UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Form
10-K/A




Amendment
No. 1




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


For
the Year Ended December 31, 2008


OR


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




Commission
File Number 000-51531




SUNESIS
PHARMACEUTICALS, INC.


(Exact
name of registrant as specified in its charter)




Delaware
                (State
      or other jurisdiction of
                incorporation
      or organization)
              94-3295878
                (I.R.S.
      Employer Identification
Number)




395
Oyster Point Boulevard, Suite 400


South
San Francisco, California 94080


(Address
of principal executive offices, including zip code)




(650)
266-3500


(Registrant’s
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 Registered:Common
      Stock, par value $0.0001 per share
            
            The
      NASDAQ Stock Market LLC




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


None


(Title of
Class)




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




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




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes x  No o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes o   No o




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




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




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




Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2.) Yes o  No x




The
aggregate market value of common stock held by non-affiliates of the registrant,
based on the closing sales price for such stock on June 30, 2008, as reported by
The Nasdaq Global Market, was $41,275,192. Shares of common stock held by each
current executive officer and director and by each person who is known by the
registrant to own 5% or more of the outstanding common stock have been excluded
from this computation in that such persons may be deemed to be affiliates of the
registrant. Share ownership information of certain persons known by the
registrant to own greater than 5% of the outstanding common stock for purposes
of the preceding calculation is based solely on information on Schedule 13G or
13D filed with the Securities and Exchange Commission and is as of June 30,
2008. This determination of affiliate status is not a conclusive determination
for other purposes.




The total
number of shares outstanding of the registrant’s common stock, $0.0001 par value
per share, as of March 20, 2009, was 34,409,768.




DOCUMENTS
INCORPORATED BY REFERENCE




None.





SUNESIS
PHARMACEUTICALS, INC.


FORM
10-K/A


(Amendment
No. 1)





For
the Year Ended December 31, 2008




TABLE
OF CONTENTS




PageExplanatory
      Note
                      2PART
      IIIItem
      10.
                      Directors,
      Executive Officers and Corporate Governance
                      18Item
      11.
                      Executive
      Compensation
                      21Item
      12.
                      Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                      32Item
      13.
                      Certain
      Relationships and Related Transactions, and Director
      Independence
                      37Item
      14.
                      Principal
      Accountant Fees and Services
                      40PART
      IVItem
      15.
                      Exhibits
      and Financial Statement Schedules
                      40Signatures
                      
                      42Exhibit
      Index
                      43




1




EXPLANATORY
NOTE




We are filing this Amendment No. 1 to
our Annual Report on Form 10-K/A (this “Amendment”) to amend our Annual Report
on Form 10-K for the year ended December 31, 2008, as filed with the Securities
and Exchange Commission (the “SEC”) on April 3, 2009 (the “Original Filing”).
The principal purpose of this Amendment is to update the Risk Factors in Part I,
Item IA to reflect the initial closing of a private placement to purchase up to
$43.5 million of our securities and reflect that we received a letter on April
14, 2009 from the Listing Qualifications Department of The NASDAQ Stock Market
notifying us that we do not currently comply with the $10.0 million minimum
stockholders’ equity requirement for continued listing on The NASDAQ Global
Market as set forth in NASDAQ Marketplace Rule 5450(b)(1)(A) and include the
Part III information that was to be incorporated by reference to the Proxy
Statement for our 2009 Annual Meeting of Stockholders (the “Annual Meeting”).
This Amendment hereby amends Part I, Item IA, specifically the risk factors
entitled  “If we are unable to raise additional capital in the near
term, we may not be able to continue to operate as a going concern,” “The
closing of the Private Placement will result in substantial dilution to our
stockholders. If we sell shares of our common stock in future financings or
other arrangements, stockholders may experience additional dilution,” and “If we
fail to continue to comply with the listing requirements of The NASDAQ Global
Market, the price of our common stock and our ability to access the capital
markets could be negatively impacted” and Part III, Items 10 through 14, and
Part IV, Item 15.  In addition, as required by Rule 12b-15 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), new
certifications by our principal executive officer and principal financial
officer are filed as exhibits to this Amendment.





No attempt has been made in this
Amendment to modify or update the other disclosures presented in the Original
Filing. Other than as stated above in the Risk Factors, this Amendment does not
reflect events occurring after the filing of the Original Filing or modify or
update those disclosures that may be affected by subsequent events. Such
subsequent matters, including changes in our management, are addressed in
subsequent reports filed by us with the SEC. Accordingly, this Amendment should
be read in conjunction with the Original Filing and our other filings with the
SEC.




In this report, “Sunesis,” the
“Company,” “we,” “us,” and “our” refer to Sunesis Pharmaceuticals, Inc. and
its wholly owned subsidiary, Sunesis Europe Limited, except where it is made
clear that the term refers only to the parent company.




2




PART
I




ITEM
1A:  RISK
FACTORS





Investing
in our common stock involves a high degree of risk. You should carefully
consider the risks and uncertainties described below and all information
contained in this report in weighing a decision to purchase our common stock. If
any of the possible adverse events described below actually occurs, we may be
unable to conduct our business as currently planned and our financial condition
and operating results could be adversely affected.  Additional risks
not presently known to us or that we currently believe are immaterial may also
significantly impair our business operations. In addition, the trading price of
our common stock could decline due to the occurrence of any of these risks, and
you may lose all or part of your investment. Please see “Special Note Regarding
Forward-Looking Statements.”





We
have marked with an asterisk (*) those risk factors below that reflect
substantive changes from the risk factors included in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission on April 3,
2009.




Risks
Related to Our Business




*If
we are unable to raise additional capital in the near term, we may not be able
to continue to operate as a going concern.





We will
need to raise substantial additional capital to continue the development
and commercialization of voreloxin. We will need to raise substantial additional
capital in the near term to:




·
            fund
      clinical trials and seek regulatory
approvals;





·
            continue
      and expand our development
activities;





·
            hire
      additional development personnel;





·
            maintain,
      defend and expand the scope of our intellectual property
      portfolio;





·
            implement
      additional internal systems and infrastructure;
  and





·
            build
      or access manufacturing and commercialization
  capabilities.





Our
future funding requirements will depend on many factors, including but not
limited to:





·
            the
      rate of progress and cost of our clinical trials and other development
      activities;





·
            the
      economic and other terms and timing of any licensing or other partnering
      arrangement into which we may
enter;





·
            the
      costs associated with building or accessing manufacturing and
      commercialization capabilities;





·
            the
      costs of acquiring or investing in businesses, product candidates and
      technologies, if any;





·
            the
      costs of filing, prosecuting, defending and enforcing any patent claims
      and other intellectual property
rights;





·
            the
      costs and timing of seeking and obtaining U.S. Food and Drug
      Administration, or FDA, and other regulatory approvals;
      and





·
            the
      effect of competing technological and market
  developments.




3




On March
31, 2009, we entered into a securities purchase agreement with accredited
investors, including certain members of management, providing for a private
placement of our securities of up to $43.5 million, or the Private Placement.
The Private Placement contemplates the sale of up to $15.0 million of units
consisting of Series A preferred stock and warrants to purchase common stock in
two closings.  $10.0 million of units were sold in the initial closing
on April 3, 2009.  Subject to the approval of our stockholders, an
additional $5.0 million of units may be sold in the second closing, which may
occur at our election or at the election of the investors in the Private
Placement.  We may elect to hold the second closing if the achievement
of a specified milestone with respect to voreloxin has occurred and our common
stock is trading above a specified floor price. If we have not delivered notice
to the investors in the Private Placement of our election to complete the second
closing, or if the conditions for the second closing have not been met, the
investors may elect to purchase the units in the second closing by delivering a
notice to us of their election to purchase the units.  Notice of an
election to complete the second closing, either by us or the investors in the
Private Placement, must be delivered on or before the earliest to occur of
December 31, 2009, the common equity closing described below or the occurrence
of a qualifying alternative common stock financing.   If the
second closing occurs, it will be subject to the satisfaction of customary
closing conditions.  Subject to the approval of our stockholders, the
remaining tranche of $28.5 million of common stock may be sold in the common
equity closing. The common equity closing may be completed at our election
prior to the earlier of December 31, 2010 or a qualifying alternative common
stock financing, or upon the election of the holders of a majority of the Series
A preferred stock issued in the Private Placement prior to a date determined
with reference to our cash balance dropping below $4.0 million at certain future
dates.  If we elect to hold the common equity closing, it will be
subject to the approval of the purchasers holding a majority of the Series A
preferred stock issued in the Private Placement and subject to a condition that
we sell at least $28.5 million of common stock in the common equity
closing.




We
anticipate that the net proceeds from the initial closing of the Private
Placement, together with our existing cash, cash equivalents and marketable
securities, will be sufficient to enable us to fund our operations through at
least the end of 2009.




The
conditions to the second closing for $5.0 million of units are substantial,
including conditions related to approval by our stockholders, the
development of voreloxin and our stock price, and it is possible that the
conditions to this second closing will not be met, in which event we would
not receive the $5.0 million of gross proceeds that are contemplated for that
closing. The $28.5 million common equity closing is entirely in the
discretion of the investors in the Private Placement, and it is possible that
they will elect not to complete that closing for reasons related to our business
or other factors.




Until we
can generate a sufficient amount of product revenue to finance our cash
requirements, which we may never do, we expect to finance future cash needs
primarily through equity issuances (including the possible second closing of the
sale of units and common equity closing in the Private Placement described above
and subject to the satisfaction of the conditions described above), debt
arrangements and a possible partnership or license of development and/or
commercialization rights to voreloxin. We do not know whether additional funding
will be available on acceptable terms, or at all.





We are
currently continuing to conduct our ongoing clinical trials of voreloxin in
acute myeloid leukemia, or AML, and ovarian cancer. If we are not able to
secure additional funding when needed, we may have to delay, reduce the scope of
or eliminate one or more of our clinical trials or scale back our development
program or conduct additional workforce or other expense reductions. For
example, in June 2008, we announced that we reduced our workforce by
approximately 60% and implemented a revised operating plan to focus our efforts
on voreloxin, wind down our internal discovery research activities to streamline
our operations and extend our financial resources. In addition, we may have to
partner voreloxin at an earlier stage of development than we might otherwise
choose to do, which would lower the economic value of that program to
us.





Our
failure to raise capital when needed and on acceptable terms would require us to
reduce our operating expenses, delay or reduce the scope of our voreloxin
development program and limit our ability to continue our operations. Any one of
the foregoing would have a material adverse effect on our business, financial
condition and results of operations.




Our
independent registered public accountants have indicated that our recurring
operating losses raise substantial doubt as to our ability to continue as a
going concern.




Our
audited financial statements for the fiscal year ended December 31, 2008 were
prepared on a going concern basis in accordance with United States generally
accepted accounting principles. The going concern basis of presentation assumes
that we will continue in operation for the foreseeable future and will be able
to realize our assets and discharge our liabilities and commitments in the
normal course of business. However, our independent registered public
accountants have indicated that our recurring operating losses raise substantial
doubt as to our ability to continue as a going concern. We may be forced to
reduce our operating expenses and raise additional funds to meet our working
capital needs. However, we cannot guarantee that will be able to obtain
sufficient additional funds when needed or that such funds, if available, will
be obtainable on terms satisfactory to us. In the event that these plans cannot
be effectively realized, there can be no assurance that we will be able to
continue as a going concern.




4




Conditions
affecting the equity markets may make it more difficult and costly to raise
additional capital.





Currently,
there is turmoil in the U.S. economy in part due to tightening credit markets.
Banks have tightened their lending standards, investors are increasingly
unwilling to buy stock and corporate bonds and economic growth has slowed.
Factors contributing to a slowing economy appear to be reduced credit
availability, falling house prices and rising prices. If these factors continue
to affect equity markets, our ability to raise capital may be adversely
affected.





We
have incurred losses since inception and anticipate that we will continue to
incur losses for the foreseeable future. We may not ever achieve or sustain
profitability.





We are a
clinical-stage biopharmaceutical company with a limited operating history as a
public company. We are not profitable and have incurred losses in each year
since our inception in 1998. Our net loss for the years ended December 31,
2008, 2007 and 2006 was $37.2 million, $38.8 million, and
$31.2 million, respectively. As of December 31, 2008, we had an accumulated
deficit of $316.2 million. We do not currently have any products that have
been approved for marketing, and we continue to incur substantial development
and general and administrative expenses related to our operations. We expect to
continue to incur losses for the foreseeable future, and we expect these losses
to increase significantly, especially upon commencing pivotal and Phase 3
clinical trials for voreloxin, as we conduct development of, and seek regulatory
approvals for, voreloxin, and as we commercialize any approved drugs. Our
losses, among other things, have caused and will continue to cause our
stockholders’ equity and working capital to decrease.




Our
business model had been based in part upon entering into strategic
collaborations for discovery and/or the development of some of our product
candidates. To date, we have derived substantially all of our revenue from
research collaboration agreements. The research phase for all of our
revenue-generating collaboration agreements is completed. We do not expect to
enter into any new collaboration agreement that will result in research revenue
for us. We also do not anticipate that we will generate revenue from the sale of
products for the foreseeable future. In the absence of additional sources of
capital which may not be available to us on acceptable terms, if at all, the
development of voreloxin or future product candidates, if any, may be reduced in
scope, delayed or terminated. If our product candidates or those of our
collaborators fail in clinical trials or do not gain regulatory approval, or if
our future products do not achieve market acceptance, we may never become
profitable. Even if we achieve profitability in the future, we may not be able
to sustain profitability in subsequent periods.





There is a high
risk the development of voreloxin could be halted or significantly delayed for
various reasons; our clinical trials for voreloxin may not demonstrate safety or
efficacy or lead to regulatory approval.





Voreloxin
is prone to the risks of failure inherent in the drug development process. We
need to conduct significant additional preclinical studies and clinical trials
before we can attempt to demonstrate that voreloxin is safe and effective to the
satisfaction of the FDA and other regulatory authorities. Failure can occur at
any stage of the development process, and successful preclinical studies and
early clinical trials do not ensure that later clinical trials will be
successful. A number of companies in the pharmaceutical industry have suffered
significant setbacks in advanced clinical trials, even after obtaining promising
results in earlier trials.





For
example, we terminated two Phase 2 trials of voreloxin in small cell and
non-small cell lung cancer. We recently  ceased development of SNS-032
and terminated our related license agreement with Bristol-Myers Squibb
Company after completion of a Phase 1 trial as no responses demonstrating
efficacy were observed in that trial. In addition, in our Phase 1 trial of
SNS-314, a maximum tolerated dose was not established and no responses were
observed.  As a result, we have suspended further development of
SNS-314 while we seek a partner or licensee to support further
development.





If our
clinical trials result in unacceptable toxicity or lack of efficacy, we may have
to terminate them. If clinical trials are halted, or if they do not show that
voreloxin is safe and effective in the indications for which we are seeking
regulatory approval, our future growth will be limited and we may not have any
other product candidates to develop.




We do not
know whether our ongoing clinical trials or any other future clinical trials
with voreloxin or any of our product candidates will be completed on schedule,
or at all, or whether our ongoing or planned clinical trials will begin or
progress on the time schedule we anticipate. The commencement of our planned
clinical trials could be substantially delayed or prevented by several factors,
including:




5




·
            delays or failures to raise
      additional funding;


·
            limited number of, and
      competition for, suitable patients with particular types of cancer for
      enrollment in clinical
trials;


·
            delays or failures in obtaining
      regulatory approval to commence a clinical
  trial;


·
            delays or failures in obtaining
      sufficient clinical
materials;


·
            delays or failures in
      obtaining institutional review board approval to conduct a
      clinical trial at prospective sites;
or


·
            delays or failures in reaching
      acceptable clinical trial agreement terms or clinical trial protocols with
      prospective sites.




The
completion of our clinical trials could also be substantially delayed or
prevented by several factors, including:




·
            delays or failures to raise
      additional funding;


·
            slower than expected rates of
      patient recruitment and
enrollment;


·
            failure of patients to complete
      the clinical trial;


·
            unforeseen safety
      issues;


·
            lack of efficacy during clinical
      trials;


·
            inability or unwillingness of
      patients or clinical investigators to follow our clinical trial protocols;
      and


·
            inability to monitor patients
      adequately during or after
treatment.




Additionally,
our clinical trials may be suspended or terminated at any time by the FDA, other
regulatory authorities, ourselves or, in some cases, our collaboration partners.
Any failure to complete or significant delay in completing clinical trials for
our product candidates could harm our financial results and the commercial
prospects for our product candidates.




In March
2008, we informed the FDA of a stability observation in our voreloxin drug
product. Specifically, visible particles were observed during stability
studies of one of our voreloxin drug product lots. We have since identified a
process impurity in the voreloxin active pharmaceutical ingredient, or API,
that, when formulated into the packaged vial of the voreloxin drug product, can
result in the formation of particles over time. As a response to these
findings, we implemented a revised manufacturing process to attempt to control
the impurity and thereby prevent particle formation. One lot of voreloxin
API manufactured using the revised manufacturing process has been formulated
into a drug product lot that has completed nine months of stability testing
without formation of particles. This drug product lot is currently being
used in our clinical trials. It will take time to evaluate whether or not
this revised manufacturing process for voreloxin API will be successful in
stopping the formation of particles in this drug product lot over the longer
term, and to evaluate whether or not such control of particle formation would
also be reliably and consistently achieved in subsequent lots over the shorter
or longer term. We provided an update on the results from our process
optimization activities to the FDA in December 2008. If the change in
manufacturing process does not adequately control the formation of visible
particles, we will need to discuss other possibilities with the FDA, which could
include temporary clinical hold until the issue has been resolved to their
satisfaction.




The
failure to enroll patients for clinical trials may cause delays in developing
voreloxin.





We may
encounter delays if we are unable to enroll enough patients to complete clinical
trials of voreloxin. Patient enrollment depends on many factors,
including the size of the patient population, the nature of the protocol,
the proximity of patients to clinical sites and the eligibility criteria for the
trial. Moreover, when one product candidate is evaluated in multiple clinical
trials simultaneously, patient enrollment in ongoing trials can be adversely
effected by negative results from completed trials. Voreloxin is being tested in
patients with AML and ovarian cancer, which can be difficult patient populations
to recruit.





The
results of preclinical studies and clinical trials may not satisfy the
requirements of the FDA or other regulatory agencies.




Prior to
receiving approval to commercialize voreloxin or future product candidates, if
any, in the United States or abroad, we and our collaboration partners must
demonstrate with substantial evidence from well-controlled clinical trials, to
the satisfaction of the FDA and other regulatory authorities, that such product
candidates are safe and effective for their intended uses. The results from
preclinical studies and clinical trials can be interpreted in different ways.
Even if we and our collaboration partners believe the preclinical or clinical
data are promising, such data may not be sufficient to support approval by the
FDA and other regulatory authorities.




6




We
rely on third parties to manufacture our voreloxin drug product and its active
pharmaceutical ingredient, and depend on a single supplier for the active
pharmaceutical ingredient. There are a limited number of manufacturers that are
capable of manufacturing voreloxin.





We do not
currently own or operate manufacturing facilities and lack the capability to
manufacture voreloxin on a clinical or commercial scale. As a result, we rely on
third parties to manufacture both the voreloxin API and the finished drug
product. The API is classified as a toxic substance, limiting the available
manufacturers. We believe that there are at least five contract manufacturers in
North America with suitable capabilities for API manufacture, and at least four
that can manufacture finished drug product. We currently have established
relationships with only one manufacturer for API and two manufacturers for the
finished drug product. If our third-party API manufacturer is unable or
unwilling to produce voreloxin, we will need to establish a contract with
another supplier. However, establishing a relationship with an alternative
supplier would likely delay our ability to produce API for six to nine months,
during which time we would rely on current inventory to supply our drug product
manufacturing activities. We expect to continue to depend on third-party
contract manufacturers for all our API and finished drug product needs in
the foreseeable future.





Voreloxin
requires precise, high quality manufacturing. A contract manufacturer is subject
to ongoing periodic unannounced inspection by the FDA and corresponding state
agencies to ensure strict compliance with current Good Manufacturing Practice,
or cGMP, and other applicable government regulations and corresponding foreign
standards. Our contract manufacturer’s failure to achieve and maintain high
manufacturing standards in compliance with cGMP regulations could result in
manufacturing errors resulting in patient injury or death, product recalls or
withdrawals, delays or interruptions of production or failures in product
testing or delivery, delay or prevention of filing or approval of marketing
applications for voreloxin, cost overruns or other problems that could seriously
harm our business.





To date,
voreloxin has been manufactured in small quantities for preclinical studies and
clinical trials. Prior to being approved for commercial sale, we will need to
manufacture finished drug product in larger quantities. Significant scale-up of
manufacturing will be accompanied by significant validation studies, which will
be reviewed by the FDA prior to approval. If we are unable to successfully
increase the manufacturing capacity for voreloxin, the regulatory approval or
commercial launch may be delayed or there may be a shortage in commercial
supply.





Any
performance failure on the part of a contract manufacturer could delay clinical
development or regulatory approval of our product candidates or
commercialization of our future products, depriving us of potential product
revenue and resulting in additional losses. For example, because we rely on a
single supplier for voreloxin API, the failure of such supplier to have
sufficient quantities of the API or to supply API on a timely basis or at all
would negatively affect us. In addition, our dependence on a third party for
manufacturing may adversely affect our future profit margins. Our ability to
replace an existing manufacturer may be difficult because the number of
potential manufacturers is limited and the FDA must approve any replacement
manufacturer before it can be an approved commercial supplier. Such
approval would require new testing and compliance inspections. It may be
difficult or impossible for us to identify and engage a replacement manufacturer
on acceptable terms in a timely manner, or at all.





We
expect to expand our clinical development capabilities, and any difficulties
hiring or retaining key personnel or managing this growth could disrupt our
operations.





We are
highly dependent on the principal members of our development staff. We expect to
expand our clinical development capabilities by increasing expenditures in these
areas, hiring additional employees and expanding the scope of our current
operations. Future growth will require us to continue to implement and improve
our managerial, operational and financial systems and continue to retain,
recruit and train additional qualified personnel, which may impose a strain on
our administrative and operational infrastructure. The competition for qualified
personnel in the biopharmaceutical field is intense. We are highly dependent on
our continued ability to attract, retain and motivate highly qualified
management and specialized personnel required for clinical development. Due to
our limited resources, we may not be able to effectively manage the expansion of
our operations or recruit and train additional qualified personnel. If we are
unable to retain key personnel or manage our growth effectively, we may not be
able to implement our business plan.




