**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

----

**FORM 10-K/A**

**(Amendment No. 1)**

**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIESEXCHANGE ACT OF 1934**

**For the fiscal year ended December 31, 2006**

**Commission File No. 0-16614**

**PONIARD PHARMACEUTICALS, INC.**

**(Exact name of Registrant as specified in its charter)**

| **Washington**                  |   | **91-1261311**                    |
|---------------------------------|--------|-----------------------------------|
| (State or other jurisdiction of |   | (IRS Employer Identification No.) |
| incorporation or organization)  |   |                              |

 

**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 theAct:

|                                    | **Title of Class** | ** **                       |   | ** ** | **Name of Exchange** | ** ** |
|------------------------------------|--------------------|----------------------------------|--------|------------|----------------------|------------|
| **Common Stock, $0.02  par value** |               | **The Nasdaq Stock  Market LLC** |

 

Securities registered pursuant to Section 12(g) of theAct:

**$2.4375 Convertible Exchangeable Preferred Stock, Series 1,$.02 par value**

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

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

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

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

Indicate by check mark whether theregistrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and large acceleratedfiler” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o         Acceleratedfiler x         Non-acceleratedfiler o

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

The aggregate market value of the voting and non-voting commonequity held by nonaffiliates of the registrant was approximately $77.2 millionas of June 30, 2006, based on a per share closing price of $0.97 on TheNasdaq Capital Market on that date.

As of April 11, 2007, 22,808,233shares of the Registrant’s Common Stock, $.02 par value per share, wereoutstanding.

 

----

**Poniard Pharmaceuticals, Inc.**

**2006 FORM 10-K/A**

**TABLEOF CONTENTS**

| **PART III** | ** ** | ** **                                                                                      |
|-------------------|------------|-------------------------------------------------------------------------------------------------|
| Item 10.          |       | Directors, Executive Officers and Corporate Governance  of the Registrant                       |   | 3 |
| Item 11.          |       | Executive Compensation                                                                          |   | 8 |
| Item 12.          |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters |   | 25 |
| Item 13.          |       | Certain Relationships and Related Transactions and  Director Independence                       |   | 29 |
| Item 14.          |       | Principal Accountant Fees and Services                                                          |   | 30 |
| **PART IV**  |       |                                                                                            |
| Item 15.          |       | Exhibits and Financial Statement Schedules                                                      |   | 30 |
| Signatures        |       | 31                                                                                              |

 

**EXPLANATORY NOTE**

*The terms “us,” “we,”“our” and “the Company” refer to Poniard Pharmaceuticals, Inc. and itssubsidiary.*

We are filing this Amendment No. 1 to our Form 10-Kfor the fiscal year ended December 31, 2006 (the “Form 10-K”),originally filed with the Securities and Exchange Commission on March 16,2007, for the sole purpose of providing the information required by Part IIIof Form 10-K. We are also updating the signature page, the Exhibit Indexreferenced in Item 15 of Part IV, and Exhibits 31.1 and 31.2.

Pursuant to Rule 12b-15 under theSecurities Exchange Act of 1934, as amended, the complete text of each of Items10, 11, 12, 13 and 14 of Part III and Item 15 of Item IV, as amended, isset forth below. This Amendment No. 1 speaks as of the original filingdate of the Form 10-K and reflects only the changes to Part IIIand Part IV discussed above. No other information included in the Form 10-K,including the information set forth in Part I, Part II, our financialstatements and the footnotes thereto, has been modified or updated in any way.

ii

----

**PART III**

***Item 10.****                   DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANT*

**Directors**

Eight directors currently serve on our board ofdirectors. These directors each serve one-year terms that will expire at our2007 annual meeting of shareholders to be held on June 14, 2007, oruntil their successors have been elected and qualified. The record date for ourannual meeting is April 9, 2007, and we will, prior to the annual meeting,file with the Securities and Exchange Commission, or SEC, and deliver to eachshareholder of record a proxy statement with respect to the election ofdirectors and other matters to be acted upon at the 2007 annual meeting ofshareholders. Each of the board members named below currently is expected tostand as a nominee for reelection as a director at our 2007 annual meeting. *Shareholders are advised to read our proxy statement and any otherrelevant information filed with the SEC when they become available because theywill contain important information.*

In connection with our $65.0 million equity financing,which closed on April 26, 2006, we entered into an agreement to use ourbest efforts to cause one person designated by MPM Capital Management, or MPM,and one person designated by mutual agreement of MPM and Bay City CapitalManagement IV LLC, or Bay City Management, the lead investors in the financing,to be nominated and elected to our board of directors. Mr. Simon wasnominated and elected to the board upon the recommendation of MPM, whichrecommendation was independently evaluated, approved and recommended to theboard by our nominating and corporate governance committee based on thecriteria described under the heading “Director Nominations and Qualifications”below. MPM and Bay City Management have not recommended a second designee. Twocurrent directors, Drs. Craves and Goldfischer, are managing members of BayCity Capital LLC, an affiliate of Bay City Management.

GERALD McMAHON, PhD, age 52, was appointed ourChief Executive Officer in May 2004, Chairman of the Board of Directors inJune 2004, and President in June 2005. Dr. McMahon was Presidentof SUGEN Inc., a biopharmaceutical company focused on the discovery anddevelopment of novel targeted small-molecule drugs, from March 2002 to January 2004.Prior thereto, he held a number of research and development managementpositions at SUGEN and played a key role in the discovery and development ofseveral innovative cancer products, including SUTENT®, a multi-targeted proteinkinase inhibitor for the treatment of advanced cancers recently launched byPfizer, Inc. SUGEN, which Dr. McMahon joined in 1993, was acquired byPharmacia Corp. in 1999, which subsequently was acquired by Pfizer in 2003. Priorto his role at SUGEN, Dr. McMahon held several research and developmentmanagement positions at Sandoz Pharmaceuticals (now Novartis), where hisresponsibilities included the establishment of external collaborations and thedevelopment of corporate alliances within the United States and Europe. Dr. McMahonhas contributed to more than 100 scientific publications and was a StaffScientist and Principal Investigator at the Massachusetts Institute ofTechnology and Tufts University School of Medicine early in his career. Dr. McMahoncurrently is a director of Trellis Bioscience, Inc., a development stagebiotechnology company. Dr. McMahon holds a BS degree in biology and a PhDin biochemistry from Rensselaer Polytechnic Institute.

FREDERICK B. CRAVES, PhD,age 61, has been a director since July 1993. Dr. Craves was Vice Chairman ofthe Board of Directors from March 2003 to May 2004, and served asChairman of the Board from July 1993 to March 2003. In June 1997,Dr. Craves co-founded Bay City Capital LLC, or BCC, a merchant bankproviding advisory services and investing in life sciences companies, and hasserved as a Managing Director of BCC since its inception. Dr. Craves alsofounded two additional investment companies, The Craves Group LLC (in 1996) andBurrill & Craves (in 1994). He was the founding Chairman of the Boardand Chief Executive Officer of Codon Corp. and the co-founder of CreativeBiomolecules, Inc., both biotech companies. Currently, Dr. Craves isChairman of the Board of BCC, and 

3

----

adirector of VIA Pharmaceuticals, Inc. and Reliant PharmaceuticalsCorporation, both development stage biotechnology companies. Dr. Cravesholds a PhD in pharmacology and experimental toxicology from the University ofCalifornia, San Francisco.

E. ROLLAND DICKSON, MD, age 73, has been a directorsince May 1998. In December 2003, Dr. Dickson retired as theMary Lowell Leary Professor of Medicine at the Mayo Medical School and asDirector of Development at the Mayo Foundation for Medical Education andResearch, positions which he had held since 1993. Dr. Dickson continues tohold Emeritus titles for each of these positions. In 1999, Dr. Dickson wasappointed to the Board of Trustees of the Mayo Foundation. Dr. Dickson isa director of Axcan Pharma, Inc., a publicly owned biotechnology company,and Pathways Diagnostic Corporation, a development stage biotechnology company,and is a member of the scientific advisory committees of Baxter Internationaland BCC. Dr. Dickson received his MS degree from the University ofMinnesota and his MD degree from The Ohio State University.

CARL S. GOLDFISCHER, MD, age 48, has been a directorsince March 2000. He has been Managing Director of BCC since July 2001and serves on its Board of Directors and Executive Committee. He joined BCC asan Executive-in-Residence in January 2001. Dr. Goldfischer was theVice President, Finance and Chief Financial Officer of ImClone Systems, Inc.from May 1996 to July 2000. Dr. Goldfischer is Chairman of theBoard of Diametrics Medical, Inc., a publicly owned medical apparatuscompany, and a director of Etex Corporation, Avera Pharmaceuticals, Inc.,EnteroMedics, Inc., PTC Therapeutics, Inc., MAP Pharmaceuticals, Inc.and Metabolex, Inc., all development stage biotechnology companies. He isa member of the Board of Trustees of Sarah Lawrence College. Dr. Goldfischerreceived his MD degree from Albert Einstein College of Medicine in 1988, andserved as a resident in radiation oncology at Montefiore Hospital of the AlbertEinstein College of Medicine until 1991.

