##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number
    001-33054
 Trubion Pharmaceuticals,
    Inc.
 (Exact name of registrant as
    specified in its charter)
  DELAWARE(State or other jurisdiction
    of
    incorporation or organization)

52-2385898(IRS Employer
    Identification No.)2401 FOURTH AVENUE, SUITE 1050
    SEATTLE, WASHINGTON(Address of
    registrants principal executive offices)

98121(Zip
    Code)   (206) 838-0500
 (Telephone number, including area code)
      Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCOMMON STOCK, $0.001 PAR VALUE

NASDAQ GLOBAL MARKET   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





TRUBION
    PHARMACEUTICALS, INC.
  2008
    Form 10-K
    Annual Report
  Table of
    Contents
   
 PageNo.PART IItem 1


Business


2Item 1A


Risk Factors


21Item 1B


Unresolved Staff Comments


36Item 2


Properties


36Item 3


Legal Proceedings


36Item 4


Submission of Matters to a Vote of Security
    Holders


36PART IIItem 5


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


37Item 6


Selected Financial Data


39Item 7


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


40Item 7A


Quantitative and Qualitative Disclosures About
    Market Risk


50Item 8


Financial Statements and Supplementary Data


51Item 9


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


51Item 9A


Controls and Procedures


51Item 9B


Other Information


53PART IIIItem 10


Directors, Executive Officers and Corporate
    Governance


53Item 11


Executive Compensation


53Item 12


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


53Item 13


Certain Relationships and Related Transactions,
    and Director Independence


54Item 14


Principal Accountant Fees and Services


54PART IVItem 15


Exhibits and Financial Statement Schedules


54Signatures


57EX-23.1EX-31.1EX-31.2EX-32




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PART I  Forward-Looking
    Statements
  Form 10-K Form 10-Q Form 8-K.
  ITEM 1.
    BUSINESS  Overview
  first-in-class best-in-class tm
    tm
  and/or
 2




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##### Table of Contents




    TRU-015 for the Treatment of Rheumatoid
    Arthritis.  According to Datamonitor, RA is
    estimated to affect approximately 5.2 million people in the
    United States, Japan and Europe. In 2008, total reported
    worldwide sales of protein therapeutics used for the treatment
    of RA were greater than $17 billion. Wyeth has completed a
    Phase 2b clinical trial of TRU-015 for the treatment of RA, and
    a second Phase 2b clinical trial is under way.
    SBI-087 for the Treatment of Rheumatoid
    Arthritis.  In collaboration with us, our partner,
    Wyeth, has commenced a Phase 1 SBI-087 dose escalation clinical
    trial designed to evaluate the safety, tolerability,
    pharmacokinetics, or PK, and pharmacodynamics, or PD, of a
    single dose of SBI-087 in patients with RA.
    SBI-087 for the Treatment of Systemic Lupus
    Erythematosus.  According to Datamonitor, SLE is
    estimated to affect 236,000 people in the United States.
    The prevalence of SLE varies significantly on a
    country-by-country
    basis. Our partner, Wyeth, has filed an IND for SBI-087 for the
    treatment of SLE. Currently, no protein therapeutics have been
    approved specifically for the treatment of SLE.
    TRU-016 for the Treatment of B-cell
    Malignancies.  According to the National Cancer
    Institute, CLL is estimated to affect 70,000 people in the
    United States. Approximately 10,000 new cases of CLL are
    diagnosed each year according to the American Cancer Society, or
    ACS, and it estimates that 15,110 new cases of CLL were
    diagnosed in the United States during 2008. Approximately
    4,390 people died of CLL in the United States during 2008.
    In addition, according to the ACS, NHL is one of the most common
    types of cancer accounting for about 4% of all cancers. About
    66,120 people are expected to be diagnosed with NHL in
    2008. Total reported worldwide sales of
    Rituxan®/Mabthera®

    surpassed $5 billion in 2008. Rituxan is approved for the
    treatment of NHL and RA, and is used for CLL. Our TRU-016
    product candidate targets CD37 for the treatment of B-cell
    malignancies such as CLL and NHL. TRU-016 uses a different
    mechanism of action than CD20-directed therapies. As a result,
    we believe its novel design may improve patients
    therapeutic options and enhance efficacy when used alone or in
    combination with chemotherapy
    and/or
    CD20-directed therapeutics. Patient dosing has commenced in a
    Phase 1/2 clinical trial for patients with CLL.    product-by-product country-by-country
  Product
    Technologies
  tm tm tm
 3




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first-in-class best-in-class
  SMIPtmProtein Therapeutics
    
    Customizable Biological Activity.  SMIP product
    candidates can be specifically engineered to provide a precise
    balance of complement dependent cytotoxicity, or CDC,
    and/or
    antibody-dependent cellular cytotoxicity, or ADCC, mediated
    activity. We believe our ability to customize this balance of
    biological activities will result in safer and more effective
    immunopharmaceuticals.
    Customizable Half-Life.  SMIP product
    candidates can be specifically engineered to have an optimal
    half-life, an indication of the time effective concentrations
    are maintained in vivo, for a given indication. This should
    permit them to be used in treating both acute and chronic
    disease indications.
    Improved Biodistribution.  SMIP product
    candidates have a particle size that is approximately one-half
    the size of mAbs. Smaller molecules have been demonstrated to
    penetrate tissues more readily, which we believe will provide
    increased therapeutic benefits.
    Reliable Manufacturing.  SMIP product
    candidates can be produced at large scale in mammalian cell
    expression systems from readily available starting materials. 4




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
    Biological Activity.  Our SMIP product
    candidates are assembled by selecting from our polypeptide
    libraries a hinge domain and an effector domain designed to
    elicit specific biological activity. For example, one desired
    biological activity may be for the immune system to kill the
    cell on which the target antigen is present. We select a unique
    hinge domain and effector domain combination based on the
    targeted disease to trigger the death of the cell to which the
    SMIP product candidate is bound. This can be through the
    initiation of the complement cascade causing CDC, by recruiting
    other immune cells to kill the cell through ADCC, or by using an
    engineered balance of both activities. In addition, the
    combination of hinge domain and effector domain may be
    engineered to generate cellular signals through the antigen
    target leading to, for example, the death of the cell through
    apoptosis or programmed cell death.
    Binding Activity.  Selected hinge domain and
    effector domain are paired with an appropriate binding domain
    from our polypeptide libraries. The binding domain recognizes
    and attaches to a specific antigen target, which results in
    initiation of the desired biological activity. Examples of
    target antigens include cell surface receptors on target cells
    such as B cells. The binding domain may be composed of any
    polypeptide that specifically recognizes and binds to the target
    antigen. Examples of binding domains include polypeptide ligands
    such as hormones, cytokines, chemokines, or cell surface or
    soluble receptors for such polypeptide ligands, as well as
    binding domains derived from immunogloulin molecules such as
    single chain Fv polypeptides.  SCORPIONtmProtein Therapeutics
  and/or  first-in-class best-in-class
 5




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TRU-ADhanCetmTechnology
    Limitations
    of Other Immunopharmaceuticals
    Our
    Product Candidates
      Product Candidate

