     |  |          |  | Statements of Cash Flows                                                                                        |  | 59  
|                     |  |          | 
|                     |  |          |  | Notes to Financial Statements                                                                                   |  | 60  



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Disclosure Regarding Forward-Looking Statements

This Annual Report on Form 10-K, including the documents that we incorporate by reference, contains statements indicating expectations about future
performance and other forward-looking statements that involve risks and uncertainties. We usually use words such as may, will, should, expect, plan, anticipate,
believe, estimate, predict, future, intend, potential, or continue or the negative of these terms or similar expressions to identify forward-looking statements.
These statements appear throughout this Annual Report on Form 10-K and are statements regarding our current intent, belief, or expectation, primarily with respect to our operations and related industry developments. Examples of these statements
include, but are not limited to, statements regarding the following: the implications of interim or final results of our Phase 2 clinical and Phase 3 registration trials, the progress and timing of our research programs, including clinical testing,
our anticipated timing for filing additional IND, or Investigational New Drug, applications with the United States Food and Drug Administration for the initiation or completion of Phase 1, Phase 2 or Phase 3 testing for any of our product
candidates, the extent to which our issued and pending patents may protect our products and technology, our ability to identify new product candidates using TRAP technology (our proprietary Target-Related Affinity Profiling technology, which is
discussed below), the potential of such product candidates to lead to the development of safer or more effective therapies, our ability to develop the technology derived from our collaborations and to enter into additional TRAP collaborations, our
future operating expenses, our future losses, our future expenditures for research and development, the sufficiency of our cash resources to fund current and future operations. You should not place undue reliance on these forward-looking statements,
which apply only as of the date of this Annual Report. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in the section of
Item 1A entitled Risk Factors, and elsewhere in this Annual Report. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

TELIK, the
Telik logo, TRAP, TELCYTA and TELINTRA are trademarks of Telik, Inc. All other brand names or trademarks appearing in this Annual Report are the property of their respective holders.



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PART I

Item 1.     Business.

Overview

Telik, Inc. was incorporated in Delaware in 1988 and is a biopharmaceutical company working to discover, develop and commercialize innovative small
molecule drugs to treat diseases. We discovered our product candidates using our proprietary drug discovery technology, Target-Related Affinity Profiling, or TRAP, which we believe enables the rapid and efficient discovery of small molecule product
candidates. To date, we have not obtained regulatory approval for the commercial sale of any products, and we have not received any revenue from the commercial sale of products.

TELCYTA, our lead product candidate, is a small molecule cancer drug product candidate designed to be activated in cancer cells. The product candidate
binds to glutathione S-transferase P1-1, or GST P1-1, a protein that is elevated in many human cancers, such as ovarian, non-small cell lung, colorectal, breast and other types of cancer. GST P1-1 levels are often further elevated following
treatment with many standard chemotherapy drugs, and this elevation is associated with the development of resistance to these drugs. When TELCYTA binds to GST P1-1 inside a cancer cell, a chemical reaction occurs, releasing fragments of TELCYTA that
cause programmed cancer cell death, or apoptosis.

TELCYTA has shown clinical antitumor activity alone and in combination with standard
chemotherapeutic agents in multiple Phase 2 clinical trials in refractory or resistant ovarian, non-small cell lung, breast and colorectal cancer. In addition, TELCYTA demonstrated clinical activity in two Phase 2 trials in combination regimens as
first line treatment in patients with Stage IIIb or IV non-small cell lung cancer.

We initiated four randomized Phase 3 registration
trials in platinum refractory or resistant ovarian cancer and in platinum resistant non-small cell lung cancer. ASSIST-1, initiated in 2003, was a 440 patient multinational, randomized Phase 3 trial designed to evaluate TELCYTA as compared to the
active control agent liposomal doxorubicin or topotecan in the third-line therapy of platinum resistant ovarian cancer. ASSIST-2, initiated in 2004, was a 520 patient multinational, randomized Phase 3 trial designed to evaluate TELCYTA as compared
to gefitinib in the third-line therapy of advanced non-small cell lung cancer. ASSIST-3, initiated in 2004, was a 244 patient randomized Phase 3 trial conducted in the U.S. designed to demonstrate a statistically significant improvement in overall
objective response rate with the combination of TELCYTA plus carboplatin compared to liposomal doxorubicin in the second-line treatment of platinum resistant ovarian cancer. ASSIST-5 is a 244 patient, multinational randomized Phase 3 trial initiated
in May 2006, evaluating TELCYTA in combination with liposomal doxorubicin versus liposomal doxorubicin as second line therapy in platinum refractory or resistant ovarian cancer. In December 2006, we reported preliminary results indicating that our
Phase 3 ASSIST-1 trial in third-line platinum resistant ovarian cancer and ASSIST-2 trial in third-line advanced non-small cell lung cancer did not achieve their primary endpoint of demonstrating statistically significant improvement in overall
survival for TELCYTA as compared to the active controls. The ASSIST-3 trial showed a major discordance between the clinical review of the tumor scans and the independent radiology review and therefore the results of this trial have been compromised
and not suitable for regulatory submission. We completed in-depth analyses of the data of all three trials, including discussion of the results with oncology experts, and at the annual meeting of the American Society of Clinical Oncology, or ASCO,
on June 3, 2007 we presented final results that confirmed the preliminary results reported in December 2006.

Objective tumor
responses were observed on the investigational arms containing TELCYTA in all three trials based on the prospective central blinded independent radiology review. Analysis of the safety data from the ASSIST-1 and ASSIST-2 trials, in which TELCYTA was
administered as monotherapy, indicates that TELCYTA was generally well-tolerated. TELCYTA treatment was associated with mild to moderate nausea, vomiting and fatigue. Analysis of the safety data from the ASSIST-3 trial, combining TELCYTA plus
carboplatin, demonstrated toxicities expected of each drug alone and no unexpected or cumulative toxicities were reported.



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On June 4, 2007, a full clinical hold for TELCYTA was initiated by the U.S. Food and Drug
Administration, or FDA, following the presentation of the Phase 3 clinical trial results at the ASCO annual meeting. As a result, we stopped enrolling new patients on TELCYTA clinical trials, and patients being treated on the trials could not
receive additional treatment until such time that the FDA released the clinical hold. On June 15, 2007 the FDA converted the full clinical hold on TELCYTA to a partial hold, thereby enabling patients that had been enrolled in the ASSIST-3 and
ASSIST-5 trials the opportunity to continue to receive study treatments, including TELCYTA in combination with chemotherapy, subject to re-consenting procedures. On October 12, 2007, the FDA completed its review of our TELCYTA data and removed
the partial hold, permitting the resumption of TELCYTA clinical development. We plan to conduct an interim analysis with the patients currently enrolled in the ASSIST-5 trial, and, based on the results of this analysis, we will assess the
feasibility of continuing this study. In addition, we continue to follow patients treated on the ASSIST-3 trial for survival.

TELINTRA,
our second product candidate, is a small molecule bone marrow stimulant we are developing for the treatment of blood disorders associated with low blood cell levels, such as neutropenia or anemia. Myelodysplastic syndrome, or MDS, is a disease
characterized by defects in the blood-producing cells of the bone marrow, in which low blood cell levels occur. A TELINTRA intravenous, or IV, Phase 2 clinical trial in patients with MDS was completed and we announced positive clinical data in
December 2005 demonstrating clinically significant improvement in all blood cell lineages and across all major MDS subtypes. TELINTRA was well-tolerated in this predominantly elderly patient population. In February 2006, we initiated a Phase 1-2a
trial in patients with MDS using a tablet formulation of TELINTRA. We also announced positive results for TELINTRA Tablets Phase 1-2a trial at the American Society of Hematology annual meeting in December 2007.

TLK58747 is a novel metabolically activated cytotoxic small molecule and was identified as a new product candidate in 2006. TLK58747 causes apoptosis and
G2/M cell cycle arrest in a broad array of human cancer cell lines including those not expressing GST P1-1. In preclinical testing, it has shown significant anti-tumor activity in human breast, pancreatic and colon tumors in pre-clinical models of
human cancer when administered either orally or by injection. We are conducting the required preclinical safety studies to support the potential filing of an Investigational New Drug, or IND, application with the FDA.

Our next product candidate may be selected from our on-going discovery research programs and our collaborations with leading cancer centers. These
include compounds intended for the treatment of cancer to target aurora kinase and other enzymes that we believe are critical to the growth of cancer cells. In February 2007, we announced an agreement with SRI International, or SRI, under which SRI
will conduct preclinical studies of an MCP-1 antagonist identified as C243, a compound developed by us for the treatment of multiple sclerosis and other autoimmune and inflammatory diseases. SRI will fund and conduct preclinical and toxicology
studies directed at supporting an IND application with the FDA.

We discovered all of our product candidates using our proprietary
technology, TRAP, which we believe enables the rapid and efficient discovery of small molecule product candidates. TRAP exploits a fundamental property of all drugs, which is their selective interaction with proteins. By developing a profile of how
small molecule chemicals interact with a reference panel of proteins, we believe we can identify compounds that are active against disease-related protein targets faster than with alternative technologies.

Our Strategy

Our goal is to become a
biopharmaceutical company focused on discovering, developing and commercializing innovative small molecule drugs to treat cancer and inflammatory diseases. Key elements of our strategy are to:



| |  |  | Develop small molecule drugs for major disease areas.    We intend to develop small molecule drugs to address unmet needs in the areas of
cancer and inflammatory diseases. The number of patients with these diseases has been increasing due primarily to the aging population. This has led to a growing demand for new drugs that offer competitive advantages over existing products, such as
improved effectiveness and reduced side effects. The advantages of small molecule drugs over therapeutic
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | proteins include the ease of manufacturing and administration, the potential for oral dosing and applicability to a wider range of disease targets, including
disease targets inside the cell.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Retain commercial rights to our product candidates.    We retain worldwide commercial rights to our cancer product candidates. We may
conduct clinical development activities at least through initial proof of efficacy in humans or seek to share the risks and costs of development by partnering those programs before completion of clinical trials. To successfully partner such
programs, we may be required to grant commercialization rights to our collaborators.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Select targets strategically.    We believe that we can apply our TRAP drug discovery technology to virtually any protein target. We
regularly review the progress of scientific and clinical research in important disease areas to identify targets with commercial potential. By careful selection of targets, we intend to develop product candidates with a clear path to regulatory
approval and the potential to show early evidence of clinical efficacy. This strategy should allow us to reduce the risk inherent in drug discovery and accelerate the commercialization of our product candidates.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Use TRAP to sustain a pipeline of product candidates.    We believe our proprietary TRAP drug discovery platform allows us to rapidly and
efficiently identify small molecules active against potential disease targets. We plan to continue to use this platform to provide a pipeline of future product development candidates generated internally or through collaborations. For example,
through several academic collaborations, we are applying TRAP to identify novel compounds active against a wide range of potential cancer targets. We have also entered into corporate collaborations, such as with Hoffmann-La Roche Inc., to assist our
partners in identifying product candidates for promising therapeutic targets. We plan to secure additional corporate and academic partners for the use of TRAP technology.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Product Candidate Pipeline

We have concentrated our efforts in the treatment of cancer. We periodically evaluate and prioritize our research programs. The following table summarizes key information about our product candidate pipeline:



|                                                     |  |                                                                                                       |  |                                         
|---------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Product candidate                                    |  | Clinical indication                                                                                   |  | Development status                      
|TELCYTA                                              |  | Ovarian cancer                                                                                        |  |                                         
|                                                     |  | ASSIST-1, Phase 3 3rdline monotherapy                                                                 |  | Trial completed                         
|                                                     |  | ASSIST-3, Phase 3 2ndline combination with
carboplatin                                                |  | Trial completed                         
|                                                     |  | ASSIST-5, Phase 3 2ndline combination with liposomal
doxorubicin                                      |  | Trial ongoing                           
|                                                     |  | Phase 2 combinations, 2nd+ line                                                                       |  | Two trials completed                    
|                                                     |  | Phase 2 monotherapy, 2nd+ line                                                                        |  | Two trials completed                    
|                                                     |  | Non-small cell lung cancer                                                                            |  |                                         
|                                                     |  | ASSIST-2, Phase 3 3rdline monotherapy                                                                 |  | Trial completed                         
|                                                     |  | Phase 2 combinations, 1stline                                                                         |  | Two trials completed                    
|                                                     |  | Phase 2 combination, 2nd+ line                                                                        |  | Trial completed                         
|                                                     |  | Phase 2 single agent, 2nd+ line                                                                       |  | Two trials completed                    
|                                                     |  | Breast cancer Phase 2 monotherapy, 2nd+
line                                                          |  | Trial completed                         
|                                                     |  | Colorectal cancer Phase 2 monotherapy, 2nd+ line                                                      |  | Trial completed                         
|TELINTRA IV                                          |  | MDS Phase 2                                                                                           |  | Trial completed                         
|TELINTRA Tablets                                     |  | MDS Phase 1-2a MDS Phase 2                                                                            |  | Trial completed Initiating              
|                                                     |  | Chemotherapy-induced neutropenia Phase 2                                                              |  | Planning                                
|                                                     |  | Chronic idiopathic neutropeniaPhase 2                                                                 |  | Planning                                
|TLK58747                                             |  | Cancer                                                                                                |  | Pre-IND studies underway                
|Aurora kinase                                        |  | Cancer                                                                                                |  | Small molecule inhibitorsdiscovered     
|Vascular
Endothelial Growth Factor (VEGF) Receptor 2 |  | Cancer                                                                                                |  | Small molecule inhibitorsdiscovered     
|Polo-like kinase 1
(Plk-1)                           |  | Cancer                                                                                                |  | Small molecule inhibitorsdiscovered     
|Proteasome                                           |  | Cancer                                                                                                |  | Small molecule inhibitorsdiscovered     
|DNA
methyltransferase inhibitor                      |  | Cancer                                                                                                |  | Small molecule inhibitorsdiscovered     
|MCP-1 antagonist
(C243)                              |  | Multiple sclerosis, rheumatoid arthritis, atherosclerosis, other inflammatory and autoimmune diseases |  | Preclinical and safety assessmentongoing

We have worldwide commercialization rights to all of the product candidates in our pipeline except
for the MCP-1 antagonist, for which we have exclusive rights in North and South America; Sanwa Kagaku Kenkyusho Co., Ltd., or Sanwa, has exclusive rights in Asia; and we have non-exclusive rights in the rest of the world.



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Product Development Programs

Cancer

Our two most advanced product candidates, TELCYTA and TELINTRA, are being developed to
treat cancers for which there is significant demand for new therapies. Cancer is the second leading cause of death in the United States according to the American Cancer Societys 2007 Cancer Facts and Figures. The five-year survival rates for
patients with cancers that have spread from their original sites are poor. These poor survival rates reflect the limitations of current treatments and the development of resistance to available treatments. In addition, current treatments are often
associated with severe toxic side effects.

TELCYTATumor-activated cancer product candidate

TELCYTA is a small molecule drug product candidate that we are developing for the treatment of cancer. TELCYTA binds to glutathione S-transferase, or GST,
a protein known to play an important role in the development of resistance to commonly used chemotherapeutic drugs. GST P1-1 is a type of GST that is elevated in many cancers and is often further elevated following treatment with standard
chemotherapeutic drugs. When TELCYTA binds to GST P1-1, it releases a fragment with a proven mechanism of killing cancer cells as well as other reactive agents. In contrast to the usual situation in which GST is involved in the destruction of
chemotherapeutic drugs, GST activates TELCYTA when TELCYTA reaches its cellular target. In this way, TELCYTA kills cancer cells by inducing cell death through a process called apoptosis.

TELCYTA has been evaluated in multiple Phase 2 clinical trials, including trials using TELCYTA as monotherapy and in combination regimens in ovarian,
non-small cell lung, breast and colorectal cancer. Results from these clinical trials indicate that TELCYTA monotherapy was generally well-tolerated, with mostly mild to moderate side effects, particularly when compared to the side effects and
toxicities of standard chemotherapeutic drugs. When TELCYTA was evaluated in combination with standard chemotherapeutic drugs, the tolerability of the combinations was similar to that expected of each drug alone. This tolerability profile may be an
important clinical advantage for TELCYTA since combination drug regimens are commonly used in cancer treatment. Clinical activity including objective tumor responses and/or disease stabilization was reported in the TELCYTA Phase 2 trials.

We completed three randomized Phase 3 registration trials in platinum refractory or resistant ovarian cancer and in platinum resistant
non-small cell lung cancer.

ASSIST-1 was a 440 patient multinational, randomized Phase 3 trial designed to evaluate TELCYTA as compared to
the active control agents liposomal doxorubicin or topotecan in the third-line therapy of platinum resistant ovarian cancer.

ASSIST-2 was
a 520 patient multinational, randomized Phase 3 trial designed to evaluate TELCYTA as compared to gefitinib in the third-line therapy of advanced non-small cell lung cancer.

ASSIST-3 was a 244 patient randomized Phase 3 trial conducted in the U.S. designed to demonstrate a statistically significant improvement in overall
objective response rate with the combination of TELCYTA plus carboplatin compared to liposomal doxorubicin in the second-line treatment of platinum resistant ovarian cancer. Under the trial protocol, patients were to have received treatment until
tumor progression or unacceptable toxicity.

In December 2006, we reported preliminary results indicating that the Phase 3 ASSIST-1 and
ASSIST-2 trials did not achieve their primary endpoint of demonstrating statistically significant improvement in overall survival for TELCYTA as compared to the active controls. The ASSIST-3 trial showed a major discordance between the clinical
review of the tumor scans and the independent radiology review and therefore the results of this trial have been compromised and not suitable for regulatory submission. We completed in-depth analyses of the data of all three trials, including
discussion of the results with oncology experts, and at the annual meeting



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of ASCO on June 3, 2007 we presented final results that confirmed the preliminary results reported in December 2006. We continue to follow patients
treated on the ASSIST-3 trial for survival.

In May 2006, we initiated another 244 patient multinational randomized Phase 3 clinical trial,
ASSIST-5, to evaluate TELCYTA in combination with pegylated liposomal doxorubicin, or PLD, versus PLD alone as second line therapy in platinum refractory or resistant ovarian cancer. On June 4, 2007, a full clinical hold for TELCYTA was
initiated by the FDA following the presentation of the Phase 3 clinical trial results at the ASCO annual meeting. As a result, we stopped enrolling new patients on TELCYTA clinical trials, and patients being treated on the trials could not receive
additional treatment until such time that the FDA released the clinical hold. On June 15, 2007, the FDA converted the full clinical hold on TELCYTA to a partial hold, thereby enabling patients that had been enrolled in the ASSIST-3 and ASSIST-5
trials the opportunity to continue to receive study treatments, including TELCYTA in combination with chemotherapy, subject to re-consenting procedures. On October 12, 2007, the FDA completed their review of our TELCYTA data and removed the
partial hold, permitting the resumption of TELCYTA clinical development. We plan to conduct an interim analysis with the patients currently enrolled in the ASSIST-5 trial, and based on the results of this analysis we will assess the feasibility of
continuing this study.

In addition, we have conducted two Phase 2 clinical trials of TELCYTA for the treatment of Stage IIIb or IV
non-small cell lung cancer for patients who have not previously received chemotherapy. One clinical trial was in combination with cisplatin, and the other clinical trial was in combination with carboplatin and paclitaxel. Platinum and taxane-based
drug combinations are the current standard for the front-line chemotherapy of lung and ovarian cancer.In April 2007, at the annual meeting of the American Association for Cancer Research, we announced final results from the Phase 2 clinical
trial of TELCYTA in combination with carboplatin and paclitaxel. We continue to follow patients treated on this trial for survival.

TELINTRABone marrow stimulant

TELINTRA is a small molecule product candidate that we believe has the potential to
increase blood cell counts in cancer patients. Decreased blood cell levels, especially of white cells, occur as a common side effect of cancer chemotherapy and render the already weakened cancer patient susceptible to life-threatening
infections. Low blood cell levels are also found in a number of pre-leukemic conditions, including MDS, which may require treatment. TELINTRA accelerated the recovery of white blood cells (neutrophils) in preclinical models of chemotherapy induced
neutropenia. In addition, TELINTRA causes the death of human leukemia cells in laboratory tests and this activity may lead to a beneficial effect in the treatment of MDS, a pre-leukemic condition.

Results from a Phase 2 clinical trial of the intravenous formulation of TELINTRA in patients with
MDS were reported in December 2005, demonstrating clinically significant improvement in all blood cell lineages and in all major MDS subtypes. TELINTRA was well-tolerated in this predominantly elderly patient population. In February 2006, we
initiated a Phase 1-2a study in patients with MDS using a tablet formulation of TELINTRA. At the 49thannual meeting of the American Society of
Hematology in December 2007, we reported positive clinical data demonstrating that TELINTRA Tablets are well tolerated and clinically active in patients with all stages of MDS.

TELINTRA may offer the advantages of a small molecule drug including ease of manufacturing and the potential for oral administration. The tablet
formulation of TELINTRA may allow us to offer a product that is an attractive alternative to the current marketed parenterally administered drugs. We have retained worldwide commercial rights to TELINTRA.

TLK58747Cytotoxic small molecule

We discovered TLK58747, a novel metabolically activated cytotoxic small molecule. TLK58747 causes apoptosis and G2/M (or cell division) cell cycle arrest in a broad array of human cancer cell lines including those



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not expressing GST P1-1. It has shown significant anti-tumor activity in human breast, pancreatic and colon tumors in pre-clinical models of human cancer
when administered either orally or by injection. We are conducting the required preclinical safety studies to support the potential filing of an IND application with the FDA.

MCP-1 antagonist (C243)Small molecule for autoimmune and inflammatory disorders

Inflammation is an important response of the body to injury and infection. If inflammation becomes excessive or prolonged, it can lead to pathological
conditions, including asthma, inflammatory bowel disease, multiple sclerosis, psoriasis, rheumatoid arthritis and septic shock. An early step in the inflammatory response is the attraction of white blood cells, or leukocytes, from the circulatory
system to damaged or infected tissue by messenger molecules called chemokines.

Using our TRAP technology we discovered an MCP-1
antagonist, C243, a small molecule that prevents leukocyte infiltration, a process linked to tissue injury in chronic autoimmune and inflammatory diseases such as multiple sclerosis, rheumatoid arthritis and atherosclerosis. In February 2007, we
announced an agreement with SRI International under which SRI will fund and conduct preclinical studies of C243, a compound we developed for the potential treatment of multiple sclerosis and other autoimmune and inflammatory diseases. We hold
exclusive commercialization rights to C243 in North and South America. Our former collaborator, Sanwa, holds exclusive rights in Asia, and we have non-exclusive rights in the rest of the world.

Research Discovery Programs

In addition to
generating our current clinical product portfolio, TRAP has allowed us to build our research pipeline with product candidates against targets in cancer and inflammatory diseases. We have chosen to pursue those protein targets that have engendered a
high level of interest in the drug discovery community, address important unmet clinical needs and whose modulation are expected to have a beneficial effect in treating a given disease. We are continually evaluating and prioritizing our early stage
programs.

Aurora kinase

Aurora kinases are enzymes expressed in human cells that are found to be elevated in many solid tumors, in particular pancreatic cancer. Aurora kinases play a fundamental role in mitosis and are considered attractive targets for cancer
therapy. Tumor growth is also dependent on angiogenesis, where vascular endothelial growth factor, or VEGF, and its receptors play a pivotal role. We sought to determine whether dual inhibitors targeting both cancer cells and host mechanisms that
support tumor growth would be beneficial in providing a significant advantage in combating cancer. We have identified a class of selective Aurora kinase A, B and VEGFR2 inhibitors. Treatment of human colorectal cancer cells (HCT116) incubated with
the compounds resulted in abnormal cell division. These compounds were also active in a VEGF-dependent anti-proliferation assay. Our data support the concept that dual inhibition of Aurora kinases and VEGFR2 represents a promising approach for
anti-cancer therapy. These compounds are currently in preclinical development.

Vascular Endothelial Growth Factor Receptor 2

VEGF stimulation of VEGF receptors or VEGFRs, promotes endothelial cell growth, migration and survival. Inhibition of this pathway with
antibodies or small molecules has been proven effective as anti-cancer therapy. Teliks proprietary TRAP technology was used to identify novel small molecule inhibitors of VEGFR2 (KDR/flk-1). Compounds were selected computationally and screened
for inhibition of VEGFR2 in a kinase activity assay. The lead molecule is currently in preclinical development.



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Polo-like kinase 1 (Plk-1)

Polo-like kinase 1, or Plk-1, is a key regulator of mitotic progression and a potential target for cancer therapy. Published data indicates that tumor
cells are particularly dependent on Plk-1 activity for proliferation as compared to non-transformed cells. Plk-1 is highly expressed in tumor cells and inhibition of its activity by siRNA or small molecule inhibitors leads to abnormal spindle
assembly, dysregulated chromatid segregation, mitotic cell cycle arrest and apoptosis. Teliks proprietary TRAP technology was used to identify small molecule inhibitors of Plk-1. Multiple active compounds were identified. Results support the
further development of these Plk-1 inhibitors and efforts are currently underway to further optimize these inhibitors.

Proteasome

The ubiquitin-proteasome system, or UPS, mediated protein turnover underlies many signaling pathways that are fundamental to cell
proliferation, survival and death. Many important cellular proteins that are dysregulated in neoplasia are proteasome substrates, including cell cycle regulators p53, p21/WAF, cyclin B and the proapoptotic protein Bad. Inhibitors of proteasome, a
key component of the UPS, have demonstrated significant anti-tumor activities both in vitro and in vivo. Teliks proprietary TRAP technology was used to identify multiple novel non-peptidyl small molecule inhibitors of human
proteasome. We are currently in the process of optimizing this series of compounds.

DNA methyltransferase inhibitor

DNA methyltransferase is required to maintain genetic stability within cells. Changes in DNA methyltransferase activity can lead to malignancy by causing
modifications to DNA. Inhibition of DNA methyltransferase has been shown to inhibit tumor growth in mouse models of cancer. In collaboration with the Arizona Cancer Center, we have identified small molecule inhibitors of DNA methyltransferase.