If
we are sued for infringing intellectual property rights of third parties,
litigation will be costly and time consuming and could prevent us from
developing or commercializing voreloxin.





Our
commercial success depends on not infringing the patents and other proprietary
rights of third parties and not breaching any collaboration or other agreements
we have entered into with regard to our technologies and product candidates. If
a third party asserts that we are using technology or compounds claimed in
issued and unexpired patents owned or controlled by the third party, we may need
to obtain a license, enter into litigation to challenge the validity of the
patents or incur the risk of litigation in the event that a third party asserts
that we infringe its patents.




7




If a
third party asserts that we infringe its patents or other proprietary rights, we
could face a number of challenges that could seriously harm our competitive
position, including:




·
            infringement and other
      intellectual property claims, which would be costly and time consuming to
      litigate, whether or not the claims have merit, and which could delay the
      regulatory approval process and divert management’s attention from our
      business;





·
            substantial damages for past
      infringement, which we may have to pay if a court determines that
      voreloxin or any future product candidates infringe a third party’s patent
      or other proprietary rights;





·
            a court order prohibiting us from
      selling or licensing voreloxin or any future product candidates unless a
      third party licenses relevant patent or other proprietary rights to us,
      which it is not required to do;
and





·
            if a license is available from a
      third party, we may have to pay substantial royalties or grant cross
      licenses to our patents or other proprietary
  rights.




If
our competitors develop and market products that are more effective, safer or
less expensive than voreloxin, our commercial opportunities will be negatively
impacted.





The life
sciences industry is highly competitive, and we face significant competition
from many pharmaceutical, biopharmaceutical and biotechnology companies that are
researching, developing and marketing products designed to address the treatment
of cancer, including AML and ovarian cancer.  Voreloxin is a small
molecule therapeutic that will compete with other drugs and therapies that
currently exist or are being developed. Many of our competitors have
significantly greater financial, manufacturing, marketing and drug development
resources than we do. Large pharmaceutical companies in particular have
extensive experience in clinical testing and in obtaining regulatory approvals
for, and marketing, drugs.





We
believe that our ability to successfully compete with voreloxin and any future
product candidates, if any, will depend on, among other things:




·
            our ability to develop novel
      compounds with attractive pharmaceutical properties and to secure, protect
      and maintain intellectual property rights based on our
      innovations;





·
            the efficacy, safety and
      reliability of our product
candidates;





·
            the speed at which we develop our
      product candidates;





·
            our ability to design and
      successfully execute appropriate clinical
  trials;





·
            our ability to maintain a good
      relationship with regulatory
authorities;





·
            our ability to obtain, and the
      timing and scope of, regulatory
  approvals;





·
            our ability to manufacture and
      sell commercial quantities of future products to the market;
      and





·
            acceptance of future products by
      physicians and other healthcare
  providers.





Some of
the current key competitors of voreloxin in AML include Genzyme Corporation’s
clofarabine, Eisai Corporation’s decitabine, Celgene Corporation’s azacitidine
and Vion Pharmaceuticals, Inc.’s laromustine, all of which could change the
treatment paradigm of acute leukemia. Each of these compounds is further along
in clinical development than is voreloxin. Liposomal doxorubicin and topotecan
are current standards of care in platinum-resistant ovarian cancer patients, and
we are aware that several of our competitors have initiated Phase 3
clinical trials for this indication.




8





We expect
competition for voreloxin to increase as additional products are developed and
approved to treat AML and ovarian cancer in various patient
populations.  If our competitors market products that are more
effective, safer or less expensive than voreloxin or our other future products,
if any, or that reach the market sooner we may not achieve commercial success or
substantial market penetration. In addition, the biopharmaceutical industry is
characterized by rapid change. Products developed by our competitors may
render voreloxin or any future product candidates obsolete.




We
rely on third parties to conduct our clinical trials. If these third parties do
not successfully carry out their contractual duties or meet expected deadlines,
we may be unable to obtain regulatory approval for or commercialize our
voreloxin drug product.





We rely
on third parties, such as contract research organizations, medical institutions,
clinical investigators and contract laboratories, to conduct our planned and
existing clinical trials for voreloxin. If the third parties conducting our
clinical trials do not perform their contractual duties or obligations, do not
meet expected deadlines or need to be replaced, or if the quality or accuracy of
the clinical data they obtain is compromised due to the failure to adhere to our
clinical trial protocols or for any other reason, we may need to enter into new
arrangements with alternative third parties and our clinical trials may be
extended, delayed or terminated or may need to be repeated, and we may not be
able to obtain regulatory approval for or commercialize the product candidate
being tested in such trials.





Our
proprietary rights may not adequately protect voreloxin or future product
candidates, if any.





Our
commercial success will depend on our ability to obtain patents and maintain
adequate protection for voreloxin and any future product candidates in the
United States and other countries. As of December 31, 2008, we owned,
co-owned or had rights to approximately 233 issued U.S. and foreign patents and
approximately 370 pending U.S. and foreign patent applications. We will be able
to protect our proprietary rights from unauthorized use by third parties only to
the extent that our proprietary technologies and future products are covered by
valid and enforceable patents or are effectively maintained as trade
secrets.





We apply
for patents covering both our technologies and product candidates, as we deem
appropriate. However, we may fail to apply for patents on important technologies
or product candidates in a timely fashion, or at all. Our existing patents and
any future patents we obtain may not be sufficiently broad to prevent others
from practicing our technologies or from developing competing products and
technologies. In addition, we generally do not exclusively control the patent
prosecution of subject matter that we license to or from others. Accordingly, in
such cases we are unable to exercise the same degree of control over this
intellectual property as we would over our own. Moreover, the patent positions
of biopharmaceutical companies are highly uncertain and involve complex legal
and factual questions for which important legal principles remain unresolved. As
a result, the validity and enforceability of patents cannot be predicted with
certainty. In addition, we do not know whether:




·
            we, our licensors or our
      collaboration partners were the first to make the inventions covered by
      each of our issued patents and pending patent
      applications;





·
            we, our licensors or our
      collaboration partners were the first to file patent applications for
      these inventions;





·
            others will independently develop
      similar or alternative technologies or duplicate any of our
      technologies;





·
            any of our or our licensors’
      pending patent applications will result in issued
      patents;





·
            any of our, our licensors’ or our
      collaboration partners’ patents will be valid or
      enforceable;





·
            any patents issued to us, our
      licensors or our collaboration partners will provide us with any
      competitive advantages, or will be challenged by third
      parties;





·
            we will develop additional
      proprietary technologies that are patentable;
  or





·
            the patents of others will have
      an adverse effect on our
business.




We also
rely on trade secrets to protect some of our technology, especially where we do
not believe patent protection is appropriate or obtainable. However, trade
secrets are difficult to maintain. While we use reasonable efforts to protect
our trade secrets, our or our collaboration partners’ employees, consultants,
contractors or scientific and other advisors, or those of our licensors, may
unintentionally or willfully disclose our proprietary information to
competitors. Enforcement of claims that a third party has illegally obtained and
is using trade secrets is expensive, time consuming and uncertain. In addition,
foreign courts are sometimes less willing than U.S. courts to protect trade
secrets. If our competitors independently develop equivalent knowledge, methods
and know-how, we would not be able to assert our trade secrets against them and
our business could be harmed.




9




The
composition of matter patents covering voreloxin are due to expire in 2015. Even
if voreloxin is approved by the FDA, we may not be able to recover our
development costs prior to the expiration of these patents.





The
voreloxin API composition of matter is covered by U.S. patent 5,817,669 and its
counterpart patents and patent applications in 43 foreign jurisdictions. U.S.
patent 5,817,669 is due to expire in October 2015, and most of its foreign
counterparts are due to expire in June 2015. We do not know whether patent
term extensions and data exclusivity periods will be available in the future.
Voreloxin must undergo extensive clinical trials before it can be approved by
the FDA. We do not know when, if ever, voreloxin will be approved by
the FDA. Even if voreloxin is approved by the FDA in the future, we may not have
sufficient time to commercialize our voreloxin product to enable us to recover
our development costs prior to the expiration of the U.S. and foreign patents
covering voreloxin. Our obligation to pay royalties to Dainippon, the company
from which we licensed voreloxin, may extend beyond the patent expiration, which
would further erode the profitability of this product.





Our
workforce reductions in August 2007, June 2008, March 2009 and any
future workforce and expense reductions may have an adverse impact on our
internal programs, our ability to hire and retain key personnel and may be
distracting to management.





In
August 2007, we conducted a workforce reduction of approximately 25% in
order to reduce expenses. In June 2008, we conducted a second workforce
reduction of approximately 60% to focus on the development of voreloxin. In
March 2009, in conjunction with the closing of the Private Placement we
conducted an additional workforce reduction of six employees. In light of
our continued need for funding and expense control, we may be required to
implement further workforce and expense reductions in the future. Further
workforce and expense reductions could result in reduced progress on our
internal programs. In addition, employees, whether or not directly affected by a
reduction, may seek future employment with our business partners or competitors.
Although our employees are required to sign a confidentiality agreement at the
time of hire, the confidential nature of certain proprietary information may not
be maintained in the course of any such future employment. Further, we believe
that our future success will depend in large part upon our ability to attract
and retain highly skilled personnel. We may have difficulty retaining and
attracting such personnel as a result of a perceived risk of future workforce
and expense reductions. In addition, the implementation of expense reduction
programs may result in the diversion of efforts of our executive management team
and other key employees, which could adversely affect our business.





We
may be subject to damages resulting from claims that we or our employees have
wrongfully used or disclosed alleged trade secrets of our employees’ former
employers.





Many of
our employees were previously employed at biotechnology or pharmaceutical
companies, including our competitors or potential competitors. We may be subject
to claims that we or our employees have inadvertently or otherwise used or
disclosed trade secrets or other proprietary information of their former
employers. Litigation may be necessary to defend against these claims. If we
fail in defending such claims, in addition to paying monetary damages, we may
lose valuable intellectual property rights or personnel. A loss of key personnel
or the work product of current or former personnel could hamper or prevent our
ability to commercialize voreloxin, which could severely harm our business. Even
if we are successful in defending against these claims, litigation could result
in substantial costs and be a distraction to management.





We
currently have limited marketing staff and no sales or distribution
organization. If we are unable to develop a sales and marketing and distribution
capability on our own or through collaborations with marketing partners, we will
not be successful in commercializing voreloxin.




We
currently have no sales or distribution capabilities and limited marketing
staff. We intend to establish our own sales and marketing organization with
technical expertise and supporting distribution capabilities to commercialize
voreloxin in North America, which will be expensive and time consuming. Any
failure or delay in the development of our internal sales, marketing and
distribution capabilities would adversely impact the commercialization of these
products. We plan to collaborate with third parties that have direct sales
forces and established distribution systems to commercialize voreloxin. To the
extent that we enter into co-promotion or other licensing arrangements, our
product revenue is likely to be lower than if we marketed or sold voreloxin
directly. In addition, any revenue we receive will depend upon the efforts of
third parties, which may not be successful and are only partially within our
control. If we are unable to enter into such arrangements on acceptable terms or
at all, we may not be able to successfully commercialize voreloxin. If we are
not successful in commercializing voreloxin or our future product candidates, if
any, either on our own or through collaborations with one or more third parties,
our future product revenue will suffer and we may incur significant additional
losses.




10




We
depend on various consultants and advisors for the success and continuation of
development efforts.





We work
extensively with various consultants and advisors, who provide advice and/or
services in various business and development functions, including clinical
development, operations and strategy, regulatory matters, accounting and
finance. The potential success of our drug development programs depends, in
part, on continued collaborations with certain of these consultants and
advisors. Our consultants and advisors are not our employees and may have
commitments and obligations to other entities that may limit their availability
to us. We do not know if we will be able to maintain such relationships or that
such consultants and advisors will not enter into other arrangements with
competitors, any of which could have a detrimental impact on our development
objectives and our business.





If
conflicts of interest arise between our collaboration partners and us, any of
them may act in their self interest, which may be adverse to our
interests.





If a
conflict of interest arises between us and one or more of our collaboration
partners, they may act in their own self interest or otherwise in a way that is
not in the interest of our company or our stockholders. Our collaboration
partners are conducting multiple product development efforts within the disease
area that is the subject of collaboration with our company. In some of our
collaborations, we have agreed not to conduct, independently or with any third
party, any research that is competitive with the research conducted under our
collaborations. Our collaboration partners, however, may develop, either alone
or with others, products in related fields that are competitive with the product
candidates that are the subject of these collaborations. Competing products,
either developed by our collaboration partners or to which our collaboration
partners have rights, may result in their withdrawal of support for a product
candidate covered by the collaboration agreement.





If one or
more of our collaboration partners were to breach or terminate their
collaboration agreements with us or otherwise fail to perform their obligations
thereunder in a timely manner, the preclinical or clinical development or
commercialization of the affected product candidates could be delayed or
terminated. We do not know whether our collaboration partners will pursue
alternative technologies or develop alternative product candidates, either on
their own or in collaboration with others, including our competitors, as a means
for developing treatments for the diseases targeted by collaboration agreements
with our company.





Our
facilities are located near known earthquake fault zones, and the occurrence of
an earthquake or other catastrophic disaster could cause damage to our
facilities and equipment, which could require us to cease or curtail
operations.





Our
facilities are located in the San Francisco Bay Area near known earthquake fault
zones and are vulnerable to significant damage from earthquakes. We are also
vulnerable to damage from other types of disasters, including fires, floods,
power loss, communications failures and similar events. If any disaster were to
occur, our ability to operate our business at our facilities may be seriously or
completely impaired and our data could be lost or destroyed.




Compliance
with changing regulation of corporate governance and public disclosure may
result in additional expenses.





Changing
laws, regulations and standards relating to corporate governance and public
disclosure may create uncertainty regarding compliance matters. New or changed
laws, regulations and standards are subject to varying interpretations in many
cases. As a result, their application in practice may evolve over time. We are
committed to maintaining high standards of corporate governance and public
disclosure. Complying with evolving interpretations of new or changed legal
requirements may cause us to incur higher costs as we revise current practices,
policies and procedures, and may divert management time and attention from
potential revenue-generating activities to compliance matters. If our efforts to
comply with new or changed laws, regulations and standards differ from the
activities intended by regulatory or governing bodies due to ambiguities related
to practice, our reputation may also be harmed. Further, our board members,
chief executive officer and chief financial officer could face an increased risk
of personal liability in connection with the performance of their duties. As a
result, we may have difficulty attracting and retaining qualified board members
and executive officers, which could harm our business.




11




Global
credit and financial market conditions negatively impact the value of our
current portfolio of cash equivalents or short-term investments and our ability
to meet our financing objectives.





Our cash
and cash equivalents are maintained in highly liquid investments with remaining
maturities of 90 days or less at the time of purchase. Our marketable
securities consist primarily of investments in readily marketable debt
securities with remaining maturities of more than 90 days at the time of
purchase. While, as of the date of this filing, we are not aware of any
downgrades, material losses, or other significant deterioration in the fair
value of our cash equivalents or marketable securities, no assurance can be
given that further deterioration in conditions of the global credit and
financial markets would not negatively impact our current portfolio of cash
equivalents or marketable securities or our ability to meet our current
liquidity needs.




Risks
Related to Our Industry




The
regulatory approval process is expensive, time consuming and uncertain and may
prevent us from obtaining approval for the commercialization of
voreloxin.





The
research, testing, manufacturing, selling and marketing of product candidates
are subject to extensive regulation by the FDA and other regulatory authorities
in the United States and other countries, which regulations differ from country
to country. Neither we nor our collaboration partners are permitted to market
our product candidates in the United States until we receive approval of a new
drug application or NDA, from the FDA, or in any other country without the
equivalent marketing approval from such country. We have not received marketing
approval for voreloxin.  None of our collaboration partners has had a
product resulting from our collaboration enter clinical trials.  In
addition, failure to comply with FDA and other applicable U.S. and foreign
regulatory requirements may subject us to administrative or judicially imposed
sanctions, including warning letters, civil and criminal penalties, injunctions,
product seizure or detention, product recalls, total or partial suspension of
production, and refusal to approve pending NDAs, supplements to approved NDAs or
their foreign equivalents.





Regulatory
approval of an NDA or NDA supplement or a foreign equivalent is not guaranteed,
and the approval process is expensive and may take several years. Furthermore,
the development process for oncology products may take longer than in other
therapeutic areas. Regulatory authorities have substantial discretion in the
drug approval process. Despite the time and expense exerted, failure can occur
at any stage, and we could encounter problems that cause us to abandon clinical
trials or to repeat or perform additional preclinical studies and clinical
trials. The number of preclinical studies and clinical trials that will be
required for marketing approval varies depending on the drug candidate, the
disease or condition that the drug candidate is designed to address, and the
regulations applicable to any particular drug candidate. The FDA or a foreign
regulatory authority can delay, limit or deny approval of a drug candidate for
many reasons, including:




·
            the drug candidate may not be
      deemed safe or effective;


·
            regulatory officials may not find
      the data from preclinical studies and clinical trials
      sufficient;


·
            the FDA or foreign regulatory
      authority might not approve our or our third-party manufacturer’s
      processes or facilities; or


·
            the FDA or foreign regulatory
      authority may change its approval policies or adopt new
      regulations.




We
may be subject to costly claims related to our clinical trials and may not be
able to obtain adequate insurance.





Because
we conduct clinical trials in humans, we face the risk that the use of voreloxin
or future product candidates, if any, will result in adverse side effects. We
cannot predict the possible harms or side effects that may result from our
clinical trials. Although we have clinical trial liability insurance for up to
$10.0 million aggregate, our insurance may be insufficient to cover any
such events. We do not know whether we will be able to continue to obtain
clinical trial coverage on acceptable terms, or at all. We may not have
sufficient resources to pay for any liabilities resulting from a claim excluded
from, or beyond the limit of, our insurance coverage. There is also a risk that
third parties that we have agreed to indemnify could incur liability. Any
litigation arising from our clinical trials, even if we were ultimately
successful, would consume substantial amounts of our financial and managerial
resources and may create adverse publicity.





Even
if we receive regulatory approval to sell voreloxin, the market may not be
receptive to voreloxin.





Even if
voreloxin obtains regulatory approval, it may not gain market acceptance among
physicians, patients, healthcare payors and/or the medical community. We believe
that the degree of market acceptance will depend on a number of factors,
including:




·
            timing of market introduction of
      competitive products;




12




·
            efficacy of our
      product;


·
            prevalence and severity of any
      side effects;


·
            potential advantages or
      disadvantages over alternative
  treatments;


·
            strength of marketing and
      distribution support;


·
            price of voreloxin, both in
      absolute terms and relative to alternative treatments;
      and


·
            availability of reimbursement
      from health maintenance organizations and other third-party
      payors.




For
example, the potential toxicity of single and repeated doses of voreloxin has
been explored in a number of animal studies that suggest the dose-limiting
toxicities in humans receiving voreloxin may be similar to some of those
observed with approved cytotoxic agents, including reversible toxicity to bone
marrow cells, the gastrointestinal system and other systems with rapidly
dividing cells. In our Phase 1 and Phase 2 clinical trials of
voreloxin, we have witnessed the following side effects, irrespective of
causality, ranging from mild to more severe: lowered white blood cell count that
may lead to a serious or possibly life-threatening infection, hair loss, mouth
sores, fatigue, nausea with or without vomiting, lowered platelet count, which
may lead to an increase in bruising or bleeding, lowered red blood cell count
(anemia), weakness, tiredness, shortness of breath, diarrhea and intestinal
blockage.





If
voreloxin fails to achieve market acceptance, due to unacceptable side effects
or any other reasons, we may not be able to generate significant revenue or to
achieve or sustain profitability.





Even
if we receive regulatory approval for voreloxin, we will be subject to ongoing
FDA and other regulatory obligations and continued regulatory review, which may
result in significant additional expense and limit our ability to commercialize
voreloxin.





Any
regulatory approvals that we or our collaboration partners receive for voreloxin
or our future product candidates, if any, may also be subject to limitations on
the indicated uses for which the product may be marketed or contain requirements
for potentially costly post-marketing studies. In addition, even if approved,
the labeling, packaging, adverse event reporting, storage, advertising,
promotion and recordkeeping for any product will be subject to extensive and
ongoing regulatory requirements. The subsequent discovery of previously unknown
problems with a product, including adverse events of unanticipated severity or
frequency, may result in restrictions on the marketing of the product, and could
include withdrawal of the product from the market.





Regulatory
policies may change and additional government regulations may be enacted that
could prevent or delay regulatory approval of our product candidates. We cannot
predict the likelihood, nature or extent of government regulation that may arise
from future legislation or administrative action, either in the United States or
abroad. If we are not able to maintain regulatory compliance, we might not be
permitted to market voreloxin or our future products and we may not achieve or
sustain profitability.




The
coverage and reimbursement status of newly approved drugs is uncertain, and
failure to obtain adequate coverage and reimbursement could limit our ability to
market voreloxin and decrease our ability to generate revenue.





There is
significant uncertainty related to the third-party coverage and reimbursement of
newly approved drugs both nationally and internationally. The commercial success
of voreloxin and our future products, if any, in both domestic and international
markets depends on whether third-party coverage and reimbursement is available
for the ordering of our future products by the medical profession for use by
their patients. Medicare, Medicaid, health maintenance organizations and other
third-party payors are increasingly attempting to manage healthcare costs by
limiting both coverage and the level of reimbursement of new drugs and, as a
result, they may not cover or provide adequate payment for our future products.
These payors may not view our future products as cost effective, and
reimbursement may not be available to consumers or may not be sufficient to
allow our future products to be marketed on a competitive basis. Likewise,
legislative or regulatory efforts to control or reduce healthcare costs or
reform government healthcare programs could result in lower prices or rejection
of our future products. Changes in coverage and reimbursement policies or
healthcare cost containment initiatives that limit or restrict reimbursement for
our future products may reduce any future product revenue.





Failure
to obtain regulatory approval in foreign jurisdictions will prevent us from
marketing voreloxin abroad.





