UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K



(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2009oro

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


For the transition period from            to

Commission File No. 0-16614

PONIARD PHARMACEUTICALS, INC.(Exact name of Registrant as specified in its charter)

Washington(State or other jurisdiction of
incorporation or organization)

91-1261311(IRS Employer
Identification No.)


7000 Shoreline Court, Suite 270, South San Francisco, CA 94080(Address of principal executive offices)

Registrant's
telephone number, including area code:(650) 583-3774

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

Title of each class

Name of each exchange on which registeredCommon Stock, $0.02 par value

The Nasdaq Stock Market LLC


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

$2.4375 Convertible Exchangeable Preferred Stock, Series 1, $0.02 par value

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 ý

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 ý

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

Indicated by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.45 of the chapter) 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 (§ 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See 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 ý

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

Smaller reporting company o


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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately
$137.6 million as of June 30, 2009, based on a per share closing price of $5.97 on the Nasdaq Global Market on that date.

As
of March 9, 2010, 42,844,262 shares of the registrant's common stock, $0.02 par value per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Specified
portions of the registrant's Definitive Proxy Statement for the 2010 Annual Meeting of Shareholders, to be filed within 120 days of the end of the fiscal year covered by
this Annual Report on Form 10-K are incorporated by reference into Part III of this Annual Report on Form 10-K. Except with respect to information
specifically incorporated by reference into this Annual Report on Form 10-K, the Proxy Statement for the 2010 Annual Meeting of Shareholders is not deemed part hereof.



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PART I

IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-K contains forward-looking statements within the meaning of the Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "could," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "project," "potential," "propose," "continue," "assume"
or other similar expressions, or the negatives of those expressions. All statements contained in this Form 10-K or incorporated in this Form 10-K by reference
regarding our corporate objectives and strategies, future operations, potential partners and other strategic relationships, projected financial position, planned clinical and regulatory activities,
proposed products, future regulatory approvals, proposed product commercialization, estimated future revenue, projected costs, potential sources of capital, future prospects, the future of our
industry, and results that might be obtained by pursuing management's current plans and objectives are forward-looking statements.

You
should not place undue reliance on our forward-looking statements because these statements reflect our current views with respect to future events and are based on assumptions and
are subject to
risks and uncertainties that are difficult to predict. Our forward-looking statements are based on the information currently available to us and speak only as of the date of this report or, in the
case of forward-looking statements incorporated herein by reference, the date of the filing that includes the statement. Over time, our actual results, performance or achievements may differ from
those expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our security holders. Except as required by law, we undertake no
obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this report, or to reflect the occurrence of unanticipated events.

We
have identified some of the important factors that could cause future events to differ from our current expectations and they are described under the headings "Risk Factors" in
Item 1A below and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 below. Please consider our forward-looking statements in light of
these risks as you read this report and any information incorporated by reference in this report.

Unless
otherwise indicated, all common stock-related amounts in this report have been adjusted to reflect our one-for-six reverse stock split effective
September 22, 2006.

Item 1.    BUSINESS

The Company

Poniard is a biopharmaceutical company focused on the development and commercialization of cancer therapeutics. Our lead product
candidate is picoplatin, a new generation platinum-based cancer therapy that has the potential to become a platform product for use in different formulations, as a single agent or in combination with
other anti-cancer agents, to treat multiple cancer indications, including small cell lung, colorectal, prostate and ovarian cancers. Picoplatin is an intravenous platinum-based
chemotherapeutic designed to treat solid tumors that are resistant to existing platinum-based cancer therapies. Clinical studies to date suggest that picoplatin has an improved safety profile relative
to existing platinum-based cancer therapies. We have completed enrollment and initial statistical analysis of a pivotal Phase 3 SPEAR (Study of Picoplatin Efficacy After Relapse) trial of
picoplatin in the second-line treatment of patients with small cell lung cancer. This trial did not meet its primary endpoint of overall survival and we have initiated a process with the
U.S. Food and Drug

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Administration,
or the FDA, to identify a potential regulatory path forward for picoplatin in this indication. We are also conducting two separate Phase 2 trials evaluating picoplatin as a
first-line treatment of metastatic colorectal cancer and castration-resistant (hormone-refractory) prostate cancer. Additionally, we have completed a Phase 1 cardiac safety trial of
picoplatin and a Phase 1 study evaluating an oral formulation of picoplatin in solid tumors. Our corporate strategy currently is focused on identifying potential regulatory pathways forward for
picoplatin and exploring potential partnering and other relationships to support the continued development of picoplatin in multiple indications and two formulations.

We
have financed our operations to date primarily through the sale of equity securities, technology licensing, collaborative agreements and borrowings under debt instruments. Entities
affiliated with MPM Capital Management, or MPM, beneficially owned an aggregate of approximately 18.6% of our common stock outstanding on December 31, 2009. Entities affiliated with Bay City
Capital Management IV LLC, or Bay City Management, beneficially owned an aggregate of approximately 13.0% of our common stock outstanding on December 31, 2009. Nicholas J. Simon, a
representative of MPM, and Fred B. Craves and Carl S. Goldfischer, managing directors of Bay City Capital LLC, an affiliate of Bay City Management, serve on our board of directors.

During
2009, we sold an aggregate of approximately 7.0 million shares of our common stock to Azimuth Opportunity Ltd., or Azimuth, pursuant to two draw downs under an
equity line of credit facility with Azimuth dated August 19, 2009, as amended. In the first draw down on November 23, 2009, we sold approximately 3.5 million common shares to
Azimuth at a purchase price of approximately $2.15 per share. We sold Azimuth approximately 3.5 million common shares for approximately $1.87 per share in the second draw down on
December 22, 2009. The equity financing facility terminated by its terms on December 22, 2009. We received aggregate net proceeds from the draw downs of approximately
$13.7 million. In September 2008, we borrowed approximately $20.0 million of additional net cash proceeds under an amended and restated loan facility with GE Business Financial
Services, Inc. and
Silicon Valley Bank. On April 30, 2007, we completed a public offering of 11.8 million common shares at an offering price of $6.33 per share. Net proceeds of the offering were
approximately $70.0 million. Additionally, in April 2006, we received $62.0 million in net proceeds from an equity financing, pursuant to which we issued 15.5 million common
shares at a purchase price of $4.20 per share. Investors in the 2006 financing also received warrants to purchase an aggregate of 4.6 million common shares at a purchase price of $4.62 per
share. The proceeds of these transactions were used to support our research and clinical development activities and commercialization efforts over the past three years, as well as for general
corporate purposes, including working capital.

In
2010, we plan to refocus our resources on regulatory and partnering strategies to support the continued development of picoplatin. On February 5, 2010, we implemented a
restructuring plan to conserve capital resources, which reduced our workforce by approximately 57%, to 22 employees. We believe that our current workforce is sufficient to support our regulatory and
partnering strategies focused on the continued development of picoplatin. On March 15, 2010, we completed a draw down and sale of 4,229,000 shares of our common stock, at a price of
approximately $1.49 per share, to Commerce Court Small Cap Value Fund, Ltd., or Commerce Court, under our equity line of credit facility with Commerce Court, dated February 23, 2010. Net
proceeds of approximately $6,154,000 were received, after deducting estimated offering costs of approximately $166,000. A description of this equity line of credit facility is set out in the section
entitled "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources" in Item 7 below.

Since
our inception in 1984, we have dedicated substantially all of our resources to research and development. We have not generated significant revenue from any product sales and have
operated at a loss in each year of our existence. We had a net loss of $45.7 million for the year ended December 31, 2009, a net loss of $48.6 million for the year ended
December 31, 2008, and a net loss of $32.8 million

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for
the year ended December 31, 2007. We do not anticipate that our picoplatin product candidate will be commercially available before 2011. We expect to incur additional operating losses in
the future. Clinical studies are inherently uncertain, and current and future trials of picoplatin may not confirm the results achieved in earlier clinical and preclinical studies. If picoplatin is
not shown to be safe and effective, we will not receive the required regulatory approvals for commercial sale of such product. We are exploring potential partnering and other relationships to support
the continued development of picoplatin. We may not be able to secure corporate partners or enter into strategic relationships on a timely basis or on terms that ultimately prove favorable to us.

Our
consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities
in the normal course of business for a reasonable period following the date of these financial statements. As of December 31, 2009, we had net working capital of $27.4 million, an
accumulated deficit of $408.2 million and total shareholders' equity of $23.6 million. Cash, cash equivalents and investment securities, net of restricted cash of $0.3 million,
totaled $43.4 million at December 31, 2009.

Our
current loan facility with GE Business Financial Services, Inc. and Silicon Valley Bank, the terms of which are described below under the heading, "Management's Discussion and
Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources," requires us to maintain a minimum amount of unrestricted cash during the term of the loan equal
to the lesser of (i) $17.9 million or (ii) the outstanding aggregate principal balance of the term loans plus $4.0 million. Taking into account the minimum unrestricted
cash requirement under the loan facility and our projected operating results, we believe that our current cash, cash equivalent and investment securities balances, including the net proceeds received
from our March 15, 2010 sale of common stock to Commerce Court under our equity line of credit facility, will provide adequate resources to fund operations at least through the end of 2010.
However, given the uncertainties of outcomes of our regulatory and partnering strategies to support the continued development of picoplatin, there is no assurance that we can achieve our projected
operating results. Thereafter, unless we raise additional funds, we will be in default of the loan facility. The occurrence of an event of default would increase the applicable rate of interest by 5%
and could result in the acceleration of our payment obligations under the loan agreement. We have no assurance, especially in light of the current difficult economic environment, that the lenders will
be willing to waive or renegotiate the terms of the loan agreement to address or avoid financial or other defaults.

If
an event of default were to occur, we might not have sufficient funds to repay the loan or to fund our continuing operations. In such case, we would need to delay, scale back or
curtail some or all of our current picoplatin clinical and regulatory efforts, further reduce our workforce, license picoplatin for development and commercialization by third parties, or attempt to
sell the company. Provisions of the loan agreement would limit our ability to dispose of certain assets, engage in certain mergers, incur certain indebtedness, make certain distributions and engage in
certain investment activities without the prior consent of the lenders.

Picoplatin Development Program

Overview of Cancer and its Treatment

Cancer is a disease characterized by the uncontrolled growth and spread of abnormal cells. Cancer cells often originate from one tissue
site and invade, spread and damage other tissues and organs, leading to death. Cancer is the second highest cause of death in the United States, exceeded only by heart disease. In the United States,
cancer accounts for one of every four deaths. In 2009, approximately 562,340 Americans were expected to die of cancer, more than 1,500 people a day. The National Cancer Institute estimated that
1,479,350 new cancer cases would be diagnosed in 2009 (American Cancer Society: Cancer Facts & Figures 2009).

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In
recent years, the diagnosis and treatment of human cancers have greatly improved. However, there is still considerable need for new cancer therapies, as well as treatments that
improve upon existing therapies. Current treatments for cancer include surgery, external-beam radiation, chemotherapy, hormone therapy, cytokines, interferons and antibodies. It is
anticipated that chemotherapeutics and targeted anti-cancer agents will be used both as single agents and in combination to provide benefit to cancer patients. Often patients are treated
with multiple agents in combination and in varying sequences depending on the particular cancer type and severity of disease. In this regard, chemotherapeutics have continued to have significant
impact on cancer treatment, especially when combined with other agents that have anti-cancer properties. We believe that new treatment combinations that incorporate approved targeted
agents with chemotherapeutics that exhibit improved efficacy and safety features and provide benefit to risk ratios for specific patient populations, will be supported by physicians and their
patients. In recent years, many new classes of agents providing modest increases in patient survival have been approved for use. We anticipate that the use of multiple agents, either in combination or
in sequence, will continue to provide benefits to cancer patients. In addition, we believe that individualized therapies will become more prominent as enhanced tumor diagnostics and agents with
different mechanisms of anti-cancer effect are approved and become available to the practicing oncologist. We also expect that early diagnosis and cancer prevention will provide for
interventions that will allow patients to live longer and have a better quality of life.

Picoplatin and Platinum-Based Chemotherapeutics

Over the past three decades, platinum-based drugs have become a critical part of cancer treatment, administered primarily in
combination with other chemotherapeutics, and more recently with approved targeted anti-cancer agents. Platinum-based agents, such as cisplatin, carboplatin and oxaliplatin, are currently
used to treat a variety of tumors, including testicular, ovarian, colorectal and lung cancers. The mechanism that underlies the use of platinum-based agents relies upon the targeting of tumor DNA
where the platinum compound binds. Cells that undergo active cell division are prevented from completing the cell cycle by the presence of the platinum drug that is chemically bound to the DNA. The
inability to proceed through normal cell division ultimately causes cell death. In some cases, treatment of cancer patients with platinum compounds leads to reduction in tumor mass due to a higher
rate of tumor cell death compared with tumor cell replication.

All
platinum-based chemotherapeutic agents exhibit toxicity to the blood forming cells in the bone marrow, or myelosuppression, as a major adverse effect. The degree and characteristics
of myelosuppression vary by platinum compound, dose and regimen. In addition, some current platinum agents show different degrees of other adverse side effects, including kidney damage
(nephrotoxicity),
hearing loss (ototoxicity), nausea, vomiting and nerve damage (neurotoxicity). As in the case of myelosuppression, these side effects vary with platinum agent, dose, combination therapy and regimen.

For
most cancers that are treated with platinum-containing regimens, patients whose cancer initially responds to platinum-containing chemotherapy, subsequently experience progression of
their disease due to acquired resistance to the chemotherapy. We believe that patients would benefit from a rationally designed platinum-based agent that is active in patients who have become
resistant after receiving prior platinum-containing treatment and is potentially synergistic in combination with other agents.

In
April 2004, we acquired the rights to develop, manufacture and commercialize picoplatin. In September 2006, we renegotiated the financial terms of our April 2004 license agreement and
obtained exclusive worldwide rights to picoplatin. Picoplatin is a new-generation platinum-based chemotherapeutic agent designed to overcome platinum resistance associated with
chemotherapy in solid tumors. We believe that picoplatin has the potential to become a platform product for use in different formulations, as a single agent or in combination with other
anti-cancer agents, and to treat multiple cancer indications, including small cell lung, colorectal, prostate and ovarian cancers. Study

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data
to date suggest that picoplatin has an improved safety profile relative to existing platinum-based cancer therapies and can be safely administered in combination with multiple approved oncology
products. Over 1,100 patients have received picoplatin in clinical trials to date. Results obtained suggest that decreased production of blood cells, or myelosuppression, is common but manageable.
Kidney damage, or nephrotoxicity, and nerve damage, or neurotoxicity, have been less frequent and less severe than is commonly observed with other currently-marketed platinum chemotherapy drugs.
Picoplatin has shown evidence of anti-tumor activity in a variety of solid tumors, including tumors that have been pre-treated with existing platinum-based therapeutics.

Picoplatin Clinical Studies

We have completed enrollment and initial statistical analysis of a pivotal Phase 3 SPEAR trial of picoplatin in the
second-line treatment of patients with small cell lung cancer. We have completed enrollment of two separate Phase 2 trials evaluating picoplatin as a first-line
treatment of metastatic colorectal cancer and castration-resistant (hormone-refractory) prostate cancer. Additionally, we have completed a Phase 1 cardiac safety trial of picoplatin and a
Phase 1 study evaluating an oral formulation of picoplatin in solid tumors. These programs are described below and in the section of this report entitled "Management's Discussion and Analysis
of Financial Condition and Results of OperationsResearch and Development." It is important to keep in mind that clinical studies are inherently uncertain, and later trials may not confirm
the results achieved in earlier clinical and preclinical studies and may not be supported by the
results obtained in subsequent trials. You should refer to the section of this report entitled "Risk Factors" for a discussion of some of the factors that could materially affect our picoplatin
development program.



Small Cell Lung Cancer and its Treatment.There were an estimated 219,440 new cases of lung cancer in the United States in 2009. Lung
cancer accounts
for the most cancer related deaths in both men and women. An estimated 159,390 deaths, accounting for about 28% of all cancer deaths in the United States, were expected in 2009 (American Cancer
Society: Cancer Facts and Figures, 2009). Small cell lung cancer accounts for approximately 10% to 15% of all lung cancer cases and is the most aggressive type of lung cancer. According to IntrinsiQ,
the leading provider of United States oncology market data, 52,619 small cell lung cancer patients were treated in the United States in 2008. Small cell lung cancer metastasizes rapidly and is most
often discovered after it has spread. At the time of diagnosis, approximately two-thirds of small cell lung cancer patients have metastases beyond the chest region. Few patients can be
cured. Surgery is seldom an option for these patients because of the extent of the disease at diagnosis. Most patients receive chemotherapy, and patients whose disease is limited to one side of the
chest may also receive radiation therapy.

Platinum-based
combination therapy is used in the first-line treatment of small cell lung cancer. According to IntrinsiQ, more than 80% of patients with small cell lung
cancer in the United States were treated with either carboplatin or cisplatin plus etoposide as first-line chemotherapy in 2008. Despite a response rate of 40% to 90% to
first-line therapy, long-term survival is rare because patients develop resistance to chemotherapy and the cancer progresses or the disease relapses.

The
prognosis for patients who relapse is poor, and the expected mean survival after relapse is two to four months without any treatment. There are no FDA-approved drugs for
small cell lung cancer patients who do not respond to initial platinum-based therapy. Hycamtin® is the only FDA-approved therapy for the treatment of relapsing small cell lung
cancer patients who initially responded to the first-line chemotherapy treatment; however, survival is still only approximately six months. Effective second-line treatment is a
major unmet medical need.

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Based
on clinical and preclinical data to date, we believe that picoplatin has potential activity in the second-line treatment of small cell lung cancer patients who have
failed first-line platinum-containing therapy. A Phase 2 study conducted by a prior licensee during 2001 and 2002 to assess the activity and tolerability of picoplatin when given
intravenously as a second-line therapy to patients with small cell lung cancer demonstrated that median survival of 13 patients who were resistant to initial platinum-based chemotherapy
was approximately 27 weeks.

Phase 2 Clinical Trial.In October 2004, we filed an investigational new drug application, or IND, with the FDA to conduct a
Phase 2
clinical trial of intravenous picoplatin as a second-line therapy for small cell lung cancer patients whose disease failed to respond to, or relapsed or progressed after completion of,
first-line platinum-containing therapy. The clinical endpoints of the study included safety, objective tumor response rate (tumor shrinkage), time to tumor progression and overall
survival.

We
completed enrollment of the Phase 2 study in August 2006. In November 2006, we announced positive interim overall survival results from the study, indicating a median overall
survival of 27 weeks in 71 evaluable patients. This data served as the basis for our decision to initiate our pivotal Phase 3 SPEAR trial. In June and September 2007, we announced
additional data from our Phase 2 trial, including longer follow-up on more patients, which confirmed the interim results, with median overall survival of 27 weeks in 77
evaluable patients.

Phase 3 Clinical Trial.We initiated our pivotal Phase 3 SPEAR trial and enrolled the first patient in April 2007. The
Phase 3
trial was undertaken pursuant to a Special Protocol Assessment, or SPA, with the FDA. An SPA is a written agreement between a sponsor and the FDA regarding the objectives, design and endpoints of a
study to be used as a basis of filing a New Drug Application, or NDA, and the data analysis plan necessary to support full regulatory approval. The Phase 3 trial is an international,
multi-center, open-label, controlled study to compare the efficacy and safety of picoplatin plus best supportive care with best supportive care alone as a second-line therapy
for small cell lung cancer. We were blinded to any analysis of the aggregate data until the database was locked after the occurrence of 320 evaluable events (patient deaths). The study was designed to
enroll approximately 400 patients with small cell lung cancer whose disease is non-responsive (refractory) to first-line platinum-containing (cisplatin or carboplatin)
chemotherapy or whose disease responded initially to first-line platinum-containing therapy but then progressed within six months after treatment was completed. Patients were randomized in
a 2:1 ratio to receive picoplatin plus best supportive care or best
supportive care alone. Best supportive care includes all medical, radiation and surgical interventions that small cell lung cancer patients should receive to relieve the symptoms and treat the
complications caused by small cell lung cancer, but excludes treatment with other chemotherapy. We conducted the study at clinical sites in Eastern Europe, India and South America, where we believed
the greater availability of patients could enable us to more rapidly complete patient enrollment. We completed patient enrollment in March 2009.

The
primary endpoint of our Phase 3 SPEAR study is overall survival, as measured in time from randomization to death. Secondary endpoints include overall response rates, disease
control and progression-free survival. In September 2009, we announced that 320 evaluable events (patient deaths) had occurred in our Phase 3 SPEAR trial, allowing us to begin
analysis of trial data. On November 16, 2009, based on 321 patient deaths, we announced that our pivotal Phase 3 SPEAR trial did not meet its primary endpoint of overall survival in the
intent-to-treat population. The analysis showed a hazard ratio of 0.82 with a p value of 0.089 (n=321). An imbalance in the use of post-study chemotherapy was
observed in favor of patients who received best supportive care alone compared to patients who received picoplatin plus supportive care. Safety data was consistent with previous Phase 2 studies
of picoplatin in small cell lung cancer. Additional data analysis and our SPEAR study are ongoing. We have initiated a process with the FDA to identify a potential regulatory path forward to enable a
registrational filing seeking approval of picoplatin as a second-line treatment for patients with refractory disease. We have no assurance regarding the outcome of our process with the
FDA.

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The
FDA has designated picoplatin as an orphan drug for the treatment of small cell lung cancer under the provisions of the Orphan Drug Act, as amended. To qualify for orphan drug
status, a proposed drug must be intended for use in the treatment of a condition that affects fewer than 200,000 people in the United States. Orphan drug status entitles us to exclusive marketing
rights for picoplatin in the United States for seven years following marketing approval, if any, and qualifies us for research grants to support clinical studies, tax credits for certain research
expenses and an exemption from certain application user fees.

In
August 2007, the FDA also granted picoplatin Fast Track designation for the second-line treatment of small cell lung cancer. The FDA's Fast Track programs are designed to
facilitate the development and expedite the review of drugs that are intended to treat a serious or life-threatening condition and that demonstrate the potential to address unmet medical
needs. Fast Track designation provides for priority interactions with the FDA to improve the efficiency of clinical development and support the expeditious review of promising drug candidates.

The
European Commission, in 2007, designated picoplatin as an orphan medicinal product for the treatment of small cell lung cancer in the European Union. To qualify for this designation,
a proposed
drug must be intended for the treatment of life-threatening or serious conditions that are rare and affect not more than five in 10,000 persons in the European Union. Orphan medicinal
product designation entitles us to certain incentives, such as regulatory assistance with protocol design and possible exemptions or reductions of certain regulatory fees during development or at the
time of application for marketing approval in the European Union. If such approval is received, picoplatin would qualify for ten years of marketing exclusivity in the European Union.



Colorectal Cancer and its Treatment.According to the American Cancer Society, cancers of the colon and rectum are the third most
common cancer among
American men and women. An estimated 146,970 new cases of colon and rectal cancer were diagnosed in 2009, with an estimated 49,920 deaths in 2009, accounting for almost 9% of all cancer deaths in the
United States (American Cancer Society: Cancer Facts and Figures 2009). A FOLFOX-based regimen is the standard of care in the United States for treatment of advanced colorectal cancer, or CRC,
and adjuvant (post surgical) treatment of colon cancer in patients who have their primary tumors surgically removed. FOLFOX is a combination chemotherapy containing 5-fluorouracil and
leucovorin and oxaliplatin (Eloxatin®) administered every two weeks. According to IntrinsiQ, 41.8% of colorectal cancer patients in the United States received oxaliplatin-containing
treatment regimes in 2008. However, approximately 82% of the patients previously untreated for advanced CRC who receive this treatment develop neuropathy, and approximately 19% of patients develop
severe neuropathy, according to the oxaliplatin package insert. Neuropathy is a peripheral nerve function problem that can result in numbness, tingling and pricking sensations, sensitivity to touch,
pain, and muscle weakness or wasting. The National Comprehensive Cancer Network Guidelines for Physicians recommends discontinuation of oxaliplatin after three months of therapy, or sooner if severe
neuropathy develops, with the other two drugs maintained until time of tumor progression. In contrast to the nerve damaging effects of oxaliplatin, picoplatin has been generally
well-tolerated when given as a single agent, with approximately 13% of patients developing mild or moderate neuropathy and < 1% of the patients developing severe neuropathy in
334 patients evaluated. There presently is no approved test to predict which patients will experience neuropathy and, if so, the extent thereof.

Phase 1-2 Clinical Trial.In May 2006, we treated the first patient in our ongoing Phase 1-2 study of
intravenous picoplatin in the first-line treatment of patients with metastatic CRC. The trial is being conducted in Russia, and enrollment was completed in May 2008. The Phase 1
component of the trial was designed to determine an appropriate dose of picoplatin, either once every two weeks or once every four weeks, in combination with the chemotherapy agents
5-fluorouracil and leucovorin for

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further
testing in the Phase 2 component of the trial. This combination is called FOLPI. Based on final Phase 1 data, which was presented at the American Association of Cancer Research
Annual Meeting in April 2009, both dosing regimens were generally well-tolerated. Twenty-two percent of the patients treated developed neuropathy. In the majority of patients
the neuropathy was mild. Four percent of patients experienced moderate neuropathy. No severe neuropathy was observed. The most frequent dose limiting toxicity was hematological, or to the blood cells.
The maximum tolerated dose was established in the every-four-week schedule at 150 mg/m2. The maximum tolerated dose for the every-two-week
regimen was 85 mg/m2.

We
initiated a Phase 2 trial in November 2007 to generate proof-of-concept data to demonstrate that picoplatin can be used as a first-line
chemotherapeutic agent as a neuropathy-sparing alternative to oxaliplatin in patients with metastatic CRC who had not received prior chemotherapy. Enrollment of 101 patients in the randomized,
controlled Phase 2 trial was completed in May 2008. The trial's primary objective was to measure the relative incidence and severity of neuropathy in the FOLPI regimen compared to the FOLFOX
regimen. In addition, the study measured comparative safety and efficacy (assessed by disease control, progression-free survival, and overall survival); however, the study was not powered
to assess the statistical significance of these efficacy endpoints. The final Phase 2 data indicate that we achieved the primary objective of the study in demonstrating that picoplatin is a
neuropathy-sparing alternative to oxaliplatin and is active in metastatic CRC.

The
Phase 2 data presented at the American Society of Clinical Oncology (ASCO) Gastrointestinal Cancers Symposium in January 2010 indicate that:



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Castration-Resistant Prostate Cancer and its Treatment.Prostate cancer has the highest number of new cases among men in the United
States and is the
second leading cause of death in American men. The American Cancer Society estimated that, in 2009, there would be approximately 192,280 new cases of prostate cancer in the United States and that
approximately 27,360 men would die from this disease. Ten to twenty percent of men with prostate cancer present with metastatic disease, and all patients with metastatic prostate cancer become
resistant to hormone treatment.

Many
patients diagnosed with prostate cancer initially receive surgery or radiation therapy, and some of these patients are cured. For many, however, the disease recurs. At this point,
the recurrent disease is treated with hormone therapy, and most patients initially respond well. The average duration of response is only 10 to 12 months, however, and the tumor cells
eventually become resistant to the hormones, or hormone-refractory, and the tumor again progresses. Hormone-refractory prostate cancer is also known as "castration-resistant prostate cancer," or CRPC.
Increasingly, chemotherapy is being used as a first-line treatment for CRPC, but few effective drugs have been identified. Docetaxel in combination with prednisone was approved by the FDA
in 2004 for the treatment of patients with metastatic (stage IV) CRPC. According to IntrinsiQ, 88.5% of U.S. patients received a docetaxel-containing regimen for first-line
treatment of stage IV CRPC in 2008. Docetaxel or mitoxantrone, each as a single agent, were the two most commonly prescribed second-line treatment therapies for CRPC in the United
States in 2008. We believe that the combination of picoplatin and docetaxel has the potential to be more effective as a first-line treatment of CRPC than either docetaxel or picoplatin
alone.