TRAP Technology

Our Target-Related
Affinity Profiling, or TRAP, drug discovery technology is designed to rapidly and efficiently identify small molecule product candidates that act on disease related protein targets. TRAP technology offers solutions to the two major challenges facing
drug discovery: the explosive growth in the number of new protein targets generated by the advances in genomics, and the intrinsic limitations of the Ultra High Throughput Screening, or UHTS, approach. TRAP offers several competitive advantages over
UHTS, because it is able to accommodate thousands, rather than hundreds, of targets, is cost-effective to screen unproven targets for the purpose of validation and avoids the use of highly simplified assays.

We have discovered that there are a limited number of ways that proteins interact with small molecules and that these interactions can be simulated using
a carefully selected panel of diverse proteins. TRAP takes advantage of this discovery to profile the interactions of small molecules with proteins using a panel of less than 20 proteins selected for their distinct patterns of interacting with small
molecules. We believe that our panel of proteins simulates, either individually or in combination, most of the significant interactions between a small molecule and a protein. Furthermore, TRAP measures the diversity of compounds in a way that
cannot be explained on the basis of chemical structure alone. Compounds that are structurally similar can have very different affinities for proteins and other biological properties, and, conversely, compounds that are structurally diverse may have
similar affinities for proteins and other biological properties.

By comparing the relative strengths of the interaction of a small
molecule with each panel protein, a protein affinity profile, or fingerprint, is produced for the small molecule. One type of assay we use, called a binding assay, measures the interaction of a panel protein with a specially designed binding
partner, or ligand, in the presence of a small molecule. If the small molecule has an affinity for the same site on the panel protein as the ligand, the amount of ligand that binds will be reduced. This decrease in the amount of the ligand that
binds to each panel protein comprises the small molecules fingerprint.



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Using these fingerprints, we select a small subset of compounds, which we call the training set, that is
sufficiently diverse in its protein recognition characteristics to represent our entire collection, or library, of small molecules. We screen this training set against the target of interest and use the resulting data to predict the type of small
molecule-protein interactions present in the target. A model of small molecule interactions with the target is generated by mathematically combining the individual interactions of TRAP panel proteins, where the panel proteins to be included in the
model are determined by the affinities of the initial subset of compounds for the target. We can then select from the library those compounds that prefer these types of interactions for assay. We have developed a set of computational tools, in the
form of chemoinformatics algorithms, which are used to scan the library for patterns of protein affinity, since these patterns appear to correlate best with biological activity. The majority of active compounds in our library that are
pharmaceutically active against a given target can be identified after screening as few as 200 compounds.

We have used TRAP to assemble
our library of small molecules, which is enriched by compounds that interact with proteins in a selective fashion and contains multiple compounds that can undergo each mode of protein interaction. We believe that this process creates a small
molecule library with a greater likelihood of containing a compound that interacts with any specified protein, thus having a higher probability of generating product candidates than a conventionally or randomly assembled library. As a consequence,
TRAP identifies those small molecules with a higher probability of being product candidates from within the universe of possible compounds, allowing their assembly into a manageable product discovery library. All of the known products that we have
examined lie within the bounds of the library defined by TRAP.

The ability of TRAP to identify active compounds after screening only a few
hundred samples overcomes many of the limitations of UHTS. TRAP does not require assays capable of screening millions of compounds, thereby decreasing the time and resources necessary for assay development. TRAP permits the selection of a given
target of interest from a much wider universe of targets by reducing the need to acquire targets and assay technologies and allows more physiologically relevant assay systems to be used. In addition, TRAP eliminates the need for large compound
collections and sophisticated and expensive automation to support them, further lowering the financial barrier to screening and permitting its application to emerging biopharmaceutical companies. Finally, the overall efficiency and economy of TRAP
allow multiple targets to be pursued simultaneously and permit the screening of higher risk, but potentially more valuable, targets.

We
will continue to increase our collection of small molecules, as well as to refine the panel of proteins used to create fingerprints. In addition, we will explore the expansion of our chemoinformatics algorithms and the application of the technology
to delineate other properties of small molecules, such as their behavior in the body, their toxicological profiles and absorption, distribution, metabolism and excretion characteristics.

Collaborative Relationships

We expect to enter into collaborative arrangements with third parties
for clinical trials, development, manufacturing, regulatory approvals or commercialization of some of our product candidates, particularly outside North America, or in disease areas requiring larger and longer clinical trials.

We have established a number of joint discovery programs with other pharmaceutical, biotechnology and genomics companies. These collaborations exploit
our TRAP technology platform and have the potential to identify new product development and commercialization opportunities either independently or pursuant to expanded collaborations. In addition, these collaborations have provided funding for our
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These collaborations include the following:

Sanwa

In December 1996, we entered
into a screening services agreement with Sanwa Kagaku Kenkyusho Co., Ltd., or Sanwa, a Japanese pharmaceutical company, to employ our proprietary TRAP technology to identify compounds that are active against biological targets. Our lead MCP-1
antagonist, C243, was discovered under this agreement. We have exclusive commercialization rights in North and South America: Sanwa has exclusive commercialization rights in Asia; and we have non-exclusive rights in the rest of the world. The
agreement expired in December 2006, but the division of rights remains in effect.

SRI International

In February 2007, we announced an exclusive license agreement with SRI under which SRI will conduct preclinical studies of C243. Under the terms of the
agreement, SRI will fund and conduct preclinical and toxicology studies directed at supporting an IND application with the FDA, as well as develop GMP-compliant sources for C243 manufacturing. We will have the option to re-acquire C243 rights in the
future. The license agreement covers territories where we have exclusive rights under our Sanwa agreement. The term of this agreement and license under it expires in December 2011, subject to termination rights by both parties.

The University of Arizona

In January
2001, we entered into a research and license agreement with the Arizona Cancer Center at the University of Arizona to use our TRAP technology for the identification of small molecule compounds active against cancer related targets. The Arizona
Cancer Center has successfully conducted biologic assays to screen TRAP-generated compounds for pharmacologic activity and we have selected four new compounds for further development. We have exclusive worldwide rights to develop and commercialize
compounds that we selected and will use the Arizona Cancer Center as a preferred clinical site for our oncology drug development programs arising from this collaboration. In July 2002, we exercised our option to obtain exclusive worldwide rights to
intellectual property, including small molecule product candidates, for four targets. The license agreement will continue until the expiration of the patents covering such compounds.

Mount Sinai School of Medicine

In
February 2005, we entered into a research and license agreement with the Mount Sinai School of Medicine to use our TRAP technology for the identification of small molecule compounds active against cancer related targets. We have the right to select
compounds arising from the collaboration for further development. The screening period of the agreement terminated in February 2008 and, if no compounds are selected for further development by January 2009, the agreement will expire.

Patents and Proprietary Information

Patents and
other proprietary rights are very important to our business. If we have enforceable patents of sufficient scope, it can be more difficult for our competitors to use our technology to create competitive products or to obtain patents that prevent us
from using technology we create. As part of our business strategy, our policy is to actively file patent applications in the United States and internationally to cover new chemical compounds, pharmaceutical compositions, methods of preparation of
the compounds and compositions and therapeutic uses of the compounds and compositions, methods related to our TRAP technology, and improvements in each of these. We also rely on trade secret information, technical know-how, innovation and agreements
with third parties to continuously expand and protect our competitive position.

We have a number of patents and patent applications
related to our compounds and other technology, but we cannot be certain that issued patents will be enforceable or provide adequate protection or that the pending patent



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applications will issue as patents. The following table shows the actual or estimated expiration dates in the United States and internationally for the
primary patents and for patents that may issue from pending applications that cover our TRAP technology and the compounds in our product candidates.



|                   |  |                      |  |                          |  
|------------------ |  | -------------------- |  | ------------------------ | -
|                   |  | US patentexpirations |  | Foreignpatentexpirations |  
|TRAP               |  | 2014                 |  | 2015                     | *
|Product candidates |  |                      |  |                          |  
|TELCYTA            |  | 2013                 |  | 2014                     |  
|TELINTRA           |  | 2014                 |  | 2014                     | *



* Includes pending applications

We may obtain patents for our product candidates many years before we obtain marketing approval
for them. We can generally expect to obtain patent term extensions of up to five years for patents covering our product candidates in major market countries when and if marketing approvals are obtained. In foreign countries, these extensions are
available only if approval is obtained before the patent expires, but in the United States, extensions are available even if approval is obtained after the patent would expire normally through a system of interim extensions until approval.

Independently of patent coverage, we will generally be entitled to data exclusivities for our product candidates in major market countries
for several years when and if marketing approvals are obtained.

We also rely on trade secret information, technical know-how, innovation
and agreements with third parties to continuously expand and protect our proprietary position. We require our employees and consultants to execute non-disclosure and assignment of invention agreements on commencement of their employment or
engagement. We do not disclose our trade secrets (including significant aspects of our TRAP technology) outside Telik except where disclosure is essential to our business, and we require those individuals, companies and institutions doing business
with us, including TRAP collaborators, to execute agreements to protect our trade secrets.

Competition

Competition in the pharmaceutical and biotechnology industries is intense. The drugs that we are developing will have to compete with existing therapies.
In addition, a large number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. Many pharmaceutical or biotechnology companies have products on the market and are actively
engaged in the research and development of products that are competitive with our potential products. Many of these companies and institutions, either alone or together with their collaborative partners, have substantially greater financial,
manufacturing, sales, distribution and technical resources and more experience in research and development, clinical trials and regulatory matters, than we do. In addition, our competitors may succeed in developing technologies and drugs that are
more effective, better tolerated or less costly than any which are being developed by us or which would render our technology or potential drugs obsolete or noncompetitive.

Regulatory Considerations

The manufacturing and marketing of our product candidates and our on-going
research and development activities are subject to extensive regulation by numerous governmental authorities in the United States and other countries. In the United States, pharmaceutical products are subject to rigorous review by the FDA under the
Federal Food, Drug and Cosmetic Act, the Public Health Service Act and other federal statutes and regulations. Non-compliance with applicable requirements can result in fines, recall or seizure of products, total or partial suspension of production,
refusal of the government to approve marketing applications or allow us to enter into



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supply contracts and criminal prosecution. The FDA also has the authority to revoke previously granted marketing authorizations.

Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to
establish a product candidates safety and efficacy. The approval process may take many years, requires the expenditure of substantial resources, may involve post-marketing surveillance and may involve on-going requirements for post-marketing
studies. The FDA may also require post-marketing testing and surveillance to monitor the effects of approved products or place conditions on any approvals that could restrict the commercial applications of the products. Product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. With respect to patented products or technologies, delays imposed by the governmental approval process may materially reduce the
period during which we will have exclusive rights to exploit those products or technologies.

Preclinical studies involve laboratory
evaluation of product characteristics and animal studies to assess the initial efficacy and safety of a product candidate. The FDA, under its Good Laboratory Practices regulations, regulates preclinical studies. Violations of these regulations can,
in some cases, lead to invalidation of the studies, requiring these studies to be replicated. The results of the preclinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must
be approved by the FDA before we can commence clinical trials in humans. Unless the FDA objects to an IND, the IND would become effective 30 days following its receipt by the FDA.

Clinical trials involve the administration of the investigational product candidate to humans under the supervision of a qualified principal
investigator. Clinical trials must be conducted in accordance with Good Clinical Practice, or GCP, under protocols submitted to the FDA as part of the IND. In addition, each clinical trial must be approved and conducted under the auspices of an
Investigational Review Board, or IRB, and with patient informed consent. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possibility of liability of the institution conducting the trial.

Clinical trials are conducted in three sequential phases though the phases may overlap. Phase 1 clinical trials may be performed in healthy human
subjects or, depending on the disease, in patients. The goal of Phase 1 clinical trials is to establish initial data about the safety and tolerance of the product candidate in humans. In Phase 2 clinical trials, in addition to safety, the efficacy
of the product candidate is evaluated in a limited number of patients with the target disease. Phase 3 clinical trials typically involve additional testing for safety and clinical efficacy in expanded, large-scale, multi-center studies of patients
with the target disease. We have engaged contract research organizations, or CROs, to facilitate the administration of our Phase 3 registration trials.

We and all of our contract manufacturers are required to comply with the applicable FDA current Good Manufacturing Practice, or cGMP, regulations. cGMP regulations include requirements relating to quality control and
quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to inspection by the FDA. These facilities must be approved before we can use them in the commercial manufacture of our
products.

Outside the United States, our ability to market a product is contingent upon receiving marketing authorization from the
appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. At present, foreign marketing authorizations are applied for at a
national level, although within the European Union registration procedures are available to companies wishing to market a product in more than one European Union member state. If the regulatory authority is satisfied that adequate evidence of
safety, quality and efficacy has been presented, a marketing authorization will be granted.



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Manufacturing

We are using third-party manufacturers to produce clinical supplies of TELCYTA under cGMP regulations. We are currently dependent on a single source of supply of the active ingredient in TELCYTA, Organichem Corporation. In July 2004, we
entered into an agreement with Organichem Corporation under which Organichem will manufacture and supply to us the active ingredient in TELCYTA for clinical and commercial purposes. We and Organichem have agreed on a pricing schedule for such
supply, which will be subject to future renegotiation after the lapse of a defined time period. Organichem has agreed to maintain sufficient capacity to satisfy its supply obligations under the agreement, and we are entitled to reduced prices in the
event of a significant production shortfall. For a number of years, we are obligated to purchase from Organichem a significant percentage of our United States requirements for the active ingredient in TELCYTA. Our agreement with Organichem will
remain in force until it is terminated through one of the following mechanisms: either party may terminate the agreement for an uncured or uncurable breach of other party, or immediately upon a series of material breaches, and we have the right to
terminate the agreement if TELCYTA is not approved for commercial sale by the FDA or if such approval is revoked. We also have the right to terminate the agreement upon repeated production shortfalls by Organichem. Neither party has the right to
terminate the agreement at will until several years after the FDA approves TELCYTA for commercial sale.

While we have entered into an
agreement with, and are working to qualify, an additional supplier, there is no certainty this will occur. We currently depend upon two sources for the drug product manufacture of TELCYTA.

We presently depend upon one source of supply, Isochem, for clinical quantities of the active ingredient in TELINTRA. We currently depend upon one
source, Patheon, for the manufacture of TELINTRA Tablets. While we are evaluating potential alternative sources of these materials, we have no such alternative sources that are immediately available.

We intend to continue to use third-party contract manufacturers or corporate collaborators for the production of material for use in preclinical studies,
clinical trials, manufacture of future products and commercialization. The manufacture of our potential products for preclinical studies and clinical trials and commercial purposes is subject to cGMP regulations promulgated by the FDA and to other
applicable domestic and foreign regulations.

Research and Development

Our goal is to develop small molecule drugs for major disease areas and this goal has been supported by our substantial research and development investments. We spent approximately $43.0 million in 2007, $71.5 million
in 2006 and $71.3 million in 2005 on research and development. We conduct research internally and also through collaborations with third parties, including universities, and we intend to maintain our strong commitment to our research and development
efforts in the future. Approximately 63% of our research and development is conducted internally and 37% is conducted through collaborations with third parties, including CROs and consultants.

Employees

As of February 15, 2008, our
workforce consisted of 95 full-time employees, 31 of whom hold Ph.D. or M.D. degrees, or both, and 19 of whom hold other advanced degrees. Of our total workforce, 70 are engaged in research and development and 25 are engaged in business
development, finance and administration. None of our employees are represented by a collective bargaining agreement, nor have we experienced any significant work stoppages. We believe that our relations with our employees are good.



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Available Information

Our website address is www.telik.com; however, information found on, or that can be accessed through, our website is not incorporated by reference into this Annual Report. We file or furnish electronically with
the SEC our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We
make available free of charge on or through our website copies of these reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an internet site that contains
reports, proxy and information statements and other information regarding our filings at www.sec.gov. You may also read and copy any of our materials filed with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington,
DC 20549. Information regarding the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.



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Item 1A. Risk Factors.

Our business faces significant risks, some of which are set forth below to
enable readers to assess, and be appropriately apprised of, many of the risks and uncertainties applicable to the forward-looking statements made in this Annual Report on Form 10-K. You should carefully consider these risk factors as each of these
risks could adversely affect our business, operating results and financial condition. If any of the events or circumstances described in the following risks actually occurs, our business may suffer, the trading price of our common stock could
decline and our financial condition or results of operations could be harmed. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. These risks should be read in conjunction with the other
information set forth in this Annual Report. There may be additional risks faced by our business, though we do believe that the risks set forth below reflect the more important ones.

We have a history of net losses, which we expect to continue for the next several years. We will never be profitable unless we develop, and obtain regulatory approval and market acceptance of, our product
candidates.

Due to the significant research and development expenditures required to develop our TRAP technology and identify new
product candidates, and the lack of any products to generate revenue, we have not been profitable and have incurred operating losses since we were incorporated in 1988. As of December 31, 2007, we had an accumulated deficit of $448.1 million.
We expect to incur losses for the next several years as we continue our research and development activities and incur significant clinical testing and drug supply manufacturing costs. We do not anticipate that we will generate product revenue for
several years. Our losses, among other things, have caused and will cause our stockholders equity and working capital to decrease. We expect that this trend will continue until we develop, and obtain regulatory approval and market acceptance
of, our product candidates, if at all. We may never generate product revenue sufficient to become profitable.

All of our product candidates are in
research and development. If clinical trials of TELCYTA or TELINTRA are delayed or unsuccessful or if we are unable to complete the preclinical development of our other preclinical product candidates, our business may suffer.

Preclinical testing and clinical trials are long, expensive and uncertain processes. It may take us or our collaborators several years to complete this
testing, and failure can occur at any stage of the process. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of clinical trials do not necessarily predict
final results. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier clinical trials.

To obtain regulatory approvals, we must, among other requirements, complete carefully controlled and well-designed clinical trials demonstrating that a
particular drug is safe and effective for the applicable disease. TELCYTA has, to date, been evaluated in multiple Phase 1, Phase 2 and Phase 3 clinical trials. The Phase 3 clinical trials (ASSIST-1, 2, 3 and 5) compare TELCYTA to a control arm
consisting of currently established standard drug treatments for ovarian and lung cancers. On June 3, 2007, we presented final results at the ASCO annual meeting that the ASSIST-1 and ASSIST-3 trials did not achieve their primary endpoints. We
also announced final data on the ASSIST-2 trial confirming that the primary endpoints were not achieved.

On June 4, 2007, a full
clinical hold for TELCYTA was initiated by the FDA following the presentation of the Phase 3 clinical trial results at the ASCO annual meeting. As a result, we stopped enrolling new patients in TELCYTA clinical trials, and patients being treated on
the trials could not receive additional treatment until such time that the FDA released the clinical hold. On June 15, 2007, the FDA converted the full clinical hold of TELCYTA to a partial hold, thereby enabling patients that had been enrolled
in the ASSIST-3 and ASSIST-5 trials the opportunity to continue to receive study treatments, including TELCYTA in combination with



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chemotherapy, subject to re-consenting procedures. We submitted detailed safety and other information to the FDA and worked closely with the agency in its
review of TELCYTA. On October 12, 2007, the FDA completed their review of all TELCYTA data and removed the partial hold, permitting the resumption of our TELCYTA clinical development. However, during the clinical hold a number of patients
discontinued therapy on the ASSIST-5 trial and no additional patients have been enrolled. An analysis will be conducted on the patients currently enrolled on the ASSIST-5 trial and depending on the timing and the results of the analysis, we may not
be able to resume the study. If the data on the ASSIST-5 trial is not positive, we may not be able to continue clinical development on TELCYTA and our business will suffer.

We rely on third-party clinical investigators to conduct our clinical trials and, as a result, we may face additional delays outside our control. We
engaged contract research organizations, or CROs, to facilitate the administration of our Phase 3 clinical trials of TELCYTA. Dependence on a CRO subjects us to a number of risks. We may not be able to control the amount and timing of resources the
CRO may devote to our clinical trials. Should the CRO fail to administer our Phase 3 clinical trials properly, regulatory approval, development and commercialization of TELCYTA will be delayed.

In January 2007, we completed a Phase 2 clinical trial of the intravenous formulation of TELINTRA in MDS, a form of pre-leukemia, to evaluate safety,
pharmacokinetics, pharmacodynamics and efficacy. In February 2006, we initiated a Phase 1-2a clinical trial of a tablet formulation of TELINTRA in MDS and announced final data at the American Society of Hematology meeting in December 2007. Our
success depends in part on our ability to continue clinical development of TELINTRA or advance our preclinical product candidates.

We do
not know whether we will begin planned clinical trials on time or whether we will complete any of our on-going clinical trials on schedule, if at all. We do not know whether any clinical trials will result in marketable products. Typically, there is
a high rate of failure for product candidates in preclinical and clinical trials. We do not anticipate that any of our product candidates will reach the market for several years.

Significant delays in clinical testing could materially impact our clinical trials. We do not know whether planned clinical trials will begin on time,
will need to be revamped or will be completed on schedule, if at all. In addition to the reasons stated above, clinical trials can be delayed for a variety of other reasons, including delays in obtaining regulatory approval to commence a study,
delays in reaching agreement on acceptable clinical study agreement terms with prospective clinical sites, delays in obtaining institutional review board approval to conduct a study at a prospective clinical site and delays in recruiting subjects to
participate in a study.

Delays in clinical testing can also materially impact our product candidates development costs. If we experience
delays in clinical testing or approvals, our product candidates development costs will increase. For example, we may need to make additional payments to third-party investigators and organizations to retain their services or we may need to pay
recruitment incentives. If the delays are significant, our financial results and the commercial prospects for our product candidates will be harmed, and our ability to become profitable will be delayed.

We believe that our ability to compete depends, in part, on our ability to use our proprietary TRAP technology to discover new pharmaceutical products.

TRAP, our proprietary drug discovery technology, is a relatively new drug discovery method that uses a protein panel of approximately
20 proteins selected for their distinct patterns of interacting with small molecules. This panel may lack essential types of interactions that we have not yet identified, which may result in our inability to identify active compounds that we could
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If we are unable to raise adequate funds in the future, we will not be able to continue to fund our operations,
research programs, preclinical testing and clinical trials to develop and manufacture our product candidates.

The process of carrying
out the development of our own unpartnered product candidates to later stages of development and developing other research programs to the stage that they may be partnered to a pharmaceutical or biotechnology company will require significant
additional expenditures, including the expenses associated with preclinical testing, clinical trials and obtaining regulatory approval. We believe that our existing cash and investment securities will be sufficient to support our current operating
plan until the end of 2009. Changes in our research and development plans or other changes affecting our operating expenses may affect actual future consumption of existing cash resources as well. In any event, we will require substantial additional
financing to fund our operations in the future. We do not know whether additional financing will be available when needed or that, if available, we will obtain financing on terms favorable to our stockholders. As of December 31, 2007, our
accumulated deficit was $448.1 million, and we expect capital outlays and operating expenditures to increase over the next several years as we expand our clinical, research and development activities. The extent of any actual increase in operating
or capital spending will depend in part on the clinical success of our product candidates. If we fail to raise adequate funds on terms acceptable to us, if at all, we will not be able to continue to fund our operations, research programs,
preclinical testing, clinical trials and manufacturing efforts.

Raising additional capital by issuing securities or through collaboration and licensing
arrangements may cause dilution to existing stockholders or require us to relinquish rights to our technologies or product candidates.

We may seek to raise any necessary additional funds through equity or debt financings, collaborative arrangements with corporate partners or other sources. To the extent that we raise additional capital by issuing equity securities, our
stockholders may experience dilution. To the extent that we raise additional capital through licensing arrangements or arrangements with collaborative partners, we may be required to relinquish, on terms that are not favorable to us, rights to some
of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves.

If our competitors develop and market
products that are more effective than our product candidates or any products that we may develop, or obtain marketing approval before we do, our commercial opportunity will be reduced or eliminated.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Some of the drugs
that we are attempting to develop will have to compete with existing therapies. In addition, a large number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. We face
competition from pharmaceutical and biotechnology companies in the United States and abroad. Our competitors may develop new screening technologies and may utilize discovery techniques or partner with collaborators in order to develop products more
rapidly or successfully than we or our collaborators are able to do.

Many of our competitors, particularly large pharmaceutical companies,
have substantially greater financial, technical and human resources than we do. These organizations also compete with us to attract qualified personnel and parties for acquisitions, joint ventures, licensing arrangements or other collaborations. In
addition, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competing products or technologies and may establish exclusive collaborative
or licensing relationships with our competitors.

Our competitors may succeed in developing technologies and drugs that are more effective,
better tolerated or less costly than any which are being developed by us or which would render our technology and potential drugs obsolete and noncompetitive. In addition, our competitors may succeed in obtaining FDA or other regulatory approvals
for product candidates more rapidly than us or our collaborators. Any drugs resulting from



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our research and development efforts, or from our joint efforts with our existing or future collaborative partners, may not be able to compete successfully
with our competitors existing products or product candidates under development or may not obtain regulatory approval in the United States or elsewhere.

If we do not obtain regulatory approval to market products in the United States and foreign countries, we or our collaborators will not be permitted to commercialize our product candidates.

Even if we are able to achieve success in our preclinical testing, we, or our collaborators, must provide the FDA and foreign regulatory authorities with
clinical data that demonstrate the safety and efficacy of our product candidates in humans before they can be approved for commercial sale. Failure to obtain regulatory approval will prevent commercialization of our product candidates.

The pharmaceutical industry is subject to stringent regulation by a wide range of regulatory authorities. We cannot predict whether regulatory
clearance will be obtained for any product candidate that we are developing or hope to develop. A pharmaceutical product cannot be marketed in the United States until it has completed rigorous preclinical testing and clinical trials and an extensive
regulatory clearance process implemented by the FDA. Satisfaction of regulatory requirements typically takes many years and depends on the type, complexity and novelty of the product and requires the expenditure of substantial resources. Of
particular significance are the requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use.