We intend
to market voreloxin in international markets. In order to market voreloxin in
Canada, the European Union and many other foreign jurisdictions, we must obtain
separate regulatory approvals. We have had limited interactions with foreign
regulatory authorities, and the approval procedures vary among countries and can
involve additional testing at significant cost. The time required to obtain
approval may differ from that required to obtain FDA approval. Approval by the
FDA does not ensure approval by regulatory authorities in other countries, and
approval by one foreign regulatory authority does not ensure approval by
regulatory authorities in other foreign countries or by the FDA. The foreign
regulatory approval processes may include all of the risks associated with
obtaining FDA approval. We may not obtain foreign regulatory approvals on a
timely basis, if at all. We may not be able to file for regulatory approvals and
may not receive necessary approvals to commercialize voreloxin or any other
future products in any market.




13




Foreign
governments often impose strict price controls, which may adversely affect our
future profitability.





We intend
to seek approval to market voreloxin in both the United States and foreign
jurisdictions. If we obtain approval in one or more foreign jurisdictions, we
will be subject to rules and regulations in those jurisdictions relating to
voreloxin. In some foreign countries, particularly in the European Union,
prescription drug pricing is subject to governmental control. In these
countries, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a drug candidate.
To obtain reimbursement or pricing approval in some countries, we may be
required to conduct a clinical trial that compares the cost-effectiveness of
voreloxin to other available therapies. If reimbursement of voreloxin is
unavailable or limited in scope or amount, or if pricing is set at
unsatisfactory levels, we may be unable to achieve or sustain
profitability.





We
may incur significant costs complying with environmental laws and regulations,
and failure to comply with these laws and regulations could expose us to
significant liabilities.





We use
hazardous chemicals and radioactive and biological materials in our business and
are subject to a variety of federal, state, regional and local laws and
regulations governing the use, generation, manufacture, storage, handling and
disposal of these materials. Although we believe our safety procedures for
handling and disposing of these materials and waste products comply with these
laws and regulations, we cannot eliminate the risk of accidental injury or
contamination from the use, storage, handling or disposal of hazardous
materials. In the event of contamination or injury, we could be held liable for
any resulting damages, and any liability could significantly exceed our
insurance coverage, which is limited to $0.1 million for pollution cleanup,
and we are uninsured for third-party contamination injury.




Risks
Related to Our Common Stock




*The
closing of the Private Placement will result in substantial dilution to our
stockholders. If we sell shares of our common stock in future financings or
other arrangements, stockholders may experience additional
dilution.





We need
to raise substantial additional funds, through the Private Placement and
otherwise, to continue our operations, fund additional clinical trials of
voreloxin and potentially commercialize voreloxin. We plan to continue
to finance our operations with a combination of equity issuances (including the
possible second closing of the sale of units and common equity closing in the
Private Placement and subject to the satisfaction of the conditions described
above), debt arrangements and a possible partnership or license of development
and/or commercialization rights to voreloxin. Any issuance of convertible
debt securities, preferred stock or common stock may be at a discount from the
then-current trading price of our common stock. If we issue additional common or
preferred stock or securities convertible into common stock, our stockholders
will experience additional dilution, which may be significant.





The
closing of the Private Placement will result in substantial dilution to our
stockholders.  Following the initial closing, the holders of
our common stock prior thereto hold approximately 54.3% of our outstanding
common stock (assuming conversion of the convertible preferred at the
current conversion price), and will hold approximately 37.2% if the warrants
issued at the initial closing are exercised in full.  Following the
second closing for $5.0 million of units, if completed, the holders of our
common stock prior to the Private Placement will hold approximately 44.2% of our
outstanding common stock (assuming conversion of the convertible preferred
at the current conversion price), and will hold approximately 28.4% if the
warrants issued at the initial and second closings are exercised in
full.  Following the common equity closing, if completed, the holders
of our common stock prior to the Private Placement would hold approximately
19.0% of our outstanding common stock (assuming conversion of the convertible
preferred at the current conversion price), and would hold approximately 15.3%
if the warrants issued at the initial and second closings are exercised in
full.




14




We may not have the sufficient
funding to distribute capital to our common stockholders or continue our
business upon a change of control event.





If a
change of control (as that term is defined in the Certificate related to
the convertible preferred to be issued in the Private Placement),
which includes a sale or merger of  Sunesis or a significant
partnering transaction, occurs, the holders of
the convertible preferred would be entitled to receive, before any
proceeds are distributed to common stockholders, three times the amount that the
investors in the Private Placement paid for the units ($10.0 million at
the initial closing and, if consummated, an additional $5.0 million at the
second closing), which could equal up to a total of $45.0 million.  We
would not have any capital to distribute to our common stockholders if the
consideration received in a transaction that triggers a change of control event
under the certificate of designation is less than this liquidation preference
amount.  Further, if the investors elect to treat a partnering
transaction as a change of control, entitling the holders of the
convertible preferred to the liquidation preference described above, the
holders of the convertible preferred would be entitled to the full amount
of any payments made by a corporate partner by surrendering the
convertible preferred, up to the liquidation preference amount, which may
leave us with insufficient resources to continue our business.  This
right of the holders of the convertible preferred may also impair our
ability to enter into a significant partnering transaction since a partner would
be willing to enter into a partnering agreement with us only if we have or had
access to sufficient capital to satisfy our obligations under the partnering
agreement.  Whether or not we would have sufficient resources would
depend on the terms of the partnering agreement and other cash resources
available to us at that time.




We
cannot take fundamental actions related to Sunesis without the consent of a
majority of the holders of the convertible preferred to be issued in the
Private Placement.





For as
long as the convertible preferred is outstanding, the holders of the
convertible preferred issued and to be issued in the Private Placement will
have a number of rights, including the right to approve any sale of the company,
any significant partnering transaction, any issuance of debt or
convertible preferred and, unless certain conditions are met, any issuance
of common stock other than the second closing and the common equity
closing contemplated by the Private Placement.  It is possible
that the interests of the holders of the convertible preferred and the
holders of common stock may be inconsistent, resulting in the inability to
obtain the consent of the holders of convertible preferred to matters that
may be in the best interests of the common stockholders.




The
price of our common stock may continue to be volatile, and the value of an
investment in our common stock may decline.





In 2008,
our common stock traded as low as $0.18 and as high as $2.10. Factors that could
cause continued volatility in the market price of our common stock include, but
are not limited to:




·
            failure to raise additional
      capital to move forward with our clinical development plans and current
      and future operations;


·
            results from, and any delays in
      or discontinuance of, ongoing and planned clinical trials for
      voreloxin;


·
            announcements of FDA non-approval
      of voreloxin, delays in filing regulatory documents with the FDA or other
      regulatory agencies, or delays in the review process by the FDA or other
      foreign regulatory agencies;


·
            announcements relating to our
      collaborations with Biogen Idec, J&JPRD and
    Merck;


·
            announcements relating to
      restructuring and other operational
  changes;


·
            delays in the commercialization
      of voreloxin or our future products, if
  any;


·
            market conditions in the
      pharmaceutical, biopharmaceutical and biotechnology
      sectors;


·
            issuance of new or changed
      securities analysts’ reports or
  recommendations;


·
            actual and anticipated
      fluctuations in our quarterly operating
  results;


·
            developments or disputes
      concerning our intellectual property or other proprietary
      rights;


·
            introduction of new products by
      our competitors;


·
            issues in manufacturing voreloxin
      drug substance or drug product ,or future products, if
      any;


·
            market acceptance of voreloxin or
      our future products, if any;


·
            deviations in our operating
      results from the estimates of
analysts;


·
            third-party healthcare
      reimbursement policies;


·
            FDA or other U.S. or foreign
      regulatory actions affecting us or our
  industry;


·
            litigation or public concern
      about the safety of voreloxin or future products, if
      any;


·
            failure to develop or sustain an
      active and liquid trading market for our common
    stock;


·
            sales of our common stock by our
      officers, directors or significant stockholders;
  and


·
            additions or departures of key
      personnel.




15




In
addition, the stock markets in general, and the markets for pharmaceutical,
biopharmaceutical and biotechnology stocks in particular, have experienced
extreme volatility that has often been unrelated to the operating performance of
the issuer. These broad market fluctuations may adversely affect the trading
price or liquidity of our common stock. In the past, when the market price of a
stock has been volatile, holders of that stock have sometimes instituted
securities class action litigation against the issuer. If any of our
stockholders were to bring such a lawsuit against us, we could incur substantial
costs defending the lawsuit and the attention of our management would be
diverted from the operation of our business.




*We no longer
comply with certain of the listing requirements of The NASDAQ Global
Market. We may be delisted and the price of our common stock and our
ability to access the capital markets could be negatively impacted.


Our common stock is currently listed on
The NASDAQ Global Market. To maintain the listing of our common stock on The
NASDAQ Global Market we are required to meet certain listing requirements,
including a minimum closing bid price of $1.00 per share, a market value of
publicly held shares (excluding shares held by our executive officers, directors
and 10% or more stockholders) of at least $5 million and stockholders’
equity of at least $10.0 million. We announced on April 17, 2009 we had received
a letter, dated April 14, 2009, from the Listing Qualifications Department of
The NASDAQ Stock Market notifying us that we do not comply with the $10.0
million minimum stockholders’ equity requirement for continued listing on The
NASDAQ Global Market set forth in NASDAQ Marketplace Rule 5450(b)(1)(A).
NASDAQ’s determination was based on a review of our Annual Report on Form 10-K
for the period ended December 31, 2008. At that time, our stockholders’ equity
was reported at $6.5 million. Since that time, we announced an up to $43.5
million financing, of which the first $10.0 million was received on April 3,
2009 upon the issuance of shares of our Series A preferred stock and warrants to
purchase our common stock and the remainder of which may be issued by us,
subject to approval by our stockholders, upon the satisfaction of a certain
clinical milestone and our common stock trading above a specified floor price or
upon approval by a majority of the investors in the Private Placement, among
other conditions. While we do not anticipate that we will meet the $10.0 million
of stockholders’ equity continued listing requirement as of March 31, 2009 on a
GAAP or pro-forma basis after giving effect to the $10.0 million initial closing
of the Private Placement, the amount of the shortfall depends on the net
proceeds from the initial closing of the Private Placement, the amount of the
restructuring charge from our reduction in force on March 31, 2009 and the
application of GAAP to the terms of the newly issued securities, which we are in
the process of analyzing.  As provided in the NASDAQ rules, we have
the opportunity to submit to NASDAQ a specific plan and timeline to achieve and
sustain compliance. We submitted in a timely manner to the NASDAQ Staff a
plan to continue listing on The NASDAQ Global Market. There is no assurance that
NASDAQ will accept our plan to satisfy the stockholders’ equity requirement. If,
after the completion of its review, NASDAQ determines that we have not presented
a plan that adequately addresses the stockholders’ equity issue, NASDAQ will
provide written notice that our securities will be subject to delisting from The
NASDAQ Global Market. In that event, we may either apply for listing on The
NASDAQ Capital Market, provided we meet the continued listing requirements of
that market, or appeal the decision to a NASDAQ Listing Qualifications Panel. In
the event of an appeal, we would remain listed on The NASDAQ Global Market
pending a decision by the Panel following the hearing.


Additionally,
our common stock has traded in the near term below the $1.00 minimum bid price
every trading day since September 17, 2008. Under normal circumstances,
companies traded on NASDAQ would receive a deficiency notice from NASDAQ if
their common stock has traded below the $1.00 minimum bid price for 30
consecutive business days. Due to market conditions, however, on
October 16, 2008, NASDAQ announced suspension of the enforcement of rules
requiring a minimum $1.00 closing bid price and the market value of publicly
held shares, with enforcement scheduled to resume on Monday,
July 20, 2009. If our common stock is still listed on The NASDAQ Global
Market on July 20, 2009 and our common stock continues to trade below the $1.00
minimum bid price for 30 consecutive business days following the end of NASDAQ’s
enforcement suspension or if the market value of our publicly held shares trades
below $5 million for 30 consecutive business days following the end of NASDAQ’s
enforcement suspension, we would likely receive a deficiency notice. Following
receipt of a deficiency notice, we expect we would have 180 calendar days to
regain compliance by having our common stock trade over the $1.00 minimum bid
price for at least a 10-day period and we would have 90 calendar days to regain
compliance by having our publicly held shares trade over $5 million in value for
at least a 10-day period. If we were to fail to regain compliance during the
grace period, our common stock could be delisted.





If we
fail to comply with The NASDAQ Global Market listing standards, we may consider
transferring to The NASDAQ Capital Market, provided we met the transfer
criteria, which is a lower tier market, or our common stock may be delisted and
traded on the over-the-counter bulletin board network. Moving our listing to the
NASDAQ Capital Market could adversely affect the liquidity of our common stock
as would our common stock being traded on the over-the-counter bulletin board
network.  If our common stock were to be delisted by NASDAQ, we could
face significant material adverse consequences, including:




16




·
            a limited availability of market
      quotations for our common
stock;


·
            a reduced amount of news and
      analyst coverage for us;


·
            a decreased ability to issue
      additional securities or obtain additional financing in the
      future;


·
            reduced liquidity for our
      stockholders;


·
            potential loss of confidence by
      collaboration partners and employees;
and


·
            loss of institutional investor
      interest and fewer business development
    opportunities.





Provisions
of our charter documents or Delaware law could delay or prevent an acquisition
of our company, even if the acquisition would be beneficial to our stockholders,
and could make it more difficult to change management.





Provisions
of our amended and restated certificate of incorporation and amended and
restated bylaws may discourage, delay or prevent a merger, acquisition or other
change in control that stockholders might otherwise consider
favorable, including transactions in which stockholders might otherwise receive
a premium for their shares. In addition, these provisions may frustrate or
prevent any attempt by our stockholders to replace or remove our current
management by making it more difficult to replace or remove our board of
directors. These provisions include:




·
            a classified Board of Directors
      so that not all directors are elected at one
  time;


·
            a prohibition on stockholder
      action through written
consent;


·
            limitations on our stockholders’
      ability to call special meetings of
  stockholders;


·
            an advance notice requirement for
      stockholder proposals and nominations;
  and


·
            the authority of our Board of
      Directors to issue preferred stock with such terms as our Board of
      Directors may determine.





In
addition, Delaware law prohibits a publicly held Delaware corporation from
engaging in a business combination with an interested stockholder, generally a
person who, together with its affiliates, owns or within the last three years
has owned 15% of our voting stock, for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. Accordingly, Delaware
law may discourage, delay or prevent a change in control of our
company.





Provisions
in our charter documents and provisions of Delaware law could limit the price
that investors are willing to pay in the future for shares of our common
stock.




The
ownership of our common stock is highly concentrated, and your interests may
conflict with the interests of our existing stockholders.





Our
executive officers and directors and their affiliates beneficially owned
approximately 7.5% of our outstanding common stock as of March 15, 2009.
Accordingly, these stockholders, acting as a group, could have significant
influence over the outcome of corporate actions requiring stockholder approval,
including the election of directors, any merger, consolidation or sale of all or
substantially all of our assets or any other significant corporate transaction.
The significant concentration of stock ownership may adversely affect the
trading price of our common stock due to investors’ perception that conflicts of
interest may exist or arise.





We
have never paid dividends on our capital stock and we do not anticipate paying
any cash dividends in the foreseeable future.





We have
never declared or paid cash dividends on our capital stock. We do not anticipate
paying any cash dividends on our capital stock in the foreseeable future. We
currently intend to retain all available funds and any future earnings to fund
the development and growth of our business. As a result, capital appreciation,
if any, of our common stock will be our stockholders’ sole source of gain for
the foreseeable future.





We
are at risk of securities class action litigation.





In the
past, securities class action litigation has often been brought against a
company following a decline in the market price of its securities. This risk is
especially relevant for us because biotechnology companies have experienced
greater than average stock price volatility in recent years. If we faced such
litigation, it could result in substantial costs and a diversion of management’s
attention and resources, which could harm our business.




17




PART III




ITEM
10:  DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





DIRECTORS
OF THE COMPANY




The
following table sets forth information as of April 10, 2009 with respect to our
directors:




Name
                
                Age
                
                Director SinceJames
      W. Young, Ph.D.
                
                64
                
                2000Daniel
      N. Swisher, Jr.
                
                46
                
                2004Matthew
      K. Fust
                
                44
                
                2005Homer
      L. Pearce, Ph.D.
                
                56
                
                2006David
      C. Stump, M.D.
                
                59
                
                2006Edward
      Hurwitz
                
                45
                
                2009Dayton
      Misfeldt
                
                35
                
                2009




The
principal occupations and positions for at least the past five years of our
directors are as follows:




James W. Young, Ph.D. served
as Executive Chairman of our Board of Directors from December 2003 to April 2009
and has served as non-executive Chairman of our Board of Directors since April
2009. From May 2000 to November 2003, Dr. Young served as our Chief
Executive Officer. In April 2006, he joined 5AM Ventures, a venture capital
firm, as a Venture Partner. From September 1995 to March 2000, Dr. Young
served as Vice President of Research, as Senior Vice President, Research and
Development, and as Group Vice President at ALZA Corporation, a pharmaceutical
company. From September 1992 to August 1995, Dr. Young served as Senior
Vice President for Business Development and as President of the Pharmaceuticals
Division of Affymax, N.V., a biopharmaceutical company. From September 1987
to August 1992, he served as Senior Vice President for Business Development and
as Senior Vice President and General Manager of the Pharmaceuticals Division at
Sepracor Inc., a pharmaceutical company. Dr. Young holds a B.S. in
Chemistry from Fordham University and a Ph.D. in Organic Chemistry from Cornell
University.




Daniel N. Swisher, Jr. has
served as our Chief Executive Officer, or CEO, and a member of our Board of
Directors since January 2004 and also as our President since August 2005. From
December 2001 to December 2003, he served as our Chief Business Officer and
Chief Financial Officer. From June 1992 to September 2001, Mr. Swisher
served in various management roles, including Senior Vice President of Sales and
Marketing, for ALZA Corporation. In 2007, Mr. Swisher joined the Board of
Directors of the Okizu Foundation, an organization that provides support to
families affected by childhood cancers. Mr. Swisher holds a B.A. in History
from Yale University and an M.B.A. from the Stanford Graduate School of
Business.




Matthew K. Fust has been
Executive Vice President and Chief Financial Officer at Onyx Pharmaceuticals,
Inc., a biopharmaceutical company, since January 2009.  Prior to
joining Onyx, Mr. Fust was Executive Vice President and Chief Financial Officer
at Jazz Pharmaceuticals, Inc., a pharmaceutical company, which he joined in
May 2003. From May 2002 to May 2003, Mr. Fust was Chief Financial Officer
at Perlegen Sciences, Inc., a biotechnology company. From June 1996 to
January 2002, Mr. Fust was with ALZA Corporation, first as Controller and
then as Chief Financial Officer. Mr. Fust holds a B.A. in Accounting from
the University of Minnesota and an M.B.A. from the Stanford Graduate School of
Business.




Homer L. Pearce, Ph.D. served
in various capacities at Eli Lilly & Company between 1979 and March
2006, including Vice President, Cancer Research and Clinical Investigation from
1994 to 2002 and Distinguished Research Fellow, Cancer Research, Lilly Research
Laboratories from 2002 to March 2006. Since August 2006, Dr. Pearce has
served as a consultant to Sunesis, reviewing, assessing and advising us on our
development plans and strategies. He is a member of the American Association for
Cancer Research, the American Chemical Society and the American Association for
the Advancement of Science. Dr. Pearce holds a B.S. from Texas A&M
University and a Ph.D. in Organic Chemistry from Harvard
University.




18




David C. Stump, M.D. is
Executive Vice President, Research and Development, at Human Genome
Sciences, Inc., a biopharmaceutical company, and has served at that company
since November 1999. From December 2003 to May 2007, Dr. Stump served as
Executive Vice President of Drug Development at Human Genome Sciences and, from
November 1999 to December 2003, as its Senior Vice President, Drug Development.
Prior to joining Human Genome Sciences, Dr. Stump held roles of increasing
responsibility at Genentech, Inc., a biopharmaceutical company, from 1989
to 1999, including Vice President, Clinical Research and Genentech Fellow. Prior
to joining Genentech, Dr. Stump was an Associate Professor of Medicine and
Biochemistry at the University of Vermont. Since September 2006, Dr. Stump
has served as a consultant to Sunesis, reviewing, assessing and advising us on
our development plans and strategies. Dr. Stump holds an A.B. from Earlham
College and an M.D. from Indiana University, and did his residency and
fellowship training in internal medicine, hematology, oncology and biochemistry
at the University of Iowa.




Edward Hurwitz has served as
a director of Alta Partners, a venture capital firm, since June
2002.  From June 1997 to October 2002, Mr. Hurwitz served as Senior
Vice President and Chief Financial Officer of Affymetrix, Inc., a microarray
technology company. From April 1994 to June 1997, Mr. Hurwitz was a
biotechnology research analyst for Robertson Stephens & Company, and from
April 1992 to April 1994 was a biotechnology research analyst for Smith Barney
Shearson. From November 1990 to April 1992, Mr. Hurwitz practiced commercial law
at Cooley Godward LLP.  Mr. Hurwitz holds a B.A. in Molecular Biology
from Cornell University, a J.D. from the University of California, Berkeley
Boalt Hall School of Law and an M.B.A. from the Haas School of Business. Mr.
Hurwitz was appointed as a director pursuant to the Investor Rights Agreement
executed in connection with Alta Partners’ purchase of our securities in the
Private Placement.  See “Item 13: Certain Relationships and Related
Transactions and Director Independence” for a description of this
agreement.




Dayton Misfeldt is an
Investment Partner at Bay City Capital LLC, a venture capital firm, and focuses
on biopharmaceutical investment opportunities. Prior to joining Bay City
Capital in May 2000, Mr. Misfeldt was a Vice President at Roth Capital Partners
where he worked as a sell-side analyst covering the biopharmaceutical industry.
Mr. Misfeldt has also worked as a Project Manager at LifeScience Economics.
Mr. Misfeldt received a B.A. in Economics from the University of California, San
Diego. Mr. Misfeldt was appointed as a director pursuant to the Investor Rights
Agreement executed in connection with Bay City Capital’s purchase of our
securities in the Private Placement.  See “Item 13: Certain Relationships and
Related Transactions and Director Independence” for a description of this
agreement.