ROBERT M. LITTAUER, age 58, has been a director since May 2004.Mr. Littauer has over 30 years experience in the medical technology, hightechnology and biotechnology industries. From June 1987 to September 1996,he served the company in various management positions, including Senior VicePresident, Chief Financial Officer and Treasurer. Mr. Littauer has beenChief Financial Officer of Light Sciences Oncology, Inc., an early-stagebiotechnology company, since October 2005. He has been a Partner of TatumPartners, a professional services firm, since September 2003. Mr. Littauerwas Chief Executive Officer of Kaleidos Pharma, Inc., an early-stagebiotechnology company, from August 2002 to December 2005. Previously,he served as Vice President and Chief Financial Officer of Detto Technologies, Inc.,a software developer, from June 2001 to July 2002. He was ChiefExecutive Officer from January 2001 to April 2001, and Vice Presidentand Chief Financial Officer from October 2000 to May 2001, ofPlymedia, Inc., a developer of digital imaging technology. Prior to that,he held Chief Financial Officer and senior executive positions at Avenue A, Inc.(now aQuantive, Inc.), an internet media company, and at OstexInternational, Inc., a medical diagnostics company. Mr. Littauerreceived his MBA degree and his BS degree in industrial engineering andoperations research from Cornell University.

RONALD A. MARTELL, age, 44, has been a director sinceJune 2006. Mr. Martell served as Senior Vice President, CommercialOperation of Imclone Systems Incorporated from January 2004 to August 2006.While at ImClone, Mr. Martell was responsible for overseeing the company’ssales, marketing, project and alliance management. Mr. Martell joinedImClone in November 1998 as Vice President, Marketing. From 1988 to 1998,he served in a variety of positions at Genentech, Inc., most recently asGroup Manager, Oncology Products.

NICHOLAS J. SIMON III, age 53, has been a directorsince April 2006. Mr. Simon has been a Managing Director of ClarusVentures, LLC, a life sciences focused venture capital firm that he co-foundedin 2005. He has served as a general partner of MPM BioVentures III since October 2001.Mr. Simon has more than 26 years of industry and investment experience inbiotechnology. From 2000 to July 2001, he was Chief Executive Officer,founder and a director of Collabra Pharma, Inc., a 

4

----

pharmaceutical developmentcompany. From 1989 to March 2000, Mr. Simon served in variousmanagement positions at Genentech, Inc., including Vice President ofBusiness and Corporate Development. Mr. Simon currently serves on theboard of directors of Barrier Therapeutics, Inc., a public biotechnologycompany. In addition, he is a director of ARYx Therapeutics, Inc., NeoSilIncorporated, QuatRx Pharmaceuticals Co., Verus Pharmaceuticals, Inc. andSienta, Inc., which are private biotechnology companies. He also is on theadvisory council at the Gladstone Institute, a private not-for-profit researchinstitute affiliated with the University of California, San Francisco. Mr. Simonreceived a BS degree in microbiology from the University of Maryland and an MBAin marketing from Loyola University.

DAVID R. STEVENS, PhD,age 58, has been a director since May 2004. Dr. Stevens hasparticipated in the pharmaceutical and biotechnology industries since 1978. Heis currently executive chairman and a member of the board of directors ofSurginetics, Inc., a development stage medical device company. Dr. Stevensis also chairman of CanCog Technologies, Inc., a contract researchorganization, and a director of Advanced Cosmetic Intervention, Inc., aprivately owned medical device company, and Aqua Bounty Technologies, Inc.,a biotechnology company listed on the London Stock Exchange AlternativeInvestment Market (AIM). He was an advisor to BCC from 1999 through December 2006.Dr. Stevens was formerly President and CEO of Deprenyl Animal Health, Inc.,from 1990 to 1998, and Vice President, Research and Development, of AgrionCorp. He began his career in pharmaceutical research and development at theformer Upjohn Company, where he contributed to the preclinical development ofXanaxÒ and HalcionÒ.Dr. Stevens received BS and DVM degrees from Washington State Universityand a PhD in Comparative Pathology from the University of California, Davis.

**Executive Officers**

Information with respect to our currentexecutive officers is set forth below.
| Name                     | ** ** | ** ** | ** ** | **Age**                                                                    | ** ** | **Position  with the Company** |
|--------------------------|------------|------------|------------|----------------------------------------------------------------------------|------------|--------------------------------|
| Gerald McMahon, PhD |       | 52         |       | Chairman, President and Chief Executive Officer                            |
| Caroline M. Loewy        |       | 41         |       | Chief Financial Officer                                                    |
| David A. Karlin, MD      |       | 63         |       | Senior Vice President, Clinical Development &  Regulatory Affairs |
| Anna L. Wight, JD        |       | 52         |       | Vice President, Legal and Secretary                                        |
| Cheni Kwok, PhD     |       | 38         |       | Vice President,  Business Development                                      |

 

**BusinessExperience**

*Gerald McMahon, PhD,***wasappointed Chief Executive Officer of the Company in May 2004 and Chairmanof the Board of Directors in June 2004. Dr. McMahon was appointedPresident of the Company on June 15, 2005. Previously, he was President ofSUGEN, Inc., a biopharmaceutical company focused on the discovery anddevelopment of novel targeted small-molecule drugs. At SUGEN, Dr. McMahonplayed a key role in the discovery and development of several innovative cancerproducts, including Sutent®, a multi-targeted protein kinase inhibitor for thetreatment of advanced cancers recently launched by Pfizer Inc. SUGEN wasacquired by Pharmacia Corp. in 1999, which subsequently was acquired by Pfizerin 2003. Prior to his role at SUGEN, which he joined in 1993, Dr. McMahonheld several research and development management positions at SandozPharmaceuticals (now Novartis), where his responsibilities included theestablishment of external collaborations and the development of corporatealliances within the United States and Europe. Dr. McMahon has contributedto more than 100 scientific publications and was a Staff Scientist andPrincipal Investigator at the Massachusetts Institute of Technology and TuftsUniversity School of Medicine early in his career. He holds a B.S. in Biologyand a PhD in Biochemistry from Rensselaer Polytechnic Institute.

*Caroline M. Loewy*was appointed Chief Financial Officer effective in July 2006. Sheinitially joined the Company in June 2006 as Executive Vice President ofStrategic Planning. Ms. Loewy has served in a 

5

----

business andfinancial consulting capacity to biotechnology companies since 2004. Priorthereto, she was Executive Director, Equity Research at Morgan Stanley, Inc.,from March 2000 to June 2004, where she covered large capbiotechnology stocks. Previously, she was with Prudential Securities, first asan associate capital goods analyst in San Francisco from 1993 to 1996 and thenas a senior biotechnology analyst in New York from 1996 to 2000. Ms. Loewyholds an M.B.A. from Carnegie Mellon, Graduate School of Business and a B.A. ineconomics from the University of California, Berkeley.

*David A. Karlin, MD,* joined the Company as Senior VicePresident of Clinical Development and Regulatory Affairs in July of 2005.Prior thereto, Dr. Karlin served as Vice President of Clinical Research atCellegy Pharmaceuticals, Inc. from 2002 to 2005. Dr. Karlin’sexperience in the biotech and pharmaceutical industry also includes positionsas Vice President of Clinical Development for Genteric, Inc., a privatelyheld company specializing in gene therapy during 2002, and Senior MedicalDirector at Matric Pharmaceuticals, Inc., an oncology therapeuticsdevelopment company from 1991 to 2001. Dr. Karlin has also served as VicePresident for Clinical Research and Medical Director at SciClonePharmaceuticals, Inc. from 1995 to 1999 and held various positions atSyntex Corporation, including Director of Medical Research, from 1986 to 1995.Before joining the pharmaceutical industry, Dr. Karlin was an associateprofessor at Temple University School of Medicine and an assistant professor atthe University of Texas M.D. Anderson Hospital and Tumor Institute. He receivedhis MD from the University of Chicago and completed his residency in InternalMedicine at the University of Michigan and a fellowship in Gastroenterology andGastrointestinal Oncology at the University of Chicago. He holds a B.S. inBiology from the University of Illinois.

*Anna Lewak Wight, JD,***was appointed Vice President, Legal in May 2002 and wasappointed Secretary in November 2002. Prior thereto, she served as Director ofIntellectual Property of the Company from October 1996 through April 2002 andas Senior Intellectual Property Counsel from 1994 until October 2006. Ms. Wightpreviously was a partner in the law firm of Morrison & Foerster, LLP,where she managed their Seattle intellectual property practice. Ms. Wightalso was a partner in the intellectual property law firm of Harness, Dickey andPierce, PLC in Michigan, where she established and chaired the Biotechnologyand Medical Arts Group. Ms. Wight received a JD from Wayne StateUniversity Law School and an MS from the Genetics Program at Michigan StateUniversity.

*Cheni Kwok, PhD,* joined the Company as VicePresident, Business Development in July 2006. Prior thereto, she wasDirector, Business Development at Celera Genomics, a division of Applera Corporationengaged in the discovery and development of targeted therapeutics for cancer,autoimmune and inflammatory disease, from 2004 through June 2006. From2000 to 2004, Dr. Kwok served in various business development positions,including as Associate Director, Business Development at Exelixis, Inc., apublicly held drug discovery company. Dr. Kwok received a bachelor’sdegree in biotechnology from Imperial College of Science, Technology andMedicine, University of London, U.K. and a PhD in human molecular genetics fromthe University of Cambridge, U.K.

**Section 16(a) BeneficialOwnership Reporting Compliance**

Section 16(a) ofthe Securities Exchange Act of 1934, as amended, requires our directors andexecutive officers, and persons who beneficially own more than 10% of ouroutstanding common stock, to file with the SEC initial reports of ownership andreports of changes in their beneficial ownership of our common stock.Directors, executive officers and greater-than-10% shareholders arerequired by SEC regulations to furnish us with copies of all Section 16(a) formsthey file.

Based solely on our reviewof the copies of the forms we received, or written representations from certainreporting persons that no such forms were required for those persons, webelieve that during 2006 all filing requirements of Section 16(a) applicableto directors, executive officers and greater-than-10% shareholders werecomplied with by such persons, except that one Form 4 reporting one optiongrant to Dr. McMahon was filed late.