Before commencing clinical trials in humans, we, or our collaborators, must submit and receive approval from the FDA of an IND application. We must comply with FDA Good Laboratory Practices regulations in
our preclinical studies. Clinical trials are subject to oversight by institutional review boards of participating clinical sites and the FDA and:



| |  |  | must be conducted in conformance with the FDA regulations;
| | - |  | ----------------------------------------------------------



| |  |  | must meet requirements for institutional review board approval;
| | - |  | ---------------------------------------------------------------



| |  |  | must meet requirements for informed consent;
| | - |  | --------------------------------------------



| |  |  | must meet requirements for Good Clinical Practices;
| | - |  | ---------------------------------------------------



| |  |  | may require large numbers of participants; and
| | - |  | ----------------------------------------------



| |  |  | may be suspended by us, our collaborators or the FDA at any time if it is believed that the subjects participating in these trials are being exposed to unacceptable
health risks or if the FDA finds deficiencies in the IND application or the conduct of these trials.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Before receiving
FDA clearance to market a product, we, or our collaborators must demonstrate that the product candidate is safe and effective in the patient population that will be treated. Negative or inconclusive results or adverse medical events during a
clinical trial could cause a clinical trial to be repeated, a program to be terminated and could delay approval. We typically rely on third-party clinical investigators to conduct our clinical trials and other third-party organizations to perform
data collection and analysis. As a result, we may face additional delaying factors outside our control. In addition, we may encounter delays or rejections based upon additional government regulation from future legislation or administrative action
or changes in FDA policy or interpretation during the period of product development, clinical trials and FDA regulatory review. Failure to comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution,
civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory
approval.

If regulatory clearance of a product is granted, this clearance will be limited to those disease states and conditions for which
the product is demonstrated through clinical trials to be safe and efficacious, which could limit our market opportunity. Furthermore, product approvals, once granted, may be withdrawn if problems occur



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after initial marketing. We cannot ensure that any product candidate developed by us, alone or with others, will prove to be safe and efficacious in clinical
trials and will meet all of the applicable regulatory requirements needed to receive marketing clearance. Regulatory clearance may also contain requirements for costly post-marketing testing and surveillance to monitor the safety and efficacy of the
product candidate. If problems occur after initial marketing, such as the discovery of previously unknown problems with our product candidates, including unanticipated adverse events or adverse events of unanticipated severity or frequency, or
manufacturer or manufacturing issues, marketing approval can be withdrawn.

Outside the United States, the ability to market a product
depends on receiving a marketing authorization from the appropriate regulatory authorities. Most foreign regulatory approval processes include all of the risks associated with FDA clearance described above and some may include additional risks.

As our product programs advance, we may need to hire additional scientific and management personnel. Our research and development efforts will be
seriously jeopardized if we are unable to attract and retain key personnel.

Our success depends in part on the continued contributions
of our principal management and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, scientists and companies in the face of intense competition for such personnel. As we plan
for additional advanced clinical trials, including Phase 2 and Phase 3, we may also need to expand our clinical development personnel. In addition, our research programs depend on our ability to attract and retain highly skilled chemists and other
scientists. If we lose the services of Dr. Wick or any of our other key personnel, our research and development efforts could be seriously and adversely affected. We have generally entered into consulting or other agreements with our scientific
and clinical collaborators and advisors. We do not carry key person insurance that covers Dr. Wick or any of our other key employees.

Our
restructuring efforts may have an adverse impact on our current employees and on our ability to retain and attract future employees.

On
February 12, 2007, our Board of Directors committed to a restructuring which resulted in a reduction of 38 positions, or approximately 25% of our workforce. We cannot assure you that future reductions or adjustments of our workforce will not be
made or that issues, such as reduced productivity, associated with such reductions will not recur. In addition, employees, whether or not directly affected by the reduction, may seek future employment with our business partners, customers or
competitors. Although our employees are required to sign a confidentiality agreement at the time of hire, we cannot assure you that the confidential nature of certain proprietary information will be maintained in the course of such future
employment.

Further, we believe that our future success will depend in large part upon our ability to attract and retain highly skilled
personnel. We may have difficulty attracting such personnel as a result of a perceived risk of future workforce reductions. In addition, there is currently a shortage of skilled executives and employees with technical expertise in the biotechnology
industry and this shortage is likely to continue. As a result, competition among numerous companies, academic and other research institutions for skilled personnel and experienced scientists is intense and turnover rates are high. The cost of living
in the San Francisco Bay Area is high compared to other parts of the country, which may adversely affect our ability to compete for qualified personnel and will increase costs. Because of this competitive environment, we have encountered and may
continue to encounter increasing difficulty in attracting qualified personnel if our operations expand and the demand for these professionals increases, and this difficulty could significantly impede the achievement of our research and development
objectives.



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If physicians and patients do not accept products that we may develop, our ability to generate product revenue in the
future will be adversely affected.

Products that we may develop may not gain market acceptance among physicians, healthcare payors,
patients and the medical community. Market acceptance of and demand for any products that we may develop will depend on many factors, including the following:



| |  |  | our ability to provide acceptable evidence of safety and efficacy;
| | - |  | ------------------------------------------------------------------



| |  |  | convenience and ease of administration;
| | - |  | ---------------------------------------



| |  |  | cost effectiveness;
| | - |  | -------------------



| |  |  | the effectiveness of our marketing strategy and the pricing of any products that we may develop;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | our ability to obtain third-party coverage or reimbursement; and
| | - |  | ----------------------------------------------------------------



| |  |  | the prevalence and severity of adverse side effects.
| | - |  | ----------------------------------------------------

Physicians may elect not to recommend products that we may develop even if our products meet the above criteria. If any product that we may develop fails to achieve market acceptance, we may not be able to
successfully market and sell that product, which would limit our ability to generate revenue and adversely affect our operations.

If we or our
licensees cannot obtain and defend our respective intellectual property rights, or if our product candidates, technologies or any products that we may develop are found to infringe patents of third parties, we could become involved in lengthy and
costly legal proceedings that could adversely affect our business.

Our success will depend in a large part on our own and our
licensees ability to obtain and defend patents for each partys respective technologies and the compounds and other products, if any, resulting from the application of these technologies. The patent positions of pharmaceutical and
biotechnology companies can be highly uncertain and involve complex legal and factual questions. As a result, the degree of future protection for our proprietary rights is uncertain, and we cannot assure you that:



| |  |  | we were the first to make the inventions covered by each of our pending patent applications;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | we were the first to file patent applications for these inventions;
| | - |  | -------------------------------------------------------------------



| |  |  | others will not independently develop similar or alternative technologies or duplicate any of our technologies;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | any of our pending patent applications will result in issued patents;
| | - |  | ---------------------------------------------------------------------



| |  |  | any patents issued to us or our collaborators will provide a basis for commercially viable products, will provide us with any competitive advantages or will not be
challenged by third parties;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any of our issued patents will be valid or enforceable; or
| | - |  | ----------------------------------------------------------



| |  |  | we will develop additional proprietary technologies that are patentable.
| | - |  | ------------------------------------------------------------------------

Accordingly, we cannot predict the breadth of claims allowed in our or other companies patents.

For TRAP, we hold patents in the United States and internationally, including a pending foreign application. These patents, and any patent that may issue
on the pending application, will expire between 2014 and 2015. For TELCYTA, we hold compound patents in the United States and internationally. These patents will expire in 2013 and 2014. For TELINTRA, we hold compound patents in the United States
and internationally, including a pending foreign application. These patents, and any patent that may issue on the pending application, will expire in 2014. We can generally apply for patent term extensions on the patents for TELCYTA and TELINTRA
when and if marketing approvals for these compounds are obtained in the relevant countries. In foreign countries, these



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extensions are available only if approval is obtained before the patent expires, but in the United States, extensions are available even if approval is
obtained after the patent would expire normally through a system of interim extensions until approval.

Our success will also depend, in
part, on our ability to operate without infringing the intellectual property rights of others. We cannot assure you that our activities will not infringe patents owned by others. As of the date of this Annual Report on Form 10-K, we have not
received any communications with the owners of related patents alleging that our activities infringe their patents. However, if our product candidates, technologies or any products that we may develop are found to infringe patents issued to third
parties, the manufacture, use and sale of any products that we may develop could be enjoined, and we could be required to pay substantial damages. In addition, we may be required to obtain licenses to patents or other proprietary rights of third
parties. We cannot assure you that any licenses required under any such patents or proprietary rights would be made available on terms acceptable to us, if at all. Failure to obtain such licenses could negatively affect our business.

Others may have filed and in the future may file patent applications covering small molecules or therapeutic products that are similar to ours. We cannot
assure you that our patent applications will have priority over patent applications filed by others. Any legal action against us or our collaborators claiming damages and seeking to enjoin commercial activities relating to the affected products and
processes could, in addition to subjecting us to potential liability for damages, require us or our collaborators to obtain a license to continue to manufacture or market the affected products and processes. We cannot predict whether we, or our
collaborators, would prevail in any of these actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. We believe that there may be significant litigation in the industry
regarding patent and other intellectual property rights. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources, and we may not be successful in any such litigation.

In addition, we could incur substantial costs and use of our key employees time and efforts in litigation if we are required to defend against
patent suits brought by third parties or if we initiate these suits, and we cannot predict whether we would be able to prevail in any of these suits.

Furthermore, some of our patents and intellectual property rights are owned jointly by us and our collaborators. While there are legal and contractual restraints on the rights of these joint owners, they may use these
patents and other intellectual property in ways that may harm our business. We may not be able to prevent this type of use.

We also rely
on trade secrets to protect technology, including aspects of our TRAP technology, where we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we require employees, academic
collaborators and consultants to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by
others of such information. If the identity of specific proteins or other elements of our TRAP technology become known, our competitive advantage in drug discovery could be reduced.

Many of our collaborators and scientific advisors have publication and other rights to certain information and data gained from their collaborations and
research with us. Any publication or other use could limit our ability to secure intellectual property rights or impair any competitive advantage that we may possess or realize by maintaining the confidentiality of that information or data.



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We will depend on collaborative arrangements to complete the development and commercialization of some of our product
candidates. These collaborative arrangements may place the development of our product candidates outside of our control, may require us to relinquish important rights or may otherwise not be on terms favorable to us.

We expect to enter into collaborative arrangements with third parties for clinical trials, development, manufacturing, regulatory approvals or
commercialization of some of our product candidates, particularly outside North America, or in disease areas requiring larger and longer clinical trials. Dependence on collaborative arrangements will subject us to a number of risks. We may not be
able to control the amount and timing of resources our collaborative partners may devote to the product candidates. Our collaborative partners may experience financial difficulties. Should a collaborative partner fail to develop or commercialize a
compound or product candidate to which it has rights from us, we may not receive any future milestone payments and will not receive any royalties for that compound or product candidate. Business combinations or significant changes in a collaborative
partners business strategy may also adversely affect a partners willingness or ability to complete its obligations under an arrangement. If we fail to enter into additional collaborative agreements on favorable terms, our business,
financial condition and results of operations could be materially adversely affected.

Some of our collaborations are for early stage
programs and allow partners significant discretion in electing whether to pursue any of the planned activities. We do not anticipate significant revenues to result from these relationships until the collaborator has advanced product candidates into
clinical trials, which will not occur for several years, if at all. These arrangements are subject to numerous risks, including the right of the collaboration partner to control the timing of the research and development efforts, the advancement of
lead product candidates to clinical trials and the commercialization of product candidates. In addition, a collaborative partner could independently move forward with a competing lead candidate developed either independently or in collaboration with
others, including our competitors.

If we are unable to enter into or maintain existing contracts with third parties to manufacture our product
candidates or any products that we may develop in sufficient quantities and at an acceptable cost, clinical development of product candidates could be delayed and we may be unable to meet demand for any products that we may develop and lose
potential revenue.

We do not currently operate manufacturing facilities for clinical or commercial production of our product
candidates. We expect to continue to rely on third parties for the manufacture of our product candidates and any products that we may develop. We currently lack the resources and capability to manufacture any of our product candidates on a clinical
scale or any products that we may develop on a commercial scale. As a result, we will be dependent on corporate partners, licensees or other third parties for the manufacturing of clinical and commercial scale quantities of our product candidates
and any products that we may develop. Our product candidates and any products that we may develop may be in competition with other product candidates and products for access to these manufacturing facilities. For this and other reasons, our
collaborators or third parties may not be able to manufacture our product candidates and products in a cost effective or timely manner. While we currently possess sufficient inventory of TELCYTA and TELINTRA that are stored in multiple locations and
an additional, substantial quantity of the active ingredient in TELCYTA, if these inventories are lost or damaged, the clinical development of our product candidates or their submission for regulatory approval could be delayed, and our ability to
deliver any products that we may develop on a timely basis could be impaired or precluded.

We are currently dependent on a single source
of supply of the active ingredient in TELCYTA, Organichem Corporation. While we have entered into an agreement with, and are working to qualify, an additional supplier, there is no certainty this will occur. We currently depend upon two sources for
the drug product manufacture of TELCYTA.

We presently depend upon one source of supply, Isochem, for clinical quantities of the active
ingredient in TELINTRA. We currently depend upon one source, Patheon, for the manufacture of TELINTRA Tablets. While



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we are evaluating potential alternative sources of these materials, we have no such alternative sources that are immediately available.

If manufacturing is not performed in a timely manner, if our suppliers fail to perform or if our relationships with our suppliers or manufacturers should
terminate, our clinical trials and commercialization of TELCYTA and TELINTRA could be delayed. We may not be able to enter into or maintain any necessary third-party manufacturing arrangements on acceptable terms, if at all. Our current dependence
upon others for the manufacture of our product candidates and our anticipated dependence upon others for the manufacture of any products that we may develop may adversely affect our future profit margins and our ability to commercialize any products
that we may develop on a timely and competitive basis.

If we are unable to create sales, marketing and distribution capabilities or enter into
agreements with third parties to perform these functions, we will not be able to commercialize any products that we may develop.

We
currently have no sales, marketing or distribution capabilities. In order to commercialize any products that we may develop, we must internally develop sales, marketing and distribution capabilities or establish collaborations or other arrangements
with third parties to perform these services. We intend to market some products that we may develop directly in North America and rely on relationships with one or more pharmaceutical companies with established distribution systems and direct sales
forces to market other products that we may develop and address other markets. We may not be able to establish in-house sales and distribution capabilities or relationships with third parties. To the extent that we enter into co-promotion or other
licensing arrangements, any product revenues are likely to be lower than if we directly marketed and sold any products that we may develop, and any revenues we receive will depend upon the efforts of third parties, whose efforts may not be
successful.

Budget constraints may force us to delay our efforts to develop certain product candidates in favor of developing others, which may prevent
us from commercializing all product candidates as quickly as possible.

Because we have limited resources, and because research and
development is an expensive process, we must regularly assess the most efficient allocation of our research and development budget. As a result, we may have to prioritize development candidates and may not be able to fully realize the value of some
of our product candidates in a timely manner, as they will be delayed in reaching the market, if at all.

If product liability lawsuits are successfully
brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates and any products that we may develop.

The testing and marketing of medical products entail an inherent risk of product liability. Although we are not aware of any historical or anticipated product liability claims or specific causes for concern, if we
cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates and any products that we may develop. In addition, product liability
claims may also result in withdrawal of clinical trial volunteers, injury to our reputation and decreased demand for any products that we may commercialize. We currently carry product liability insurance that covers our clinical trials up to a $10
million annual aggregate limit. We will need to increase the amount of coverage if and when we have a product that is commercially available. If we are unable to obtain sufficient product liability insurance at an acceptable cost, potential product
liability claims could prevent or inhibit the commercialization of any products that we may develop, alone or with corporate partners.



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If we use biological and hazardous materials in a manner that causes injury, we may be liable for damages.

Our research and development activities involve the controlled use of potentially harmful biological materials, hazardous materials,
chemicals and various radioactive compounds, and are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. We cannot eliminate the risk of
accidental contamination or injury from the use, storage, handling or disposal of these materials. We currently have insurance applying to various types of biological and pollution exposures for a total amount of $350,000 in coverage. However, in
the event of contamination or injury, we could be held liable for damages that result from our use of hazardous materials, and any liability could significantly exceed our coverage and resources.

We have implemented anti-takeover provisions which could discourage or prevent a takeover, even if an acquisition would be beneficial to our stockholders and may
prevent attempts by our stockholders to replace or remove our current management.

Provisions of our amended and restated certificate of
incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. In addition, these provisions may frustrate or prevent any
attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our
management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. These provisions include:



| |  |  | establishing a classified board of directors requiring that members of the board be elected in different years, which lengthens the time needed to elect a new
majority of the board;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | authorizing the issuance of blank check preferred stock that could be issued by our board of directors to increase the number of outstanding shares or
change the balance of voting control and thwart a takeover attempt;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | prohibiting cumulative voting in the election of directors, which would otherwise allow for less than a majority of stockholders to elect director candidates;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limiting the ability of stockholders to call special meetings of the stockholders;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | prohibiting stockholder action by written consent and requiring all stockholder actions to be taken at a meeting of our stockholders; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | establishing 90 to 120 day advance notice requirements for nominations for election to the board of directors and for proposing matters that can be acted upon by
stockholders at stockholder meetings.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We adopted a stockholder rights plan that may discourage, delay or prevent a merger or
acquisition that is beneficial to our stockholders.

In November 2001, our board of directors adopted a stockholder rights plan that may
have the effect of discouraging, delaying or preventing a merger or acquisition that is beneficial to our stockholders by diluting the ability of a potential acquiror to acquire us. Pursuant to the terms of our plan, when a person or group, except
under certain circumstances, acquires 20% or more of our outstanding common stock or 10 business days after commencement or announcement of a tender or exchange offer for 20% or more of our outstanding common stock (an Acquiring Person),
the rights (except those rights held by the person or group who has acquired or announced an offer to acquire 20% or more of our outstanding common stock) would generally become exercisable for shares of our common stock at a discount. In May 2006,
we amended the stockholder rights plan to exclude Eastbourne Capital Management, L.L.C. and certain related persons and entities, collectively Eastbourne, from the definition of Acquiring Person so long as neither Eastbourne nor its affiliates or
associates, either individually or in the aggregate, becomes the beneficial owner of 25% or more of the common stock then



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outstanding. On December 11, 2006, the plan was further amended to increase this threshold to 30% with respect to Eastbourne. Because the potential
acquirors rights would not become exercisable for our shares of common stock at a discount, the potential acquiror would suffer substantial dilution and may lose its ability to acquire us. In addition, the existence of the plan itself may
deter a potential acquiror from acquiring us. As a result, either by operation of the plan or by its potential deterrent effect, mergers and acquisitions of us that our stockholders may consider in their best interests may not occur.

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

Additional equity financings or other share issuances by us, including shares issued in connection with strategic alliances and corporate partnering
transactions, could adversely affect the market price of our common stock. Sales by existing stockholders of a large number of shares of our common stock in the public market or the perception that additional sales could occur could cause the market
price of our common stock to drop. As of December 31, 2007, 52,928,617 shares of our common stock were outstanding, of which 52,633,375 shares were freely tradable and 295,242 shares were transferable in accordance with certain volume, notice
and manner of sale restrictions under Rule 144 of the Securities Act of 1933.

If we do not progress in our programs as anticipated, our stock price
could decrease.

For planning purposes, we estimate the timing of a variety of clinical, regulatory and other milestones, such as when a
certain product candidate will enter clinical development, when a clinical trial will be completed or when an application for regulatory approval will be filed. Some of our estimates are included in this Annual Report on Form 10-K. Our estimates are
based on present facts and a variety of assumptions. Many of the underlying assumptions are outside of our control. If milestones are not achieved when we estimated that they would be, investors could be disappointed, and our stock price may
decrease.

Our stock price may be volatile, you may not be able to resell your shares at or above your purchase price.

Our stock prices and the market prices for securities of biotechnology companies in general have been highly volatile, with recent significant price and
volume fluctuations, and may continue to be highly volatile in the future. For example, our stock price dropped by 71% on the day following the announcement in December 2006 that the preliminary top-line results of our first three Phase 3 trials did
not meet primary end-points. During the year ended December 31, 2007, our common stock traded between $2.55 and $7.50. You may not be able to sell your shares quickly or at the market price if trading in our stock is not active or the volume is
low. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock, some of which are beyond our control:



| |  |  | developments regarding, or the results of, our clinical trials;
| | - |  | ---------------------------------------------------------------



| |  |  | announcements of technological innovations or new commercial products by our competitors or us;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | developments concerning proprietary rights, including patents;
| | - |  | --------------------------------------------------------------



| |  |  | developments concerning our collaborations;
| | - |  | -------------------------------------------



| |  |  | publicity regarding actual or potential medical results relating to products under development by our competitors or us;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | regulatory developments in the United States and foreign countries;
| | - |  | -------------------------------------------------------------------



| |  |  | litigation;
| | - |  | -----------



| |  |  | economic and other external factors or other disaster or crisis; or
| | - |  | -------------------------------------------------------------------



| |  |  | period-to-period fluctuations in our financial results.
| | - |  | -------------------------------------------------------



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We have been, and in the future may be, subject to securities class action lawsuits and shareholder derivative
actions. These, and potential similar or related litigation, could result in substantial damages and may divert managements time and attention from our business.

Beginning on June 6, 2007, a series of putative securities class action lawsuits were filed in the United States District Courts for the Southern District of New York and the Northern District of California,
naming as defendants Telik, Inc. and certain of our current officers, one of whom is also a director. The complaints filed in the Southern District of New York, which were consolidated and amended in 2007, also name as defendants the underwriters of
our November 2003 and/or January 2005 stock offerings. Plaintiffs in the Northern District of California subsequently voluntarily dismissed their complaints without prejudice. All of the complaints allege violations of the Securities Act of 1933 and
the Securities Exchange Act of 1934 arising out of the issuance of allegedly false and misleading statements about our business and prospects, including the efficacy, safety and likelihood of success of our drug TELCYTA. The allegations of the
consolidated amended complaint are similar, but more narrow than the original complaints. Plaintiffs seek unspecified damages and injunctive relief on behalf of purchasers of our common stock during the period between March 27, 2003 and
June 4, 2007, including purchasers in the January 2005 stock offering.

In January 2008, the parties to the securities class action
reached an agreement in principle to settle the claims. This agreement is contingent on a number of factors, including confirmatory discovery and court approval. It is currently anticipated that the settlement will be funded primarily by proceeds
from insurance.

In August 2007, a separate party who claims to be an owner of our common stock filed a derivative action on behalf of the
company against certain of our current and former directors. The allegations are similar to those made in the class action regarding the development of TELCYTA; however, it seeks a recovery only on behalf of the company. In January 2008, the
plaintiff voluntarily dismissed this complaint without prejudice. We cannot assure you that this or separate derivative shareholder actions will not be filed in the future.

Although the parties have reached agreement in principle to settle the class action claims, the ultimate outcome of the class action cannot presently be
determined. The current, and any future related or unrelated lawsuits or derivative actions, may require significant commitment of our financial and management resources and time, which may seriously harm our business, financial condition and
results of operations. We cannot assure you that the allegations discussed above can be resolved without costly and protracted litigation, and the outcome may have a materially adverse impact upon our financial position, results of operations and
cash flows.

In addition, the uncertainty of the currently pending litigation could lead to more volatility in our stock price. We may in
the future be the target of securities class action or shareholder derivative claims similar to those described above.



|Item 1B. | Unresolved Staff Comments.
|-------- | --------------------------

None.



|Item 2. | Properties.
|------- | -----------

Our facility consists of approximately
92,000 square feet of research and office space located at 3165 Porter Drive in Palo Alto, California. The term of this lease is approximately 11.5 years, commencing in January 2003 and terminating in May 2014 with an option to extend the lease term
for a period of five years. In general, our facility is in good condition and is operating at an average capacity of approximately 85%.



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|Item 3. | Legal Proceedings.
|------- | ------------------

Beginning on June 6, 2007,
a series of putative securities class action lawsuits were commenced in the United States District Courts for the Southern District of New York and the Northern District of California, naming as defendants Telik, Inc., and certain of our current
officers, one of whom is also a director. The complaints filed in the Southern District of New York, which were consolidated and amended in 2007, also name as defendants the underwriters of our November 2003 and/or January 2005 stock offerings.
Plaintiffs in the Northern District of California subsequently voluntarily dismissed their complaints without prejudice. All of the complaints allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 arising out of the
issuance of allegedly false and misleading statements about our business and prospects, including the efficacy, safety and likelihood of success of our drug TELCYTA. The allegations of the consolidated amended complaint are similar, but more narrow
than the original complaints. Plaintiffs seek unspecified damages and injunctive relief on behalf of purchasers of our common stock during the period between March 27, 2003 and June 4, 2007, including purchasers in the January 2005 stock
offering.

In January 2008, the parties to the securities class action reached an agreement in principle to settle the claims. This
agreement is contingent on a number of factors, including confirmatory discovery and court approval. As such, the ultimate outcome of the class action cannot presently be determined. It is currently anticipated that the settlement will be funded
primarily by proceeds from insurance.

In August 2007, a separate party who claims to be an owner of our common stock filed a derivative
action on behalf of the company against certain of our current and former directors. The allegations are similar to those made in the class action regarding the development of TELCYTA; however, it seeks a recovery only on behalf of the company. In
January 2008, the plaintiff voluntarily dismissed this complaint without prejudice.



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

No matters were submitted to a vote of our stockholders during the fiscal quarter ended
December 31, 2007.