Disease Indication

Development Stage

PartnerTRU-015

RA


    2nd Phase

    2b

WyethSBI-087

RA

   Phase 1/2 trial enrolling

WyethSLE

   IND open

WyethTRU-016

CLL

   Phase 1/2 trial enrolling

None   TRU-015
   6




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TRU-015
  Rheumatoid
    Arthritis
  Background.
  Potential Market.
  Current Treatments. ® ® ® ® ® ®
  TRU-015 for RA Clinical Trial Results.
 7




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Clinical
    Response Maintained During Re-treatment: Phase 1/2a Study
    (15001)
  
  B-cell
    Recovery Following Re-treatment: Phase 1/2a Study
    (15001)
  
   8




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FDA Approved CD20-Directed Therapies in
    RA. ®
  TRU-015 for RA Ongoing Clinical
    Development.
  SBI-087
    Rheumatoid
    Arthritis
  Background.
  SBI-087 for RA Ongoing Clinical
    Development.
  Systemic
    Lupus Erythematosus
  Background.
   9




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Potential Market. country-to-country
  Current Treatment. and/or
  SBI-087 for SLE Planned Clinical
    Development.
  Commercialization
    Rights
    TRU-016
  B-cell and/or
  B-cell
    Malignancies: Chronic Lymphocytic Leukemia and
    Non-Hodgkins Lymphoma
  Background.
  tm ®
  Potential Market.
 10




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®
  Current Treatments. ® ® ®
  TRU-016:
    Superior Efficacy in Indolent NHL Model
  Survival
    Rate
    Tumor-Free
    Percentage  
  TRU-016 for CLL Ongoing Clinical
    Development.
  Our
    Strategic Collaboration With Wyeth
  product-by-product country-by-country
   11




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agreed-upon
    target-by-target
    and/or and/or
   12




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Competition
    
    design and develop products that are superior to other products
    in the market;
    successfully collaborate with others in the design, development
    and commercialization of new products;
    attract and retain qualified scientific, medical, product
    development, commercial and sales and marketing personnel;
    obtain patent
    and/or other
    proprietary protection for our processes, product candidates and
    technologies;
    operate without infringing the patents and proprietary rights of
    third parties; and
    obtain required regulatory approvals.    tm and/or
  Product Candidates for Autoimmune and Inflammatory
    Diseases. ® ® ® ® ®
    Product Candidates for B-cell Malignancies.
 13




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® ® ® ®
  Intellectual
    Property
    tm tm tm
     14




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and/or
   15




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No. EP-B-1176981,
    Manufacturing
     16




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Government
    Regulation
    United
    States Government Regulation
    BLA
    and NDA Approval Process
      
    completion of laboratory tests and animal studies under the
    FDAs good laboratory practices regulations;
    submission to the FDA of an IND for human clinical testing,
    which must become effective before human clinical trials may
    begin;
    performance of adequate and well-controlled clinical trials to
    establish the safety and efficacy of the product for each
    indication;
    submission to the FDA of a BLA or NDA, which includes the
    results of all required preclinical animal studies, laboratory
    tests, clinical trials, and data relating to the products
    pharmacology, chemistry, manufacture, and control;
    satisfactory completion of an FDA inspection of the
    manufacturing facility or facilities at which the product is
    produced to assess compliance with cGMP; and
    FDA review and approval of the BLA or NDA.   17




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
    evaluate dosage tolerance and appropriate dosage;
    identify possible adverse effects and safety risks; and
    evaluate preliminarily the efficacy of the drug for specific
    indications.         18




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Priority
    Review
    six-month
  Post-Approval
    Requirements
        Foreign
    Regulation
     19




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Reimbursement
          Employees
    Available
    Information
  www.trubion.com.
   20




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ITEM 1A.
    RISK
    FACTORS  Form 10-K Form 10-Q Form 8-K.
  Risks
    Related to Our Business
  If we
    fail to obtain the capital necessary to fund our operations, we
    may be unable to develop our product candidates and we could be
    forced to share our rights to these product candidates with
    third parties on terms that may not be favorable to
    us.
    We
    have incurred operating losses in each year since our inception
    and expect to continue to incur substantial and increasing
    losses for the foreseeable future.
    Our
    success depends on the success of our clinical product
    candidates, TRU-015, TRU-016, and SBI-087, and we cannot be
    certain that they will be safe or effective, complete clinical
    trials, receive regulatory approval, or be successfully
    commercialized.
   21




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We
    depend on our collaborative relationship with Wyeth to develop,
    manufacture, and commercialize TRU-015, SBI-087, and other
    selected product candidates.
  target-by-target
   22




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The
    pending acquisition of Wyeth by Pfizer could have an adverse
    effect on our collaboration with Wyeth or on our development of
    TRU-015, SBI-087 and other products in development under the
    Wyeth collaboration agreement.
    Our
    success is dependent on the proper management of our current and
    future business operations, and the expenses associated with
    them.
   23




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Our
    restructuring may place additional strain on our resources and
    may harm the morale and performance of our
    personnel.
    We
    currently rely on third-party manufacturers to supply our
    product candidates and will rely on third-party manufacturers to
    manufacture our product candidates in commercial quantities,
    which could delay or prevent the clinical development and future
    commercialization of our product candidates.
    scale-up
   24




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We
    cannot assure you any of our product candidates will be safe or
    effective, or receive regulatory approval.
    Any
    failure or delay in commencing or completing clinical trials for
    product candidates could severely harm our
    business.
    
    having the capital resources available to fund additional
    clinical trials;
    our or our collaborators ability to obtain regulatory
    approval to commence a clinical trial;
    our or our collaborators ability to manufacture or obtain
    from third parties materials sufficient for use in preclinical
    studies and clinical trials;
    delays in patient enrollment and variability in the number and
    types of patients available for clinical trials;
    poor effectiveness of product candidates during clinical trials; 25




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
    unforeseen safety issues or side effects;
    governmental or regulatory delays related to clinical trials,
    including trial design, results, and materials supply;
    changes in regulatory requirements, policy, and
    guidelines; and
    varying interpretation of data by us, any or all of our
    collaborators, the FDA, and similar foreign regulatory agencies.    We
    rely on third parties to conduct our clinical trials. If these
    third parties do not perform as contractually required or
    otherwise expected, we may not be able to obtain regulatory
    approval for or commercialize our product
    candidates.
    If we
    enter into additional strategic partnerships, such as our
    relationship with Wyeth, we may be required to relinquish
    important rights to and control over the development of our
    product candidates or otherwise be subject to terms unfavorable
    to us.
    
    we may not be able to control the amount and timing of resources
    that our strategic partners devote to the development or
    commercialization of product candidates;
    strategic partners may delay clinical trials, design clinical
    trials in a manner with which we do not agree, provide
    insufficient funding, terminate a clinical trial or abandon a
    product candidate, repeat or conduct new clinical trials, or
    require a new version of a product candidate for clinical
    testing;
    strategic partners may not pursue further development and
    commercialization of products resulting from the strategic
    partnering arrangement or may elect to discontinue research and
    development programs;
    strategic partners may not commit adequate resources to the
    marketing and distribution of any future products, limiting our
    potential revenues from these products;
    disputes may arise between us and our strategic partners that
    result in the delay or termination of the research, development,
    or commercialization of our product candidates or that result in
    costly litigation or arbitration that diverts managements
    attention and consumes resources;
    strategic partners may experience financial difficulties; 26




