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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, 2007oro

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
  o þ
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





TRUBION
    PHARMACEUTICALS, INC.
  2007
    Form 10-K
    Annual Report
  Table of
    Contents
   
 PageNo.PART IItem 1


Business


2Item 1A


Risk Factors


20Item 1B


Unresolved Staff Comments


34Item 2


Properties


35Item 3


Legal Proceedings


35Item 4


Submission of Matters to a Vote of Security
    Holders


35PART IIItem 5


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


36Item 6


Selected Financial Data


38Item 7


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


39Item 7A


Quantitative and Qualitative Disclosures About
    Market Risk


49Item 8


Financial Statements and Supplementary Data


49Item 9


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


49Item 9A


Controls and Procedures


49Item 9B


Other Information


52PART IIIItem 10


Directors, Executive Officers and Corporate
    Governance


52Item 11


Executive Compensation


52Item 12


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


52Item 13


Certain Relationships and Related Transactions,
    and Director Independence


52Item 14


Principal Accountant Fees and Services


52PART IVItem 15


Exhibits and Financial Statement Schedules


53Signatures


55EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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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
    and/or
    
    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 2007, total reported
    worldwide sales of protein therapeutics used for the treatment
    of RA were greater than $12.5 billion. In July 2007, we
    completed our Phase 2b clinical trial of TRU-015 for the
    treatment of RA. In November 2007, we announced the presentation
    of positive data from a Phase 2b trial that showed TRU-015 for 2




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RA provided statistically significant efficacy after a single
    infusion of 800 mg or 1600 mg. In addition, we also
    announced the presentation of data demonstrating that repeat
    administration with TRU-015 was well tolerated and resulted in a
    consistent pharmacokinetic and pharmacodynamic profile. We and
    our partner, Wyeth, have agreed on the design of the next
    clinical trial and patient dosing is expected to begin in the
    first half of 2008. The randomized, double-blind,
    placebo-controlled, multi-center trial will examine ways to
    further optimize efficacy while evaluating dosing schedule
    options. We believe this study has been designed in a way that
    could be supportive of a registration package.  
    TRU-015 for the Treatment of B-cell
    Malignancies.  According to the American Cancer
    Society, NHL is one of the most common types of cancer in the
    United States, with approximately 63,000 new cases diagnosed
    each year. Total reported worldwide sales of
    Rituxan®/Mabthera®
    surpassed $5 billion in 2007. Our partner, Wyeth, is also
    evaluating TRU-015 and other
    SMIPtm
    CD20 product candidates for the treatment of certain B-cell
    malignancies. In December 2007, Wyeth initiated a Phase 1/2
    nonrandomized, open label, uncontrolled, single-group assignment
    clinical trial designed to evaluate the safety and efficacy of
    TRU-015 in subjects with B-cell NHL.
    TRU-015 for the Treatment of Systemic Lupus
    Erythematosus.  According to Datamonitor, SLE is
    estimated to affect 236,000 people in the United States.
    Worldwide, the prevalence of SLE varies significantly on a
    country-by-country
    basis. Our partner, Wyeth, has filed an IND for TRU-015 for the
    treatment of SLE, and we expect clinical evaluation to begin in
    mid-2008. Currently, no protein therapeutics have been approved
    specifically for the treatment of SLE.
    TRU-016 for the Treatment of B-cell
    Malignancies.  Our TRU-016 product candidate
    targets CD37 for the treatment of B-cell malignancies such as
    CLL and NHL. We filed an IND for TRU-016 for the treatment of
    B-cell malignancies in the fourth quarter of 2007 and we expect
    to begin patient dosing in the first half of 2008.    tm tm product-by-product country-by-country
  agreed-upon
 3




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agreed-upon
  SMIPtm Custom Drug Assembly
  tm tm tm tm tm tm
  
    Customizable Biological
    Activity.  SMIPtm
    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.  SMIPtm
    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.  SMIPtm
    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.  SMIPtm
    product candidates can be produced at large scale in mammalian
    cell expression systems from readily available starting
    materials. 4




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SMIPtm Product Candidates: Design and Assembly
  tm tm tm
  
  
    Biological Activity.  Our
    SMIPtm
    product candidates are assembled by first selecting from our
    polypeptide libraries a Hinge Domainand an Effector
    Domaindesigned 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 Domainand Effector Domaincombination based on the targeted disease to trigger the
    death of the cell to which the
    SMIPtm
    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 Domainmay 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.  The next step in
    SMIPtm
    assembly is to pair a selected Hinge Domainand
    Effector Domainwith an appropriate Binding Domainfrom our polypeptide libraries. The Binding Domainrecognizes 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 Domainmay 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.  Limitations
    of Other Immunopharmaceuticals
   5