30



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##### Table of Contents

PART II

Item 5.    Market for Registrants Common Equity, and Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for Our Common Stock

Our common stock trades on the Nasdaq Global Market under the symbol
TELK. The following table sets forth the high and low sales prices (based on the daily closing prices) for our common stock for each quarterly period within the two most recent fiscal years, as reported on the Nasdaq Global Market.



|                                 |  |      |       |     |   |      
|-------------------------------- |  | ---- | ----- | --- | - | -----
|                                 |  | High |       | Low
|2007                             |  |      |       |     |   |      
|Quarter ended March 31, 2007     |  | $    | 6.71  |     | $ | 4.44 
|Quarter ended June 30, 2007      |  | $    | 6.43  |     | $ | 3.27 
|Quarter ended September 30, 2007 |  | $    | 3.48  |     | $ | 2.66 
|Quarter ended December 31, 2007  |  | $    | 4.10  |     | $ | 2.91 
|                                 |  |     
|2006                             |  |      |       |     |   |      
|Quarter ended March 31, 2006     |  | $    | 22.38 |     | $ | 16.65
|Quarter ended June 30, 2006      |  | $    | 19.07 |     | $ | 14.64
|Quarter ended September 30, 2006 |  | $    | 17.88 |     | $ | 15.37
|Quarter ended December 31, 2006  |  | $    | 20.20 |     | $ | 4.39 

As of February 22, 2008, there were 104 stockholders of record of our common stock. We have
never paid our stockholders cash dividends, and we do not anticipate paying any cash dividends in the foreseeable future as we intend to retain any earnings for use in our business. Any future determination to pay dividends will be at the discretion
of our board of directors.



31



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##### Table of Contents

Performance Graph

The following graph shows the total stockholder return of an investment of $100 in cash on December 31, 2002 for: (i) the Companys Common Stock; (ii) the Nasdaq U.S. Index; and (iii) the
Nasdaq Pharmaceutical Stocks Index. All values assume reinvestment of the full amount of all dividends and are calculated as of the last stock trading day of each year:

LOGO



|                                   |  |                  |     |                  |   |                  |  |                  |     |                  |   |                  |  |   |     |  |   |    
|---------------------------------- |  | ---------------- | --- | ---------------- | - | ---------------- |  | ---------------- | --- | ---------------- | - | ---------------- |  | - | --- |  | - | ---
|                                   |  | December 31,2002 |     | December 31,2003 |   | December 31,2004 |  | December 30,2005 |     | December 29,2006 |   | December 31,2007
|Telik, Inc.                        |  | $                | 100 |                  | $ | 197              |  | $                | 164 |                  | $ | 146              |  | $ | 38  |  | $ | 30 
|Nasdaq U.S. Index                  |  |                  | 100 |                  |   | 150              |  |                  | 163 |                  |   | 166              |  |   | 183 |  |   | 198
|Nasdaq Pharmaceutical Stocks Index |  |                  | 100 |                  |   | 147              |  |                  | 156 |                  |   | 172              |  |   | 168 |  |   | 177

Source: Nasdaq.net. The information under Performance Graph is not deemed to be soliciting
material or filed with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act of 1934, as amended and is not to be incorporated by reference in any
filing of Telik 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 this annual report on Form 10-K and irrespective of any general incorporation language in
those filings.



32



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##### Table of Contents

Item 6.    Selected Financial Data.

The following selected historical information
has been derived from the audited financial statements of Telik. The financial information as of December 31, 2007 and 2006 and for each of the three years in the period ended December 31, 2007 are derived from audited financial statements
included elsewhere in this Annual Report on Form 10-K. The following Selected Financial Data should be read in conjunction with Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations and
Item 8. Financial Statements and Supplementary Data included elsewhere in this Annual Report on Form 10-K. The historical results are not necessarily indicative of the results of operations to be expected in the future.



|                                                                                  |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|--------------------------------------------------------------------------------- |  | ---------------------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                                                                  |  | Years Ended December 31,                 |         
|                                                                                  |  | 2007                                     |          |   | 2006 |   |          | 2005 |  |   | 2004     |   |  | 2003 |         
|                                                                                  |  | (In thousands, except per share amounts) |         
|Statement of Operations Data:                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Revenues:                                                                         |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Contract revenue from collaborations                                              |  | $                                        |         |   |      | $ |         |      |  | $ | 19       |   |  | $    | 163      |   |  | $ | 436      |  
|Other revenues                                                                    |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                                                  |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total revenues                                                                    |  |                                          |         |   |      |   |         |      |  |   | 19       |   |  |      | 163      |   |  |   | 436      |  
|                                                                                  |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Operating costs and expenses:                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Research and development                                                          |  |                                          | 43,032   |   |      |   | 71,522   |      |  |   | 71,345   |   |  |      | 61,868   |   |  |   | 42,311   |  
|General and administrative                                                        |  |                                          | 15,941   |   |      |   | 16,288   |      |  |   | 11,278   |   |  |      | 10,613   |   |  |   | 9,915    |  
|Restructuring costs                                                               |  |                                          | 1,356    |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                                                  |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total operating costs and expenses                                                |  |                                          | 60,329   |   |      |   | 87,810   |      |  |   | 82,623   |   |  |      | 72,481   |   |  |   | 52,226   |  
|                                                                                  |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Loss from operations                                                              |  |                                          | (60,329  | ) |      |   | (87,810  | )    |  |   | (82,604  | ) |  |      | (72,318  | ) |  |   | (51,790  | )
|Interest income and other, net                                                    |  |                                          | 5,114    |   |      |   | 8,186    |      |  |   | 7,062    |   |  |      | 2,501    |   |  |   | 1,148    |  
|                                                                                  |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net loss                                                                          |  | $                                        | (55,215  | ) |      | $ | (79,624  | )    |  | $ | (75,542  | ) |  | $    | (69,817  | ) |  | $ | (50,642  | )
|                                                                                  |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Basic and diluted net loss per share                                              |  | $                                        | (1.05    | ) |      | $ | (1.52    | )    |  | $ | (1.47    | ) |  | $    | (1.60    | ) |  | $ | (1.38    | )
|                                                                                  |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Shares used to calculate basic and diluted net loss per share                     |  |                                          | 52,542   |   |      |   | 52,271   |      |  |   | 51,249   |   |  |      | 43,701   |   |  |   | 36,812   |  
|                                                                                  |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|                                                                                  | 
|                                                                                  |  | As of December 31,                       |         
|                                                                                  |  | 2007                                     |          |   | 2006 |   |          | 2005 |  |   | 2004     |   |  | 2003 |         
|                                                                                  |  | (In thousands)                           |         
|Balance Sheet Data:                                                               |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Cash, cash equivalents, investments and restricted investments                    |  | $                                        | 93,233   |   |      | $ | 141,665  |      |  | $ | 205,643  |   |  | $    | 138,647  |   |  | $ | 201,088  |  
|Working capital                                                                   |  |                                          | 69,410   |   |      |   | 120,845  |      |  |   | 187,276  |   |  |      | 121,356  |   |  |   | 189,266  |  
|Total assets                                                                      |  |                                          | 98,528   |   |      |   | 149,214  |      |  |   | 213,346  |   |  |      | 146,133  |   |  |   | 208,307  |  
|Current portion of capital lease obligations and loans                            |  |                                          |         |   |      |   | 440      |      |  |   | 901      |   |  |      | 1,339    |   |  |   | 907      |  
|Non-current portion of capital lease obligations, loans and long-term liabilities |  |                                          |         |   |      |   |         |      |  |   | 145      |   |  |      | 1,029    |   |  |   | 1,493    |  
|Deferred stock compensation, net                                                  |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   | (93      | )
|Accumulated deficit                                                               |  |                                          | (448,129 | ) |      |   | (392,914 | )    |  |   | (313,290 | ) |  |      | (237,748 | ) |  |   | (167,931 | )
|Total stockholders equity                                                        |  |                                          | 87,319   |   |      |   | 132,622  |      |  |   | 194,525  |   |  |      | 126,344  |   |  |   | 194,302  |  



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

Overview

Telik is engaged in the discovery, development and commercialization of small molecule drugs. We have incurred net
losses since inception and expect to incur substantial and increasing losses for the next several years as we expand our research and development activities and move our product candidates into later stages of development. As of December 31,
2007, we had an accumulated deficit of $448.1 million.

Our expenses have consisted primarily of those incurred for research and
development and general and administrative costs associated with our operations. The process of carrying out the development of our product candidates to later stages of development and our research programs may require significant additional
research and development expenditures, including for preclinical testing and clinical trials, as well as for manufacturing development efforts and obtaining regulatory approval. We outsource our clinical trials and our manufacturing development
activities to third parties to maximize efficiency and minimize our internal overhead. To date, we have funded our operations primarily through the sale of equity securities, and from non-equity payments from collaborative partners.

We are subject to risks common to biopharmaceutical companies, including risks inherent in our research, development and commercialization efforts,
preclinical testing, clinical trials, uncertainty of regulatory and marketing approvals, enforcement of patent and proprietary rights, the need for future capital, potential competition, use of hazardous materials and retention of key employees. In
order for a product to be commercialized, it will be necessary for us to conduct preclinical tests and clinical trials, demonstrate efficacy and safety of our product candidates to the satisfaction of regulatory authorities, obtain marketing
approval, enter into manufacturing, distribution and marketing arrangements, obtain market acceptance and, in many cases, obtain adequate reimbursement from government and private insurers. We cannot provide assurance that we will generate revenues
or achieve and sustain profitability in the future.

We expect that our quarterly and annual results of operations will fluctuate for the
foreseeable future due to several factors, including the timing and extent of our research and development efforts and the outcome of our clinical trial activities. The successful development of our products is uncertain. As such, an accurate
prediction of future operating results is difficult or impossible.

Product Development

TELCYTA, our lead product candidate, is a small molecule tumor-activated cancer product candidate that we are evaluating initially to treat cancers that
are resistant to standard chemotherapy drugs. In December 2006, we reported preliminary results indicating that the Phase 3 ASSIST-1 and ASSIST-2 trials did not achieve their primary endpoint of demonstrating statistically significant improvement in
overall survival for TELCYTA as compared to the active controls. The ASSIST-3 trial showed a major discordance between the clinical review of the tumor scans and the independent radiology review and therefore the results of this trial have been
compromised and not suitable for regulatory submission. We completed in-depth analyses of the data of all three trials including discussion of the results with oncology experts and at the annual meeting of the American Society of Clinical Oncology
or ASCO on June 3, 2007 we presented final results that confirmed the preliminary results reported in December 2006. We continue to follow patients treated on the ASSIST-3 trial for survival.

In May 2006, we initiated another multinational randomized Phase 3 clinical trial, ASSIST-5, to evaluate TELCYTA in combination with pegylated liposomal
doxorubicin, or PLD versus PLD alone as second line therapy in platinum refractory or resistant ovarian cancer. On June 4, 2007, a full clinical hold for TELCYTA was initiated by the FDA following the presentation of the Phase 3 clinical trial
results at the ASCO annual meeting. As a result, we stopped enrolling new patients on TELCYTA clinical trials, and patients being treated on the trials could not receive additional treatment until such time that the FDA released the clinical hold.
On June 15, 2007, the FDA converted the full clinical hold on TELCYTA to a partial hold, thereby enabling patients



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that had been enrolled in the ASSIST-3 and ASSIST-5 trials the opportunity to continue to receive study treatments, including TELCYTA in combination with
chemotherapy, subject to re-consenting procedures. On October 12, 2007, the FDA completed their review of our TELCYTA data and removed the partial hold, permitting the resumption of TELCYTA clinical development. We plan to conduct an interim
analysis with the patients currently enrolled in the ASSIST-5 trial, and based on the results of this analysis we will assess the feasibility of continuing this study.

In addition, we have conducted two Phase 2 clinical trials of TELCYTA for the treatment of Stage IIIb or IV non-small cell lung cancer for patients who have not previously received chemotherapy. One clinical trial was
in combination with cisplatin, and the other clinical trial was in combination with carboplatin and paclitaxel. Platinum and taxane-based drug combinations are the current standard for the front-line chemotherapy of lung and ovarian cancer.In April 2007, at the annual meeting of the American Association for Cancer Research, we announced final results from the Phase 2 clinical trial of TELCYTA in combination with carboplatin and paclitaxel. We continue to follow patients treated on
this trial for survival.

TELINTRA, our second product candidate, is a small
molecule bone marrow stimulant we are developing for the treatment of blood disorders associated with low blood cell levels, such as neutropenia or anemia. Myelodysplastic syndrome, or MDS, is a disease characterized by defects in the
blood-producing cells of the bone marrow, in which low blood cell levels occur. A Phase 2 clinical trial in patients with MDS was completed in December 2005 with clinically significant improvement demonstrated in all blood cell lineages and across
all major MDS subtypes. TELINTRA was well-tolerated in this predominantly elderly patient population. In February 2006, we initiated a Phase 1-2a trial in MDS using a tablet formulation of TELINTRA. At the 49thannual meeting of the American Society of Hematology in December 2007, we reported positive clinical data demonstrating that TELINTRA Tablets are well tolerated and clinically
active in patients with all stages of MDS.

TLK58747, a novel metabolically activated cytotoxic small molecule with activity not restricted
to GST positive cancers, was identified as a new product candidate in 2006. TLK58747 causes apoptosis and G2/M cell cycle arrest in a broad array of human cancer cell lines including those not expressing GST P1-1. It has shown significant anti-tumor
activity in human breast, pancreatic and colon tumors in pre-clinical models of human cancer when administered either orally or by injection. We are conducting the required preclinical safety studies to support the potential filing of an IND
application with the FDA.

Using our TRAP technology we discovered a MCP-1 antagonist, C243, a small molecule that prevents leukocyte
infiltration, a process linked to tissue injury in chronic autoimmune and inflammatory diseases such as multiple sclerosis, rheumatoid arthritis and atherosclerosis. In January 2007, we announced an agreement with SRI International, or SRI, under
which SRI will fund and conduct preclinical studies of C243 for the potential treatment of multiple sclerosis and other autoimmune and inflammatory diseases.

We discovered all of our product candidates using our proprietary technology, Target-Related Affinity Profiling, or TRAP, which enables the rapid and efficient discovery of small molecule product candidates. We expect
to enter into collaborative arrangements with third parties, such as contract research organizations for clinical trials, development, manufacturing, regulatory approvals or commercialization of some of our products, particularly outside North
America, or in disease areas requiring larger and longer clinical trials than cancer.

Restructuring Plan

In February 2007, we implemented a restructuring plan that focused our priorities on the ASSIST-5 trial and the Phase 1-2a trial of TELINTRA Tablets and
selected research and development programs. To match these priorities, we reduced our workforce by 38 positions, or approximately 25% of our workforce, streamlined our infrastructure and postponed some clinical research projects. As a result of the
restructuring plan, we recorded a one-time restructuring charge of approximately $1.4 million of which approximately $1.3 million was paid in the quarter ended March 31, 2007 as severance, payroll taxes and other personnel related costs. The
remaining



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payments of approximately $30,000 were paid in the quarter ended June 30, 2007. Approximately $33,000 of the restructuring charge was reversed in the
quarter ended June 30, 2007 as certain health benefits accrued were not utilized. The restructuring plan has been completed and we will continue to investigate alternative opportunities for the advancement of our product development programs,
including collaborations with pharmaceutical and larger biotechnology companies.

Critical Accounting Policies and Significant Judgments and Estimates

Our managements discussion and analysis of our financial condition and results of operations are based on our financial
statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an on-going basis, we evaluate our estimates and judgments
related to revenue recognition and clinical development costs. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 1 to our financial statements appearing at the end of this Annual Report,
we believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements.

Stock-based compensation expense

On January 1, 2006, we adopted SFAS 123R, and use the fair
value method to account for share-based payment awards following the modified prospective method of adoption which provides for certain changes to the method for valuing stock-based compensation. Under the provisions of SFAS 123R, employee
stock-based compensation is estimated at the date of grant based on the employee stock awards fair value using the Black-Scholes option-pricing model and is recognized as expense ratably over the requisite service period in a manner similar to
other forms of compensation paid to employees. The Black-Scholes option-pricing model requires the use of certain subjective assumptions. The most significant of these assumptions are our estimates of the expected volatility of the market price of
our stock and the expected term of the award. Our expected stock-price volatility assumption for 2007 is a blended rate of 50% of historical volatility and 50% implied volatility since sufficient market activity exists with respect to our traded
options. In 2006, historical volatility, obtained from public data sources, was used. The expected term of options granted is based on the simplified method in accordance with SAB 107 as our historical share option exercise experience does not
provide a reasonable basis for estimation. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We adjusted our forfeiture rate to
reflect the cancellation of unvested options due to the workforce reduction in February 2007 and voluntary terminations. See also Note 1, Stock-Based Compensation, and Note 6, Stock-Based Compensation under SFAS 123R, in the
Notes to Financial Statements for further information.

If factors change and we develop different assumptions in the application of SFAS
123R in future periods, the compensation expense that we record under SFAS 123R may differ significantly from what we have recorded in the current period.

Research and development expenses

Our research and development expenses include salaries and
benefits costs, fees for contractors, consultants and third-party contract research organizations and an allocation of facility and administrative costs. Research and development expenses consist of costs incurred for drug and product development,
manufacturing, clinical



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activities, discovery research, screening and identification of product candidates, and preclinical studies. All such costs are charged to research and
development expenses as incurred.

Clinical development costs are a significant component of research and development expenses. We have a
history of contracting with third parties that perform various clinical trial activities on our behalf in the on-going development of our product candidates. The financial terms of these contracts are subject to negotiation and may vary from
contract to contract and may result in uneven payment flows. We accrue and expense costs for clinical trial activities performed by third parties based upon estimates of the percentage of work completed over the life of the individual study in
accordance with agreements established with contract research organizations and clinical trial sites. We determine our estimates through discussion with internal clinical personnel and outside service providers as to progress or stage of completion
of trials or services and the agreed upon fee to be paid for such services. These estimates may or may not match the actual services performed by the organizations as determined by patient enrollment levels and related activities. We monitor patient
enrollment levels and related activities to the extent possible; however, 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.

Results of operations

Revenues



|                                     |  |                                    |   |                       |   |      |  |           |    |  |           |   |  |      |   
|------------------------------------ |  | ---------------------------------- | - | --------------------- | - | ---- |  | --------- | -- |  | --------- | - |  | ---- | --
|                                     |  | Years Ended December 31,           |   | Annual Percent Change |  
|                                     |  | 2007                               |   | 2006                  |   | 2005 |  | 2007/2006 |    |  | 2006/2005 |  
|                                     |  | (in thousands, except percentages) |  
|Contract revenue from collaborations |  | $                                  |  |                       | $ |     |  | $         | 19 |  | 0         | % |  | (100 | )%

We had no collaborative research agreements in 2007 and 2006 while revenues in 2005 resulted from
our collaborative agreement with Hoffmann-La Roche, Inc., or Roche. We completed our Roche compound identification revenue amortization in March 2005.

We currently do not expect to record any revenue in the next twelve months. Future revenues will depend upon the extent to which we enter into new collaborative research agreements and the amounts of payments relating
to such agreements.

Research and development expenses

Research and development expenses for the years ended December 31, 2007, 2006 and 2005 were $43.0 million, $71.5 million and $71.3 million. Our research and development activities consist primarily of drug
development, clinical supply manufacturing, clinical activities, discovery research, screening and identification of product candidates and preclinical studies. We group these activities into two major categories: research and
preclinical and clinical development.

The costs associated with research and preclinical and clinical development
activities approximate the following:



|                               |  |                                    |        |                       |   |        |  |           |        |  |           |    |  |    |   
|------------------------------ |  | ---------------------------------- | ------ | --------------------- | - | ------ |  | --------- | ------ |  | --------- | -- |  | -- | --
|                               |  | Years Ended December 31,           |        | Annual Percent Change |  
|                               |  | 2007                               |        | 2006                  |   | 2005   |  | 2007/2006 |        |  | 2006/2005 |   
|                               |  | (in thousands, except percentages) |       
|Research and preclinical       |  | $                                  | 17,822 |                       | $ | 21,206 |  | $         | 17,502 |  | (16       | )% |  | 21 | % 
|Clinical development           |  |                                    | 25,210 |                       |   | 50,316 |  |           | 53,843 |  | (50       | )% |  | (7 | )%
|                               |  |                                    |        |                       |   |        |  |           |        |  |           |    |  |    |   
|Total research and development |  | $                                  | 43,032 |                       | $ | 71,522 |  | $         | 71,345 |  | (40       | )% |  | 0  | % 
|                               |  |                                    |        |                       |   |        |  |           |        |  |           |    |  |    |   



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Total research and development expenses for the year ended December 31, 2007 decreased by 40%, or
$28.5 million, compared to the same period in 2006 primarily due to the following:



| |  |  | Clinical trial expenses
| | - |  | -----------------------



| |  |  | reduction of approximately $15.5 million as study activities in our ASSIST-1, ASSIST-2, ASSIST-3 and Phase 2 clinical trials are near completion, partially offset by costs related
to our ASSIST-5 clinical trial of approximately $3.4 million;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | corresponding decreased costs in our clinical drug supply manufacturing cost of approximately $4.1 million.
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | Other expenses
| | - |  | --------------



| |  |  | reduction of approximately $7.9 million associated with lower headcount as a result of our corporate restructuring and corresponding reduction in clinical activities;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | lower stock-based compensation expense of approximately $4.4 million primarily due to higher estimated forfeiture rates used in 2007 to reflect the cancellation of unvested options
for higher than estimated level of termination and complete vesting of stock options granted in earlier periods partially offset by expense associated with new stock options granted.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Research and development expenses for the year ended December 31, 2006 increased by $177,000 compared to the same period in 2005 primarily due to
the following:



| |  |  | Clinical trial expenses
| | - |  | -----------------------



| |  |  | approximately $4.1 million associated with our ASSIST-3 clinical trial and initial start-up costs related to our ASSIST-5 clinical trial;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | offset by decreased costs associated with our Phase 3 clinical trials in ovarian cancer and non-small cell lung cancer of approximately $11.8 million following the completion of
patient enrollment in our ASSIST-1 and ASSIST-2 clinical trials; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | corresponding decreased costs in our clinical drug supply manufacturing cost of approximately $2.4 million.
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | Other expenses
| | - |  | --------------



| |  |  | approximately $1.2 million associated with headcount growth and increased expenses to support clinical activities; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | stock-based compensation expense of approximately $9.2 million.
| | - |  | ---------------------------------------------------------------

We expect total research and development expenditures to decrease in the next twelve months as we focus on the Phase 2 clinical trials of TELINTRA Tablets, preclinical studies on TLK58747 and reduced development of TELCYTA. Specifically, we
expect both clinical and manufacturing expenditures to be lower than previous years and the timing and the amount of these expenditures will depend on the results of the interim analysis of the ASSIST-5 trial and the progress of the TELINTRA Tablets
Phase 2 clinical trials.

The following table summarizes our principal product development initiatives, including the related stages of
development for each product candidate in development and the research and development expenses recognized in connection with each product candidate. The information in the column labeled Estimated or Actual Completion of Enrollment is
our current estimate of the timing of completion of enrollment. The actual timing of completion of enrollment could differ materially from the estimates provided in the table. For a discussion of the risks and uncertainties associated with the
timing of completing a product development phase, see the risk factors All of our product candidates are in research and development. If clinical trials of TELCYTA and TELINTRA are delayed or unsuccessful or if we are unable to complete the
preclinical development of our other preclinical product candidates, our business may suffer, If we do not obtain



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regulatory approval to market products in the United States and foreign countries, we or our collaborators will not be permitted to commercialize our product
candidates, As our product programs advance, we may need to hire additional scientific and management personnel. Our research and development efforts will be seriously jeopardized if we are unable to attract and retain key
personnel, and If we are unable to enter into or maintain existing contracts with third parties to manufacture our product candidates or any products that we may develop in sufficient quantities and at an acceptable cost, clinical
development of product candidates could be delayed and we may be unable to meet demand for any products that we may develop and lose potential revenue sections of Risk Factors in Item 1A above.



|          |  |                                         |  |                     |  |                                           |  |                                              |        |  |   |        |  |   |       
|--------- |  | --------------------------------------- |  | ------------------- |  | ----------------------------------------- |  | -------------------------------------------- | ------ |  | - | ------ |  | - | ------
|Product   |  | Description                             |  | Phase ofDevelopment |  | Estimatedor ActualCompletion ofEnrollment |  | Related R&D ExpensesYears Ended
December 31,
|          |  |                                         |  | 2007                |  | 2006                                      |  | 2005                                        
|          |  |                                         |  |                     |  |                                           |  | (in thousands)                              
|TELCYTA   |  |                                         |  |                     |  |                                           |  | $                                            | 22,919 |  | $ | 48,922 |  | $ | 51,432
|          |  | Ovarian, ASSIST-1                       |  | Phase 3             |  | 2004                                      |  |                                              |        |  |   |        |  |   |       
|          |  | Non-small cell lung, ASSIST-2           |  | Phase 3             |  | 2005                                      |  |                                              |        |  |   |        |  |   |       
|          |  | Ovarian, ASSIST-3                       |  | Phase 3             |  | 2006                                      |  |                                              |        |  |   |        |  |   |       
|          |  | Ovarian, ASSIST-5                       |  | Phase 3             |  | 2008                                      |  |                                              |        |  |   |        |  |   |       
|          |  | Combination (with other drugs)          |  | Phase 2             |  | 2006                                      |  |                                              |        |  |   |        |  |   |       
|TELINTRA  |  |                                         |  |                     |  |                                           |  |                                              | 3,785  |  |   | 4,828  |  |   | 4,196 
|          |  | MDS                                     |  | Phase 1-2           |  | 2005                                      |  |                                              |        |  |   |        |  |   |       
|          |  | MDS Tablets                             |  | Phase 1-2a          |  | 2007                                      |  |                                              |        |  |   |        |  |   |       
|Other (1) |  |                                         |  |                     |  |                                           |  |                                              | 16,328 |  |   | 17,772 |  |   | 15,717
|          |  |                                         |  |                     |  |                                           |  |                                              |        |  |   |        |  |   |       
|          |  | Total research and development expenses |  |                     |  |                                           |  | $                                            | 43,032 |  | $ | 71,522 |  | $ | 71,345
|          |  |                                         |  |                     |  |                                           |  |                                              |        |  |   |        |  |   |       



|(1) |  | Other constitutes research and development activities performed by our Chemistry, Biology, preclinical and Quality Assurance departments as these costs cannot be
allocated to any individual project.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The largest component of our total operating expenses is our on-going investment in our
research and development activities and, in particular, the clinical development of our product candidate pipeline. The process of conducting the clinical research necessary to obtain FDA approval is costly and time consuming. Current FDA
requirements for a new human drug to be marketed in the United States include:



| |  |  | the successful conclusion of preclinical laboratory and animal tests, if appropriate, to gain preliminary information on the products safety;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | filing with the FDA of an IND, to conduct initial human clinical trials for drug candidates;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | the successful completion of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | filing by company and acceptance and approval by the FDA of a New Drug Application, or NDA, for a product candidate to allow commercial distribution of the drug.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

In view of the factors mentioned above, we consider the active management and development of our clinical pipeline to be
crucial to our long-term success. The actual probability of success for each candidate and clinical program may be impacted by a variety of factors, including, among others, the quality of the candidate, the validity of the target and disease
indication, early clinical data, investment in the program, competition, manufacturing capability and commercial viability. Due to these and other factors, it is difficult to give accurate guidance on the anticipated proportion of our research and
development investments or the future cash inflows from these programs.