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
    strategic partners may not properly maintain or defend our
    intellectual property rights or may use our proprietary
    information in a manner that could jeopardize or invalidate our
    proprietary information or expose us to potential litigation;
    business combinations or significant changes in a strategic
    partners business strategy may also adversely affect a
    strategic partners willingness or ability to complete its
    obligations under any arrangement;
    strategic partners could independently move forward with a
    competing product candidate developed either independently or in
    collaboration with others, including our competitors; and
    strategic partners could terminate the arrangement or allow it
    to expire, which would delay the development and may increase
    the cost of developing our product candidates.    Our
    relationship with Wyeth may have a negative effect on our
    ability to enter into beneficial relationships with third
    parties.
    If our
    technology or our product candidates conflict with the rights of
    others we may not be able to manufacture or market our product
    candidates, which could have a material adverse effect on us and
    on our collaboration agreement with Wyeth.
  tm
 27




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If we
    are unable to obtain, maintain, and enforce our proprietary
    rights, we may not be able to compete effectively or operate
    profitably.
    
    obtain and maintain patent and other proprietary protection for
    our technology, processes, and product candidates;
    enforce patents once issued and defend those patents if their
    enforceability is challenged;
    preserve trade secrets; and
    operate without infringing the patents and proprietary rights of
    third parties.    
    we might not have been the first to make the inventions claimed
    in our patents, if issued, or disclosed in our pending patent
    applications;
    we might not have been the first to file patent applications for
    these inventions;
    others may independently develop similar or alternative
    technologies or duplicate any of our technologies;
    it is possible that none of our pending patent applications will
    result in issued patents or, if issued, these patents may not be
    sufficient to protect our technology or provide us with a basis
    for commercially viable products, and may not provide us with
    any competitive advantages;
    if our pending applications issue as patents, they may be
    challenged by third parties as not infringed, invalid, or
    unenforceable under U.S. or foreign laws;
    if issued, the patents under which we hold rights may not be
    valid or enforceable; or
    we may develop additional proprietary technologies that are not
    patentable and that may not be adequately protected through
    trade secrets, if, for example, a competitor were to
    independently develop duplicative, similar, or alternative
    technologies. 28




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We may
    incur substantial costs as a result of litigation or other
    proceedings relating to patent and other intellectual property
    rights.
   29




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We
    face substantial competition, which may result in others
    discovering, developing, or commercializing products before, or
    more successfully than, we do.
    Product Candidates for Autoimmune and Inflammatory
    Diseases. ® ® ® ® ®
  Product Candidates for B-cell Malignancies. ® ® ® ®
    
    design and develop products that are superior to other products
    in the market;
    attract and retain qualified scientific, medical, product
    development, commercial, and sales and marketing personnel;
    obtain patent
    and/or other
    proprietary protection for our processes, product candidates,
    and technologies;
    operate without infringing the patents and proprietary rights of
    third parties;
    obtain required regulatory approvals; and
    successfully collaborate with others in the design, development,
    and commercialization of new products.   30




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We may
    fail to select or capitalize on the most scientifically,
    clinically, or commercially promising or profitable product
    candidates.
    Even
    if our product candidates receive regulatory approval, they
    could be subject to restrictions or withdrawal from the market
    and we may be subject to penalties if we fail to comply with
    regulatory requirements or if we experience unanticipated
    problems with our products.
    
    restrictions on the products or manufacturing processes;
    withdrawal of the products from the market;
    voluntary or mandatory recalls;
    fines;
    suspension of regulatory approvals;
    product seizures; or
    injunctions or the imposition of civil or criminal penalties.    Failure
    to obtain regulatory approval in foreign jurisdictions would
    prevent us from marketing our products
    internationally.
  non-U.S. jurisdictions,
 31




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Our
    product candidates may never achieve market acceptance even if
    we obtain regulatory approvals.
    
    our ability to provide acceptable evidence of safety and
    efficacy;
    the prevalence and severity of adverse side effects;
    availability, relative cost, and relative efficacy of
    alternative and competing treatments;
    the effectiveness of our marketing and distribution strategy;
    publicity concerning our products or competing products and
    treatments; and
    our ability to obtain sufficient third-party insurance coverage
    or reimbursement.    If we
    are unable to establish a sales and marketing infrastructure or
    enter into collaborations with partners to perform these
    functions, we will not be able to commercialize our product
    candidates.
    
    our inability to recruit and retain adequate numbers of
    effective sales and marketing personnel;
    the inability of sales personnel to obtain access to or persuade
    adequate numbers of physicians to prescribe our products;
    the lack of complementary products to be offered by sales
    personnel, which may put us at a competitive disadvantage
    relative to companies with more extensive product lines; and
    unforeseen costs and expenses associated with creating a sales
    and marketing organization.    If any
    products we develop become subject to unfavorable pricing
    regulations, third-party reimbursement practices, or healthcare
    reform initiatives, our business could be harmed.
   32




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We
    face potential product liability exposure, and if successful
    claims are brought against us, we may incur substantial
    liability for a product candidate and may have to limit its
    commercialization.
    
    decreased demand for our product candidates;
    impairment of our business reputation;
    withdrawal of clinical trial participants;
    costs of related litigation;
    substantial monetary awards to patients or other claimants;
    loss of revenues; and
    the inability to commercialize our product candidates.    We
    could be required to pay significant cancellation fees for
    reserved manufacturing capacity under our manufacturing
    agreement with Lonza.
   33




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We
    rely on highly skilled personnel, and if we are unable to retain
    or motivate key personnel or hire qualified personnel, we may
    not be able to maintain our operations or grow
    effectively.
    If we
    use biological and hazardous materials in a manner that causes
    contamination or injury or violates laws, we may be liable for
    damages.
    Risks
    Related to Our Common Stock
  The
    trading price of our common stock may be subject to significant
    fluctuations and volatility, and our stockholders may be unable
    to resell their shares at a profit.
  intra-day intra-day
  
    low trading volumes;
    our ability to develop and market new and enhanced product
    candidates on a timely basis;
    announcements by us or our collaborators or competitors of new
    commercial products, clinical progress or the lack thereof,
    changes in or terminations of relationships, significant
    contracts, commercial relationships, or capital commitments;
    commencement of, or our involvement in, litigation;
    changes in earnings estimates or recommendations by securities
    analysts; 34




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
    changes in governmental regulations or in the status of our
    regulatory approvals;
    any major change in our board or management;
    quarterly variations in our operating results or those of our
    collaborators or competitors;
    general economic conditions and slow or negative growth of our
    markets; and
    political instability, natural disasters, war,
    and/or
    events of terrorism.    If
    securities analysts do not publish research or reports about our
    business, or if they downgrade our stock, the price of our stock
    could decline.
    The
    concentration of our capital stock ownership with insiders will
    likely limit your ability to influence corporate
    matters.
    Anti-takeover
    provisions in our charter documents and under Delaware law could
    make an acquisition of us, which may be beneficial to our
    stockholders, more difficult and may prevent attempts by our
    stockholders to replace or remove our current
    management.
   35




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We are
    exposed to potential risks from legislation requiring companies
    to evaluate controls under Section 404 of the
    Sarbanes-Oxley Act.
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    ITEM 3.
    LEGAL
    PROCEEDINGS    No. EP-B-1176981,
  ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   36




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PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Market
    Information for Common Stock
      High


LowYear ended December 31, 2008First Quarter

$
12.55


$
5.99Second Quarter

$
8.80


$
4.39Third Quarter

$
5.40


$
3.32Fourth Quarter

$
3.67


$
1.01Year ended December 31, 2007First Quarter

$
21.99


$
17.38Second Quarter

$
21.50


$
17.14Third Quarter

$
20.20


$
11.22Fourth Quarter

$
13.27


$
9.91   Stockholders
    Dividend
    Policy
   37




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Stock
    Performance Graph
      
   10/18/2006


12/29/2006


3/31/2007


6/29/2007


9/28/2007


12/31/2007


3/31/2008


6/30/2008


9/30/2008


12/31/2008Trubion Pharmaceuticals, Inc.