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Our
    Product Candidates
      Product Candidate

Disease Indication

Development Stage

PartnerTRU-015

RA

 2nd
    Phase 2b expected to begin in the first half of 2008

WyethNHL

 Phase 1/2

WyethSLE

 IND open

WyethTRU-016

CLL

 IND open

None   TRU-015
  TRU-015
  Rheumatoid
    Arthritis
  Background.
  Potential Market.
  Current Treatments.
 6




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® ® ® ® ® ®
  TRU-015 for RA Clinical Trial Results. TRU-015
      7




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B Cells
    (CD19+) Over Time by Cycle of Therapy
  
  
    The pattern of B cell depletion and recovery after retreatment
    was similar to that observed after initial course.  ACR
    Responses Over Time With Retreatment
  
  
    ACR responses were maintained with repeated dosing of TRU-015 at
    6-month intervals. 8




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FDA Approved CD20-Directed Therapies in
    RA. ® ® ® ® ®
  TRU-015 for RA Planned Clinical
    Development.
  B-cell
    Malignancies: Non-Hodgkins Lymphoma and Chronic
    Lymphocytic Leukemia
  Background.
  Potential Market. ® ® ® ®
  Current Treatments. ® ® ® ® ® ® ®
  TRU-015 for NHL Planned Clinical
    Development.
 9




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Systemic
    Lupus Erythematosus
  Background.
    Potential Market.
  Current Treatment. and/or
  TRU-015 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.
 10




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tm ®
  
  Planned Clinical Development.
  Other
    Product Candidates
    Our
    Strategic Collaboration With Wyeth
  tm tm product-by-product country-by-country
   11




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agreed-upon
  agreed-upon
    target-by-target
    Competition
    
    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; 12




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
    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.    tm and/or
  and/or
  Product Candidates for Autoimmune and Inflammatory
    Diseases. ® ® ® ® ®
  Product Candidates for Systemic Lupus
    Erythematosus.
  Product Candidates for B-cell Malignancies. B-cell ® ® ® ® ®
  Intellectual
    Property
     13




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tm
    tm
   14




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and/or
    No. EP-B-1176981,
   15




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Manufacturing
        Government
    Regulation
   16




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United
    States Government Regulation
    NDA
    and BLA Approval Process
      
    completion of preclinical laboratory tests, animal studies and
    formulation 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 an NDA or BLA, 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 NDA or BLA.     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.          Priority
    Review
   18




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Post-Approval
    Requirements
        Foreign
    Regulation
      Reimbursement
   19




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Employees
    Available
    Information
  www.trubion.com.
    ITEM 1A.
    RISK
    FACTORS  Form 10-K Form 10-Q Form 8-K.
 20




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Risks
    Related to Our Business
  Our
    success depends on the success of our lead product candidate,
    TRU-015, and we cannot be certain that it will be safe or
    effective, complete clinical trials, receive regulatory
    approval, or be successfully commercialized.
    We
    depend on our collaborative relationship with Wyeth to develop,
    manufacture, and commercialize our lead product candidate,
    TRU-015, and other selected product candidates.
  tm tm target-by-target
     21




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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.
    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
    cannot assure you that any of our product candidates will be
    safe or effective, or receive regulatory approval.
   22




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Any
    failure or delay in commencing or completing clinical trials for
    product candidates could severely harm our
    business.
    
    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;
    unforeseen safety issues or side effects;
    governmental or regulatory delays and 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.   23




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If our
    SMIPtmtechnology or our product candidates, including TRU-015,
    conflict with the rights of others, including Genentech
    intellectual property rights of which we are aware, 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.
  No. EP-B-1176981,
      tm
 24




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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 covered
    by any of our patents, if issued, or 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.   25




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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.
   26




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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
    commercialization of our product candidates
    scale-up
    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, 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; 27




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
    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;
    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.
  tm
  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 28




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
    injunctions or the imposition of civil or criminal penalties.    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.    Failure
    to obtain regulatory approval in foreign jurisdictions would
    prevent us from marketing our products
    internationally.
  non-U.S. jurisdictions,
  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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If any
    products we develop become subject to unfavorable pricing
    regulations, third-party reimbursement practices, or healthcare
    reform initiatives, our business could be harmed.
    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.   30




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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.
    TRU-015 Product Candidate. ® ® ® ® ®
  TRU-016 Product Candidate. TRU-016 ® ® ® ® ®
    
    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.    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.
   31




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
    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.    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.
    We may
    fail to select or capitalize on the most scientifically,
    clinically, or commercially promising or profitable product
    candidates.
    If we
    use biological and hazardous materials in a manner that causes
    contamination or injury or violates laws, we may be liable for
    damages.
   32