There are
no family relationships among any of our executive officers and
directors.




19




EXECUTIVE
OFFICERS OF THE COMPANY




Set forth
below is information regarding each of our executive officers as of April 10,
2009. Biographical information with regard to Mr. Swisher is set forth
under “Directors of the
Company” above.




Name
              
              Age
              
              PositionDaniel
      N. Swisher, Jr.
              
              46
              
              CEO,
      President and DirectorEric
      H. Bjerkholt
              
              49
              
              Senior
      Vice President, Corporate Development and Finance and Chief Financial
      OfficerSteven
      B. Ketchum, Ph.D.
              
              46
              
              Senior
      Vice President, Research and
Development




The
principal occupations and positions for at least the past five years of our
executive officers, other than Mr. Swisher, are as follows:




Eric H. Bjerkholt has served
as our Senior Vice President, Corporate Development and Finance and Chief
Financial Officer since February 2007. From January 2004 to January 2007, he
served as our Senior Vice President and Chief Financial Officer. From January
2002 to January 2004, Mr. Bjerkholt served as Senior Vice President and
Chief Financial Officer at IntraBiotics Pharmaceuticals, Inc., a
pharmaceutical company focused on the development of antibacterial and
antifungal drugs for the treatment of serious infectious diseases.
Mr. Bjerkholt was a co-founder of LifeSpring Nutrition, Inc., a
privately held nutraceutical company, and from May 1999 to March 2002 served at
various times as its Chief Executive Officer, President and Chief Financial
Officer. From 1990 to 1997, Mr. Bjerkholt was an investment banker at J.P.
Morgan & Co. Mr. Bjerkholt is a member of the Board of
Directors of StemCells, Inc., a biotechnology company. Mr. Bjerkholt
holds a Cand. Oecon degree in Economics from the University of Oslo and an
M.B.A. from Harvard Business School.




Steven B. Ketchum, Ph.D. has
served as our Senior Vice President, Research and Development since June
2008.  From May 2005 to May 2008, Dr. Ketchum served as Senior Vice
President, Research & Development and Medical Affairs of Reliant
Pharmaceuticals, Inc., a pharmaceutical company.  From June 2002 to
April 2005, Dr. Ketchum served as Senior Vice President, Operations and
Regulatory Affairs for IntraBiotics Pharmaceuticals, Inc. Dr. Ketchum also held
positions at ALZA Corporation from November 1994 to May 2002, most recently as
Senior Director, Regulatory Affairs. Dr. Ketchum earned a Ph.D. in Pharmacology
from University College London (funded by the Sandoz Institute for Medical
Research) and a B.S. in Biological Sciences from Stanford
University.




20




SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE




Section 16(a)
of the Exchange Act requires our executive officers, directors and persons who
own more than 10% of our common stock to file reports of ownership and changes
in ownership with the SEC. Executive officers, directors and greater than ten
percent stockholders are required by SEC regulations to furnish us with copies
of all Section 16(a) forms they file.




To our
knowledge, based solely on a review of the copies of reports furnished to us, we
believe that during the year ended December 31, 2008, our executive
officers, directors and greater than 10% stockholders complied with all
Section 16(a) filing requirements.




CERTAIN
CORPORATE GOVERNANCE MATTERS




Code
of Business Conduct & Ethics




We have adopted a Code of Business
Conduct & Ethics which applies to all of our directors, officers and
employees. A copy of our Code of Business Conduct & Ethics can be found on
our website, www.sunesis.com, in the
section titled “Investors and
Media” under the subsection titled “Corporate Governance.”
Information found on our website is not incorporated by reference into this
report. In addition, we intend to promptly disclose (1) the nature of any
amendment to our Code of Business Conduct & Ethics that applies to our
principal executive officer, principal financial officer, principal accounting
officer or persons performing similar functions and (2) the nature of any
waiver, including an implicit waiver, from a provision of our Code of Business
Conduct & Ethics that is granted to one of these specified officers, the
name of such person who is granted the waiver and the date of the waiver on our
website in the future.




Material
Changes to Procedures for Recommending Directors




No material changes have been made to
the procedures by which security holders may recommend nominees to our Board of
Directors.




Identification
of Audit Committee and Financial Expert




Our Board
of Directors has a standing Audit Committee with a written charter approved by
our Board of Directors that reflects the applicable standards and requirements
adopted by the SEC and the NASDAQ Stock Market, LLC, or NASDAQ. A copy of each
charter can be found on our website,www.sunesis.com, in the
section titled “Investors and
Media” under the subsection titled “Corporate Governance.”
Information found on our website is not incorporated by reference into this
report.




The Audit
Committee is chaired by Mr. Fust, and also includes Mr. Hurwitz and Dr.
Stump. Anthony B. Evnin, Ph.D., and Steven Goldby served on the Audit
Committee until their respective resignations from the Board of Directors on
April 3, 2009. The Board of Directors reviews the NASDAQ definition of
“independence” for Audit Committee members on an annual basis and has determined
that all members of our Audit Committee are independent (as independence is
currently defined in Rule 5605(c)(2)(A)(i) and (ii) of the NASDAQ
listing requirements). The Board of Directors has also determined that
Mr. Fust qualifies as an “audit committee financial expert,” as defined in
applicable SEC rules. The Board of Directors made a qualitative assessment of
Mr. Fust’s level of knowledge and experience based on a number of factors,
including his formal education and experience as a chief financial officer for
public reporting companies.




ITEM
11:  EXECUTIVE
COMPENSATION




EXECUTIVE
COMPENSATION AND RELATED INFORMATION




Summary
Compensation Table




The following table sets forth the
compensation information for our Chief Executive Officer and our two most highly
compensated executive officers other than our Chief Executive Officer who were
serving as executive officers as of December 31, 2008, as well as two
former executive officers who would have qualified as our most highly
compensated executive officers during 2008, but were no longer serving as our
executive officers as of December 31, 2008. Such individuals are referred to as
our “named executive officers” for the year ended December 31, 2008. All
compensation awarded to, earned by, or paid to our named executive officers are
included in the table below for the years indicated.




21




Name
      and Principal Position
                
                Year
                
                
                Salary(1)
                    ($)
                
                
                Bonus(2)
                    ($)
                
                
                OptionAwards(3)
                    ($)
                
                
                All
      Other
                    Compensation(4)
                    ($)
                
                Total
                    ($)Daniel
      N. Swisher, Jr.
                  Chief
      Executive Officer and President
                
                
                2008
                  2007
                
                
                $
                403,125
                  386,250
                
                
                $
                —
                  105,000
                
                
                $
                405,414
                  465,737
                
                
                $
                930
                  1,140
                
                
                $
                809,469
                  958,127Eric
      H. Bjerkholt
                  Senior
      Vice President, Corporate Development and Finance and Chief Financial
      Officer
                
                
                2008
                  2007
                
                
                
                321,458
                  283,125
                
                
                
                —
                  60,000
                
                
                
                221,412
                  257,486
                
                
                
                930
                  883
                
                
                
                543,800
                  601,494Valerie
      L. Pierce (5)
                  Former
      Senior Vice President, General Counsel and Corporate
    Secretary
                
                
                2008
                  2007
                
                
                
                318,958
                  185,682
                
                
                
                —
                  45,000
                
                
                
                109,113
                  61,477
                
                
                
                630
                  408
                
                
                
                428,701
                  292,567Daniel
      C. Adelman, M.D. (6)
                  Former
      Senior Vice President, Development and Chief Medical
    Officer
                
                
                2008
                  2007
                
                
                
                135,000
                  298,125
                
                
                
                —
                  50,000
                
                
                
                163,922
                  226,043
                
                
                
                234,421
                  1,306
                
                
                
                533,343
                  575,474Robert
      S. McDowell, Ph.D. (7)
                  Former
      Vice President, Research
                
                
                2008
                  2007
                
                
                
                156,040
                  253,750
                
                
                
                33,313
                  50,000
                
                
                
                104,895
                  131,778
                
                
                
                134,233
                  583
                
                
                
                395,168
                  436,111










(1)
            Includes
      amounts earned but deferred at the election of the named executive
      officer, such as salary deferrals under our 401(k) Plan established under
      Section 401(k) of the Internal Revenue Code of 1986, as amended (the
      “Code”).




(2)
            Cash
      bonus earned in 2007 and paid in February 2008 under our bonus
      program.  No cash bonuses were earned in 2008. See “Narrative to Summary
      Compensation Table– Cash Bonuses in 2008”
      below.




(3)
            This
      column represents the dollar amount recognized for financial statement
      reporting purposes with respect to the 2008 and 2007 fiscal years for the
      fair value of stock options granted to each of the named executive
      officers in such years in accordance with FASB Statement No. 123
      (revised), “Share-Based
      Payment,” or FAS 123R. Pursuant to SEC rules, the amounts shown
      exclude the impact of estimated forfeitures related to service-based
      vesting conditions. For additional information on the valuation
      assumptions, refer to Note 13, “Stock-Based
      Compensation” in our Annual Report on Form 10-K for the year ended
      December 31, 2008, filed with the SEC on April 3, 2009, which identifies
      assumptions made in the valuation of option awards in accordance with FAS
      123R. These amounts reflect our accounting expense for these awards and do
      not correspond to the actual value that will be recognized by the named
      executive officers.




(4)
            Represents
      group term life insurance premiums, reimbursements of up to $420 for
      health club memberships, and up to $300 for airline club fees, each as
      applicable.




(5)
            Ms.
      Pierce’s employment with us began in April 2007 and terminated as of April
      10, 2009.




(6)
            Dr.
      Adelman’s employment with us terminated as of June 6,
      2008.  “All Other Compensation” for 2008 includes a severance
      payment of $234,000.




(7)
            Dr.
      McDowell’s employment with us terminated as of August 4,
      2008.  “All Other Compensation” for 2008 includes a severance
      payment of $133,250.




22




Narrative
to Summary Compensation Table




Stock
Option Grants in 2008




See
“Outstanding Equity Awards
Table at December 31, 2008”below for the terms of
the stock options granted to certain of our named executive officers in
2008.




Executive
Severance Benefits Agreements




We
entered into executive severance benefits agreements with each of our named
executive officers to provide certain benefits upon a termination of
employment.  The agreements with Messrs. Swisher and Bjerkholt and Dr.
Ketchum were amended in April 2009 in connection with our adoption of a Change
of Control Payment Plan.  See “Post-Termination Compensation –
Change of Control Severance Protections” for a more detailed discussion
of the benefits under such plan and pursuant to the executive severance benefits
agreements, as amended, in connection with a change of control
transaction.




The
Compensation Committee believes such agreements help us attract and retain
employees in a marketplace where such protections are commonly offered by our
peer companies. We also believe that severance protections offered upon
terminations arising in connection with a change of control allow our executives
to assess a potential change of control objectively, without regard to the
potential impact of the transaction on their own job security. At the time we
originally entered into the executive severance benefits agreements with each of
the named executive officers, the Compensation Committee determined that the
terms of such executive severance benefits agreements reflected industry
standard severance payments, benefits and equity acceleration.




Mr. Swisher.    Under
the executive severance benefits agreement with Mr. Swisher, if Mr. Swisher
is terminated without cause or he is constructively terminated, he is entitled
to receive a payment equal to 12 months salary and continued health benefits for
a maximum period of the first 12 months following termination (which may be
terminated earlier upon his coverage by a new employer), subject to the
execution of a general release in favor of Sunesis.  If such
termination occurs within 12 months following a change of control transaction of
Sunesis, he is entitled to receive, subject to the execution of a general
release in favor of Sunesis: (i) a lump sum payment equal to 18 months of
his base salary at the time of termination, (ii) a lump sum payment equal
to 150% of his target bonus for the year during which the termination occurs,
and (iii) continued health benefits for a maximum period of the first 18
months following termination (which may be terminated earlier upon his coverage
by a new employer).  In connection with our adoption of the Change of
Control Payment Plan, Mr. Swisher’s executive severance benefits agreement was
amended in April 2009 to eliminate the severance
benefits described in the immediately preceding sentence, which would have been
payable in the event of Mr. Swisher’s termination following a change of control
transaction of Sunesis.  In addition, this agreement, as amended, also
provides that in the event that Mr. Swisher is terminated by an acquirer within
six months after a change of control transaction, the above-described severance
benefits payable in the event Mr. Swisher is terminated without cause or
constructively terminated would be reduced on a dollar-for-dollar basis by the
amount paid or payable to Mr. Swisher pursuant to the Change of Control Payment
Plan.  Under Mr. Swisher’s executive severance benefits
agreement he will also be eligible for certain option acceleration benefits, as
described in more detail under “Post-Termination
Compensation –Change
of Control Severance Protections” below.




Mr. Bjerkholt and Dr.
Ketchum.    Under the respective executive severance
benefits agreements with Mr. Bjerkholt and Dr. Ketchum, if such executive
is terminated without cause or is constructively terminated, each is entitled to
receive a payment equal to nine months salary and continued health benefits for
a maximum period of the first nine months following termination (which may be
terminated earlier upon his coverage by a new employer), subject to the
execution of a general release in favor of Sunesis.  If such
termination occurs within 12 months following a change of control transaction of
Sunesis, such executive is entitled to receive, subject to the execution of a
general release in favor of Sunesis: (i) a lump sum payment equal to 14
months of his base salary at the time of termination, (ii) a lump sum
payment equal to 117% of his target bonus for the year during which the
termination occurs, and (iii) continued health benefits for a maximum
period of the first 14 months following termination (which may be terminated
earlier upon his coverage by a new employer). In connection with our
adoption of the Change of Control Payment Plan, these executive severance
benefits agreements were amended in April 2009 toeliminate the severance
benefits described in the immediately preceding sentence, which would have been
payable in the event of Mr. Bjerkholt’s or Dr. Ketchum’s, as the case may be,
termination following a change of control transaction of Sunesis.  In
addition, these agreements, as amended, also provide that in the event that Mr.
Bjerkholt or Dr. Ketchum, as the case may be, is terminated by an acquirer
within six months after a change of control transaction, the above-described
severance benefits payable in the event the executive is terminated without
cause or constructively terminated would be reduced on a dollar-for-dollar basis
by the amount paid or payable to the executive pursuant to the Change of Control
Payment Plan.Under Mr.
Bjerkholt’s and Dr. Ketchum’s respective executive severance benefits agreements
they will also be eligible for certain option acceleration benefits, as
described in more detail under “Post-Termination Compensation –Change
of Control Severance Protections”below.




23




Drs. Adelman and McDowell and Ms.
Pierce.   The employment of Dr. Adelman terminated on June
6, 2008, the employment of Dr. McDowell terminated August 4, 2008 and the
employment of Ms. Pierce terminated on April 10, 2009.  Each of these
former executive officers received or are entitled to receive the following
severance benefits pursuant to their executive severance benefits agreements
with Sunesis in connection with the termination of their
employment:




Name
                  
                  Cash
                      Severance
                      ($)
                  
                  
                  Health
                      Benefits
                      ($)Valerie
      L. Pierce
                  
                  $
                  255,000
                  (1)
                  
                  $
                  19,723
                  (3)Daniel
      C. Adelman, M.D.
                  
                  
                  234,000
                  (1)
                  
                  
                  18,963
                  (3)Robert
      S. McDowell, Ph.D.
                  
                  
                  133,250
                  (2)
                  
                  
                  2,377
                  (4)





(1)
            Represents
      nine months of base salary at time of
  termination.




(2)
            Represents
      six months of base salary at time of
  termination.




(3)
            Represents
      nine months of health care benefits (which may be terminated earlier upon
      coverage of the executive by a new
employer).




(4)
            Represents
      six months of health care benefits (which may be terminated earlier upon
      coverage of the executive by a new
employer).




Cash
Bonuses in 2008




Given the recommendation by our CEO not
to pay our executive officers cash bonuses for performance in the year 2008,
which recommendation was approved by our Compensation Committee and, in the case
of our CEO, by a committee of those directors qualifying as “outside directors”
within the meaning of Section 162(m) of the Code and as “non-employee directors”
within the meaning of Rule 16b-3 of the Exchange Act, no cash bonuses were
awarded to our executive officers for performance in 2008.




Outstanding
Equity Awards Table at December 31, 2008




The
following information sets forth the outstanding stock options held by our named
executive officers as of December 31, 2008. As of December 31, 2008,
none of our named executive officers held unearned equity incentive awards or
stock awards.




24




Option AwardsName
                  
                  Number of
                      Securities
                      Underlying
                      Unexercised
                      Options (#)
                    Exercisable
                  
                  
                  Number of
                      Securities
                      Underlying
                      Unexercised
                    Options (#)
                    Unexercisable
                  
                  
                  Option
                      Exercise
                    Price ($)
                  
                  Option
                      Expiration
                    DateDaniel N. Swisher,
      Jr.117,647
                  
                  
                  
                  —
                  
                  
                  $
                  2.55
                  
                  02/06/1211,765
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  02/06/1247,059
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  04/16/1370,589
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  01/21/1421,176
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  06/24/14181,145
                  (1)
                  
                  
                  53,855
                  (1)
                  
                  
                  5.25
                  
                  11/29/1565,000
                  (2)
                  
                  
                  55,000
                  (2)
                  
                  
                  4.85
                  
                  10/13/1648,437
                  (3)
                  
                  
                  106,563
                  (3)
                  
                  
                  2.59
                  
                  09/13/17Eric
      H. Bjerkholt58,824
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  01/21/1417,647
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  06/09/1492,500
                  (1)
                  
                  
                  27,500
                  (1)
                  
                  
                  5.25
                  
                  11/29/1532,500
                  (2)
                  
                  
                  27,500
                  (2)
                  
                  
                  4.85
                  
                  10/13/1628,125
                  (3)
                  
                  
                  61,875
                  (3)
                  
                  
                  2.59
                  
                  09/13/178,437
                  (4)
                  
                  
                  59,063
                  (4)
                  
                  
                  1.44
                  
                  06/30/18Valerie
      L. Pierce50,000
                  (5)
                  
                  
                  70,000
                  (5)
                  
                  
                  4.60
                  
                  04/30/1714,062
                  (3)
                  
                  
                  30,938
                  (3)
                  
                  
                  2.59
                  
                  09/13/178,437
                  (4)
                  
                  
                  59,063
                  (4)
                  
                  
                  1.44
                  
                  06/30/18Daniel
      C. Adelman, M.D.(6)
                  
                  
                  47,059
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  6/30/0911,765
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  6/30/0918,824
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  6/30/09104,999
                  (1)
                  
                  
                  —
                  
                  
                  
                  5.25
                  
                  6/30/0938,750
                  (2)
                  
                  
                  —
                  
                  
                  
                  4.85
                  
                  6/30/0937,499
                  (3)
                  
                  
                  —
                  
                  
                  
                  2.59
                  
                  6/30/09Robert
      S. McDowell, Ph.D.(7)
                  
                  
                  12,941
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  6/30/0918,824
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  6/30/094,706
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  6/30/0914,118
                  
                  
                  
                  —
                  
                  
                  
                  2.55
                  
                  6/30/0950,416
                  (1)
                  
                  
                  —
                  
                  
                  
                  5.25
                  
                  6/30/0934,374
                  (2)
                  
                  
                  —
                  
                  
                  
                  4.85
                  
                  6/30/0927,499
                  (3)
                  
                  
                  —
                  
                  
                  
                  2.59
                  
                  6/30/09





(1)
            This
      stock option was granted on November 29, 2005 pursuant to our 2005
      Equity Incentive Award Plan and vests monthly during the 48-month period
      measured from the grant date, subject to the holder’s continued service
      with Sunesis.




(2)
            This
      stock option was granted on October 13, 2006 pursuant to our 2005
      Equity Incentive Award Plan and vests monthly during the 48-month period
      measured from the grant date, subject to the holder’s continued service
      with Sunesis.




(3)
            This
      stock option was granted on September 13, 2007 pursuant to our 2005
      Equity Incentive Award Plan and vests monthly during the 48-month period
      measured from the grant date, subject to the holder’s continued service
      with Sunesis.




(4)
            This
      stock option was granted on June 30, 2008 pursuant to our 2005 Equity
      Incentive Award Plan and vests monthly during the 48-month period measured
      from the grant date, subject to the holder’s continued service with
      Sunesis.




(5)
            This
      stock option was granted on April 30, 2007 pursuant to our 2005 Equity
      Incentive Award Plan and 25% of the shares subject to the option vest one
      year from the date of the grant and the remaining shares vest monthly
      during the subsequent 36-month period thereafter, subject to the holder’s
      continued service with Sunesis.




(6)
            Dr.
      Adelman’s employment with us terminated as of June 6, 2008. Pursuant to
      the Acceptance of Option Amendment by and between us and Dr. Adelman,
      dated June 6, 2008, the post-termination exercise period of Dr. Adelman’s
      outstanding options that had vested as of June 6, 2008, together with
      options that vested in connection with his severance, were extended until
      the earlier of (i) the original end of the term of each such option or
      (ii) June 30, 2009.




(7)
            Dr.
      McDowell’s employment with us terminated as of August 4,
      2008.  Pursuant to the Acceptance of Option Amendment by and
      between us and Dr. McDowell, dated June 27, 2008, the post-termination
      exercise period of Dr. McDowell’s outstanding options that had vested as
      of August 4, 2008, together with options that vested in connection with
      his severance, were extended until the earlier of (i) the original end of
      the term of each such option or (ii) June 30,
  2009.




Post-Termination
Compensation




Retirement
Savings




We encourage our executives and
employees generally to plan for retirement compensation through voluntary
participation in our 401(k) Plan. All of our employees, including our
executives, may participate in our 401(k) Plan by making pre-tax contributions
from wages of up to 60% of their annual cash compensation, up to the current
Internal Revenue Service limits. During 2008, we did not make matching
contributions to the 401(k) Plan. All of our executives can participate in the
401(k) Plan on the same terms as our employees. We believe this program is
comparable with programs offered by our peer companies and assists us in
attracting and retaining our executives.




25


Medical
Benefits




On April 3, 2009, Dr. Young retired as
our Executive Chairman. In connection with his resignation, we agreed to cover
Dr. Young’s medical benefits for a period of 12 months; however, Dr. Young is
not otherwise entitled to any severance in connection with his resignation
pursuant to the terms of his Second Amended and Restated Executive Severance
Benefits Agreement with us, dated December 23, 2008.