$
100.00



$
137.59



$
150.42



$
159.51



$
92.67



$
76.39



$
72.12



$
33.54



$
25.36



$
9.78Nasdaq Stock Market Index


$
100.00



$
87.97



$
84.03



$
84.89



$
107.66



$
141.40



$
110.46



$
75.86



$
87.34



$
70.60Nasdaq Biotechnology Index


$
100.00



$
99.47



$
96.80



$
100.00



$
106.44



$
104.03



$
97.29



$
98.85



$
104.16



$
90.89   Recent
    Sales of Unregistered Securities
   38




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##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA    Year Ended December 31,2008


2007


2006


2005


2004(In thousands, except per share data)Statements of Operations Data:Revenue:Collaboration revenue

$
16,467


$
20,148


$
36,530


$
222


$
Grant revenue














127



294Total revenue


16,467



20,148



36,530



349



294Operating expenses:Research and development


31,608



36,466



33,309



15,212



11,640General and administrative


11,374



10,833



9,473



4,146



2,851Total operating expenses


42,982



47,299



42,782



19,358



14,491Loss from operations


(26,515
)


(27,151
)


(6,252
)


(19,009
)


(14,197
)Net interest income (expense)


956



3,837



2,222



278



(16
)Other income (expense)










101



(134
)


Loss before cumulative effect of change in accounting principle


(25,559
)


(23,314
)


(3,929
)


(18,865
)


(14,213
)Cumulative effect of change in accounting principle














(62
)


Net loss

$
(25,559
)

$
(23,314
)

$
(3,929
)

$
(18,927
)

$
(14,213
)Basic and diluted net loss per share

$
(1.43
)

$
(1.32
)

$
(0.83
)

$
(23.30
)

$
(22.47
)Shares used in computation of basic and diluted net loss per
    share


17,856



17,688



4,744



812



633     (1)
    
    Effective January 1, 2006, we adopted the fair value
    recognition provisions of Statement of Financial Accounting
    Standards, or SFAS, 123R, Share-Based Payment, which
    requires the measurement and recognition of compensation
    expenses for all future share-based payments made to employees
    and directors be based on estimated fair values. For the years
    ended December 31, 2008, 2007, and 2006, we recorded
    non-cash stock-based employee compensation expense of
    $3.2 million, $2.9 million and $3.9 million,
    respectively. See Note 10 of the Notes to Financial
    Statements for further discussion.  At December 31,2008


2007


2006


2005


2004(In thousands)Balance Sheet Data:Cash, cash equivalents and investments

$
52,897


$
78,515


$
105,801


$
9,792


$
13,944Receivable from collaboration


3,084



4,237



4,354



40,000



Working capital


45,287



69,132



93,188



37,881



11,503Total assets


67,290



95,174



121,394



54,009



17,738Deferred revenue


19,493



24,854



31,778



39,778



Non-current portion of notes payable


8,261



7,567



6,708



1,276



1,198Preferred stock warrant liability














282



Convertible preferred stock














45,753



33,809Total stockholders equity (deficit)


31,468



53,313



72,654



(37,902
)


(20,962
)  39




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##### Table of Contents



ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  The following discussion and analysis should be read in
    conjunction with our audited financial statements and the
    related notes thereto that appear elsewhere in this annual
    report. This discussion contains forward-looking statements
    reflecting our current expectations that involve risks and
    uncertainties. Actual results may differ materially from those
    discussed in these forward-looking statements due to a number of
    factors, including those set forth in the section entitled
    Risk Factors and elsewhere in this annual report.
  Overview
  first-in-class best-in-class tm
      and/or
  product-by-product country-by-country
   40




---



##### Table of Contents



agreed-upon
    and/or and/or
         41




---



##### Table of Contents



Critical
    Accounting Policies and Significant Judgments and
    Estimates
  Form 10-K.
  Form 10-K.
  Revenue
    Recognition
    Up-Front Fees and License Fee.
 42




---



##### Table of Contents



Collaborative Research Funding.
  Milestones.
  Preclinical
    Study, Clinical Trial and Manufacturing Accruals
    
    fees paid to contract research organizations in connection with
    preclinical studies;
    fees paid to clinical research organizations and other clinical
    sites in connection with clinical trials; and
    fees paid to contract manufacturers in connection with the
    production of components and drug materials for preclinical
    studies and clinical trials.   43




---



##### Table of Contents



Stock-Based
    Compensation
  Share-Based
    Payment
    Year Ended December 31,2008

2007

2006Risk-free interest rate

2.80%  3.40%

3.78%  4.78%

4.57%  5.04%Weighted-average
    expected life (in years)

6.04

6.14

6.00Expected dividend yield

0%

0%

0%Expected volatility rate

70%  74%

65%  75%

75%Weighted-average estimated fair value of employee options

$5.29

$12.87

$15.39       Valuation
    of Investments
   44




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##### Table of Contents



Recently
    Adopted Accounting Pronouncements
  Fair Value Measurements,
  No. 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 EITF 07-3. EITF 07-3
  Recent
    Accounting Pronouncements
  No. 07-1, Accounting for Collaborative Arrangements Related to the
    Development and Commercialization of Intellectual Property, EITF 07-1. EITF 07-1 EITF 07-1 EITF 07-1
  Results
    of Operations for the Years Ended December 31, 2008, 2007
    and 2006
  Revenue
   45




---



##### Table of Contents



Research
    and Development Expenses
          Year Ended December 31,2008


2007


2006Research and preclinical programs

$
20,257


$
21,344


$
14,856Clinical development programs


11,351



15,122



18,453Total research and development

$
31,608


$
36,466


$
33,309  46




---



##### Table of Contents



TRU-016 1 2
    tm tm
  General
    and Administrative Expenses
   47




---



##### Table of Contents



Net
    Interest Income
    Income
    Taxes
    Liquidity
    and Capital Resources
    Operating Activities.
  Investing Activities.
 48




---



##### Table of Contents



Financing Activities.
  84-month
        
    the terms and timing of any additional collaborative or
    licensing agreements that we may establish;
    the ability to raise capital through strategic partnerships or
    in the debt/equity markets;
    milestone payments projected to be received under the Wyeth
    collaboration agreement; 49




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##### Table of Contents




    the scope, rate of progress, results and costs of our
    preclinical testing, clinical trials, and other research and
    development activities;
    the number of programs we pursue;
    the cost of preparing, filing, prosecuting, defending, and
    enforcing any patent claims and other intellectual property
    rights;
    the cost of establishing clinical and commercial supplies of our
    product candidates;
    the cost, timing, and outcomes of regulatory approvals; and
    the extent to which we acquire or invest in businesses,
    products, or technologies.      Payments Due by PeriodTotal