6

----

**Code of Ethics and Code of Conduct**

We have adopted a Code ofEthics that applies to our chief executive officer, chief financial officer,principal accounting officer, controller and other senior accounting officersand a Code of Conduct that applies to all officers, directors and employees ofour company. These codes are posted on our web site at *www.poniard.com*under the heading “Investors—Corporate Governance.”  We intend to satisfy the disclosurerequirements regarding any amendment to or waiver of the Code of Ethics withrespect to the covered persons by posting such information on our web site.

**Director Nominations and Qualifications**

Thenominating and corporate governance committee of our board of directors willconsider nominees for the board recommended by shareholders with respect toelections to be held at an annual meeting, although the committee is notobligated to recommend such nominees to the board. In accordance with ourrestated bylaws, to nominate a director for election to the board of directorsat an annual meeting of shareholders, a shareholder must deliver written noticeof such nomination to our corporate secretary not fewer than 60 days nor morethan 90 days prior to the date of the annual meeting (or if less than 70 days’notice or prior public disclosure of the date of such annual meeting is givenor made to the shareholders, not later than the tenth day following the day onwhich notice of the date of the annual meeting was mailed or public disclosurewas made). The notice of a shareholder’s intention to nominate a director mustinclude:

·       informationregarding the shareholder making the nomination, including the shareholder’sname and address and the number of shares of our stock beneficially owned bythe shareholder;

·       thename and business address of the person being nominated, his or herbiographical data and other relevant information, including that which would berequired in a proxy statement filed pursuant to the SEC’s proxy rules ifthe person were to be nominated for election by the board of directors; and

·       thewritten consent of each such nominee to serve as a director if elected.

The chairman of the board,other directors and executive officers also may recommend director nominees tothe nominating and corporate governance committee. The committee will evaluatenominees recommended by shareholders using the same criteria that it uses toevaluate all other nominees. These criteria include the candidate’s personaland professional ethics, training, experience, commitment, independence,diversity, industry knowledge and contacts and financial or accountingexpertise, as well as other factors that are listed in the Director SelectionGuidelines attached as an exhibit to the nominating and corporate governance committeecharter posted on the “Investors—Corporate Governance” page of our website at *www.poniard.com*. The committee has notin the past retained any third party to assist it in identifying candidates.

**Audit Committee ofBoard of Directors**

The board of directors hasa standing audit committee. The written charter of the audit committee isavailable on the “Investors—Corporate Governance” page of our web site at *www.poniard.com*.

Theprimary functions of the audit committee are to represent and assist the boardof directors with the oversight of:

·       theintegrity of the company’s financial statements and internal controls;

·       thecompany’s compliance with legal and regulatory requirements;

·       theindependent auditor’s qualifications and independence; and

·       theperformance of the audit function by the independent auditor.

7

----

The audit committee hasultimate authority to select, evaluate and, where appropriate, replace theindependent auditor, approve all audit engagement fees and terms, and engageoutside advisors, including its own counsel, as it deems necessary to carry outits duties. The audit committee also is responsible for performing otherrelated responsibilities set forth in its charter.

The current members of theaudit committee are Mr. Littauer, Dr. Stevens and Mr. Martell,with Mr. Littauer acting as chair. Alan A. Steigrod served on the auditcommittee until his retirement from the board on August 16, 2006, on whichdate Mr. Martell was appointed to the committee. Our board of directorshas determined that each member of our audit committee is “independent” underapplicable rules promulgated by the SEC and Nasdaq. Each member of theaudit committee is able to read and understand fundamental financialstatements, including our balance sheet, income statement and cash flowstatement. Our board of directors has determined that bothMessrs. Littauer and Martell meet the definition of “audit committeefinancial expert” under applicable SEC rules. The audit committee convened inperson one time and held an additional seven telephone meetings in 2006.

***Item 11.****                   EXECUTIVECOMPENSATION*

**Compensation Discussion and Analysis**

**Overview**

We are a biopharmaceuticalcompany focused on the discovery, development and commercialization of cancertherapy products. We do not currently have any revenues from product sales, asour product candidates remain in the development stage. Our headquarters islocated in South San Francisco, California, and we also maintain an office inSeattle, Washington. Additional information about our business and developmentprograms is available at http://www.poniard.com.

**Objectives and Components**

Our compensation programfor executive officers is designed to encourage, measure and reward effortsthat we believe will build value in the company over the long-term. Until suchtime as we have revenues, we believe that the progress of our productcandidates through the development process and progress toward obtaining UnitedStates and foreign marketing approvals are the best ways to create value for ourshareholders and the best measures of our success.

Thecomponents of our executive compensation program are:

·        basesalaries;

·        annualincentives in the form of cash bonuses; and

·        long-term incentives inthe form of stock option awards.

**Compensation Philosophy and Principles**

Ourcompensation philosophy is to motivate, measure and reward employees forperformance that we believe will result in superior operational results andbuild long-term value for our shareholders. Our executive compensation programis designed to:

·        focusdecision-making and behavior on long and near-term goals that are consistentwith our overall business strategy;

·        reinforcea pay-for-performance culture through a balance of fixed and incentive payopportunities that link individual compensation to individual and corporateperformance;

·        allowus to attract and retain employees with the skills critical to our long-termsuccess; and

·        alignmanagement’s financial interests with the interests of our shareholders.

8

----

The design and ongoing administration of our overallcompensation program for executives are guided by the following generalprinciples and goals:

·        clearcommunication of desired behaviors and the use of incentive pay to reward theachievement of corporate performance goals;

·        maintenanceof total compensation at market competitive levels;

·        provisionof a range of compensation opportunities based on performance; and

·        provision of opportunitiesto participate in shareholder value creation.

**Total Compensation**

Our total compensation program is designed toencourage and reward performance and to recruit and retain employees. We haveincluded three components in our compensation structure—base salaries, cashbonuses and stock option grants—to be competitive with other companies in ourindustry. We do not focus on the total value of these three components ofcompensation when we benchmark our compensation with other companies. Instead,we believe it is more appropriate to benchmark the three components individuallyin light of their different properties and level of risk. For adevelopment-stage company such as ours, stock options are highly speculativeand are not likely to maintain value unless our product candidates ultimatelyreach the market and generate sales and profits. Cash incentive bonuses areonly paid when certain performance goals are met and thus also are uncertain.Our goal is to be competitive in each of the three components of our totalcompensation program. The amount of each component is influenced by theexecutive’s level of responsibility at the company and industry surveys. In general, we tryto position executive compensation at the median for each component.

Thecompensation committee of our board of directors performs annual reviews of ourexecutive compensation program to evaluate its competitiveness and consistencywith our overall compensation philosophy. During 2006, the committee retainedAON Radford Consulting, or Radford, to review and analyze the currentcompensation arrangement for our chief executive officer and other executivesand our current equity programs relative to market. In completing its assessment,Radford reviewed our executive compensation data against that of 25 U.S. basedbiotechnology companies having a market capitalization between $88.2 millionand $289.7 million, generating limited revenues from product sales and havingbetween 13 and 370 employees. This peer group, which was approved by ourcompensation committee and management, was comprised of the followingcompanies:

| ·Antigenics Inc.         |   | ·  ImmunoGen, Inc.           |   | ·  Sonus Pharmaceuticals       |
|-------------------------------|--------|----------------------------------------|--------|------------------------------------------|
| ·Avigen, Inc.            |   | ·  Immunomedics, Inc.        |   | ·  Spectrum Pharmaceuticals,   |
| ·Cell Therapeutics, Inc. |   | ·  Kosan Biosciences         |   | Inc.                                     |
| ·Cerus Corporation       |   | Incorporated                           |   | ·  StemCells, Inc.             |
| ·Cytokinetics, Inc.      |   | ·  La Jolla Pharmaceuticals  |   | ·  Sunesis Pharmaceuticals,    |
| ·Dendreon Corporation    |   | Company                                |   | Inc.                                     |
| ·Dynavax Technologies    |   | ·  NeoPharm, Inc.            |   | ·  SuperGen, Inc.              |
| Corporation                   |   | ·  Pharmacyclics             |   | ·  Titan Pharmaceuticals, Inc. |
| ·EntreMed, Inc.          |   | ·  Seattle Genetics, Inc.    |   | ·  Vion Pharmaceuticals, Inc.  |
| ·Favrille, Inc.          |   | ·  SGX Pharmaceuticals, Inc. |   |                                     |
| ·Hana Biosciences, Inc.  |   |                                   |   |                                     |

 

Based on the peer groupcompensation data collected in the Radford “CEO Compensation Assessment” datedMay 15, 2006 and the Radford “2006 Executive Compensation Review” datedJuly 26, 2006, including supplements to those reports, our compensationcommittee targets executive annual base 

9

----

salariesto the peer group 50th--75th percentile and each of annual incentive awardsand long-term compensation to the peer group 50th percentile. We believe that these compensationtargets are consistent with our goal of providing competitive executivecompensation packages while conserving our resources and creating incentivesfor and rewarding the attainment of corporate operational and strategic goals. Thecompensation committee utilized the data in the Radford studies to evaluate thecompetitiveness of the components of 2006 executive compensation in place priorto the availability of those studies and, following the availability of thosestudies in May and July 2006, as a significant factor in determiningtotal compensation of new executives joining the company and in determininglong-term incentive awards granted to executives in the second half of 2006.

***BaseSalaries*.****  **Base salaries are provided toemployees as compensation for basic services to the company and to meet theobjective of attracting and retaining the talent that we need to run ourbusiness. Salaries provide a consistent cash flow to employees, assuming acceptablelevels of performance and ongoing employment.