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General and administrative expenses



|                           |  |                                    |        |                       |   |        |  |           |        |  |           |    |  |    |  
|-------------------------- |  | ---------------------------------- | ------ | --------------------- | - | ------ |  | --------- | ------ |  | --------- | -- |  | -- | -
|                           |  | Years Ended December 31,           |        | Annual Percent Change |  
|                           |  | 2007                               |        | 2006                  |   | 2005   |  | 2007/2006 |        |  | 2006/2005 |   
|                           |  | (in thousands, except percentages) |       
|General and administrative |  | $                                  | 15,941 |                       | $ | 16,288 |  | $         | 11,278 |  | (2        | )% |  | 44 | %

The decrease of 2%, or $347,000 in 2007 compared to the same period in 2006 resulted from a
decrease in stock-based compensation expense of approximately $1.6 million due to higher estimated forfeiture rates used in 2007 to reflect the cancellation of unvested options for higher than estimated level of termination and complete vesting of
stock options granted in earlier periods partially offset by expense associated with new stock options granted. In addition, expenses decreased by approximately $337,000 as a result of our corporate restructuring and lower administrative expenses.
The decrease in expense was partially offset by a $1.6 million increase in legal expenses and other related costs primarily due to our securities class action lawsuit.

The increase of 44%, or $5.0 million in 2006 compared to the same period in 2005 was primarily due to stock-based compensation expense of $5.3 million.

We expect future general and administrative expenses to remain at approximately the same spending level as 2007.

Stock-Based Compensation Expense

Employee stock-based compensation expense related to our share-based payment awards recognized under SFAS 123R was as follows (in millions):



|                                              |  |                                       |       |      |   |       
|--------------------------------------------- |  | ------------------------------------- | ----- | ---- | - | ------
|                                              |  | Years EndedDecember 31,              
|                                              |  | 2007                                  |       | 2006
|                                              |  | (in thousands exceptper share amount)
|Research and development                      |  | $                                     | 4,842 |      | $ | 9,220 
|General and administrative                    |  |                                       | 3,757 |      |   | 5,347 
|                                              |  |                                       |       |      |   |       
|Stock-based compensation expense before taxes |  |                                       | 8,599 |      |   | 14,567
|Related income tax benefits                   |  |                                       |      |      |   |      
|                                              |  |                                       |       |      |   |       
|Effect on net loss                            |  | $                                     | 8,599 |      | $ | 14,567
|                                              |  |                                       |       |      |   |       

Stock-based compensation expense includes amounts for share-based payment awards granted prior to,
but not yet vested, as of December 31, 2005, based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS123, and compensation expense for share-based payment awards granted subsequent to December 31,
2005 based on the grant date fair value estimated in accordance with SFAS123R. In conjunction with the adoption of SFAS 123R, we changed our method of attributing the value of stock-based compensation to expense from the accelerated multiple-option
approach to the straight-line single-option method. Compensation expense for all share-based payment awards granted on or prior to December 31, 2005 is recognized using the accelerated multiple-option approach while compensation expense for all
share-based payment awards granted subsequent to December 31, 2005 is recognized using the straight-line single-option method. The decrease in employee stock-based compensation expense for the year ended December 31, 2007 compared with the
same period for 2006 was consistent with the change in the attribution method upon the adoption of SFAS 123R along with an increase in our forfeiture rate from 9.2% to 14.0% to reflect the cancellation of unvested options due to a higher than
originally estimated level of terminations.



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Restructuring costs

As a result of our workforce reduction of 38 positions, or approximately 25% of our workforce, we recorded a one-time restructuring charge of approximately $1.4 million for severance costs and other charges in the
quarter ending March 31, 2007. We reversed approximately $33,000 of this charge in the quarter ended June 30, 2007 as certain health benefits originally accrued were not utilized. The restructuring plan was completed as of June 30,
2007.

Interest income and interest expense



|                                         |  |                                    |       |                       |   |       |  |           |       |  |           |    |  |     |   
|---------------------------------------- |  | ---------------------------------- | ----- | --------------------- | - | ----- |  | --------- | ----- |  | --------- | -- |  | --- | --
|                                         |  | Years Ended December 31,           |       | Annual Percent Change |  
|                                         |  | 2007                               |       | 2006                  |   | 2005  |  | 2007/2006 |       |  | 2006/2005 |   
|                                         |  | (in thousands, except percentages) |      
|Interest and other income (expense), net |  | $                                  | 5,183 |                       | $ | 8,243 |  | $         | 7,193 |  | (37       | )% |  | 15  | % 
|Interest expense                         |  | $                                  | 69    |                       | $ | 57    |  | $         | 131   |  | 21        | %  |  | (56 | )%

Interest and other income (expense), net of $5.2 million, $8.2 million and $7.2 million for the
years ended December 31, 2007, 2006 and 2005 resulted primarily from earnings on investments. The decrease in 2007 was due to lower investment cash balance and included a write-down expense of approximately $733,000 of three investments due to
changes in market conditions resulting in an other-than-temporary impairment. The increase in 2006 was due to higher average interest rates in 2006 compared to 2005.

Interest expense was $69,000, $57,000 and $131,000 for the years ended December 31, 2007, 2006 and 2005. The increase in interest expense in 2007 was due to interest associated with a buy-out option on leased
equipment. The decrease in interest expense in 2006 was due to decreasing outstanding principal balance as a result of payments on our lease and loan obligations and no new borrowings. We expect interest expenditures to decrease in the future as our
lease and loan obligations were fully paid off at December 31, 2007.

Liquidity and capital resources



|                                                              |  |                              |         |   |      |   |         |      |  |   |          |  
|------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                              |  | 2007                         |         |   | 2006 |   |         | 2005 | 
|                                                              |  | (In millions, except ratios) |        
|December 31:                                                  |  |                              |         |   |      |   |         |      |  |   |          |  
|Cash, cash equivalents, investments and restricted cash       |  | $                            | 93.2    |   |      | $ | 141.7   |      |  | $ | 205.6    |  
|Working capital                                               |  | $                            | 69.4    |   |      | $ | 120.8   |      |  | $ | 187.3    |  
|Current ratio                                                 |  |                              | 7.3 : 1 |   |      |   | 8.3 : 1 |      |  |   | 11.0 : 1 |  
|                                                              |  |                              |        
|Year ended December 31:                                       |  |                              |         |   |      |   |         |      |  |   |          |  
|Cash provided by (used in):                                   |  |                              |         |   |      |   |         |      |  |   |          |  
|Operating activities                                          |  | $                            | (48.4   | ) |      | $ | (65.2   | )    |  | $ | (74.1    | )
|Investing activities                                          |  | $                            | 11.4    |   |      | $ | 13.1    |      |  | $ | 3.3      |  
|Financing activities                                          |  | $                            | 0.8     |   |      | $ | 2.0     |      |  | $ | 142.5    |  
|Capital expenditures (included in investing activities above) |  | $                            | (0.2    | ) |      | $ | (1.0    | )    |  | $ | (1.3     | )

Sources and Uses of Cash.    Due to the significant research and
development expenditures and the lack of any approved products to generate revenue, we have not been profitable and have generated operating losses since we incorporated in 1988. As such, we have funded our research and development operations
through sales of equity, collaborative arrangements with corporate partners, interest earned on investments and equipment lease financings. At December 31, 2007, we had available cash, cash equivalents, investments and restricted investments of
$93.2 million. Our cash and investment balances are held in a variety of interest-bearing instruments including obligations of U.S. government agencies, high-grade corporate and municipal bonds, commercial paper, auction rate preferred securities
and money market accounts. Cash in excess of immediate requirements is invested with regard to liquidity and capital preservation. Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk.



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Cash Flows from Operating Activities.    Cash used in operations for 2007 was
$48.4 million compared with $65.2 million in 2006 and $74.1 million in 2005. Net loss of $55.2 million in 2007 included non-cash charges of $8.6 million for stock-based compensation, $1.7 million for depreciation and amortization, and $0.7 million
for the write-down of marketable securities. Cash used in operations was further impacted by a $3.5 million reduction in accrued clinical trials related primarily to the near completion of our ASSIST 1, 2 and 3 clinical trials and a $1.6 million
reduction in accounts payable. Cash used in 2006 resulted from a net loss of $79.6 million which included non-cash charges of $14.6 million for stock-based compensation and $1.6 million for depreciation and amortization. Cash used in operations in
2006 was further impacted by a decrease of $1.2 million in accrued clinical trials expenses, primarily due to our Phase 3 clinical trials and a $2.6 million decrease in accrued compensation expense primarily due to bonus payouts. Cash outflows in
2006 were offset by an increase of $1.2 million in accrued liabilities related mainly to manufacturing expenses and $1.1 million in accounts payable. Cash used in operations in 2005 resulted from a net loss of $75.5 million which included non-cash
charges of $1.6 million for depreciation and amortization. Cash used in operations in 2005 was further impacted by an approximately $3.4 million decrease in accounts payable primarily due to payment of clinical development activities and $2 million
repayments to our landlord for leasehold improvements which were financed by them. Cash outflows in 2005 were offset by increases of $3.3 million in accrued clinical trial expenses related primarily to our Phase 3 clinical trials.

Cash Flows from Investing Activities.    Cash provided by investing activities for 2007 was $11.4 million compared to $13.1
million in 2006 and $3.3 million in 2005. Cash provided in 2007 was primarily from $55.5 million in maturities of investments and $1.1 million from sales of investments partially offset by $45.0 million in purchases of available-for-sale
investments. Capital expenditures in 2007 were $163,000, primarily for laboratory equipment purchases. Cash provided in 2006 was primarily from $50.4 million in sales and maturities of investments offset by $36.3 million in purchases of
available-for-sale investments. Capital expenditures in 2006 were $996,000 primarily for laboratory equipment, computer equipment and software purchases. Cash was provided in 2005 by $147.2 million from sales and maturities of investments, partially
offset by $142.5 million in purchases of investment securities. Capital expenditures for 2005 were $1.3 million primarily related to the implementation of an Enterprise Resource Planning system and purchase of computer and laboratory equipment.

Cash Flows from Financing Activities.    Cash provided by financing activities for 2007 was approximately
$781,000 compared with $2.0 million in 2006 and $142.5 million in 2005. Financing activities in 2007 were comprised primarily of $1.2 million in proceeds from stock option exercises and purchases under our employee stock purchase plan, offset by
$440,000 in payments under capital leases and equipment loans. Financing activities for 2006 were comprised primarily of $2.9 million in proceeds from stock option exercises and our employee stock purchase plan, partially offset by $927,000 in
payments under capital leases and equipment loans. Financing activities for 2005 included approximately $142.2 million in net proceeds from our follow-on public offering of common stock completed in February and $1.6 million from stock option
exercises and stock issuances under our employee stock plans offset by $1.3 million in pay down of capital leases and equipment loans.

Working Capital.    Working capital decreased to $69.4 million at December 31, 2007 from $120.8 million at December 31, 2006. The decrease in working capital was primarily due to our use of cash for
operating expenses and our TELCYTA and TELINTRA development programs.

Based on our current development plan, we believe our existing cash
resources will be sufficient to satisfy our current operating plan until the end of 2009. Changes in our research and development plans or other changes affecting our operating expenses may affect actual future consumption of existing cash resources
as well. In any event, we will require substantial additional financing to fund our operations in the future. We may seek to raise any necessary additional funds through equity or debt financings, collaborative arrangements with corporate partners
or other sources. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience dilution. Debt financing may subject us to restrictive covenants that may adversely affect our operations. To the extent
that we raise additional capital through licensing arrangements or arrangements with collaborative partners, we may be required to relinquish, on terms that are not favorable to us,



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rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. Our future capital uses and
requirements depend on numerous factors, including the following:



| |  |  | the progress and success of preclinical studies and clinical trials of our product candidates;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | the progress and number of research programs in development;
| | - |  | ------------------------------------------------------------



| |  |  | the costs associated with conducting Phase 3 clinical trials;
| | - |  | -------------------------------------------------------------



| |  |  | the costs and timing of obtaining regulatory approvals;
| | - |  | -------------------------------------------------------



| |  |  | our ability to establish, and the scope of, any new collaborations;
| | - |  | -------------------------------------------------------------------



| |  |  | our ability to meet the milestones identified in our collaborative agreements that trigger payments;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | the costs and timing of obtaining, enforcing and defending our patent and intellectual property rights;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | competing technological and market developments; and
| | - |  | ----------------------------------------------------



| |  |  | the timing and scope of commercialization expenses for our product candidates as they approach regulatory approval.
| | - |  | -------------------------------------------------------------------------------------------------------------------

We currently have no commitments for any additional financings. If we need to raise additional money to fund our operations, funding may not be available
to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may not be able to market our products as planned or continue development of our products, or we could be required to delay, scale back or eliminate
some or all of our research and development programs.

Our future contractual obligations at December 31, 2007 are as follows:



|                 |  |                |        |      |   |           |  |           |       |            |   |       |  |   |      
|---------------- |  | -------------- | ------ | ---- | - | --------- |  | --------- | ----- | ---------- | - | ----- |  | - | -----
|                 |  | Total          |        | 2008 |   | 2009-2010 |  | 2011-2012 |       | After 2012
|                 |  | (In thousands)
|Operating leases |  | $              | 23,663 |      | $ | 3,519     |  | $         | 7,330 |            | $ | 7,736 |  | $ | 5,078

We have a contractual obligation under the terms of our manufacturing supply agreement with
Organichem Corporation, wherein we are obligated to purchase a majority of our United States requirements for the active ingredient in TELCYTA for a number of years. However, we currently do not have any requirements for the active ingredient. We
have agreed on a pricing schedule for such supply, which will be subject to future renegotiation after a defined time period.

Off-Balance Sheet
Arrangements

We have no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii).

Recent Accounting Pronouncements

In July 2006, the
FASB issued FASB Interpretation No. 48, Accounting for Uncertain Tax Provisions, an Interpretation of SFAS Statement 109 (FIN 48). FIN 48 clarifies the accounting for uncertain tax positions as described in SFAS
No. 109, Accounting for Income Taxes, and requires a company to recognize, in its financial statements, the impact of a tax position only if that position is more likely than not of being sustained on an audit basis
solely on the technical merit of the position. In addition, FIN 48 requires qualitative and quantitative disclosures including a discussion of reasonably possible changes that might occur in the recognized tax benefits over the next twelve months as
well as a roll-forward of all unrecognized tax benefits. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have an impact on our financial condition or results of operations.

On September 15, 2006, the FASB issued SFAS 157, Fair Value Measurements, which addresses how companies should measure fair value when
they are required to do so for recognition or disclosure purposes. The



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standard provides a common definition of fair value, established a framework for measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 157 to significantly affect our financial
condition or results of operations.

In June 2007, the FASB also reached consensus on Emerging Issues Task Force (EITF)
Issue 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (EITF 07-3). EITF 07-3 requires that nonrefundable advance payments for goods or
services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. EITF 07-3 is effective, on a prospective
basis, for fiscal years beginning after December 15, 2007. We are currently evaluating the potential impact, if any, of the adoption of EITF 07-3, but do not expect the adoption to significantly affect our results of operations and financial
condition.



|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk.
|-------- | -----------------------------------------------------------

The following discussion about our market risk exposure involves forward-looking statements. We do not use or hold derivative financial instruments, however we are exposed to market risk related to changes interest rates and market
conditions.

Our investment policy is to manage our marketable securities portfolio to preserve principal and liquidity while maximizing
the return on the investment portfolio. To minimize the exposure due to adverse shifts in interest rates we maintain investments of shorter maturities. Our marketable securities portfolio is primarily invested in corporate debt securities and
commercial papers with an average maturity of under one year and a minimum investment grade rating of A or A-1 or better to minimize credit risk. Although changes in interest rates may affect the fair value of the marketable securities portfolio and
cause unrealized gains or losses, such gains or losses would not be realized unless the investments were sold prior to maturity. 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. We have operated primarily in the United States and all funding activities with our collaborators to date have been made in U.S. dollars. Accordingly, we do not
have any exposure to foreign currency rate fluctuations.

Approximately $19 million of our investment portfolio is invested in corporate
and municipal notes investments with an auction reset feature (auction rate securities and auction preferred stock securities). Since September 2007, $8.9 million invested in auction preferred stock securities have failed to
settle in scheduled auctions. An auction failure means that the parties wishing to sell securities could not, but does not result in the securities going into default because the issuer continues to pay interest at higher rates. The failures
resulted in the interest rates on these investments resetting at higher rates every 28 days at one-month LIBOR plus 150 basis points for as long as auctions continue to fail. While we now earn premium interest rates on these investments, these
investments are not liquid and their carrying amounts are impaired due to the adverse change in the corporate debt market. We concluded that the impairment is other-than-temporary and we have written-down the carrying amount for these investments to
approximately $8.2 million and recognized a loss of approximately $733,000 in the year ended December 31, 2007. If the issuers are unable to successfully close future auctions and their credit ratings deteriorate, we may in the future be
required to record additional impairment charges on these investments. These illiquid investments continue being rated AA and are paying interest at December 31, 2007.

In February 2008, auctions failed for $4.3 million of our auction rate securities and there is no assurance that currently successful auctions on the
other auction rate securities in our investment portfolio will continue to succeed. We believe we will be able to liquidate our investment in auction rate securities without significant loss within the next year, and we currently believe these
securities are not significantly impaired as the underlying assets are generally student loans which are substantially backed by the federal government. Based on our ability to access our cash and other short-term investments, our expected operating
cash flow needs, and our other sources of cash, we do not anticipate the lack of liquidity on these investments will affect our ability to operate our business as planned.



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The table below presents the principal amounts and weighted-average interest rates by year of stated
maturity for our investment portfolio:



|                              |  |                                    |        |   |      |   |       |               |  |   |       |   |  |                               |        |   |  |   |       
|----------------------------- |  | ---------------------------------- | ------ | - | ---- | - | ----- | ------------- |  | - | ----- | - |  | ----------------------------- | ------ | - |  | - | ------
|                              |  | 2008                               |        |   | 2009 |   |       | 2010andBeyond |  |   | Total |   |  | Fair Value atDecember 31,2007
|                              |  | (In thousands, except percentages)
|Available-for-sale securities |  | $                                  | 73,330 |   |      | $ | 5,437 |               |  | $ | 9,800 |   |  | $                             | 88,567 |   |  | $ | 87,872
|Average interest rate         |  |                                    | 4.89   | % |      |   | 4.84  | %             |  |   | 6.52  | % |  |                               | 5.07   | % |  |   |       



|Item 8. | Financial Statements and Supplementary Data.
|------- | --------------------------------------------

All
information required by this item is included in Item 15 of Part IV of this Annual Report on Form 10-K and is incorporated into this item by reference.



|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|------- | -------------------------------------------------------------------------------------

Not applicable.



|Item 9A. | Controls and Procedures.
|-------- | ------------------------

Evaluation of Disclosure Controls and
Procedures

Based on their evaluation as of December 31, 2007, our chief executive officer and chief financial officer have
concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective.

Managements Report on Internal Control over Financial Reporting

Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this assessment, our management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2007, our internal control over financial reporting was
effective based on these criteria.

Our internal control over financial reporting as of December 31, 2007 has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included below.

Changes in Internal
Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended
December 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial
Officer, does not expect that our procedures or our internal controls will prevent or detect all error and all fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of our controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.



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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Telik, Inc.

We have audited Telik, Inc.s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Telik, Inc.s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting included in Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the companys internal
control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness 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.

In our opinion, Telik, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based
on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the balance sheets of Telik, Inc. as of December 31, 2007 and 2006, and the related statements of operations, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2007 of
Telik, Inc. and our report dated February 29, 2008 expressed an unqualified opinion thereon.

/s/    Ernst & Young LLP

Palo Alto, California

February 29, 2008



46



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##### Table of Contents

|Item 9B. | Other Information.
|-------- | ------------------

None.



47



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##### Table of Contents

PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

Information
regarding directors and executive officers is incorporated by reference to the information set forth under the caption Information Regarding the Board of Directors and Corporate Governance in our Proxy Statement pursuant to
Section 14(a) of the Securities Exchange Act of 1934 for the Annual Meeting of Stockholders to be filed with the Commission on or before April 30, 2008.

We have adopted the Telik, Inc. Code of Conduct, a code of ethics with which every person who works for us is expected to comply, including without limitation our principal executive officer, principal financial
officer, principal accounting officer or controller or persons performing similar functions. The Telik, Inc. Code of Conduct is filed as an exhibit to our Annual Report on Form 10-K for the period ended December 31, 2003 as filed on
March 4, 2004, with the U.S. Securities and Exchange Commission, or SEC, and is incorporated herein by reference. If we make any substantive amendments to the Telik, Inc. Code of Conduct or grant to any of our directors or executive officers
any waiver including any implicit waiver, from a provision of the Telik, Inc. Code of Conduct, we will disclose the nature of the waiver or amendment in a Current Report on Form 8-K.

Item 11.    Executive Compensation.

Information regarding executive compensation is
incorporated by reference to the information set forth under the captions Executive Compensation, Compensation Committee Interlocks and Insider Participation and Compensation Committee Report in our Proxy
Statement for the Annual Meeting of Stockholders to be filed with the Commission on or before April 30, 2008.



48



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##### Table of Contents

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the information set forth under the caption Security Ownership of Certain Beneficial Owners
and Management and Equity Compensation Plan Information in our Proxy Statement for the Annual Meeting of Stockholders to be filed with the Commission by on or before April 30, 2008.

Equity Compensation Plan Information

The following
table provides certain information with respect to all of the Companys equity compensation plans in effect as of December 31, 2007.

Equity Compensation Plan Information



|                                                           |  |                                                                                           |  |                                                                            |       |                                                                                                                                      |           |    
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------ | --------- | ---
|Plan Category                                              |  | (A)Number of Securitiesto be Issued UponExercise ofOutstandingOptions, Warrantsand Rights |  | (B)Weighted-averageExercise Price ofOutstandingOptions, Warrantsand
Rights |       | (C)Number of SecuritiesRemaining Availablefor IssuanceUnder EquityCompensation Plans(ExcludingSecurities
Reflectedin Column (A) (1)) |          
|Equity compensation plans approved by security holders     |  | 9,059,216                                                                                 |  | $                                                                          | 12.39 |                                                                                                                                      | 4,265,916 | (2)
|Equity compensation plans not approved by security holders |  |                                                                                          |  |                                                                            | N/A   |                                                                                                                                      |          |    
|                                                           |  |                                                                                           |  |                                                                            |       |                                                                                                                                      |           |    
|Total                                                      |  | 9,059,216                                                                                 |  | $                                                                          | 12.39 |                                                                                                                                      | 4,265,916 | (2)
|                                                           |  |                                                                                           |  |                                                                            |       |                                                                                                                                      |           |    



|(1) |  | Each year on January 1, since January 1, 2001, the aggregate number of shares of common stock that may be issued pursuant to stock awards under the 2000 Equity Incentive
Plan is automatically increased by the lesser of 1,500,000 shares or 5% of the total number of shares of common stock outstanding on that date or such lesser amount as may be determined by our board of directors. In addition, the 2000 Employee Stock
Purchase Plan provides for the automatic increase on that date in the number of shares equal to the lesser of 150,000 shares or 1% of the outstanding shares on that date or such lesser amount as may be determined by the Board.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Includes 718,290 shares issuable under the 2000 Employee Stock Purchase Plan.
|--- |  | -----------------------------------------------------------------------------



|Item 13. | Certain Relationships and Related Transactions, and Director Independence.
|-------- | --------------------------------------------------------------------------

Information regarding certain relationships and related transactions is incorporated by reference to the information set forth under the caption Transactions with Related Persons in our Proxy Statement for
the Annual Meeting of Stockholders to be filed with the Commission on or before April 30, 2008.



|Item 14. | Principal Accountant Fees and Services.
|-------- | ---------------------------------------

Information regarding principal accountant fees and services is incorporated by reference to the information set forth under the caption Proposal 2  Ratification of Selection of Independent Auditors in our Proxy Statement
for the Annual Meeting of Stockholders to be filed with the Commission by on or before April 30, 2008.