Change
of Control Severance Protections




Change of Control Payment
Plan




On April
3, 2009, we adopted a Change of Control Payment Plan, or the Plan, pursuant to
which 10.5 to 12.0% of the transaction value, or the Plan Pool, of a change of
control transaction of Sunesis would be allocated to our eligible employees,
including our named executive officers remaining employed by Sunesis, pursuant
to the terms of such Plan.  The aggregate proceeds available for
distribution to eligible employees under the Plan is as follows:




Transaction Value ($)
                
                Aggregate Plan Pool (%)≤
                $30
      million
                
                
                10.5
                %>
                30 
      million but less than 45 million
                
                
                11.0≥
                45 
      million but less than 60 million
                
                
                11.5≥
                60 
      million
                
                
                12.0





In order for an employee to be eligible
to participate in the Change of Control Payment Plan, the individual must be a
full-time regular U.S. employee and designated in writing by our Board of
Directors, subject to certain limitations.  Each participant shall be
allocated a percentage of the Plan Pool.  The percentage allocations
of the Plan Pool for our executive officers are as follows:





Title of Executive Officer
                
                Pro Rata Share (%)Chairman
      of the Board of Directors
                
                
                3.0
                %Chief
      Executive Officer
                
                
                20.0Senior
      Vice Presidents
                
                12.5
      each, 25.0 in the aggregate




Our Vice Presidents and other employees
are also eligible to participate in the Plan.  If the number of
employees at a level of Vice President or higher participating in the Plan
changes after April 3, 2009, the Plan Pool allocations shown above shall be
reallocated by the Compensation Committee of our Board of Directors, or the
Compensation Committee, on a pro rata basis without increasing or decreasing the
aggregate Plan Pool. If there are significant decreases in the number of
eligible employees below the level of Vice President, the Compensation
Committee, in its sole discretion but considering the recommendation of our CEO,
may reallocate a portion of the Plan Pool to other allocation categories
(including those at or above the level of Vice President) without increasing or
decreasing the aggregate Plan Pool.




If a change of control occurs, a
participant in the Plan shall receive, in exchange for a general release of
claims against us, a payment under the Plan in the same consideration received
by us or our stockholders in the transaction if the participant is still an
eligible employee on the date that payments pursuant to the Plan are scheduled
to be made, and any cash severance payments owed by us in the future to the
participant on account of a termination by us without cause or a constructive
termination by us within six months following the change of control transaction
under any severance agreement shall be reduced on a dollar-for-dollar basis by
any payments pursuant to the Plan.  If the participant has been
terminated by us without cause or constructively terminated by us at the time
payments under the Plan are scheduled to be made, we shall still provide the
participant with such participant’s allocated portion of the Plan Pool, but any
cash severance payments otherwise payable to the participant by us shall be
reduced on a dollar-for-dollar basis by such allocated portion of the Plan Pool,
which shall be paid in cash to the extent of the cash severance payments that
have been so reduced.  The application of the Plan to amounts that are
paid from escrow or pursuant to earn-out or other contingencies shall be
determined at a future date in the sole discretion of our Board of Directors,
recognizing that it is the present intention of our Board of Directors to apply
the Plan to such amounts in the same manner as it applies to amounts payable
immediately upon the effective date of the change of control, subject, however,
to the requirements for either compliance with or exemption from Section 409A of
the Code.




In
general, a “change of control” under the Plan includes an acquisition
transaction in which a person or entity (with certain exceptions) becomes the
direct or indirect beneficial owner of more than 50% of our voting stock, as
well as the consummation of certain types of corporate transactions, such as a
merger, consolidation, reorganization, business combination or sale of all or
substantially all of our assets, pursuant to which our stockholders own,
directly or indirectly, less than 50% of Sunesis or our successor, or if our
stockholders approve a liquidation or dissolution of Sunesis. However, a cash
financing transaction will not constitute a change of control transaction
pursuant to the terms of the Plan.




26


The Plan shall remain in effect until
the earlier of the conclusion of a change of control transaction and payout
under the Plan or six months after the earlier of (a) the common equity closing
of the Private Placement or (b) the conversion of our outstanding shares of
Series A preferred stock; provided, however, that our obligation to make
payments pursuant to a change of control transaction that occurs on or prior to
such termination shall be unaffected by such termination.  For more
information on these events, see Note 17 “Subsequent Events” to the
Notes to Consolidated Financial Statements in our Annual Report on
Form 10-K for the year ended December 31, 2008, filed with the SEC on
April 3, 2009. We reserve the right to amend or terminate the Plan at any time,
subject to the consent of any adversely affected participant.




Executive Severance Benefits
Agreements




In
general, a “change of control” under these executive severance benefits
agreements, as amended, includes an acquisition transaction in which a person or
entity (with certain exceptions described in the agreements) becomes the direct
or indirect beneficial owner of more than 50% of our voting stock, as well as
the consummation of certain types of corporate transactions, such as a merger,
consolidation, reorganization, business combination or sale of all or
substantially all of our assets, pursuant to which our stockholders own,
directly or indirectly, less than 50% of Sunesis or our successor, or if our
stockholders approve a liquidation or dissolution of
Sunesis.  However, a cash financing transaction will not constitute a
change of control transaction pursuant to the terms of the executive severance
benefits agreements.




Each of
the executive severance benefits agreements provides that, in the event that any
benefits provided in connection with a change of control (or a related
termination of employment) would be subject to the 20% excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, or the Code, the
executive officer will receive the greater, on an after-tax basis (taking
account of all federal, state and local taxes and excise taxes), of such
benefits or such lesser amount of benefits as would result in no portion of the
benefits being subject to the excise tax. An executive officer’s receipt of any
severance benefits is subject to his execution of a release in favor of Sunesis.
Any benefits under the executive severance benefits agreement would terminate
immediately if the executive officer, at any time, violates any proprietary
information or confidentiality obligation to us. See “Narrative to Summary Compensation
Table – Executive Severance Benefits Agreements” above for a description
of the other terms of the executive severance benefits agreements.




Stock Option Acceleration




Under the
executive severance benefits agreements, as amended, with Messrs. Swisher
and Bjerkholt and Dr. Ketchum, in connection with a change of control of
Sunesis, the vesting of 50% of each such executive officer’s outstanding option
awards is automatically accelerated immediately prior to the effective date of
such change of control. In the event of a termination without cause or a
constructive termination of any of these executives officers (i) within 12
months following a change of control, 100% of such executive officer’s
outstanding awards would automatically accelerate on the date of termination, or
(ii) if prior to or more than 12 months following a change of control, the
outstanding awards that would have vested over the 12 month period following the
date of termination would automatically accelerate for such executive
officer.




Change of Control Equity Incentive Plan
Protections




Our 1998
Stock Plan and our 2001 Stock Plan both provide that in the event of a proposed
sale of all or substantially all of our assets or a merger of Sunesis with or
into another corporation in which we are not the surviving corporation, each
outstanding award shall be assumed or an equivalent award substituted by such
successor corporation, unless the successor corporation does not agree to assume
the award, in which case, the award shall terminate upon the consummation of the
merger or sale of assets.




Our 2005
Equity Incentive Award Plan and 2006 Employment Commencement Incentive Plan
provide that upon any change of control of Sunesis, our Board of Directors (or
any committee delegated authority by our Board) may, in its discretion, make
adjustments it deems appropriate to reflect such change with respect to
(i) the aggregate number and type of awards that may be issued under the
applicable plan, (ii) the terms and conditions of any outstanding awards,
and (iii) and the grant or exercise price of any outstanding awards. If
outstanding awards are not assumed by the surviving or successor entity and such
successor entity does not substitute substantially similar awards for those
awards outstanding under the 2005 Equity Incentive Award Plan and the 2006
Employment Commencement Incentive Plan, such outstanding awards shall become
fully exercisable and/or payable as applicable and all forfeiture restrictions
on such outstanding awards shall lapse.




27


In
addition, our 2005 Equity Incentive Award Plan and 2006 Employment Commencement
Incentive Plan include change in control provisions, which may result in the
accelerated vesting of outstanding awards. In the event of a change in control
of our company, for example, if we are acquired by merger or asset sale, each
outstanding award under the 2005 Equity Incentive Award Plan and 2006 Employment
Commencement Incentive Plan will accelerate and immediately vest with respect to
50% of the award, and if the remainder of the award is not to be assumed by the
successor corporation, the full amount of the award will automatically
accelerate and become immediately vested. Additionally, in the event the
remainder of the award is assumed by the successor corporation, any remaining
unvested shares would accelerate and immediately vest in the event the optionee
is terminated without cause or resigns for good reason within 12 months
following such change in control. Pursuant to amendments to the 2005 Equity
Incentive Award Plan and 2006 Employment Commencement Incentive Plan approved by
our Board in March 2009, a cash financing will not constitute a change of
control. In order to
make the treatment of outstanding options granted under the 1998 Stock Plan and
2001 Stock Plan for then-current employees identical to the treatment of options
granted under the 2005 Equity Incentive Award Plan and 2006 Employment
Commencement Incentive Plan, all options outstanding under the 1998 and 2001
plans were amended to reflect identical change in control
provisions.




We
believe that the terms of our equity incentive plans described above are
consistent with industry practice.





Potential
Payments Upon Termination or Change of Control




The following table illustrates
potential payments to our named executive officers under our executive severance
benefits agreements in connection with a change of control event or with respect
to a termination without good cause or resignation for good reason subsequent to
a change of control event, as if such change of control event or covered
termination occurred as of December 31, 2008:





Potential Payments in Connection With:Name
                                                                                      
                                                                                      Type of Benefit
                                                                                      
                                                                                      A Change of
                                                                                        Control
                                                                                        ($)
                                                                                      
                                                                                      
                                                                                      Termination
                                                                                        Within 12
                                                                                        Months
                                                                                        Following a
                                                                                        Change of
                                                                                        Control
                                                                                        ($)
                                                                                      
                                                                                      
                                                                                      Covered
                                                                                        Termination
                                                                                        Prior to or
                                                                                        More
                                                                                        than 12
                                                                                        Months
                                                                                        Following a
                                                                                        Change of
                                                                                        Control
                                                                                        ($)Daniel
      N. Swisher, Jr.Equity
      Award Acceleration
                                                                                      
                                                                                      $
                                                                                      —
                                                                                      (1)
                                                                                      
                                                                                      $
                                                                                      —
                                                                                      (2)
                                                                                      
                                                                                      $
                                                                                      —
                                                                                      (9)Salary
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      604,688
                                                                                      (3)
                                                                                      
                                                                                      
                                                                                      403,125
                                                                                      (10)Bonus
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      241,875
                                                                                      (4)
                                                                                      
                                                                                      
                                                                                      —Health
      Benefits
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      39,447
                                                                                      (5)
                                                                                      
                                                                                      
                                                                                      26,298
                                                                                      (11)Total:
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      886,010
                                                                                      
                                                                                      
                                                                                      
                                                                                      429,423Eric
      H. BjerkholtEquity
      Award Acceleration
                                                                                      
                                                                                      
                                                                                      —
                                                                                      (1)
                                                                                      
                                                                                      
                                                                                      —
                                                                                      (2)
                                                                                      
                                                                                      
                                                                                      —
                                                                                      (9)Salary
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      375,034
                                                                                      (6)
                                                                                      
                                                                                      
                                                                                      241,094
                                                                                      (12)Bonus
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      112,510
                                                                                      (7)
                                                                                      
                                                                                      
                                                                                      —Health
      Benefits
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      17,056
                                                                                      (8)
                                                                                      
                                                                                      
                                                                                      10,965
                                                                                      (13)Total:
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      504,600
                                                                                      
                                                                                      
                                                                                      
                                                                                      252,059Valerie
      L. PierceEquity
      Award Acceleration
                                                                                      
                                                                                      
                                                                                      —
                                                                                      (1)
                                                                                      
                                                                                      
                                                                                      —
                                                                                      (2)
                                                                                      
                                                                                      
                                                                                      —
                                                                                      (9)Salary
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      372,118
                                                                                      (6)
                                                                                      
                                                                                      
                                                                                      239,219
                                                                                      (12)Bonus
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      111,635
                                                                                      (7)
                                                                                      
                                                                                      
                                                                                      —Health
      Benefits
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      30,681
                                                                                      (8)
                                                                                      
                                                                                      
                                                                                      19,723
                                                                                      (13)Total:
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      514,434
                                                                                      
                                                                                      
                                                                                      
                                                                                      258,942Daniel
      C. Adelman, M.D.Equity
      Award Acceleration
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —
                                                                                      (14)Salary
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      234,000
                                                                                      (12)Bonus
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —Health
      Benefits
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      18,582
                                                                                      (13)Total:
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      252,582Robert
      S. McDowell, Ph.D.Equity
      Award Acceleration
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —
                                                                                      (15)Salary
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      133,250
                                                                                      (16)Bonus
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      33,313
                                                                                      (17)Health
      Benefits
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      2,299
                                                                                      (18)Total:
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      —
                                                                                      
                                                                                      
                                                                                      
                                                                                      168,862




28





(1)
            Represents
      the amount of the benefit each of our named executive officers would have
      received pursuant to the terms of our executive severance benefits
      agreements with them from the acceleration of 50% of such executive’s
      aggregate outstanding unvested stock options, assuming a change of control
      event occurred on December 31, 2008. As of December 31, 2008,
      none of our named executive officers held in-the-money stock options as
      determined by the closing price of our common stock on December 31,
      2008 as reported by NASDAQ, which was $0.32, and, as a result, none of our
      named executive officers would have received any benefit from such
      provisions under our executive severance benefits agreements with them if
      a change of control had occurred as of December 31,
    2008.




(2)
            Represents
      the amount of the benefit each of our named executive officers would have
      received pursuant to the terms of our executive severance benefits
      agreements with them from the acceleration of 100% of such executive’s
      aggregate outstanding unvested stock options, assuming such executive’s
      employment with us terminated on December 31, 2008 within 12 months
      of a change of control event. As of December 31, 2008, none of our
      named executive officers held in-the-money stock options as determined by
      the closing price of our common stock on December 31, 2008 as
      reported by NASDAQ, which was $0.32, and, as a result, none of our named
      executive officers would have received any benefit from such provisions
      under our executive severance benefits agreements with them if their
      employment terminated as of December 31, 2008 within 12 months of a
      change of control event.




(3)
            Represents
      18 months of base salary at time of
  termination.




(4)
            Represents
      a lump sum equal to 150% of such named executive officer’s applicable
      target bonus for 2008.




(5)
            Represents
      18 months of healthcare
benefits.




(6)
            Represents
      14 months of base salary at time of
  termination.




(7)
            Represents
      a lump sum equal to 117% of such named executive officer’s applicable
      target bonus for 2008.




(8)
            Represents
      14 months of healthcare
benefits.




(9)
            Represents
      the amount of the benefit each of our named executive officers would have
      received pursuant to the terms of our executive severance benefits
      agreements from the acceleration with respect to an additional
      12 months of vesting of such executive’s aggregate outstanding
      unvested stock options, assuming such executive’s employment with us
      terminated on December 31, 2008. As of December 31, 2008, none
      of our named executive officers held in-the-money stock options as
      determined by the closing price of our common stock on December 31,
      2008, as reported by NASDAQ, which was $0.32, and, as a result, none of
      our named executive officers would have received any benefit from such
      provisions under our executive severance benefits agreements with them if
      their employment terminated as of December 31,
  2008.




(10)
            Represents
      12 months of base salary at time of
  termination.




(11)
            Represents
      12 months of healthcare
benefits.




(12)
            Represents
      nine months of base salary at time of
  termination.




(13)
            Represents
      nine months of healthcare benefits.




(14)
            Dr.
      Adelman’s employment with us was terminated as of June 6,
      2008.  This amount represents the benefit Dr. Adelman received
      pursuant to the terms of his executive severance benefits agreement from
      the acceleration with respect to an additional 12 months of vesting
      of his aggregate outstanding unvested stock options.  As of June
      6, 2008, none of Dr. Adelman’s stock options were in the money as
      determined by the closing price of our common stock on June 6, 2008 as
      reported by NASDAQ, which was $1.80, and, as a result, he did not receive
      any benefit from such provision under his executive severance benefits
      agreement.




29


(15)
            Dr.
      McDowell’s employment with us was terminated as of August 4,
      2008.  This amount represents the benefit Dr. McDowell received
      pursuant to the terms of his executive severance benefits agreement from
      the acceleration with respect to an additional 12 months of vesting
      of his aggregate outstanding unvested stock options.  As of
      August 4, 2008, none of Dr. McDowell’s stock options were in the money as
      determined by the closing price of our common stock on August 4, 2008 as
      reported by NASDAQ, which was $1.55, and, as a result, he did not receive
      any benefit from such provision under his executive severance benefits
      agreement.




(16)
            Represents
      six months of base salary at time of
  termination.




(17)
            Represents
      a lump sum equal to 12.5% of Dr. McDowell’s base salary at time of
      termination.




(18)
            Represents
      six months of healthcare benefits.




See “Narrative
to Summary Compensation Table”and“Post-Termination
Compensation –Change
of Control Severance Protections” abovefor a discussion of the
Change of Control Payment Plan we adopted in April 2009 and the related
amendments to our executive’s executive severance benefits
agreements.




DIRECTOR
COMPENSATION




Board and Committee Fees and
Awards




On the date of our annual meeting of
stockholders each year, each non-employee director of our Board of Directors,
except the Chairman of our Board of Directors, is entitled to receive $20,000 in
connection with his services as a director. A non-employee Chairman of our Board
of Directors is entitled to receive $50,000 in connection with his services as a
director and chair of our Board of Directors. Additionally, each non-employee
director who serves on a committee is entitled to receive an annual payment of
$5,000 for service as chairman of a committee and $3,000 for service as a member
on a committee. At the same time, each continuing non-employee director receives
a non-qualified stock option grant to purchase 10,000 shares of our common
stock. These options vest in equal installments over a 12-month period from the
grant date. Newly elected non-employee directors are granted, in addition to the
Board and committee fees discussed above, an initial grant of non-qualified
stock options to purchase 30,000 shares of our common stock upon first being
elected to our Board of Directors. These options vest over a two-year period
with 50% annual vesting on each anniversary of the grant date. Our employee
directors did not receive any compensation in 2008 for their service on our
Board of Directors.




Consulting
Arrangements




We
have entered into consulting agreements with Drs. Pearce and Stump.




In August
2006, we entered into a consulting agreement with Dr. Pearce under which
his services include reviewing, assessing and advising us on our development
plans and strategies. Pursuant to the consulting agreement, Dr. Pearce is
entitled to receive up to $3,000 a day, prorated at an hourly rate of $375 an
hour, for his consulting services. Total payments to Dr. Pearce under this
agreement may not exceed $40,000 during any one-year period.




In
September 2006, we entered into a consulting agreement with Dr. Stump under
which his services include reviewing, assessing and advising us on our
development plans and strategies. Pursuant to the consulting agreement,
Dr. Stump is entitled to receive up to $3,000 a day, prorated at an hourly
rate of $375 an hour, for his consulting services. Total payments to
Dr. Stump under this agreement may not exceed $40,000 during any one-year
period.




2008
Director Compensation Table




The
following table sets forth the compensation information for our non-employee
directors, as well as Dr. Young, the current Chairman of our Board and former
Executive Chairman, for the year ended December 31, 2008. The compensation
received by Mr. Swisher, as a named executive officer, is set forth in
“Executive Compensation and
Related Information” on page 21 above.




30




Name
                        
                        Fees Earned
                            or Paid in
                            Cash
                            ($)
                        
                        
                        Option
                            Awards
                            ($) (2)(3)
                        
                        
                        All Other
                            Compensation
                            ($)
                        
                        
                        Total
                            ($)Anthony
      B. Evnin, Ph.D.(6)
                        
                        $
                        28,000
                        
                        
                        $
                        17,235
                        
                        
                        $
                        —
                        
                        
                        $
                        45,235Stephen
      P.A. Fodor, Ph.D.(7)
                        
                        
                        25,000
                        
                        
                        
                        17,235
                        
                        
                        
                        —
                        
                        
                        
                        42,235Matthew
      K. Fust
                        
                        
                        28,000
                        
                        
                        
                        17,235
                        
                        
                        
                        —
                        
                        
                        
                        45,235Steven
      D. Goldby(8)
                        
                        
                        26,000
                        
                        
                        
                        17,235
                        
                        
                        
                        —
                        
                        
                        
                        43,235Jonathan
      S. Leff(9)
                        
                        
                        23,000
                        
                        
                        
                        17,235
                        
                        
                        
                        —
                        
                        
                        
                        40,235Homer
      L. Pearce, Ph.D.
                        
                        
                        23,000
                        
                        
                        
                        48,135
                        
                        
                        
                        6,563
                        (4)
                        
                        
                        77,698David
      C. Stump M.D.
                        
                        
                        20,000
                        
                        
                        
                        48,135
                        
                        
                        
                        6,563
                        (5)
                        
                        
                        74,698James
      A. Wells, Ph.D.(10)
                        
                        
                        20,000
                        (1)
                        
                        
                        11,784
                        
                        
                        
                        —
                        
                        
                        
                        31,784James
      W. Young, Ph.D.(11)
                        
                        
                        —
                        
                        
                        
                        207,530
                        
                        
                        
                        202,772
                        
                        
                        
                        410,302







(1)
            The
      annual retainer of $20,000 otherwise payable to Dr. Wells for serving
      on our Board was paid to The Regents of the University of California in
      accordance with an agreement between Dr. Wells and The Regents of the
      University of California.




(2)
            This
      column represents the dollar amount recognized for financial statement
      reporting purposes in 2008 for the fair value of stock options granted to
      each of our non-employee directors and Dr. Young in 2008, as well as in
      prior years, in accordance with FAS 123R. Pursuant to SEC rules, the
      amounts shown exclude the impact of estimated forfeitures related to
      service-based vesting conditions. These amounts reflect Sunesis’
      accounting expense for these awards and do not correspond to the actual
      value that will be recognized by our directors. For additional information
      on the valuation assumptions, refer to Note 13 “Stock-Based
      Compensation” to the Notes to Consolidated Financial Statements in
      our Annual Report on Form 10-K for the year ended December 31,
      2008, filed with the SEC on April 3, 2009, which identifies assumptions
      made in the valuation of option awards in accordance with FAS
      123R.