Our goal is to establish base salary levels for ourexecutives and other employees that are consistent with those of biotechnologycompanies of a similar size and at a similar stage of development. We believethat this strategy is important to enable us to compete for and retainqualified executives in a highly competitive environment.

We establish eachexecutive officer’s annual base salary based on:

·        anobjective evaluation of salaries of individuals in similar positions withincompanies in the biotechnology industry that are of a similar size and stage ofdevelopment, including, in the second half of 2006, the peer group data in theRadford “CEO Compensation Assessment” and the Radford “2006 ExecutiveCompensation Review” described above; and

·        asubjective evaluation of the executive’s experience, responsibilities withinthe company, and performance in achieving specific corporate objectives.

We initially target base salaries at the median basesalary level for executives in similar positions within the biotechnologyindustry, targeting the 50th-70th percentile range of executive base salaries inour peer group. We then adjust each executive’s salary either up or down fromthat midpoint based on the executive’s individual’s experience and scope ofresponsibilities. Each executive is reviewed and evaluated for potentialadjustments to his or her base salary annually.

Annual base salary reviews for all executive officers areconducted in conjunction with our company-wide employee performance evaluationprocess. Except for Ms. Loewy and Dr. Glassberg, both of whom joinedthe company during 2006, base salaries for the executive officers named in theSummary Compensation Table were increased by 4% in 2006, based on the increasedcost of living. This is consistent with the level of annual cost of livingincreases provided by similar companies in the biotechnology industry, asreflected in industry surveys reviewed by the compensation committee, includingthe BioWorld 2006 Executive Compensation Report. The base salaries ofMs. Loewy and Dr. Glassberg, each of whom joined the company during thesecond half of 2006, were determined based on data in the Radford studies, withthe goal of providing base salaries sufficiently competitive to attract them toour company. The compensation committee also utilized the Radford studies toevaluate previously established 2006 executive base salaries. Based on thisevaluation, the compensation committee determined that, for 2007, an adjustmentof 5.5% should be made to the annual base salary of executives based onperformance and cost of living increases. In addition, the compensationcommittee determined that an additional 4.3% adjustment should be made toMs. Loewy’s 2007 annual base salary based on her performance and theincreased scope of her responsibilities. None of our executive officers is aparty to any agreement with the company requiring the payment of a minimumamount of annual base salary.

10

----

***AnnualIncentive Awards*.****  **Our annual incentive awards aredesigned to encourage executives to focus on achieving important near-termcompany-wide goals in a timely manner. As part of our process of establishingour operating plan for each coming year, the executive officers identify thecorporate goals important to building our value and advancing our long-termbusiness objectives. These corporate goals are then submitted to the board ofdirectors for approval.

Alongwith our other employees, executive officers are eligible for annual incentiveawards, paid in the form of a cash bonus, based on the extent of accomplishmentof these predetermined annual corporate goals. For 2006, we identified sixspecific corporate goals in the following general areas:

·        productdevelopment milestones related to the progress of picoplatin, our lead productcandidate, in multiple clinical trials;

·        preclinicaldevelopment of an oral formulation of picoplatin; and

·        businessand strategic activities to support future research and product development.

The compensation committeeassigns a relative weight to each corporate goal in formulating annualincentive awards paid to each executive. The amount of each executive’s annualincentive award is determined based on the compensation committee’s assessmentof actual company performance versus these corporate goals. Based on thisassessment, the compensation committee determines and approves the incentiveamounts to be paid to each executive officer.

For2006, the compensation committee established the following percentages ofannual base salary as the maximum payout amounts for annual incentive awards tothe executive officers named in the Summary Compensation Table:

·        Dr. McMahon:  50%

·        Ms. Loewy:  25%

·        Dr. Karlin:  25%

·        Ms. Wight:  20%

·        Dr. Glassberg:  25%

·        Ms. Berland: 25%

The foregoing payoutamounts are applied to each executive’s annual base salary in effect at the endof the year and, for 2006, were determined by the compensation committee basedon generally available industry surveys, including the BioWorld 2006Compensation Report. The compensation committee used data presented in theRadford “CEOCompensation Assessment” and the Radford “2006 Executive Compensation Review” toevaluate the 2006 payout levels and determined that, except in the case ofMs. Loewy, the current levels are competitive. The board of directorsincreased Ms. Loewy’s maximum payout amount for annual incentive awards to30% for 2007, due to the expanded scope of her responsibilities.

In cases in which thecompensation committee determines that all of the corporate goals have beenmet, the executives will receive 100% of their maximum payout amounts. If allof the corporate goals have not been met, a percentage below 100% of themaximum payout amount is awarded. In addition, the compensation committeeretains general discretion to take into account additional corporateaccomplishments in assessing achievement of annual corporate goals. For 2007,the compensation committee approved, in addition to core annual corporateperformance goals, supplemental milestones, or so-called “stretch goals,’’which, to the extent achieved, would result in the payment of significantadditional annual incentive awards to our executives and employees. These “stretchgoals’’ for 2007 are intended to create clear incentives for executives to workto exceed our near-term corporate goals and to reward successful progresstoward our long-term growth and the creation of shareholder value.

11

----

In 2006, we met many ofour predetermined 2006 annual corporate goals. Additionally, we were able totake advantage of opportunities that arose during the year. The most heavilyweighted corporate goals related to the clinical development of picoplatin. Oursmall cell lung cancer Phase II trial enrolled ahead of schedule, and ourcolorectal and prostate cancer Phase I trials were enrolling on schedule. Wealso were able to renegotiate and finance improved terms for our picoplatinlicense agreement with Genzyme Corporation (successor to AnorMED, Inc.).Thus, while certain corporate goals were not attained, the compensationcommittee concluded that achievement of such goals was of lesser importancethan the successful renegotiation and financing of our picoplatin license.Consequently, the compensation committee concluded that, on balance, our 2006performance was strong, the overall level of achievement of each corporate goalwas 80% and 2006 annual incentive awards therefore would equal 80% of each executiveofficer’s maximum payout amount. Ms. Loewy’s and Dr. Glassberg’s 2006annual incentive payments were prorated from the respective commencement datesof their employment with the company in 2006. Ms. Berland did not receivean annual incentive award for 2006 because her employment with the companyterminated on July 21, 2006.

In addition to incentive awards under our annualincentive program, our compensation committee may award discretionary bonusesto reward individual efforts in the successful attainment of milestonescritical to our long-term corporate well-being and potential future success. In2006, we completed a $65 million equity financing that we believe substantiallyimproved the prospects of our company. In connection with the completion ofthis financing, the compensation committee awarded a discretionary bonus of$20,000 to each executive employed with the company at the time of the closingof the financing.

***Long-TermIncentives*.****  **Our long-term incentives consist solelyof stock option awards under our Amended and Restated 2004 IncentiveCompensation Plan, or the 2004 Plan, and are an important element of ourcompensation program. We believe that stock options are an effective way toemphasize long-term company performance and to reward our executives and other employeesfor value creation on the same basis as our shareholders.

Pursuant to our 2004 Plan, each executive officertypically receives a sizable grant at the time he or she joins the company orreceives a significant promotion. In addition, our executive officers and otheremployees receive annual option awards under the 2004 Plan. In establishing thesize of these awards, the executive’s level of responsibility, as well ascompetitive factors in our industry, are considered. The equity awardssubcommittee of our board compensation committee establishes the level of newhire, promotion-related, and annual stock option awards targeted at the medianlevels set out in generally available industry surveys and, for option grantsin the second half of 2006, set out for our peer group in the Radford “CEOCompensation Assessment” and the Radford “2006 Executive Compensation Review.”  We target the median number of option awardsin order to be competitive in attracting and retaining employees, whilelimiting the potential dilution to our shareholders.

The equity awards subcommittee of our boardcompensation committee approves all stock option awards to executive officers.Annual stock option grants are awarded in the first quarter of each year. For2006, the amounts of these awards targeted the 50th percentile grant level. These options vestbased on our standard 48-month vesting period for annual option grants detailedbelow. For executive officers who are hired during the year, the equity awardssubcommittee approves the issuance of stock options in connection with theboard’s appointment of the executive as of the executive’s start date. Indetermining the number of options to be granted to new hires, we initially target the50th percentile level of options granted to newlyhired executives in similar positions at companies of similar size and stage ofdevelopment within the biotechnology industry. We then adjust each executive’s optionaward either up or down from that midpoint based on the executive’s experienceand scope of responsibilities. The new hire options granted to Ms. Loewyand Dr. Glassberg, both of whom joined the company during 2006, werecalculated utilizing this process and were in the 50th-75th percentile based on the Radford “2006Executive Compensation Review.” The options vest based on our standard 48-monthvesting period for new-hire 

12

----

options, detailed below.Any promotions of executive officers would be treated similarly, with theequity awards subcommittee awarding the stock option to the executive as of thedate of the promotion. However, there were no promotions of executives during2006.

Stock options awarded to executives have an exerciseprice equal to the closing sale price of our common stock on the date of grant.We issue stock options at 100% of the fair market value on the date of grant toassure that executives will receive a benefit only when the stock priceincreases. Each stock option awarded to newly hired executive officers vestsover a 48-month period, with no options vesting until the executive hasworked for the company for one full year, at which time 25% of the award vests.The balance of the option vests monthly over the remaining 36 months of the vestingperiod. Annual and promotion-related stock awards vest monthly over a 48-monthperiod, if the employee has worked for the company for a year or more. If theemployee has not yet been with the company for one year, the option vestsmonthly over a 48-month period, except vesting in the first year is notcredited until the employee has been with the company for one year. Thesevesting schedules are consistent with those found in the Radford surveys ofsimilar companies in the biotechnology industry. We believe that the relativelylong duration of the vesting period helps focus management on the long-termperformance of the company. All stock options granted to executive officershave a maximum term of ten years.