Phase 1-2 Clinical Trial.In May 2006, we treated the first patient in our Phase 1-2 study of intravenous
picoplatin in the treatment of patients with CRPC that had not previously been treated with chemotherapy. The trial was conducted in Russia, and enrollment
was completed in December 2007. The Phase 1 component of the trial was designed to evaluate increasing doses of picoplatin in combination with 60 or 75 mg/m2 of the chemotherapy
agent docetaxel (Taxotere®) administered every three weeks with 5 mg prednisone twice daily, to establish a dose of picoplatin for further testing in the Phase 2 component of the
trial. Interim Phase 1 safety data, which was presented at the ASCO Gastrourinary Satellite Symposium in February 2008, showed that the picoplatin and docetaxel combination was generally
well-tolerated, with only mild neuropathy in three of 33 patients (9%), with a prostate specific antigen, or PSA, response rate of 65% (20 of 31 evaluable patients). Myelosuppression was
the dose limiting toxicity. We initiated the Phase 2 component of the trial in July 2007 and completed patient enrollment in December 2007.

The
Phase 2 trial evaluated the efficacy and safety of intravenous picoplatin (120 mg/m2) administered every three weeks in combination with full doses of docetaxel
(75 mg/m2) with daily prednisone (5 mg) as a first-line treatment in patients with metastatic CRPC who have not received prior chemotherapy. PSA response is the primary
endpoint. Secondary endpoints include duration of PSA response, time to progression, radiologic response, survival and safety. Thirty-two patients were enrolled, and 29 patients received
picoplatin in combination with docetaxel and prednisone.

The
Phase 2 data presented at the ASCO Genitourinary Cancers Symposium in March 2010 indicate that:



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Although
the Phase 2 trial is a small single-arm study, we believe that the safety and efficacy results support further development of picoplatin in combination with
docetaxel and prednisone for the first-line treatment of CRPC. Further, we believe that picoplatin could play a role in the treatment of other tumor types where platinum and taxane
therapies are currently used.



Ovarian Cancer and its Treatment.An estimated 21,550 new cases of ovarian cancer were expected in the United States in 2009. Ovarian
cancer accounts
for about 3% of all cancers among women and ranks second among gynecologic cancers. An estimated 14,600 deaths were expected in 2009. Ovarian cancer causes more deaths than any other cancer of the
female reproductive system. (American Cancer Society: Cancer Facts and Figures 2009). The treatment of ovarian cancer is based on the stage of the disease, which is a reflection of the extent
or spread of the cancer to other parts of the body. The initial treatment for advanced ovarian cancer is to remove as much of the tumor as possible, and
subsequently to administer chemotherapy using drugs such as cisplatin, carboplatin and paclitaxel. A carboplatin-based regimen is the standard of care for first-line treatment of advanced
ovarian cancer in the United States. According to IntrinsiQ, 83% of ovarian cancer patients received carboplatin-based therapy for first-line treatment in the United States in 2008.
Although most ovarian cancers respond to initial chemotherapy, the majority of ovarian cancer patients, including those who achieve a complete response to first-line chemotherapy, will
relapse and eventually die. About 75% of women with ovarian cancer in the United States survive at least one year after diagnosis. Less than half (46%) of women with ovarian cancer are still alive at
least five years after diagnosis. (American Cancer Society: Cancer Facts and Figures 2009).

Phase 2 Clinical Trial.In 2002, a prior licensee reported results of a Phase 2 open-label, non-comparative,
multicenter study of picoplatin monotherapy in the second-line treatment of women whose ovarian cancer had relapsed or progressed after completion of prior platinum-containing treatment.
The study, which assessed tumor response, time to progression, time to death and safety (adverse effects), was conducted in multiple study locations in Europe and Australia. A total of
94 patients were enrolled. The dosing schedule was 120 to 150 mg/m2 picoplatin as a one-hour intravenous infusion, once every three weeks until disease progression,
with a median number of three doses per patient. An objective response of 41% was achieved in 82 evaluable patients, including eight patients with complete responses. Picoplatin appeared to be well
tolerated, with manageable myelosuppression. No clinically significant ototoxicity, nephrotoxicity or neurotoxicity was observed. The results of this trial suggest that picoplatin has a manageable
toxicity profile and encouraging activity in advanced ovarian cancer.

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Phase 1 Combination Clinical Trial.In June 2008, we announced safety and efficacy results from a previously unpublished
 Phase 1
clinical trial of picoplatin and pegylated liposomal doxorubicin, or PLD, in patients with advanced solid tumor malignancies, including ovarian cancer. PLD is a chemotherapeutic agent approved for
treatment of advanced ovarian cancer in women who failed both platinum and paclitaxel-based chemotherapy. The trial enrolled 16 patients who had received up to three prior regimens for metastatic
disease. Patients were administered picoplatin followed by PLD on day one of a 28-day cycle. A total of 62 courses of treatment were delivered to 16 patients over four dose levels, with a
median number of four cycles per patient. A total of 12 patients were evaluable for response. One patient with primary peritoneal cancer experienced a complete response and four patients experienced a
partial response, including three of the five patients who had ovarian cancer. Hematologic and non-hemotologic toxicities were mild. We believe that this study suggests that picoplatin and
PLD may be an active combination that can be given at standard recommended dose levels with minimal increase in toxicity.



Phase 1 Clinical Trial.We have completed a Phase 1 randomized, open-label, dose-ranging study of the safety
(adverse effects), tolerability, pharmacokinetics (how the body processes the drug) and clinical pharmacology (how the drug works in the body) of picoplatin administered orally compared with
picoplatin administered intravenously in patients with advanced solid tumor malignancies. This trial was conducted at clinical sites in the United States. We believe that oral picoplatin has
significant potential for use in combination with radiation therapies, oral chemotherapies and targeted therapies, including in a refractory setting following relapse from first-line
therapies. In preclinical studies, picoplatin has been shown to have up to 40% oral bioavailability. Bioavailability refers to the fraction of an administered dose of an unchanged drug that reaches
systemic circulation. The final Phase 1 data were presented at the American Association for Cancer Research Annual Conference in April 2009. Results showed that the bioavailability of oral
picoplatin is nearly 100% at doses of 50 mg and 100 mg, indicating sufficient bioavailability to support further clinical development.

Picoplatin Source of Supply

We have entered into separate agreements with W.C. Heraeus GmbH, or Heraeus, for the manufacture of picoplatin active
pharmaceutical ingredient, or API, for use in our clinical studies and for commercial purposes. We similarly have entered into separate agreements with Baxter Oncology GmbH, or Baxter, for the
bulk production and distribution of finished picoplatin drug product for clinical and commercial use.

Clinical Supply.Heraeus is our sole supplier of API and Baxter is our sole supplier of finished drug product for our clinical trials.
Manufacturing
services are provided on a purchase order, fixed-fee basis. The API clinical supply agreement continues in effect until it is terminated by one or both of the parties in accordance with
its terms. The finished drug product clinical supply agreement had an initial term ending December 31, 2009, and in December 2009, we exercised our first renewal option, extending the term to
December 31, 2010. This agreement remains subject to renewal, at our option, for an additional one-year term. The agreements generally provide that they may be
terminated:



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Commercial Supply.We entered into a picoplatin API commercial supply agreement with Heraeus in March 2008 and a finished drug product
commercial
supply agreement with Baxter in November 2008. Under these agreements, Heraeus and Baxter will produce picoplatin API and finished drug product, respectively, for commercial use. Manufacturing
services are provided on a purchase order, fixed-fee basis, subject to certain purchase price adjustments and minimum quantity requirements. The API commercial supply agreement continues
for an initial term ending December 31, 2013, and the finished drug product commercial supply agreement continues for an initial term ending
November 22, 2013, in each case subject to extension. The agreements generally may be terminated upon the same terms and conditions as the clinical supply agreements described above.

We
have no assurance that our current suppliers will be able to continue to manufacture sufficient picoplatin API and/or finished drug product on a timely or cost-effective
basis at all times in the future. We believe that there are other contract manufacturers with the capacity to manufacture picoplatin API and finished drug product. If we are required to seek
out alternative manufacturers, we may incur significant additional costs and suffer delays in, or be prevented from, subject to FDA approval, initiating commercial sales of picoplatin.

Patents and Proprietary Rights

Our policy is to aggressively protect our proprietary technologies. We have filed applications for United States and foreign patents on
many aspects of our technologies.

We
hold an exclusive worldwide license granted from Genzyme Corporation (successor to AnorMED, Inc.) for the development and commercial sale of picoplatin. Under the license
agreement, as amended, Genzyme retains the right to prosecute its patent applications and maintain all licensed patents, with us reimbursing such expenses. We have the right to sue any third party
infringers of the picoplatin patents. If we do not file suit, Genzyme, in its sole discretion, has the right to sue the infringer at its expense.

The
parties executed the license agreement in April 2004, at which time we paid a one-time upfront milestone payment of $1.0 million in common stock and
$1.0 million in cash. The original license agreement excluded Japan from the licensed territory and provided for $13.0 million in development and commercialization milestones, payable in
cash or a combination of cash and common stock, and a royalty rate of up to 15% of product net sales after regulatory approval. The parties amended the license agreement on September 18, 2006,
modifying several key financial terms and expanded the licensed territory to include Japan, thereby providing us worldwide rights. In consideration of the amendment, we paid Genzyme
$5.0 million in cash on October 12, 2006 and paid Genzyme an additional $5.0 million in cash on March 30, 2007. The amendment eliminated all development milestone payments
to Genzyme. We remain obligated to pay a total of $5.0 million in commercialization milestones upon the attainment of certain levels of annual net sales of picoplatin after regulatory approval.
The amendment also reduced the royalty payable to Genzyme to a maximum of 9% of annual net product sales and eliminated sharing of sublicense revenues with Genzyme. The license agreement may be
terminated by either party for breach, or if the other party files a petition in bankruptcy or insolvency or for reorganization or is dissolved, liquidated or makes assignment for the benefit
of creditors. We can terminate the license at any time upon prior written notice to Genzyme. If not earlier terminated, the license agreement will continue in effect, in each country in the territory
in

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which
the licensed product is sold or manufactured, until the earlier of (i) expiration of the last valid claim of a pending or issued patent covering the licensed product in that country or
(ii) a specified number of years after first commercial sale of the licensed product in that country.

Our
picoplatin portfolio includes United States and foreign patents and applications licensed from Genzyme, which cover the picoplatin product. With respect to picoplatin, we expect to
rely primarily on U.S. Patent No. 5,665,771 (expiring February 7, 2016), which is licensed to us by Genzyme, and additional licensed patents expiring in 2016 covering picoplatin in the
European Union and other countries. The FDA designated picoplatin as an orphan drug for the treatment of small cell lung cancer under the provisions of the Orphan Drug Act, which entitles us to
exclusive marketing rights for picoplatin in the United States for seven years following market approval. In addition, the European Commission has designated picoplatin as an orphan medicinal product
for the treatment of small cell lung cancer in the European Union, which entitles us to exclusive marketing rights for picoplatin in the European Union for ten years following market approval.

We
and our licensors are continually assessing and seeking to strengthen the intellectual property estate for picoplatin. On May 8, 2009, patent owners, Genzyme Corporation and
The Institute of Cancer Research, together with our company, filed with the United States Patent & Trademark Office, or USPTO, an application to reissue U.S. Patent No. 5,665,771 ('771
patent) to the picoplatin compound. Like many composition of matter patents, the claims of the '771 patent include many compounds in addition to picoplatin. The reissue seeks to narrow certain claims
by removing a number of compounds other than picoplatin from these claims. In the reissue proceeding, the USPTO will review the patent on its merits and an initial rejection is not unusual. We will
have the opportunity to respond to any rejections and, if necessary, pursue appeals with the USPTO and the United States federal courts. During this process the '771 patent stays in force and can be
asserted in an infringement action. We believe that filing the reissue to amend these claims and strengthen the intellectual property estate is a
prudent course of action. Picoplatin is currently covered by additional issued process patents and other pending applications in the United States and abroad.

A
number of additional potential avenues exist which may further extend our picoplatin patent protection and exclusivity. In the United States, these include The Drug Price and
Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Act, which, among other things, generally provides for patent term extension for up to five years for an
issued patent covering a drug product which has undergone regulatory review before marketing. In addition, since picoplatin has not been previously approved for marketing in the United States,
picoplatin may qualify for new chemical entity data exclusivity, under which the FDA bans for a period of time submissions of applications from competitors based on published data or Abbreviated New
Drug Applications for a drug containing the same active agent. Certain patent term restoration procedures and marketing exclusivity rights also may be available for qualifying drug products in the
European Union or individual foreign countries. We intend to evaluate the availability of these mechanisms for extending the patent term and marketing exclusivity for picoplatin on an individual
regional or country basis. We cannot be certain that we will be successful in any efforts to extend the term of any patent relating to picoplatin or that picoplatin will be granted additional
marketing exclusivity rights in the United States or abroad.

Risks
associated with the protection of our patents and other proprietary technologies are described under the heading "Risk Factors" in Item 1A below. Pending or future patent
applications by us or our collaborators will not necessarily result in issued patents. Moreover, the current patents that we own or license may not provide substantial protection or commercial
benefit. In addition to patent protection, we rely upon trade secrets, unpatented proprietary know-how and continuing technological innovation to develop and maintain our competitive
position. Third parties could acquire or independently develop the same or similar technology or our issued patents or those licensed by us could be circumvented, invalidated or rendered obsolete by
new technology. Third parties also could

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gain
access to or disclose our proprietary technology, and we may be unable to meaningfully protect our rights in such unpatented proprietary technology.

Under
United States law, although a patent has a statutory presumption of validity, the issuance of a patent is not conclusive as to its validity or as to the enforceable scope of its
claims. Accordingly, the patents owned or licensed by us could be invalidated, infringed or designed around by third parties. Also, third parties could obtain patents that we would need to license or
design around.

Corporate Strategy and Goals

We are focused on optimizing picoplatin's value proposition as a preferred platinum agent that is complementary to the products of
potential partners. We intend to utilize the promising safety and efficacy data generated from the approximately 1,100 patients who have received picoplatin in clinical trials to date to explore
potential partnering and other relationships to support the continued development of picoplatin in multiple indications and two formulations. As part of this strategy, we plan to work with our
clinical advisors and the FDA to identify potential regulatory paths forward for picoplatin in small cell lung, prostate, colorectal and ovarian cancers.

Competition

The competition for development of cancer therapies is substantial. There is intense competition from biotechnology and pharmaceutical
companies, as well as academic research institutions, clinical reference laboratories and government agencies that are pursuing research and development activities similar to ours in the United States
and abroad. Our initial focus for picoplatin has been small cell lung cancer, the most aggressive and deadly form of lung cancer. Although platinum therapies are the preferred treatment, there are no
FDA-approved drugs for small cell lung cancer patients who do not respond to initial platinum-based therapy, and only one FDA-approved drug for the treatment of small cell lung
cancer patients who relapse after initially responding to first-line treatment. If approved, picoplatin will be competing with existing treatment regimens, as well as emerging therapies
for small cell lung cancer, and other platinum-based therapeutics. Large pharmaceutical/biotechnology companies, including Abbott, Amgen, AstraZeneca, Baxter Healthcare, Bristol-Myers Squibb Company,
Celgene Corporation, Dainippon Sumitomo Pharma Co. Ltd., Eli Lilly and Company, Genentech, Inc., GlaxoSmithKline PLC, Merck & Co., Nippon
Kayaku Co. Ltd., Novartis AG, Pfizer Inc., OSI Pharmaceuticals, Sanofi-Aventis Group, Shionogi & Co. Ltd. and SK Pharma, are marketing and/or developing
therapeutics in late-stage clinical trials for the treatment of small cell lung cancer or platinum agents for the treatment of cancer. Multiple biotechnology companies are engaged in
clinical trials for the treatment of small cell lung cancer and other platinum-based therapeutics, including Abraxis BioScience Inc., Access Pharmaceuticals Inc, Ascenta Therapeutics, Gemin X,
ImmunoGen, Inc., Ipsen Group, Keryx Biopharmaceuticals Inc., Meabco A/S, MolMed S.p.A., Onyx Pharmaceuticals Inc., PharmaMar (Zeltia Group), Proacta, Inc.,
Regulon, Inc., Simcere Pharmaceuticals, Sunesis Pharmaceuticals Inc., Theradex, Transave Inc., Vertex Pharmaceuticals and Vion Pharmaceuticals Inc. As we seek to expand the
use of picoplatin into other oncology indications, such as prostate, colorectal and ovarian cancers, we will be facing additional competition from major pharmaceutical companies, biotechnology
companies, research institutions and government agencies. We cannot assure you that we will be able to effectively compete with these or future third party product development programs.

Many
of our existing or potential competitors have, or have access to, substantially greater financial, research and development, marketing and production resources than we do, and are
better equipped than we are, to develop, manufacture and market competing products. Further, our competitors may
have, or may develop and introduce, new products that would render our picoplatin or any other proposed product candidates less competitive, uneconomical or obsolete.

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Our
ability to commercialize picoplatin and to compete effectively will depend in large part on:



We
believe that competition among products approved for sale will be based, among other things, on product safety, efficacy, reliability, availability, third party reimbursement, price
and patent position. Our competitiveness also will depend on our ability to advance our product candidates, license additional technology, maintain a proprietary position in our technologies and
product candidates, obtain required government and other approvals on a timely basis, attract and retain key personnel, and enter into corporate partnering or other relationships that enable us and
our collaborators to develop effective products that can be manufactured cost-effectively and marketed successfully.

Government Regulation and Product Testing

The FDA and comparable regulatory health authorities in state and local jurisdictions and in foreign countries impose substantial
requirements upon the clinical development, manufacture, marketing and distribution of drugs. These health authorities and other federal, state, local and foreign entities regulate research and
development activities and the testing, manufacture, quality control, safety, storage, record-keeping, approval, advertising and promotion of picoplatin and any other future drug candidates. Product
development and approval within these regulatory frameworks take a number of years to accomplish, if at all, and involve the expenditure of substantial resources.



In the United States, drugs and biologics are subject to regulation by the FDA under the Federal Food, Drug and Cosmetic Act of 1976,
as amended, and implementing regulations. The process required by the FDA before picoplatin and any other future drug candidates may be marketed in the United States generally involves the
following:



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In
addition to obtaining FDA approval for each product, each domestic drug manufacturing establishment must be registered with and inspected by the FDA. Domestic manufacturing
establishments are subject to biennial inspections by the FDA and must comply with current Good Manufacturing Practice, or cGMP, regulations, which are enforced by the FDA through its facilities
inspection program for biologics, drugs and devices. To supply products for use in the United States, foreign manufacturing establishments must also comply with cGMP regulations and are subject to
periodic inspection by the FDA or by corresponding regulatory health authorities in such countries under reciprocal agreements with the FDA.

Nonclinical
studies include laboratory evaluation of product chemistry and formulation, as well as animal studies, to assess the potential safety and efficacy of the proposed product.
Laboratories that comply with the FDA regulations regarding Good Laboratory Practice must conduct preclinical safety tests. The results of the preclinical studies are submitted to the FDA as part of
an IND and are reviewed by the FDA prior to commencement of clinical trials. Unless the FDA provides comments to an IND, the IND will become effective 30 days following its receipt by the FDA.
Submission of an IND does not assure FDA authorization to commence clinical trials or to allow clinical studies to continue once initiated.

Clinical
trials involve the administration of the investigational new drug to healthy volunteers or to patients under the supervision of a qualified principal investigator. Clinical
trials are conducted in accordance with the FDA's Protection of Human Subjects regulations and Good Clinical Practices under protocols that detail the objectives of the study, the parameters to be
used to monitor safety, and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Further, each clinical study must be conducted under the auspices of
an independent Institutional Review Board, or IRB, at the institution where the study will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and
the possible liability of the institution.

Clinical
trials are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the drug is tested for:



In
Phase 2, a limited patient population is studied to:



If
a compound is found to have potential activity in a disease or condition and to have an acceptable safety profile in Phase 2 clinical trials, Phase 3 clinical trials are
undertaken to further evaluate clinical activity and to further test for safety within an expanded patient population at geographically dispersed clinical study sites. Often, Phase 4
(post-marketing) studies are required by the FDA in order to gain more data on safety and efficacy of a drug after it has transitioned into general medical practice. With respect to
picoplatin or any proposed products subject to clinical trials, there can be no assurance that Phase 1, Phase 2 or Phase 3 studies will be completed successfully within any
specific time period, if at all. Clinical studies are inherently uncertain, and our current picoplatin and

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any
future clinical trials may not confirm the results achieved in earlier clinical or preclinical trials. If picoplatin is not shown to be safe and effective, we will not be able to obtain the
required regulatory approvals for commercial sale of that product. Furthermore, we or the FDA may suspend clinical trials at any time if it is determined that the subjects or patients are being
exposed to an unacceptable health risk.

The
results of the pharmaceutical development, preclinical studies and clinical trials are submitted to the FDA in the form of an NDA for approval of the marketing and commercial
shipment of the drug. The testing and approval processes are likely to require substantial cost, time and effort, and there is no assurance that approval will be granted on a timely basis, or at all.
The FDA may deny an NDA if
applicable regulatory criteria are not satisfied, may require additional testing or information, or may require post-market testing and surveillance to monitor the safety of the product.
If regulatory approval is granted, such approval may entail limitations on the indicated uses for which the product may be marketed. The FDA may withdraw product approvals if compliance with
regulatory standards is not maintained or if problems occur following initial marketing. Among the conditions for NDA approval is the requirement that the prospective manufacturers' quality control
and manufacturing procedures conform to cGMP regulations. In complying with standards set forth in these regulations, manufacturers must continue to expend time, money and effort in the areas of
production and quality control to ensure full technical compliance.



In addition to regulation in the United States, we are subject to a variety of foreign regulations governing clinical trials and will
be subject to foreign regulations with respect to commercial sales and distribution of picoplatin and any proposed future products. Whether or not we obtain FDA approval for a product, we must obtain
approval of a product by comparable regulatory health authorities of foreign countries before we can commence clinical trials or marketing of the product in those counties. The approval process varies
from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and
reimbursement also vary greatly from country to country.

Under
the European Union regulatory systems, marketing authorizations may be submitted either under a centralized or mutual recognition procedure. For oncology products, a centralized
procedure is required. It provides for the grant of a single marketing authorization that is valid for all European Union member states. The mutual recognition procedure provides for mutual
recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of
receiving the application and assessment report, each member state must decide whether to recognize approval.

Our Employees

On February 5, 2010, we implemented a restructuring plan to conserve capital resources, which reduced the Company's workforce by
approximately 57%, to 22 employees. We implemented an earlier restructuring plan, effective March 31, 2009, which resulted in the discontinuation of our preclinical research operations and
reduced our workforce by approximately eight employees.

As
of March 9, 2010, we had 20 full-time employees and two part-time employees. Of these full-time employees, five hold PhD degrees, one holds
an M.D. degree, one holds a D.V.M. degree, one holds a J.D. degree and two hold an M.B.A. degree. Of the total full-time employees, ten employees are engaged in regulatory and clinical
activities and ten are in general administration. We consider our relations with employees to be good. None of our employees is covered by a collective bargaining agreement. We believe that our
current workforce is sufficient to support our regulatory and partnering strategies focused on the continued development of picoplatin.

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Our Executive Officers

Information with respect to the Company's executive officers is set forth below:

Name

Age

Position with the CompanyRonald A. Martell


48

Chief Executive OfficerMichael S. Perry, DVM, PhD


50

President and Chief Medical OfficerGregory L. Weaver


53

Chief Financial Officer and Senior Vice President, Finance




Ronald A. Martellwas appointed Chief Executive Officer in February 2010. He served as
President and Chief Operating Officer of the Company from May 2007 to February 2010. Mr. Martell joined the Company's board of directors in June 2006. Mr. Martell served as Senior Vice
President, Commercial Operation of ImClone Systems Incorporated from January 2004 to August 2006. While at ImClone, Mr. Martell was responsible for overseeing the company's sales, marketing,
and project and alliance management. Mr. Martell joined ImClone in November 1998 as Vice President, Marketing. From 1988 to 1998, he served in a variety of positions at Genentech, Inc.,
most recently as Group Manager, Oncology Products.

Michael S. Perrywas appointed President and Chief Medical Officer in February 2010. Dr. Perry has been a consultant to the Company
since September 2009 and is a Venture Partner with Bay City Capital LLC (since November 2005). He was Chief Development Officer at VIA Pharmaceuticals, Inc., a publicly held drug
development company, from April 2005 until May 2009. Prior thereto, he served as Chairman and Chief Executive Officer of Extropy Pharmaceuticals, Inc., a privately held pediatric specialty
pharmaceutical company, from June 2003 to April 2005. From 2002 to 2003, Dr. Perry served as President and Chief Executive Officer of Pharsight Corporation, a publicly held software and
consulting services firm. From 2000 to 2002, Dr. Perry served as Global Head of Research and Development for Baxter BioScience. From 1997 to 2000, Dr. Perry was President and Chief
Executive Officer of both SyStemix Inc. and Genetic Therapy Inc., two wholly owned subsidiaries of Novartis Corp., and from 1994 to 1997, he was Vice President of Regulatory Affairs for
Novartis Pharma (previously Sandoz Pharmaceuticals). Prior to 1994, Dr. Perry held various management positions with Syntex Corporation, Schering-Plough Corporation and BioResearch
Laboratories, Inc. Dr. Perry holds a Doctor of Veterinary Medicine, a Ph.D. in Biomedical Pharmacology and a B.Sc. in Physics from the
University of Guelph, Ontario, Canada. He is also a graduate of the International Management Program at Harvard Business School.

Gregory L. Weaverwas appointed Chief Financial Officer and Senior Vice President, Finance in February 2009. Prior to joining the Company,
Mr. Weaver served as Chief Financial Officer of Talyst Inc., a privately-held pharmacy automation information technology company, from April 2007 to December 2008. Prior to
that, he served as Senior Vice President and Chief Financial Officer of Sirna Therapeutics, a public RNAI therapeutics company, from February 2006 until sale of the company to Merck, Inc. in
December 2006. From April 2002 to September 2005, Mr. Weaver was Chief Financial Officer of Nastech Pharmaceuticals, a public drug delivery company. From April 1999 to April 2002,
Mr. Weaver was Chief Financial Officer of Ilex Oncology, Inc., a public cancer drug development company, and from 1996 to 1998, he was Chief Financial Officer of Prism Technologies, a
private medical device manufacturer. In addition, Mr. Weaver held increasingly senior positions with Fidelity Capital in Boston and Arthur Andersen LLP. Mr. Weaver has served as a
director and the chairman of the audit committee of Celsion Corp., a public oncology drug development company, since 2005, and as a director and the chairman of the audit committee of SCOLR
Pharmaceuticals, a public drug delivery company, since 2007. Mr. Weaver is a certified public accountant and received his M.B.A. in finance from Boston College and his B.S. in accounting from
Trinity University.

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Corporate Background

We are a Washington corporation that was originally incorporated as NeoRx Corporation in 1984. We changed our name to Poniard
Pharmaceuticals, Inc. in June 2006 and relocated our corporate headquarters from Seattle, WA to South San Francisco, CA in September 2006. Our principal executive office and mailing address is
7000 Shoreline Court, Suite 270, South San Francisco, California 94080, and our telephone number is (650) 583-3774.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, as well as registration and proxy statements and other information, with the U.S.
Securities and Exchange Commission, or SEC. These documents may be read and copied at the SEC's public reference rooms in Washington, DC, New York, NY and Chicago, IL. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings also are available to the public at the Internet web site maintained by the
SEC atwww.sec.gov. Our reports filed with the SEC after January 1, 2003, also are available on our web site, www.poniard.com. The information
contained in our web site does not constitute part of, nor is it incorporated by reference into, this report. We will
provide paper copies of our SEC filings free of charge upon request.