(3)
            On
      June 5, 2008, each non-employee director received a stock option to
      purchase 10,000 shares. The grant date fair value of these awards was
      $1.08 per share for a total grant date fair value of $10,813 per grant,
      calculated in accordance with FAS 123R. Assumptions used in the
      calculation of these amounts are included in Note 13 “Stock-Based
      Compensation” to the Notes to Consolidated Financial Statements in
      our Annual Report on Form 10-K for the year ended December 31,
      2008, filed with the SEC on April 3, 2009.  As of December 31,
      2008, each non-employee director held stock options to purchase the
      following aggregate number of shares of our common stock: Dr. Evnin
      held options to purchase 30,000 shares of our common stock; Dr. Fodor
      held options to purchase 63,530 shares of our common stock; Mr. Fust
      held options to purchase 60,000 shares of our common stock;
      Mr. Goldby held options to purchase 63,530 shares of our common
      stock; Mr. Leff held options to purchase 30,000 shares of our common
      stock; Dr. Pearce held options to purchase 50,000 shares of our
      common stock; Dr. Stump held options to purchase 50,000 shares of our
      common stock; and Dr. Wells held options to purchase 142,354 shares
      of our common stock.




(4)
            This
      amount reflects payments to Dr. Pearce under his consulting agreement
      with us for consulting services performed in
  2008.




(5)
            This
      amount reflects payments to Dr. Stump under his consulting agreement
      with us for consulting services performed in
  2008.




(6)
            Dr.
      Evnin resigned effective as of April 3,
2009.




(7)
            Dr.
      Fodor resigned effective as of April 3,
2009.




(8)
            Mr.
      Goldby resigned effective as of April 3,
2009.




(9)
            Mr.
      Leff resigned effective as of February 3,
2009.




(10)
            Dr.
      Wells resigned effective as of June 25,
2008.




31


(11)
            Until
      April 2009, Dr. Young served as our Executive Chairman.  As
      noted above, our employee directors did not receive any compensation in
      2008 for their service on our Board of Directors. As of
      December 31, 2008, Dr. Young held stock options to purchase 329,118
      shares of our common stock. He did not receive any equity awards in
      2008. “All Other Compensation” includes Dr. Young’s annual salary of
      $200,000 and group term life insurance payments of
  $2,772.




ITEM
12:  SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS




OWNERSHIP
OF SUNESIS SECURITIES




The
following table sets forth, as of April 10, 2009, information regarding
beneficial ownership of our common stock by:




·
            each
      person, or group of affiliated persons, known by us to beneficially own
      more than 5% of our common stock;




·
            each
      of our named executive officers;




·
            each
      of our directors; and




·
            all
      of our executive officers and directors as a
  group.




Beneficial
ownership is determined according to the rules of the SEC and generally means
that a person has beneficial ownership of a security if he, she or it possesses
sole or shared voting or investment power of that security, and includes options
and warrants that are currently exercisable or exercisable within 60 days
of April 10, 2009.  Shares of common stock subject to stock options
and warrants currently exercisable or exercisable within 60 days of April
10, 2009 are deemed to be outstanding for computing the percentage ownership of
the person holding these options and warrants and the percentage ownership of
any group of which the holder is a member, but are not deemed outstanding for
computing the percentage of any other person.  Except as indicated by
footnote, and subject to community property laws where applicable, we believe
the persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by
them.




This
table lists applicable percentage ownership based on 34,409,768 shares of common
stock outstanding and 2,898,544 shares of Series A preferred stock outstanding,
or an aggregate of 37,308,312 shares of capital stock, as of April 10,
2009.  Unless otherwise indicated, the address for each of the
beneficial owners in the table below is c/o Sunesis Pharmaceuticals, Inc.,
395 Oyster Point Boulevard, Suite 400, South San Francisco, California
94080.




Beneficial Ownership (1)Name of Beneficial Owner
                
                Shares of
                    Common
                    Stock
                    Beneficially
                    Owned (#)(2)
                
                
                Percentage
                    of
                    Common
                    Stock
                    Beneficially
                    Owned (%)
                
                
                Shares of
                    Preferred
                    Stock
                    Beneficially
                    Owned (#)
                
                
                Percentage
                    of
                    Preferred
                    Stock
                    Beneficially
                    Owned (%)5%
      Stockholders:Entities
      affiliated with Alta Partners(3)
                
                
                6,143,853
                
                
                
                16.0
                %
                
                
                333,165
                
                
                
                11.5
                %Entities
      affiliated with Bay City Capital(4)
                
                
                6,672,421
                
                
                
                16.2
                
                
                
                666,333
                
                
                
                23.0Biogen
      Idec(5)
                
                
                2,912,022
                
                
                
                8.5
                
                
                
                -
                
                
                
                0.0Caxton
      Advantages Life Sciences Fund, L.P.(6)
                
                
                1,665,830
                
                
                
                4.6
                
                
                
                166,583
                
                
                
                5.8Entities
      affiliated with Credit Suisse First Boston(7)
                
                
                3,406,590
                
                
                
                9.9
                
                
                
                -
                
                
                
                0.0Entities
      affiliated with Deerfield(8)
                
                
                2,148,102
                
                
                
                6.2
                
                
                
                -
                
                
                
                0.0Fidelity
      Management & Research Company(9)
                
                
                3,156,200
                
                
                
                9.2
                
                
                
                -
                
                
                
                0.0Growth
      Equity Opportunities Fund, LLC(10)
                
                
                6,663,330
                
                
                
                16.2
                
                
                
                666,333
                
                
                
                23.0Entities
      affiliated with Merlin Biomed(11)
                
                
                4,906,351
                
                
                
                13.0
                
                
                
                339,830
                
                
                
                11.7




32





Beneficial Ownership (1)Name of Beneficial Owner
                    
                    Shares of
                        Common
                        Stock
                        Beneficially
                        Owned (#)(2)
                    
                    
                    Percentage
                        of
                        Common
                        Stock
                        Beneficially
                        Owned (%)
                    
                    
                    Shares of
                        Preferred
                        Stock
                        Beneficially
                        Owned (#)
                    
                    
                    Percentage
                        of
                        Preferred
                        Stock
                        Beneficially
                        Owned (%)ONC
      General Partnership Limited(12)
                    
                    
                    3,331,660
                    
                    
                    
                    8.8
                    
                    
                    
                    333,166
                    
                    
                    
                    11.5Entities
      Affiliated with Venrock Associates(13)
                    
                    
                    2,474,404
                    
                    
                    
                    6.9
                    
                    
                    
                    133,266
                    
                    
                    
                    4.6Vision
      Opportunity Master Fund, Ltd.(14)
                    
                    
                    1,999,000
                    
                    
                    
                    5.5
                    
                    
                    
                    199,900
                    
                    
                    
                    6.9Entities
      affiliated with Warburg Pincus LLC(15)
                    
                    
                    4,545,621
                    
                    
                    
                    13.1
                    
                    
                    
                    -
                    
                    
                    
                    0.0Named
      Executive Officers and Directors:James
      W. Young, Ph.D.(16)
                    
                    
                    413,421
                    
                    
                    
                    1.2
                    
                    
                    
                    0
                    
                    
                    
                    0.0Daniel
      N. Swisher, Jr.(17)
                    
                    
                    795,066
                    
                    
                    
                    2.3
                    
                    
                    
                    13,326
                    
                    
                    
                    *Eric
      H. Bjerkholt(18)
                    
                    
                    345,912
                    
                    
                    
                    1.0
                    
                    
                    
                    6,663
                    
                    
                    
                    *Valerie
      L. Pierce(19)
                    
                    
                    148,684
                    
                    
                    
                    *
                    
                    
                    
                    0
                    
                    
                    
                    0.0Daniel
      C. Adelman, M.D.(20)
                    
                    
                    263,906
                    
                    
                    
                    *
                    
                    
                    
                    0
                    
                    
                    
                    0.0Robert
      S. McDowell, Ph.D.(21)
                    
                    
                    188,760
                    
                    
                    
                    *
                    
                    
                    
                    0
                    
                    
                    
                    0.0Matthew
      K. Fust(22)
                    
                    
                    60,000
                    
                    
                    
                    *
                    
                    
                    
                    0
                    
                    
                    
                    0.0Homer
      L. Pearce, Ph.D.(23)
                    
                    
                    50,000
                    
                    
                    
                    *
                    
                    
                    
                    0
                    
                    
                    
                    0.0David
      C. Stump, M.D.(24)
                    
                    
                    50,000
                    
                    
                    
                    *
                    
                    
                    
                    0
                    
                    
                    
                    0.0Dayton
      Misfeldt(25)
                    
                    
                    6,672,421
                    
                    
                    
                    16.2
                    
                    
                    
                    666,333
                    
                    
                    
                    23.0EdwardHurwitz(26)
                    
                    
                    6,143,873
                    
                    
                    
                    16.0
                    
                    
                    
                    333,165
                    
                    
                    
                    11.5All
      executive officers and directors as a group
    (9 persons)
                    
                    
                    14,597,323
                    
                    
                    
                    31.4
                    
                    
                    
                    1,026,150
                    
                    
                    
                    35.4





*
            Represents
      beneficial ownership of less than one percent (1%) of the outstanding
      shares of our capital stock.





(1)
            This
      table is based upon information provided to us by our executive officers
      and directors and upon information about principal stockholders known to
      us based on Schedules 13G and 13D filed with the
  SEC.





(2)
            Includes
      shares issuable pursuant to stock options and warrants exercisable within
      60 days of April 10, 2009.





(3)
            Includes
      (i) 137,323 shares of our common stock, 20,493 shares of our Series A
      preferred stock and 240,591 shares of common stock issuable upon exercise
      of warrants outstanding held by Alta BioPharma Partners III GmbH & Co.
      Beteiligungs KG, (ii) 2,044,750 shares of our common stock, 305,152 shares
      of our Series A preferred stock and 3,582,512 shares of common stock
      issuable upon exercise of warrants outstanding held by Alta BioPharma
      Partners III, L.P., and (iii) 50,391 shares of our common stock, 7,520
      shares of our Series A preferred stock and 88,286 shares of common stock
      issuable upon exercise of warrants outstanding held by Alta Embarcadero
      BioPharma Partners III, LLC.  Alta Partners III, Inc. provides
      investment advisory services to Alta BioPharma Partners III GmbH & Co.
      Beteiligungs KG, Alta BioPharma Partners III, L.P. and Alta Embarcadero
      BioPharma Partners III, LLC, which we refer to collectively as the Alta
      Funds.  The managing directors of Alta BioPharma Management III,
      LLC, which is a general partner of Alta BioPharma Partners III, L.P. and
      the managing limited partner of Alta BioPharma Partners III GmbH & Co.
      Beteiligungs KG, and the managers of Alta Embarcadero BioPharma Partners
      III, LLC exercise sole dispositive and voting power over the shares owned
      by the Alta Funds.  Certain principals of Alta Partners III,
      Inc., Jean Deleage, Alix Marduel, Farah Campsi, Edward Penhoet and Edward
      Hurwitz, are managing directors of Alta BioPharma Management III, LLC and
      managers of Alta Embarcadero BioPharma Partners III, LLC.  These
      individuals may be deemed to share dispositive and voting power over the
      shares held by the Alta Funds.  Each of these individuals
      disclaims beneficial ownership of such shares, except to the extent of his
      or her pecuniary interest therein.  The address of Alta Partners
      III, Inc. and its affiliates is One Embarcadero Center, 37th Floor, San
      Francisco, California 94111.





(4)
            Includes
      (i) 9,091 shares of our common stock held by Bay City Capital LLC, a
      Delaware limited liability company (“BCC”), (ii) 653,873 shares of our
      Series A preferred stock and 6,538,730 shares of common stock issuable
      upon exercise of warrants outstanding held by Bay City Capital Fund V,
      L.P. (“Fund V”), and (iii) 12,460 shares of our Series A preferred stock
      and 124,600 shares of common stock issuable upon exercise of warrants
      outstanding held by Bay City Capital Fund V Co-Investment Fund, L.P.
      (“Co-Investment V”).  BCC is the manager of Bay City Capital
      Management V, LLC, a Delaware limited liability company (“Management
      V”).  Management V is the general partner of Fund V and
      Co-Investment V.  BCC is also an advisor to Fund V and
      Co-Investment V.   Dayton Misfeldt is a partner of BCC. The
      address of the principal business and office of Bay City Capital and its
      affiliates is 750 Battery Street, Suite 400, San Francisco,
      California 94111.




33


(5)
            Biogen
      Idec MA, Inc., a Massachusetts corporation, is a wholly owned subsidiary
      of Biogen Idec Inc., a biotechnology company.  James C.
      Mullen, Bruce R. Ross and Peter N. Kellogg are the directors and
      executive officers of Biogen Idec MA, Inc.  These
      individuals may be deemed to share dispositive and voting power over the
      shares which are, or may be, deemed to be beneficially owned by Biogen
      Idec MA, Inc.  Each of these individuals disclaims
      beneficial ownership of these shares, except to the extent of his
      pecuniary interest therein.





(6)
            Includes
      166,583 shares of our Series A preferred stock and 1,665,830 shares of
      common stock issuable upon the exercise of warrants outstanding owned by
      Caxton Advantages Life Sciences Fund, L.P. (“Caxton”).  The
      principal address for Caxton is c/o Caxton Advantage Venture Partners,
      L.P., 500 Park Avenue, 9th Floor, New York, New York
  10022.





(7)
            Includes
      (i) 175,775 shares of our common stock held by EMA Partners Fund 2000,
      L.P. (“EMA Partners”), (ii) 233,004 shares of our common stock held by EMA
      Private Equity Fund 2000, L.P. (“EMA Private”), (iii) 654,387 shares of
      our common stock held by Credit Suisse First Boston Equity Partners
      (Bermuda), L.P. (“CSFB Bermuda”), (iv) 2,341,061 shares of our common
      stock held by Credit Suisse First Boston Equity Partners, L.P.
      (“CSFB-EP”), and (v) 2,263 shares of our common stock held by Credit
      Suisse First Boston U.S. Executive Advisors, L.P. (“CSFB
      U.S.”).  Credit Suisse First Boston Advisory Partners, LLC, or
      CSFB Advisory, manages the investments of CSFB-EP, CSFB Bermuda and CSFB
      U.S.  EMA Partners and EMA Private each must invest in and
      dispose of its portfolio securities simultaneously with CSFB-EP on a pro
      rata basis.  CFSB Advisory may be deemed to have dispositive and
      voting power over the shares held by CSFB-EP, CSFB Bermuda, CSFB U.S., EMA
      Partners and EMA Private.  Credit Suisse Group, through a wholly
      owned subsidiary, is a parent of CSFB Advisory, and may be deemed to have
      dispositive and voting power over the shares held by CSFB-EP, CSFB
      Bermuda, CSFB U.S., EMA Partners and EMA Private.  Credit Suisse
      Group disclaims beneficial ownership of the shares owned by such
      investment partnerships.  The address of Credit Suisse First
      Boston and its affiliates is Eleven Madison Avenue, New York, New
      York 10010.





(8)
            Includes
      (i) 1,077,262 shares of our common stock and 305,314 shares of common
      stock issuable upon exercise of warrants outstanding held by Deerfield
      Special Situations Fund International, Ltd.,and (ii) 587,748
      shares of our common stock and 177,778 shares of common stock issuable
      upon exercise of warrants outstanding held by Deerfield Special Situations
      Fund, L.P.  James Flynn, investment manager of each of Deerfield
      International Limited, Deerfield Partners, L.P., Deerfield Special
      Situations Fund International, Ltd. and Deerfield Special Situations Fund,
      L.P. has dispositive and voting power over the shares owned by these
      funds. All such warrants are immediately exercisable.  Mr. Flynn
      disclaims beneficial ownership of such shares, except to the extent of his
      pecuniary interest therein.  The address of Deerfield and its
      affiliates is 780 Third Avenue, 37th Floor, New York, New York
      10017.





(9)
            Fidelity Management &
      Research Company (“Fidelity”), a wholly owned subsidiary of FMR LLC
      (“FMR”) and an investment adviser registered under Section 203 of the
      Investment Advisers Act of 1940, is the beneficial owner of 3,156,200
      shares of our common stock as a result of acting as investment adviser to
      various investment companies registered under Section 8 of the Investment
      Company Act of 1940, as amended (the “Investment Company
      Act”).  The ownership of one investment company, Fidelity Growth
      Company Fund (“Fidelity”), amounted to 3,156,200 shares of the common
      stock outstanding.  Edward C. Johnson 3d and FMR, through its
      control of Fidelity and the funds, each has sole power to dispose of the
      3,156,200 shares owned by the funds. Members of the family of Edward C.
      Johnson 3d, Chairman of FMR, are the predominant owners, directly or
      through trusts, of shares of Series B voting common stock of FMR,
      representing approximately 49% of the voting power of FMR. The Johnson
      family group and all other Series B shareholders have entered into a
      shareholders’ voting agreement under which all shares of Series B voting
      common stock will be voted in accordance with the majority vote of shares
      of Series B voting common stock. Accordingly, through their ownership of
      voting common stock and the execution of the shareholders’ voting
      agreement, members of the Johnson family may be deemed, under the
      Investment Company Act, to form a controlling group with respect to
      FMR.  Neither FMR nor Edward C. Johnson 3d, Chairman of FMR, has
      the sole power to vote or direct the voting of the shares owned directly
      by the funds, which power resides with the funds’ boards of
      trustees.  Fidelity carries out the voting of the shares under
      written guidelines established by the Funds’ Board of
      Trustees.   The address of Fidelity is 82 Devonshire
      Street, Boston, Massachusetts
02109.





(10)
            Includes
      666,333 shares of our  Series A preferred stock and 6,663,330
      shares of common stock issuable upon the exercise of warrants outstanding
      owned by Growth Equity Opportunities Fund, LLC (“GEO”).  The
      sole member of GEO is New Enterprise Associates 12, Limited Partnership
      (“NEA 12”). NEA Partners 12, Limited Partnership (“NEA Partners 12”), is
      the general partner of NEA 12 and NEA 12 GP, LLC (“NEA 12 GP”), and
      Michael James Barrett, Peter J. Barris , Forest Baskett, Ryan D. Drant,
      Patrick J. Kerins, Krishna Kolluri, C. Richard Kramlich, Charles M.
      Linehan, Charles W. Newhall III, Mark W. Perry, Scott D. Sandell and
      Eugene A. Trainor III (collectively, the “Managers”) are the individual
      managers of NEA 12 GP, GEO, NEA 12, NEA Partners 12 and NEA 12
      GP.  Each of the above named entities and persons, except GEO,
      disclaims beneficial ownership of the securities except to the extent of
      their pecuniary interest therein, if any.  The address for GEO
      is 119 St. Paul Street, Baltimore, Maryland
  21202.





(11)
            Includes
      (i) 1,000,000 shares of our common stock, 139,930 shares of our Series A
      preferred stock and 1,399,300 shares of common stock issuable upon the
      exercise of warrants outstanding owned by Nexus Gemini, L.P. (“Gemini”),
      (ii) 508,051 shares of our common stock owned by Merlin Nexus II L.P.
      (“Nexus II”) and (iii) 199,900 shares of our Series A preferred stock and
      1,999,000 shares of common stock issuable upon the exercise of warrants
      outstanding owned by Merlin Nexus III, L.P. (“Nexus III”). Merlin BioMed
      Private Equity Advisors, LLC, a Delaware limited liability company
      (“Merlin”), is the investment adviser to Gemini, Nexus II and Nexus
      III.  Dominique Semon is the controlling principal and chief
      investment officer of Merlin.  Merlin and Mr. Semon share voting
      power and dispositive power over the shares held by Gemini, Nexus II and
      Nexus III.  The principal address for Merlin and it affiliates
      is 230 Park Avenue, Suite 928, New York, New York
  10169.




34


(12)
            Includes
      333,166 shares of our Series A preferred stock and 3,331,660 shares of
      common stock issuable upon the exercise of warrants outstanding owned by
      ONC General Partner Limited (“ONC”).  The principal address for
      ONC is 26 New Street, St. Helier, Jersey, Channel Islands JE4
      8PP.





(13)
            Includes
      (i) 467,380 shares of our common stock, 54,639 shares of our Series A
      preferred stock and 546,390 shares of common stock issuable upon the
      exercise of warrants held by Venrock Associates, (ii) 649,955 shares
      of our common stock, 78,627 shares of our Series A preferred stock and
      786,270 shares of common stock issuable upon the exercise of warrants held
      by Venrock Associates II, L.P., and (iii) 24,409 shares of our common
      stock held by Venrock Entrepreneur’s Fund, L.P.  Dr. Evnin,
      Michael C. Brooks, Eric S. Copeland, Bryan E. Roberts,
      Ray A. Rothrock, Michael F. Tyrrell and Anthony Sun are the
      general partners of Venrock Associates and Venrock Associates II,
      L.P.  These individuals may be deemed to share dispositive and
      voting power over the shares which are, or may be, deemed to be
      beneficially owned by Venrock Associates and Venrock Associates II,
      L.P.  Each of these individuals disclaims beneficial ownership
      of these shares, except to the extent of his or her pecuniary interest
      therein.  The general partner of Venrock Entrepreneurs Fund,
      L.P. is Venrock Management LLC.  Dr. Evnin, Michael C.
      Brooks, Eric S. Copeland, Bryan E. Roberts, Ray A.
      Rothrock, Michael F. Tyrrell and Anthony Sun are the members of
      Venrock Management LLC.  These individuals may be deemed to
      share dispositive and voting power over the shares which are, or may be,
      deemed to be beneficially owned by Venrock Entrepreneurs Fund,
      L.P.  Dr. Evnin disclaims beneficial ownership of the shares
      held by the above-referenced entities, except to the extent of his
      pecuniary interest therein.  The principal address for the
      Venrock Associates and its affiliates is 530 Fifth Avenue, 22nd Floor, New
      York, New York 10036.