In 2006, in addition to the annual option awardsdescribed above, we granted to each executive officer, as well as all otheremployees of the company, special stock option awards. Dr. McMahon, ourchief executive officer, received his award on June 16, 2006 andSeptember 13, 2006, and the other executives and employees received theirawards on September 13, 2006. These special awards were intended toincrease the executives’ long-term incentives following the significantrestructuring of the company that took place during 2005 and the first half of2006. The change in capital structure of the company following our $65 millionequity financing in April 2006 resulted in significant dilution of theoption ownership of the executive officers due to a nearly four-fold increasein the total number of shares outstanding, and placed the executives’ level ofoption ownership below the peer group 50th percentile for equity interest found byRadford in its “CEO Compensation Assessment” and “2006 Executive CompensationReview.”  The equity awards subcommittee approvedoption awards to executives to bring their option ownership holdings in linewith the peer group 50th-75th percentile level, as set out in the foregoingRadford studies. As with all of our stock options, these special option awardswere priced at 100% of fair market value on the date of grant. Because thenumber of shares available for issuance under our 2004 Plan is currentlylimited, the special option awards granted on September 13, 2006 arecontingent upon shareholder approval of an amendment of our 2004 Plan to, amongother things, increase the common shares authorized for issuance under the 2004Plan. If such shareholder approval is not received at our 2007 annual meetingof shareholders, which is scheduled to be held on June 14, 2007, theseoptions will immediately terminate. Each special option awarded to ourexecutives on September 13, 2006 vests 50% in equal monthly installmentsover the first four years from the date of grant and 50% on the seven-yearanniversary of the date of grant. Dr. McMahon's special award granted onJune 16, 2006 vests 100% on the seven-year anniversary of the date of grant. Theequity awards subcommittee adopted this longer vesting period to reinforce thelong-term nature of these incentives. Any portion of the special option awardssubject to a seven-year vesting period may be accelerated, up to 25% in eachyear, to the extent of the company’s actual achievement of the annualperformance goals established under our annual incentive program, at thediscretion of the equity awards subcommittee. We believe that allowing thediscretionary vesting of these stock options is consistent with our goal ofproviding incentives to build value and advance our long-term businessobjectives. The special option awards granted in 2006 to the executives namedin the Summary Compensation Table are reflected in the table below entitled “Grantsof Plan Based Awards” and the related compensation costs are disclosed in theSummary Compensation Table.

13

----

All of Dr. Glassberg’semployee stock options terminated when he resigned as our chief medical officeron March 15, 2007, because he had not reached the one-year anniversary ofhis initial employment with us and, therefore, none of his options had vested.

***OtherBenefits*.****  **Allof our salaried employees, including our executive officers, are eligible toparticipate in our 401(k) defined contribution plan. At our discretion, wemay contribute to each participant a matching contribution equal to 5% of theparticipant’s compensation that has been contributed to the plan, up to amaximum matching contribution of $500. As reflected in the Summary CompensationTable below, in 2006, all of the named executive officers, exceptDr. Glassberg, participated in our 401(k) plan and received matchingcontributions. We also provide all employees with health and dental coverage,company-paid term life insurance, disability insurance, paid time off and paidholidays. These benefits are typical within our industry, are designed to becompetitive with overall market practices, and are in place to attract andretain the executives and other employees needed to operate our business.

We strive to focus ourresources on the development of our product candidates. Accordingly, ourexecutive officers do not receive any material perquisites.

**Supplementary Compensation Policies**

We have adopted severaladditional policies designed to ensure that our overall executive compensationstructure is responsive to shareholder interests and competitive with other companiesin our industry. Specific policies include:

***Limitationson Deductibility of Compensation*.****  **Section 162(m) of the Internal RevenueCode, or the Code, generally limits the tax deductibility of compensation paidby a public company to its chief executive officer and certain other highlycompensated executive officers, including the executive officers named in theSummary Compensation Table, to $1.0 million in the year the compensationbecomes taxable to the executive. There is an exception to the limit ondeductibility for performance-based compensation that meets certainrequirements. We believe that the compensation for our executives, includingstock options awarded under our 2004 Plan, qualify for the exception. In 2006,compensation to our chief executive officer and each of our other namedexecutive officers did not exceed $1.0 million for purposes of Section 162(m),and we expect the same to be true for 2007. However, we may in the futureapprove annual compensation that exceeds the $1.0 million limitation if we believethat doing so is in the best interests of the company and our shareholders.

***Severanceand Change of Control Agreements*.****  **All of our executive officers are parties to standardform executive severance and change of control agreements. These agreements andthe potential amounts payable under those agreements to the executives named inthe Summary Compensation Table are described in the section below entitled “PotentialPayments Upon Termination or Change of Control.”  We believe that these agreements arecustomary in the industry and necessary to attract and retain qualified,experienced executive personnel.

**Compensation Committee Report**

The compensation committeeof the board of directors has reviewed and discussed the CompensationDiscussion and Analysis above with management, and, based on such review anddiscussions, the compensation committee recommended to the board that theCompensation Discussion and Analysis be included in our Annual Report on Form 10-Kfor the year ended December 31, 2006, and in our proxy statement for the2007 annual meeting of shareholders.

Submitted by the compensation committee of the boardof directors:

Nicholas J. Simon, ChairmanRobert M. LittauerRonald A. MartellE. Rolland Dickson

14

----

**2006 Summary Compensation Table**

The following table sets forth all compensation earnedby each of the named executive officers for the 2006 fiscal year. The namedexecutive officers are the principal executive officer and the principalfinancial officer, plus one executive officer who resigned during 2006 and thethree other most highly compensated officers who were serving as executiveofficers at December 31, 2006.

**SUMMARYCOMPENSATION TABLE**
| Name and Principal Position                                                  | ** ** | ** ** | ** ** | **Year** | ** ** | **Salary  ($)(1)** | ** ** | **Bonus  ($)(2)** | ** ** | **Options  Awards  ($)(3)** | ** ** | **Non-Equity  Incentive  Plan  Compen-  sation  ($)(4)** | ** ** | **All Other  Compen-  sation  ($)(5)** | ** ** | **Total  ($)** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|--------------------|------------|-------------------|------------|-----------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------|------------|----------------|------------|
| Gerald McMahon, Chairman, President & Chief  Executive Officer                     |       | 2006       |       | 400,977  |       | 20,000             |       | 598,527           |       |                        | 160,389    |                                                     |       |                                        | 500        |           |       | 1,180,393 |   |
| Caroline M. Loewy, Chief Financial Officer(6)                                               |       | 2006       |       | 130,769  |       | 0                  |       | 114,417           |       |                        | 26,154     |                                                     |       |                                        | 500        |           |       | 271,840 |   |
| David A. Karlin, Senior Vice President, Clinical  Development & Regulatory Affairs |       | 2006       |       | 270,404  |       | 20,000             |       | 72,081            |       |                        | 54,080     |                                                     |       |                                        | 500        |           |       | 417,065 |   |
| Anna L. Wight, Vice President, Legal &  Secretary                                  |       | 2006       |       | 236,925  |       | 20,000             |       | 97,038            |       |                        | 37,908     |                                                     |       |                                        | 500        |           |       | 392,371 |   |
| Alan B. Glassberg, Chief Medical Officer(7)                                                 |       | 2006       |       | 87,821   |       | 0                  |       | 74,095            |       |                        | 17,692     |                                                     |       |                                        | 0          |           |       | 179,608 |   |
| Susan D. Berland,  former Chief Financial Officer(8)                                        |       | 2006       |       | 139,534  |       | 20,000             |       | 46,689            |       |                        | 0          |                                                     |       |                                        | 500        |           |       | 206,723 |   |

----

(1)           Theamounts reported in the Salary column represent the dollar amount of basesalary earned by each named executive in 2006.

(2)           Theamounts reported in the Bonus column represent the amounts of discretionarybonuses awarded to the named executives in connection with the closing of our$65 million equity financing in April 2006.

(3)           Theamounts reported in the Option Awards column represent the dollar amountrecognized as stock-based compensation expense in 2006 for financial reportingpurposes, related to stock options granted to each named executive in 2006 andprior years, excluding any reduction for estimated forfeitures, determined inaccordance with Financial Accounting Standards Board Statement of FinancialAccounting Standards No. 123 (revised 2004), *Share-BasedPayment* (SFAS 123R). See Note 3, “Stock-Based Compensation,” of thenotes to consolidated financial statements in our Annual Report on Form 10-Kfor the year ended December 31, 2006 for the assumptions used indetermining such amounts.

(4)           Theamounts reported in the Non-Equity Incentive Plan Compensation column representthe amounts of annual incentive bonus awards paid out in March 2007 for2006 performance. The annual incentive bonus earned by Ms. Loewy isprorated for the six-month period of fiscal 2006 during which she served as anexecutive officer. The annual incentive bonus earned by Dr. Glassberg isprorated for the five-month period of fiscal 2006 during which he served as anexecutive officer.

(5)           Theamounts reported in the All Other Compensation column represent companycontributions to our 401(k) plan.

(6)           Ms. Loewyjoined the company as executive vice president, strategic planning on June 23,2006, and was appointed chief financial officer on July 21, 2006.

(7)           Dr. Glassbergjoined the company as chief medical officer on July 24, 2006. Dr. Glassbergresigned from this position on March 15, 2007.

(8)           Ms. Berlandresigned as chief financial officer of the company on July 21, 2006. Thegrant date fair value, as determined in accordance with SFAS 123R, of theportion of Ms. Berland’s stock option grants that were forfeited upon herresignation was $413,138.