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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
  
    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;
    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.
   33




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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.
    Special
    Note Regarding Forward-Looking Statements
  Form 10-K,
  
    the therapeutic and commercial potential of TRU-015, TRU-016,
    and other
    SMIPtm
    drug candidates;
    the effectiveness of our custom drug assembly technology;
    the ability of
    SMIPtm
    product candidates to be produced at large-scale in mammalian
    cell expression systems from readily available starting
    materials;
    the benefits from our collaboration with Wyeth on our clinical
    development of TRU-015 and other therapeutics directed to CD20;
    future clinical development programs and the timing thereof;
    future clinical development plans;
    the details of the clinical trials and the timing thereof;
    the anticipated future size of the RA, SLE, CLL, and NHL markets;
    the timing of regulatory applications and action;
    payments and reimbursements we expect to receive;
    intellectual property rights and defenses to patent infringement
    claims;
    the extent to which our existing capital resources, together
    with interest thereon, will be sufficient to meet our financial
    obligations;
    future capital needs and expenditures;
    the adequacy of our current facilities to meet our near-term
    needs; and
    the future impact of a sudden change in market interest rates on
    our operating results and cash flows.  ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS   34




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ITEM 2.
    PROPERTIES    ITEM 3.
    LEGAL
    PROCEEDINGS    No. EP-B-1176981,
  ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   35




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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, 2007First Quarter

$
21.99


$
17.38Second Quarter

$
21.50


$
17.14Third Quarter

$
20.20


$
11.22Fourth Quarter

$
13.27


$
9.91Year ended December 31, 2006October 18, 2006  December 31, 2006

$
20.50


$
13.09   Stockholders
    Dividend
    Policy
   36




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Stock
    Performance Graph
      
   10/18/2006


12/29/2006


3/31/2007


6/29/2007


9/28/2007


12/31/2007Trubion Pharmaceuticals, Inc.


$
100.00



$
137.59



$
150.42



$
159.51



$
92.67



$
76.39Nasdaq Stock Market Index


$
100.00



$
87.97



$
84.03



$
84.89



$
107.66



$
141.40Nasdaq Biotechnology Index


$
100.00



$
99.47



$
96.80



$
100.00



$
106.44



$
104.03   Recent
    Sales of Unregistered Securities
   37




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##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA    Year Ended December 31,2007


2006


2005


2004


2003(In thousands, except per share data)Statements of Operations Data:Revenue:Collaboration revenue

$
20,148


$
36,530


$
222


$



$
Grant revenue










127



294



Total revenue


20,148



36,530



349



294



Operating expenses:Research and development


36,466



33,309



15,212



11,640



3,403General and administrative


10,833



9,473



4,146



2,851



2,294Total operating expenses


47,299



42,782



19,358



14,491



5,697Loss from operations


(27,151
)


(6,252
)


(19,009
)


(14,197
)


(5,697
)Net interest income (expense)


3,837



2,222



278



(16
)


116Other income (expense)






101



(134
)






Loss before cumulative effect of change in accounting principle


(23,314
)


(3,929
)


(18,865
)


(14,213
)


(5,581
)Cumulative effect of change in accounting principle










(62
)






Net loss

$
(23,314
)

$
(3,929
)

$
(18,927
)

$
(14,213
)

$
(5,581
)Basic and diluted net loss per share

$
(1.32
)

$
(0.83
)

$
(23.30
)

$
(22.47
)

$
(11.39
)Shares used in computation of basic and diluted net loss per
    share


17,688



4,744



812



633



490     (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, 2007 and 2006 we recorded non-cash
    stock-based employee compensation expense of $2.9 million
    and $3.9 million, respectively. See Note 10 of the
    Notes to Financial Statements for further discussion.  At December 31,2007


2006


2005


2004


2003(In thousands)Balance Sheet Data:Cash, cash equivalents and investments

$
78,515


$
105,801


$
9,792


$
13,944


$
7,105Receivable from collaboration


4,237



4,354



40,000







Deferred revenue


24,854



31,778



39,778







Working capital


69,132



93,188



37,881



11,503



6,188Total assets


95,174



121,394



54,009



17,738



11,369Non-current portion of notes payable


7,567



6,708



1,276



1,198



1,210Preferred stock warrant liability










282







Convertible preferred stock










45,753



33,809



13,740Total stockholders equity (deficit)


53,313



72,654



(37,902
)


(20,962
)


(6,538
)  38




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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 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
    tm tm product-by-product country-by-country
 39




---



##### Table of Contents



agreed-upon
  agreed-upon
             40




---



##### Table of Contents



Critical
    Accounting Policies and Significant Judgments and
    Estimates
  Form 10-K.
  Form 10-K.
  Revenue
    Recognition
      Up-Front Fees and License
    Fees:
  Collaborative Research Funding:
 41