1 Year


2-3 Years


4-5 Years


ThereafterNotes payable (including interest)

$
11,369


$
1,838


$
3,487


$
6,044


$
Manufacturing commitment


2,100



2,100











Operating lease obligations


6,429



1,495



2,966



1,968



Total

$
19,898


$
5,433


$
6,453


$
8,012


$
   Off-Balance
    Sheet Arrangements
    ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK     50




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##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA    ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Evaluation of Disclosure Controls and
    Procedures.
  Internal Control Over Financial
    Reporting. Rules 13a-15(f) 15d-15(f).
    Internal
    Control  Integrated Framework
     51




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm on Internal
    Control Over Financial Reporting
                 
    52




---



##### Table of Contents



ITEM 9B.
    OTHER
    INFORMATION         PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS   53




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##### Table of Contents



ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  Financial Statements
    Page No.Report of Independent Registered Public
    Accounting Firm


59Balance Sheets


60Statements of Operations


61Statement of Convertible Preferred Stock and
    Stockholders Equity (Deficit)


62Statement of Cash Flows


65Notes to Financial Statements


66   Financial Statement Schedules
    Exhibits
  ExhibitNumber

Description3
.1(1)

Amended and Restated Certificate of Incorporation
    (exhibit 3.1)3
.2(11)

Amended and Restated Bylaws (exhibit 3.1)4
.1(2)

Form of common stock certificate (exhibit 4.1)4
.2(1)

Amended and Restated Investor Rights Agreement, dated
    July 13, 2004 (exhibit 4.2)4
.3(1)

Amendment No. 1 to Amended and Restated Investor Rights
    Agreement, dated December 19, 2005 (exhibit 4.3)10
.1(1)+

Form of Indemnification Agreement entered into between the
    registrant and its directors and officers (exhibit 10.1)10
.2(1)+

2002 Stock Plan (exhibit 10.2)10
.3(1)+

Form of Stock Option Agreement under the 2002 Stock Plan
    (exhibit 10.3)10
.4(1)+

2002 Equity Incentive Plan (exhibit 10.4)10
.5(1)+

Form of Stock Option Agreement under the 2002 Equity Incentive
    Plan (exhibit 10.5)10
.6(2)+

2006 Equity Incentive Plan (exhibit 10.6)10
.7(2)+

Form of Stock Option Agreement under the 2006 Equity Incentive
    Plan (exhibit 10.7)10
.8(1)

Lease Agreement between the registrant and Selig Real Estate
    Holdings Eight, dated April 28, 2003 (exhibit 10.8) 54




---



##### Table of Contents



ExhibitNumber

Description10
.9(1)

Amendment to Lease Agreement between the registrant and Selig
    Real Estate Holdings Eight, dated December 8, 2004
    (exhibit 10.9)10
.10(1)

Amendment to Lease Agreement between the registrant and Selig
    Real Estate Holdings Eight, dated February 1, 2006
    (exhibit 10.10)10
.11(10)

Amendment to Lease Agreement between the registrant and Selig
    Real Estate Holdings Eight, L.L.C, dated February 2, 2007
    (exhibit 10.1)10
.12(3)

Collaboration and License Agreement between the registrant and
    Wyeth, acting through Wyeth Pharmaceuticals Division, dated
    December 19, 2005 (exhibit 10.11)10
.13(5)

Amendment No. 1 to the Collaboration and License Agreement
    between the registrant and Wyeth, acting through Wyeth
    Pharmaceuticals Division, dated November 30, 2006
    (exhibit 10.12)10
.14(1)

Common Stock Purchase Agreement between the registrant and
    Wyeth, dated December 19, 2005 (exhibit 10.12)10
.15(10)

Novation Agreement effective as of January 1, 2007, among
    the registrant, Lonza Biologics, Inc. and Lonza Sales AG,
    effective January 1, 2007 (exhibit 10.3)10
.16(7)+

Employment Agreement between the registrant and Peter A.
    Thompson, M.D., FACP dated March 21, 2008
    (exhibit 10.1)10
.17(7)+

Employment Agreement between the registrant and Michelle Burris
    dated March 21, 2008 (exhibit 10.2)10
.18(7)+

Employment Agreement between the registrant and Daniel J. Burge
    dated March 21, 2008 (exhibit 10.3)10
.19(7)+

Employment Agreement between the registrant and Kathleen
    McKereghan Deeley dated March 21, 2008 (exhibit 10.4)10
.20(7)+

Employment Agreement between the registrant and Kendall M.
    Mohler, Ph.D. dated March 21, 2008 (exhibit 10.5)10
.21(8)

Form of Amendment No. 1 to Employment Agreement between the
    registrant and each Executive Officer (exhibit 10.1)10
.22(1)

Consulting Agreement with Lee R. Brettman, M.D., FACP,
    dated January 1, 2003 (exhibit 10.31)10
.23(1)

Letter from Oxford Finance Corporation, dated April 2, 2003
    (exhibit 10.33)10
.24(1)

Letter from Oxford Finance Corporation, dated November 3,
    2004 (exhibit 10.34)10
.25(1)

Master Security Agreement with Oxford Finance Corporation, dated
    June 18, 2003 (exhibit 10.35)10
.26(1)

Form of Oxford Finance Corporation Promissory Note
    (exhibit 10.36)10
.27(1)

Technology & Investment Agreement by and among the
    registrant, Jeffrey A. Ledbetter, Ph.D., Martha
    Hayden-Ledbetter, Ph.D., and the Pacific Northwest Research
    Institute, dated December 31, 2001 (exhibit 10.39)10
.28(4)

Independent Contractor Agreement between the registrant and
    Martha Hayden-Ledbetter, Ph.D., dated May 1, 2004
    (exhibit 10.40)10
.29(9)

Loan and Security Agreement between the registrant and Silicon
    Valley Bank, dated July 25, 2008 (exhibit 99.1)10
.30(6)

First Amendment to Loan and Security Agreement between the
    registrant and Comerica Bank, entered into as of July 24,
    2007 (exhibit 10.1)23
.1*

Consent of Independent Registered Public Accounting Firm24
.1*

Power of Attorney (included on signature page)31
.1*

Certification of Chief Executive Officer of Trubion
    Pharmaceuticals, Inc., Pursuant to Exchange Act
    Rules 13a-14(a)
    and 15d-14(a), as Adopted Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002 55




---



##### Table of Contents



ExhibitNumber

Description31
.2*

Certification of Chief Financial Officer of Trubion
    Pharmaceuticals, Inc., Pursuant to Exchange Act
    Rules 13a-14(a)
    and 15d-14(a), as Adopted Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 200232
*

Certification of Chief Executive Officer and Chief Financial
    Officer of Trubion Pharmaceuticals, Inc., Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002     *
    
    Filed herewith(1)
    
    Incorporated by reference to the designated exhibit to the
    registrants Registration Statement on
    Form S-1
    filed with the SEC on June 2, 2006 (File
    No. 333-134709).(2)
    
    Incorporated by reference to the designated exhibit to the
    registrants Registration Statement on
    Form S-1
    filed with the SEC on October 2, 2006 (File
    No. 333-134709).(3)
    
    Incorporated by reference to the designated exhibit to the
    registrants Registration Statement on
    Form S-1
    filed with the SEC on October 5, 2006 (File
    No. 333-134709).(4)
    