15

----

**Grants of Plan Based Awards**

Thefollowing table provides information regarding equity and non-equity awardsgranted to each of the named executives in 2006.
|                       | ** ** | ** ** | ** ** | **Estimated Future Payouts  Under Non-Equity Incentive  Plan Awards(1)** | ** ** | **Estimated Future Payouts  Under Equity Incentive  Plan Awards(2),(3)** | ** ** | **All Other  Options  Awards:  Number  of  Securities  Under-** | ** ** | **Exercise  or Base  Price of  Option** | ** ** | **Grant  Date  Fair  Value of** | ** ** |
|-----------------------|------------|------------|------------|---------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|---------------------------------------------------|------------|--------------------------------------|------------|
| **Name**              | ** ** | ** ** | ** ** | **Grant  Date**                                                                                   | ** ** | **Thresh-  old  ($)**                                                                             | ** ** | **Target  ($)**                                                      | ** ** | **Maxi-  mum  ($)**                               | ** ** | **Thresh-  old  (#)**                | ** ** | **Target  (#)** | ** ** | **Maxi-  mum  (#)** | ** ** | **lying  Options  (#)** | ** ** | **Awards  ($/Sh)  (4)** | ** ** | **Options  Awards  ($)(5)** | ** ** |
| Gerald McMahon        |       | 4/29/2006  | (6)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 |       |   |   |   |   |   |   |   | 83,333 |   |   |   | 7.50  |   |   |   | 518,650 |   |   |
|                       |       | 6/16/2006  | (6)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 |       |   |   |   |   |   |   |   | 83,333 |   |   |   | 6.48 |   |   |   | 448,450 |   |   |
|                       |       | 6/16/2006  | (7)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 |       |   |   |   |   |   |   |   | 166,667 |   |   |   | 6.48 |   |   |   | 931,200 |   |   |
|                       |       | 9/13/2006  | (8)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 | 0          |   |   | 284,400 |   | 284,400 |   |   |   |   |   |   | 3.66 |   |   |   | — |   |   |
|                       |       | 5/17/2006  |       |                                                                                              | 0          |                                                                                              |       | 200,489                                                              |       | 200,489                                           |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Caroline M. Loewy(10) |       | 6/23/2006  | (9)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 |       |   |   |   |   |   |   |   | 100,000 |   |   |   | 6.00 |   |   |   | 499,920 |   |   |
|                  |       | 9/13/2006  | (8)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 | 0          |   |   | 128,533 |   | 128,533 |   |   |   |   |   |   | 3.66 |   |   |   | — |   |   |
|                  |       | 6/23/2006  |       |                                                                                              | 0          |                                                                                              |       | 32,692                                                               |       | 32,692                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| David A. Karlin       |       | 4/29/2006  | (6)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 |       |   |   |   |   |   |   |   | 41,666 |   |   |   | 7.50 |   |   |   | 259,325 |   |   |
|                       |       | 9/13/2006  | (8)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 | 0          |   |   | 145,200 |   | 145,200 |   |   |   |   |   |   | 3.66 |   |   |   | — |   |   |
|                       |       | 5/17/2006  |       |                                                                                              | 0          |                                                                                              |       | 67,601                                                               |       | 67,601                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Anna L. Wight         |       | 4/29/2006  | (6)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 |       |   |   |   |   |   |   |   | 41,666 |   |   |   | 7.50 |   |   |   | 259,325 |   |   |
|                  |       | 9/13/2006  | (8)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 | 0          |   |   | 93,108 |   | 93,108 |   |   |   |   |   |   | 3.66 |   |   |   | — |   |   |
|                  |       | 5/17/2006  |       |                                                                                              | 0          |                                                                                              |       | 47,385                                                               |       | 47,385                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Alan B. Glassberg(11) |       | 7/24/2006  | (9)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 |       |   |   |   |   |   |   |   | 100,000 |   |   |   | 4.62 |   |   |   | 384,420 |   |   |
|                       |       | 9/13/2006  | (8)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 | 0          |   |   | 40,000 |   | 40,000 |   |   |   |   |   |   | 3.66 |   |   |   | — |   |   |
|                       |       | 7/24/2006  |       |                                                                                              | 0          |                                                                                              |       | 21,955                                                               |       | 21,955                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Susan D. Berland(12)  |       | 4/29/2006  | (6)        |                                                                                              |       |                                                                                              |       |                                                                 |       |                                              |       |                                 |       |   |   |   |   |   |   |   | 41,666 |   |   |   | 7.50 |   |   |   |   |   |   |
|                       |            |            |            |                                                                                                   |            |                                                                                                   |            |                                                                      |            |                                                   |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)             The amounts shown in the Estimated Future Payouts UnderNon-Equity Incentive Plan Awards column reflect the payout levels for annualincentive bonus awards described in the Compensation Discussion and Analysisabove. The target amount shown is a percentage of 2006 annual base salary asfollows:  Dr. McMahon: 50%; Ms. Loewy:25%; Dr. Karlin: 25%; Ms Wight: 20%; Dr. Glassberg: 25%  and Ms. Berland: 25%. The minimum payout level is 0% of the target amount shown. The maximum payout level is 100% ofthe target amount. Our annual incentive awards program is described in moredetail in the Compensation Discussion and Analysis.

(2)             The amounts shown in the Estimated Future Payouts UnderEquity Incentive Plan Awards column are the pay out levels for stock optionsgranted under our 2004 Plan described in the Compensation Discussion andAnalysis above. The minimum pay out level is 0% of the target amount shown. Themaximum pay out level is 100% of the target amount.

(3)             The grant of these options as a long-term incentiveaward is contingent upon shareholder approval of an amendment to increase thecommon shares authorized for issuance under our 2004 Plan, which proposal willbe described in detail in our proxy statement for the 2007 annual meeting ofshareholders. If such shareholder approval is not received, the options willterminate immediately following the 2007 annual meeting of shareholders.

(4)             The exercise price of the options is equal to theclosing sale price of our common stock on the grant date as reported on TheNasdaq Capital Market.

(5)             The amount reported represents the full grant date fairvalue of the options granted to each named executive in 2006, determined inaccordance with SFAS 123R. See Note 3, “Stock-Based Compensation,” of the notesto consolidated financial statements of the company set forth in our AnnualReport on Form 10-K for fiscal year ended December 31, 2006 forthe assumptions used in determining such fair value.

(6)             The option shown has a ten-year term and vests in equalmonthly installments over the four years following the date of grant.

(7)             The option shown has a ten-year term and vests on theseven-year anniversary of the date of grant, subject to accelerated vesting, ofup to 25% in each year, to the extent of the company’s actual achievement of theperformance goals established under the annual incentive bonus program, in thediscretion of the equity awards subcommittee of our board of directors.

16

----

(8)             The option shown was part of a special award granted toall employees to offset dilution resulting during 2005 and the first half of2006 and is contingent upon shareholder approval of an amendment to increasethe common shares authorized for issuance under our 2004 Plan, which proposalwill be described in detail in our proxy statement for the 2007 annual meetingof shareholders. If such shareholder approval is not received, the options willterminate immediately following our 2007 annual meeting. Each option has aten-year term and vests 50% in equal monthly installments over the first fouryears from the date of grant and 50% on the seven-year anniversary of the dateof grant. Vesting of the first 50% of the option granted to each of Ms. Loewyand Dr. Glassberg accrues but is not credited until the month of his orher one-year anniversary as an executive officer of the company. Vesting of thesecond 50% of the option granted to each executive is subject to acceleratedvesting, of up to 25% in each year, to the extent of the company’s actualachievement of the annual performance goals established under the annualincentive bonus program, in the discretion of the equity awards subcommittee ofour board of directors.

(9)             The option shown was granted as a long-term incentiveaward when the executive joined the company in 2006, has a term of ten yearsand vests 25% one year after the date of grant and thereafter in equal monthlyinstallments over the next three years.

(10)       Ms. Loewy became an executive officer of thecompany on June 23, 2006.

(11)       Dr. Glassberg became chief medical officer of thecompany on July 24, 2006. Dr. Glassberg resigned from this positionon March 15, 2007, and his unvested stock options terminated on that date.

(12)       Ms. Berland resigned as chief financial officer ofthe Company on July 21, 2006, and her stock options have terminated. Thegrant date fair value, as determined in accordance with SFAS 123R, of theportion of Ms. Berland’s stock option grants that were forfeited upon herresignation was $413,138.

**Employment Letter with Dr. McMahon.****  **We entered intoan employment letter with Dr. McMahon on April 26, 2004. Under thatemployment letter, we agreed that Dr. McMahon will serve as our chiefexecutive officer, commencing on May 11, 2004. The employment letter sets Dr. McMahon’sannualized base salary at $375,000 per year, subject to increase or decrease inthe board’s discretion, and provides for cash bonuses of up to 50% of Dr. McMahon’sannual base salary, at the discretion of the board. Pursuant to the employmentletter, Dr. McMahon received a ten-year stock option to purchase 91,666shares of our common stock at an exercise price of $15.00 per share, whichoption vests 25% at the end of one year from date of grant and thereafter inequal monthly installments over the next three years and expires ten years fromthe date of grant. The employment letter provides for accrued vacation of fourweeks per year and fringe benefits comparable to those payable to our othersenior executives. The employment letter further contains nonsolicitation andnoncompetition provisions that are effective during the term of Dr. McMahon’semployment and for one year thereafter. The term of the employment letter isfour years (until May 11, 2008), subject to earlier termination by eitherparty upon 30 days’ prior written notice. The severance and change of controlagreements described under the heading “Potential Payments Upon Termination orChange of Control” below provide for certain termination benefits in the eventthat Dr. McMahon’s employment is terminated by us without cause or by himwith good reason before or after a change of control of the company.