49



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##### Table of Contents

PART IV

Item 15.    Exhibits and Financial Statement Schedules.



| | (a) |  | The following documents are filed as part of this Annual Report:
| | --- |  | ----------------------------------------------------------------



| | 1. |  | Financial Statements.    Our financial statements and the Report of Independent Registered Public Accounting Firm, are included in Part IV of this Report
on the pages indicated:
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                        |  |     
|------------------------------------------------------- |  | ----
|                                                        |  | Page
|Report of Independent Registered Public Accounting Firm |  | 55  
|Balance Sheets                                          |  | 56  
|Statements of Operations                                |  | 57  
|Statement of Stockholders Equity                       |  | 58  
|Statements of Cash Flows                                |  | 59  
|Notes to Financial Statements                           |  | 60  



| | 2. |  | Financial Statement Schedules.    All schedules are omitted because they are not applicable or the required information is shown in the financial
statements or the notes thereto.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Exhibits:
| | -- |  | ---------



|              |  |                                                                                                                                                                                                                     
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                         
|              | 
|3.1           |  | Amended and Restated Certificate of Incorporation. (2)                                                                                                                                                              
|              | 
|3.2           |  | Amended and Restated Bylaws. (14)                                                                                                                                                                                   
|              | 
|4.1           |  | Specimen Common Stock Certificate. (1)                                                                                                                                                                              
|              | 
|4.2           |  | Amended and Restated Registration Rights Agreement, dated March 31,2000, between Telik and holders of Teliks Series B, Series E, Series F, Series G, Series H, Series I, Series J and
Series K preferred stock. (1)
|              | 
|4.3           |  | Rights Agreement dated November 2, 2001, by and between Telik and Wells Fargo Bank Minnesota, N.A., replaced by EquiServe Trust Company, N.A. as Rights Agent. (6)                                                  
|              | 
|4.4           |  | Registrants Certificate of Designation of Series A Junior Participating Preferred Stock. (6)                                                                                                                       
|              | 
|4.5           |  | Agreement, by and among Telik, Eastbourne Capital Management, L.L.C., Black Bear Offshore Master Fund, L.P., Black Bear Fund I, L.P., Black Bear Fund II, L.L.C., and Richard J. Barry, dated
May 18, 2006. (10)    
|              | 
|4.6           |  | Amendment to Rights Agreement between Telik and Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A., dated May 18, 2006. (12)                                                            
|              | 
|4.7           |  | Second Amendment to Rights Agreement between Telik and Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A., dated December 11, 2006. (11)                                                
|              | 
|4.8           |  | Amended and Restated Standstill Agreement between Telik and Eastbourne Capital Management, L.L.C. and certain related persons and entities, dated December 11, 2006. (11)                                           
|              | 
|10.1          |  | Form of Indemnity Agreement. (1) (3)                                                                                                                                                                                
|              | 
|10.2          |  | 2000 Equity Incentive Plan and related documents. (3) (4)                                                                                                                                                           
|              | 
|10.3          |  | 2000 Employee Stock Purchase Plan and Offering. (3) (4)                                                                                                                                                             
|              | 
|10.4          |  | 2000 Non-Employee Directors Stock Option Plan and Agreement. (3)                                                                                                                                                   
|              | 
|10.5          |  | 1996 Stock Option Plan and forms of grant thereunder. (3) (4)                                                                                                                                                       
|              | 
|10.6          |  | 1988 Stock Option Plan and forms of grant thereunder. (3) (4)                                                                                                                                                       



50



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##### Table of Contents

|              |   |  |                                                                                                                                                  
|------------- | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |   |  | Description                                                                                                                                      
|              |  
|10.7          |   |  | Form of Non-Plan Stock Option Agreement. (3) (4)                                                                                                 
|              |  
|10.8          |   |  | Telik, Inc. Executive Officer Bonus Plan. (3)                                                                                                    
|              |  
|10.9          | * |  | Collaboration Agreement between Telik and Sanwa Kagaku Kenkyusho Co., Ltd., dated December 20, 1996, as amended. (1)                             
|              |  
|10.10         | * |  | License Agreement between Telik and Sanwa Kagaku Kenkyusho Co., Ltd., dated September 24, 1997, as amended. (1)                                  
|              |  
|10.11         | * |  | Third Amendment to Collaboration Agreement between Telik and Sanwa Kagaku Kenkyusho Co., Ltd., dated February 14, 2001. (5)                      
|              |  
|10.12         | * |  | Second Amendment to License Agreement between Telik and Sanwa Kagaku Kenkyusho Co., Ltd., dated February 14, 2001. (5)                           
|              |  
|10.13         |   |  | Employment Agreement between Cynthia M. Butitta and Telik, dated February 1, 2001. (3) (5)                                                       
|              |  
|10.14         |   |  | Employment Agreement between Michael M. Wick, M.D., Ph.D. and Telik, dated December 10, 1997, as amended. (1) (3)                                
|              |  
|10.15         |   |  | Lease between Telik and The Board of Trustees of the Leland Stanford Junior University, dated July 25, 2002. (7)                                 
|              |  
|10.16         |   |  | Master Lease Agreement between Telik and General Electric Capital Corporation, dated August 23, 2002, as amended. (7)                            
|              |  
|10.17         |   |  | Master Security Agreement between Telik and General Electric Capital Corporation, dated August 23, 2002, as amended. (7)                         
|              |  
|10.18         | * |  | Manufacturing Supply Agreement dated July 1, 2004, by and between Telik and Organichem Corporation. (8)                                          
|              |  
|10.19         |   |  | Telik, Inc. Change of Control Severance Benefit Plan, dated February 21, 2003. (3) (13)                                                          
|              |  
|10.20         |   |  | Bonuses for Fiscal Year 2007 and Base Salaries for Fiscal Year 2008 for Named Executive Officers. (3) (15)                                       
|              |  
|14.1          |   |  | Telik, Inc. Code of Conduct. (9)                                                                                                                 
|              |  
|23.1          |   |  | Consent of Independent Registered Public Accounting Firm.                                                                                        
|              |  
|24.1          |   |  | Power of Attorney (included on the signature pages hereto)                                                                                       
|              |  
|31.1          |   |  | Certification required by Rule 13a-14(a) or Rule 15d-14(a).                                                                                      
|              |  
|31.2          |   |  | Certification required by Rule 13a-14(a) or Rule 15d-14(a).                                                                                      
|              |  
|32.1          |   |  | Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).



|* |  | Confidential treatment has been granted for portions of this document. The information omitted pursuant to such confidential treatment order has been filed separately with the
Securities and Exchange Commission.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Confidential treatment is pending for portions of this document. The information requested to be omitted pursuant to such confidential treatment order has been filed separately with
the Securities and Exchange Commission.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(1) |  | Incorporated by reference to exhibits to our Registration Statement on Form S-1, filed on April 3, 2000, as amended (File No. 333-33868).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Incorporated by reference to exhibits to our Annual Report on Form 10-K for the year ended December 31, 2001, as filed on March 27, 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Management contract or compensatory arrangement.
|--- |  | ------------------------------------------------



51



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##### Table of Contents

|(4) |  | Incorporated by reference to exhibits to our Registration Statement on Form S-8, as filed on August 30, 2000 (File No. 333-44826).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------



|(5) |  | Incorporated by reference to exhibits to our Annual Report on Form 10-K for the year ended December 31, 2000 initially filed on March 28, 2001 as amended on Form 10-K/A,
as filed on September 20, 2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) |  | Incorporated by reference to exhibits to our Current Report on Form 8-K dated November 2, 2001, as filed on November 5, 2001.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------



|(7) |  | Incorporated by reference to exhibits to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002, as filed on November 13, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) |  | Incorporated by reference to exhibits to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004, as filed on November 8, 2004.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) |  | Incorporated by reference to exhibits to our Annual Report on Form 10-K for the year ended December 31, 2003, as filed on March 5, 2004.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------



|(10) |  | Incorporated by reference to exhibits to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, as filed on August 3, 2006.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



|(11) |  | Incorporated by reference to exhibits to our Current Report on Form 8-K dated December 11, 2006, as filed on December 12, 2006.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------



|(12) |  | Incorporated by reference to Exhibit A to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, as filed on August 3, 2006.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(13) |  | Incorporated by reference to exhibits to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, as filed on May 7, 2003.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------



|(14) |  | Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K dated December 11, 2007, as filed on December 14, 2007.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------



|(15) |  | Incorporated by reference to Item 5.02(e) of our Current Report on Form 8-K dated December 31, 2007, as filed on January 7, 2008.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------



52



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.



TELIK, INC./s/    CYNTHIA M. BUTITTACynthia M. Butitta Chief Operating and Chief Financial Officer (Principal Financial and Accounting Officer)


Dated: February 29, 2008

POWER OF ATTORNEY

KNOW ALL PERSONS
BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael M. Wick, M.D., Ph.D. and Cynthia M. Butitta, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:



|                                                    |  |                                                                                                  |  |                  
|--------------------------------------------------- |  | ------------------------------------------------------------------------------------------------ |  | -----------------
|Signature                                           |  | Title                                                                                            |  | Date             
|                                                    |  |                                                                                                 
|/s/    MICHAEL M.
WICK Michael M. Wick, M.D., Ph.D. |  | Chief Executive Officer and Director (Principal Executive Officer)                               |  | February 29, 2008
|                                                    |  |                                                                                                 
|/s/    CYNTHIA M.
BUTITTA Cynthia M. Butitta        |  | Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer) |  | February 29, 2008
|                                                    |  |                                                                                                 
|/s/    EDWARD W.
CANTRALL Edward W. Cantrall, Ph.D. |  | Director                                                                                         |  | February 29, 2008
|                                                    |  |                                                                                                 
|/s/    MARY ANN
GRAY Mary Ann Gray, Ph.D.           |  | Director                                                                                         |  | February 29, 2008
|                                                    |  |                                                                                                 
|/s/    ROBERT W.
FRICK Robert W. Frick              |  | Director                                                                                         |  | February 29, 2008
|                                                    |  |                                                                                                 
|/s/    STEVEN R.
GOLDRING Steven R. Goldring, M.D.  |  | Director                                                                                         |  | February 29, 2008



53



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|                                                |  |          |  |                  
|----------------------------------------------- |  | -------- |  | -----------------
|Signature                                       |  | Title    |  | Date             
|                                                |  |         
|/s/    RICHARD B.
NEWMAN Richard B. Newman      |  | Director |  | February 29, 2008
|                                                |  |         
|/s/    STEFAN
RYSER Stefan Ryser, Ph.D.         |  | Director |  | February 29, 2008
|                                                |  |         
|/s/    HERWIG VON
MORZE Herwig von Morze, Ph.D. |  | Director |  | February 29, 2008



54



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and
Stockholders

Telik, Inc.

We have audited the accompanying balance sheets of Telik, Inc. as of December 31, 2007 and 2006, and the related statements of operations, stockholders equity, and cash flows for each of the three years in
the period ended December 31, 2007. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of Telik, Inc. at December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with the U.S. generally accepted accounting principles.

As discussed in Note 1 to the financial statements, in 2006, Telik, Inc. changed its method of accounting for stock-based
compensation in accordance with guidance provided in Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Telik Inc.s internal control over financial reporting as of December 31, 2007, based on criteria established
in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2008 expressed an unqualified opinion thereon.

/S/    ERNST & YOUNG LLP

Palo Alto, California

February 29, 2008



55



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##### Table of Contents

TELIK, INC.

BALANCE SHEETS

(In thousands, except share and per share data)



|                                                                                                                                  |  |              |          |   |      |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                                  |  | December 31, |         
|                                                                                                                                  |  | 2007         |          |   | 2006 |  
|Assets                                                                                                                            |  |              |          |   |      |   |          |  
|Current assets:                                                                                                                   |  |              |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                         |  | $            | 41,646   |   |      | $ | 77,846   |  
|Short-term investments                                                                                                            |  |              | 36,853   |   |      |   | 56,983   |  
|Interest and other receivables                                                                                                    |  |              | 601      |   |      |   | 677      |  
|Prepaids and other current assets                                                                                                 |  |              | 1,377    |   |      |   | 1,931    |  
|                                                                                                                                  |  |              |          |   |      |   |          |  
|Total current assets                                                                                                              |  |              | 80,477   |   |      |   | 137,437  |  
|Property and equipment, net                                                                                                       |  |              | 3,257    |   |      |   | 4,753    |  
|Long-term investments                                                                                                             |  |              | 13,611   |   |      |   | 5,489    |  
|Restricted investments                                                                                                            |  |              | 1,123    |   |      |   | 1,347    |  
|Other assets                                                                                                                      |  |              | 60       |   |      |   | 188      |  
|                                                                                                                                  |  |              |          |   |      |   |          |  
|Total assets                                                                                                                      |  | $            | 98,528   |   |      | $ | 149,214  |  
|                                                                                                                                  |  |              |          |   |      |   |          |  
|Liabilities and Stockholders Equity                                                                                              |  |              |          |   |      |   |          |  
|Current liabilities:                                                                                                              |  |              |          |   |      |   |          |  
|Accounts payable                                                                                                                  |  | $            | 756      |   |      | $ | 2,373    |  
|Accrued clinical trial costs                                                                                                      |  |              | 6,777    |   |      |   | 10,275   |  
|Accrued compensation                                                                                                              |  |              | 1,608    |   |      |   | 1,400    |  
|Accrued liabilities                                                                                                               |  |              | 831      |   |      |   | 2,059    |  
|Accrued legal and related expenses                                                                                                |  |              | 1,095    |   |      |   | 45       |  
|Current portion of capital leases and loans                                                                                       |  |              |         |   |      |   | 440      |  
|                                                                                                                                  |  |              |          |   |      |   |          |  
|Total current liabilities                                                                                                         |  |              | 11,067   |   |      |   | 16,592   |  
|Other liabilities                                                                                                                 |  |              | 142      |   |      |   |         |  
|                                                                                                                                  |  |             
|Commitments and Contingencies                                                                                                     |  |              |          |   |      |   |          |  
|                                                                                                                                  |  |             
|Stockholders equity:                                                                                                             |  |              |          |   |      |   |          |  
|Preferred stock, $0.01 par value: 5,000,000 shares authorized; none issued or outstanding                                         |  |              |         |   |      |   |         |  
|Common stock, $0.01 par value: 100,000,000 shares authorized; shares issued and outstanding 52,928,617 in 2007 52,381,319 in
2006 |  |              | 529      |   |      |   | 524      |  
|Additional paid-in capital                                                                                                        |  |              | 534,881  |   |      |   | 525,066  |  
|Accumulated other comprehensive gain (loss)                                                                                       |  |              | 38       |   |      |   | (54      | )
|Accumulated deficit                                                                                                               |  |              | (448,129 | ) |      |   | (392,914 | )
|                                                                                                                                  |  |              |          |   |      |   |          |  
|Total stockholders equity                                                                                                        |  |              | 87,319   |   |      |   | 132,622  |  
|                                                                                                                                  |  |              |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                                                        |  | $            | 98,528   |   |      | $ | 149,214  |  
|                                                                                                                                  |  |              |          |   |      |   |          |  

See accompanying Notes to Financial Statements.



56



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##### Table of Contents

TELIK, INC.

STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)



|                                                              |  |                          |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                              |  | Years Ended December 31, |        
|                                                              |  | 2007                     |         |   | 2006 |   |         | 2005 | 
|Contract revenue from collaborations                          |  | $                        |        |   |      | $ |        |      |  | $ | 19      |  
|                                                              |  |                          |        
|Operating costs and expenses:                                 |  |                          |         |   |      |   |         |      |  |   |         |  
|Research and development                                      |  |                          | 43,032  |   |      |   | 71,522  |      |  |   | 71,345  |  
|General and administrative                                    |  |                          | 15,941  |   |      |   | 16,288  |      |  |   | 11,278  |  
|Restructuring costs                                           |  |                          | 1,356   |   |      |   |        |      |  |   |        |  
|                                                              |  |                          |         |   |      |   |         |      |  |   |         |  
|Total operating costs and expenses                            |  |                          | 60,329  |   |      |   | 87,810  |      |  |   | 82,623  |  
|                                                              |  |                          |         |   |      |   |         |      |  |   |         |  
|Loss from operations                                          |  |                          | (60,329 | ) |      |   | (87,810 | )    |  |   | (82,604 | )
|Interest and other income (expense), net                      |  |                          | 5,183   |   |      |   | 8,243   |      |  |   | 7,193   |  
|Interest expense                                              |  |                          | (69     | ) |      |   | (57     | )    |  |   | (131    | )
|                                                              |  |                          |         |   |      |   |         |      |  |   |         |  
|Net loss                                                      |  | $                        | (55,215 | ) |      | $ | (79,624 | )    |  | $ | (75,542 | )
|                                                              |  |                          |         |   |      |   |         |      |  |   |         |  
|Basic and diluted net loss per share                          |  | $                        | (1.05   | ) |      | $ | (1.52   | )    |  | $ | (1.47   | )
|                                                              |  |                          |         |   |      |   |         |      |  |   |         |  
|Shares used to calculate basic and diluted net loss per share |  |                          | 52,542  |   |      |   | 52,271  |      |  |   | 51,249  |  
|                                                              |  |                          |         |   |      |   |         |      |  |   |         |  





See accompanying Notes to Financial Statements.



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TELIK, INC.

STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands)



|                                                                                        |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   |         |  
|--------------------------------------------------------------------------------------- |  | ------------ |  | ------------------------ | --- | ------------------------------------------ | - | ------- | ------------------ | - | ---- | ------------------------ |  | - | -------- | - |  | - | ------- | -
|                                                                                        |  | Common Stock |  | AdditionalPaid-inCapital |     | AccumulatedOtherComprehensiveIncome (Loss) |   |         | AccumulatedDeficit |   |      | TotalStockholdersEquity | 
|                                                                                        |  | Shares       |  | Amount                   |     |                                            |   |        
|Balances at December 31, 2004                                                           |  | 43,833       |  | $                        | 438 |                                            | $ | 363,872 |                    | $ | (218 | )                        |  | $ | (237,748 | ) |  | $ | 126,344 |  
|Comprehensive loss:                                                                     |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   |         |  
|Net loss                                                                                |  |             |  |                          |    |                                            |   |        |                    |   |     |                          |  |   | (75,542  | ) |  |   | (75,542 | )
|Change in unrealized loss on available-for-sale investments                             |  |             |  |                          |    |                                            |   |        |                    |   | (72  | )                        |  |   |         |   |  |   | (72     | )
|                                                                                        |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   |         |  
|Comprehensive loss                                                                      |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   | (75,614 | )
|Issuance of common stock in follow-on public offering, net of issuancecosts of $397,000 |  | 8,050        |  |                          | 81  |                                            |   | 142,160 |                    |   |     |                          |  |   |         |   |  |   | 142,241 |  
|Common stock issued under stock option and purchase plans                               |  | 156          |  |                          | 1   |                                            |   | 1,553   |                    |   |     |                          |  |   |         |   |  |   | 1,554   |  
|                                                                                        |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   |         |  
|Balances at December 31, 2005                                                           |  | 52,039       |  |                          | 520 |                                            |   | 507,585 |                    |   | (290 | )                        |  |   | (313,290 | ) |  |   | 194,525 |  
|Comprehensive loss:                                                                     |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   |         |  
|Net loss                                                                                |  |             |  |                          |    |                                            |   |        |                    |   |     |                          |  |   | (79,624  | ) |  |   | (79,624 | )
|Change in unrealized loss on available-for-sale investments                             |  |             |  |                          |    |                                            |   |        |                    |   | 236  |                          |  |   |         |   |  |   | 236     |  
|                                                                                        |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   |         |  
|Comprehensive loss                                                                      |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   | (79,388 | )
|Share-based compensation expense                                                        |  |             |  |                          |    |                                            |   | 14,567  |                    |   |     |                          |  |   |         |   |  |   | 14,567  |  
|Common stock issued under stock option and purchase plans                               |  | 342          |  |                          | 4   |                                            |   | 2,914   |                    |   |     |                          |  |   |         |   |  |   | 2,918   |  
|                                                                                        |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   |         |  
|Balances at December 31, 2006                                                           |  | 52,381       |  |                          | 524 |                                            |   | 525,066 |                    |   | (54  | )                        |  |   | (392,914 | ) |  |   | 132,622 |  
|Comprehensive loss:                                                                     |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   |         |  
|Net loss                                                                                |  |             |  |                          |    |                                            |   |        |                    |   |     |                          |  |   | (55,215  | ) |  |   | (55,215 | )
|Change in unrealized gains (losses) on available-for-sale investments                   |  |             |  |                          |    |                                            |   |        |                    |   | 92   |                          |  |   |         |   |  |   | 92      |  
|                                                                                        |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   |         |  
|Comprehensive loss                                                                      |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   | (55,123 | )
|Share-based compensation expense                                                        |  |             |  |                          |    |                                            |   | 8,589   |                    |   |     |                          |  |   |         |   |  |   | 8,589   |  
|Common stock issued under stock option and purchase plans                               |  | 548          |  |                          | 5   |                                            |   | 1,216   |                    |   |     |                          |  |   |         |   |  |   | 1,221   |  
|Stock options issued to non-employees                                                   |  |             |  |                          |    |                                            |   | 10      |                    |   |     |                          |  |   |         |   |  |   | 10      |  
|                                                                                        |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   |         |  
|Balances at December 31, 2007                                                           |  | 52,929       |  | $                        | 529 |                                            | $ | 534,881 |                    | $ | 38   |                          |  | $ | (448,129 | ) |  | $ | 87,319  |  
|                                                                                        |  |              |  |                          |     |                                            |   |         |                    |   |      |                          |  |   |          |   |  |   |         |  

See accompanying Notes to Financial Statements.



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TELIK, INC.

STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                            |  |                          |         |   |      |   |         |      |  |   |          |  
|--------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                            |  | Years Ended December 31, |        
|                                                                            |  | 2007                     |         |   | 2006 |   |         | 2005 | 
|Cash flows from operating activities:                                       |  |                          |         |   |      |   |         |      |  |   |          |  
|Net loss                                                                    |  | $                        | (55,215 | ) |      | $ | (79,624 | )    |  | $ | (75,542  | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                          |         |   |      |   |         |      |  |   |          |  
|Depreciation and amortization                                               |  |                          | 1,659   |   |      |   | 1,606   |      |  |   | 1,568    |  
|Share-based compensation expense                                            |  |                          | 8,599   |   |      |   | 14,567  |      |  |   |         |  
|Write-down of marketable securities                                         |  |                          | 733     |   |      |   |        |      |  |   |         |  
|Changes in assets and liabilities:                                          |  |                          |         |   |      |   |         |      |  |   |          |  
|Other receivables                                                           |  |                          | 76      |   |      |   | 10      |      |  |   | (170     | )
|Prepaids and other current assets                                           |  |                          | 554     |   |      |   | (513    | )    |  |   | 222      |  
|Accounts payable                                                            |  |                          | (1,617  | ) |      |   | 1,104   |      |  |   | (3,428   | )
|Accrued liabilities                                                         |  |                          | (3,198  | ) |      |   | (2,359  | )    |  |   | 3,305    |  
|Deferred revenue                                                            |  |                          |        |   |      |   |        |      |  |   | (19      | )
|                                                                            |  |                          |         |   |      |   |         |      |  |   |          |  
|Net cash used in operating activities                                       |  |                          | (48,409 | ) |      |   | (65,209 | )    |  |   | (74,064  | )
|                                                                            |  |                          |         |   |      |   |         |      |  |   |          |  
|                                                                            |  |                          |        
|Cash flows from investing activities:                                       |  |                          |         |   |      |   |         |      |  |   |          |  
|Purchases of investments                                                    |  |                          | (45,009 | ) |      |   | (36,276 | )    |  |   | (142,484 | )
|Sales of investments                                                        |  |                          | 1,100   |   |      |   | 18,550  |      |  |   | 85,600   |  
|Maturities of investments                                                   |  |                          | 55,500  |   |      |   | 31,815  |      |  |   | 61,566   |  
|Purchases of property and equipment                                         |  |                          | (163    | ) |      |   | (996    | )    |  |   | (1,341   | )
|                                                                            |  |                          |         |   |      |   |         |      |  |   |          |  
|Net cash provided by investing activities                                   |  |                          | 11,428  |   |      |   | 13,093  |      |  |   | 3,341    |  
|                                                                            |  |                          |         |   |      |   |         |      |  |   |          |  
|                                                                            |  |                          |        
|Cash flows from financing activities:                                       |  |                          |         |   |      |   |         |      |  |   |          |  
|Principal payments under capital leases and loans                           |  |                          | (440    | ) |      |   | (927    | )    |  |   | (1,322   | )
|Net proceeds from issuance of common stock                                  |  |                          | 1,221   |   |      |   | 2,918   |      |  |   | 143,795  |  
|                                                                            |  |                          |         |   |      |   |         |      |  |   |          |  
|Net cash provided by financing activities                                   |  |                          | 781     |   |      |   | 1,991   |      |  |   | 142,473  |  
|                                                                            |  |                          |         |   |      |   |         |      |  |   |          |  
|Net change in cash and cash equivalents                                     |  |                          | (36,200 | ) |      |   | (50,125 | )    |  |   | 71,750   |  
|Cash and cash equivalents at beginning of period                            |  |                          | 77,846  |   |      |   | 127,971 |      |  |   | 56,221   |  
|                                                                            |  |                          |         |   |      |   |         |      |  |   |          |  
|Cash and cash equivalents at end of period                                  |  | $                        | 41,646  |   |      | $ | 77,846  |      |  | $ | 127,971  |  
|                                                                            |  |                          |         |   |      |   |         |      |  |   |          |  
|                                                                            |  |                          |        
|Supplemental information:                                                   |  |                          |         |   |      |   |         |      |  |   |          |  
|Interest paid                                                               |  | $                        | 69      |   |      | $ | 57      |      |  | $ | 131      |  

See accompanying Notes to Financial Statements.



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TELIK, INC.

NOTES TO FINANCIAL STATEMENTS

1.    Summary of Significant Accounting Policies

Nature of Operations and Basis of Presentation

Telik, Inc. (Telik, we or, the Company)
was incorporated in the state of Delaware in October 1988. We are engaged in the discovery and development of small molecule therapeutics. We operate in only one business segment.

Need for Additional Capital

We have incurred net losses since inception and we expect to incur
substantial and increasing losses for at least the next several years as we continue our research and development activities. To date, we have funded operations primarily through the sale of equity securities, non-equity payments from collaborators
and interest income. Future revenue, if any, for at least the next few years is expected to consist primarily of payments under corporate collaborations and interest income. The process of developing our products will require significant additional
research and development, preclinical testing and clinical trials, as well as regulatory approval. We expect these activities, together with general and administrative expenses, to result in substantial operating losses for the foreseeable future.
We will not receive product revenue unless we, or our collaborative partners complete clinical trials, obtain regulatory approval and successfully commercialize one or more of our products.