Item 1A.    RISK FACTORS

Investing in our common stock or other securities involves a high degree of risk. You should carefully read the risks and uncertainties
described below and all information contained in this report before you decide 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 and operating results could be harmed. 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 "Important Information Regarding Forward-Looking Statements" at the beginning of this report.

Risks Related to Our Business

We have a history of operating losses, we expect to continue to incur losses, and we may never become profitable.

We have not been profitable since our formation in 1984. As of December 31, 2009, we had an accumulated deficit of
$408.2 million. Our net loss for the year ended December 31, 2009 was $45.7 million. We had net losses of $48.6 million for the year ended December 31, 2008 and
$32.8 million for the year ended December 31, 2007. These losses resulted principally from costs incurred in our research and development programs and from our general and administrative
activities. To date, we have dedicated substantially all of our resources to research and development activities and have not generated significant revenue from any product sales. We do not anticipate
that our picoplatin product candidate will be commercially available before 2011, if ever. We expect to incur additional operating losses in the future. These losses may increase significantly as we
seek to identify potential regulatory pathways forward for picoplatin and explore potential partnering and other relationships to support the continued development of picoplatin in multiple
indications and two formulations.

Our
ability to achieve long-term profitability is dependent upon achieving successful results in clinical trials and obtaining regulatory approvals for our picoplatin product
candidate and successfully commercializing our product alone or with third parties.

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Our Phase 3 trial of picoplatin in small cell lung cancer failed to meet the primary endpoint of overall survival and there can be no assurance that picoplatin will
be approved in this indication.

On November 16, 2009, based on 321 patient deaths, we announced that our pivotal Phase 3 SPEAR trial did not meet its
primary endpoint of overall survival in the intent-to-treat population. The analysis showed a hazard ratio of 0.82 with a p value of 0.089 (n=321). An imbalance in the use of
post-study chemotherapy was observed in favor of patients who received best supportive care alone compared to patients who received picoplatin plus supportive care. Additional data
analysis and our SPEAR study are ongoing. We have initiated a process with the FDA to identify a potential regulatory path forward to enable a registrational filing seeking approval of picoplatin as a
second-line treatment for patients with refractory disease. We have no assurance regarding the outcome of our process with the FDA, including whether the FDA will agree to moving forward
based on our current clinical data, require one or more additional trials, or discourage further efforts to obtain marketing approval of picoplatin in this indication.

We will need to raise substantial additional capital to pursue our regulatory activities and explore potential partnering and other relationships to support the development
of picoplatin and to fund operations, and our future access to capital is uncertain and additional financing may have dilutive or adverse effects on our shareholders.

Taking into account the minimum unrestricted cash requirement under our current loan facility and our projected operating results, we
believe that our current cash, cash equivalent and investment securities balances, including the net proceeds received from our March 15, 2010 sale of common stock to Commerce Court Small Cap
Fund, Ltd., or Commerce Court, under our equity line of credit facility, will provide adequate resources to fund operations at least through the end of 2010. However, given the uncertainties of
outcomes of our regulatory and partnering strategies to support the continued development of picoplatin, there is no assurance that we can achieve our projected operating results. Thereafter, unless
we raise additional funds, we will be in default of the loan agreement with GE Business Financial Services and Silicon Valley Bank, as described in the risk factor below. Our consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States, assuming that we will continue as a going concern.

It
is expensive to develop cancer therapy products and conduct clinical trials for these products. We have not generated revenue from the commercialization of our picoplatin product
candidate, and we expect to continue to incur substantial net operating losses and negative cash flows from operations for the foreseeable future. We will require substantial additional funding to
pursue our regulatory and partnering strategies to support the continued development of picoplatin and to fund our future operations.

Management
is continuously exploring financing alternatives, including:



We
may not be able to obtain the required additional capital or secure corporate partners or enter into other strategic relationships on a timely basis, on terms that ultimately prove
favorable to us, or at all. Conditions in the capital markets in general, and in the life science capital market specifically, may affect our potential financing sources and opportunities for
strategic partnering. Uncertainty about current global conditions and the current financial uncertainties affecting capital and credit markets may make it particularly difficult for us to obtain
capital market financing or credit on favorable terms, if at all, or to attract potential partners or enter into other strategic relationships.

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If
we raise additional funds by issuing common stock or securities convertible into or exercisable for common stock, our shareholders may experience substantial dilution, and new
investors could have rights superior to current security holders. If we are unable to obtain sufficient additional cash when needed, we may be forced to reduce expenses through the delay, reduction or
curtailment of some or all of our current picoplatin trials and regulatory activities or through other cost-savings measures, including the further reduction of our workforce, the sale of
our company or licensing or sale of our assets.

The
amount of additional financing we will require in the future will depend on a number of factors, including:



Restrictions imposed under the terms of our current loan facility may limit our ability to utilize capital for operations and may limit our ability to raise capital through
the sale of assets or a merger not approved by the lenders.

On September 2, 2008, we entered into an amended and restated loan and security agreement, with GE Business Financial Services
and Silicon Valley Bank in the principal amount of $27.6 million. The loan agreement, the terms of which are described in detail under the heading "Management's Discussion and Analysis of
Financial Condition and Results of OperationsLiquidity and Capital Resources," contains restrictions on our ability, without the prior consent of the lenders,
to:



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The
loan agreement also contains covenants requiring us to maintain a minimum amount of unrestricted cash during the term of the loan equal to the lesser of
(i) $17.9 million or (ii) the outstanding aggregate principal balance of the term loans plus $4.0 million. This minimum unrestricted cash requirement may limit our ability
to utilize a portion of our cash in 2010 to pay for operating costs and to pursue our regulatory and partnering strategies focused on the continued development of picoplatin.

The
loan agreement contains events of default that include:



We
have no assurance that, especially in light of the distressed economic environment, that the lenders will be willing to waive or renegotiate the terms of the loan agreement to address
or avoid financial or other defaults.

Presently,
taking into account the minimum unrestricted cash requirement under the loan agreement and our projected operating results, we believe that our current cash, cash equivalent
and investment securities balances, including the net proceeds received from our March 15, 2010 sale of common stock to Commerce Court under our equity line of credit facility, will provide
adequate resources to fund operations at least through the end of 2010. However, given the uncertainties of outcomes of our regulatory and partnering strategies to support the continued development of
picoplatin, there is no assurance that we can achieve our projected operating results. Thereafter, unless we raise additional funds, we will be in default of the loan agreement. The occurrence of an
event of default would increase the applicable rate of interest by 5% and could result in the acceleration of our payment obligations under the loan agreement. If an event of default were to occur, we
might not have sufficient funds to repay the loan or to fund our continuing operations. In such case, we would need to delay, scale back or curtail some or all of our current picoplatin trials and
regulatory efforts; further reduce our workforce, license picoplatin for development and commercialization by third parties, or attempt to sell the company. We have no assurance that we can obtain
financing or otherwise raise additional funds, if at all, on terms acceptable to us or to our lenders.

Our potential products must undergo rigorous clinical testing and regulatory approvals, which are costly and time consuming, and may subject us to unanticipated delays or
prevent us from marketing any products.

The development, manufacture and marketing of picoplatin and any other potential product candidates are subject to regulation for
safety, efficacy and quality by the FDA in the United States and by comparable regulatory authorities in foreign countries.

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The
process of obtaining FDA and other required regulatory approvals, including any foreign approvals, is expensive, often takes many years and can vary substantially depending on the
type, complexity and novelty of the products involved. We will not be able to commercialize picoplatin unless and until we obtain regulatory approvals, and consequently any delay in obtaining, or our
inability to obtain, regulatory approvals could materially adversely affect our business. We have had only limited experience in filing and pursuing applications necessary to gain regulatory
approvals. This may impede our ability to obtain timely approvals from the FDA or foreign regulatory agencies.

If
we violate regulatory requirements at any stage, whether before or after marketing approval is obtained, we may be fined, forced to remove a product from the market or experience
other adverse consequences, including delay of the approval of our marketing applications, which would materially harm our business and financial results. Additionally, we may not be able to obtain
the labeling claims necessary or desirable for product promotion and could be required to conduct post-marketing studies on the safety or effectiveness of our products. If we or other
parties identify serious side effects after any of our products are on the market, or if manufacturing or regulatory problems occur, regulatory approval may be withdrawn and reformulation of our
products, additional clinical trials, changes in labeling of our products, and/or additional marketing applications may be required.

The
requirements governing the conduct of clinical trials and manufacturing and marketing of our proposed products outside the United States vary widely from country to country. Foreign
approvals may take longer to obtain than FDA approvals and can involve additional testing. Foreign regulatory approval processes include all of the risks associated with the FDA approval processes.
Also, approval of a product by the FDA does not ensure approval of the same product by the health authorities of other countries.

We may take longer to complete our clinical trials than we project, or we may be unable to complete them at all.

We have completed enrollment and initial statistical analysis of a pivotal Phase 3 SPEAR trial of picoplatin in the
second-line treatment of patients with small cell lung cancer. This trial did not meet its primary endpoint of overall survival and we have initiated a process with the FDA to identify a
potential regulatory path forward for picoplatin in this indication. We are also conducting two separate Phase 2 trials evaluating picoplatin as a first-line treatment of metastatic
colorectal cancer and castration-resistant (hormone-refractory) prostate cancer. Additionally, we have completed a Phase 1 cardiac safety trial of picoplatin and a Phase 1 study
evaluating an oral formulation of picoplatin in solid tumors. These programs are described in the sections of this report entitled "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of OperationsResearch and Development."

The
actual times for completion of our current picoplatin trials or the initiation of any future picoplatin development activities depend upon numerous factors,
including:



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We
may not complete our current picoplatin clinical studies as projected or achieve successful results.

We
rely on academic institutions and CROs to conduct, supervise or monitor some or all aspects of clinical trials involving picoplatin. Further, to the extent that we now or in the
future participate in partnering or other collaborative arrangements in connection with the development and commercialization of picoplatin or any other proposed products, we will have less control
over the timing, planning and other aspects of our clinical trials. If we fail to initiate, advance or complete, or experience delays in or are forced to curtail our current or any future clinical
trials, our stock price and our ability to conduct our business could be materially negatively affected.

If testing of a particular product does not yield positive results, we will be unable to commercialize that product.

Our clinical program is designed to test the safety and efficacy of our proposed products in humans. We may experience numerous
unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization of picoplatin, including the following:



Clinical
testing is very expensive, can take many years, and the outcome is uncertain. The data that we may collect from our picoplatin clinical trials may not be sufficient to support
regulatory approval of our proposed picoplatin product. The clinical trials of picoplatin may not be initiated or completed as planned and the FDA or foreign regulatory agencies may not ultimately
approve picoplatin for

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commercial
sale. Our failure to adequately demonstrate the safety and efficacy of picoplatin would delay or prevent regulatory approvals, which would prevent us from marketing the product.

Success in early clinical trials may not be indicative of results obtained in later trials.

Results of early preclinical and clinical trials are based on a limited number of patients and may, upon review, be revised or negated
by authorities or by later stage clinical results. Historically, the results from preclinical testing and early clinical trials often have not been predictive of results obtained in later clinical
trials. A number of new drugs and therapeutics have shown promising results in initial clinical trials, but subsequently failed to establish sufficient safety and effectiveness data to obtain
necessary regulatory approvals. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval.

If we cannot successfully maintain and protect our current license for the development and commercial sale of picoplatin, we would be unable to move forward with our
picoplatin studies and our current business and prospects will be materially negatively affected.

We have entered into an exclusive worldwide license, as amended, with Genzyme Corporation (successor to AnorMED, Inc.) for the
development and commercial sale of picoplatin. Under that license, we are solely responsible for the development and commercialization of
picoplatin. Genzyme retains the right, at our cost, to prosecute its patent applications and maintain all licensed patents. The parties executed the license agreement in April 2004, at which time we
paid a one-time upfront payment of $1.0 million in common stock and $1.0 million in cash. The original agreement excluded Japan from the licensed territory and provided for
$13.0 million in development and commercialization milestones, payable in cash or a combination of cash and common stock, and a royalty rate of up to 15% on product net sales after regulatory
approval. The parties amended the license agreement on September 18, 2006, modifying several key financial terms and expanding the licensed territory to include Japan, thereby providing us
worldwide rights. In consideration of the amendment, we paid Genzyme $5.0 million in cash on October 12, 2006 and an additional $5.0 million in cash on March 30, 2007. The
amendment eliminated all development milestone payments to Genzyme. Genzyme remains entitled to receive up to $5.0 million in commercialization milestones upon the attainment of certain levels
of annual net sales of picoplatin after regulatory approval. The amendment also reduced the royalty payable to Genzyme to a maximum of 9% of annual net product sales and eliminated sharing of
sublicense revenues with Genzyme. We cannot currently predict the actual timing for completion of our current trials, the length of time to regulatory approval, if any, or the extent of annual sales,
if any, of picoplatin and, therefore, cannot predict when or if the milestone and royalty payments under our license agreement with Genzyme may be triggered.

The
license agreement may be terminated by either party for breach, or if the other party files a petition in bankruptcy or insolvency or for reorganization or is dissolved,
liquidated or makes assignment for the benefit of creditors. We can terminate the license at any time upon prior written notice to Genzyme. If not earlier terminated, the license agreement will
continue in effect, in each country in the territory in which the licensed product is sold or manufactured, until the earlier of (i) expiration of the last valid claim of a pending or issued
patent covering the licensed product in that country or (ii) a specified number of years after first commercial sale of the licensed product in that country. If Genzyme were to breach its
obligations under the license, or if the license expires or is terminated and we cannot renew, replace, extend or preserve our rights under the license agreement, we would be unable to move forward
with our picoplatin clinical studies and commercialization efforts and our current business and prospects would be materially harmed.

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The successful growth of our business may depend, in part, on our ability to find third party collaborators to assist or share in the costs of product development.

Our current strategy for the development and commercialization of picoplatin includes the formation of strategic partnerships and other
collaborative arrangements with third parties. Potential third parties include pharmaceutical and biotechnology companies and other entities. Third party collaborators may assist us
in:



If
we are unable to establish collaboration arrangements, we may be required to undertake product development and commercialization at our own expense. Such an undertaking may limit the
number of indications in which we evaluate picoplatin, significantly increase our capital requirements and place additional strain on our internal resources. Our failure to enter into strategic
partnerships or other collaborations could materially harm our business, financial condition, results of operations, cash flow or future prospects.

Strategic partnerships and other collaborative arrangements may give rise to disputes over commercial terms, contract interpretations and ownership of our intellectual
property and may adversely affect the commercial success of our potential products.

Strategic partnerships and other collaborative relationships are generally complex and may give rise to disputes regarding the relative
rights, obligations and revenues of the parties, including the ownership of intellectual property and associated rights and obligations. Such disputes can delay collaborative research, development or
commercialization of potential products and can lead to lengthy, expensive litigation or arbitration. The terms of strategic partnerships and other collaborative arrangements may also include or
preclude us from developing products or technologies developed pursuant to such collaborations. Additionally, the collaborators under these arrangements might breach the terms of their respective
agreements or fail to prevent infringement of the licensed patents by third parties. Moreover, negotiated strategic partnerships or other collaboration arrangements often take considerably longer to
conclude than parties initially anticipate, which could cause us to enter into less favorable agreement terms that delay or defer recovery of our development costs and reduce funding available to
support key programs.

We
may not be able to enter into strategic partnerships or other collaboration agreements on acceptable terms, which would harm our ability to develop and commercialize picoplatin and
any other potential future products. Further, if we do enter into strategic partnerships or other collaboration arrangements, it is possible that our collaborative partners would choose not to develop
and commercialize our picoplatin product. Other factors relating to strategic partnerships or other
collaborations that may adversely affect commercial success of picoplatin or any proposed future products include:



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A strategic partnership or other collaborative arrangement would not necessarily restrict our collaborative partners from competing with us or restrict their ability to market or sell
competitive products. Our potential collaborative partners may pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration
with us. Our potential collaborative partners may also terminate their partnership or other collaborative relationships with us or otherwise decide not to proceed with development and
commercialization of our products.

We are dependent on third party suppliers for the timely delivery of materials and services and may experience future interruptions in supply.

For picoplatin to be successful, we need sufficient, reliable and affordable supplies of the picoplatin API and finished drug product.
Sources of these supplies may be limited, and third party suppliers may be unable to manufacture picoplatin API and finished drug product in amounts and at prices necessary for successful
commercialization. Moreover, third party manufacturers must continuously adhere to current Good Manufacturing Practice, or cGMP, regulations enforced by the FDA through its facilities inspection
program. If the facilities of these manufacturers cannot pass a Pre-Approval Inspection, the FDA will not approve the NDA for our proposed products. In complying with cGMP and foreign
regulatory requirements, any of our third party manufacturers will be obligated to expend time, money and effort in production, record-keeping and quality control to assure that our products meet
applicable specifications and other requirements. If any of our third party manufacturers or suppliers fails to comply with these requirements, we may be subject to regulatory action.

We
have limited experience in drug formulation or manufacturing, and we lack the resources and capability to manufacture picoplatin on a clinical or commercial scale. As a result, we
rely on third parties to manufacture picoplatin API and finished drug product for our clinical trials and for our proposed commercialization activities. The finished drug product has been demonstrated
to be stable for up to 30 months from the date of manufacture.

We
currently have separate agreements with one supplier each of picoplatin API and finished drug product for clinical and commercial use. Manufacturing services are provided on a
purchase order, fixed-fee basis pursuant to separate clinical and commercial API and finished drug product supply agreements. Our API clinical supply agreement continues in effect until it
is terminated by mutual agreement of the parties or by either party in accordance with its terms. Our finished drug product clinical supply agreement had an initial term ending December 31,
2009, and, in December 2009, we exercised our first renewal option, extending the term of the agreement until December 31, 2010. The agreement remains subject to renewal, at our option, for an
additional one-year term. Our commercial API and finished drug supply agreements have initial terms ending in late 2013. Additional information about these agreements, including the
termination rights of the parties, can be found in the section entitled "Picoplatin Source of Supply" in Section 1 above.

We
have no assurance that our current suppliers will be able to continue to manufacture sufficient picoplatin API and finished drug product on a timely or cost-effective
basis at all times in the future. The recent tightening of global credit may increase the risk of disruptions or delays of performance by our third party manufacturers and other contractors. We
believe that there are other contract manufacturers with the capacity to manufacture picoplatin API and finished drug product. However, if we are required to seek out alternative manufacturers, we may
incur significant additional costs and suffer delays in, or be prevented from, subject to FDA approval, initiating commercial sales of picoplatin.

We
also rely on third party contractors to perform for us, or assist us with, the set-up, conduct, support and management of our clinical studies. Because these contractors
provide specialized services, their activities and quality of performance may be outside our direct control. If these contractors do not perform their contractual duties or obligations, do not meet
expected deadlines, or need to be

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replaced,
or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical trial protocols or for any other reasons, we may need to enter
into new arrangements with alternative third parties. If any of these circumstances were to occur, our clinical trials may be extended, delayed or terminated or may need to be repeated, we may not be
able to obtain regulatory approval for picoplatin, and we may be subject to regulatory action.

We currently have no sales and marketing staff or distribution organization. If we are unable to develop sales, marketing and distribution capabilities on our own or through
collaborations with corporate partners, we may not be successful in commercializing any future products.

We have limited experience in selling, marketing or distributing therapeutic drug products. To the extent we are successful in
obtaining approval for the commercial
sale of picoplatin, we will need to secure one or more corporate partners to conduct these activities. We may not be able to enter into partnering arrangements in a timely manner, on terms that
ultimately prove favorable to us, or at all. To the extent that we enter into co-promotion or other licensing arrangements, our net product revenues are likely to be lower than if we
directly marketed and sold our products, and any revenues we receive would depend upon the efforts of third parties, which efforts may not be successful. If we are not able to secure adequate
partnering arrangements, we would have to hire additional employees or consultants with expertise in sales, marketing and distribution. Employees with relevant skills may not be available to us.
Additionally, any increase in the number of employees would increase our expenses and could have a material adverse effect on our financial position. If we are not successful in commercializing
picoplatin, either on our own or through collaborations with one or more parties, we will incur significant additional losses.

We face substantial competition in the development of cancer therapies and may not be able to compete successfully, and our potential products may be rendered obsolete by
rapid technological change.

The competition for development of cancer therapies is substantial. There is intense competition from biotechnology and pharmaceutical
companies, as well as academic research institutions, clinical reference laboratories and government agencies that are pursuing research and development activities similar to ours in the United States
and abroad. Our initial focus for picoplatin has been small cell lung cancer, the most aggressive and deadly form of lung cancer. Although platinum therapies are the preferred treatment, there are no
FDA-approved drugs for small cell cancer patients who do not respond to initial platinum-based therapy and only one FDA-approved treatment for small cell lung cancer patients
who relapse after initially responding for first-line treatment. If approved, picoplatin will be competing with existing treatment regimens, as well as emerging therapies for small cell
lung cancer and other platinum-based therapeutics. Large pharmaceutical/biotechnology companies, including Abbott, Amgen, AstraZeneca, Baxter Healthcare, Bristol-Myers Squibb Company, Celgene
Corporation, Dainippon Sumitomo Pharma Co. Ltd., Eli Lilly and Company, Genentech, Inc., GlaxoSmithKline PLC, Merck & Co., Nippon
Kayaku Co. Ltd., Novartis AG, Pfizer Inc., OSI Pharmaceuticals, Sanofi-Aventis Group, Shionogi & Co. Ltd. and SK Pharma, are marketing and/or
developing therapeutics in late-stage clinical trials for the treatment of small cell lung cancer or platinum agents for the treatment of cancer. Multiple biotechnology companies are
engaged in clinical trials for the treatment of small cell lung cancer and other platinum-based therapeutics, including Abraxis BioScience Inc., Access Pharmaceuticals Inc.,
Antigenics, Inc., Ascenta Therapeutics, Gemin X, GPC Biotech AG (whose merger with Agennix was announced in February 2009), ImmunoGen, Inc., Ipsen Group, Keryx
Biopharmaceuticals Inc., Meabco A/S, MolMed S.p.A., Onyx Pharmaceuticals Inc., PharmaMar (Zeltia Group), Proacta, Inc., Regulon, Inc., Schering-Plough, Simcere
Pharmaceuticals, Sunesis Pharmaceuticals Inc., Theradex, Transave Inc., Vertex Pharmaceuticals and Vion Pharmaceuticals Inc. As we seek to expand picoplatin into other oncology
indications such as prostate, colon and ovarian cancers, we will be facing additional competition from major pharmaceutical companies, biotechnology companies, research institutions and government

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agencies.
We cannot assure you that we will be able to effectively compete with these or future third party product development programs.

Many
of our existing or potential competitors have, or have access to, substantially greater financial, research and development, marketing and production resources than we do and are
better equipped than we are to develop, manufacture and market competing products. Further, our competitors may have, or may develop and introduce, new products that would render our picoplatin
product candidates less competitive, uneconomical or obsolete.

Even if any of our drug candidates receives regulatory approval, our drug candidates will still be subject to extensive post-marketing regulation.

If we or our collaborators receive regulatory approval for our drug candidates, we will also be subject to ongoing FDA obligations and
continued regulatory review, such as cGMP regulations and continued adverse event reporting requirements. We may also be subject to additional FDA post-marketing obligations, all of which
may result in significant expense and limit our ability to commercialize such drugs.

If
our picoplatin drug candidate receives U.S. regulatory approval, the FDA may still impose significant restrictions on the indicated uses for which such drug may be marketed or impose
ongoing requirements for potentially costly post-approval studies. In addition, regulatory agencies subject a drug, its manufacturer and the manufacturer's facilities to continual review
and inspections. The subsequent discovery of previously unknown problems with a drug, including adverse events of unanticipated severity or frequency, or problems with the facility where the drug is
manufactured, may result in restrictions on the marketing of that drug, up to and including withdrawal of the drug from the market. Failure to comply with applicable regulatory requirements may result
in:



The
FDA's policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of picoplatin or further restrict or regulate
post-approval activities. We cannot predict the likelihood, nature or extent of adverse 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 picoplatin and our business could suffer.

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If we are unable to protect our proprietary rights, we may not be able to compete effectively or operate profitably.

Our success is dependent in part on obtaining, maintaining and enforcing our patents and other proprietary rights and our ability to
avoid infringing the proprietary rights of others. The United States Patent and Trademark Office, or the USPTO, may not issue patents from the patent applications owned by or licensed to us. If
issued, the patents may not give us an advantage over competitors with similar technologies. The issuance of a patent is not conclusive as to its validity or enforceability and it is uncertain how
much protection, if any, will be given to our patents if we attempt to enforce them and they are challenged in court or in other proceedings, such as oppositions, which may be brought in foreign
jurisdictions to challenge the validity of a patent. A third party may challenge the validity or enforceability of a patent after its issuance by the USPTO. It is possible that a competitor may
successfully challenge our patents or that a challenge will result in limiting their coverage. Moreover, the cost of litigation to uphold the validity of patents and to prevent infringement can be
substantial. If the outcome of litigation is adverse to us, third parties may be able to use our patented invention without payment to us. Moreover, it is possible that competitors may infringe our
patents or successfully avoid them through design innovation. We may need to file lawsuits to stop these activities. These lawsuits can be expensive and would consume time and other resources, even if
we were successful in stopping the violation of our patent rights. In addition, there is a risk that a court would decide that our patents are not valid and that we do not have the right to stop the
other party from using the inventions. There is also the risk that, even if the validity of our patents was upheld, a court would refuse to stop the other party on the ground that its activities do
not infringe our patents. The protection afforded by issued patents is limited in duration. With respect to picoplatin, in the United States we expect to rely primarily on U.S. Patent
No. 5,665,771 (expiring February 7, 2016), which is licensed to us by Genzyme, and additional licensed patents expiring in 2016 covering picoplatin in Europe and other countries. The FDA
has designated picoplatin as an orphan drug for the treatment of small cell lung cancer under the provisions of the Orphan Drug Act, which entitles us to exclusive marketing rights for picoplatin in
the United States for seven years following market approval. If approved, we may also be able to extend the term of a U.S. patent covering picoplatin under the Hatch-Waxman Act, which Act permits the
extension of the term of a U.S. patent on a new drug for up to a maximum of five years. In addition, the European Commission has designated picoplatin as an orphan medicinal product for the treatment
of small cell lung cancer in the European Union, which entitles us to exclusive marketing rights for picoplatin in the European Union for ten years following market approval in the European Union.
Additional potential avenues exist which may supplement patent protection and exclusivity for picoplatin in Europe.

On
May 8, 2009, patent owners, Genzyme Corporation and The Institute of Cancer Research, together with our company, filed with the USPTO an application to reissue U.S. Patent
No. 5,665,771 ('771 patent) to the picoplatin compound. Like many composition of matter patents, the claims of the '771 patent include many compounds in addition to picoplatin. The reissue
seeks to narrow certain claims by removing a number of compounds other than picoplatin from these claims. In the reissue proceeding, the USPTO will review the patent on its merits and an initial
rejection is not unusual. We will have the opportunity to respond to any rejections and, if necessary, pursue appeals with the USPTO and the United States federal courts. During this process the '771
patent stays in force and can be asserted in an infringement action. We believe that filing the reissue to amend these claims and strengthen the intellectual property estate is a prudent course of
action. Picoplatin is currently covered by additional issued process patents and other pending applications in the United States and abroad.

Under
our license agreement with Genzyme, Genzyme retains the right to prosecute its patent applications and maintain all licensed patents, with us reimbursing such expenses. We have the
right to sue any third party infringers of the picoplatin patents. If we do not file suit, Genzyme, in its sole discretion, has the right to sue the infringer at its expense. U.S. Patent
No. 5,665,771 is co-owned by

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Genzyme
and a third party, which has exclusively licensed its rights to the patent to Genzyme (as successor to AnorMED, Inc.).