---



##### Table of Contents



Milestones:
  Royalties:
  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.    Stock-Based
    Compensation
  Share-Based Payment Accounting for Stock Issued to
    Employees Accounting for Certain
    Transactions Involving Stock Compensation, an interpretation of
    APB 25 Accounting for
    Stock-Based Compensation, Accounting for Stock-Based
 42




---



##### Table of Contents



Compensation  Transition and Disclosure.
        Valuation
    of Investments
    Recent
    Accounting Pronouncements
  Fair
    Value Measurements,
  The Fair Value
    Option for Financial Assets and Financial Liabilities, including
    an amendment of FASB Statement No. 115
 43




---



##### Table of Contents



No. 07-3 Accounting for Nonrefundable Advance Payments for Goods or
    Services to Be Used in Future Research and Development
    Activities, EITF 07-3. EITF 07-3 07-3
  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, 2007, 2006,
    and 2005
  Revenue.
     44




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##### Table of Contents



Research
    and Development Expenses.
          Year Ended December 31,2007


2006


2005Research and preclinical programs

$
21,344


$
14,856


$
7,787Clinical development programs


15,122



18,453



7,425Total research and development

$
36,466


$
33,309


$
15,212      45




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##### Table of Contents



tm tm
  General
    and Administrative Expenses.
    Net
    Interest Income.
    Income
    Taxes
    Liquidity
    and Capital Resources
   46




---



##### Table of Contents



Operating Activities:
  Investing Activities:
  Financing Activities:
     47




---



##### Table of Contents




    expenditures related to continued preclinical and clinical
    development of our product candidates during this period will be
    within budgeted levels;
    unexpected costs related to the development of our manufacturing
    capability will not be material; and
    the hiring of a number of new employees will be at salary levels
    consistent with our estimates to support our continued growth
    during this period.    
    milestone payments projected to be received under the Wyeth
    collaboration agreement;
    the scope, rate of progress, results, and costs of our
    preclinical testing, clinical trials, and other research and
    development activities;
    the terms and timing of any additional collaborative or
    licensing agreements that we may establish;
    the cost, timing, and outcomes of regulatory approvals;
    the number and characteristics of product candidates that we
    pursue;
    the hiring of a number of new employees will be at salary levels
    consistent with our estimates to support our continued growth
    during this period;
    the cost of establishing clinical and commercial supplies of our
    product candidates;
    the cost of preparing, filing, prosecuting, defending and
    enforcing any patent claims and other intellectual property
    rights; and
    the extent to which we acquire or invest in businesses, products
    or technologies, although we currently have no commitments or
    agreements relating to any of these types of transactions.   48




---



##### Table of Contents



Payments Due by PeriodTotal


1 Year


2-3 Years


4-5 Years


ThereafterNotes payable (including interest)

$
11,710


$
3,081


$
4,898


$
3,731


$
Operating lease obligations


7,920



1,491



2,985



2,952



492Total

$
19,630


$
4,572


$
7,883


$
6,683


$
492   Off-Balance
    Sheet Arrangements
    ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      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.
 49




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##### Table of Contents



Internal Control Over Financial
    Reporting. Rules 13a-15(f) 15d-15(f).
    Internal
    Control  Integrated Framework
     50




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm on Internal
    Control  Over Financial Reporting
                 
    51




---



##### 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    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   52




---



##### 



PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  Financial Statements
     
 PageNo.Report of Independent Registered Public
    Accounting Firm


56Balance Sheets


57Statements of Operations


58Statement of Convertible Preferred Stock and
    Stockholders Equity (Deficit)


59Statement of Cash Flows


62Notes to Financial Statements


63    Financial Statement Schedules
    Exhibits
  ExhibitNumber

Description3
.1(1)

Amended and Restated Certificate of Incorporation
    (exhibit 3.1)3
.2(1)

Amended and Restated Bylaws (exhibit 3.2)3
.3(8)

Amendment to 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 to be 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)10
.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(3)

Collaboration and License Agreement between the registrant and
    Wyeth, acting through Wyeth Pharmaceuticals Division, dated
    December 19, 2005 (exhibit 10.11)10
.12(6)

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
.13(1)

Common Stock Purchase Agreement between the registrant and
    Wyeth, dated December 19, 2005 (exhibit 10.12)10
.14(1)+

Amended and Restated Employment Agreement between the registrant
    and Peter A. Thompson, M.D., dated March 29, 2006
    (exhibit 10.29)10
.15(1)+

Offer Letter with Michelle Burris, dated January 20, 2006
    (exhibit 10.30)10
.16(1)