We expect continuing losses over the next several years. We plan to obtain capital through public or private equity or debt financing, capital lease
financing and collaborative arrangements with corporate partners. We may have to seek other sources of capital or re-evaluate our operating plans if we are unable to consummate some or all of the capital financing arrangements noted above.

Use of Estimates

In preparing our
financial statements to conform with U.S. generally accepted accounting principles, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results may differ from these
estimates.

Cash and Cash Equivalents, Short-Term and Long-Term Investments

We invest our excess cash in money market funds and in debt instruments of the U.S. government, its agencies and municipalities and corporate notes. All
highly liquid investments with stated maturities of three months or less from date of purchase are classified as cash equivalents. Debt securities with original maturities greater than three months and remaining maturities less than one year and
certain auction rate securities are classified as short-term investments. Debt securities with remaining maturities greater than one year and which we intend to hold until maturity are classified as long-term investments. Perpetual rate securities
with no effective maturity dates and no recent reset dates due to current market condition are classified as long-term investments.

We
classify all cash equivalents and investments as available-for-sale. Available-for-sale securities are carried at estimated fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss).
Realized gains or losses on the sale of investments are determined on a specific identification method, and such gains and losses are reflected as a component of interest income.

Marketable security investments are evaluated periodically for impairment. We take into account general market conditions, changes in economic
environment as well as specific investment attributes, such as credit downgrade or illiquidity for each investment, to estimate the fair value of our investments and to determine whether impairment is other than temporary. If it is determined that a
decline of any investment is other than temporary, then the investment basis would be written down to fair value and the charge would be included in interest and other income (expense), net.



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Restricted Investments

Under certain operating lease agreements, we may be required from time to time to set aside cash as collateral. At December 31, 2007, we had approximately $1.1 million of restricted investments and at
December 31, 2006 we had approximately $1.3 million related to such agreements.

Fair Value of Financial Instruments

The carrying values of our financial instruments, which include cash and cash equivalents, short-term and long-term investments, accounts payable and
accrued expenses, approximate their fair value. The fair value of capital lease obligations and loans is based on current interest rates available to us for debt instruments with similar terms, degrees of risk, and remaining maturities. The carrying
amount of cash equivalents, investments and capital lease and loan obligations are considered to be representative of their respective fair value at December 31, 2007 and 2006.

Property and Equipment

Property and equipment are stated at cost. We calculate depreciation using
the straight-line method over the estimated useful lives of the assets, which range from three to five years. We amortize furniture and equipment leased under capital leases and leasehold improvements using the straight-line method over the
estimated useful lives of the respective assets or the lease term, whichever is shorter. Amortization of assets under capital leases is included in depreciation expense.

Impairment of Long-lived Assets

We regularly evaluate our long-lived assets for indicators of
possible impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to
result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows.

Revenue Recognition

Our revenues have been generated from license and contract research agreements with collaborators. We
recognize cost reimbursement revenue under these collaborative agreements as the related research and development costs are incurred. We recognize milestone fees upon completion of specified milestones according to contract terms. Deferred revenue
represents the portion of research payments received that has not been earned.

Research and Development

Our research and development expenses include salaries and benefits costs, fees for contractors, consultants and third party contract research
organizations, and an allocation of facility and administrative costs. Research and development expenses consist of costs incurred for drug and product development, manufacturing, clinical activities, discovery research, screening and identification
of product candidates, and preclinical studies. All such costs are charged to research and development expenses as incurred.

Clinical
development costs are a significant component of research and development expenses. We have a history of contracting with third parties that perform various clinical trial activities on our behalf in the on-going development of our product
candidates. The financial terms of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven payment flows. We accrue and expense costs for clinical trial activities performed by third parties based
upon estimates of the percentage of work completed over the life of the individual study in accordance to agreements established with contract research organizations and



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clinical trial sites. We determine our estimates through discussion with internal clinical personnel and outside service providers as to progress or stage of
completion of trials or services and the agreed upon fee to be paid for such services. These estimates may or may not match the actual services performed by the organizations as determined by patient enrollment levels and related activities. We
monitor patient enrollment levels and related activities to the extent possible.

Stock-based Compensation

On January 1, 2006, we adopted the provisions of SFAS 123R which requires the measurement and recognition of compensation expense for all share-based
payment awards made to employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan (employee stock purchase rights) based on estimated fair values. SFAS 123R
supersedes our previous accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees(APB 25). Accordingly, compensation cost for all share-based payment awards to
employees is measured based on the grant date fair value of those awards and recognized over the period during which the employee is required to perform service in exchange for the award (generally over the vesting period of the award). In
March 2005, the Securities and Exchange Commission issued SAB 107 relating to SFAS 123R. We have applied the provisions of SAB 107 in our adoption of SFAS 123R.

We adopted SFAS 123R using the modified prospective transition method, which provides for certain changes to the method for valuing stock-based compensation. The valuation provisions of SFAS 123R apply to new awards
and to awards that are outstanding at the effective date and subsequently modified or cancelled. Estimated compensation expense for awards outstanding at the effective date will be recognized over the remaining service period using the compensation
cost calculated for pro forma disclosure purposes under FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123). In accordance with the modified prospective transition method, our financial statements
for prior periods presented were not restated to reflect, and do not include, any stock-based compensation expense associated with employee stock awards. For additional information, see Note 5 to the Financial Statements.

Stock-based compensation expense is based on the fair value of that portion of employee stock options that are ultimately expected to vest during the
period. Stock-based compensation expense recognized in our statement of operations during 2007 and 2006 included compensation expense for stock-based awards granted prior to, but not yet vested as of, December 31, 2005, based on the grant date
fair value estimated in accordance with the pro forma provisions of SFAS 123, and share-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with SFAS 123R. For stock options
granted after January 1, 2006, the fair value of each award is amortized using the straight-line single-option method. For share awards granted prior to 2006, the fair value of each award is amortized using the accelerated multiple-option
valuation method prescribed by SFAS 123.

Under the provisions of SFAS 123R, employee stock-based compensation is estimated using the
Black-Scholes option-pricing model and is recognized as expense ratably over the requisite service period in a manner similar to other forms of compensation paid to employees. The Black-Scholes option-pricing model requires the use of certain
subjective assumptions. The most significant of these assumptions are our estimates of the expected volatility of the market price of our stock and the expected term of the award. Our expected stock-price volatility assumption for 2007 is a blended
rate of 50% of historical volatility and 50% implied volatility since sufficient market activity exists with respect to our traded options. In 2006, historical volatility, obtained from public data sources, was used. The expected term of options
granted is based on the simplified method in accordance with SAB 107 as our historical share option exercise experience does not provide a reasonable basis for estimation. SFAS 123R requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We adjusted our forfeiture rate to reflect the cancellation of unvested options due to the workforce reduction in February 2007 and voluntary
terminations. In 2006, we estimated forfeitures based on our historical experience and in our pro forma information required



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under SFAS 123 for the periods prior to 2006, we accounted for forfeitures as they occurred. See Note 6 to the Financial Statements for additional
information.

In November 2005, the FASB issued FASB Staff Position No. FAS123R-3, Transition Election Related to Accounting for the
Tax Effects of Share-Based Payment Awards (FAS 123R-3). We have adopted the simplified method to calculate the beginning balance of the additional paid-in-capital (APIC) pool of the excess tax benefit, and to determine
the subsequent impact on the APIC pool and our Statements of Cash Flows of the tax effects of employee stock-based compensation awards that were outstanding upon our adoption of SFAS 123R.

Comprehensive Loss

Components of other comprehensive
loss, including unrealized gains and losses on available-for-sale investments, are included as part of total comprehensive loss in our statements of stockholders equity.

Net Loss per Share

Basic and diluted net loss per share are computed by dividing net loss by the
weighted average number of common shares outstanding during the year.

The following table reflects options outstanding that could
potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been antidilutive for the periods presented herein.



|                    |  |                         |  |           |  |          
|------------------- |  | ----------------------- |  | --------- |  | ---------
|                    |  | Year Ended December 31,
|                    |  | 2007                    |  | 2006      |  | 2005     
|Outstanding options |  | 9,059,216               |  | 9,154,624 |  | 8,465,649

Recent Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertain Tax Provisions, an Interpretation of SFAS Statement
109 (FIN 48). FIN 48 clarifies the accounting for uncertain tax positions as described in SFAS No. 109, Accounting for Income Taxes, and requires a company to recognize, in its financial statements, the impact of a
tax position only if that position is more likely than not of being sustained on an audit basis solely on the technical merit of the position. In addition, FIN 48 requires qualitative and quantitative disclosures including a discussion
of reasonably possible changes that might occur in the recognized tax benefits over the next twelve months as well as a roll-forward of all unrecognized tax benefits. FIN 48 is effective for fiscal years beginning after December 15, 2006. The
adoption of FIN 48 did not have an impact on our financial condition or results of operations.

On September 15, 2006, the FASB issued
SFAS 157, Fair Value Measurements, which addresses how companies should measure fair value when they are required to do so for recognition or disclosure purposes. The standard provides a common definition of fair value, established a
framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after
November 15, 2007. We do not expect the adoption of SFAS 157 to significantly affect our financial condition or results of operations.

In June 2007, the FASB also reached consensus on Emerging Issues Task Force (EITF) Issue 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development
Activities (EITF 07-3). EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an
expense as the goods are delivered or the related services are performed. EITF 07-3 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007. We are currently evaluating the potential impact, if any, of the
adoption of EITF 07-3, but do not expect the adoption to significantly affect our results of operations and financial condition.



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2.    Cash and Cash Equivalents, Investments and Restricted Investments

The following is a summary of cash and cash equivalents, investments and restricted investments.



|                                 |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|-------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | -------
|                                 |  | December 31, 2007
|                                 |  | AmortizedCosts    |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|                                 |  | (in thousands)   
|Certificate of deposits          |  | $                 | 1,223   |                      | $ |                      |  | $ |                    |   |  | $ | 1,223  
|Corporate notes                  |  |                   | 21,541  |                      |   | 28                    |  |   | (6                  | ) |  |   | 21,563 
|Municipal notes and bonds        |  |                   | 9,800   |                      |   |                      |  |   |                    |   |  |   | 9,800  
|Commercial paper                 |  |                   | 15,943  |                      |   | 1                     |  |   | (3                  | ) |  |   | 15,941 
|Government sponsored enterprises |  |                   | 40,550  |                      |   | 18                    |  |   |                    |   |  |   | 40,568 
|Cash and money market funds      |  |                   | 4,138   |                      |   |                      |  |   |                    |   |  |   | 4,138  
|                                 |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total                            |  | $                 | 93,195  |                      | $ | 47                    |  | $ | (9                  | ) |  | $ | 93,233 
|                                 |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|                                 |  |                   |         |                     
|Reported as:                     |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Cash and cash equivalents        |  |                   |         |                      |   |                       |  |   |                     |   |  | $ | 41,646 
|Short-term investments           |  |                   |         |                      |   |                       |  |   |                     |   |  |   | 36,853 
|Long-term investments            |  |                   |         |                      |   |                       |  |   |                     |   |  |   | 13,611 
|Restricted investments           |  |                   |         |                      |   |                       |  |   |                     |   |  |   | 1,123  
|                                 |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total                            |  |                   |         |                      |   |                       |  |   |                     |   |  | $ | 93,233 
|                                 |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|                                 | 
|                                 |  | December 31, 2006
|                                 |  | AmortizedCosts    |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|                                 |  | (in thousands)   
|Certificate of deposits          |  | $                 | 1,796   |                      | $ |                      |  | $ |                    |   |  | $ | 1,796  
|Corporate notes                  |  |                   | 14,778  |                      |   | 3                     |  |   |                    |   |  |   | 14,781 
|Municipal notes and bonds        |  |                   | 14,500  |                      |   |                      |  |   |                    |   |  |   | 14,500 
|Commercial paper                 |  |                   | 67,095  |                      |   | 8                     |  |   |                    |   |  |   | 67,103 
|Government sponsored enterprises |  |                   | 32,807  |                      |   |                      |  |   | (65                 | ) |  |   | 32,742 
|Cash and money market funds      |  |                   | 10,743  |                      |   |                      |  |   |                    |   |  |   | 10,743 
|                                 |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total                            |  | $                 | 141,719 |                      | $ | 11                    |  | $ | (65                 | ) |  | $ | 141,665
|                                 |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|                                 |  |                   |         |                     
|Reported as:                     |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Cash and cash equivalents        |  |                   |         |                      |   |                       |  |   |                     |   |  | $ | 77,846 
|Short-term investments           |  |                   |         |                      |   |                       |  |   |                     |   |  |   | 56,983 
|Long-term investments            |  |                   |         |                      |   |                       |  |   |                     |   |  |   | 5,489  
|Restricted investments           |  |                   |         |                      |   |                       |  |   |                     |   |  |   | 1,347  
|                                 |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total                            |  |                   |         |                      |   |                       |  |   |                     |   |  | $ | 141,665
|                                 |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        

There were no net realized gains on sales of available-for-sales investments for any period
presented. Realized gains and losses were calculated based on the specific identification method.

Approximately $19 million of our
investment portfolio is invested in corporate and municipal notes investments with an auction reset feature (auction rate securities and auction preferred stock). Since September 2007, $8.9 million invested in auction
preferred stock securities have failed to settle in scheduled auctions. An auction failure means that the parties wishing to sell securities could not, but does not result in the securities going into default because the issuer continues to pay
interest at higher rates. The failures resulted in the interest rates on these investments resetting at higher rates every 28 days at one-month LIBOR plus 150 basis points for as long as auctions continue to fail. While we now earn premium interest
rates on these investments,



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these investments are not liquid and their carrying amounts are impaired due to the adverse change in the corporate debt market. We concluded that the
impairment is other-than-temporary and we have written-down the carrying amount for these investments to approximately $8.2 million and recognized a loss of approximately $733,000 in the year ended December 31, 2007. If the issuers are unable
to successfully close future auctions and their credit ratings deteriorate, we may in the future be required to record additional impairment charges on these investments. These illiquid investments continue being rated AA and are paying interest at
December 31, 2007. Because we have no visibility as to when these auction preferred stock securities will eventually settle, we have classified them as long-term investments on our balance sheet.

In February 2008, auctions failed for $4.3 million of our auction rate securities and there is no assurance that currently successful auctions on the
other auction rate securities in our investment portfolio will continue to succeed. We believe we will be able to liquidate our investment in auction rate securities without significant loss within the next year, and we currently believe these
securities are not significantly impaired as the underlying assets are generally student loans which are substantially backed by the federal government. Accordingly these auction rate securities are classified as short-term investments on our
balance sheet. Based on our ability to access our cash and other short-term investments, our expected operating cash flow needs, and our other sources of cash, we do not anticipate the lack of liquidity on these investments will affect our ability
to operate our business as planned. We have reviewed all other investments we owned at December 31, 2007 for impairment and concluded that their carrying value approximated their fair value.

Investments which are in unrealized loss positions for which other-than-temporary impairments have not been recognized at December 31, 2007 and
2006, are summarized below (in thousands):



|                                 |  |                     |        |                  |                      |     |           |       |                  |        |  |           |     |                  |  |   |        |  |   |     |  
|-------------------------------- |  | ------------------- | ------ | ---------------- | -------------------- | --- | --------- | ----- | ---------------- | ------ |  | --------- | --- | ---------------- |  | - | ------ |  | - | --- | -
|                                 |  | Less Than 12 Months |        |                  | 12 Months or Greater |     |           | Total |                 
|December 31, 2007                |  | FairValue           |        | UnrealizedLosses |                      |     | FairValue |       | UnrealizedLosses |        |  | FairValue |     | UnrealizedLosses | 
|Commercial paper                 |  | $                   | 9,964  |                  | $                    | (3  | )         |       | $                |       |  | $         |    |                  |  | $ | 9,964  |  | $ | (3  | )
|Corporate notes                  |  |                     | 5,982  |                  |                      | (6  | )         |       |                  |       |  |           |    |                  |  |   | 5,982  |  |   | (6  | )
|                                 |  |                     |        |                  |                      |     |           |       |                  |        |  |           |     |                  |  |   |        |  |   |     |  
|Total                            |  | $                   | 15,946 |                  | $                    | (9  | )         |       | $                |       |  | $         |    |                  |  | $ | 15,946 |  | $ | (9  | )
|                                 |  |                     |        |                  |                      |     |           |       |                  |        |  |           |     |                  |  |   |        |  |   |     |  
|                                 |  |                     |       
|                                 |  | Less Than 12 Months |        |                  | 12 Months or Greater |     |           | Total |                 
|December 31, 2006                |  | FairValue           |        | UnrealizedLosses |                      |     | FairValue |       | UnrealizedLosses |        |  | FairValue |     | UnrealizedLosses | 
|Government sponsored enterprises |  | $                   | 21,175 |                  | $                    | (22 | )         |       | $                | 11,567 |  | $         | (43 | )                |  | $ | 32,742 |  | $ | (65 | )

Unrealized losses are primarily due to increases in interest rates. Because we have the ability
and intent to hold these investments until their forecasted recovery of fair value, which may be maturity, we do not consider these investments to be other-than-temporarily impaired as of December 31, 2007 and 2006.

The following is a summary of the cost and estimated fair value of available-for-sale securities at December 31, 2007 and 2006, classified by stated
maturity date of the security:



|                             |  |                |        |                    |   |               |  |                     |         |  |   |        
|---------------------------- |  | -------------- | ------ | ------------------ | - | ------------- |  | ------------------- | ------- |  | - | -------
|                             |  | 2007           |        | 2006              
|                             |  | AmortizedCost  |        | EstimatedFairValue |   | AmortizedCost |  | EstimatedFair Value
|                             |  | (in thousands)
|Mature in less than one year |  | $              | 64,430 |                    | $ | 64,461        |  | $                   | 100,282 |  | $ | 100,237
|Mature in one to three years |  |                | 5,437  |                    |   | 5,444         |  |                     | 5,498   |  |   | 5,489  
|Mature in over three years   |  |                | 9,800  |                    |   | 9,800         |  |                     | 14,500  |  |   | 14,500 
|Perpetual maturity           |  |                | 8,900  |                    |   | 8,167         |  |                     | 8,900   |  |   | 8,900  
|                             |  |                |        |                    |   |               |  |                     |         |  |   |        
|Total                        |  | $              | 88,567 |                    | $ | 87,872        |  | $                   | 129,180 |  | $ | 129,126
|                             |  |                |        |                    |   |               |  |                     |         |  |   |        



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3.    Restructuring Plan

On February 12, 2007, our Board of Directors committed to a restructuring plan intended to reduce our operating expenses following our announcement
in December 2006 of the preliminary results of our Phase 3 ASSIST-1, ASSIST-2 and ASSIST-3 trials for our lead product candidate, TELCYTA. On February 14, 2007, we implemented the restructuring plan that focused our priorities on the
ASSIST-5 trial and the Phase 1-2a trial of the TELINTRA Tablets and selected research and development programs. To match these priorities, we reduced our workforce by 38 positions, or approximately 25% of our workforce, streamlined our
infrastructure and postponed some clinical research projects. As a result of the restructuring plan which has been completed, we recorded a one-time restructuring charge of approximately $1.4 million in the quarter ended March 30, 2007, of
which approximately $33,000 was reversed in the quarter ended June 30, 2007 as certain health benefits originally accrued were not utilized. Approximately $1.3 million was paid in the quarter ended March 31, 2007 as severance, payroll
taxes and other personnel related costs. The remaining payments of approximately $30,000 were paid in the quarter ended June 30, 2007. The restructuring plan has been completed and we will continue to investigate alternative opportunities for
the advancement of our product development programs, including collaborations with pharmaceutical and larger biotechnology companies.

4.    Property and Equipment

Property and equipment consist of the following:



|                                               |  |                |        |   |      |   |        |  
|---------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                               |  | December 31,   |       
|                                               |  | 2007           |        |   | 2006 |  
|                                               |  | (in thousands) |       
|Computer and lab equipment                     |  | $              | 8,255  |   |      | $ | 8,112  |  
|Capitalized software                           |  |                | 547    |   |      |   | 547    |  
|Office furniture and equipment                 |  |                | 509    |   |      |   | 509    |  
|Leasehold improvements                         |  |                | 3,363  |   |      |   | 3,363  |  
|                                               |  |                |        |   |      |   |        |  
|                                               |  |                | 12,674 |   |      |   | 12,531 |  
|Less accumulated depreciation and amortization |  |                | (9,417 | ) |      |   | (7,778 | )
|                                               |  |                |        |   |      |   |        |  
|Property and equipment, net                    |  | $              | 3,257  |   |      | $ | 4,753  |  
|                                               |  |                |        |   |      |   |        |  

Property and equipment includes assets under capitalized leases at December 31, 2007 and 2006
of approximately $1.3 million. Accumulated amortization related to leased assets was approximately $1.3 million and $1.0 million at December 31, 2007 and 2006. We have $547,000 of computer software costs of which approximately $425,000 was
amortized as of December 31, 2007 and $243,000 was amortized as of December 31, 2006.

5.    Commitments

Capital Leases and Loans

At December 31,
2007, there were no draws available under our Master Lease and Master Security credit facilities which had a maximum borrowing capacity of $2.5 million. The lease and credit facilities, secured by equipment and tenant improvements and bearing
interest rates between 4.3% and 11.5%, were fully utilized by the end of 2003. Pursuant to the terms of these credit facilities, we are required to maintain a balance of cash and investments of at least $20.5 million. Our Master Lease and Master
Security credit facilities have been paid in full at December 31, 2007.

At December 31, 2007, draws under our Loan and Security
Agreement credit facility totaled approximately $1.5 million, bearing interest rates between 5.91% and 6.98%. The credit facility was fully utilized as of July 2004. Pursuant to the terms of the credit facility, we are required to maintain a balance
of cash and investments with the lender of at least $5.0 million. Our Loan and Security Agreement credit facility has been paid in full at December 31, 2007.



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Operating Leases

We lease our research and office facility of approximately 92,000 square feet located at 3165 Porter Drive in Palo Alto, California. The term of the lease is approximately 11.5 years and terminates in May 2014. We
have the option to extend the lease term for an additional term of five years. Under the terms of this lease, the lessor agreed to finance up to $5.0 million in leasehold improvements to be made to the facility. Our financial commitment for the full
term of the Palo Alto lease is approximately $39.1 million, which includes repayment, over a period of 10 years, of $3.0 million of the total $5.0 million in leasehold improvements financed by the lessor. Under the original terms of the agreement
the remaining $2.0 million in leasehold improvements financed by the lessor would be payable, subject to certain extension provisions, in a balloon payment at the commencement of the third year of the lease. Prior to this balloon payment, interest
only payments were payable monthly on the outstanding balance of the remaining $2.0 million in leasehold improvements financed by the lessor. In January 2005, we renegotiated the payment term for the remaining $2.0 million balloon payment. The
lessor agreed to amortize the amount owed at an interest rate of 6% over twelve months with equal monthly payments of principal and interest of approximately $172,000 through December 31, 2005. All amounts owed related to the remaining $2.0
million have been paid in full as of December 31, 2005. Pursuant to the terms of the lease, we are required to maintain a security deposit, in the form of a letter of credit equal to approximately $1.1 million. This letter of credit must be
secured by either a deposit account or a securities account and at December 31, 2007, the security deposit is in the form of securities that are classified in the balance sheet as restricted investments. This collateral account is managed in
accordance with our investment policy, and is restricted as to withdrawal.

We also have office equipment leases of approximately $87,000
with terms ranging from 36 months to 60 months.

Future minimum rental payments under our non-cancelable operating leases as of
December 31, 2007 are as follows:



|                          |  |                  |       
|------------------------- |  | ---------------- | ------
|                          |  | Operating Leases
|                          |  | (in thousands)  
|Years ending December 31, |  |                  |       
|2008                      |  | $                | 3,519 
|2009                      |  |                  | 3,611 
|2010                      |  |                  | 3,719 
|2011                      |  |                  | 3,812 
|2012                      |  |                  | 3,924 
|Thereafter                |  |                  | 5,078 
|                          |  |                  |       
|Total                     |  | $                | 23,663
|                          |  |                  |       

Rent expense under operating leases was approximately $3.7 million in 2007 and $3.6 million in
2006 and 2005.

6.    Stockholders Equity

Stockholder Rights Plan

In October 2001, our Board of Directors approved the adoption of a
Stockholder Rights Plan, which provided for the distribution of one preferred share purchase right (a Right) for each outstanding share of common stock of the Company. The dividend was paid on November 14, 2001 to the stockholders
of record on that date. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (the Preferred Shares), at a
price of $90.00 per one one-hundredth of a Preferred Share (the Purchase Price), subject to adjustment. The Rights will be exercisable the earlier of (i) the date of a public announcement that a person, entity or group of affiliated
or



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associated persons have acquired beneficial ownership of 20% or more of the outstanding common shares (an Acquiring Person), or (ii) ten
business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or entity becomes an Acquiring Person) following the commencement of, or announcement of an intention to commence, a tender
offer or exchange offer the consummation of which would result in any person or entity becoming an Acquiring Person. In May 2006, we amended the stockholder rights plan to exclude Eastbourne Capital Management, L.L.C., or Eastbourne, and certain
related persons and entities from the definition of Acquiring Person so long as neither Eastbourne nor its affiliates or associates, either individually or in the aggregate, becomes the beneficial owner of 25% or more of the common stock then
outstanding. On December 11, 2006, the plan was further amended to increase this threshold to 30%.

In the event that any person,
entity or group of affiliated or associated persons become an Acquiring Person, each holder of a Right will have the right to receive, upon exercise, the number of common shares having a market value of two times the exercise price of the Right. In
the event that the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold to an Acquiring Person, its associates or affiliates or certain other persons in which
such persons have an interest, each holder of a Right will have the right to receive, upon the exercise at the then-current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the Right. At any time after an Acquiring Person becomes an Acquiring Person and prior to the acquisition by such Acquiring Person of 50% or more of the outstanding common
shares, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one common share, or one one-hundredth of a Preferred Share,
per Right (or, at the election of the Company, the Company may issue cash, debt, stock or a combination thereof in exchange for the Rights), subject to adjustment. The Rights will expire on November 14, 2011, unless redeemed or exchanged by the
Company.