In
addition to the intellectual property rights described above, we rely on unpatented technology, trade secrets and confidential information. Therefore, others may independently develop
substantially equivalent information and techniques or otherwise gain access to or disclose our technology. We may not be able to effectively protect our rights in unpatented technology, trade secrets
and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality agreement at the commencement of an employment or consulting relationship with us.
However, these agreements may not provide effective protection of our information or, in the event of unauthorized use or disclosure, may not provide adequate remedies.

The use of our technologies could potentially conflict with the rights of others.

Our competitors or others may have or may acquire patent rights that they could enforce against us. In such case, we may be required to
alter our products, pay licensing fees or cease activities. If our products conflict with patent rights of others, third parties could bring legal actions against us claiming damages and seeking to
enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in
order to continue to manufacture or market the affected products. We may not prevail in any legal action and a required license under the patent may not be available on acceptable terms.

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

The cost to us of any litigation or other proceedings relating to intellectual property rights, even if resolved in our favor, could be
substantial. Some of our competitors may be better able to sustain the costs of complex patent litigation because they have substantially greater resources. If there is litigation against us, we may
not be able to continue our operations. If third parties file patent applications, or are issued patents claiming technology also claimed by us in pending applications, we may be required to
participate in interference proceedings in the USPTO to determine priority of invention. We may be required to participate in interference proceedings involving our issued patents and pending
applications. We may be required to cease using the technology or license rights from prevailing third parties as a result of an unfavorable outcome in an interference proceeding. A prevailing party
in that case may not offer us a license on commercially acceptable terms.

Product liability claims in excess of the amount of our insurance would adversely affect our financial condition.

The testing, manufacture, marketing and sale of picoplatin and any other proposed cancer therapy products, including past clinical and
manufacturing activities in connection with our terminated skeletal targeted radiotherapy, or STR, development program, may subject us to product liability claims. We are insured against such risks up
to a $10.0 million annual aggregate limit in connection with clinical trials of our products under development and intend to obtain product liability coverage in the future. However, insurance
coverage may not be available to us at an acceptable cost. We may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise. Regardless of merit or
eventual outcome, product liability claims may result in decreased demand for a product, injury to our reputation, withdrawal of clinical trial volunteers and loss of revenues. As a result, regardless
of whether we are insured, a product liability claim or product recall may result in losses that could be material.

32

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Our past use of radioactive and other hazardous materials exposes us to the risk of material environmental liabilities, and we may incur significant additional costs to
comply with environmental laws in the future.

Our past research and development and manufacturing processes, as well as the manufacturing processes that may have been used by our
collaborators, involved the controlled use of hazardous and radioactive materials. As a result, we are subject to foreign, federal, state and local laws, rules, regulations and policies governing the
use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials and wastes in connection with our use of these materials. Although we believe that
our safety procedures for handling and disposing of such materials complied with the standards prescribed by such laws and regulations, we may be required to incur significant costs to comply with
environmental and health and safety regulations in the future. We terminated our STR manufacturing operations in Denton, Texas in May 2005. We recorded costs associated with the closure of the Denton
facility of $0.5 million in 2005 and $0.3 million in 2006. We completed the sale of the Denton facility on October 1, 2007. Our current insurance does not cover liability for the
clean-up of hazardous waste materials or other environmental risks.

Changes in health care reimbursement could adversely affect our ability to effectively price our products or obtain adequate reimbursement for sales of our products.

Potential sales of our products may be affected by the availability of reimbursement from governments or other third parties, such as
insurance companies. It is difficult to predict the reimbursement status of newly approved, novel medical products. A government or third party payer decision not to approve pricing for, or provide
adequate coverage and reimbursements of, our drugs, if any, could limit market acceptance of such drugs. In addition, third party payers are increasingly challenging the prices charged for medical
products and services. If we succeed in bringing picoplatin to market, we cannot be certain that it will be considered cost-effective and that reimbursement to the consumer will be
available or will be sufficient to allow us to competitively or profitably sell this product.

The
levels of revenues and profitability of biotechnology companies may be affected by the continuing efforts of government and third party payers to contain or reduce the costs of
health care through various means. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to governmental control. In the United States, there
have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental controls. It is uncertain what legislative proposals will be adopted
or what actions federal, state or private payers for health care goods and services may take in response to any health care reform proposals or legislation. Even in the absence of statutory change,
market forces are changing the health care sector. We cannot predict the effect health care reforms may have on the development, testing, commercialization and marketability of our picoplatin product.
To the extent that such proposals or reforms have a material adverse effect on the business and potential revenues of other companies that are potential strategic partners or collaborators, our
ability to commercialize
opportunities may be adversely affected and the amount a potential collaborator may be willing to pay to license picoplatin in the future may be reduced.

The loss of key employees could adversely affect our operations.

On February 5, 2010, we implemented a restructuring plan to conserve capital resources, which reduced our workforce by
approximately 57%, to 22 employees. We implemented an earlier restructuring plan, effective March 31, 2009, which resulted in the discontinuation of our preclinical research operations and
reduced our workforce by approximately eight employees.

As
part of that restructuring, Gerald McMahon, PhD stepped down as our chief executive officer and Robert De Jager, M.D., stepped down as our chief medical officer. Dr. McMahon
will continue to

33

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serve
as non-executive chairman of our board of directors. Dr. De Jager will continue as a consultant to our company until December 31, 2010, subject to earlier termination
by either party. We did not experience any material disruptions as a consequence of the management changes or the reductions in force. Ronald A. Martell, our former president and chief operating
officer, was appointed as our new chief executive officer, and Michael S. Perry, DVM, PhD, was appointed as our new president and chief medical officer.

Caroline
M. Loewy resigned as our chief financial officer effective November 28, 2008. We did not experience any material disruptions as a consequence of Ms. Loewy's
resignation. Gregory L. Weaver was appointed as our chief financial officer effective February 18, 2009.

On
November 21, 2008, we terminated David A. Karlin, M.D., our senior vice president of clinical development and regulatory affairs. The termination was based on our determination
that we no longer required the services of Dr. Karlin, and we did not experience any material disruptions as a consequence of Dr. Karlin's termination.

As
of March 9, 2010, we had 20 full-time employees and two part-time employees. Of these full-time employees, five hold PhD degrees, one holds
an M.D. degree, one holds a D.V.M. degree, one holds a J.D. degree and two hold an M.B.A. degree. Of the total full-time employees, ten employees are engaged in regulatory and clinical
activities and ten are in general administration. We consider our relations with employees to be good. None of our employees is covered by a collective bargaining agreement. We believe that our
current workforce
is sufficient to support our regulatory and partnering strategies focused on the continued development of picoplatin.

Our
success depends, to a significant extent, on our principal management and clinical and regulatory personnel continuing to contribute to and participate in our regulatory and
partnering efforts to enable the continued development of picoplatin. We have limited or no redundancy of personnel in key development areas, including finance, legal, clinical operations, regulatory
affairs, strategic planning, quality control and assurance. The loss of the services of one or more of our employees could adversely affect our regulatory and partnering efforts. We do not maintain
key-person life insurance on any of our officers, employees or consultants.

Competition
for qualified employees among companies in the biotechnology and biopharmaceutical industry is intense. Our future success depends upon our ability to attract, retain and
motivate highly skilled employees and consultants. In order to successfully develop and commercialize picoplatin, we may in the future be required to substantially expand our workforce.

We
have change of control agreements and severance agreements with all of our officers and consulting agreements with several of our scientific advisors. Our agreements with our officers
provide for "at will" employment, which means that each officer may terminate his or her service with us at any time. In addition, our scientific advisors may terminate their services to us at any
time.

Our operations might be interrupted by the occurrence of a natural disaster or other catastrophic event.

Our principal executive offices are in South San Francisco, California, and we maintain clinical and regulatory activities in Seattle,
Washington. We depend on our facilities and on our collaborators, contractors and vendors for the continued operation of our business. Natural disasters or other catastrophic events, including
terrorist attacks, power interruptions, wildfires and other fires, actions of animal rights activists, earthquakes and wars could disrupt our operations or those of our collaborators, contractors and
vendors. Even though we believe we carry commercially reasonable business interruption and liability insurance, and our contractors may carry liability insurance that protect us in certain events, we
might suffer losses as a result of business interruptions that exceed the coverage available under our and our contractors' insurance policies or for which we or our contractors do not have coverage.
Any natural disaster or catastrophic event could have a significant negative impact on

34

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our
operations and financial results. Moreover, any such event could delay our regulatory and partnering goals for the continued development of picoplatin.

Risks Relating to Our Securities

Our common stock may be delisted from The Nasdaq Global Market if we are unable to maintain compliance with Nasdaq Global Market continued listing requirements.

Our common stock listing has been listed on the The Nasdaq Global Market since October 1, 2007. Prior to that time, our common
stock was listed on the Nasdaq Capital Market. In order to continue to be included in the Nasdaq Global Market, we must meet the Nasdaq Global Market continued listing standards, including maintaining
a closing bid price of $1.00 per share (the Minimum Bid Price Requirement). Our common stock has in the past, and may in the future, fall below the Minimum Bid Price Requirement, or we may in the
future fail to meet other requirements for continued listing on the Nasdaq Global Market. If we are unable to cure any events of noncompliance in a timely or effective manner, our common stock could
be delisted from The Nasdaq Global Market.

If
our common stock were threatened with delisting from The Nasdaq Global Market, we may, depending on the circumstances, seek to extend the period for regaining compliance with Nasdaq
listing requirements by moving our common stock to the Nasdaq Capital Market. Failing that, we may seek quotation on a regional stock exchange, if available. Any such change in listing could reduce
the market liquidity for our common stock. If our common stock is not eligible for quotation on another market or exchange, trading of our common stock could be conducted in the
over-the-counter market on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. As a result, an investor
would find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock.

If
our common stock were to be delisted from The Nasdaq Stock Market, and our trading price remained below $5.00 per share, trading in our common stock might also become subject to the
requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which require additional disclosure by broker-dealers in connection with any trade
involving a stock defined as a "penny stock" (generally, any equity security not listed on a national securities exchange or quoted on Nasdaq that has a market price of less than $5.00 per share,
subject to certain exceptions). Many brokerage firms are reluctant to recommend low-priced stocks to their clients. Moreover, various regulations and policies restrict the ability of
shareholders to borrow against or "margin" low-priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers'
commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of the common stock can result in an
individual shareholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the
willingness of institutions to
purchase our common stock. Finally, the additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitating trades in our common stock, which could
severely limit the market liquidity of the stock and the ability of investors to trade our common stock.

Our stock price is volatile and, as a result, you could lose some or all of your investment.

There has been a history of significant volatility in the market prices of securities of biotechnology companies, including our common
stock. In 2009, the reported high and low closing sale prices of our common stock were $8.63 and $1.64. During 2008, the reported high and low closing sale prices of our common stock were $6.18 and
$1.40. The reported high and low closing sale prices during 2007 were $8.89 and $4.09, respectively. Our stock price has been and may continue to be affected by this type of

35

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market
volatility, as well as our own performance. Our business and the relative price of our common stock may be influenced by a large variety of factors, including:



In
addition, potential public concern about the safety and efficacy of picoplatin, comments by securities analysts, our ability to maintain the listing of our common stock on the Nasdaq
Stock Market, and conditions in the capital markets in general and in the life science capital market specifically, may have a significant effect on the market price of our common stock. The
realization of any of the risks described in this report, as well as other factors, could have a material adverse impact on the market price of our common stock and may result in a loss of some or all
of your investment in our securities.

In
the past, securities class action litigation often has been brought against companies following periods of volatility in their stock prices. We may in the future be the target of
similar litigation. Securities litigation could result in substantial costs and divert our management's time and resources, which could cause our business to suffer.

Certain investors beneficially own significant blocks of our common stock; these large shareholders may take actions that are contrary to your interests, including selling
their stock.

A small number of our shareholders hold a significant amount of our outstanding stock. As of December 31, 2009, entities
affiliated with Bay City Management beneficially owned an aggregate of approximately 13.0% of our outstanding common stock. Two of our directors, Fred B. Craves and Carl S. Goldfischer,
are managing directors of Bay City Capital LLC, an affiliate of Bay City Management, and possess capital and carried interests in the Bay City Management entities holding our shares. Entities
affiliated with MPM beneficially owned an aggregate of approximately 18.6% of our outstanding common stock as of December 31, 2009. Nicholas J. Simon III, a director of
our company, is a general partner of certain of the MPM entities that hold those shares. As a result, these shareholders will collectively be able to significantly influence all matters requiring
approval of our shareholders, including the election of directors and approval of significant corporate transactions. These shareholders may support competing transactions and have interests that are
different from yours.

36

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Sales of a large number of shares of our stock by one or more of these large shareholders or other shareholders within a short period of time, or the expectation that such sales may
occur, could significantly reduce the market price of our common stock. For example, certain of our officers and directors and their affiliates have established, or may in the future establish,
selling plans under Rule 10b5-1 of the Exchange Act for the purpose of effecting specified sales of our common stock over a specified period of time. If any of these events cause a
large number of our shares to be sold in the public market, the sales could reduce the trading price of our common stock and impede our ability to raise future capital.

Any future equity or debt issuances by us may have dilutive or adverse effects on our existing shareholders.

We have financed our operations, and we expect to continue to finance our operations, primarily by issuing and selling our common stock
or securities convertible into or exercisable for shares of our common stock. In light of our need for additional financing, we may issue additional shares of common stock or convertible securities
that could dilute your ownership in our company and may include terms that give new investors rights that are superior to yours. Moreover, any issuances by us of equity securities may be at or below
the prevailing market price of our common stock and in any event may have a dilutive impact on your ownership interest, which could cause the market price of our common stock to decline. For example,
in February 2010, we entered into an equity line of credit facility with Commerce Court, pursuant to which we may sell shares of our common stock to Commerce Court at a discount to the prevailing
market price. Specifically, the per share purchase price for common shares purchased under the facility will equal the daily volume weighted average price of our common stock during the draw down
period over which such shares are purchased, less a discount of 3.125% to 5.0%, based on the trading price of our common stock, excluding an additional placement agent fee of 1.0% payable by us on the
gross proceeds.

We
may also raise additional funds through the incurrence of debt, and the holders of any debt we may issue would have rights superior to your rights in the event we are not successful
and are forced to seek the protection of bankruptcy laws.

We have never paid cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future; however, holders of our outstanding
Series 1 preferred stock do receive payments of dividends and have certain other rights and preferences superior to those our common shareholders.

We have paid no cash dividends on our common stock to date, and we currently intend to retain our future earnings, if any, to fund our
business operations. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Furthermore, our loan facility with GE Business Financial Services and Silicon
Valley Bank restricts our ability to pay dividends on our common stock. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

We
had 78,768 shares of $2.4375 convertible exchangeable preferred stock, or Series 1 preferred shares, outstanding as of March 9, 2010. These shares were originally issued
in 1989. Pursuant to the terms of the designation of the Series 1 preferred shares, holders of Series 1 preferred shares are entitled to receive annual dividends of $2.4375 per
Series 1 preferred share outstanding. Dividends on the Series 1 preferred shares are cumulative, which means that if they are not paid, the amount of the dividends accrue and, unless
full cumulative dividends on the Series 1 preferred shares have been paid, no dividends may be paid on any stock ranking junior to the Series 1 preferred shares, including the common
stock. In addition, holders of our Series 1 preferred shares have certain redemption rights, liquidation preferences and voting rights that are greater than or superior to the rights of our
common shareholders. These rights may decrease the amount of earnings and assets available for distribution to our common shareholders.

37

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Certain provisions in our articles of incorporation and Washington state law could discourage a change of control and may adversely affect the rights and interests of our
common shareholders.

Our articles of incorporation authorize our board of directors to issue up to 200,000,000 shares of common stock and up to 2,998,425
shares of preferred stock. Up to 1,120,000 preferred shares have been designated Series 1 preferred shares, 78,768 of which currently are outstanding. The remaining authorized but unissued
preferred shares are presently undesignated. We currently have no plans to issue any additional shares of preferred stock.

Under
our articles of incorporation, our board of directors is authorized generally, without shareholder approval, to issue shares of preferred stock in one or more series and, in
connection with the creation of each such series, to fix the number of shares of such series and designate the powers, preferences and rights of such series, including dividend rights, redemption
rights, liquidation preferences, sinking fund provisions, conversion rights and voting rights, any or all of which may be greater than or superior to the rights of the common stock.

Washington
law imposes restrictions on certain transactions between a corporation and significant shareholders. Chapter 23B.19 of the Washington Business Corporation Act prohibits
a target corporation, with some exceptions, from engaging in particular significant business transactions with an acquiring person, which is defined as a person or group of persons that beneficially
owns 10% or more of the voting securities of the target corporation, for a period of five years after the date the acquiring person first became a 10% beneficial owner of voting securities of the
target corporation, unless (i) the business transaction or the acquisition of shares is approved by a majority of the members of the target corporation's board of directors prior to the time
the acquiring person first became a 10% beneficial owner of the target corporation's voting securities or (ii) at or after the acquiring first person became a 10% beneficial owner of the target
corporation, the business transaction is approved by a majority of the members of the target corporation's board of directors and at least 2/3 of the outstanding voting shares of the
target corporation (excluding shares held by the acquiring person). Prohibited business transactions include, among other things:



After
the five-year period, a significant business transaction may occur if it complies with "fair price" provisions specified in the statute. A corporation may not opt out
of this statute. This provision may have an anti-takeover effect with respect to transactions that our board does not approve in advance.

The
foregoing provisions of Washington law, together with the provisions of our articles of incorporation authorizing the board, without further vote or action by the shareholders, to
issue shares of preferred stock with powers, preferences and privileges fixed by the board, may have the effect of delaying, deterring or preventing a change of control of our company, even if this
change would be beneficial to our shareholders. These provisions also may discourage bids for our common stock at a premium over market price and may adversely affect the market price of, and the
voting and other rights of the holders of, our common stock. In addition, these provisions could make it more difficult to replace or remove our current directors and management in the event our
shareholders believe this would be in the best interests of the corporation and our shareholders.

38

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Item 1B.    UNRESOLVED STAFF COMMENTS

Not
Applicable.

Item 2.    PROPERTIES

Our
corporate headquarters currently is located at 7000 Shoreline Court in South San Francisco, CA, where we lease 17,045 square feet of office space
(the "Premises") under a lease agreement that expires on July 10, 2011. On February 12, 2010, we executed a sublease agreement, whereby we leased to Veracyte, Inc. approximately
11,000 square feet of the Premises, effective March 1, 2010. On September 1, 2010, the sublease will expand to encompass the entire 17,045 square feet of the Premises. The sublease will
expire on July 10, 2011, at which time Veracyte, Inc. will lease the Premises directly from the landlord. We currently are evaluating our facility space requirements and plan to explore
alternative sites in the San Francisco area for our executive offices.

We
also currently occupy approximately 21,000 square feet of office space located at 300 Elliott Avenue West in Seattle, WA, under an amended lease that expires December 31, 2010.
The lease may be renewed for one five-year term, effective upon notice by us of our intent to renew six months prior to the expiration of the current term.

We
believe that the South San Francisco and Seattle facilities are in good condition and are adequate for their present uses.

Item 3.    LEGAL PROCEEDINGS

Not
Applicable.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not
Applicable.

39

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PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock has been listed on The Nasdaq Global Market since October 1, 2007. The following table sets forth, for the
periods indicated, the high and low sales prices for our common stock as reported on The Nasdaq Global Market.

High

Low2009First Quarter

$
3.73

$
1.50Second Quarter


6.19


1.97Third Quarter


9.14


6.50Fourth Quarter


8.55


1.602008First Quarter

$
6.39

$
3.27Second Quarter


5.29


3.31Third Quarter


4.91


3.50Fourth Quarter


4.38


1.05


The
closing sale price of our common stock on The Nasdaq Global Market was $1.56 on March 9, 2010.

There
were approximately 783 shareholders of record on March 9, 2010. This figure does not include the number of shareholders whose shares are held on record by a broker or
clearing agency, but includes such a brokerage house or clearing agency as one holder of record.

We
have not declared or paid any cash dividends with respect to our common stock to date, and we currently intend to retain our earnings, if any, to fund our business operations. We do
not anticipate paying any cash dividends on our common stock in the foreseeable future. Furthermore, our secured loan facility with GE Business Financial Services and Silicon Valley Bank restricts our
ability to pay dividends on our common stock. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources" for a more
detailed discussion of the terms of such loan facility.

See
Part III, Item 12, for information regarding securities authorized for issuance under our incentive compensation plans.

40

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Stock Price Performance Graph

The graph below compares the cumulative total shareholder return on our common stock with the cumulative shareholder return of the
Nasdaq Stock Market Index (US) and the Nasdaq Pharmaceuticals Stocks Index. Stock price performance shown below is historical and not necessarily indicative of future price performance.

Comparison of Five-Year Cumulative Total Return Among Poniard Pharmaceuticals, Inc.,  Nasdaq Stock Market (US) and Nasdaq Pharmaceuticals Stocks Index(1)

GRAPHIC

2004

2005

2006

2007

2008

2009Poniard Pharmaceuticals, Inc.

$
100

$
36

$
40

$
35

$
15

$
15Nasdaq Stock Market Index (US)


100


102


112


122


59


84Nasdaq Pharmaceutical Index


100


110


108


113


105


119


(1)Assumes
$100 invested on December 31, 2004, in our common stock, the Nasdaq Stock Market Index and the Nasdaq Pharmaceutical Stocks Index, an index
of approximately 214 companies with common stock quoted on the Nasdaq National Market. The Primary Standard Industrial Classification Code Number (SIC) of these companies is
#2835Pharmaceutical Companies. Total return performance for the Nasdaq Stock Market Index and the Nasdaq Pharmaceutical Stocks Index is weighted based on the market capitalization of the
firms included in each index and assumes that dividends are reinvested. The Nasdaq Stock Market Index and the Nasdaq Pharmaceutical Stocks Index are produced and published by the Center for Research
in Securities Pricing at the University of Chicago.


41

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Item 6.    SELECTED FINANCIAL DATA

The following table shows selected financial data. It is important to read this selected financial data along with the "Financial
Statements and Supplementary Data," as well as the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 below.

Years Ended December 31,2009

2008

2007

2006

2005(in thousands, except per share data)Consolidated Statement of Operations Data:Revenues

$


$


$


$


$
15Operating expenses


42,978


49,157


35,353


21,234


21,075Loss from operations


(42,978
)

(49,157
)

(35,353
)

(21,234
)

(21,060
)Net loss


(45,715
)

(48,565
)

(32,782
)

(23,294
)

(20,997
)Net loss applicable to common shareholders


(46,215
)

(49,065
)

(33,282
)

(23,794
)

(21,497
)Net loss per common share-basic and diluted

$
(1.31
)
$
(1.41
)
$
(1.08
)
$
(1.37
)
$
(3.83
)Weighted average common shares outstandingbasic and diluted


35,272


34,686


30,762


17,376


5,611Consolidated Balance Sheet Data:Cash, cash equivalents and restricted cash

$
16,219

$
44,425

$
29,616

$
44,284

$
4,523Investment securities


27,451


28,611


63,286


9,562


Working capital (deficit)


27,369


54,873


84,383


42,299


(1,880
)Total assets


52,442


84,232


105,140


69,067


10,114Note payable and capital lease obligations, net of current portion and debt discounts


11,671


17,445


6,561


9,975


Shareholders' equity

$
23,644

$
47,647

$
89,105

$
46,891

$
3,173


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The following discussion of results of operations and liquidity and capital resources contains forward-looking statements that involve
risks and uncertainties. As described under the heading "Important Information Regarding Forward-Looking Statements" at the beginning of this report, our actual results may differ materially from the
results discussed in these forward-looking statements. Factors that might cause or contribute to such differences include those discussed below and in the section above entitled "Risk Factors."

Unless
otherwise indicated, all common stock related amounts have been adjusted to reflect our one-for-six reverse stock split effective September 22,
2006.

Critical Accounting Policies

Impairment of Long-Lived and Intangible Assets:As of December 31, 2009, we had net facilities and equipment of approximately
$0.2 million and a net intangible asset of approximately $7.6 million, which represents capitalized payments for our picoplatin license. In accounting for these long-lived
and intangible assets, we estimate the expected useful lives of the assets, the expected residual values of the assets, and the potential for impairment based on events or circumstances, such as
changes in our business strategy and plans, a significant decrease in market value, a significant change in asset condition or a significant adverse change in regulatory climate. Specifically, the
value of the picoplatin intangible asset could be impaired as a result of negative results of clinical trials or as a result of adverse decisions or rulings of regulatory bodies, such as the FDA.
Application of the test for

42

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impairment
requires significant judgment, taking into account potentially unfavorable factors, such as those mentioned above, that could adversely affect the carrying value of the asset.

In
March 2009, we recognized an asset impairment loss of $0.6 million on certain facilities and equipment resulting from the discontinuation of the Company's preclinical research
operations. The loss on these assets was determined based on estimates of potential sales values of used equipment and other selling costs. Additionally, at December 31, 2009, we recognized an
impairment charge of approximately $1.5 million for our dedicated manufacturing equipment asset. The impairment charge was determined based on the delay in our plans for the commercialization
of picoplatin, which we do not anticipate will occur before 2011.

Long-Term Debt:On September 2, 2008, we entered into an Amended and Restated Loan and Security Agreement (loan agreement), with
GE Business Financial Services (formerly known as Merrill Lynch Capital) and Silicon Valley Bank that provided for a senior secured term loan facility of $27.6 million. The loan agreement
contains covenants requiring the Company to maintain unrestricted cash in an amount equal to the lesser of (i) $17.9 million or (ii) the outstanding aggregate principal balance of
the term loans plus $4.0 million. We use judgment to determine our compliance with the minimum cash covenant and other covenants under the loan agreement. We classify the portion of the loan
that is due for payment in 2010 as a current liability and the portion due thereafter as a long-term payable.

Stock Compensation:We account for share-based compensation arrangements in accordance with the Financial Accounting Standards Board,
or FASB,
accounting standards for equity instruments exchanged for services, which require the measurement and recognition of compensation expense for all share-based payment awards based on estimated fair
values.



43

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Results of Operations

Years Ended December 31, 2009, 2008 and 2007



Research and development expenses decreased 24% to $25.7 million in 2009 and increased 51% to $33.7 million in 2008. Our
research and development expenses are summarized as follows:

($ in thousands)

Annual Percentage
Change2009

2008

2007

2009-2008

2008-2007Research

$
764

$
3,551

$
3,401


-78
%

4
%Contract manufacturing


5,638


4,248


4,149


33
%

2
%Clinical


16,999


24,352


13,511


-30
%

80
%Share-based compensation


2,338


1,581


1,320


48
%

20
%Total

$
25,739

$
33,732

$
22,381


-24
%

51
%


Research
expenses include, among other things, personnel, occupancy and external laboratory expenses associated with the discovery and identification of new therapeutic agents for the
treatment of cancer. Research expenses also include research activities associated with our product candidate, picoplatin, including formulation andin
vitroandin vivostudies. Research expenses decreased 78% to $0.8 million in 2009 due to the discontinuation of our
research operations effective March 31, 2009. Research expenses increased 4% to $3.6 million in 2008, largely as a result of higher personnel and laboratory supply costs, offset by
reduced outside laboratory costs.

Contract
manufacturing expenses include personnel and occupancy expenses and external contract manufacturing costs for the scale up and manufacturing of drug product for use in our
clinical trials, in addition to drug product stability and toxicology studies. Contract manufacturing costs increased 33% to $5.6 million in 2009, primarily due to higher drug production and
scale-up costs. Contract manufacturing costs increased 2% to $4.2 million in 2008, primarily due to slightly higher personnel costs.