**Salary and Cash Incentive Awards in Proportion to TotalCompensation.****  **Asdiscussed in the Compensation Discussion and Analysis, we believe that asubstantial portion of each named executive’s compensation should be in theform of equity awards. The following table sets forth the percentage of eachnamed executive’s total compensation we paid in the form of base salary andcash incentive awards for fiscal 2006.

| **Name**          | ** ** | ** ** | ** ** | **Percentage of Total  Compensation** | ** ** |
|-------------------|------------|------------|------------|-------------------------------------------------|------------|
| Gerald McMahon    |       |       | 49         | %                                               |       |
| Caroline M. Loewy |       |       | 58         | %                                               |       |
| David A. Karlin   |       |       | 83         | %                                               |       |
| Anna L. Wight     |       |       | 75         | %                                               |       |
| Alan B. Glassberg |       |       | 59         | %                                               |       |
| Susan D. Berland  |       |       | 77         | %                                               |       |

 

17

----

**Outstanding EquityAwards at Year-End 2006**

Thefollowing table provides information relating to holdings of unexercised stockoptions by the named executives as of December 31, 2006. The optionsgranted in 2006 also are disclosed in the Grants of Plan-Based Awards Table andthe related compensation costs are disclosed in the Summary Compensation Table.
|                      | ** ** | **Options Awards**                                             | ** **                                                   |
|----------------------|------------|---------------------------------------------------------------------|--------------------------------------------------------------|
| ** **           | ** ** | **Number of  Securities  Underlying  Unexercised  Options(#)** | ** **                                                   | **Number of  Securities  Underlying  Unexercised  Options(#)** | ** ** | **Equity  Incentive  Plan Awards:  Number of  Securities  Underlying  Unexercised** | ** ** | **Option** | ** ** | ** ** | ** ** |
| **Name**             | ** ** | ** **                                                          | ** **                                                   | **Exercisable** | ** ** | **Unexercisable  (1)** | ** ** | **Unearned  Options(#)  (2),(4)** | ** ** | **Exercise  Price  ($)** | ** ** | **Option  Expiration  Date(3)** | ** ** |
| Gerald McMahon       |       |                                                                | 59,205  15, 972  13,889  10,417                              |   |   |   | 32,461  17,360  69,444  72,916  166,667 | (4)  (5) |   |   | 284,400 |   |   |   | 15.00  12.90  7.50  6.48  6.48  3.66 |   |   |   | 5/18/2014  1/24/2015  4/29/2016  6/16/2016  6/16/2016  9/13/2016 |   |   |
| Caroline M. Loewy    |       |                                                                | 8,333  0                                                     |   |   |   | 0  100,000 | (6) |   |   | 128,533 |   |   |   | 13.44  6.00  3.66 |   |   |   | 8/27/2014  6/23/2016  9/13/2016 |   |   |
| David A. Karlin      |       |                                                                | 14,757  6,945                                                |   |   |   | 26,909  34,721 |   |   |   | 145,200 |   |   |   | 3.72  7.50  3.66 |   |   |   | 7/1/2015  4/29/2016  9/13/2006 |   |   |
| Anna L. Wight        |       |                                                                | 712  2,500  2,500  9,999  18,332  5,972  4,306  2,917  6,945 |   |   |   | 0  0  0  0  0  694  2,360  3,748  34,721 |   |   |   | 93,108 |   |   |   | 7.50  84.38  35.64  16.80  2.82  16.14  15.00  7.44  7.50  3.66 |   |   |   | 12/15/2008  5/24/2010  5/22/2011  5/1/2012  1/30/2013  5/8/2013  5/18/2014  3/9/2015  4/29/2016  9/13/2016 |   |   |
| Alan B. Glassberg    |       |                                                                | 3,333  7,917                                                 | (8)  (8) |   |   | 0  0  100,000 | (6),(7) |  |   | 40,000 | (7) |   |   | 8.94  4.02  4.62  3.66 |   |   |   | 10/20/2014  6/15/2005  7/24/2016  9/13/2016 |   |   |
| Susan D.  Berland(9) |       |                                                                | 0                                                            |   |   |   | 0 |   |   |   | — |   |   |   | 0 |   |   |   | — |   |   |
|                      |            |                                                                     |                                                              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)           Unless otherwisenoted, the options listed in this column vest in equal monthly installmentsover four years from the date of grant.

(2)           The grant of these options as an incentive equity awardon September 13, 2006 is contingent upon shareholder approval of anamendment to increase the common shares authorized for issuance under our 2004Plan, which proposal will be described in detail in our proxy statement for the2007 annual meeting of shareholders. If such shareholder approval is notreceived, the options will terminate immediately following the 2007 annualmeeting of shareholders.

(3)           All options expireten years from the date of grant.

(4)           These options vest 50% in equal monthly installmentsover the first four years from the date of grant and 50% on the seven-yearanniversary of the date of grant. Vesting of the first 50% of the optiongranted to each of Ms. Loewy and Dr. Glassberg accrues but is notcredited until the month of his or her one-year anniversary as an executive ofthe company. Vesting of the second 50% of the option granted to each executiveis subject to 

18

----

accelerated vesting, of upto 25% in each year, to the extent of the company’s actual achievement of theannual performance goals established under the annual incentive bonus program,in the discretion of the equity awards subcommittee of our board of directors.

(5)           The option vests on the seven-year anniversary afterthe date of grant, subject to accelerated vesting, of up to 25% in each year,to the extent of the company’s achievement of the performance goals establishedunder the annual incentive bonus program, in the discretion of the equityawards subcommittee of our board of directors.

(6)           The options vest 25% one year after the date of grantand thereafter in equal monthly installments over the next three years.

(7)           Dr. Glassberg resigned as chief medical officer onMarch 15, 2007, and these stock options terminated on that date.

(8)           Reflects vested stock options received by Dr. Glassbergduring his tenure as a director of the company.

(9)           Ms. Berlandresigned as chief financial officer on July 21, 2006, and her stockoptions have terminated.

**Option Exercises in 2006**

None of the namedexecutives exercised any stock options during 2006.

**Pension Benefits**

We do not provide pension arrangementsor post-retirement health coverage for our executive employees. Our executiveofficers are eligible to participate in our 401(k) defined contributionplan. At our discretion, we may contribute to each participant a matchingcontribution equal to 5% of the participant’s compensation that has beencontributed to the plan, up to a maximum matching contribution of $500. All ofthe named executives, except Dr. Glassberg, participated in our 401(k) planduring fiscal 2006 and received matching contributions.

**Potential Payments Upon Termination or Change ofControl**

All of the namedexecutives (other than Ms. Berland and Dr. Glassberg, who are nolonger executive officers of the company) are parties to standard formexecutive severance and change of control agreements. The information belowdescribes and quantifies certain compensation that would become payable underthese agreements if the named executive’s employment had been terminated on December 31,2006, based on the named executive’s compensation and service levels as of suchdate, and if applicable, based on the company’s closing stock price on December 29,2006 (the last trading day of fiscal 2006). Payments and benefits payable underthe executive severance and change of control agreements are in addition tobenefits paid generally to salaried employees of the company, includingdistributions under the company’s 401(k) plan and accrued salary andvacation pay. The named executives are not entitled to any potential paymentsor benefits not otherwise available generally to salaried employees of thecompany in the event of termination of employment by the company for cause orby the executive without good reason or due to retirement.

**Executive Severance Agreements**

*Termination by the Companywithout Cause or by the Executive for Good Reason Absent a Change of Control.****  ***The executive severanceagreements of Ms. Loewy, Dr. Karlin and Ms. Wight each providesthat, if the executive is terminated without cause, or if the executive resignsfor good reason, he or she is entitled to receive severance pay equal to 75% ofcurrent annual base salary, up to nine months’ medical and dental insurancebenefits and, if applicable, reimbursement of excise taxes. Cash severancepayments are in the form of salary continuation, payable at normal payrollintervals during the nine months following the date of termination. Each ofthese severance agreements runs for an initial term of one year and renewsautomatically for successive one-year periods unless either party gives ninemonths’ prior notice of non-renewal. Dr. McMahon’s executive severanceagreement provides for a severance payment equal to 100% of current annual basesalary, payable in the form of salary continuation for one year following thedate of termination, up to one year’s medical and dental insurance benefitsand, if applicable, 

19

----

reimbursement ofexcise taxes. Dr. McMahon’s severance agreement runs for an initial termof four years and renews automatically for successive two-year periods unlesseither party gives 90 days’ prior notice of non-renewal. In all cases, as acondition to receiving any severance payment, each executive must execute ageneral release of claims against the company in a form satisfactory to thecompany in its sole discretion. To the extent that severance payments andbenefits under the change of control agreements described below are payable tothe named executive, no payments will be made to such executive under his orher executive severance agreement.

The executive severanceagreements define “cause” as:  a clearrefusal to carry out any of the executive’s material lawful duties; apersistent failure to carry out any of the executive’s lawful duties afterreasonable notice and an opportunity to correct the failure; violation by theexecutive of a state or federal criminal law involving a crime against thecompany or any other crime involving moral turpitude; the executive’s currentabuse of alcohol or controlled substances; deception, fraud, misrepresentationor dishonesty by the executive; or any incident materially compromising theexecutive’s reputation or ability to represent the company with the public. “Goodreason” includes a reduction of the executive’s annual base salary below thelevel in effect on the date of the agreement, regardless of any change in theexecutive’s duties; the assignment of the executive to any duties inconsistentwith or resulting in a diminution of the executive’s position, duties orresponsibilities (excluding actions of the company not taken in bad faith andpromptly remedied); requiring the executive to be based at any office orlocation more than a designated number of miles from the city in which theexecutive currently is employed; or the company’s failure to properly assignthe executive severance agreement to a successor entity.