(14)
            Includes
      199,900 shares of our Series A preferred stock and 1,999,000 shares of
      common stock issuable upon the exercise of warrants outstanding owned by
      Vision Opportunity Master Fund, Ltd., a Cayman Islands company (the
      “Vision Fund”).  Vision Capital Advisors, LLC, a Delaware
      limited liability company, is the investment manager of the Vision Fund
      and Adam Benowitz is the Managing Member of the investment
      manager.  The Vision Fund directly beneficially owns all of the
      shares reported in this table.  Mr. Benowitz and the investment
      manager may be deemed to share with the Vision Fund voting and dispositive
      power with respect to such shares.  The principal address of the
      Vision Fund is c/o Citi Hedge Fund Services (Cayman) Limited, P.O. Box
      1748, Cayman Corporate Centre, 27 Hospital Road, 5th Floor, Grand Cayman
      KY1-1109, Cayman Islands.





(15)
            Includes
      (i) 4,183,939 shares of our common stock and 228,261 shares of common
      stock issuable upon exercise of warrants outstanding held by Warburg,
      Pincus Equity Partners, L.P. (“WPEP”), (ii) 109,214 shares of our
      common stock and 12,077 shares of common stock issuable upon exercise of
      warrants outstanding held by Warburg, Pincus Netherlands Equity Partners
      I, C.V. (“WP Netherlands I”), and (iii) 10,922 shares of our common
      stock and 1,208 shares of common stock issuable upon exercise of warrants
      outstanding held by Warburg, Pincus Netherlands Equity Partners III, C.V.
      (“WP Netherlands III”). Warburg Pincus Partners, LLC, a subsidiary of
      Warburg, Pincus & Co., is the sole general partner of WPEP, WP
      Netherlands I and WP Netherlands III.  Warburg Pincus LLC
      manages WPEP, WP Netherlands I and WP Netherlands III.  Mr. Leff
      is a Partner of Warburg Pincus & Co. and a Member and Managing
      Director of Warburg Pincus LLC.  Charles R. Kaye and Joseph P.
      Landy are Managing General Partners of Warburg, Pincus & Co. and
      Managing Members and Co-Presidents of Warburg Pincus
      LLC.  Messrs. Kay, Landy and Leff may be deemed to have an
      indirect pecuniary interest in an indeterminate portion of the shares held
      by the Warburg Pincus entities.  Each of these individuals
      disclaims beneficial ownership of such shares, except to the extent of his
      pecuniary interest therein.  The address of Warburg Pincus and
      its affiliates is 466 Lexington Avenue, New York, New York
      10017.





(16)
            Includes
      11,765 shares of our common stock held by family members of  Dr.
      Young.  Dr. Young disclaims beneficial ownership of such
      shares, except to the extent of his pecuniary interest
      therein.  Also includes options held by Dr. Young to purchase
      156,873 shares of common stock that are exercisable within 60 days of
      April 10, 2009.





(17)
            Includes
      options held by Mr. Swisher to purchase 615,941 shares of our common stock
      that are exercisable within 60 days of April 10, 2009.  Also
      includes 13,326 shares of our Series A preferred stock and 133,260 shares
      of common stock issuable upon the exercise of warrants outstanding that
      are held in the Swisher Revocable Trust for which Mr. Swisher is the
      trustee.





(18)
            Includes
      options held by Mr. Bjerkholt to purchase 273,187 shares of our common
      stock exercisable within 60 days of April 10, 2009.  Also
      includes 6,663 shares of our Series A preferred stock and 66,630 shares of
      common stock issuable upon the exercise of warrants outstanding that are
      held in the Bjerkholt/Hahn Family Trust for which Mr. Bjerkholt is the
      trustee.





(19)
            Includes
      options held by Ms. Pierce to purchase 145,156 shares of our common stock
      exercisable within 60 days of April 10,
2009.





(20)
            Includes
      options held by Dr. Adelman to purchase 258,896 shares of our common stock
      exercisable within 60 days of April 10,
2009.




35


(21)
            Includes
      options held by Dr. McDowell to purchase 162,878 shares of our common
      stock exercisable within 60 days of April 10,
  2009.





(22)
            Includes
      options held by Mr. Fust to purchase 60,000 shares of our common stock
      exercisable within 60 days of April 10,
2009.





(23)
            Includes
      options held by Dr. Pearce to purchase 50,000 shares of our common stock
      exercisable within 60 days of April 10,
2009.





(24)
            Includes
      options held by Dr. Stump to purchase 50,000 shares of our common stock
      exercisable within 60 days of April 10,
2009.





(25)
            Includes
      the shares of our common stock, Series A preferred stock and shares of
      common stock issuable upon the exercise of warrants outstanding detailed
      in Note (4) above held by the entities affiliated with BCC.  Mr.
      Misfeldt is a partner of BCC.  BCC is the manager of Management
      V.  Management V, the general partner of Fund V and
      Co-Investment V, has sole voting and dispositive power with respect to the
      securities held by Fund V and Co-Investment V.  BCC, as the
      manager of Management V, is also an advisor to Fund V and Co-Investment V
      and has sole voting and dispositive power with respect to the securities
      held by Fund V and Co-Investment V. The address for Mr. Misfeldt is c/o
      Bay City Capital, 750 Battery Street, Suite 400, San Francisco,
      California 94111.





(26)
            Includes
      the shares of common stock, Series A preferred stock and shares of common
      stock issuable upon the exercise of warrants outstanding detailed in Note
      (3) above held by the entities affiliated with Alta
      Partners.  Mr. Hurwitz is a principal of Alta Partners III,
      Inc., one of the managing directors of Alta BioPharma Management III, LLC,
      and a manager of Alta Embarcadero BioPharma Partners III,
      LLC.  He may be deemed to share dispositve and voting power over
      the shares held by the Alta Funds.  Mr. Hurwitz disclaims
      beneficial ownership of such shares except to the extent of his pecuniary
      interest therein.  The address of Mr. Hurwitz is c/o Alta
      Partners III, Inc., One Embarcadero Center, 37th Floor, San Francisco,
      California 94111.




36


EQUITY
COMPENSATION PLAN INFORMATION




(A)
              
              
              (B)
              
              
              (C)Plan Category
              
              Number of Securities
                to be Issued
                upon Exercise of
                Outstanding
                Options, Warrants
                and Rights
              
              
              Weighted Average
                Exercise Price of
                Outstanding
                Options,
                Warrants
                and Rights
              
              
              Number of Securities Remaining
                Available for Future Issuance
                Under Equity
                Compensation Plans
                (Excluding Securities
                Reflected in Column A)Equity
      Compensation Plans Approved by Stockholders(1)
              
              
              4,193,894
              (2)
              
              $
              3.48
              
              
              
              2,373,569
              (3)Equity
      Compensation Plans Not Approved by Stockholders(4)
              
              
              457,061
              
              
              
              3.05
              
              
              
              67,939Total:
              
              
              4,650,955
              
              
              $
              3.44
              
              
              
              2,441,508







(1)
            Includes
      our 1998 Stock Plan, or 1998 Plan, 2001 Stock Plan, or 2001 Plan, 2005
      Equity Incentive Award Plan, or 2005 Plan, and Employee Stock Purchase
      Plan, or ESPP.




(2)
            Includes
      (i) 1,018,642 shares of common stock issuable upon the exercise of
      options granted under our 1998 Plan, all of which were exercisable as of
      December 31, 2008, (ii) 148,304 shares of common stock issuable
      upon the exercise of options granted under our 2001 Plan, all of which
      were exercisable as of December 31, 2008, and (iii) 3,026,948
      shares of common stock issuable upon the exercise of options granted under
      our 2005 Plan, 1,833,135 of which were exercisable as of December 31,
      2008. Excludes purchase rights currently accruing under the ESPP. Offering
      periods under the ESPP are 12-month periods, which are comprised of two
      six-month purchase periods. Eligible employees may purchase shares of
      common stock at a price equal to 85% of the lower of the fair market value
      of the common stock at the beginning of each offering period or the end of
      each semi-annual purchase period. Participation is limited to 20% of an
      employee’s eligible compensation, subject to limitations under the
      Code.




(3)
            Includes
      (i) 2,121,116 shares of common stock available for issuance under our
      2005 Plan and (ii) 252,453 shares of common stock available for
      issuance under our ESPP.  Beginning in 2006, the number of
      shares of common stock reserved under the 2005 Plan automatically
      increases on the first trading day each year by an amount equal to the
      least of: (i) four percent of our outstanding shares of common
      stock outstanding on such date, (ii) 1,082,352 shares, or
      (iii) a lesser amount determined by the Board of Directors. The
      number of shares of common stock reserved under our ESPP automatically
      increases on the first trading day each year by an amount equal to the
      least of: (i) 0.5% of our outstanding shares of common stock
      outstanding on such date, (ii) 135,294 shares, or (iii) a lesser
      amount determined by our Board of
Directors.




(4)
            Represents
      our 2006 Employment Commencement Incentive
Plan.







ITEM
13:  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE




RELATED
PARTY TRANSACTIONS




Other
than as described below, there were no other related party transactions during
2008 with our executive officers, directors and beneficial owners of five
percent or more of our securities.




Executive
Severance Benefits Agreements




We have
entered into executive severance benefits agreements and related amendments with
our executive officers. See “Executive Compensation and Related
Information”for further discussion
of these arrangements.




Stock
Option Grants




We have
granted stock options to our executive officers and our non-employee directors.
See “Executive Compensation
and Related Information” and “Director Compensation” for
further discussion of these awards.




Indemnification
of Directors and Officers




We have
entered into indemnity agreements with our executive officers and directors
which provide, among other things, that we will indemnify such executive officer
or director, under the circumstances and to the extent provided for therein, for
expenses, damages, judgments, fines and settlements he or she may be required to
pay in actions or proceedings which he or she is or may be made a party by
reason of his or her position as a director, executive officer or other agent of
Sunesis, and otherwise to the fullest extent permitted under Delaware law and
our bylaws. We also intend to execute these agreements with our future executive
officers and directors.




37


There is
no pending litigation or proceeding naming any of our directors or executive
officers as to which indemnification is being sought, nor are we aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or executive officer.




Consulting
Agreements




We have
entered into consulting agreements with two of our directors, Drs. Pearce and
Stump. See “Director
Compensation” for further discussion of these agreements.




Purchases
of Our Securities




On March
31, 2009, we entered into a securities purchase agreement with accredited
investors, including certain members of management, providing for a private
placement of our securities, or the Private Placement. The Private Placement
contemplates the sale of up to $15.0 million of units, consisting of Series A
preferred stock and warrants to purchase common stock in two closings, and a
common stock closing of up to $28.5 million.  $10.0 million in units
were sold at the initial closing on April 3, 2009.   The participation
in the Private Placement by some of our executive officers was approved by the
Audit Committee of the Board of the Directors.




The
shares of Series A preferred stock and warrants to purchase common stock set
forth in the table below were issued and sold in the initial closing of the
Private Placement held on April 3, 2009 to entities affiliated with certain of
our executive officers and entities affiliated with Alta Partners, one of our
principal stockholders. We believe the terms obtained or consideration that we
received in connection with the Private Placement were comparable to terms
available or the amounts that would be received by us in arm’s-length
transactions.




Investor
              
              Executive Officer
                  Affiliation (if any)
              
              
              Series A
                  Preferred
                  Stock
              
              
              Warrants
              
              
              Initial
                  Closing
                  Investment
                  Amount ($)
              
              
              Total
                  Participation
                  Amount ($)(1)Entities
      affiliated with Alta Partners
              
              
              —
              
              
              
              333,165
              (2)
              
              
              3,331,650
              (3)
              
              $
              1,149,425
              
              
              $
              5,000,000Swisher
      Revocable Trust
              
              Daniel
      N. Swisher, Jr.
              
              
              
              13,326
              
              
              
              133,260
              
              
              
              45,978
              
              
              
              200,000Bjerkholt
      / Hahn Family Trust
              
              Eric
      H. Bjerkholt
              
              
              
              6,663
              
              
              
              66,630
              
              
              
              22,989
              
              
              
              100,000Steven
      B. Ketchum, Ph.D.
              
              Self
              
              
              
              6,663
              
              
              
              66,630
              
              
              
              22,989
              
              
              
              100,000





(1)
            Reflects
      the total dollars that such entities and individual could invest in the
      aggregate in the Private Placement.




(2)
              Consists
      of (i) 305,152 shares purchased by Alta BioPharma Partners III, L.P., (ii)
      20,493 shares purchased by Alta BioPharma Partners III GmbH & Co.
      Beteiligungs KG, and (iii) 7,520 shares purchased by Alta
      EmbarcaderoBioPharma Partners III, LLC.  In addition, the
      entities affiliated with Alta Partners may participate in the subsequent
      closings of the Private Placement with an additional investment of up to
      approximately $3,850,000.




(3)
              Consists
      of warrants to purchase (i) 3,051,520 shares of common stock purchased by
      Alta BioPharma Partners III, L.P., (ii) 204,930 shares of common stock
      purchased by Alta BioPharma Partners III GmbH & Co. Beteiligungs
      KG,and (iii) 75,200 shares of common stock purchased by Alta Embarcadero
      BioPharma Partners III, LLC.




In
addition, entities affiliated with Bay City Capital LLC participated in the
initial closing of the Private Placement with an investment in the amount of
$2,298,851 and may participate in the subsequent closings of the Private
Placement with an additional investment of up to approximately $7,700,000. In
connection with and immediately subsequent to the Private Placement, affiliates
of each of Alta Partners and Bay City Capital were appointed to our Board of
Directors. The director on our Board of Directors designated by Alta Partners is
Edward Hurwitz, a director of Alta Partners, and the director designated by Bay
City Capital is Dayton Misfeldt, an investment partner of Bay City Capital. See
“Security Ownership of Certain
Beneficial Owners and Management” for more information regarding the
holdings of each of these individuals and entities.




Investor
Rights Agreements




Eighth
Amended and Restated Investor Rights Agreement




We have
entered into an Eighth Amended and Restated Investor Rights Agreement, dated
August 30, 2004 and as subsequently amended, with the prior holders of our
convertible preferred stock and certain holders of warrants to purchase
convertible preferred stock, including entities with which certain of our
directors are affiliated. As of December 31, 2008, the holders of 4,304,075
shares of our common stock and 241,546 shares of common stock issuable upon the
exercise of outstanding warrants are entitled to certain rights with respect to
the registration of their shares pursuant to the terms and conditions of such
agreement. These registration rights were waived with respect to the issuance of
our securities contemplated by the Private Placement. All registration rights
under this agreement will terminate on or about May 4, 2009.




38


Investor
Rights Agreement




In
connection with the initial closing of the Private Placement, we entered into an
Investor Rights Agreement on April 3, 2009 with the investors in the Private
Placement, pursuant to which we granted to the investors certain registration
rights with respect to the securities issued and sold pursuant to the Private
Placement. As of April 10, 2009, the holders of  2,898,544 shares of
our preferred stock and 28,985,440 shares of common stock issuable upon the
exercise of outstanding warrants are entitled to certain rights with respect to
the registration of their shares pursuant to the terms and conditions of such
agreement.





Pursuant to the Investor
Rights Agreement, we also granted to the investors certain rights of first
refusal with respect to certain future issuances of our securities, including as
part of a future equity financing, subject to customary exclusions.If we
determine to issue any such securities not subject to such exceptions, then we
must provide notice and an offer to sell the securities to the purchasing
stockholders on the same terms as we propose to sell such securities to other
investors a pro rata amount of such securities, based on such investors’
respective percentage ownership of our outstanding common stock, calculated as
if all shares of Series A preferred stock (including any dividends thereon) had
been converted into shares of common stock immediately following the original
issuance of our Series A preferred stock.





The
Investor Rights Agreement also includes an agreement between the parties with
respect to the size and composition of our board of directors. Specifically,
following the initial closing, the size of our board of directors was set at
eight members, and the holders of a majority of the Series A preferred stock
have the right to designate, and we are required to nominate, three members to
our board of directors.  Alta BioPharma Partners III, L.P. (“Alta”),
Bay City Capital LLC (“Bay City Capital”) and Growth Equity Opportunities Fund,
LLC (“GEO”), together with their respective affiliates, each have the right to
designate one such investor designee. As a result, our Board of Directors
elected Messrs. Hurwitz and Misfeldt to our Board of Directors on April 3, 2009
as designees of Alta and Bay City Capital, respectively. To date, GEO has not
exercised its right to designate a director for election to our Board of
Directors, but may exercise such right in the future subject to the terms of the
Investor Rights Agreement.  Following the earlier to occur of (a) the
second closing of the Private Placement, (b) the common equity closing of the
Private Placement or (c) the closing of a qualifying alternative common stock
financing, provided the investors exercise their preemptive rights and
beneficially own greater than a majority of our voting stock as of such
applicable closing, the size of our Board of Directors would be increased to
nine members pursuant to the Investor Rights Agreement, and the holders of a
majority of our Series A preferred stock would be entitled to designate, and we
would be required to nominate, five members to our Board of
Directors.  Alta, Bay City Capital and GEO, together with their
respective affiliates, would each have the right to designate one such investor
designee.




INDEPENDENCE
OF THE MEMBERS OF OUR BOARD OF DIRECTORS




The laws
and rules governing public companies and The NASDAQ Stock Market LLC, or
NASDAQ, listing requirements obligate our Board of Directors to affirmatively
determine the independence of its members. The Board of Directors consults with
our corporate counsel to ensure that the Board’s determinations are consistent
with relevant securities and other laws and regulations regarding the definition
of “independent,” including those set forth in NASDAQ listing requirements, as
in effect from time to time.




Consistent
with these considerations, after a review of all relevant transactions or
relationships between each director, or any of his family members, and Sunesis,
our senior management and our independent registered public accounting firm, the
Board of Directors has affirmatively determined that Drs. Pearce and Stump and
Messrs. Fust, Hurwitz and Misfeldt, a majority of our Board of Directors,
are independent directors within the meaning of the applicable NASDAQ listing
requirements. In addition, the Board has affirmatively determined that Anthony
B. Evnin, Ph.D., Stephen P.A. Fodor, Ph.D, Steven D. Goldby and Jonathan S. Leff
were independent directors within the meaning of the applicable NASDAQ
requirements until their respective resignations from the Board.




In making
its determination of independence, the Board considered our consulting
relationships with Drs. Pearce and Stump and the relationships of Messrs.
Hurwitz and Misfeldt with certain of our principal stockholders, which are
described under“Related Party Transactions”
above. In 2008, Drs. Pearce and Stump each received consulting fees of $6,563
pursuant to these arrangements, which is significantly below the $120,000
threshold contained in the NASDAQ listing requirements. Our Board of Directors
does not believe that these stockholder relationships or these consulting
arrangements interfere with Dr. Pearce, Dr. Stump, or Messrs. Hurtwitz and
Misfeldt's exercise of independent judgment in carrying out their
responsibilities as directors.




39


ITEM
14:  PRINCIPAL
ACCOUNTANT FEES AND SERVICES




Principal
Accountant Fees and Services




The
following is a summary of the aggregate fees billed to us by Ernst &
Young LLP for the years ended December 31, 2008 and 2007 for each of the
following categories of professional services:




Year EndedFee Category
                  
                  December 31,
                      2008
                  
                  
                  December 31,
                      2007(in
      thousands)Audit
      Fees(1)
                  
                  $
                  320,872
                  
                  
                  $
                  519,647Audit-Related
      Fees
                  
                  
                  —
                  
                  
                  
                  —Tax
      Fees
                  
                  
                  —
                  
                  
                  
                  —Other
      Fees(2)
                  
                  
                  1,320
                  
                  
                  
                  1,500Total
      Fees:
                  
                  $
                  322,192
                  
                  
                  $
                  521,147





(1)
            Audit
      fees for 2008 and 2007 included the aggregate fees for professional
      services rendered for the audit of our financial statements, review of our
      interim financial statements, review of our registration statements on
      Forms S-3 and Form S-8, an opinion on management’s assessment of
      the effectiveness of our internal control over financial reporting as
      required by Section 404 of the Sarbanes-Oxley Act of 2002 and the
      issuance of comfort letters and
consents.




(2)
            Other
      fees in 2008 and 2007 were a subscription for Ernst & Young’s
      online research services tool.




All of
the fees described above were pre-approved by the Audit Committee.




Pre-approval
Policies




The Audit
Committee has adopted a policy relating to the approval of all audit and
non-audit services that are to be performed by our independent registered public
accounting firm. This policy generally provides that we will not engage our
independent registered public accounting firm to render audit or non-audit
services unless the service is specifically approved in advance by the Audit
Committee or the engagement is entered into pursuant to pre-approval procedures
established by the Audit Committee, including policies for delegating authority
to a member of the Audit Committee. Any service that is approved pursuant to a
delegation of authority to a member of the Audit Committee must be reported to
the full Audit Committee at a subsequent meeting.




The Audit
Committee has determined that the rendering of the services other than audit
services by Ernst & Young LLP as described above is compatible with
maintaining their independence.




PART
IV




ITEM 15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES




(a)
The following documents are filed as part of this Amendment No. 1 to Annual
Report on Form 10-K/A or as part of the
registrant’s Annual Report on Form 10-K filed with the SEC onApril 3,
2009:




1.
            Financial
      Statements:




See
Item 8 of the registrant’s Annual Report on Form 10-K filed with the SEC on
April 3, 2009.




2.
            Financial
      Statement Schedules:




See
Item 8 of the registrant’s Annual Report on Form 10-K filed with the SEC on
April 3, 2009. All other schedules were omitted because they are inapplicable or
the requested information is shown in the consolidated financial statements of
the registrant or related notes thereto.




40


3.
            Exhibits:




A list of exhibits filed with this
report or incorporated herein by reference is found in the Exhibit Index
immediately following the signature page of this report.




41


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Sunesis Pharmaceuticals, Inc. has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on April
30, 2009.