Clinical
expenses include personnel expenses, travel, occupancy costs and external clinical trial costs, including clinical research organization charges, principal investigator fees,
clinical site expenses and regulatory activities associated with conducting human clinical trials. Clinical expenses also include quality control and assurance activities, such as storage and shipment
services for our picoplatin drug product. Clinical costs decreased 30% to $17.0 million in 2009, primarily due to reduced external clinical trial costs from the winding down of our trials,
partially offset by costs from the increased use of consultants and contract labor. Clinical costs increased 80% to $24.4 million in 2008, principally due to expanded external clinical trial
costs associated with our picoplatin trials and increased personnel costs. Prior to 2009, we included external legal costs associated with patent filings, maintenance and litigation in clinical
expenses. We now report patent related external legal costs in our general and administrative. For the years ended 2009, 2008 and 2007, these costs totaled approximately $1.0 million in each
year. The table above has been adjusted for this change in presentation.

Share-based
compensation expenses reflect the non-cash charge recognized in accordance with the accounting rules for share-based compensation under which the fair value of
all employee and non-employee share-based payments is charged to expense over the vesting period of the share-based awards. Share-based compensation expense increased 48% to
$2.3 million in 2009. This increase was primarily a result of recognition of expense for restricted stock unit awards, partially offset by the departure of an officer at the end of 2008 for
whom there was no expense in 2009, the expense of vesting of certain options held by certain officers in 2008 for which there was no similar acceleration in 2009, and a lower number and value of stock
options outstanding in 2009 reflecting lower staffing

44

---



levels.
Share-based compensation expense increased 20% to $1.6 million in 2008, primarily due to a higher number and value of outstanding stock options reflecting higher staffing levels.

Our
major research and development program during the years ended December 31, 2009, 2008 and 2007 was picoplatin. Picoplatin is an intravenous platinum-based chemotherapeutic,
designed to treat solid tumors that are resistant to existing platinum-based cancer therapies. We have completed enrollment and initial statistical analysis of a pivotal Phase 3 SPEAR trial of
picoplatin in the second-line treatment of patients with small cell lung cancer. This trial did not meet its primary endpoint of overall survival and we have initiated a process with the
FDA to identify a potential regulatory path forward for picoplatin in this indication. We are also conducting two separate Phase 2 trials evaluating picoplatin as a first-line
treatment of metastatic colorectal cancer and castration-resistant (hormone-refractory) prostate cancer. Additionally, we have completed a Phase 1 cardiac safety trial of picoplatin and a
Phase 1 study evaluating an oral formulation of picoplatin in solid tumors.

As
of December 31, 2009, we have incurred external costs of approximately $73.4 million in connection with our entire picoplatin clinical program. Total estimated future
costs of our picoplatin Phase 3 trial in small cell lung cancer is in the range of $1.5 million to $2.0 million through 2010. Total estimated future costs of both our picoplatin
Phase 2 trial in colorectal cancer and our Phase 2 trial in castration-resistant prostate cancer are in the range of $1.0 million to $1.5 million through 2010. These future
costs reflect activities to complete our trials through data analysis and data lock and could be substantially higher if we have to repeat, revise or expand the scope of any of our trials. Material
cash inflows relating to the commercialization of picoplatin will not commence unless and until we complete required clinical studies and obtain FDA marketing approvals, and then only if picoplatin
finds acceptance in the marketplace. To date, we have not received any revenues from sales of picoplatin.

Recap of Development and Clinical Program Costs.Our research and development administrative overhead costs, consisting of rent,
utilities,
consulting fees and other various overhead costs, are included in total research and development expense for each period, but are not allocated among our various projects. Our total research and
development costs include the costs of various research efforts directed toward the identification and evaluation of future product candidates. These other research projects are preclinical and not
considered major projects. We implemented a restructuring on
March 31, 2009, which resulted in the discontinuation of our preclinical research operations. Our total research and development costs are summarized below:

($ in thousands)

Annual Percentage
Change2009

2008

2007

2009-2008

2008-2007Picoplatin

$
20,737

$
24,161

$
14,399


-14
%

68
%Other unallocated costs and overhead


2,664


7,990


6,662


-67
%

20
%Share-based compensation


2,338


1,581


1,320


48
%

20
%Total research and development costs

$
25,739

$
33,732

$
22,381


-24
%

51
%


Our
external costs for picoplatin in 2009, 2008 and 2007 reflect costs associated with our various picoplatin clinical studies and the manufacture of drug product to support our clinical
trials. We expect our external costs for picoplatin to decrease in 2010, reflecting lower costs for our fully enrolled small cell lung, colorectal and prostate cancer trials and our completed oral
picoplatin study, partially offset by clinical, consulting and other development costs associated with our regulatory and partnering activities focused on the continued development of picoplatin in
multiple indications and two formulations.

45

---





The risks and uncertainties associated with completing the development of picoplatin on schedule, or at all, include the following, as well as the other risks and uncertainties described
in this report:



If
we fail to obtain marketing approvals for picoplatin, are unable to secure adequate commercial supplies of picoplatin active pharmaceutical ingredient and finished drug product, or do
not complete development and obtain United States and foreign regulatory approvals on a timely basis, our operations, financial position and liquidity could be severely impaired, including as
follows:



Because
of the many risks and uncertainties relating to completion of clinical trials, receipt of marketing approvals and acceptance in the marketplace, we cannot predict the period in
which material cash inflows from our picoplatin program will commence, if ever.



($ in thousands)

Annual Percentage
Change2009

2008

2007

2009-2008

2008-2007General and administrative

$
9,743

$
9,883

$
8,928


-1
%

11
%Share-based compensation


4,955


5,542


4,149


-11
%

34
%Total

$
14,698

$
15,425

$
13,077


-5
%

18
%


General
and administrative expenses decreased 5% to approximately $14.7 million in 2009 and increased 18% to approximately $15.4 million in 2008. General and administrative
expenses, excluding share-based compensation expense, decreased 1% to approximately $9.7 million in 2009 and increased 11% to approximately $9.9 million in 2008. In 2009, the decrease
was due primarily to lower personnel and travel costs, partially offset by higher investor relations costs. The increase in 2008 was primarily due to higher personnel costs, resulting from increased
headcount, and consulting costs. Share-based
compensation expense in 2009, 2008 and 2007 reflects non-cash charges recognized in accordance with the accounting rules for share-based compensation, under which the fair value of all
employee and non-employee share-based payments is charged to expense over the vesting period of the share-based award. Share-based compensation expense decreased 11% to approximately
$5.0 million in 2009 and increased 34% to approximately $5.5 million in 2008. In 2009, the decrease was primarily due to the departure of an officer at the end of 2008 for whom there was
no expense in 2009, the acceleration of vesting of certain stock options held by certain officers in 2008 for which there was no similar expense in 2009, and a lower number and value of stock options
outstanding in 2009 reflecting lower staffing levels, partially offset by expense recognized on restricted stock unit awards. The increase in 2008 was primarily due to a higher number and value of
outstanding stock options reflecting higher staffing levels.

46

---





Effective March 31, 2009, we implemented a strategic restructuring plan to refocus our cash resources on clinical and commercial
development of picoplatin, which resulted in the discontinuation of our preclinical research operations and reduced our workforce by approximately 12%, or eight employees. This restructuring resulted
in charges of $0.5 million in the first quarter of 2009 consisting of $0.3 million in severance charges and $0.2 million in other expenses related to the closure of our lab
facilities in South San Francisco, California.

In
conjunction with the decision to discontinue our preclinical research operations, we recognized an asset impairment loss of $0.6 million on certain facilities and equipment
related to the lab in South San Francisco, California. The loss on the assets was determined based on estimates of potential sales values of used equipment. These impairment charges established new
cost bases for the impaired assets, which are included in assets held for sale and reported in prepaid expenses and other assets on our consolidated balance sheet for 2009. Additionally, at
December 31, 2009, we recognized an impairment charge of approximately $1.5 million for our dedicated manufacturing equipment asset. The impairment charge was determined based on the
delay in our plans for the commercialization of picoplatin, which we do not anticipate will occur before 2011.



($ in thousands)

Annual Percentage
Change2009

2008

2007

2009-2008

2008-2007Interest expense

$
(3,143
)
$
(1,897
)
$
(1,727
)

66
%

10
%Interest income and other, net


406


2,489


4,298


-84
%

-42
%$
(2,737
)
$
592

$
2,571


-562
%

-77
%


Interest
expense increased 66% to approximately $3.1 million in 2009 and increased 10% to approximately $1.9 million in 2008. The increases in interest expense in 2009 and
2008 were primarily due to increased interest costs resulting from additional borrowings that were effected in September 2008 under our bank loan. Interest income and other, net, decreased 84% to
$0.4 million in 2009 and decreased 42% to $2.5 million in 2008. The decreases were primarily due to lower average yields from and decreasing balances in our investment securities
portfolio.

Liquidity and Capital Resources

December 31,2009

2008

2007($ in thousands)Cash, cash equivalents and investment securities

$
43,389

$
72,755

$
92,621Working capital


27,369


54,873


84,383Shareholders' equity


23,644


47,647


89,105




Years Ended December 31,2009

2008

2007($ in thousands)Cash provided by (used in):Operating activities

$
(35,491
)
$
(33,487
)
$
(24,653
)Investing activities


1,160


34,282


(55,542
)Financing activities


6,125


14,014


65,382


We
have historically experienced recurring operating losses and negative cash flows from operations. Cash, cash equivalents and investment securities, net of restricted cash of
$0.3 million,

47

---



totaled
$43.4 million at December 31, 2009. As of December 31, 2009, we had net working capital of $27.4 million, an accumulated deficit of $408.2 million and total
shareholders' equity of $23.6 million.

We
have historically maintained our financial position through strategic management of our resources, including, the sale of equity securities, borrowings under debt instruments,
technology licensing and collaborative agreements. We invest excess cash in investment securities that will be used to fund future operating costs. Cash used for operating activities for the year
ended December 31, 2009 totaled $35.5 million.



During 2010, we plan to refocus our resources on regulatory and partnering strategies to support the continued development of
picoplatin. On February 5, 2010, we implemented a restructuring plan to conserve capital resources, which reduced our workforce by approximately 57%, to 22 employees. We currently estimate that
we will incur total restructuring charges of approximately $1.2 million, consisting mainly of one-time employee termination benefits, in connection with the restructuring.

On
February 12, 2010, we entered into a sublease agreement with Veracyte, Inc., pursuant to which Veracyte is subleasing, effective March 1, 2010, approximately
11,000 square feet of our 17,045 square feet of executive office space, or the Premises, located at 7000 Shoreline Court, South San Francisco, California. Base sublease rental income for this space is
$17,600 per month. On September 1, 2010, the subleased space will expand to encompass the entire 17,045 square feet of the Premises. After delivery of this expanded sublease space, base
sublease rental income will be $28,124 per month until expiration of the sublease on July 10, 2011, at which time Veracyte will lease the Premises directly from the landlord. Additional rent
under the sublease will be payable monthly to us by Veracyte, based on Veracyte's share of operating expenses attributable to the Premises. Our sublease with Veracyte does not modify or limit the
terms and conditions of our original lease with the landlord, or waive any rights or remedies of the landlord, except that the landlord releases us from obligations under the original lease to remove
alterations or repair or restore the Premises upon expiration of the original lease or following a casualty occurring during the original lease term. We currently are evaluating our facility space
requirements and plan to explore alternative sites in the San Francisco area for executive office space. We expect to save approximately $700,000 in future rental and operating expenses as a
consequence of the sublease.

On
February 23, 2010, we entered into an equity line of credit facility with Commerce Court, pursuant to a Common Stock Purchase Agreement, or the Agreement, which provides that,
upon the terms and subject to the conditions set forth in the Agreement, Commerce Court is committed to purchase up to $20.0 million of registered shares of our common stock over the
approximately 18-month term of the Agreement. From time to time over the term of the Agreement, we may, at our sole discretion, present Commerce Court with draw down notices to purchase
our common stock over eight consecutive trading days or such other period mutually agreed upon by us and Commerce Court. Each draw down is subject to limitations based on the price of the Company's
common stock and a limit of 2.5% of our market capitalization at the time of the draw down (which limitations may be modified or waived by mutual agreement of the parties). In no event may we sell
Commerce Court more than 8,423,431 shares of our common stock under the Agreement, which is the amount equal to one share less than 20% of our outstanding shares of common stock on the closing date of
the Agreement, minus the number of share of common stock issued to Commerce Court in payment of its commitment fee. In addition, Commerce Court may not at any time acquire shares under the Agreement
if, after giving effect to such purchase, Commerce Court would beneficially own 9.9% or more of our outstanding common stock. The Agreement does not require Commerce Court to purchase shares at prices
below $1.00 per share.

Once
presented with a draw down notice, Commerce Court is required to purchase a pro rata portion of the shares on each trading day during the trading period on which the daily volume

48

---



weighted
average price for our common stock exceeds a threshold price determined by us for such draw down. The per share purchase price for these shares will equal the daily volume weighted average
price of our common stock on each date during the draw down period on which shares are purchased, less a discount ranging from 3.125% to 5.0%, based on the trading price of our common stock. In
consideration of Commerce Court's execution and delivery of the Agreement, we issued 121,183 shares of our common stock on February 25, 2010. All shares issued pursuant to the Agreement are
covered by a registration statement on Form S-3 filed with the Securities and Exchange Commission.

On
March 15, 2010, we completed a draw down and sale of 4,229,000 shares of our common stock, at a price of approximately $1.49 per share, to Commerce Court under the
equity line of credit facility. Net proceeds of approximately $6,154,000 were received, after deducting estimated offering expenses of approximately $166,000. Proceeds of this draw down will be used
to fund our efforts to enable a registrational filing to seek regulatory approval of picoplatin as a second-line treatment for small cell lung cancer patients with refractory disease and
to explore strategic partnering and other relationships to support the continued development of picoplatin in other indications.



Equity Financing.During 2009, we sold an aggregate of approximately 7.0 million shares of our common stock to Azimuth, pursuant
to two draw
downs under our equity line of credit facility with Azimuth. In the first draw down on November 23, 2009, we sold approximately 3.5 million common shares to Azimuth at a purchase price
of approximately $2.15 per share. We sold Azimuth approximately 3.5 million common shares for $1.87 per share in the second draw down on December 22, 2009. The equity facility terminated
by its terms on December 22, 2009. We received aggregate net proceeds from the draw downs of approximately $13.7 million. See Note 7 to the Notes to consolidated financial
statements for additional information. The proceeds of the draw downs under the Azimuth facility were used for general corporate purposes, including working capital, following our November 16,
2009 announcement that our Phase 3 SPEAR trial failed to meet its primary endpoint of overall survival.

On
April 30, 2007, we completed a public offering of 11.8 million shares of our common stock at a price of $6.33 per share. Net proceeds of the offering were
$70.0 million. Additionally, in April 2006, we received $62.0 million in net proceeds from an equity financing, pursuant to which we issued 15.5 million
shares of common stock at a purchase price of $4.20 per share. Investors in the 2006 financing also received warrants to purchase an aggregate of 4.6 million shares of common stock at a
purchase price of $4.62 per share. The proceeds of these transactions were used to support our research and clinical development activities and commercialization efforts, as well as for general
corporate purposes, including working capital.

Secured Loan Facility.On September 2, 2008, we entered into an amended and restated loan and security agreement with GE Business
Financial
Services, Inc. and Silicon Valley Bank, establishing a $27.6 million senior secured loan facility. The loan agreement amends and restates our earlier loan and security agreement with
Silicon Valley Bank and Merrill Lynch Capital dated as of October 25, 2006, pursuant to which we obtained a $15.0 million capital loan that was to mature on April 1, 2010. Funds
under the loan facility were made available as follows: (i) an initial term loan advance in the amount of $17.6 million, which was comprised of (a) the outstanding principal
balance of $7.6 million remaining on the original loan and (b) an additional cash advance of approximately $10.0 million, which was fully funded on September 2, 2008; and
(ii) a second term loan advance in the amount of $10.0 million, which was fully funded on September 30, 2008. The advances under the loan facility are repayable over
42 months, commencing on October 1, 2008. Interest on the advances is fixed at 7.80% per annum. Final payments in the amounts of $1.1 million and $0.9 million are due upon
maturity or earlier repayment of the initial term loan advance and the second term loan advance, respectively. Additionally, as a condition to the amendment and restatement of the original loan, we
agreed to

49

---



modification
of the final payment obligations under the original loan, pursuant to which we paid $0.6 million to Silicon Valley Bank on September 2, 2008, the effective date of the loan
facility, and will pay $0.7 million to GE Business Financial Services on March 31, 2010. The loan facility is secured by a first lien on all of our non-intellectual property
assets. In connection with the loan agreement, we issued to the lenders ten-year warrants to purchase an aggregate of 219,920 shares of common stock at an exercise price of $4.297 per
share. In October 2009, Silicon Valley Bank exercised its warrants. In November 2009, we amended the warrants held by GE Business Financial Services to change the exercise price to $2.00 per share. At
December 31, 2009, the outstanding principal amount under the loan facility was $18.7 million.

The
loan agreement contains restrictions on our ability to, among other things, dispose of certain assets, engage in certain mergers and acquisition transactions, incur indebtedness,
create liens on assets, make investments, pay dividends and repurchase stock. The loan agreement also contains covenants requiring us to maintain a minimum amount of unrestricted cash during the term
of the loan equal to the lesser of (i) $17.9 million or (ii) the outstanding aggregate principal balance of the term loans plus $4.0 million. The loan agreement contains
events of default that include nonpayment of principal, interest or fees, breaches of covenants, material adverse changes, bankruptcy and insolvency events, cross defaults to any other indebtedness,
material judgments, inaccuracy of representations and warranties and events constituting a change of control. The occurrence of an event of default would increase the applicable rate of interest by 5%
and could result in the acceleration of our payment obligations under the loan agreement. We were in compliance with all loan covenants as of December 31, 2009.

Taking
into account the minimum unrestricted cash requirement under the loan agreement and our projected operating results, we believe that our current cash, cash equivalent and
investment securities balances, including the net proceeds from our March 15, 2010 sale of common stock to Commerce Court under our equity line of credit facility, will provide adequate
resources to fund operations at least through the end of 2010. However, given the uncertainties of outcomes of our regulatory and partnering strategies to support the continued development of
picoplatin, there is no assurance that we can achieve our projected operating results. Thereafter, unless we raise additional funds, we will be in default of the loan agreement. We have no assurance
that, especially in light of the current difficult economic environment, the lenders will be willing to waive or renegotiate the terms of the loan agreement to address or avoid financial or other
defaults.

If
an event of default were to occur, we might not have sufficient funds to repay the loan or to fund our continuing operations. In such case, we would need to delay, scale back or
curtail some or all of our current picoplatin clinical and regulatory efforts, further reduce our workforce, license picoplatin for development and commercialization by third parties, or attempt to
sell the company. Provisions of the loan agreement would limit our ability to dispose of certain assets, engage in certain mergers, incur certain indebtedness, make certain distributions and engage in
certain investment activities without the prior consent of the lenders. We have no assurance that we can obtain financing or otherwise raise additional funds, if at all, on terms acceptable to us or
to our lenders.

Operating Agreements.We have entered into clinical supply agreements with Heraeus and Baxter, pursuant to which they produce picoplatin
API and
finished drug product, respectively, for our clinical trials. Manufacturing services under these clinical supply agreements are provided on a purchase order, fixed-fee basis. Our API
clinical supply agreement continues in effect until it is terminated by mutual agreement of the parties or by either party in accordance with its terms. Our finished drug product clinical supply
agreement had an initial term ending December 31, 2009, and in December 2009, we exercised our first renewal option, extending the term to December 31, 2010. This agreement remains
subject to renewal, at our option, for an additional one-year term. The total aggregate cost of clinical supplies of picoplatin API and finished drug product purchased during the year
ended December 31, 2009 was $4.1 million. We do not have any purchase commitments under these agreements.

50

---



We
also have entered into a picoplatin API commercial supply agreement with Heraeus in March 2008 and a finished drug product commercial supply agreement with Baxter in November 2008.
Under these agreements, Heraeus and Baxter will produce picoplatin API and finished drug product, respectively, for commercial use. Manufacturing services are provided on a purchase order,
fixed-fee basis, subject to certain purchase price adjustments and minimum quantity requirements. The API commercial supply agreement continues for an initial term ending
December 31, 2013, and the finished
drug product commercial supply agreement continues for an initial term ending November 22, 2013, in each case subject to extension. The costs to Heraeus for the purchase and set-up
of dedicated manufacturing equipment costing approximately $1.5 million will be repaid by us in the form of a surcharge on an agreed upon amount of the picoplatin API ordered and delivered on
or before December 31, 2013. If we order and take delivery of less than the agreed upon amount of picoplatin API through December 31, 2013, we will be obligated to pay the balance of the
equipment cost as of that date. Heraeus completed construction of the equipment as of December 31, 2009. We determined that the equipment should be accounted for as a capital lease and
accordingly recognized an asset and long term obligation for the equipment of $1.5 million, respectively. We will reflect the surcharge payments as reductions in the capital lease balance
outstanding and will accrete a finance charge to interest expense as specified under the agreement. Due to the delay in our plans for the commercialization of picoplatin, which we do not anticipate
will occur before 2011, we determined that our capital lease asset for equipment under the Heraeus agreement was impaired as of December 31, 2009 and therefore recognized an impairment charge
of $1.5 million. We do not have any purchase commitments under these agreements.

During
the year ended December 31, 2009, we paid total rent (base rent and additional rent based on our share of facility common operating expenses) of $1.4 million under
the operating leases for our South San Francisco headquarters facility and our Seattle facility. Of this amount, $1.2 million represents total aggregate minimum lease payments under these
leases. As discussed under the heading "Recent Events" above, we have entered into a sublease of most, and as of September 1, 2010, all of our headquarter facilities in South San Francisco.

Potential Milestone and Royalty Obligations.If we are successful in our efforts to commercialize picoplatin, we would, under our
amended license
agreement with Genzyme, be required to pay Genzyme up to $5.0 million in commercialization milestones upon the attainment of certain levels of annual net sales of picoplatin. Genzyme also would
be entitled to royalty payments of up to 9% of annual net sales of picoplatin related products.

We
will require substantial additional capital to pursue our regulatory and partnering strategies to support the continued development of picoplatin and to fund our future operations.
Management is continuously exploring financing alternatives, including:



The
amount of additional financing we will require in the future will depend on a number of factors, including:



51

---





We
may not be able to obtain required additional capital or enter into relationships with potential corporate partners on a timely basis, on terms that ultimately prove favorable to us,
or at all. Conditions in the capital markets in general, and in the life science capital market specifically, may affect our potential financing sources and opportunities for strategic partnering. Our
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, assuming that we will continue as a going concern and do not
include any adjustments that might result from the outcome of this uncertainty.

Contractual Obligations and Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on
our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

At
December 31, 2009, we had the following contractual obligations (in thousands):

Payments due by periodTotal

Less than
1 year

1 - 3 years

3 - 5 years

More than
5 yearsContractual ObligationsLong-term debt obligations:Note payable(1)(2)

$
22,025

$
9,678

$
12,347

$


$
Operating lease obligations:Seattle premises


548


548








South San Francisco premises


1,058


664


394





1,606


1,212


394





Capital Lease obligations(3)


1,884


40


1,015


829


Total

$
25,515

$
10,930

$
13,756

$
829

$



(1)Amounts
include interest payments.


52

---



(2)Amount
in "Total" column includes total principal payment of $18,747 as reflected on the Consolidated Balance Sheet for the year ended December 31,
2009.(3)Amount
in "Total" column includes total principal payment of $1,485 as reflected on the Consolidated Balance Sheet for the year ended December 31,
2009.


New Accounting Pronouncements

See Item 8, Note 1 to our consolidated financial statements, "Business Overview and Summary of Significant Accounting
Policies," for a discussion of new accounting standards.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates primarily to the debt securities included in our investment
portfolio. We do not invest in any derivative financial instruments. We invest in money market funds, debt instruments of the U.S. Government and its agencies and high-quality corporate
issuers. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. The fair market value of fixed rate securities may be adversely impacted
due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest rates decrease. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates
or we may experience losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. At December 31, 2009, we owned government debt
instruments totaling $9.3 million and corporate debt securities totaling $18.2 million. Our exposure to losses as a result of interest rate changes is managed through investing primarily
in securities with relatively short maturities of two years or less and in securities with variable interest rates. We owned corporate debt securities totaling $4.3 million at
December 31, 2009 with maturities greater than one year.

Our
only material outstanding debt is our loan obligation to GE Business Financial Services and Silicon Valley Bank. The outstanding balance of this loan was $18.7 million on
December 31, 2009. The loan, which matures on March 1, 2012, bears interest at a fixed rate of 7.80%. The occurrence of an event of default under the loan, as described above, would
increase the applicable rate of interest by 5% during the continuance of the event of default and could result in acceleration of our payment obligations under the loan agreement. As described
elsewhere in this report, unless we raise additional capital, obtain a waiver or renegotiate the loan agreement, there is a likelihood that we will be in default of the minimum unrestricted cash
requirement and potentially other requirements under the loan.

53

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Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Page
NumberReports of Independent Registered Public Accounting Firms


55Consolidated Balance SheetsDecember 31, 2009 and 2008


57Consolidated Statements of OperationsFor the Years Ended December 31, 2009, 2008, and 2007


58Consolidated Statements of Shareholders' EquityFor the Years Ended December 31, 2009, 2008, and
2007


59Consolidated Statements of Cash FlowsFor the Years Ended December 31, 2009, 2008, and 2007


60Notes to Consolidated Financial Statements


61


All
financial schedules are omitted since the required information is not applicable or has been presented in the consolidated financial statements and the notes thereto.

54

---







Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

The
Board of Directors and Shareholders of Poniard Pharmaceuticals, Inc.

We
have audited the accompanying consolidated balance sheet of Poniard Pharmaceuticals, Inc. as of December 31, 2009, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year ended December 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Poniard Pharmaceuticals, Inc. at
December 31, 2009, and the
consolidated results of its operations and its cash flows for year ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Poniard Pharmaceuticals, Inc.'s internal control over
financial reporting as of December 31, 2009, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 16, 2010 expressed an unqualified opinion thereon.

/s/
Ernst & Young LLP

Palo
Alto, California
March 16, 2010

55

---



Report of KPMG, LLP, Independent Registered Public Accounting Firm

The
Board of Directors and Shareholders
Poniard Pharmaceuticals, Inc.:

We
have audited the accompanying consolidated balance sheet of Poniard Pharmaceuticals, Inc. and subsidiary as of December 31, 2008, and the related consolidated statements
of operations, shareholders' equity, and cash flows for the years ended December 31, 2008 and 2007. These consolidated financial statements are the responsibility of Poniard
Pharmaceuticals, Inc.'s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Poniard Pharmaceuticals, Inc. and
subsidiary as of December 31, 2008, and the results of their operations and their cash flows for the years ended December 31, 2008 and 2007, in conformity with U.S generally accepted
accounting principles.

The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in note 1 to the consolidated financial
statements, the Company has suffered recurring losses from operations and negative cash flows. Furthermore, the Company's long-term debt agreement contains certain covenants that require
the Company to maintain a certain level of unrestricted cash and cash equivalents, and contains certain subjective acceleration clauses related to material adverse changes which raise substantial
doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/
KPMG LLP

Seattle,
Washington
March 16, 2009

56

---







PONIARD PHARMACEUTICALS, INC.        CONSOLIDATED BALANCE SHEETS        (In thousands, except share data)

As of December 31,2009

2008ASSETSCurrent assets:Cash and cash equivalents

$
15,938

$
44,144Cashrestricted


281


281Investment securities


27,451


28,611Prepaid expenses and other current assets


826


977Total current assets


44,496


74,013Facilities and equipment, net of depreciation of $1,199 and $1,319 at December 31, 2009 and 2008, respectively


219


1,123Other assets


135


289Licensed products, net


7,592


8,807Total assets

$
52,442

$
84,232LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
849

$
604Accrued liabilities


7,679


10,618Current portion of note payable and capital lease obligations


8,599


7,918Total current liabilities


17,127


19,140Long-term liabilities:Note payable, noncurrent portion, net of debt discounts


10,186


17,407Capital lease obligations


1,485


38Total long-term liabilities


11,671


17,445Commitments and contingenciesShareholders' equity:Preferred stock, $0.02 par value, 2,998,425 shares authorized:Convertible preferred stock, Series 1, 205,340 shares issued and outstanding (entitled in liquidation to $5,175)


4


4Common stock, $0.02 par value, 200,000,000 shares authorized:42,079,468 and 34,687,724 shares issued and outstanding as of December 31, 2009 and 2008, respectively


842


694Additional paid-in capital


430,971


409,244Other comprehensive loss


(17
)

(354
)Accumulated deficit


(408,156
)

(361,941
)Total shareholders' equity


23,644


47,647Total liabilities and shareholders' equity

$
52,442

$
84,232


See
notes to the consolidated financial statements.