    Incorporated by reference to the designated exhibit to the
    registrants Registration Statement on
    Form S-1
    filed with the SEC on July 18, 2006 (File
    No. 333-134709).(5)
    
    Incorporated by reference to the designated exhibit to the
    registrants Annual Report on
    Form 10-K
    filed with the SEC on March 26, 2007 (File
    No. 001-33054).(6)
    
    Incorporated by reference to the designated exhibit to the
    registrants Current Report on
    Form 8-K
    filed with the SEC on July 26, 2007 (File
    No. 001-33054).(7)
    
    Incorporated by reference to the designated exhibit to the
    registrants Current Report on
    Form 8-K
    filed with the SEC on March 25, 2008 (File
    No. 001-33054).(8)
    
    Incorporated by reference to the designated exhibit to the
    registrants Current Report on
    Form 8-K/A
    filed with the SEC on April 8, 2008 (File
    No. 001-33054).(9)
    
    Incorporated by reference to the designated exhibit to the
    registrants Current Report on
    Form 8-K
    filed with the SEC on July 29, 2008 (File
    No. 001-33054).(10)
    
    Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on
    Form 10-Q
    filed with the SEC on August 7, 2008 (File
    No. 001-33054).(11)
    
    Incorporated by reference to the designated exhibit to the
    registrants Current Report on
    Form 8-K
    filed with the SEC on November 26, 2008 (File
    No. 001-33054).
    
    Portions of the agreement are subject to confidential treatment+
    
    Executive Compensation Plan or Agreement 56




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##### Table of Contents



SIGNATURES    TRUBION PHARMACEUTICALS, INC.
  By:
    /s/  Peter
    A. Thompson   President, Chief Executive Officer and
 Chairman of the Board of Directors
      Signature

Title

Date/s/  Peter
    A. ThompsonPeter
    A. Thompson, M.D., FACP

President, Chief Executive Officer, Chairman of the Board and
    Director (Principal Executive Officer)

March 12, 2009/s/  Michelle
    G. BurrisMichelle
    G. Burris

Senior Vice President and Chief Financial Officer (Principal
    Accounting and Financial Officer)

March 12, 2009/s/  Lee
    R. BrettmanLee
    R. Brettman, M.D., FACP

Director

March 12, 2009/s/  Patrick
    J. HeronPatrick
    J. Heron

Director

March 12, 2009/s/  Anders
    D. HoveAnders
    D. Hove, M.D.

Director

March 12, 2009/s/  Steven
    GillisSteven
    Gillis, Ph.D.

Director

March 12, 2009/s/  David
    A. MannDavid
    A. Mann

Director

March 12, 2009 57




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##### Table of Contents



Signature

Title

Date/s/  Samuel
    R. SaksSamuel
    R. Saks, M.D.

Director

March 12, 2009/s/  David
    SchnellDavid
    Schnell, M.D.

Director

March 12, 2009  58




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm           07-3, Accounting for Nonrefundable Advance Payments for Goods or
    Services Received for Use in Future Research and Development
    Activities
  Internal Control  Integrated Framework
  
    59




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##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  BALANCE
    SHEETS
  December 31,2008


2007(In thousands, except share and par value)ASSETSCurrent assets:Cash and cash equivalents

$
29,969


$
41,827Investments


22,928



36,688Receivable from collaboration


3,084



4,237Prepaid expenses


2,112



1,224Total current assets


58,093



83,976Property and equipment, net


9,190



11,163Other assets


7



35Total assets

$
67,290


$
95,174LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
301


$
1,031Accrued liabilities


4,981



3,337Accrued compensation


1,169



2,022Current portion of notes payable


1,302



2,426Current portion of deferred rent


180



180Current portion of deferred revenue


4,873



5,848Total current liabilities


12,806



14,844Non-current portion of notes payable


8,261



7,567Non-current portion of deferred rent


135



315Non-current portion of deferred revenue


14,620



19,006Interest rate swap liability






129Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value per share; shares
    authorized  5,000,000 at December 31, 2008 and
    2007; issued and outstanding  none at
    December 31, 2008 and 2007






Common stock, $0.001 par value per share; shares
    authorized  150,000,000; outstanding 
    17,882,307 and 17,792,170 at December 31, 2008 and 2007,
    respectively


18



18Additional paid-in capital


123,846



120,471Deferred stock-based compensation


(30
)


(294
)Accumulated other comprehensive income


103



28Accumulated deficit


(92,469
)


(66,910
)Total stockholders equity


31,468



53,313Total liabilities and stockholders equity

$
67,290


$
95,174    60




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  STATEMENTS
    OF OPERATIONS
  Year Ended December 31,2008


2007


2006(In thousands, except per share data)Revenue:Collaboration revenue

$
16,467


$
20,148


$
36,530Operating expenses:Research and development


31,608



36,466



33,309General and administrative


11,374



10,833



9,473Total operating expenses


42,982



47,299



42,782Loss from operations


(26,515
)


(27,151
)


(6,252
)Interest income


1,781



4,607



2,494Interest expense


(825
)


(770
)


(272
)Other income










101Net loss

$
(25,559
)

$
(23,314
)

$
(3,929
)Basic and diluted net loss per share

$
(1.43
)

$
(1.32
)

$
(0.83
)Shares used in computation of basic and diluted net loss per
    share


17,856



17,688



4,744    61




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##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  STATEMENT
    OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY
    (DEFECIT)
  AccumulatedOther





TotalConvertible








Additional


Deferred


Comprehensive





StockholdersPreferred Stock


Common Stock


Paid-in


Stock-Based


Income


Accumulated


EquityShares


Amount


Shares


Amount


Capital


Compensation


(Loss)


Deficit


(Deficit)(In thousands, except share and per share data)Balance at January 1, 2006


10,652,057


$
45,753



1,395,201


$
1


$
3,357


$
(1,591
)

$
(2
)

$
(39,667
)

$
(37,902
)Issuance of common stock upon exercise of stock options










93,167







94















94Stock-based compensation to non-employees at fair value


















834















834Vesting of non-employee restricted stock


















8















8Stock-based compensation expense


















3,573















3,573Amortization of deferred stock-based compensation






















530











530Reversal of deferred stock-based compensation due to employee
    terminations


















(132
)


132











Stock option modification


















230



79











309Conversion of preferred stock to common stock


(10,652,057
)


(45,753
)


10,652,057



11



45,742















45,753Net exercise of preferred stock warrants into common stock










13,893







181















181Issuance of common stock for cash in initial public offering,
    net of offering expenses of $7,020










4,600,000



5



52,775















52,780Issuance of common stock for cash in private placement offering










800,000



1



10,399















10,400Comprehensive lossUnrealized holding gain on
    available-for-sale
    securities


























23







23Net loss






























(3,929
)


(3,929
)Comprehensive loss


































(3,906
)Balance at December 31, 2006 (carried forward)





$




17,554,318


$
18


$
117,061


$
(850
)

$
21


$
(43,596
)

$
72,654    62




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##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  STATEMENT
    OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY
    (DEFECIT)  (Continued)
  AccumulatedOther





TotalConvertible








Additional


Deferred


Comprehensive





StockholdersPreferred Stock


Common Stock


Paid-in


Stock-Based


Income


Accumulated


EquityShares


Amount


Shares


Amount


Capital


Compensation


(Loss)