2000 Equity Incentive Plan

In March 2000, we adopted the 2000 Equity Incentive Plan (the 2000 Plan) and reserved 2,000,000 shares of Telik common stock for issuance under the 2000 Plan. In addition, the 2000 Plan provides for annual increases in the
number of shares available for issuance under the 2000 Plan beginning January 1, 2001. The number of additional shares to be reserved automatically will be equal to the lesser of 1,500,000 shares, 5% of the outstanding shares on the date of the
annual increase or such amount as may be determined by the Board of Directors. Options granted under the 2000 Plan may be either incentive stock options (ISOs) or nonstatutory stock options (NSOs). For ISOs and NSOs, the
option price shall be at least 100% and 85%, respectively, of the closing price of our common stock on the date of the grant. If, at any time we grant an option, and the optionee directly or by attribution owns stock possessing more than 10% of the
total combined voting power of all classes of stock of Telik, the option price shall be at least 110% of the fair value and shall not be exercisable more than five years after the date of grant. Options generally vest over a period of four years
from the date of grant. Options granted under the 2000 Plan expire no later than 10 years from the date of grant.

2000 Non-Employee Directors
Stock Option Plan

In March 2000, we adopted the 2000 Non-Employee Directors Stock Option Plan (the Directors
Plan) and reserved a total of 300,000 shares of common stock for issuance thereunder. In May 2006, our stockholders approved an increase in the number of shares of common stock authorized for issuance under the Directors Plan by an
additional 300,000 shares. Each non-employee director at the initial public offering date was granted a NSO to purchase 20,000 shares of common stock, and each non-employee director who subsequently becomes a director of Telik will be automatically
granted a NSO to purchase 20,000 shares of common stock on the date on which such person first becomes a director. On February 20, 2008, our board of directors amended the Directors Plan such that upon the day immediately following each
annual stockholder meeting each non-employee director will automatically be granted a NSO to purchase 10,000 shares of common stock or an option to purchase an amount of shares prorated for the part of the year served as non-employee director. The
exercise price of options



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under the Directors Plan will be equal to the fair market value of the common stock on the date of grant. The maximum term of the options granted under
the Directors Plan is ten years. All grants under the Directors Plan will vest over a period of four years from date of grant, one fourth vesting one year after the date of the grant and thereafter the balance vesting monthly. The
Directors Plan will terminate in March 2010 unless terminated earlier in accordance with the provisions of the Directors Plan.

2000
Employee Stock Purchase Plan

In March 2000, we adopted the 2000 Employee Stock Purchase Plan (the Purchase Plan). We
reserved a total of 250,000 shares of our common stock for issuance under the Purchase Plan. In addition, the Purchase Plan provides for annual increases in the number of shares available for issuance under the Purchase Plan beginning
January 1, 2001. The number of additional shares to be reserved automatically will be equal to the lesser of 150,000 shares, 1% of the outstanding shares on the date of the annual increase or such amount as may be determined by the Board of
Directors. The Purchase Plan permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which the stock is purchased is equal to the lower of 85% of the fair market
value of the common stock on the first day of the offering or 85% of the fair market value of our common stock on the purchase date. The weighted average per share fair value for shares purchased under our Purchase Plan during 2007, 2006 and 2005
was $2.53, $6.25 and $8.25.

Reserved Shares

At December 31, 2007, shares of common stock reserved for future issuance is as follows:



|                                               |  |           
|---------------------------------------------- |  | ----------
|1996 Stock option plan                         |  | 658,096   
|2000 Equity incentive plan                     |  | 11,397,287
|2000 Non-employee directors stock option plan |  | 551,459   
|2000 Employee stock purchase plan              |  | 718,290   
|                                               |  |           
|                                               |  | 13,325,132
|                                               |  |           



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Stock Option Plan Activity Summary

A summary of activity under our stock option plans is as follows:



|                                 |  |                          |   |  |                             |   |  |                                       |       |                                                   |      |                                      |   |      
|-------------------------------- |  | ------------------------ | - |  | --------------------------- | - |  | ------------------------------------- | ----- | ------------------------------------------------- | ---- | ------------------------------------ | - | -----
|                                 |  | SharesAvailablefor Grant |   |  | Number ofOptionsOutstanding |   |  | Weightedaverageexerciseprice pershare |       | Weightedaverageremainingcontractualterm(in
years) |      | Aggregateintrinsicvalue(inthousands)
|Balance, December 31, 2004       |  | 1,107,811                |   |  | 7,473,344                   |   |  | $                                     | 13.04 |                                                   |      |                                      |   |      
|Authorized                       |  | 1,500,000                |   |  |                            |   |  |                                       |      |                                                   |      |                                      |   |      
|Granted                          |  | (1,250,000               | ) |  | 1,250,000                   |   |  | $                                     | 17.06 |                                                   |      |                                      |   |      
|Exercised                        |  |                         |   |  | (67,144                     | ) |  | $                                     | 7.46  |                                                   |      |                                      |   |      
|Cancelled                        |  | 190,551                  |   |  | (190,551                    | ) |  | $                                     | 19.02 |                                                   |      |                                      |   |      
|                                 |  |                          |   |  |                             |   |  |                                       |       |                                                   |      |                                      |   |      
|Balance, December 31, 2005       |  | 1,548,362                |   |  | 8,465,649                   |   |  | $                                     | 13.55 |                                                   |      |                                      |   |      
|Authorized                       |  | 1,800,000                |   |  |                            |   |  |                                       |      |                                                   |      |                                      |   |      
|Granted                          |  | (1,176,000               | ) |  | 1,176,000                   |   |  | $                                     | 19.16 |                                                   |      |                                      |   |      
|Exercised                        |  |                         |   |  | (261,316                    | ) |  | $                                     | 6.98  |                                                   |      |                                      |   |      
|Forfeited or expired             |  | 225,709                  |   |  | (225,709                    | ) |  | $                                     | 19.12 |                                                   |      |                                      |   |      
|                                 |  |                          |   |  |                             |   |  |                                       |       |                                                   |      |                                      |   |      
|Balance, December 31, 2006       |  | 2,398,071                |   |  | 9,154,624                   |   |  | $                                     | 14.32 |                                                   |      |                                      |   |      
|Authorized                       |  | 1,500,000                |   |  |                            |   |  |                                       |      |                                                   |      |                                      |   |      
|Granted                          |  | (2,467,000               | ) |  | 2,467,000                   |   |  | $                                     | 5.60  |                                                   |      |                                      |   |      
|Exercised                        |  |                         |   |  | (445,853                    | ) |  | $                                     | 1.80  |                                                   |      |                                      |   |      
|Forfeited or expired             |  | 2,116,555                |   |  | (2,116,555                  | ) |  | $                                     | 15.02 |                                                   |      |                                      |   |      
|                                 |  |                          |   |  |                             |   |  |                                       |       |                                                   |      |                                      |   |      
|Outstanding at December 31, 2007 |  | 3,547,626                |   |  | 9,059,216                   |   |  | $                                     | 12.39 |                                                   | 6.21 |                                      | $ | 1,185
|                                 |  |                          |   |  |                             |   |  |                                       |       |                                                   |      |                                      |   |      
|Exercisable at December 31, 2007 |  |                          |   |  | 6,581,327                   |   |  | $                                     | 12.62 |                                                   | 5.33 |                                      | $ | 1,169
|                                 |  |                          |   |  |                             |   |  |                                       |       |                                                   |      |                                      |   |      

The weighted-average fair value of options granted during 2007, 2006 and 2005 was $3.49, $12.14
and $10.01. The total intrinsic value of options exercised during the years ended December 31, 2007, 2006 and 2005 were $853,000, $3.0 million and $615,000. The total fair value of shares vested during the years ended December 31, 2007,
2006 and 2005 was $14.6 million, $22.0 million and $11.8 million.

The following table summarizes information about the stock options
outstanding at December 31, 2007 (in thousands, except years and per-share amounts):



|                        |  |                     |  |                                                     |  |                                       |       |                         |   |                |  |                                       |  |                         |       |  |   |      
|----------------------- |  | ------------------- |  | --------------------------------------------------- |  | ------------------------------------- | ----- | ----------------------- | - | -------------- |  | ------------------------------------- |  | ----------------------- | ----- |  | - | -----
|                        |  | Options Outstanding |  | Options Exercisable                                
|Range of Exercise Price |  | Number ofShares     |  | Weighted AverageRemainingContractual Life(in years) |  | WeightedAverageExercisePrice perShare |       | AggregateIntrinsicValue |   | NumberofShares |  | WeightedAverageExercisePrice perShare |  | AggregateIntrinsicValue
|$  1.60  $  2.00       |  | 658                 |  | 1.29                                                |  | $                                     | 1.69  |                         | $ | 1,169          |  | 658                                   |  | $                       | 1.69  |  | $ | 1,169
|$  3.02  $  3.94       |  | 458                 |  | 6.22                                                |  | $                                     | 3.77  |                         |   | 15             |  | 249                                   |  | $                       | 3.81  |  |   |     
|$  5.43  $  5.80       |  | 1,847               |  | 9.16                                                |  | $                                     | 5.80  |                         |   |               |  | 753                                   |  | $                       | 5.80  |  |   |     
|$  5.81  $  8.25       |  | 403                 |  | 3.35                                                |  | $                                     | 7.69  |                         |   |               |  | 393                                   |  | $                       | 7.74  |  |   |     
|$10.13  $12.10         |  | 1,578               |  | 4.29                                                |  | $                                     | 10.75 |                         |   |               |  | 1,578                                 |  | $                       | 10.75 |  |   |     
|$12.11  $18.17         |  | 1,121               |  | 6.32                                                |  | $                                     | 14.30 |                         |   |               |  | 815                                   |  | $                       | 13.50 |  |   |     
|$18.51  $20.30         |  | 1,926               |  | 7.25                                                |  | $                                     | 19.24 |                         |   |               |  | 1,097                                 |  | $                       | 18.92 |  |   |     
|$20.41  $29.04         |  | 1,068               |  | 6.09                                                |  | $                                     | 23.94 |                         |   |               |  | 1,039                                 |  | $                       | 23.95 |  |   |     
|                        |  |                     |  |                                                     |  |                                       |       |                         |   |                |  |                                       |  |                         |       |  |   |      
|$  1.60  $29.04        |  | 9,059               |  | 6.21                                                |  | $                                     | 12.39 |                         | $ | 1,184          |  | 6,582                                 |  | $                       | 12.62 |  | $ | 1,169
|                        |  |                     |  |                                                     |  |                                       |       |                         |   |                |  |                                       |  |                         |       |  |   |      



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Stock-Based Compensation under SFAS 123R

We adopted SFAS 123R on January 1, 2006, using the modified prospective transition method to account for our employee share-based awards. Employee
stock-based compensation expense recognized in 2007 and 2006 was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those estimates. In 2007, we increased our forfeiture rate from 9.21% to 14.0% to reflect the cancellation of unvested options due to a higher than estimated level of
terminations.

Total estimated stock-based compensation expense, related to all of our share-based payment awards, recognized under SFAS
123R was comprised of the following:



|                                              |  |                         |       |      |   |       
|--------------------------------------------- |  | ----------------------- | ----- | ---- | - | ------
|                                              |  | Years EndedDecember 31,
|                                              |  | 2007                    |       | 2006
|                                              |  | (in thousands)         
|Research and development                      |  | $                       | 4,842 |      | $ | 9,220 
|General and administrative                    |  |                         | 3,757 |      |   | 5,347 
|                                              |  |                         |       |      |   |       
|Stock-based compensation expense before taxes |  |                         | 8,599 |      |   | 14,567
|Related income tax benefits                   |  |                         |      |      |   |      
|                                              |  |                         |       |      |   |       
|Effect on net loss                            |  | $                       | 8,599 |      | $ | 14,567
|                                              |  |                         |       |      |   |       

Because we have net operating loss carryforwards as of December 31, 2007 and 2006, no excess
tax benefits for the tax deductions related to stock-based compensation expense were recognized in our statements of operations. Additionally, no incremental tax benefits were recognized from stock options exercised during 2007 and 2006, which would
have resulted in a reclassification to reduce net cash provided by operating activities with an offsetting increase in net cash provided by financing activities. As of December 31, 2007, $10.9 million of total unrecognized compensation
costs, net of forfeitures, related to non-vested awards is expected to be recognized over a weighted average period of 1.93 years.

Pro forma information under SFAS 123

Prior to January 1, 2006, we accounted for stock-based awards to employees
using the intrinsic value method in accordance with APB 25 and related interpretations and provided the required pro forma disclosures of SFAS 123. Under the intrinsic value method, no stock-based compensation expense was recognized in our
statements of operations for stock-based awards to employees, because the exercise price of our stock options granted to employees equaled the fair market value of the underlying stock at the date of grant. The following table summarizes the pro
forma effect on our net loss and per share data if we had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation.



|                                                                                                         |  |                                        |         |  
|-------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ------- | -
|                                                                                                         |  | Year EndedDecember 31, 2005            |        
|                                                                                                         |  | (in thousands exceptper share amounts) |        
|Net loss  as reported                                                                                   |  | $                                      | (75,542 | )
|Deduct: Total stock-based employee compensation expense under the fair value based method for all awards |  |                                        | (19,467 | )
|                                                                                                         |  |                                        |         |  
|Net loss  pro forma                                                                                     |  | $                                      | (95,009 | )
|                                                                                                         |  |                                        |         |  
|Basic and diluted net loss per share  as reported                                                       |  | $                                      | (1.47   | )
|                                                                                                         |  |                                        |         |  
|Basic and diluted net loss per share  pro forma                                                         |  | $                                      | (1.85   | )
|                                                                                                         |  |                                        |         |  



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Valuation assumptions

The employee stock-based expense recognized under SFAS 123R and presented in the SFAS123 pro forma disclosure was determined using the Black-Scholes
model. The expected volatility for 2007 is a blended rate of 50% of historical volatility and 50% implied volatility since sufficient market activity exists with respect to our traded options. The expected volatility for awards in 2006 was based on
historical volatility only. The expected term of options granted is based on the simplified method in accordance with SAB 107 as our historical share option exercise experience does not provide a reasonable basis for estimation. The risk-free
interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Assumptions used in the Black-Scholes model were as follows:



|                                |  |                    |   |  |                     |   |  |      |   |  |      |   |  |      |   |  |      |  
|------------------------------- |  | ------------------ | - |  | ------------------- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                                |  | Stock Option Plans |   |  | Stock Purchase Plan |  
|                                |  | 2007               |   |  | 2006                |   |  | 2005 |   |  | 2007 |   |  | 2006 |   |  | 2005 |  
|Expected stock price volatility |  | 66.5               | % |  | 65.3                | % |  | 66.6 | % |  | 93.1 | % |  | 36.4 | % |  | 67.5 | %
|Risk-free interest rate         |  | 4.97               | % |  | 4.64                | % |  | 3.96 | % |  | 4.62 | % |  | 4.80 | % |  | 3.18 | %
|Expected life (in years)        |  | 5.6                |   |  | 6.08                |   |  | 5.02 |   |  | 1.25 |   |  | 0.89 |   |  | 1.26 |  
|Expected dividend yield         |  |                   |   |  |                    |   |  |     |   |  |     |   |  |     |   |  |     |  

Stock compensation expense for options granted to non-employees has been determined in accordance
with SFAS 123 and EITF 96-18, Accounting for Equity Investments that are issued to other than Employees for Acquiring, or in Conjunction with Selling Goods or Services, as the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measured. The fair value of options granted to non-employees is periodically re-measured as the underlying options vest.

7.    Income Taxes

We have
incurred net losses since inception and, consequently, have not recorded any U.S. federal and state income taxes. Deferred income taxes reflect the net tax effects of net operating loss and tax credit carryovers and temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows:



|                                 |  |                |          |   |      |   |          |  
|-------------------------------- |  | -------------- | -------- | - | ---- | - | -------- | -
|                                 |  | December 31,   |         
|                                 |  | 2007           |          |   | 2006 |  
|                                 |  | (in thousands) |         
|Deferred tax assets              |  |                |          |   |      |   |          |  
|Net operating loss carryforwards |  | $              | 144,663  |   |      | $ | 128,186  |  
|Tax credits carryforwards        |  |                | 20,502   |   |      |   | 30,004   |  
|Capitalized research expenses    |  |                | 12,245   |   |      |   | 11,540   |  
|Other                            |  |                | 7,810    |   |      |   | 4,739    |  
|                                 |  |                |          |   |      |   |          |  
|Total deferred tax assets        |  |                | 185,220  |   |      |   | 174,469  |  
|Valuation allowance              |  |                | (185,220 | ) |      |   | (174,469 | )
|                                 |  |                |          |   |      |   |          |  
|Net deferred tax assets          |  | $              |         |   |      | $ |         |  
|                                 |  |                |          |   |      |   |          |  



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The provision for income taxes differs from the expected tax expense computed by applying the statutory
federal income tax rate to loss before taxes as follows:



|                                             |  |                          |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                             |  | Years Ended December 31, |        
|                                             |  | 2007                     |         |   | 2006 |   |         | 2005 | 
|                                             |  | (in thousands)           |        
|Tax at Federal statutory rate                |  | $                        | (18,773 | ) |      | $ | (27,067 | )    |  | $ | (25,679 | )
|State tax, net of federal income tax benefit |  |                          | (3,210  | ) |      |   | (4,563  | )    |  |   | (4,384  | )
|Research and development credit              |  |                          | (2,283  | ) |      |   | (4,252  | )    |  |   | (4,922  | )
|Unbenefitted losses                          |  |                          | 23,377  |   |      |   | 34,657  |      |  |   | 34,802  |  
|Other individually immaterial items          |  |                          | 889     |   |      |   | 1,225   |      |  |   | 183     |  
|                                             |  |                          |         |   |      |   |         |      |  |   |         |  
|Provision for taxes                          |  | $                        |        |   |      | $ |        |      |  | $ |        |  
|                                             |  |                          |         |   |      |   |         |      |  |   |         |  

Realization of deferred tax assets is dependent upon the generation of future taxable income, the
timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $10.8 million, $34.7 million and $34.8 million during 2007, 2006 and 2005.

As of December 31, 2007, we had net operating loss carryforwards of approximately $399.2 million for federal and $153.9 million for
state income tax purposes. If not utilized, these carryforwards will begin to expire beginning in 2008 for both federal and state purposes. Approximately $9.6 million of the federal and $7.6 million of the state net operating loss carryforwards
represents the stock option deduction arising from activity under the companys stock option plan, the benefit of which will increase additional paid in capital when realized.

We have research credit carryforwards of approximately $16.2 million and $6.4 million for federal and state income tax purposes. If not utilized, the
federal credit will expire in various amounts beginning in 2008 through 2027. California state research and development credits can be carried forward indefinitely.

The Internal Revenue Code limits the use of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. In the event we have a change in ownership,
utilization of the carryforwards could be restricted.

Effective January 1, 2007, we adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement
recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. There was not a
material impact on the companys consolidated financial position and results of operations as a result of the adoption of the provisions of FIN 48. At December 31, 2007, we had a liability for unrecognized tax benefits of $9.8 million,
none of which, if recognized, would favorably affect the companys effective tax rate. We do not believe there will be any material changes in its unrecognized tax positions over the next twelve months.

Interest and penalty costs related to unrecognized tax benefits are classified as a component of Income Tax Expense in the accompanying
statement of operations and the corresponding liability in Income Taxes Payable or Prepaid Income Taxes in the accompanying balance sheet. We did not recognize any interest expense related to unrecognized tax benefits for the
year ended December 31, 2007.

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are
subject to U.S. federal income tax examination for calendar tax years ending 2004 through 2007. Additionally, we are subject to various state income tax examinations for the 2003 through 2007 calendar tax years.



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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



|                                            |  |                |        |  
|------------------------------------------- |  | -------------- | ------ | -
|                                            |  |                |       
|                                            |  | (in thousands) |       
|Balance at January 1, 2007                  |  | $              | 14,202 |  
|Additions for tax positions of prior years  |  |                | NIL    |  
|Additions for tax positions related to 2007 |  |                | NIL    |  
|Reductions for tax positions of prior years |  |                | (4,391 | )
|Settlements during the current year         |  |                | NIL    |  
|                                            |  |                |        |  
|Balance at December 31, 2007                |  | $              | 9,811  |  
|                                            |  |                |        |  

8.    Contingencies

Beginning on June 6, 2007, a series of putative securities class action lawsuits were commenced in the United States District Courts for the Southern
District of New York and the Northern District of California, naming as defendants Telik, Inc. and certain of our current officers, one of whom is also a director. The complaints filed in the Southern District of New York, which were consolidated
and amended in 2007, also name as defendants the underwriters of our November 2003 and/or January 2005 stock offerings. Plaintiffs in the Northern District of California subsequently voluntarily dismissed their complaints without prejudice. All of
the complaints allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 arising out of the issuance of allegedly false and misleading statements about our business and prospects, including the efficacy, safety and
likelihood of success of our drug TELCYTA. The allegations of the consolidated amended complaint are similar, but more narrow than the original complaints. Plaintiffs seek unspecified damages and injunctive relief on behalf of purchasers of our
common stock during the period between March 27, 2003 and June 4, 2007, including purchasers in the January 2005 stock offering.

In January 2008, the parties to the securities class action reached an agreement in principle to settle the claims. This agreement is contingent on a number of factors, including confirmatory discovery and court approval. As such, the
ultimate outcome of the class action cannot presently be determined. It is currently anticipated that the settlement will be funded primarily by proceeds from insurance.

In August 2007, a separate party who claims to be an owner of our common stock filed a derivative action on behalf of the company against certain of our current and former directors. The allegations are similar to
those made in the class action regarding the development of TELCYTA; however, it seeks a recovery only on behalf of the company. In January 2008, the plaintiff voluntarily dismissed this complaint without prejudice.



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9.     Quarterly Financial Information (unaudited)

Selected quarterly financial information is summarized below (in thousands except per share amounts):



|                                                                                |  |         |         |   |         |   |         |         |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | ------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                |  | 2007    |         |   | 2006    |  
|Quarter ended                                                                   |  | Dec. 31 |         |   | Sep. 30 |   |         | Jun. 30 |  |   | Mar. 31 |   |  | Dec. 31 |         |   | Sep. 30 |   |         | Jun. 30 |  |   | Mar. 31 |  
|Total revenues                                                                  |  | $       |        |   |         | $ |        |         |  | $ |        |   |  | $       |        |   |         | $ |        |         |  | $ |        |   |  | $ |        |   |  | $ |        |  
|Operating costs and expenses:                                                   |  |         |         |   |         |   |         |         |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |         |  
|Research and development                                                        |  |         | 8,832   |   |         |   | 9,387   |         |  |   | 11,869  |   |  |         | 12,944  |   |         |   | 16,341  |         |  |   | 18,487  |   |  |   | 19,036  |   |  |   | 17,658  |  
|General and administrative                                                      |  |         | 4,649   |   |         |   | 3,661   |         |  |   | 3,979   |   |  |         | 3,652   |   |         |   | 3,156   |         |  |   | 4,063   |   |  |   | 4,560   |   |  |   | 4,509   |  
|Restructuring costs (1)                                                         |  |         |        |   |         |   |        |         |  |   | (33     | ) |  |         | 1,389   |   |         |   |        |         |  |   |        |   |  |   |        |   |  |   |        |  
|                                                                                |  |         |         |   |         |   |         |         |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |         |  
|Total operating costs and expenses                                              |  |         | 13,481  |   |         |   | 13,048  |         |  |   | 15,815  |   |  |         | 17,985  |   |         |   | 19,497  |         |  |   | 22,550  |   |  |   | 23,596  |   |  |   | 22,167  |  
|                                                                                |  |         |         |   |         |   |         |         |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |         |  
|Loss from operations                                                            |  |         | (13,481 | ) |         |   | (13,048 | )       |  |   | (15,815 | ) |  |         | (17,985 | ) |         |   | (19,497 | )       |  |   | (22,550 | ) |  |   | (23,596 | ) |  |   | (22,167 | )
|Interest income, net (2)                                                        |  |         | 560     |   |         |   | 1,399   |         |  |   | 1,492   |   |  |         | 1,663   |   |         |   | 1,922   |         |  |   | 2,077   |   |  |   | 2,096   |   |  |   | 2,091   |  
|                                                                                |  |         |         |   |         |   |         |         |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |         |  
|Net loss                                                                        |  | $       | (12,921 | ) |         | $ | (11,649 | )       |  | $ | (14,323 | ) |  | $       | (16,322 | ) |         | $ | (17,575 | )       |  | $ | (20,473 | ) |  | $ | (21,500 | ) |  | $ | (20,076 | )
|                                                                                |  |         |         |   |         |   |         |         |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |         |  
|Net loss per share, basic and diluted (3)                                       |  | $       | (0.25   | ) |         | $ | (0.22   | )       |  | $ | (0.27   | ) |  | $       | (0.31   | ) |         | $ | (0.34   | )       |  | $ | (0.39   | ) |  | $ | (0.41   | ) |  | $ | (0.38   | )
|Weighted average shares used in computing net loss per share, basic and diluted |  |         | 52,693  |   |         |   | 52,574  |         |  |   | 52,490  |   |  |         | 52,408  |   |         |   | 52,362  |         |  |   | 52,303  |   |  |   | 52,255  |   |  |   | 52,162  |  



|(1) |  | One time restructuring charge related to workforce reduction by 38 positions or 25% of workforce.
|--- |  | -------------------------------------------------------------------------------------------------

|(2) |  | The quarter ended December 31, 2007 included a write-down expense of $733,000 of three investments due to changes in market conditions resulting in an other-than-temporary
impairment.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Net loss per share for each quarter are calculated as a discrete period; the sum of four quarters may not equal the calculated full year amount.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------



75