57

---







PONIARD PHARMACEUTICALS, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        (In thousands, except per share amounts)

Years Ended December 31,2009

2008

2007Operating expenses:Research and development

$
25,739

$
33,732

$
22,381General and administrative


14,698


15,425


13,077Gain on sale of real estate and equipment








(105
)Restructuring


468





Asset impairment loss


2,073





Total operating expenses


42,978


49,157


35,353Loss from operations


(42,978
)

(49,157
)

(35,353
)Other (expense) income:Interest expense


(3,143
)

(1,897
)

(1,727
)Interest income and other, net


406


2,489


4,298Total other (expense) income, net


(2,737
)

592


2,571Net loss


(45,715
)

(48,565
)

(32,782
)Preferred stock dividends


(500
)

(500
)

(500
)Net loss applicable to common shareholders

$
(46,215
)
$
(49,065
)
$
(33,282
)Net loss per share applicable to common shareholdersbasic and diluted

$
(1.31
)
$
(1.41
)
$
(1.08
)Weighted average common shares outstandingbasic and diluted


35,272


34,686


30,762


See
notes to the consolidated financial statements.

58

---







PONIARD PHARMACEUTICALS, INC.        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY        (In thousands)

Preferred
Stock,
Series 1

Preferred
Stock,
Series B

Common
StockAccumulated
Other
Comprehensive
(Loss)/IncomeShares

Par
Value

Shares

Par
Value

Shares

Par
Value

Additional
Paid-In
Capital

Accumulated
Deficit

Shareholders'
EquityBalance, December 31, 2006


205

$
4




$



22,808

$
456

$
326,025

$
(279,594
)
$


$
46,891Exercise of stock options and warrants














6





22








22Common stock issued, net of offering costs of $5,054














11,849


237


69,709








69,946Share-based employee compensation expense




















5,414








5,414Stock options and warrants issued for services




















55








55Comprehensive loss:Net loss























(32,782
)




(32,782
)Unrealized gain on investment securities


























59


59Total comprehensive loss





























(32,723
)Preferred stock dividends























(500
)




(500
)Balance, December 31, 2007


205


4








34,663


693


401,225


(312,876
)

59


89,105Exercise of stock options and warrants














25


1


90








91Warrants issued in connection with issuance of debt




















806








806Share-based employee compensation expense




















7,004








7,004Stock options and warrants issued for services




















119








119Comprehensive loss:Net loss























(48,565
)




(48,565
)Unrealized loss on investment securities


























(413
)

(413
)Total comprehensive loss





























(48,978
)Preferred stock dividends























(500
)




(500
)Balance, December 31, 2008


205


4








34,688


694


409,244


(361,941
)

(354
)

47,647Exercise of stock options and warrants














347


7


813








820Common stock issued, net of offering costs of $253














6,956


139


13,584








13,723Common stock issued for fully vested restrictedstock units














88


2


277








279Share-based employee compensation expense




















6,795








6,795Stock options and warrants issued for services




















225








225Amendment of warrant exercise price




















33








33Comprehensive loss:Net loss























(45,715
)




(45,715
)Unrealized gain on investment securities


























337


337Total comprehensive loss





























(45,378
)Preferred stock dividends























(500
)




(500
)Balance, December 31, 2009


205

$
4




$



42,079

$
842

$
430,971

$
(408,156
)
$
(17
)
$
23,644


See notes to the consolidated financial statements.

59

---







PONIARD PHARMACEUTICALS, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

Years Ended December 31,2009

2008

2007Cash flows from operating activities:Net loss

$
(45,715
)
$
(48,565
)
$
(32,782
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


1,470


1,603


1,526Amortization of discount on notes payable


1,417


790


775Accretion (amortization) of premium (discount) on investment securities


428


(411
)

(1,167
)Gain on disposal of real estate and equipment








(105
)Asset impairment loss


2,073





Restructuring


18





Amendment of exercise price for certain warrants


33





Stock-based compensation issued for services


219


119


55Stock-based employee compensation


7,074


7,004


5,414Change in operating assets and liabilities:Prepaid expenses and other assets


186


(22
)

(301
)Accounts payable


245


(73
)

(98
)Accrued liabilities


(2,939
)

6,068


2,030Net cash used in operating activities


(35,491
)

(33,487
)

(24,653
)Cash flows from investing activities:Proceeds from maturities of investment securities


53,676


80,950


51,560Purchases of investment securities


(52,607
)

(46,277
)

(104,058
)Facilities and equipment purchases


(21
)

(391
)

(773
)Proceeds from disposals of equipment and facilities


112





2,729Purchase of licensed product








(5,000
)Net cash provided by (used in) investing activities


1,160


34,282


(55,542
)Cash flows from financing activities:Net proceeds from bank note payable





19,997


Repayment of principal on note payable


(7,886
)

(5,345
)

(3,905
)Payment of debt issuance costs





(200
)

Proceeds from stock options and warrants exercised


820


91


22Repayment of capital lease obligation


(32
)

(29
)

(36
)Net proceeds from issuance of common stock and warrants


13,723





69,946Increase in restricted cash








(145
)Payment of preferred dividends


(500
)

(500
)

(500
)Net cash provided by financing activities


6,125


14,014


65,382Net (decrease) increase in cash and cash equivalents


(28,206
)

14,809


(14,813
)Cash and cash equivalents:Beginning of period


44,144


29,335


44,148End of period

$
15,938

$
44,144

$
29,335Supplemental disclosure of non-cash financing activities:Accrual of preferred dividend

$
500

$
500

$
500Increase in capital leases


1,485





134Debt discount capitalized in shareholders' equity





806


Supplemental disclosure of cash paid during the period for:Interest

$
1,746

$
1,001

$
974


See notes to the consolidated financial statements.

60

---







PONIARD PHARMACEUTICALS, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Business Overview and Summary of Significant Accounting Policies

Overview

Poniard Pharmaceuticals, Inc. is a biopharmaceutical company focused on the development and commercialization of cancer
therapeutics. The accompanying consolidated financial statements include the accounts of Poniard Pharmaceuticals, Inc. and its wholly owned subsidiary, NeoRx Manufacturing Group, Inc.
(the "Company"). All inter-company balances and transactions have been eliminated.

Reclassifications

Certain balances and results from prior years have been reclassified to conform to the Company's current year presentation. In
particular, certain legal expenses related to intellectual property and patents have been reclassified from research and development expense to general and administration expense in the consolidated
statements of operations to conform with the current year's presentation. The amounts reclassified for these patent-related legal expenses for 2009, 2008 and 2007 are $995,000, $982,000 and $992,000,
respectively. The Company's reclassifications had no effect on total operating expenses, net loss or shareholders' equity.

Significant Risks and Uncertainties

These consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which
contemplates realization of assets and the satisfaction of liabilities in the normal course of business for a reasonable period following the date of these financial statements. The Company has
historically suffered recurring operating losses and negative cash flows from operations. As of December 31, 2009, the Company had net working capital of $27,369,000, an accumulated deficit of
$408,156,000 and total shareholders' equity of $23,644,000. The Company's total cash, cash equivalent and investment securities balances, net of restricted cash of $281,000, was $43,389,000 at
December 31, 2009. The Company has financed its operations to date primarily through the sale of equity securities, borrowings under debt instruments, technology licensing and collaborative
agreements. The Company invests excess cash in investment securities that will be used to fund future operating costs. Cash used for operating activities for the year ended December 31, 2009
totaled $35,491,000. The Company's primary activities consist of research and development to further its primary product candidate, picoplatin. As a result, the Company does not have a predictable
source of revenue or other cash flows and does not expect to generate cash from operations for the foreseeable future. Thus, the Company is dependent upon its ability to sell equity instruments,
borrow, or enter into licensing agreements in amounts sufficient to sustain its operations. The Company may not be able to obtain required additional capital or enter into relationships with corporate
partners on a timely basis, on terms ultimately favorable to the Company, or at all. Conditions in the capital markets in general, and in the life science capital markets specifically, may affect the
Company's potential financing sources and opportunities for strategic partnering.

The
Company's loan facility with GE Business Financial Services and Silicon Valley Bank, described in Note 6 below, requires that the Company maintain a minimum amount of cash,
cash equivalents and investments ("unrestricted cash") during the term of the loan equal to the lesser of (i) $17,940,000 or (ii) the outstanding aggregate principal balance of the term
loans plus $4,000,000. Taking into account the minimum unrestricted cash requirement under the Company's loan agreement and its projected operating results, the Company believes that its current cash,
cash equivalent and investment securities balances, including the net proceeds from the Company's March 15, 2010 sale of

61

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Business Overview and Summary of Significant Accounting Policies (Continued)

common
stock to Commerce Court Small Cap Value Fund, Ltd. ("Commerce Court") under its equity line of credit facility (see Note 15 for discussion of subsequent events), will provide
adequate resources to fund operations at least through the end of 2010. However, given the uncertainties of outcomes of the Company's regulatory and partnering strategies to support the continued
development of picoplatin, there is no assurance that the Company can achieve its projected operating results. Thereafter, unless the Company raises additional funds, it will be in default of the
minimum unrestricted cash requirement and potentially other provisions of the loan agreements. The Company has no assurance that, especially in light of the current distressed economic environment,
the lenders will be willing to waive or renegotiate the terms of the loan agreement to address or avoid financial or other defaults. The occurrence of an event of default would increase the applicable
rate of interest by 5% and could result in the acceleration of the Company's payment obligations under the loan agreement. If an event of default were to occur, the Company might not have sufficient
funds to repay the loan or to fund its continuing operations. In such case, it would need to delay, scale back or curtail some or all of its
current picoplatin trials and regulatory efforts, further reduce its workforce, license picoplatin for development and commercialization by third parties or attempt to sell the Company. Provisions of
the loan agreement would limit the Company's ability to dispose of certain assets, engage in certain mergers, incur certain indebtedness, make certain distributions, and engage in certain investment
activities without the prior consent of the lenders.

Significant Accounting Policies

Use of Estimates:The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Research and Development Expenses:Research and development costs are expensed as incurred. Research and development expenses include,
but are not
limited to, payroll and personnel expense, lab supplies, clinical studies, external contract manufacturing costs for clinical trial drug product supplies, consulting, travel, and related overhead.

Cash Equivalents and Investment Securities:All highly liquid investments with an original maturity of three months or less when
purchased are
considered to be cash equivalents. Cash equivalents represent cash invested primarily in money market funds, federal government and agency securities, and corporate debt securities. The Company
considers all investment securities to be available-for-sale. All securities are carried at fair value. The Company does not invest in derivative financial instruments.
Unrealized losses and gains on investment securities are reported as a component of comprehensive income or loss and classified as other comprehensive income/(loss) in shareholders' equity. The
Company monitors investment securities for other than temporary declines in fair value and charges impairment losses to income when an other than temporary decline in estimated value occurs.
Investment in cash equivalents and investment securities in both fixed and floating rate interest earning instruments carry a degree of credit risk. The Company's exposure to losses as a result of
credit risk is managed through investing primarily in securities with relatively short maturities of two years or less and in securities with variable interest rates. See Note 3 below for
further discussion of investment securities.

62

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Business Overview and Summary of Significant Accounting Policies (Continued)

Facilities and Equipment:Facilities and equipment are stated at acquired cost, less any charges for impairment, and are depreciated
using the
straight-line method over estimated useful lives of the assets as follows:

YearsLab equipment

3 - 7Office furniture and fixtures

5 - 7Computer equipment and software

3


Leasehold
improvements are depreciated using the straight-line method over the shorter of the assets' estimated useful lives or the remaining lease term.

When
assets are retired or otherwise disposed of the cost of the assets and related accumulated depreciation or amortization are removed from the accounts and any resulting gains or
losses are reflected in the consolidated statement of operations at the time of disposition. Expenditures for additions and improvements to the Company's facilities are capitalized and expenditures
for maintenance and repairs are charged to expense as incurred.

Impairment of Long-Lived and Intangible Assets:Long-lived assets, including facilities and equipment and intangible assets,
including capitalized license payments for the Company's picoplatin product candidate, are reviewed for possible impairment whenever significant events or changes in circumstances, including changes
in the Company's business strategy and plans, a significant decrease in market value, a significant change in asset condition, or a significant adverse change in regulatory climate, indicate an
impairment may have occurred. An impairment is indicated when the sum of the expected future undiscounted net cash flows identifiable to that asset or asset group is less than its carrying value.
Impairment losses are determined from actual or estimated fair values, which are based on market values, net realizable values or projections of discounted net cash flows, as appropriate. The Company
reviews long-lived and intangible assets on an as-needed basis to determine if there have been any adverse events or circumstances that would indicate an impairment exists. In
particular, the value of the picoplatin intangible asset was reviewed as a result of negative results of clinical trials during 2009, with no impairment charge recorded. See Note 11 for
additional details related to the Company's picoplatin intangible asset. As discussed in Note 13, the Company recorded impairment charges on certain facilities and equipment related to
restructuring activities during 2009, and as discussed in Note 8, during 2009 the Company recorded impairment charges on certain equipment related to commercial manufacturing arrangements.

Debt Issuance Costs:Costs incurred in connection with the securing of long-term bank loans and other long-term debt are
deferred and amortized as interest expense over the term of the related debt using a method that approximates the effective interest method.

Licensed Products:Licensed products represent an exclusive license to develop, manufacture and commercialize picoplatin, a
platinum-based
anti-cancer agent. Licensed products are amortized using the straight-line method over their estimated useful life of twelve years. The Company evaluates the recoverability of
licensed products periodically and takes into account events or circumstances that might indicate that an impairment exists as discussed above under "Impairment of
Long-Lived and Intangible Assets." No impairment of licensed products was identified during 2009, 2008 or 2007. See Note 11 below for additional information.

63

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Business Overview and Summary of Significant Accounting Policies (Continued)

Income Taxes:The Company computes income taxes using the asset and liability method, under which deferred income taxes are provided
for the
temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities and for operating loss and tax credit carryforwards. A valuation allowance is
established when necessary to reduce deferred tax assets to the amount, if any, which is expected more likely than not to be realized.

The
Company accounts for uncertain tax positions in accordance with Financial Accounting Standards Board ("FASB") accounting standards which prescribe a recognition threshold and
measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provide guidance on various related matters such as
derecognition, interest and penalties, and disclosure. The Company has been in a net operating loss position since its inception and, by providing a full valuation allowance, has not recognized any
tax benefits for any of its income taxes. The Company has adopted a policy whereby amounts related to interest and penalties associated with tax matters are classified as additional income tax expense
when incurred. Historically, the Company has not incurred any interest or penalties associated with tax matters and no interest or penalties were recognized during the years ended December 31,
2009, 2008 or 2007.

Net Loss Per Common Share:Basic and diluted loss per share are based on net loss applicable to common shares, which is comprised of
net loss and
preferred stock dividends in all periods presented. Shares used to calculate basic loss per share are based on the weighted average number of common shares outstanding during the period. Shares used
to calculate diluted loss per share are based on the potential dilution that would occur upon the exercise or conversion of securities into common stock using the treasury stock method to the extent
such common stock equivalents are not anti-dilutive. The computation of diluted net loss per share excludes the following
options and warrants to acquire shares of common stock for the years indicated because their effect would not be dilutive.

2009

2008

2007Common stock options


5,606,000


5,893,000


4,650,000Restricted stock units


561,000





Common stock warrants


5,085,000


6,060,000


5,947,000


Additionally,
aggregate common shares of 39,015, issuable as of December 31, 2009 upon conversion of the Company's Series 1 convertible exchangeable preferred stock are not
included in the calculation of diluted loss per share for 2009, 2008, and 2007 because the share increments would not be dilutive.

Share-Based Compensation:The Company has an incentive plan that rewards employees, directors and non-employee consultants with stock
options and restricted stock units. Share-based payments are accounted for in accordance with FASB accounting standards for equity instruments exchanged for services. Under the provisions of these
standards, share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over
the requisite service period (generally the vesting period of the equity grant). See Note 10 below for further details on share-based compensation.

Concentration in the Available Sources of Supply of Materials:The Company relies on third parties to manufacture picoplatin active
pharmaceutical
ingredient ("API") and finished drug product for its

64

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Business Overview and Summary of Significant Accounting Policies (Continued)

clinical
trials and for its future commercialization activities. The Company currently has separate agreements with one supplier each of picoplatin API and finished drug product for clinical and
commercial use. The Company's API clinical supply agreement continues in effect until it is terminated by mutual agreement of the parties or by either party in accordance with its terms. The Company's
finished drug product clinical supply agreement had an initial term ending December 31, 2009, and in December 2009, the Company exercised its first renewal option, extending the term to
December 31, 2010. This agreement remains subject to renewal, at the Company's option, for an additional one-year term. The Company's commercial API and finished drug supply
agreements have initial terms ending in late 2013. The Company has no assurance that its current suppliers will be able to manufacture sufficient picoplatin API and/or finished drug product on a
timely or cost-effective basis at all times in the future. The Company believes that there are other contract manufacturers with the capacity to manufacture picoplatin API and finished
drug product.

Fair Value Measurements:In September 2006, the FASB issued accounting standards associated with fair value measurements. This guidance
defined fair
value, established a framework for measuring fair value, and expanded disclosures about fair value measurements. In February 2008, the FASB delayed the effective date of the guidance for all
non-financial assets and non-financial liabilities, except those that are measured at fair value on a recurring basis. Accordingly, the Company adopted this guidance for assets
and liabilities recognized at fair value on a recurring basis effective January 1, 2008 and adopted the guidance for non-financial assets and liabilities measured on a
non-recurring basis effective January 1, 2009. The application of the fair value framework did not have a material impact on the Company's consolidated financial position, results
of operations or cash flows.

Subsequent Events:In May 2009, the FASB issued standards related to the accounting for and disclosure of events that occur after the
balance sheet
date, but before financial statements are issued or are available to be issued. The Company adopted the provisions of these standards, which became effective for interim and annual reporting periods
ending after June 15, 2009. The Company has reviewed and evaluated material subsequent events through the date that the financial statements were available for issuance. See Note 15 for
additional details.

Segment Reporting:The Company has one operating business segment, cancer therapeutics development.

Recent Accounting Standards

In October 2009, the FASB issued new standards for revenue recognition with multiple deliverables. These new standards impact the
determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, these new standards modify the manner in
which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. These new standards
are required to be adopted in the first quarter of 2011; however, early adoption is permitted. The Company believes that these new standards would have an impact on its consolidated financial
statements in the future were it to enter into an arrangement with multiple deliverables.

In
January 2010, the FASB issued amended standards that require additional fair value disclosures. These amended standards require disclosures about inputs and valuation techniques used
to measure

65

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Business Overview and Summary of Significant Accounting Policies (Continued)

fair
value as well as disclosures about significant transfers, beginning in the first quarter of 2010. Additionally, these amended standards require presentation of disaggregated activity within the
reconciliation for fair value measurements using significant unobservable inputs (Level 3), beginning in the first quarter of 2011. The Company does not believe that these new standards will
have a material effect on its consolidated financial statements.

Note 2. Fair Value Measurements

The Company categorizes assets and liabilities recorded at fair value in its consolidated balance sheets based upon the level of judgment associated with inputs used to measure their
value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The
Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then ranks the estimated values based on the
reliability of the inputs used following the fair value hierarchy set forth by the FASB. The three levels of the FASB fair value hierarchy are as follows:



The
determination of a financial instrument's level within the fair value hierarchy is based on an assessment of the lowest level of any input that is significant to the fair value
measurement. The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The
market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

The
following tables present a summary of the Company's assets that are measured at fair value on a recurring basis as of December 31, 2009 and 2008 (in thousands):

Fair Value Measurements as of
December 31, 2009Total

Level 1

Level 2

Level 3Cash and cash equivalents

$
15,938

$
15,938

$


$
Investment securities


27,451





27,451


$
43,389

$
15,938

$
27,451

$



66

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Fair Value Measurements (Continued)



Fair Value Measurements as of
December 31, 2008Total

Level 1

Level 2

Level 3Cash and cash equivalents

$
44,144

$
44,144

$


$
Investment securities


28,611





28,611


$
72,755

$
44,144

$
28,611

$



As
of December 31, 2009 and 2008, the Company's cash, cash equivalents and investment securities are recorded at fair value as determined through market prices and other
observable and corroborated sources. At December 31, 2009 the cash and cash equivalents balance consists of $491,000 in cash and $15,447,000 in money market funds. Investment securities are
comprised of corporate debt securities and federal government and agency securities. See Note 3 below for further details on investment securities.

When
the estimated fair value of a security is below its carrying value, the Company evaluates whether it is more likely than not that it will be required to sell the security before its
anticipated recovery in market value and whether evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. The Company
also evaluates whether or not it intends to sell the investment. If the impairment is considered to be other-than-temporary, the security is written down to its estimated fair
value. In addition, the Company considers whether credit losses exist for any securities. A credit loss exists if the present value of cash flows expected to be collected is less than the amortized
cost basis of the security. Other-than-temporary declines in estimated fair value and credit losses are charged to investment income. The Company has not deemed it necessary to
record any charges related to impairments or other-than-temporary declines in the estimated fair values of its marketable debt securities or credit losses as of
December 31, 2009.

Note 3. Investment Securities

The Company's investment securities, consisting of debt securities, are classified as available-for-sale. Unrealized holding gains or losses on these securities
are included in other comprehensive loss on the consolidated balance sheets. Realized gains and losses and declines in value judged to be other-than-temporary (of which there
have been none to date) on available-for-sale securities are included in interest income and other, net, in the consolidated statements of operations.

67

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3. Investment Securities (Continued)

Investment
securities consisted of the following at December 31, 2009 (in thousands):

Gross UnrealizedAmortized
Cost

Estimated
Fair ValueGains

(Losses)Type of security:Corporate debt securities, with unrealized gains

$
12,608

$
8

$


$
12,616Corporate debt securities, with unrealized losses


5,565





(13
)

5,552Federal government and agency securities, with unrealized gains


1,509


1





1,510Federal government and agency securities, with unrealized losses


7,786





(13
)

7,773$
27,468

$
9

$
(26
)
$
27,451Net unrealized loss







$
(17
)Maturity:Less than one year

$
23,199







$
23,198Due in 1 - 2 years


4,269








4,253$
27,468







$
27,451


Investment
securities consisted of the following at December 31, 2008 (in thousands):

Gross UnrealizedAmortized
Cost

Estimated
Fair ValueGains

(Losses)Type of security:Corporate debt securities, with unrealized gains

$
10,706

$
26

$


$
10,732Corporate debt securities, with unrealized losses


13,261





(382
)

12,879Federal government and agency securities, with unrealized gains


4,998


2





5,000$
28,965

$
28

$
(382
)
$
28,611Net unrealized loss







$
(354
)Maturity:Less than one year

$
27,912







$
27,561Due in 1 - 2 years


1,053








1,050$
28,965







$
28,611


68

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4. Facilities and Equipment

Facilities and equipment consisted of the following (in thousands):

December 31,2009

2008Lab equipment

$


$
574Office furniture and fixtures


681


681Computer equipment and software


659


691Leasehold improvements


78


4961,418


2,442Less: accumulated depreciation


(1,199
)

(1,319
)Total

$
219

$
1,123


Certain
facilities and equipment balances for the Company's lab in South San Francisco, CA, were deemed to be impaired during 2009. Additionally, the Company recognized impairment on
dedicated manufacturing equipment in 2009. Refer to Note 13 below for details on the impaired assets. Depreciation expense on facilities and equipment totaled $255,000, $388,000 and $311,000
for the years ended December 31, 2009, 2008 and 2007, respectively.

Note 5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

December 31,
2009

December 31,
2008Clinical trials

$
6,550

$
8,266Accrued expenses


803


903Compensation


326


1,164Severance





285$
7,679

$
10,618


Note 6. Note Payable

On September 2, 2008, the Company entered into an Amended and Restated Loan and Security
Agreement ("loan agreement"), with GE Business Financial Services Inc. (formerly known as Merrill Lynch Capital) and Silicon Valley Bank. The loan agreement amends and restates in its entirety
the earlier Loan and Security Agreement dated as of October 25, 2006 ("original loan"), with the lenders, pursuant to which the Company obtained a $15,000,000 capital loan that was to mature on
April 1, 2010.

The
loan agreement provides for a $27,600,000 senior secured term loan facility ("loan facility") to be made available as follows: (i) an initial term loan advance in the amount
of $17,600,000, which is comprised of (a) the outstanding principal balance of $7,600,000 remaining on the original loan and (b) an additional cash advance in the amount of $10,000,000
("cash portion"), which was fully funded on September 2, 2008; and (ii) a second term loan advance in the amount of $10,000,000, which was fully funded on September 30, 2008. The
cash portion of the initial term loan advance and the

69

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6. Note Payable (Continued)

proceeds
of the second term loan advance are being used to fund the Company's clinical trials and for general corporate purposes. The advances under the loan facility are repayable over
42 months, commencing on October 1, 2008. Interest on the advances is fixed at 7.8% per annum. Final loan payments in the amounts of $1,070,000 and $900,000 are due upon maturity or
earlier repayment of the initial term loan advance and the second term loan advance, respectively. Additionally, as a condition to the amendment and restatement of the original loan, the Company
agreed to modification of the final payment obligations under the original loan, pursuant to which the Company paid $600,000 to Silicon Valley Bank on September 2, 2008, the effective date of
the loan facility, and will pay $675,000 to GE Business Financial Services on March 31, 2010. All final payment amounts are being accreted to the note payable balance over the term of the loan
facility using the effective interest rate method and reflected as additional interest expense. All interest payable under the loan agreement and the full amount of the final payments must be paid
upon any prepayment of a term loan advance. The loan facility is secured by a first lien on all of the non-intellectual property assets of the Company. At December 31, 2009, the
outstanding principal balance under the loan facility was $18,747,000, net of discount of $1,641,000.

In
connection with the loan agreement, the Company issued the lenders ten-year warrants to purchase an aggregate 219,920 shares of the Company's common stock at an exercise
price of $4.297 per share. The fair value of the warrants using the Black-Scholes option-pricing model was approximately $928,000 based upon assumptions of expected volatility of 90%, a contractual
term of ten years, an expected dividend rate of zero and a risk-free interest rate of 3.74%. The portion of the loan proceeds allocable to the warrants is approximately $806,000 based on
the relative fair value of the warrants, which the Company recorded as discount to notes payable. The total of the final loan payments and the proceeds allocated to the warrants of approximately
$4,051,000 are being amortized to interest expense using an effective interest rate of 13.8%. The warrants became exercisable upon issuance and are exercisable anytime during their term. In October
2009, Silicon Valley Bank exercised its warrants to purchase an aggregate of 197,169 common shares, net of equivalent shares at market to cover the total exercise price (see Note 9 for further
details on this exercise). In November 2009, the Company amended the warrants held by GE Business Financial Services in connection with the 2006 and 2008 loan agreements to purchase an aggregate of
197,169 common shares to change the exercise price to $2.00 per share resulting in an increase in shareholders' equity and a charge to interest expense of $33,000.