Consulting Agreement with Lee R. Brettman, M.D., dated
    January 1, 2003 (exhibit 10.31) 53




---



##### Table of Contents



ExhibitNumber

Description10
.17(1)

Restricted Stock Purchase Agreement with Lee R.
    Brettman, M.D., dated January 28, 2004
    (exhibit 10.32)10
.18(1)

Letter from Oxford Finance Corporation, dated April 2, 2003
    (exhibit 10.33)10
.19(1)

Letter from Oxford Finance Corporation, dated November 3,
    2004 (exhibit 10.34)10
.20(1)

Master Security Agreement with Oxford Finance Corporation, dated
    June 18, 2003 (exhibit 10.35)10
.21(1)

Form of Oxford Finance Corporation Promissory Note
    (exhibit 10.36)10
.22(1)

Technology and Investment Agreement by and among the registrant,
    Jeffrey A. Ledbetter, Martha Hayden-Ledbetter and the
    Pacific Northwest Research Institute, dated December 31,
    2001 (exhibit 10.39)10
.23(4)

Independent Contractor Agreement between the registrant and
    Martha Hayden-Ledbetter dated May 1, 2004
    (exhibit 10.40)10
.24(5)

Loan and Security Agreement between the registrant and Comerica
    Bank, dated September 12, 2006 (exhibit 10.38)10
.26(7)

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 200231
.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 200299
.1(5)

Opposition Brief filed August 8, 2006     *
    
    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 Registration Statement on
    Form S-1
    filed with the SEC on September 22, 2006 (File
    No. 333-134709).(6)
    
    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).(7)
    
    Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on
    Form 10-Q
    filed with the SEC on July 26, 2007 (File No.
    001-33054).(8)
    
    Incorporated by reference to the designated exhibit to the
    registrants Current Report on
    Form 8-K
    filed with the SEC on April 4, 2007 (File No. 001-33054)
    
    Portions of the agreement are subject to confidential treatment+
    
    Executive Compensation Plan or Agreement 54




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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 13, 2008/s/  Michelle
    G. BurrisMichelle
    G. Burris

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

March 13, 2008/s/  Lee
    R. BrettmanLee
    R. Brettman

Director

March 13, 2008/s/  Patrick
    J. HeronPatrick
    J. Heron

Director

March 13, 2008/s/  Anders
    D. HoveAnders
    D. Hove, M.D.

Director

March 13, 2008/s/  Steven
    GillisSteven
    Gillis, Ph.D.

Director

March 13, 2008 55




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##### Table of Contents



Signature

Title

Date/s/  David
    A. MannDavid
    A. Mann

Director

March 13, 2008/s/  Samuel
    R. SaksSamuel
    R. Saks

Director

March 13, 2008/s/  David
    SchnellDavid
    Schnell, M.D.

Director

March 13, 2008  56




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm           Accounting for
    Uncertainty in Income Taxes  an interpretation of
    FASB Statement No. 109 Share-Based
    Payment
  Internal Control  Integrated Framework
      57




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##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  BALANCE
    SHEETS
  December 31,2007


2006(In thousands, except share and par value)ASSETSCurrent assets:Cash and cash equivalents

$
41,827


$
56,414Investments


36,688



49,387Receivable from collaboration


4,237



4,354Prepaid expenses


1,224



792Total current assets


83,976



110,947Property and equipment, net


11,163



10,334Other assets


35



113Total assets

$
95,174


$
121,394LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
1,031


$
1,537Accrued liabilities


3,337



5,666Accrued compensation


2,022



1,351Current portion of notes payable


2,426



1,025Current portion of deferred rent


180



180Current portion of deferred revenue


5,848



8,000Total current liabilities


14,844



17,759Non-current portion of notes payable


7,567



6,708Non-current portion of deferred rent


315



495Non-current portion of deferred revenue


19,006



23,778Interest rate swap liability


129



Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value per share; shares
    authorized  5,000,000 at December 31, 2007 and
    2006; issued and outstanding  none at
    December 31, 2007 and 2006






Common stock, $0.001 par value per share; shares
    authorized  150,000,000; outstanding 
    17,792,170 and 17,554,318 at December 31, 2007 and 2006,
    respectively


18



18Additional paid-in capital


120,471



117,061Deferred stock-based compensation


(294
)


(850
)Accumulated other comprehensive income


28



21Accumulated deficit


(66,910
)


(43,596
)Total stockholders equity


53,313



72,654Total liabilities and stockholders equity

$
95,174


$
121,394    58




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  STATEMENTS
    OF OPERATIONS
  Year Ended December 31,2007