Deficit


(Deficit)(In thousands, except share and per share data)Balance at December 31, 2006 (brought forward)





$




17,554,318


$
18


$
117,061


$
(850
)

$
21


$
(43,596
)

$
72,654Issuance of common stock upon exercise of stock options










237,852







468















468Stock-based compensation to non-employees at fair value


















91















91Stock-based compensation expense


















2,881















2,881Amortization of deferred stock-based compensation






















526











526Reversal of deferred stock-based compensation due to employee
    terminations


















(30
)


30











Comprehensive lossChange in valuation of interest rate swap liability for the
    twelve months ended December 31, 2007


























(129
)






(129
)Unrealized holding gain on
    available-for-sale
    securities


























136







136Net loss






























(23,314
)


(23,314
)Comprehensive loss


































(23,307
)Balance at December 31, 2007 (carried forward)





$




17,792,170


$
18


$
120,471


$
(294
)

$
28


$
(66,910
)

$
53,313    63




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##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  STATEMENT
    OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY
    (DEFECIT)  (Continued)
  AccumulatedOther





TotalConvertible








Additional


Deferred


Comprehensive





StockholdersPreferred Stock


Common Stock


Paid-in


Stock-Based


Income


Accumulated


EquityShares


Amount


Shares


Amount


Capital


Compensation


(Loss)


Deficit


(Deficit)(In thousands, except share and per share data)Balance at December 31, 2007 (brought forward)





$




17,792,170


$
18


$
120,471


$
(294
)

$
28


$
(66,910
)

$
53,313Issuance of common stock upon exercise of stock options










90,137







91















91Stock-based compensation to non-employees at fair value


















106















106Stock-based compensation expense


















3,216















3,216Amortization of deferred stock-based compensation






















226











226Reversal of deferred stock-based compensation due to employee
    terminations


















(38
)


38











Comprehensive lossRealized loss on interest rate swap liability


























129







129Unrealized holding loss on
    available-for-sale
    securities


























(54
)






(54
)Net loss






























(25,559
)


(25,559
)Comprehensive loss


































(25,484
)Balance at December 31, 2008





$




17,882,307


$
18


$
123,846


$
(30
)

$
103


$
(92,469
)

$
31,468     64




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##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  STATEMENT
    OF CASH FLOWS
  Year Ended December 31,2008


2007


2006(In thousands)Operating activitiesNet loss

$
(25,559
)

$
(23,314
)

$
(3,929
)Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities:Non-cash stock-based compensation expense


3,548



3,498



5,246Depreciation and amortization


3,230



2,936



1,534Net amortization of premium (discount) on investments


81



(7
)


(366
)Amortization of debt discount


34



21



25Revaluation of warrants to fair value










(101
)Changes in operating assets and liabilities:Receivable from collaboration


1,153



117



35,646Prepaid expenses and other assets


(860
)


(354
)


(586
)Accounts payable


(730
)


(506
)


704Accrued liabilities and compensation


791



(1,658
)


5,071Deferred revenue


(5,361
)


(6,924
)


(8,000
)Deferred rent


(180
)


(180
)


(173
)Net cash provided by (used in) operating activities


(23,853
)


(26,371
)


35,071Investing activitiesPurchase of property and equipment


(1,257
)


(3,765
)


(7,970
)Purchase of investments


(64,385
)


(81,240
)


(95,663
)Sales of investments


20,255



4,458



Maturities of investments


57,755



89,624



51,776Net cash provided by (used in) investing activities


12,368



9,077



(51,857
)Financing ActivitiesProceeds from issuance of notes payable


10,000



3,516



6,458Payments on notes payable


(10,464
)


(1,277
)


(1,213
)Net proceeds from the initial public offering










52,780Proceeds from the private placement of common stock to Wyeth










10,400Proceeds from issuance of common stock and exercise of stock
    options


91



468



94Net cash provided by (used in) financing activities


(373
)


2,707



68,519Net increase (decrease) in cash and cash equivalents


(11,858
)


(14,587
)


51,733Cash and cash equivalents at beginning of year


41,827



56,414



4,681Cash and cash equivalents at end of year

$
29,969


$
41,827


$
56,414Supplemental disclosure information:Cash paid for interest

$
807


$
713


$
217Non-cash investing and financing activities:Conversion of preferred stock to common stock

$



$



$
45,753Net exercise of preferred stock warrants to common stock

$



$



$
181    65




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##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS
  1.
    Organization
    and Summary of Significant Accounting Policies  Organization
    first-in-class best-in-class tm
    Use of
    Estimates
    Fair
    Value of Financial Instruments
  available-for-sale
  Cash,
    Cash Equivalents and Investments
    available-for-sale.
 66




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##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  available-for-sale
  Property
    and Equipment
    Impairment
    of Long-Lived Assets
  Accounting for
    the Impairment or Disposal of Long-Lived Assets,
  Deferred
    Rent
    Revenue
    Recognition
      Up-Front Fees and License
    Fees.
 67




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Collaborative Research Funding.
  Milestones.
  Research
    and Development
  Accounting for Research and Development
    Costs No. 07-3, Accounting for Advance Payments for Goods or Services to Be
    Used in Future Research and Development Activities
  Income
    Taxes
  Accounting for Income Taxes,
  Accounting for
    Uncertainty in Income Taxes
   68




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##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Comprehensive
    Income (Loss)
      2008


2007Net unrealized gains on investments
    available-for-sale

$
103


$
157Net unrealized losses on cash flow hedges






(129
)Accumulated other comprehensive income

$
103


$
28   Stock-Based
    Compensation
  Share-Based Payment,
  Accounting for Stock-Based
    Compensation, Accounting for Stock-Based
    Compensation  Transition and Disclosure, No. 96-18, Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services, EITF 96-18.
  Concentration
    of Credit Risk
    Major
    Customers
    Recently
    Adopted Accounting Pronouncements
  Fair Value Measurements,
 69




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    No. 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 EITF 07-3. EITF 07-3
  Recent
    Accounting Pronouncements
  No. 07-1, Accounting for Collaborative Arrangements, EITF 07-1. EITF 07-1 EITF 07-1 EITF 07-1
  Reclassifications
    2.
    Fair
    Value Measurements  available-for-sale
   70




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##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
        Level 1


Level 2


Level 3


TotalMoney market funds

$
27,444


$



$



$
27,444Government and agency debt securities






12,424







12,424Corporate debt securities






13,003







13,003Total

$
27,444


$
25,427


$



$
52,871         3.
    Net Loss
    per Share    As of December 31,2008


2007


2006Stock options


2,093,940



1,551,968



1,587,626Common shares subject to repurchase










1,7302,093,940



1,551,968



1,589,356   4.
    Collaboration
    Agreement   71




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  product-by-product country-by-country
    agreed-upon
   72




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    5.
    Investments    Gross


GrossAmortized


Unrealized


Unrealized


Estimated FairDecember 31, 2008

Cost


Gains


Losses


Market ValueCorporate debt securities

$
12,940


$
63


$



$
13,003Government securities


12,383



41







12,424Money market funds


27,123











27,123Total


52,446



104







52,550Less: cash equivalents


(29,614
)


(8
)