The
loan agreement contains restrictions on the Company's ability to, among other things, dispose of certain assets, engage in certain mergers and acquisition transactions, incur
indebtedness, create liens on assets, make investments, pay dividends and repurchase stock. The loan agreement also contains covenants requiring the Company to maintain unrestricted cash in an amount
equal to the lesser of (i) $17,940,000 or (ii) the outstanding aggregate principal balance of the term loans plus $4,000,000. The loan agreement contains events of default that include
nonpayment of principal, interest or fees, breaches of covenants, material adverse changes, bankruptcy and insolvency events, cross defaults to any other indebtedness, material judgments, inaccuracy
of representations and warranties, and events constituting a change of control. The occurrence of an event of default would increase the applicable rate of interest by 5% and could result in the
acceleration of the Company's payment obligations under the loan agreement. The Company was in compliance with all loan covenants as of December 31, 2009.

70

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6. Note Payable (Continued)

Maturities
of the note payable and capital leases as of December 31, 2009 are as follows (see Note 8 for additional capital lease details) (in thousands):

Year

Capital
Leases

Note
Payable

Total2010

$
38

$
8,561

$
8,5992011





7,886


7,8862012





3,941


3,941Thereafter


1,485





1,4851,523


20,388


21,911Less: discount





(1,641
)

(1,641
)$
1,523

$
18,747

$
20,270


Note 7. Common Stock Purchase Agreement

On August, 19, 2009, the Company entered into an equity line of credit arrangement with Azimuth Opportunity Ltd. ("Azimuth") pursuant to a Common Stock Purchase Agreement, as
amended by Amendment 1 dated November 20, 2009, ("Purchase Agreement"), which provided that, upon the terms and subject to the conditions set forth therein, Azimuth was committed to purchase up
to $60 million shares of the Company's common stock over the 18-month term of the Purchase Agreement. Under the Purchase Agreement, the Company could sell to Azimuth up to 6,955,606
shares of its common stock (the "Trading Market Limit").

On
November 23, 2009, the Company completed a draw down and sale to Azimuth under the Purchase Agreement of 3,465,878 common shares, for net proceeds of $7,284,000. On
December 22, 2009, the Company completed a second draw down and sale of 3,489,728 common shares for net proceeds of $6,439,000. With the completion of the second draw, the Company sold to
Azimuth the maximum aggregate number of shares that could be sold under the Trading Market Limit. As a consequence of reaching the Trading Market Limit, the Purchase Agreement automatically terminated
by its terms on December 22, 2009. The common stock sold to Azimuth has been registered with the Securities and Exchange Commission ("SEC").

Note 8. Commitments and Contingencies

The Company entered into a picoplatin active pharmaceutical ingredient ("API") commercial supply agreement with W.C. Heraeus ("Heraeus") in March 2008. Under this agreement Heraeus will
produce picoplatin API to be used for preparing picoplatin finished drug product for commercial use. Manufacturing services are provided on a purchase order, fixed-fee basis, subject to
certain purchase price adjustments and minimum quantity requirements. The costs to Heraeus for the purchase and set-up of dedicated manufacturing equipment ("equipment") as required under
the commercial supply agreement will be repaid by the Company in the form of a surcharge on an agreed upon amount of the picoplatin API ordered and delivered on or before December 31, 2013. If
the Company orders and takes delivery of less than the agreed upon amount of picoplatin API through December 31, 2013, it will be obligated to pay the balance of the equipment cost as of that
date. Heraeus completed construction of the equipment as of December 31, 2009, at a total cost of approximately $1,485,000. The Company determined that the equipment should be accounted for as
a capital lease and

71

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8. Commitments and Contingencies (Continued)

accordingly
recognized an asset and long term obligation for the equipment of $1,485,000 on its consolidated balance sheet as of December 31, 2009. The Company will reflect the surcharge
payments as reductions to the capital lease balance outstanding, and will accrete a finance charge to interest expense as specified under the agreement. The Company does not anticipate beginning
production of commercial supplies of picoplatin API, thereby utilizing the dedicated equipment, before 2011 and has, therefore, classified the obligation as long-term. Due to the delay in
the Company's plans for the commercialization of picoplatin, which it does not anticipate will occur before 2011, the Company determined that its capital lease asset for equipment under the Heraeus
agreement was impaired as of December 31, 2009 and therefore recognized an impairment charge of $1,485,000 in the consolidated statement of operations for 2009.

The
Company leases the office space for its principal locations under various leasing arrangements. The Company's headquarters are located in South San Francisco, California, where it
leases approximately 17,000 square feet of office space under a lease agreement that expires on July 10, 2011. Base rental payments under this lease are subject to annual adjustment based on
the Consumer Price Index in the San Francisco metropolitan market (CPI-SFMM) and a one-time
adjustment for reimbursement for tenant improvements. Initial monthly base rent of $45,200 was increased by $1,400, $1,400 and $1,500 following the adjustments for the 2007, 2008, and 2009
CPI-SFMM, respectively, for a current base rate of $49,500 per month. In December 2007, the Company accessed approximately $251,000 for tenant improvements that resulted in a further
$5,400 increase for total base rent of $54,900 per month as of December 31, 2009. Additional rental payments under this lease are paid based on the Company's share of operating expenses of the
project in which the leased facilities are located.

On
February 12, 2010, the Company entered into a sublease agreement with Veracyte, Inc., pursuant to which Veracyte will sublease, effective March 1, 2010,
approximately 11,000 square feet of the Company's 17,000 square feet of office space, located in South San Francisco, California. Base rent for this subleased space is $17,600 per month. On
September 1, 2010, the subleased space will expand to encompass the entire 17,000 square feet of office space. After delivery of this expanded sublease space, base rent will be $28,124 per
month until expiration of the sublease on July 10, 2011, at which time Veracyte will lease the office space directly from the landlord. Additional rent under the sublease will be payable
monthly to the Company by Veracyte, based on Veracyte's share of operating expenses attributable to the subleased office space. The Company's sublease with Veracyte does not modify or limit the terms
and conditions of the Company's original lease with the landlord, or waive any rights or remedies of the landlord, except that the landlord releases the Company from obligations under the original
lease to remove alterations or repair or restore the office space upon expiration of the original lease or following a casualty occurring during the term of the original lease. The Company currently
is evaluating its facility space requirements and plans to explore alternative sites in the San Francisco area for executive office space.

The
Company also leases approximately 21,000 square feet of office space in Seattle, Washington, under an amended lease that expires December 31, 2010. The lease may be renewed
for one five-year term, effective upon notice by the Company of its intent to renew six months prior to the expiration of the current term. Monthly base rent on this property is $45,000
and additional rent payments under this lease are paid based on the Company's share of operating expenses of the facility.

72

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8. Commitments and Contingencies (Continued)

Total
rent expense under non-cancelable operating leases was approximately $1,399,000, $1,485,000 and $1,355,000 for the years 2009, 2008 and 2007, respectively. The Company
recognizes rent expense on a straight-line basis over the term of each lease, including any periods of free rent. Minimum lease payments under non-cancelable operating leases
as of December 31, 2009 were as follows (in thousands):

Year2010

$
1,2122011


3902012


4Thereafter


Total minimum lease payments

$
1,606


At
December 31, 2009 and 2008, the Company had restricted cash of $281,000 in the form of certificates of deposit. The certificates of deposit serve as collateral for standby
letters of credit issued by Silicon Valley Bank on behalf of the Company.

Note 9. Shareholders' Equity

Common Stock Transactions:In 2009, the Company issued 6,955,606 shares of common stock under an equity line of credit arrangement with
Azimuth. See
Note 7 above for further details on the Purchase Agreement and 2009 stock transactions under this arrangement.

In
connection with the Company's 2007 public offering, the Company issued approximately 11,849,000 shares of common stock at a purchase price of $6.33 per share. Net proceeds of the
public offering, after payment of underwriters' discounts and commissions and offering expenses, were approximately $69,946,000.

During
November 2009, the Company issued approximately 63,000 shares of common stock upon the exercise of warrants acquired by it in conjunction with 2006 financing activities. The
exercise was for approximately 214,000 underlying shares of common stock, net of equivalent shares at market to cover the total exercise price. The Company also issued approximately 82,000 shares of
common stock to Silicon Valley Bank upon the exercise of warrants it acquired in connection with the Company's 2006 and 2008 loan facilities as discussed in Note 6 above. The exercise was for
approximately 197,000 underlying shares of common stock, net of equivalent shares at market to cover the total exercise price.

The
Company received net proceeds from the issuance of shares of common stock related to the exercise of employee stock options in each of the years ended December 31, 2009, 2008
and 2007. Refer to Note 10 for further details on option exercises and share-based compensation.

In
2009, the Company issued approximately 88,000 shares of common stock upon the vesting and release of restricted stock units awarded to employees as part of its 2008 Incentive Plan.
Each unit converted to one share of common stock. See Note 10 for further details on share-based compensation.

Preferred Stock Transactions:The Company had approximately 205,000 shares of Series 1 Convertible Exchangeable Preferred Stock
("Series 1 preferred stock") outstanding at December 31, 2009. Holders of the Series 1 preferred stock are entitled to receive an annual cash dividend of $2.4375

73

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9. Shareholders' Equity (Continued)

per
share if declared by the Board, payable semi-annually on June 1 and December 1. Dividends are cumulative. Each share of Series 1 preferred stock is convertible
into 0.19 share of common stock, subject to adjustment in certain events. The Series 1 preferred stock is redeemable at the option of the Company at $25.00 per share. Holders of Series 1
preferred stock have no voting rights, except in limited circumstances. Dividends of $500,000 were paid in each of the years 2009, 2008 and 2007, respectively.

The
Company's board of directors may, without further action by the shareholders, issue preferred stock in one or more series and fix the rights and preferences thereof, including
dividend rights, dividend rates, conversion rates, voting rights, terms of redemption, redemption price or prices, liquidation preferences and the number of shares constituting any series or the
designations of such series.

Warrants:The Company had outstanding warrants to purchase an aggregate of 5,085,000 and 6,060,000 shares of the Company's common stock
as of
December 31, 2009 and 2008, respectively. The weighted average exercise price of warrants outstanding was $4.83 and $5.51 per share for 2009 and 2008, respectively.

The
detail of the warrants outstanding as of December 31, 2009 and 2008 is as follows (in thousands, except exercise price):

Warrants Outstanding at
December 31Issuance
Date

Expiration
Date

Exercise
Price

Exercise
Dates2008

Exercised

Expired

2009Bank loanLenders(1)

9/2008

9/2018


2.00

10/2009


220


110





110
(2)Lenders(1)

10/2006

10/2016


2.00

10/2009


174


87





87
(2)2006 financingInvestors

4/2006

4/2011


4.62

11/2009


4,231


195





4,036
(3)Investors (bridge notes)

2/2006

2/2011


4.62

11/2009


412


19





393
(3)Placement Agent

4/2006

4/2011


4.62




139








139
(3)2005 financingInvestors

3/2005

9/2010


9.54




278








278Placement Agent

3/2005

9/2010


9.54




42








422004 financingInvestors

2/2004

2/2009


11.58




558





558


Placement Agent

2/2004

2/2009


33.24




6





6


6,060


411


564


5,085


(1)The
exercises in 2009 were at the original exercise price of $4.30; the remaining warrants were amended in November 2009 to change the price to $2.00 per
share.(2)See
Note 6 for additional details.(3)Issued
in connection with the bridge notes that were issued as part of the 2006 financing.


74

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Share-based Compensation

As of December 31, 2009, the Company's Amended and Restated 2004 Incentive Compensation Plan (the "2004 Plan") was the only equity compensation plan under which awards were
available for grant. The Company's 1991 Stock Option Plan for Non-Employee Directors (the "Directors Plan") terminated on March 31, 2005, and no further options can be granted under
that plan. The Company's Restated 1994 Stock Option Plan (the "1994 Plan") terminated on February 17, 2004, and no further options can be granted under that plan. Although no Company securities
are available for issuance under the Directors Plan or the 1994 Plan, options granted prior to termination of those plans continue in effect in accordance with their terms.

The
2004 Plan, as amended and restated on June 14, 2007, authorizes the Company's board of directors or a committee appointed by the board of directors to grant share-based awards
for an aggregate 7,634,000 shares of common stock. The 2004 Plan contains an evergreen provision pursuant to which the number of shares available under the plan automatically increase each year,
beginning in 2008, according to certain limits set forth in the plan. The aggregate of 7,634,000 shares reflects an increase of 1,734,000 shares on January 1, 2009, and an increase of 1,733,000
shares on January 1, 2008, pursuant to the operation of the evergreen provision. The 2004 Plan allows for the issuance of incentive stock options, nonqualified stock options, restricted stock
and RSUs to employees, officers, directors, agents, consultants, advisors and independent contractors of the Company, subject to certain restrictions. All option grants expire ten years from the date
of grant, except in the event of earlier termination of employment or service. Option grants to employees with less than one year of service generally become exercisable at a rate of 25% after one
year from the grant date and then in monthly increments at a rate of 1/36th of the remaining balance over the following three years. Option grants to employees with at least one year of service
and employees receiving promotions become exercisable at a rate of 1/48th per month over four years from the grant date.

Share-based
compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee's requisite service period, generally
the vesting period of the equity grant. The Company utilizes the Black-Scholes pricing model to estimate the fair value of each option award granted. The Company recorded expense for share-based
compensation, not including expense for awards granted to non-employee consultants, for the periods presented are as follows (in thousands):

Years Ended December 31,2009

2008

2007Research and development expense

$
2,253

$
1,462

$
1,265General and administrative expense


4,821


5,542


4,149Total

$
7,074

$
7,004

$
5,414


The
share-based compensation expense for the twelve months ended December 31, 2009 includes the grant of stock options during the first quarter of 2009 to a Company officer to
purchase an aggregate 200,000 shares of common stock over a four year vesting period and a grant in the fourth quarter of 2009 to a Company officer for 100,000 RSUs that vest annually over four years,
subject to accelerated vesting based upon the achievement of specific performance goals.

Certain
options that were granted to Company officers during 2006 and 2007 vest 50% in equal monthly installments over four years from the date of grant and vest another 50% on the
seven-year

75

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Share-based Compensation (Continued)

anniversary
of the date of grant, subject to accelerated vesting of up to 25% of such portion of the options, based on the Company's achievement of annual performance goals established under its
annual incentive plan, at the discretion of the equity awards subcommittee of the Company's board of directors. Based on the overall achievement of corporate goals in 2007 and 2008, the equity awards
subcommittee accelerated vesting with respect to 20% of the shares subject to the
seven-year vesting schedule in the second quarter of 2007 and both the first and fourth quarters of 2008. There was no acceleration in 2009, resulting in cumulative accelerated vesting of
60% of the shares subject to the seven-year vesting schedule as of December 31, 2009.

During
2008, the Company awarded 91,974 RSUs under the 2004 Plan to non-officer employees as an incentive for future performance (the "2008 Incentive Plan"). An additional
4,000 RSUs were awarded in 2009 under this incentive program. Upon vesting, each RSU is payable with one share of the Company's common stock. The average fair value of the RSUs was $3.13 per unit, or
approximately $299,000 in total, based upon the closing market price of the Company's common stock on the award dates. The RSUs vest based on the achievement of certain performance milestones
estimated to be achieved during 2009 and 2010. As of December 31, 2009, all three performance milestones had been achieved and 100% of the then outstanding RSUs under the 2008 Incentive Plan,
approximately 88,000, vested and were released. Total share-based compensation expense recognized in 2009 for the 2008 Incentive Plan was $279,000.

On
July 23, 2009 the Company awarded an additional 290,000 RSUs under the 2004 Plan to non-officer employees as an incentive for future performance (the "2009
Incentive and Retention Plan"). The fair value of the RSUs was $7.34 per unit, or approximately $2,132,000 in total, based upon the closing market price of the Company's common stock on the award
date. The RSUs vest based on the achievement of certain performance milestones expected to be achieved during 2010, subject to acceleration under specific conditions defined in the award agreement.
Based on events occurring in the first quarter of 2010 (refer to Note 15 below for details of subsequent events), vesting of approximately 157,000 RSUs awarded under the 2009 Incentive and
Retention Plan was accelerated. The Company determined the expense for these awards on a straight-line basis from grant date through the accelerated vesting date and recognized share-based
compensation expense of $1,582,000 for the 2009 portion.

On
July 11, 2009, a Company director was awarded 170,000 RSUs as compensation for consulting services. The RSUs vest 50% on each of the first two anniversaries of the grant and
are subject to accelerated vesting upon the achievement of a specific performance milestone defined in the agreement. The fair value of the award was approximately $311,000 at December 31,
2009, and will be re-measured at each reporting date as it is accounted for as a non-employee award. As of December 31, 2009, the Company determined that the performance
milestone is probable of being achieved in 2010 and is thus recognizing share-based compensation expense for the fair value of the award on a pro-rata basis through the estimated date of
achievement. Total share-based compensation expense recognized in 2009 for this award was $134,000.

On
October 6, 2009, a Company officer was awarded 100,000 RSUs as incentive compensation. The RSUs vest 25% on each of the first four anniversaries of the grant, subject to
continuous employment, and are subject to accelerated vesting under specific conditions defined in the award agreement. The fair value of the award was $727,000 based upon the closing market price of
the Company's common stock on the award date. As of December 31, 2009, the Company determined that

76

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Share-based Compensation (Continued)

it
is probable that the award would be accelerated per the terms of the agreement and is thus recognizing share-based compensation expense for the award on a pro-rata basis through the
estimated date of vesting. Total share-based compensation expense recognized in 2009 for this award was $157,000.

As
of December 31, 2009, there were approximately 1,292,000 shares of common stock available for issuance as new awards under the 2004 Plan. As of January 1, 2010,
2,104,000 additional shares of common stock became available under the 2004 Plan due to the automatic annual increase under the evergreen provision. Accordingly, as of January 1, 2010, an
aggregate of 3,396,000 shares of common stock were available for issuance as new awards under the 2004 Plan.

During
2008, the Company modified certain stock options which had been granted to an officer of the Company upon his conversion to consultant status effective with his termination of
employment such that any vested options would remain exercisable until the earliest of (a) thirty days after the Company receives approval from the FDA of its NDA for picoplatin,
(b) twenty-four months after termination of service, and (c) the option expiration date (as defined in the 2004 Plan) for the options. As a result of this modification, the
Company incurred expense of $50,000 for the outstanding stock options during the fourth quarter of 2008.

The
Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model.
This fair value is amortized on a straight-line basis over the requisite service periods for the grants, which is generally the vesting period. The remaining unrecognized compensation cost
related to unvested awards at December 31, 2009, was approximately $8,312,000 and the weighted-average period of time over which this cost will be recognized is 2.1 years. The Company
uses historical data, and other related information as appropriate, to estimate the expected price volatility, the expected option life and the expected forfeiture rate. The risk-free rate
is based on the U.S. Treasury yield curve in effect at the time of the grant. The weighted-average fair value per share of the Company's stock options granted to employees was estimated to be $2.68,
$2.20, and $5.83 for the years ended December 31, 2009, 2008 and 2007, respectively, using the Black-Scholes model with the following weighted-average assumptions:

Years Ended
December 31,2009

2008

2007Expected term (in years)


5.9


4.6


6.4Risk-free interest rate


2.32
%

2.26
%

5.03
%Expected stock price volatility


95
%

90
%

101
%Expected dividend rate


0
%

0
%

0
%


77

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Share-based Compensation (Continued)

The
Company issues previously authorized but unissued shares of common stock upon exercise of stock options. A summary of option activity as of December 31, 2009 and changes
during the three years then ended are as follows (shares and intrinsic value in thousands):

Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term
in Years

Aggregate
Intrinsic
ValueOutstanding at December 31, 2006


1,660Granted


3,283

$
5.93Exercised


(6
)

3.66Forefeited/cancelled/expired


(287
)

13.14Outstanding at December 31, 2007


4,650


7.12


8.6

$
1,773Exercisable at December 31, 2007


1,251


9.66


7.2

$
633Granted


1,599


3.27Exercised


(25
)

3.61Forefeited/cancelled/expired


(331
)

6.97Outstanding at December 31, 2008


5,893


6.10


7.9

$
103Exercisable at December 31, 2008


2,583


7.69


6.8

$
Granted


395


3.53Exercised


(202
)

4.06Forefeited/cancelled/expired


(480
)

5.74Outstanding at December 31, 2009


5,606


6.02


7.0

$
33Exercisable at December 31, 2009


3,363

$
7.06


6.4

$
7


Information
relating to stock options outstanding and exercisable at December 31, 2009 is as follows (shares in thousands):

Options Outstanding

Options ExercisableRange of Exercise Prices

Number
of
Shares

Weighted
Average
Remaining
Life in
Years

Weighted
Average
Exercise
Price

Number
of
Shares

Weighted
Average
Exercise
Price$1.72 - $3.66


1,488


7.6

$
2.63


613

$
3.183.72 - 4.70


955


7.6


4.30


436


4.214.80 - 6.48


1,080


6.9


6.01


763


6.016.68 - 7.17


1,032


7.4


6.89


686


6.917.27 - 15.00


958


6.0


9.07


772


9.3115.42 - 109.50


93


1.7


36.88


93


36.885,606


7.0


6.02


3,363


7.06


78

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Share-based Compensation (Continued)

No
income tax benefit has been recorded for share-based compensation expense as the Company has recorded a full valuation allowance and management has concluded it is more likely than
not that the Company's net deferred tax assets will not be realized.

Cash
proceeds and intrinsic value related to total stock options exercised during the years ended December 31, 2009, 2008 and 2007 are provided in the following table (in
thousands):

Years Ended
December 31,2009

2008

2007Proceeds from stock options exercised

$
820

$
91

$
22Intrinsic value of stock options exercised

$
702

$
38

$
6


In
connection with various consulting and service contracts, the Company has granted stock options to non-employees. The fair value of these options is
re-measured quarterly using the Black-Scholes option-pricing model and the total value of the stock options is recognized as expense over the service period. Stock options to purchase
1,000, 40,000 and 44,998 shares of common stock were granted to non-employees during 2009, 2008 and 2007, respectively. The Company recorded compensation expense of $88,000, $119,000 and
$55,000 during 2009, 2008 and 2007, respectively, for non-employee options.

Note 11. Picoplatin License and Amendment

The Company has entered into an exclusive worldwide license, as amended, with Genzyme Corporation (successor to AnorMED, Inc.) for the development and commercial sale of
picoplatin. Under that license, the Company is solely responsible for the development and commercialization of picoplatin. Genzyme retains the right, at the Company's cost, to prosecute its patent
applications and maintain all licensed patents. The parties executed the license agreement in April 2004, at which time the Company paid a one-time up-front payment of
$1,000,000 in common stock and $1,000,000 in cash. The original agreement excluded Japan from the licensed territory and provided for $13,000,000 in development and commercialization milestones,
payable in cash or a combination of cash and common stock, and a royalty rate of up to 15% on product net sales after regulatory approval. The parties amended the license agreement on
September 18, 2006, modifying several key financial terms and expanding the licensed territory to include Japan, thereby providing the Company worldwide rights. In consideration of the
amendment, the Company paid Genzyme $5,000,000 in cash on October 12, 2006 and an additional $5,000,000 in cash on March 30, 2007. The amendment eliminated all development milestone
payments to Genzyme. Genzyme remains entitled to receive up to $5,000,000 in commercialization milestones upon the attainment of certain levels of annual net sales of picoplatin after regulatory
approval. The amendment also reduced the royalty payable to Genzyme to a maximum of 9% of annual net product sales and eliminated the sharing of sublicense revenues with Genzyme.

79

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11. Picoplatin License and Amendment (Continued)

The Company accounted for all payments made in consideration of the picoplatin license, as amended, by capitalizing them as an intangible asset. The Company's capitalization of the total
$12,000,000 of picoplatin license payments is based on the Company's reasonable expectation at the time of acquisition and through the date of the amendment that the intravenous formulation of
picoplatin, as it existed at the time of the acquisition of the picoplatin license and the license amendment, would be used in research and development ("R&D") projects and therefore had alternative
future uses in the treatment of different cancer indications. At the time of acquisition, the Company planned to use intravenous picoplatin in a Phase 2 clinical trial in patients with small
cell lung cancer and reasonably expected that the intravenous formulation could be used in additional, then identifiable R&D projects in the form of clinical trials for other solid tumor cancer
indications, such as prostate and colorectal cancers.

The
Company, at the time of acquisition of the picoplatin license, reasonably anticipated using intravenous picoplatin in clinical trials that could be conducted during the remaining
term of the primary patent, which is active through 2016. The Company concluded that the twelve years remaining for the primary patent term was the appropriate useful life for the picoplatin
intangible asset and is amortizing the initial $2,000,000 license payment over this twelve-year useful life beginning in April 2004. The Company concluded that no change in the
twelve-year useful life of the picoplatin intangible asset occurred as a result of the 2006 license amendment and is, therefore, continuing to amortize the initial $2,000,000 license
payment over the twelve-year useful life and is amortizing the license amendment payment of $10,000,000 over the remainder of the twelve-year useful life of the picoplatin
intangible asset.

The
Company reviews its long-lived assets for possible impairment whenever significant events indicate such impairment may have occurred. In November 2009, the Company
announced that its pivotal Phase 3 SPEAR trial of picoplatin in the second-line treatment of patients with small cell lung cancer did not meet its primary endpoint of overall
survival. The Company considers this event to be a trigger for testing its picoplatin intangible asset for possible impairment; however, upon review of the expected future undiscounted net cash flows
identifiable to the picoplatin license, the Company determined that the picoplatin intangible is recoverable and that no impairment occurred.

Licensed
products consists of the picoplatin amortizable intangible asset with a gross amount of $12,000,000 less accumulated amortization of $4,408,000 and $3,193,000 at
December 31, 2009 and 2008, respectively. The Company recognized amortization expense of $1,215,000 in each of the years ended December 31, 2009, 2008 and 2007. The estimated annual
amortization expense for licensed products is approximately $1,215,000 for each of the years 2010 through 2014.

80

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12. Income Taxes

Temporary differences and carryforwards giving rise to deferred tax assets (liabilities) were as follows (in thousands):

December 31,2009

2008Net operating loss carryforwards

$
45,777

$
38,104Research and experimentation credit carryforwards


2,932


2,030Capitalized research and development


22,771


19,768Stock compensation


4,569


3,362Property and equipment


191


6Other


3,287


1,768Net deferred tax assets


79,527


65,038Deferred tax assets valuation allowance


(79,527
)

(65,038
)Net deferred income taxes

$


$



The
Company has established a valuation allowance equal to the amount of its net deferred tax assets because the Company has not had taxable income since its inception
and significant uncertainty exists regarding the ultimate realization of its deferred tax assets. Accordingly, no tax benefits have been recorded in the accompanying statements of operations. The
valuation allowance increased $14,489,000 in 2009 and increased $17,809,000 in 2008.

The
Company's total tax provision of zero differs from the expected tax benefit calculated as a product of the federal statutory rate of 34% and the book loss by approximately
$15,543,000 primarily due to permanent differences such as meals and entertainment expense, the research and experimentation credit, and stock option adjustments, as well as the change in the
Company's valuation allowance.

In
April 2006, the Company experienced a significant change to its capital structure which resulted in an ownership change, as defined under Section 382 of the Internal Revenue
Code ("IRC"). Consequently, the amount of net operating loss carryforwards and research and experimentation credit carryforwards available to be used in future years are limited under IRC
Sections 382 and 383, respectively ("Section 382/383 limitation"). The preliminary calculation of this limitation, as disclosed in the Company's consolidated financial statements for the
year ended December 31, 2008, resulted in the loss of approximately $93,300,000 (approximately $31,700,000 in tax benefits) of the Company's net operating loss carryforwards. During 2009, the
Company performed an additional analysis of the Section 382 limitation and revised the amount of net operating loss carryforwards that would be lost to approximately $96,900,000 (approximately
$32,900,000 in tax benefits). Accordingly, the deferred tax asset and related valuation allowance associated with these carryforwards were reduced in 2006 initially by approximately $40,800,000 and by
a revised amount of approximately $41,700,000 as of December 31, 2009.