2006

2005(In thousands, except per share data)RevenueCollaboration revenue

$
20,148


$
36,530


$
222Grant revenue










127Total revenue


20,148



36,530



349Operating expenses:Research and development*


36,466



33,309



15,212General and administrative*


10,833



9,473



4,146Total operating expenses


47,299



42,782



19,358Loss from operations


(27,151
)


(6,252
)


(19,009
)Interest income


4,607



2,494



478Interest expense


(770
)


(272
)


(200
)Other income (expense)






101



(134
)Loss before cumulative effect of change in accounting principle


(23,314
)


(3,929
)


(18,865
)Cumulative effect of change in accounting principle










(62
)Net loss

$
(23,314
)

$
(3,929
)

$
(18,927
)Basic and diluted net loss per share

$
(1.32
)

$
(0.83
)

$
(23.30
)Shares used in computation of basic and diluted net loss per
    share


17,688



4,744



812* Includes non-cash stock-based compensation as follows:Research and development

$
1,476


$
2,693


$
1,079General and administrative


2,022



2,553



748Total non-cash stock-based compensation

$
3,498


$
5,246


$
1,827    59




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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, 2005


7,918,378


$
33,809



925,033


$
1


$
(211
)

$



$
(12
)

$
(20,740
)

$
(20,962
)Issuance of common stock upon exercise of stock options










462,194







145















145Issuance of Series B convertible preferred stock for $4.39
    per share, $3 in financing costs


2,733,679



12,000











(3
)














(3
)Issuance of Series B convertible preferred stock warrants
    issued in connection with issuance of notes payable






5



























Reclassification of convertible preferred stock warrants to
    liabilities (Note 2)






(61
)


























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


















836















836Issuance and vesting of non-employee restricted stock










7,974







4















4Vesting of employee restricted stock


















4















4Issuance of stock options to employees


















2,582



(2,582
)










Amortization of deferred stock-based compensation






















991











991Unrealized holding gain on available-for-sale securities for the
    year ended December 31, 2005


























10







10Net loss for the year ended December 31, 2005






























(18,927
)


(18,927
)Comprehensive loss


































(18,917
)Balance at December 31, 2005 (carried forward)


10,652,057


$
45,753



1,395,201


$
1


$
3,357


$
(1,591
)

$
(2
)

$
(39,667
)

$
(37,902
)  60




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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, 2005 (brought forward)


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















10,400Unrealized holding gain on available-for-sale securities for the
    year ended December 31, 2006


























23







23Net loss for the year ended December 31, 2006






























(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  61




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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











Change 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 for the
    year ended December 31, 2007


























136







136Net loss for the year ended December 31, 2007






























(23,314
)


(23,314
)Comprehensive loss


































(23,307
)Balance at December 31, 2007





$




17,792,170


$
18


$
120,471


$
(294
)

$
28


$
(66,910
)

$
53,313    62




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##### Table of Contents





TRUBION
    PHARMACEUTICALS, INC.
  STATEMENT
    OF CASH FLOWS
  Year Ended December 31,2007


2006


2005(In thousands)Operating activitiesNet loss

$
(23,314
)

$
(3,929
)

$
(18,927
)Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities:Non-cash stock-based compensation expense


3,498



5,246



1,827Depreciation and amortization


2,936



1,534



928Net amortization of discount on investments


(7
)


(366
)


(58
)Amortization of debt discount


21



25



17Revaluation of warrants to fair value






(101
)


196Changes in operating assets and liabilities:Receivable from collaboration


117



35,646



(40,000
)Grant receivable










294Prepaid expenses and other assets


(354
)


(586
)


(13
)Accounts payable


(506
)


704



234Accrued liabilities and compensation


(1,658
)


5,071



651Deferred revenue


(6,924
)


(8,000
)


39,778Deferred rent


(180
)


(173
)


(172
)Net cash provided by (used in) operating activities


(26,371
)


35,071



(15,245
)Investing activitiesPurchase of property and equipment


(3,765
)


(7,970
)


(1,515
)Purchase of investments


(81,240
)


(95,663
)


(18,563
)Sales of investments


4,458







Maturities of investments


89,624



51,776



23,327Net cash provided by (used in) investing activities


9,077



(51,857
)


3,249Financing ActivitiesProceeds from issuance of notes payable


3,516



6,458



1,401Payments on notes payable


(1,277
)


(1,213
)


(889
)Net proceeds from the initial public offering






52,780



Proceeds from the private placement of common stock to Wyeth






10,400



Proceeds from issuance of convertible preferred stock, net of
    issuance costs










11,997Proceeds from issuance of common stock and exercise of stock
    options


468



94



148Net cash provided by financing activities


2,707



68,519



12,657Net increase (decrease) in cash and cash equivalents


(14,587
)