(29,622
)Amounts classified as investments

$
22,832


$
96


$



$
22,928   Gross


GrossAmortized


Unrealized


Unrealized


Estimated FairDecember 31, 2007

Cost


Gains


Losses


Market ValueCorporate debt securities

$
38,026


$
158


$
(1
)

$
38,183Money market funds


36,654











36,654Total


74,680



158



(1
)


74,837Less: cash equivalents


(38,149
)










(38,149
)Amounts classified as investments

$
36,531


$
158


$
(1
)

$
36,688      73




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  6.
    Property
    and Equipment    December 31,2008


2007Lab equipment

$
10,495


$
8,874Leasehold improvements


6,611



6,528Computer equipment and software


1,141



990Furniture and fixtures


447



447Construction in progress


40



63818,734



17,477Accumulated depreciation and amortization


(9,544
)


(6,314
)$
9,190


$
11,163     7.
    Accrued
    Liabilities    December 31,2008


2007Accrued clinical trials

$
2,979


$
1,553Accrued manufacturing


933



83Accrued professional fees


556



941Other


513



760$
4,981


$
3,337   8.
    Notes
    Payable  Equipment Financing Arrangements  84-month
 74




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
          NotesPayableYear ending December 31, 2009

$
1,3132010


1,2942011


1,3722012


1,4532013


4,172Total payments

$
9,604   9.
    Commitments
    and Contingencies  Operating
    Lease Commitments
   75




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    OperatingLeasesYear ending December 31, 2009

$
1,4952010


1,4902011


1,4762012


1,4762013


492Total minimum lease payments

$
6,429       Manufacturing
    Commitments
    Guarantees
    and Indemnifications
  Guarantors Accounting and
    Disclosure Requirements for Guarantees, Including Indirect
    Guarantees of Indebtedness of Others.
       76




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  10.
    Convertible
    Preferred Stock and Stockholders Equity
    (Deficit)  Preferred
    Stock
    Common
    Stock
      Exercise
    of Warrants
    Equity
    Incentive Plans
   77




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
      Weighted-Weighted-


AverageAverage


RemainingShares





Exercise


Contractual


AggregateAvailable


Options


Price per


Life


Intrinsicfor Grant


Granted


Share


(In Years)


ValueBalance at January 1, 2006


60,622



974,151



0.63Authorized increase in Plan


1,136,542







Granted at less than fair value


(652,102
)


652,102



6.94Granted at fair value


(73,700
)


73,700



16.45Exercised






(93,167
)


1.00Cancelled


19,160



(19,160
)


2.55Balance at December 31, 2006


490,522



1,587,626


$
3.90



8.34


$
22,449Authorized increase in Plan


877,716







Granted at fair value


(237,000
)


237,000



18.55Exercised






(237,852
)


1.97Cancelled


34,806



(34,806
)


5.79Balance at December 31, 2007


1,166,044



1,551,968


$
6.39



7.44


$
8,106Authorized increase in Plan


889,609







Granted at fair value


(770,375
)


770,375



8.21Exercised






(90,137
)


1.02Cancelled


138,266



(138,266
)


9.76Balance at December 31, 2008


1,423,544



2,093,940


$
7.07



7.51


$
513Vested and expected to vest at December 31, 2008






1,926,988


$
6.87



7.39


$
511Exercisable at December 31, 2008






1,284,655


$
5.56



6.73


$
507    78




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Options OutstandingWeighted-AverageRemainingContractual





Options ExercisableNumber of


Life


Aggregate


Number of


AggregateExercise Price per Share

Shares


(In Years)


Intrinsic Value


Shares


Intrinsic Value$0.07


91,532



3.74


$
112



91,532


$
112$0.32


415,197



5.68



401



409,537



395$2.70  $6.22


164,369



8.22







84,770



$6.53  $8.34


583,010



7.51







389,050



$8.98  $21.43


839,832



8.67







309,766



$0.07  $21.43


2,093,940



7.51


$
513



1,284,655


$
507   Employee
    Stock-Based Compensation
    Year Ended December 31, 2008G&A


R&D


TotalEmployee stock options granted prior to January 1, 2006

$
144


$
82


$
226Employee stock options granted on or subsequent to
    January 1, 2006


2,008



1,208



3,216Non-employee stock options


70



36



106$
2,222


$
1,326


$
3,548   Year Ended December 31, 2007G&A


R&D


TotalEmployee stock options granted prior to January 1, 2006

$
265


$
261


$
526Employee stock options granted on or subsequent to
    January 1, 2006


1,748



1,133



2,881Non-employee stock options


9



82



91$
2,022


$
1,476


$
3,498   Year Ended December 31, 2006G&A


R&D


TotalEmployee stock options granted prior to January 1, 2006

$
265


$
264


$
529Employee stock options granted on or subsequent to
    January 1, 2006(1)


2,218



1,665



3,883Non-employee stock options


70



764



834$
2,553


$
2,693


$
5,246     (1)
    
    Includes $309,000 related to the accelerated vesting of options
    in the first quarter of 2006. 79




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
   Employee
    Stock Options Granted Prior to January 1,
    2006
    Employee
    Stock Options Granted On or Subsequent to January 1,
    2006
          Year Ended December 31,2008


2007


2006Risk-free interest rate


2.80%-3.40
%


3.78%-4.78
%


4.57%-5.04
%Weighted-average expected life (in years)


6.04



6.14



6.00Expected dividend yield


0
%


0
%


0
%Expected volatility rate


70%-74
%


65%-75
%


75
%Weighted-average estimated fair value of employee options

$
5.29


$
12.87


$
15.39    80




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  Non-employee
    Stock-Based Compensation
  , EITF 96-18.
      Accounting for Stock Appreciation
    Rights and Other Variable Stock Option or Award Plans.
      OutstandingStockAwardsBalance at January 1, 2006


96,108Units granted


Units vested


(94,378
)Balance at December 31, 2006


1,730Units granted


Units vested


(1,730
)Balance at December 31, 2007


   11.
    401(k)
    Plan   81




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  12.
    Income
    Taxes      December 31,2008


2007Deferred tax assetsNet operating loss carryforwards

$
19,035


$
10,253Deferred revenue


6,823



8,699Stock compensation


1,377



888R&D tax credit carryforwards


1,978



1,445Other current assets and liabilities (net)


272



265Other non-current assets and liabilities (net)


1,442



627Less: Valuation allowance


(30,927
)


(22,177
)Net deferred tax asset (liability)

$



$
   13.
    Related
    Party Transactions    14.
    Subsequent
    Events   82




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  15.
    Quarterly
    Information (Unaudited)    March 31,


June 30,


September 30,


December 31,2008Revenue

$
3,963


$
4,468


$
3,766


$
4,270Total operating expenses


10,488



11,415



10,384



10,695Loss from operations


(6,525
)


(6,947
)


(6,618
)


(6,425
)Net loss


(5,968
)


(6,632
)


(6,582
)


(6,377
)Basic and diluted net loss per share


(0.33
)


(0.37
)


(0.37
)


(0.36
)2007Revenue

$
4,835


$
4,980


$
4,635


$
5,698Total operating expenses


10,946



13,452



11,455



11,446Loss from operations


(6,111
)


(8,472
)


(6,820
)


(5,748
)Net loss


(5,019
)


(7,455
)


(5,913
)


(4,927
)Basic and diluted net loss per share


(0.29
)


(0.42
)


(0.33
)


(0.28
)  83