The
preliminary calculation of the Section 383 limitation, which was not revised, resulted in the loss of approximately $9,100,000 of the Company's research and development credit
carryforwards.

At
December 31, 2009, the Company has total net operating loss carryforwards of approximately $134,638,000 for federal taxes (net of the impact of the above referenced change in
ownership under IRC Section 382) and approximately $21,543,000 for state taxes, which expire from 2010 through 2029

81

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12. Income Taxes (Continued)

and
from 2015 through 2029, respectively. Research and experimentation credits expire from 2010 to 2029. Future changes in the Company's ownership could result in additional limitations on the
Company's ability to utilize its remaining net operating loss carryforwards and research and experimentation credit carryforwards.

Approximately
$21,343,000 of the Company's federal net operating loss carryforwards at December 31, 2009, result from deductions associated with the exercise of
non-qualified employee stock options, the realization of which would result in a credit to shareholders' equity.

The
Company accounts for uncertain tax provisions as required under financial accounting rules issued by the FASB. Due to the Company's full valuation allowance against its deferred tax
assets, coupled with the Section 382 limitation on prior years' net operating loss carryforwards (as discussed above),
there are no material unrecognized tax benefits as of December 31, 2009 or December 31, 2008. Furthermore, the Company does not anticipate any significant changes in its unrecognized tax
benefits over the next twelve months.

Historically,
the Company has not incurred any material interest or penalties associated with tax matters and no material interest or penalties were recognized during the years ended
December 31, 2009, 2008 or 2007. The Company has adopted a policy whereby amounts related to interest and penalties associated with tax matters are classified as income tax expense when
incurred. The Company is subject to income taxes in the U.S. federal and various states jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax
laws and regulations and require significant judgment to apply. The Company is no longer subject to tax examinations for years before 2006, except to the extent that it utilizes net operating losses
or tax credit carryforwards that originated before 2006.

Note 13. Restructuring and Asset Impairment

Effective March 31, 2009, the Company implemented a strategic restructuring plan to refocus its cash resources on clinical and commercial development of picoplatin, resulting in
the discontinuation of the Company's preclinical research operations and a reduction of its workforce by approximately 12%, or eight employees. The Company incurred severance charges totaling $296,000
related to the reduction in staff. All severance charges related to the restructuring have been paid as of December 31, 2009. The Company incurred additional charges totaling approximately
$172,000 related to the closure of its lab facilities in South San Francisco, California. Of this amount, $6,000 was incurred as share-based compensation expense, $12,000 was a write-off
of prepaid expenses, and $154,000 was incurred for contract and other termination costs. All outstanding liabilities for contract and termination costs have been paid as of December 31, 2009.

82

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13. Restructuring and Asset Impairment (Continued)

The
following table summarizes the impact of the restructuring charges through December 31, 2009 (in thousands):

Description

Initial
Restructuring
Charge
March 31, 2009

Payment of
Restructuring
Obligations

Accrued
Restructuring
Charge as of
December 31, 2009Employee termination benefits

$
296

$
(296
)
$
Contract termination costs


125


(125
)

Other termination costs


47


(47
)

Subtotal


172


(172
)

Total

$
468

$
(468
)
$



In
conjunction with the decision to discontinue the Company's preclinical research operations, the Company recognized an asset impairment loss of $588,000 on certain facilities and
equipment related to the lab in South San Francisco, California. The loss on the assets was determined based on estimates of potential sales values of used equipment. These impairment charges
established new cost bases for the impaired assets, which are included in assets held for sale and reported in prepaid expenses and other current assets on the accompanying 2009 consolidated balance
sheet. The remaining impaired assets held for sale were sold in January 2010.

The
following table summarizes information related to the impairment charges (in thousands):

So. San Francisco
Lab Equipment &
Leasehold
ImprovementsImpairment Loss

$
588Impaired Carrying Value Upon Restructuring March 31, 2009

$
57Disposals of Assets


(52
)Post Impairment Carrying Value as of December 31, 2009

$
5


Additionally,
at December 31, 2009, the Company recognized an impairment charge of $1,485,000 for its dedicated manufacturing equipment capital lease asset. This impairment
reduced the carrying value of the capital lease asset to zero as of December 31, 2009. See Note 8 for additional details.

83

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14. Employee Benefit Plan

The Company sponsors a 401(k) plan that covers substantially all employees. In its sole discretion, the
Company may make contributions to the plan on a percentage of participants' contributions. The Company made contributions of approximately $22,000, $19,000, and $15,000 for the years ended
December 31, 2009, 2008 and 2007, respectively. The Company has no other post-employment or post-retirement benefit plans.

Note 15. Subsequent Events

On January 29, 2010, the Company approved a restructuring plan to conserve its capital resources, resulting in a reduction in the Company's workforce by approximately 57% to 22
employees, effective February 5, 2010. The Company currently estimates that it will incur total restructuring charges of approximately $1,200,000, primarily consisting of one-time
employee termination benefits. All of the restructuring charges, except for related $174,000 share-based compensation expense, will result in future cash expenditures. The Company also recognized a
$62,000 charge for impaired assets in connection with the restructuring. As a consequence of the restructuring, vesting was accelerated for approximately 130,000 RSUs issued under the 2009 Incentive
and Retention Plan for the terminated employees in accordance with the original terms of the underlying RSU agreements. These RSUs were converted to common stock on a
one-for-one basis in February 2010.

On
February 23, 2010, the Company entered into an equity line of credit facility with Commerce Court. The facility provides that, upon the terms and subject to the conditions
therein, Commerce Court is committed to purchase up to $20,000,000 worth of shares of the Company's registered common stock over approximately 18 months; provided, however, that in no event may
the Company issue more than 8,423,431 shares of common stock, which is equal to one share less than 20% of the Company's outstanding common shares on the closing date of the facility, less 121,183
shares issued to Commerce Court as a commitment fee. The purchase price of the shares will be equal to the daily volume weighted average price over eight consecutive trading days or such other draw
down period mutually agreed upon by the parties, less a discount ranging from 3.125% to 5.0%, based on the trading price of the Company's common stock. In addition, Commerce Court may not at any time
acquire shares if, after giving effect to such purchase, Commerce Court would beneficially own 9.9% or more of the Company's outstanding common stock. Commerce Court is not obligated to purchase
shares at prices below $1.00 per share. On March 15, 2010, the Company completed a draw down and sale of 4,229,000 shares of its common stock, at a price of approximately $1.49 per
share, to Commerce Court
under the equity line of credit facility. Net proceeds of approximately $6,154,000 were received, after deducting estimated offering expenses of approximately $166,000.

84

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 16. Condensed Quarterly Financial Data (Unaudited)

The following table presents summarized unaudited quarterly financial data (in thousands, except per share data):

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter2009Operating expenses

$
12,244

$
9,088

$
9,198

$
12,448Net loss


(12,950
)

(9,720
)

(9,877
)

(13,168
)Net loss applicable to common shares


(13,075
)

(9,845
)

(10,002
)

(13,293
)Net loss per common share:Basic


(0.38
)

(0.28
)

(0.29
)

(0.36
)Diluted


(0.38
)

(0.28
)

(0.29
)

(0.36
)2008Operating expenses

$
10,519

$
12,874

$
12,407

$
13,357Net loss


(9,855
)

(12,531
)

(12,237
)

(13,942
)Net loss applicable to common shares


(9,980
)

(12,656
)

(12,362
)

(14,067
)Net loss per common share:Basic


(0.29
)

(0.36
)

(0.36
)

(0.41
)Diluted


(0.29
)

(0.36
)

(0.36
)

(0.41
)


Note:
Net loss per common share, basic and diluted, may not add to net loss per common share for the year due to rounding.

85

---





Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On
May 22, 2009, the Board of Directors of the Company, based on its Audit Committee's recommendation, dismissed KPMG LLP ("KPMG") as the
Company's independent registered public accountants and approved the engagement of Ernst & Young LLP ("E&Y") to serve as the Company's independent registered public accountants for the
fiscal year 2009.

The
audit reports of KPMG on the consolidated financial statements of the Company for the years ended December 31, 2008 and 2007 did not contain an adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle, except for KPMG's report dated March 16, 2009, which contained an explanatory paragraph
that cited certain conditions that raised substantial doubt about the Company's ability to continue as a going concern. The audit reports of KPMG on the effectiveness of internal control over
financial reporting as of December 31, 2008 and 2007 did not contain any adverse opinion or disclaimer of opinion nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles.

During
the Company's fiscal years ended December 31, 2008 and 2007 and the subsequent interim period through May 22, 2009, there were no disagreements with KPMG on any
matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to KPMG's satisfaction, would have caused KPMG to make
reference to the subject matter of such disagreements in connection with its reports on the Company's consolidated financial statements for such years.

There
were no "reportable events," as defined in Item 304(a)(1)(v) of Regulation S-K, during the Company's fiscal years ended December 31, 2008 and 2007
and the subsequent interim period through May 22, 2009.

The
Company provided KPMG with a copy of the above disclosures prior to its filing with the Securities and Exchange Commission ("SEC") and requested KPMG to furnish the Company with a
letter addressed to the SEC stating whether or not KPMG agrees with the above statements. A copy of KPMG's letter dated May 26, 2009 was furnished to the SEC as an exhibit to our
8-K filed on filed on May 26, 2009.

During
the Company's fiscal years ended December 31, 2008 and 2007 and the subsequent interim period through May 22, 2009, neither the Company nor anyone on its behalf
consulted E&Y regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the
Company's financial statements, and no written report or oral advice of E&Y was provided to the Company that E&Y concluded was an important factor considered by the Company in reaching a decision as
to an accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement or reportable event as defined in Regulation S-K,
Item 304(a)(1)(iv) and Item 304(a)(1)(v), respectively.

Item 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934, as amended) that are designed to ensure that material information relating to the Company is made known to the officers who certify the Company's financial reports and to other members of
senior management and the Board of Directors and, further, to ensure that information required to be disclosed in the Company's reports that are filed or submitted under the Exchange Act, are
recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by the

86

---



Company
in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's principal executive and principal financial
officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Under
the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the Company has evaluated the effectiveness and
design of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of December 31, 2009. Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that these disclosure controls and procedures were effective as of December 31, 2009.

Management's Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company and for
the assessment of the effectiveness of internal control over financial reporting. The Company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of
America. The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the Company's assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the United States of America, and that the Company's receipts and expenditures are being made only in accordance with
authorizations of the Company's management and directors; and (iii) provide reasonable assurance
regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management
conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework in Internal Control Integrated Framework issued
by the Committee Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company's internal control over financial reporting was effective as of
December 31, 2009. The Company's internal control over financial reporting as of December 31, 2009 has been audited by Ernst & Young LLP, a registered independent public
accounting firm, as stated in its report set forth herein.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company's internal control over financial reporting that occurred during the Company's fourth fiscal
quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

87

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Report of Independent Registered Public Accounting Firm

The
Board of Directors and Shareholders of Poniard Pharmaceuticals, Inc.

We
have audited Poniard Pharmaceuticals, Inc.'s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Poniard Pharmaceuticals, Inc.'s management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

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

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

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, Poniard Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on
the COSO criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Poniard
Pharmaceuticals, Inc. as of December 31, 2009, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year ended December 31, 2009 and
our report dated March 16, 2010 expressed an unqualified opinion thereon.

/s/
Ernst & Young LLP

Palo
Alto, California
March 16, 2010

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Item 9B.    OTHER INFORMATION

Not Applicable.

PART III

Item 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

(a)Directors.The information required by this item is incorporated herein by reference to the sections
captioned "Election of Directors" and "Board of Directors and Corporate Governance" in the
Company's definitive Proxy Statement for the 2010 Annual Meeting of Shareholders, to be filed with the Commission not later than 120 days after December 31, 2009.

(b)Executive Officers.The information concerning our executive officers is set forth in Item 1 of this
report under the heading "Our Executive Officers."

(c)Compliance with Section 16(a) of the Exchange Act.The information required by this item is
incorporated herein by reference to the section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement for the 2010 Annual Meeting of
Shareholders, to be filed with the Commission not later than 120 days after December 31, 2009.

(d)Code of Ethics.The information required by this item is incorporated herein by reference to the section
captioned "Board of Directors and Corporate Governance" in the Company's definitive Proxy Statement for the 2010 Annual Meeting of Shareholders, to be filed with the Commission not later than
120 days after December 31, 2009.

(e)Audit Committee.The information required by this item is incorporated herein by reference to the section
captioned "Board of Directors and Corporate Governance" in the Company's definitive Proxy Statement for the 2010 Annual Meeting of Shareholders, to be filed with the Commission not later than
120 days after December 31, 2009.

ITEM 11.    EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the sections captioned "Executive Compensation" and "Board
of Directors and Corporate GovernanceCompensation Committee Interlocks and Insider Participation" in the Company's definitive Proxy Statement for the 2010 Annual Meeting of Shareholders,
to be filed with the Commission not later than 120 days after December 31, 2009.

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

Equity Compensation Plan Information

The following table presents information as of December 31, 2009 with respect to the Company's compensation plans, including
individual compensation arrangements, under which equity securities of

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the
Company are authorized for issuance to employees and non-employees of the Company, such as directors, lenders, consultants, and advisors:

Plan Category

(a)
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights(3)

(b)
Weighted-
Average
Exercise Price
of Outstanding
Options,
Warrants and
Rights(4)

(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (excluding
securities reflected
in column (a))(5)Equity Compensation PlansApproved by Security Holders(1)


6,167,207

$
6.02


1,291,633Equity Compensation PlansNot Approved by Security Holders(2)


5,085,196

$
4.83


Total


11,252,403

$
5.45


1,291,633


(1)Includes
the Company's 1991 Stock Option Plan for Non-Employee Directors (Directors Plan), the Restated 1994 Stock Option Plan (1994 Plan) and
the Amended and Restated 2004 Incentive Compensation Plan (2004 Plan). The Directors Plan was terminated on March 31, 2005 and the 1994 Plan was terminated on February 17, 2004.
Accordingly, no further awards can be issued under the Directors and 1994 Plans. For a description of the 2004 Plan, see Note 10 to the notes to the consolidated financial statements in
Item 8 of this report.(2)Reflects
a warrant issued for placement agent services in connection with our 2006 equity financing and warrants issued to financial institutions
participating in our term loan facility. For a description of these warrants, see Note 9 to the notes to the consolidated financial statements in Item 8 of this report.(3)Includes
561,044 shares subject to outstanding restricted stock unit awards granted under the 2004 Plan.(4)The
weighted-average exercise price does not include the common shares subject to outstanding restricted stock unit awards which have no exercise price. If
the restricted stock unit awards were included, the weighted-average exercise price would be $5.47 per share and the total weighted-average exercise price would be $5.18 per share.(5)All
common shares remaining available for issuance under equity compensation plans are issuable under our 2004 Plan. The 2004 Plan contains an evergreen
provision, pursuant to which the number of common shares available under the plan will automatically increase on the first day of each of the Company's fiscal years beginning in 2008. The number of
additional common shares made available each year is equal to the lesser of (i) 3,000,000 common shares, (ii) 5% of the outstanding shares of common stock as of the end of the Company's
immediately preceding fiscal year, (iii) any lesser number of common shares determined by the Company's board of directors, or (iv) a number of common shares that, when added to the sum
of (x) the number of common shares subject to outstanding awards under the 2004 Plan as of the end of the Company's immediately preceding fiscal year (other than awards not subject to vesting
or forfeiture conditions) and (y) the number of common shares that could be made subject to outstanding awards as of the end of the Company's immediately preceding fiscal year, does not exceed
20% of the outstanding shares of common stock on a fully diluted basis as of the end of the Company's immediately preceding fiscal year. Any additional common shares made available under the evergreen
provision shall continue to be available for issuance under the 2004 Plan for subsequent years. Giving effect to the evergreen provision of the 2004 Plan, as of January 1, 2010, the aggregate
number of common shares available for issuance as new awards was 3,395,606 shares.


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Other
information required by this item is incorporated herein by reference to the section captioned "Security Ownership of Certain Beneficial Owners and Management" in the Company's
definitive Proxy Statement for the 2010 Annual Meeting of Shareholders, to be filed with the Commission not later than 120 days after December 31, 2009.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the sections captioned "Certain Relationships and Related
Transactions with Management" and "Board of Directors and Corporate Governance" in the Company's definitive Proxy Statement for the 2010 Annual Meeting of Shareholders, to be filed with the Commission
not later than 120 days after December 31, 2009.

Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference to the sections captioned "Independent Registered Public
Accounting Firm" and "Ratification of Appointment of Independent Registered Public Accounting Firm" in the Company's definitive Proxy Statement for the 2010 Annual Meeting of Shareholders, to be filed
with the Commission not later than 120 days after December 31, 2009.

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PART IV

Item 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES



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SIGNATURES

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

PONIARD PHARMACEUTICALS, INC.
(Registrant)/s/ GREGORY L. WEAVER Gregory L. Weaver Chief Financial Officer and
Senior Vice President, Finance


Date:
March 16, 2010

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

/s/ RONALD A. MARTELL Ronald A. Martell

Director and Chief Executive Officer

March 16, 2010/s/ GERALD MCMAHON Gerald McMahon

Director (Chairman of the Board)

March 16, 2010/s/ ROBERT S. BASSO Robert S. Basso

Director

March 16, 2010/s/ FRED B. CRAVES Fred B. Craves

Director

March 16, 2010/s/ E. ROLLAND DICKSON E. Rolland Dickson

Director

March 16, 2010/s/ CARL S. GOLDFISCHER Carl S. Goldfischer

Director

March 16, 2010/s/ ROBERT M. LITTAUER Robert M. Littauer

Director

March 16, 2010


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/s/ GARY A. LYONS Gary A. Lyons

Director

March 16, 2010/s/ DAVID R. STEVENS David R. Stevens

Director

March 16, 2010/s/ NICHOLAS J. SIMON III Nicholas J. Simon III

Director

March 16, 2010/s/ GREGORY L. WEAVER Gregory L. Weaver

Chief Financial Officer and Senior Vice President, Finance

March 16, 2010/s/ MICHAEL K. JACKSON Michael K. Jackson

Principal Accounting Officer

March 16, 2010


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EXHIBIT INDEX**

Exhibit

Description3.1

Amended and Restated Articles of Incorporation, as amended February 7, 2007

(N)3.2

Restated Bylaws, as amended June 23, 2009

(C)10.1

1991 Stock Option Plan for Non-Employee Directors, as amended()

(E)10.2

Restated 1994 Stock Option Plan()

(F)10.3

Stock Option Grant Program for Nonemployee Directors under the NeoRx Corporation 1994 Restated Stock Option Plan()

(M)10.4

2004 Incentive Compensation Plan, as amended and restated June 14, 2007()

(B)10.5

Stock Option Grant Program for Nonemployee Directors under the 2004 Incentive Compensation Plan, as amended June 14, 2007()

(X)10.6

Form of Non-Qualified Stock Option Agreement under 2004 Incentive Compensation Plan, as amended June 14, 2007()

(D)10.7

Form of Incentive Stock Option Agreement under 2004 Incentive Compensation Plan()

(O)10.8

Non-Qualified Stock Option Agreement, dated December 19, 2000, between NeoRx Corporation and Carl S. Goldfischer()

(I)10.9

Non-Qualified Stock Option Agreement, dated January 17, 2001, between NeoRx Corporation and Carl S. Goldfischer()

(I)10.10

License Agreement dated as of April 2, 2004, between the Company and AnorMED, Inc. Certain portions of the agreement have been omitted pursuant to a request for confidential treatment

(Q)10.11

Amendment No. 1 to License Agreement effective as of September 18, 2006, between the Company and AnorMED, Inc. Certain portions of the agreement have been omitted pursuant to a request for confidential
treatment

(Y)10.12

Facilities Lease dated February 15, 2002, between NeoRx Corporation and Selig Real Estate Holdings Six

(A)10.13

Amendment to Lease dated November 21, 2008, between the Company and Selig Holdings Company, LLC

(S)10.14

Change of Control Agreement dated as of February 5, 2010, between the Company and Michael S. Perry()

(L)10.15

Key Executive Severance Agreement dated as of February 5, 2010, between the Company and Michael S. Perry()

(L)10.16

Amended and Restated Key Executive Severance Agreement dated as of February 24, 2009, between the Company and Gerald McMahon()

(V)10.17

Amended and Restated Key Executive Severance Agreement dated as of February 24, 2009, between the Company and Ronald A. Martell()

(V)10.18

Amended and Restated Change of Control Agreement dated as of February 24, 2009, between the Company and Ronald A. Martell()

(V)


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Exhibit

Description10.19

Amendment No. 1 dated as of February 5, 2010, to Amended and Restated Key Executive Severance Agreement dated as of February 24, 2009, between the Company and Ronald A. Martell()

(L)10.20

Amendment No. 1 dated as of February 5, 2010, to Amended and Restated Change of Control Agreement dated as of February 24, 2009, between the Company and Ronald A. Martell()

(L)10.21

Restricted Stock Unit Award Notice and Restricted Stock Award Agreement, dated October 6, 2009,with Ronald A Martell()

(Z)10.22

Amended and Restated Key Executive Severance Agreement dated as of February 24, 2009, between the Company and Robert De Jager()

(V)10.23

Consulting Agreement dated as of February 6, 2010, between the Company and Robert De Jager, M.D.()

(L)10.24

Amended and Restated Key Executive Severance Agreement dated as of February 18, 2009, between the Company and Gregory L. Weaver()

(V)10.25

Amended and Restated Change of Control Agreement dated as of February 18, 2009, between the Company and Gregory L. Weaver()

(V)10.26

Letter Agreement dated as of February 3, 2009, between the Company and Gregory L. Weaver()

(V)10.27

Amended and Restated Key Executive Severance Agreement dated as of February 24, 2009, between the Company and Cheni Kwok()

(V)10.28

Amended and Restated Change of Control Agreement dated as of February 24, 2009, between the Company and Cheni Kwok()

(V)10.29

Amended and Restated Key Executive Severance Agreement dated as of February 24, 2009, between the Company and Anna Wight()

(V)10.30

Amended and Restated Change of Control Agreement dated as of February 24, 2009, between the Company and Anna Wight()

(V)10.31

Amended and Restated Key Executive Severance Agreement dated as of February 24, 2009, between the Company and Janet Rea()

(V)10.32

Amended and Restated Change of Control Agreement dated as of February 24, 2009, between the Company and Janet Rea()

(V)10.33

Amended and Restated Key Executive Severance Agreement dated as of February 24, 2009, between the Company and Michael K. Jackson()

(V)10.34

Form of Directors' Indemnification Agreements()

(K)10.35

Lease Agreement dated as of July 10, 2006, between the Company and ARE San Francisco No. 17 LLC

(W)10.36

Sublease Agreement dated as of February 10, 2010, between the Company and Veracyte, Inc., including Consent to Sublease dated as of February 10, 2010, by ARE-San Francisco No. 17 LLC, the
Company and Veracyte, Inc.

(R)10.37

Amended and Restated Loan and Security Agreement dated as of September 2, 2008, by and among the Company, GE Business Financial Services Inc. and Silicon Valley Bank

(J)


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Exhibit

Description10.38

Commercial Picoplatin Active Pharmaceutical Ingredient Manufacturing Agreement between the Company and W.C. Heraeus GmbH, dated as of March 24, 2008. Certain portions of the agreement have been omitted pursuant
to a request for confidential treatment.

(J)10.39

Separation/Consulting Agreement and General Release, dated as of November 21, 2008, by and between David A. Karlin and the Company()

(S)10.40

Commercial Supply Agreement between the Company and Baxter Oncology GmbH, dated as of November 22, 2008. Certain portions of the agreement have been omitted pursuant to a request for confidential
treatment.

(V)10.41

Consulting Agreement dated as of April 1, 2009, between the Company and Gary A. Lyons, as amended by Amendment One to Consulting Agreement effective July 11, 2009()

(G)10.42

Restricted Stock Unit Award Notice and Restricted Stock Award Agreement, dated July 1, 2009, with Gary A. Lyons()

(G)10.43

Poniard Pharmaceuticals, Inc. Management Incentive Plan, as amended February 17, 2010()

(U)10.44

Common Stock Purchase Agreement dated as of February 23, 2010, by and between the Company and Commerce Court Small Cap Value Fund, Ltd.

(P)23.1

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm

(Z)23.2

Consent of KPMG LLP, Independent Registered Public Accounting Firm

(Z)31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

(Z)31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

(Z)32.1

Section 1350 Certification of Chief Executive Officer

(Z)32.2

Section 1350 Certification of Chief Financial Officer

(Z)


()Management
contract or compensatory plan(A)Filed
as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 2001, and incorporated herein by reference.(B)Incorporated
by reference to Annex A of the Company's definitive proxy statement on Schedule 14A filed May 8, 2007.(C)Filed
as an exhibit to the Company's Current Report on Form 8-K filed on June 25, 2009, and incorporated herein by reference.(D)Filed
as an exhibit to the Company's Form 10-Q for the quarterly period ended June 30, 2007, and incorporated herein by reference.(E)Incorporated
by reference to Exhibit A to the Company's definitive proxy statement on Schedule 14A filed April 10, 1996.(F)Filed
as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference.(G)Filed
as an exhibit to the Company's Current Report on Form 8-K filed on July 13, 2009, and incorporated herein by reference.


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(H)Reserved.(I)Filed
as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 2000, and incorporated herein by reference.(J)Filed
as an exhibit to the Company's Current Report on Form 8-K filed on September 6, 2008, and incorporated herein by reference.(K)Filed
as an exhibit to the Company's Current Reports on Form 8-K filed on April 28, 2006, June 27, 2006. May 9, 2007
and July, 13, 2009, and incorporated herein by reference.(L)Filed
as an exhibit to the Company's Current Report on Form 8-K filed on February 11 2010, and incorporated herein by reference.(M)Filed
as an exhibit to the Company's Form 10-Q for the quarterly period ended June 30, 2002, and incorporated herein by reference.(N)Filed
as an exhibit to the Company's Current Report on Form 8-K filed on February 8, 2007, and incorporated herein by reference.(O)Filed
as an exhibit to the Company's Form 10-Q for the quarterly period ended September 30, 2004, and incorporated herein by
reference.(P)Filed
as an exhibit to the Company's Report on Form 8-K filed on February 23, 2010, and incorporated herein by reference.(Q)Filed
as an exhibit to the Company's Form 10-Q for the quarterly period ended March 31, 2004, and incorporated herein by
reference.(R)Filed
as an exhibit to the Company's Current Report on Form 8-K filed February 18, 2010, and incorporated herein by reference.(S)Filed
as an exhibit to the Company's Current Report on Form 8-K filed November 26, 2008, and incorporated herein by reference.(T)Reserved.(U)Filed
as an exhibit to the Company's Report on Form 8-K filed on February 19, 2010, and incorporated herein by reference.(V)Filed
as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 2009, and incorporated herein by reference.(W)Filed
as an exhibit to the Company's Current Report Form 8-K filed on July 13, 2006 and incorporated herein by reference.(X)Filed
as an exhibit to the Company's Form 10-Q for the quarterly period ended September 30, 2007 and incorporated herein by
reference.(Y)Filed
as an exhibit to the Company's Form 10-Q for the quarterly period ended September 30, 2006 and incorporated herein by
reference.(Z)Filed
herewith.**In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember that they are
included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The
agreements contain representations and warranties of each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to
the applicable agreements and


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should not be treated as categorical statements of fact, but rather as a way of allocating risk to
one of the parties if those statements prove to be inaccurate;have been qualified by disclosures that were made to the other party in connection with the
negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;may apply standards of materiality in a way that is different from what may be viewed as material
to you and other investors; andwere made only as of the date of the applicable agreement or such other date or dates as may be
specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs of as of the date they were made or any other time. Additional information about
the Company may be found elsewhere in this Form 10-K and the Company's other public filings which are available without charge through the SEC's website at http://www.sec.gov. See
"Where You Can Find Other Information."


99

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