51,733



661Cash and cash equivalents at beginning of year


56,414



4,681



4,020Cash and cash equivalents at end of year

$
41,827


$
56,414


$
4,681Supplemental disclosure information:Cash paid for interest

$
713


$
217


$
181Non-cash investing and financing activities:Issuance of warrants in connection with the issuance of notes
    payable

$



$



$
30Conversion of preferred stock to common stock

$



$
45,753


$
Net exercise of preferred stock warrants to common stock

$



$
181


$
    63




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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
    Cash,
    Cash Equivalents and Investments
     64




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##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    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:
 65




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Collaborative Research Funding:
  Milestones:
  Royalties:
  Research
    and Development
  Accounting for
    Research and Development Costs
    
    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.   66




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    No. 07-3 Accounting for Nonrefundable Advance Payments for Goods or
    Services to Be Used in Future Research and Development
    Activities (EITF 07-3). EITF 07-3 07-3
  Derivatives
  Accounting for Derivative Instruments
    and Hedging Activities
  Income
    Taxes
  Accounting for Income Taxes
  Accounting for
    Uncertainty in Income Taxes Accounting for Income
    Taxes
 67




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Comprehensive
    Income (Loss)
      2007


2006Net unrealized gains on securities available-for-sale

$
157


$
21Net unrealized losses on cash flow hedges


(129
)


Accumulated other comprehensive income

$
28


$
21   Stock-Based
    Compensation
  Share-Based Payment Accounting for Stock Issued to Employees 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).
 68




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##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Year EndedDecember 31,2005(In thousands,except pershare data)Net loss, as reported

$
(18,927
)Add back: stock-based employee compensation expense included in
    net loss


991Deduct: stock-based employee compensation expense determined
    under the fair value method


(1,106
)Pro forma net loss

$
(19,042
)Basic and diluted net loss per share, as reported

$
(23.30
)Pro forma basic and diluted net loss per share

$
(23.44
)     Year EndedDecember 31,2005Risk-free interest rate


4.35
%Weighted-average expected life (in years)


4.87Expected dividend yield


0
%Expected volatility rate


0
%Weighted-average estimated fair value of employee options

$
7.15   Concentration
    of Credit Risk
    Major
    Customers
    Freestanding
    Preferred Stock Warrants
  Accounting for Certain Financial
    Instruments with Characteristics of Both Liabilities and Equity.
 69




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  Recent
    Accounting Pronouncements
  Fair
    Value Measurement
  The Fair Value
    Option for Financial Assets and Financial Liabilities, including
    an amendment of FASB Statement No. 115
  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
  Reclassifications
    2.
    Cumulative
    Effect of Change in Accounting Principle  150-5, Issuers Accounting under FASB Statement No. 150
    for Freestanding Warrants and Other Similar Instruments on
    Shares That Are Redeemable (FSP 150-5). EITF 96-18. FSP 150-5
 70




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
      Year Ended December 31,2007


2006


2005Net loss per common share, basic and diluted:Loss before cumulative effect of change in accounting principle

$
(1.32
)

$
(0.83
)

$
(23.22
)Cumulative effect of change in accounting principle










(0.08
)Net loss

$
(1.32
)

$
(0.83
)

$
(23.30
)Shares used in computing basic and diluted net loss per common
    share (in thousands)


17,688



4,744



812     3.
    Net Loss
    per Share    As of December 31,2007


2006


2005Stock options


1,551,968



1,587,626



974,151Warrants to purchase convertible preferred stock










20,353Common shares subject to repurchase






1,730



96,108Convertible preferred stock










10,652,0571,551,968



1,589,356



11,742,669   4.
    Collaboration
    Agreement  tm tm
 71




---



##### Table of Contents



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




---



##### Table of Contents



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


GrossAmortized


Unrealized


Unrealized


Estimated FairDecember 31, 2006

Cost


Gains


Losses


Market ValueCorporate debt securities

$
60,549


$
26


$
(5
)

$
60,570Money market funds


39,040











39,040Total


99,589



26



(5
)


99,610Less: cash equivalents


(50,223
)










(50,223
)Amounts classified as investments

$
49,366


$
26


$
(5
)

$
49,387     6.
    Property
    and Equipment    December 31,2007


2006Lab equipment

$
8,874


$
6,053Leasehold improvements


6,528



6,385Computer equipment and software


990



711Furniture and fixtures


447



359Construction in progress


638



20417,477



13,712Accumulated depreciation and amortization


(6,314
)


(3,378
)$
11,163


$
10,334    73




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    7.
    Accrued
    Liabilities    December 31,2007