SUNESIS
      PHARMACEUTICALS, INC.By:
              
              /s/ Eric H. BjerkholtEric
      H. BjerkholtSenior
      Vice President, Corporate Developmentand
      Finance, Chief Financial
Officer




Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




Signature
                                                      
                                                      Title
                                                      
                                                      Date*
                                                      
                                                      Chairman
      of the Board
                                                      
                                                      April
      30, 2009James
      W. Young, Ph.D./s/
      Daniel N. Swisher, Jr.
                                                      
                                                      President,
      Chief Executive Officer and
                                                      
                                                      April
      30, 2009Daniel
      N. Swisher, Jr.
                                                      
                                                      Director
      (Principal Executive
      Officer)/s/
      Eric H. Bjerkholt
                                                      
                                                      Senior
      Vice President, Corporate Development
                                                      
                                                      April
      30, 2009Eric
      H. Bjerkholt
                                                      
                                                      and
      Finance, Chief Financial Officer(Principal
      Financial Officerand
      Principal Accounting Officer)*
                                                      
                                                      Director
                                                      
                                                      April
      30, 2009Matthew
      K. Fust*
                                                      
                                                      Director
                                                      
                                                      April
      30, 2009Edward
      Hurwitz*
                                                      
                                                      Director
                                                      
                                                      April
      30, 2009Dayton
      Misfeldt*
                                                      
                                                      Director
                                                      
                                                      April
      30, 2009Homer
      L. Pearce, Ph.D.*
                                                      
                                                      Director
                                                      
                                                      April
      30, 2009David
      C. Stump, M.D.





*By:
              /s/
      Eric H. BjerkholtEric H. BjerkholtAttorney-in-Fact




42


EXHIBIT INDEX





Exhibit
                        Number
                      
                      Description3.1
                      
                      Amended
      and Restated Certificate of Incorporation of the Registrant (Delaware
      (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual
      Report on Form 10-K/A filed on May 23, 2007).3.2
                      
                      Amended
      and Restated Bylaws of the Registrant (incorporated by reference to
      Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed
      on December 11, 2007).3.3
                      
                      Certificate
      of Designation of the Series A preferred stock of the Registrant
      (incorporated by reference to Exhibit 3.3 to the Registrant’s Current
      Report on Form 8-K filed on April 3, 2009).4.1
                      
                      Specimen
      Common Stock certificate of the Registrant (incorporated by reference to
      Exhibit 4.1 to the Registrant’s Registration Statement on
      Form S-1 (SEC File No. 333-121646) filed on December 23,
      2004).4.2
                      
                      Investor
      Rights Agreement, dated April 3, 2009, by and among the Registrant and the
      purchasers identified on the signature pages thereto (incorporated by
      reference to Exhibit 4.1 to the Registrant’s Current Report on
      Form 8-K filed on April 3, 2009).10.1
                      *
                      1998
      Stock Plan and Form of Stock Option Agreement (incorporated by reference
      to Exhibit 10.1 to Amendment No. 1 to the Registrant’s
      Registration Statement on Form S-1 (SEC File No. 333-121646)
      filed on January 27, 2005).10.2
                      *
                      2001
      Stock Plan and Form of Stock Option Agreement (incorporated by reference
      to Exhibit 10.2 to the Registrant’s Registration Statement on
      Form S-1 (SEC File No. 333-121646) filed on December 23,
      2004).10.3
                      *
                      2005
      Equity Incentive Award Plan, as amended.10.4
                      *
                      Employee
      Stock Purchase Plan and Enrollment Form (incorporated by reference to
      Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q
      filed on November 9, 2006).10.5
                      *
                      Form
      of Indemnification Agreement for directors and executive officers
      (incorporated by reference to Exhibit 10.5 to the Registrant’s
      Registration Statement on Form S-1 (SEC File No. 333-121646)
      filed on December 23, 2004).10.6
                      *
                      Amended
      and Restated Consulting Agreement, dated August 8, 2005, by and
      between the Registrant and James A. Wells (incorporated by reference to
      Exhibit 10.12 to Amendment No. 4 to the Registrant’s
      Registration Statement on Form S-1 (SEC File No. 333-121646)
      filed on September 1, 2005).10.7
                      
                      Eighth
      Amended and Restated Investor Rights Agreement, dated August 30,
      2004, by and among the Registrant and certain stockholders and warrant
      holders (incorporated by reference to Exhibit 10.17 to the
      Registrant’s Registration Statement on Form S-1 (SEC File
      No. 333-121646) filed on December 23, 2004).10.8
                      *
                      Warrant,
      dated April 9, 1998, issued to James A. Wells (incorporated by
      reference to Exhibit 10.18 to the Registrant’s Registration Statement
      on Form S-1 (SEC File No. 333-121646) filed on December 23,
      2004).10.9
                      
                      Warrant,
      dated December 1, 1999, issued to Three Crowns Capital (Bermuda)
      Limited (incorporated by reference to Exhibit 10.19 to the
      Registrant’s Registration Statement on Form S-1 (SEC File
      No. 333-121646) filed on December 23, 2004).10.10
                      
                      Warrant,
      dated July 7, 2000, issued to Broadview Ltd. Limited and
      Amendment No. 1 thereto (incorporated by reference to
      Exhibit 10.20 to the Registrant’s Registration Statement on
      Form S-1 (SEC File No. 333-121646) filed on December 23,
      2004).10.11
                      
                      Warrant,
      dated June 11, 2003, issued to General Electric Capital Corporation
      (incorporated by reference to Exhibit 10.21 to the Registrant’s
      Registration Statement on Form S-1 (SEC File No. 333-121646)
      filed on December 23, 2004).10.12
                      
                      Warrant,
      dated June 21, 2004, issued to General Electric Capital Corporation
      and Amendment No. 1 thereto, dated December 16, 2004
      (incorporated by reference to Exhibit 10.22 to Amendment No. 2
      to the Registrant’s Registration Statement on Form S-1 (SEC File
      No. 333-121646) filed on April 29, 2005).10.13
                      
                      Agreement
      for Termination of Lease and Voluntary Surrender of Premises, dated as of
      January 15, 2009, by and between the Registrant and ARE-Technology Center,
      SSF, LLC (incorporated by reference to Exhibit 10.13 to the Registrant’s
      Annual Report on Form 10-K  for the year ended December 31,
      2008, as filed with the SEC on April 3, 2009).10.14
                      †
                      Collaboration
      Agreement, dated December 18, 2002, by and between the Registrant and
      Biogen Idec MA Inc. (successor to Biogen Inc.) (incorporated by
      reference to Exhibit 10.26 to Amendment No. 1 to the
      Registrant’s Registration Statement on Form S-1 (SEC File
      No. 333-121646) filed on January 27, 2005).10.15
                      †
                      Amendment
      No. 1 to Collaboration Agreement, dated June 17, 2003, between
      the Registrant and Biogen Idec MA Inc. (incorporated by reference to
      Exhibit 10.27 to Amendment No. 1 to the Registrant’s
      Registration Statement on Form S-1 (SEC File No. 333-121646)
      filed on January 27, 2005).10.16
                      †
                      Amendment
      No. 2 to Collaboration Agreement, dated September 17, 2003,
      between the Registrant and Biogen Idec MA Inc. (incorporated by
      reference to Exhibit 10.28 to Amendment No. 1 to the
      Registrant’s Registration Statement on Form S-1 (SEC File
      No. 333-121646) filed on January 27,
  2005).




43





10.17
                        †
                        Collaboration
      Agreement, dated August 25, 2004, between the Registrant and Biogen
      Idec, Inc. (incorporated by reference to Exhibit 10.29 to Amendment
      No. 2 to the Registrant’s Registration Statement on Form S-1
      (SEC File No. 333-121646) filed on April 29,
    2005).10.18
                        †
                        Collaboration
      Agreement, dated May 3, 2002, by and between the Registrant and
      Johnson & Johnson Pharmaceutical Research &
      Development, LLC (incorporated by reference to Exhibit 10.30 to
      Amendment No. 1 to the Registrant’s Registration Statement on
      Form S-1 (SEC File No. 333-121646) filed on January 27,
      2005).10.19
                        †
                        Amendment
      to Collaboration Agreement, dated December 15, 2002, between the
      Registrant and Johnson & Johnson Pharmaceutical
      Research & Development, LLC (incorporated by reference to
      Exhibit 10.31 to Amendment No. 1 to the Registrant’s
      Registration Statement on Form S-1 (SEC File No. 333-121646)
      filed on January 27, 2005).10.20
                        
                        Notice
      of Extension and Second Amendment to Collaboration Agreement, dated
      December 15, 2003, between the Registrant and Johnson &
      Johnson Pharmaceutical Research & Development, LLC
      (incorporated by reference to Exhibit 10.32 to Amendment No. 1
      to the Registrant’s Registration Statement on Form S-1 (SEC File
      No. 333-121646) filed on January 27, 2005).10.21
                        †
                        Third
      Amendment to Collaboration Agreement, dated December 22, 2004,
      between the Registrant and Johnson & Johnson Pharmaceutical
      Research & Development, LLC (incorporated by reference to
      Exhibit 10.33 to Amendment No. 2 to the Registrant’s
      Registration Statement on Form S-1 (SEC File No. 333-121646)
      filed on April 29, 2005).10.22
                        †
                        License
      and Collaboration Agreement, dated February 12, 2003, by and between
      the Registrant and Merck & Co., Inc. (incorporated by
      reference to Exhibit 10.34 to Amendment No. 1 to the
      Registrant’s Registration Statement on Form S-1 (SEC File
      No. 333-121646) filed on January 27, 2005).10.23
                        †
                        License
      and Research Collaboration Agreement, dated July 22, 2004, by and
      between the Registrant and Merck & Co., Inc.
      (incorporated by reference to Exhibit 10.35 to Amendment No. 1
      to the Registrant’s Registration Statement on Form S-1 (SEC File
      No. 333-121646) filed on January 27, 2005).10.24
                        †
                        License
      Agreement, dated October 14, 2003, by and between the Registrant and
      Dainippon Sumitomo Pharma Co., Ltd. (formerly known as Dainippon
      Pharmaceutical Co., Ltd.) (incorporated by reference to
      Exhibit 10.36 to Amendment No. 2 to the Registrant’s
      Registration Statement on Form S-1 (SEC File No. 333-121646)
      filed on April 29, 2005).10.25
                        †
                        License
      Agreement, dated as of April 27, 2005, between the Registrant and
      Bristol-Meyers Squibb Company (incorporated by reference to
      Exhibit 10.35 to Amendment No. 4 to the Registrant’s
      Registration Statement on Form S-1 (SEC File No. 333-121646)
      filed on September 1, 2005).10.26
                        
                        Stock
      Purchase Agreement, dated as of April 27, 2005, between the
      Registrant and Bristol-Meyers Squibb Company (incorporated by reference to
      Exhibit 10.38 to Amendment No. 2 to the Registrant’s
      Registration Statement on Form S-1 (SEC File No. 333-121646)
      filed on April 29, 2005).10.27
                        
                        Amendment
      to Eighth Amended and Restated Investor Rights Agreement, dated as of
      April 27, 2005, among the Registrant and investors listed on the
      signature pages thereto (incorporated by reference to Exhibit 10.39
      to Amendment No. 2 to the Registrant’s Registration Statement on
      Form S-1 (SEC File No. 333-121646) filed on April 29,
      2005).10.28
                        
                        Amendment
      to Eighth Amended and Restated Investor Rights Agreement, dated as of
      August 25, 2005, among the Registrant and the investors listed on the
      signature pages thereto (incorporated by reference to Exhibit 10.39
      to Amendment No. 4 to the Registrant’s Registration Statement on
      Form S-1 (SEC File No. 333-121646) filed on September 1,
      2005).10.29
                        
                        Warrant,
      dated August 25, 2005, issued to Horizon Technology Funding Company
      II LLC (incorporated by reference to Exhibit 10.40 to Amendment
      No. 4 to the Registrant’s Registration Statement on Form S-1
      (SEC File No. 333-121646) filed on September 1,
      2005).10.30
                        
                        Warrant,
      dated August 25, 2005, issued to Horizon Technology Funding Company
      III LLC (incorporated by reference to Exhibit 10.41 to Amendment
      No. 4 to the Registrant’s Registration Statement on Form S-1
      (SEC File No. 333-121646) filed on September 1,
      2005).10.31
                        
                        Warrant,
      dated August 25, 2005, issued to Oxford Finance Corporation
      (incorporated by reference to Exhibit 10.42 to Amendment No. 4
      to the Registrant’s Registration Statement on Form S-1 (SEC File
      No. 333-121646) filed on September 1, 2005).10.32
                        *
                        Amended
      and Restated 2006 Employment Commencement Incentive
  Plan.10.33
                        
                        Common
      Stock and Warrant Purchase Agreement, dated as of March 17, 2006,
      among the Registrant and the investors listed on the signature pages
      thereto (incorporated by reference to Exhibit 10.44 to the
      Registrant’s Current Report on Form 8-K filed on March 22,
      2006).10.34
                        
                        Form
      of Warrant (incorporated by reference to Exhibit 10.46 to the
      Registrant’s Current Report on Form 8-K filed on March 22,
      2006).10.35
                        †
                        Sublease,
      dated December 22, 2006, by and between the Registrant and Oncology
      Therapeutics Network Joint Venture, L.P., for office space located at
      395 Oyster Point Boulevard, South San Francisco, California (incorporated
      by reference to Exhibit 10.47 to the Registrant’s Annual Report on
      Form 10-K filed on March 17,
2008).




44




10.36
                        *
                        Amendment,
      dated December 21, 2005, to the Amended and Restated Consulting
      Agreement, dated August 8, 2005, by and between the Registrant and
      James A. Wells, Ph. D. (incorporated by reference to Exhibit 10.48 to
      the Registrant’s Quarterly Report on Form 10-Q filed on May 9,
      2007).10.37
                        *
                        Consulting
      Agreement, dated August 17, 2006, by and between the Registrant and
      Homer L. Pearce, Ph. D. (incorporated by reference to Exhibit 10.49
      to the Registrant’s Quarterly Report on Form 10-Q filed on
      May 9, 2007).10.38
                        *
                        Consulting
      Agreement, dated September 2, 2006, by and between the Registrant and
      David C. Stump, M. D. (incorporated by reference to Exhibit 10.50 to
      the Registrant’s Quarterly Report on Form 10-Q filed on May 9,
      2007).10.39
                        *
                        Forms
      of Stock Option Grant Notice and Stock Option Agreement under the 2005
      Equity Incentive Award Plan (incorporated by reference to
      Exhibit 10.52 to the Registrant’s Current Report on Form 8-K
      filed on September 19, 2007).10.40
                        *
                        Sunesis
      Pharmaceuticals, Inc. 2008 Executive Bonus Program (incorporated by
      reference to Exhibit 10.56 to the Registrant’s Quarterly Report on Form
      10-Q filed on August 7, 2008).10.41
                        *
                        Forms
      of Stock Option Grant Notice and Stock Option Agreement under the Amended
      and Restated 2006 Employment Commencement Incentive Plan (incorporated by
      reference to Exhibit 10.71 to the Registrant’s Current Report on Form 8-K
      filed on December 23, 2008).10.42
                        *
                        Amended
      and Restated Executive Severance Benefits Agreement, dated December 23,
      2008, by and between the Registrant and Steven B. Ketchum, Ph.D.
      (incorporated by reference to Exhibit 10.43 to the Registrant’s Annual
      Report on Form 10-K for the year ended December 31, 2008, as filed
      with the SEC on April 3, 2009).10.43
                        *
                        Second
      Amended and Restated Executive Severance Benefits Agreement, dated
      December 24, 2008, by and between Registrant and Daniel N. Swisher, Jr.
      (incorporated by reference to Exhibit 10.44 to the Registrant’s Annual
      Report on Form 10-K for the year ended December 31, 2008, as filed
      with the SEC on April 3, 2009).10.44
                        *
                        Second
      Amended and Restated Executive Severance Benefits Agreement, dated
      December 24, 2008, by and between Registrant and Eric H.
      Bjerkholt  (incorporated by reference to Exhibit 10.45 to the
      Registrant’s Annual Report on Form 10-K for the year ended
      December 31, 2008, as filed with the SEC on April 3,
      2009).10.45
                        *
                        Second
      Amended and Restated Executive Severance Benefits Agreement, dated
      December 23, 2008, by and between Registrant and James W. Young, Ph.D.
      (incorporated by reference to Exhibit 10.46 to the Registrant’s Annual
      Report on Form 10-K for the year ended December 31, 2008, as filed
      with the SEC on April 3, 2009).10.46
                        *
                        Second
      Amended and Restated Executive Severance Benefits Agreement, dated
      December 24, 2008, by and between Registrant and Valerie L.
      Pierce  (incorporated by reference to Exhibit 10.47 to the
      Registrant’s Annual Report on Form 10-K for the year ended
      December 31, 2008, as filed with the SEC on April 3,
      2009).10.47
                        *
                        Amended
      and Restated Executive Severance Benefits Agreement, dated May 27, 2008,
      by and between Registrant and Daniel C. Adelman, M.D. (incorporated by
      reference to Exhibit 10.63 to the Registrant’s Quarterly Report on Form
      10-Q filed on August 7, 2008).10.48
                        *
                        Amended
      and Restated Executive Severance Benefits Agreement, dated May 28, 2008,
      by and between Registrant and Robert S. McDowell, Ph.D. (incorporated by
      reference to Exhibit 10.64 to the Registrant’s Quarterly Report on Form
      10-Q filed on August 7, 2008).10.49
                        *
                        Release
      Agreement, dated June 6, 2008, by and between Registrant and Daniel C.
      Adelman, M.D. (incorporated by reference to Exhibit 10.65 to the
      Registrant’s Quarterly Report on Form 10-Q filed on August 7,
      2008).10.50
                        *
                        Release
      Agreement, dated August 4, 2008, by and between Registrant and Robert S.
      McDowell, Ph.D. (incorporated by reference to Exhibit 10.66 to the
      Registrant’s Quarterly Report on Form 10-Q filed on August 7,
      2008).10.51
                        *
                        Acceptance
      of Option Amendment, dated June 6, 2008, by and between Registrant and
      Daniel C. Adelman, M.D. (incorporated by reference to Exhibit 10.67 to the
      Registrant’s Quarterly Report on Form 10-Q filed on August 7,
      2008).10.52
                        *
                        Acceptance
      of Option Amendment, dated June 27, 2008, by and between Registrant and
      Robert S. McDowell, Ph.D. (incorporated by reference to Exhibit 10.68 to
      the Registrant’s Quarterly Report on Form 10-Q filed on August 7,
      2008).10.53
                        *
                        Forms
      of Stock Option Grant Notice and Stock Option Agreement for Automatic
      Grants to Outside Directors under the 2005 Equity Incentive Award Plan
      (incorporated by reference to Exhibit 10.69 to the Registrant’s Quarterly
      Report on Form 10-Q filed on November 7, 2008).10.54
                        *
                        Consulting
      Agreement, dated August 5, 2008, and First Amendment to Consulting
      Agreement, dated October 1, 2008, by and between Registrant and Robert S.
      McDowell, Ph.D. (incorporated by reference to Exhibit 10.70 to the
      Registrant’s Quarterly Report on Form 10-Q filed on November 7,
      2008).10.55
                        
                        Intellectual
      Property Assignment and License Termination Agreement by and between the
      Registrant and SARcode Corporation, dated March 6, 2009 (incorporated by
      reference to Exhibit 10.72 to the Registrant’s Current Report on Form 8-K
      filed on March 10,
2009).




45




10.56
                        
                        Form
      of Amended and Restated Convertible Secured Promissory Notes issued by
      SARcode Corporation to the Registrant, dated March 6, 2009 (incorporated
      by reference to Exhibit 10.73 to the Registrant’s Current Report on Form
      8-K filed on March 10, 2009).10.57
                        
                        Summary
      of Non-Employee Director Cash Compensation
      Arrangements  (incorporated by reference to Exhibit 10.59 to the
      Registrant’s Annual Report on Form 10-K  for the year ended
      December 31, 2008, as filed with the SEC on April 3,
      2009).10.58
                        †
                        Securities
      Purchase Agreement, dated March 31, 2009, by and among the Registrant and
      the purchasers identified on the signature pages thereto (incorporated by
      reference to Exhibit 10.1 to the Registrant’s Current Report on
      Form 8-K filed on April 3, 2009).10.59
                        
                        Form
      of Warrant to purchase shares of Common Stock (incorporated by reference
      to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K
      filed on April 3, 2009).21.1
                        
                        Subsidiaries
      of the Registrant  (incorporated by reference to Exhibit 21.1 to
      the Registrant’s Annual Report on Form 10-K for the year ended
      December 31, 2008, as filed with the SEC on April 3,
      2009).23.1
                        
                        Consent
      of Independent Registered Public Accounting Firm  (incorporated
      by reference to Exhibit 23.1 to the Registrant’s Annual Report on Form
      10-K  for the year ended December 31, 2008, as filed with
      the SEC on April 3, 2009).24.1
                        
                        Power
      of Attorney (included in the signature page to the Registrant’s Annual
      Report on Form 10-K, filed with the SEC on April 3,
  2009).31.1
                        
                        Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) or
      Rule 15d-14(a) of the Exchange Act  (incorporated by
      reference to Exhibit 31.1 to the Registrant’s Annual Report on Form 10-K
      for the year ended December 31, 2008, as filed with the SEC on April
      3, 2009).31.2
                        
                        Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) or
      Rule 15d-14(a) of the Exchange Act  (incorporated by
      reference to Exhibit 31.2 to the Registrant’s Annual Report on Form 10-K
      for the year ended December 31, 2008, as filed with the SEC on April
      3, 2009).31.3
                        
                        Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) or
      Rule 15d-14(a) of the Exchange Act.31.4
                        
                        Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) or
      Rule 15d-14(a) of the Exchange Act.32.1
                        #
                        Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Rule
      13a-14(b) or Rule 15d-14(b) of the Exchange Act (incorporated by reference
      to Exhibit 32.1 to the Registrant’s Annual Report on Form
      10-K  for the year ended December 31, 2008, as filed with
      the SEC on April 3,
2009).





*
            Management
      contract, compensatory plan or
arrangement.




†
            Portions
      of the exhibit have been omitted pursuant to a request for confidential
      treatment. The omitted informationhas been filed separately with the
      Securities and Exchange Commission.




#
            In accordance with
      Item 601(b)(32)(ii) of Regulation S-K and SEC Release
      Nos. 33-8238 and 34-47986, Final Rule; Management’s Reports on
      Internal Control over Financial Reporting and Certification of Disclosure
      in Exchange Act Periodic Reports, the Certification furnished in
      Exhibit 32.1 hereto is deemed to accompany this Form 10-K and
      will not be filed for purposes of Section 18 of the Exchange Act.
      Such certification will not be deemed incorporated by reference into any
      filing under the Securities Act or the Exchange Act, except to the extent
      that the registrant specifically incorporates it by
      reference.




46