2006Accrued clinical trials

$
1,553


$
1,994Accrued professional fees


941



576Accrued manufacturing


83



1,583Leasehold improvements


32



442Other


728



1,071$
3,337


$
5,666   8.
    Notes
    Payable and Interest Rate Swap  Equipment Financing
    Arrangements         74




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
        NotesPayableYear ending December 31, 2008

$
2,4342009


2,0922010


2,0002011


2,0002012


1,500Total payments

$
10,026   9.
    Commitments
    and Contingencies  Operating
    Lease Commitments
   75




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    OperatingLeasesYear ending December 31, 2008

$
1,4912009


1,4952010


1,4902011


1,4762012


1,476Thereafter


492Total minimum lease payments

$
7,920       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
      Reverse
    Stock Split
    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, 2005


447,071



1,049,896



0.32Granted at less than fair value


(386,537
)


386,537



1.13Exercised






(462,194
)


0.32Cancelled


88



(88
)


0.32Balance at December 31, 2005


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


$
3.90Authorized 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


$
8,106Vested and expected to vest at December 31, 2007






1,486,343


$
6.12



7.63


$
7,984Exercisable at December 31, 2007






924,978


$
3.18



7.09


$
6,484    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



4.74


$
910



91,532


$
910$0.32


498,577



6.19



4,829



414,521



4,015$2.70


90,749



7.61



663



77,501



566$6.53


454,867



7.93



1,582



270,762



942$8.35  $21.43


416,243



8.96



122



70,662



51$0.07  $21.43


1,551,968



7.44


$
8,106



924,978


$
6,484     OutstandingStockAwardsBalance at January 1, 2005


222,482Units granted


7,974Units vested


(134,348
)Balance at December 31, 2005


96,108Units granted


Units vested


(94,378
)Balance at December 31, 2006


1,730Units granted


Units vested


(1,730
)Balance at December 31, 2007


   Employee
    Stock-Based Compensation
    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   79




---



##### Table of Contents



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


2,218



1,665



3,883Non-employee stock options


70



764



834$
2,553


$
2,693


$
5,246   Year Ended December 31, 2005G&A


R&D


TotalEmployee stock options

$
554


$
437


$
991Non-employee stock options


194



642



836$
748


$
1,079


$
1,827     Employee
    Stock Options Granted Prior to January 1,
    2006
    2008


2582009


36$
294   Employee
    Stock Options Granted On or Subsequent to January 1,
    2006
     80




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
          Year Ended


Year EndedDecember 31,


December 31,2007


2006Risk-free interest rate


3.78%-4.78
%


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


6.14



6.00Expected dividend yield


0
%


0
%Expected volatility rate


65%-75
%


75
%Weighted-average estimated fair value of employee options

$
12.87


$
15.39     Non-employee
    Stock-Based Compensation
  EITF 96-18.
 81




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
        Accounting for Stock Appreciation Rights and Other Variable
    Stock Option or Award Plans.
    11.
    401(k)
    Plan    12.
    Income
    Taxes   82




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    December 31,2007


2006Deferred tax assetsNet operating loss carryforwards

$
10,253


$
1,068Deferred revenue


8,699



11,122Stock compensation


888



607R&D tax credit carryforwards


1,445



643Other current assets and liabilities (net)


265



124Other non-current assets and liabilities (net)


627



324Less: Valuation allowance


(22,177
)


(13,888
)Net deferred tax asset (liability)

$



$
   13.
    Related
    Party Transactions       83




---



##### Table of Contents



TRUBION
    PHARMACEUTICALS, INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  14.
    Quarterly
    Information (Unaudited)    March 31,


June 30,


September 30,


December 31,2007Revenue

$
4,835


$
4,980


$
4,635
(1)

$
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
)2006Revenue

$
5,818


$
7,818


$
16,539


$
6,355Total operating expenses


8,588



10,362



11,602



12,230Income (loss) from operations


(2,770
)


(2,544
)


4,937



(5,875
)Net income (loss)


(2,387
)


(2,132
)


5,390



(4,800
)Basic net income (loss) per share(2,3)


(1.80
)


(1.55
)


3.79



(0.33
)Diluted net income (loss) per share(2,3)


(1.80
)


(1.55
)


0.40



(0.33
)     (1)
    
    Reflects the impact of $8 million of revenue recognized in
    the third quarter of 2006 upon the achievement of a milestone
    under the Wyeth agreement.(2)
    
    Reflects the impact of the conversion of 10,652,057 shares
    of convertible preferred stock into common stock upon the
    closing of the initial public offering in October 2006.(3)
    
    The sum of net income (loss) per share by quarter may not equal
    net income (loss) per share for the year due to changes in
    average share calculations and the dilutive impact of securities
    in an interim period with net income. This is in accordance with
    prescribed reporting requirements. 84