Theestimated net present values of severance and other benefits payable to eachnamed executive, based on a hypothetical termination of employment by thecompany without cause or by the executive with good reason on December 31,2006, in circumstances in which there is no change of control (as defined below)of the company, are set forth in the following table.
| Name                  | ** ** | ** ** | ** ** | **Estimated net  present value of  cash severance  payments  ($)(1)** | ** ** | **Estimated net  present value of  continued medical  and dental benefits  ($)(1)** | ** ** | **Potential excise  tax liability  reimbursable by  the company  ($)(2)** | ** ** | **Total ($)** | ** ** |
|-----------------------|------------|------------|------------|-------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|--------------------|------------|
| Gerald McMahon        |       |       | 390,721    |                                                                                      |       |                                                                                                              | 14,382     |                                                                                          |       |               | 0          |   |   | 405,103 |   |
| Caroline M. Loewy     |       |       | 182,642    |                                                                                      |       |                                                                                                              | 10,783     |                                                                                          |       |               | 0          |   |   | 193,425 |   |
| David A. Karlin       |       |       | 197,549    |                                                                                      |       |                                                                                                              | 9,293      |                                                                                          |       |               | 0          |   |   | 206,842 |   |
| Anna L. Wight         |       |       | 173,090    |                                                                                      |       |                                                                                                              | 10,783     |                                                                                          |       |               | 0          |   |   | 183,873 |   |
| Alan B.  Glassberg(3) |       |       | 146,114    |                                                                                      |       |                                                                                                              | 10,783     |                                                                                          |       |               | 0          |   |   | 156,897 |   |
| Susan D. Berland(4)   |       |       | —     |                                                                                      |       |                                                                                                              | —     |                                                                                          |       |               | —     |   |   | — |   |

----

(1)          Forpurposes of determining the estimated net present value of these payments, adiscount rate of 5% was used.

(2)          Reimbursementof excise tax is required only to the extent that any portion of the paymentsor benefits under the executive severance agreement or any benefits plan wouldbe characterized as an “excess parachute payment” to the executive under Section 280Gof the Code, giving rise to an excise tax payable by the executive under Section 4999of the Code.

(3)          Dr. Glassbergresigned as chief medical officer on March 15, 2007, and his executiveseverance agreement terminated on that date. Dr. Glassberg did not receiveany termination payments under his executive severance agreement in connectionwith the termination of his employment.

(4)          Ms. Berlandresigned as chief financial officer on July 21, 2006, and her executiveseverance agreement terminated on that date. Ms. Berland did not receiveany termination payments under her executive severance agreement in connectionwith the termination of her employment.

20

----

*Termination due to Deathor Total Disability Absent a Change of Control.**  *The executive severance agreement and the executive’semployment terminate automatically upon the death or total disability of theexecutive. “Total disability” is defined as the named executive’s inability toperform his or her essential duties for a period or periods aggregating 12weeks in any 365 day period as a result of physical or mental illness, loss oflegal capacity or any cause beyond the executive’s control, unless the executiveis granted a leave of absence by our board of directors. If the executive’semployment is terminated by reason of death or total disability during the termof the severance agreement, the executive or his or her legal representative isentitled to receive continued medical and dental insurance benefits for up tonine months in the cases of Ms. Loewy, Dr. Karlin and Ms. Wightand for up to one year in the case of Dr. McMahon. The estimated netpresent values of these benefits are reflected in the preceding table.

**Change of ControlAgreements**

*Terminationby the Company without Cause or by the Executive for Good Reason Following aChange of Control.**  *Thechange of control agreements provide each of the named executives withtermination compensation if, within two years following a change of control ofthe company, the executive’s employment is terminated without cause or theexecutive terminates his or her employment for good reason. In such case, thenamed executive is entitled to receive an amount equal to 50% of the annualbonus that would have been paid but for the termination of employment or, ifgreater, the percentage of his or her annual bonus accrued through the date oftermination; one year’s medical and dental insurance benefits; an amount asseverance pay equal to 50% of his or her annual base salary (100% in the caseof Dr. McMahon) for the fiscal year in which the date of termination occurs;and immediate vesting of all of the previously granted stock options held bythe executive. All cash amounts are payable in a lump sum within ten workingdays of the date of termination. Under the terms of our 2004 Plan, all vestedstock options expire three months after the date of termination of service. Theagreements also provide for reimbursement of any excise taxes payable by theexecutive as a consequence of the payments or benefits received under thechange of control agreement or any benefit plan of the company.

A “change of control” under the agreements is deemedto occur upon shareholder approval of certain mergers, consolidations or reorganizationsof the company, the liquidation or dissolution of the company, or the sale ofsubstantially all of the assets of the company; acquisition of beneficialownership of  20% or more of theoutstanding common stock or voting power of the company by a person or group ofrelated persons, if such acquisition was not approved in advance by a majorityof the incumbent directors; acquisition of beneficial ownership of 33% or moreof the outstanding common stock or voting power of the company by a person orgroup of related persons, if such acquisition is approved in advance by amajority of the incumbent directors; or the failure of incumbent board members(or persons nominated or appointed by incumbent board members) to hold amajority of the seats on the company’s board of directors. The definitions of “cause”and “good reason” under the change of control agreements are substantially thesame as those in the executive severance agreements described above. The changeof control agreements of Ms. Loewy, Dr. Karlin and Ms. Wighteach run for an initial one-year term and renew automatically for successiveone-year periods unless either party gives 90 days’ prior written noticeof non-renewal. Dr. McMahon’s change of control agreement runs for aninitial term of four years and renews automatically for successive two-yearperiods unless either party gives 90 days’ prior written notice ofnon-renewal. If a change of control occurs, each agreement automatically renewsand runs for a period of two additional years.

The estimated net presentvalues of severance and other benefits payable to each named executive, basedon a hypothetical termination of employment by the company without cause or bythe executive with good reason on December 31, 2006, following a change ofcontrol of the company, are set forth in the table below.

21

----

 
| Name                  | ** ** | ** ** | ** ** | **Estimated net  present value of  cash severance  payments  ($)(1)** | ** ** | **Estimated net  present value of  continued medical  and dental benefits  ($)(1)** | ** ** | **Estimated  incremental  value of accelerated  vesting of stock  options  ($)(2)** | ** ** | **Potential excise  tax liability  reimbursable by  the company  ($)(3)** | ** ** | **Total ($)** | ** ** |
|-----------------------|------------|------------|------------|-------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|--------------------|------------|
| Gerald McMahon        |       |       | 601,466    |                                                                                      |       |                                                                                                              | 14,760     |                                                                                                    |       |                                                                                          | 0          | (4)                |       |   | 0 |   |   | 616,226 |   |
| Caroline M. Loewy     |       |       | 162,500    |                                                                                      |       |                                                                                                              | 14,760     |                                                                                                    |       |                                                                                          | 0          | (4)                |       |   | 0 |   |   | 177,260 |   |
| David A. Karlin       |       |       | 169,003    |                                                                                      |       |                                                                                                              | 12,720     |                                                                                                    |       |                                                                                          | 34,444     |               |       |   | 0 |   |   | 216,167 |   |
| Anna L. Wight         |       |       | 142,155    |                                                                                      |       |                                                                                                              | 14,760     |                                                                                                    |       |                                                                                          | 0          | (4)                |       |   | 0 |   |   | 156,915 |   |
| Alan B.  Glassberg(5) |       |       | 125,000    |                                                                                      |       |                                                                                                              | 14,760     |                                                                                                    |       |                                                                                          | 38,000     |               |       |   | 0 |   |   | 177,760 |   |
| Susan D. Berland(6)   |       |       | —     |                                                                                      |       |                                                                                                              | —     |                                                                                                    |       |                                                                                          | —     |               |       |   | — |   |   | — |   |

----

(1)          For purposes ofdetermining the estimated net present value of these payments, a discount rateof 5% was used.

(2)          Reflects the estimatedincremental value of accelerated vesting of all stock options held by the namedexecutive on December 31, 2006, based on the excess of the closing priceof our common stock at December 29, 2006 (the last trading day preceding December 31,2006) over the exercise prices of such options.

(3)          Reimbursement of excisetax is required only to the extent that any portion of the payments or benefitsunder the change of control agreement or any benefits plan would becharacterized as an “excess parachute payment” to the executive under Section 280Gof the Code, giving rise to an excise tax payable by the executive under Section 4999of the Code.

(4)          There is no value shownfor accelerated vesting of stock options because the exercise prices of allunvested stock options held by the executive at December 31, 2006 wereabove $5.00 per share, the closing sale price of our common stock on December 29,2006.

(5)          Dr. Glassberg resignedas chief medical officer on March 15, 2007 and his change of controlagreement terminated on that date.

(6)          Ms. Berlandresigned as chief financial officer on July 21, 2006 and her change ofcontrol agreement terminated on that date.

*Termination due to Deathor Total Disability Following a Change of Control.**  *The change of control agreement and the executive’semployment during the two years following a change of control terminateautomatically upon the death or total disability of the named executive. “Totaldisability” is defined in the agreements as the named executive’s inability toperform his or her essential duties for a period or periods aggregating 12weeks in any 365 day period as a result of physical or mental illness, loss oflegal capacity or any cause beyond the executive’s control, unless theexecutive is granted a leave of absence by our board. If the executive’semployment is terminated by reason of death or total disability during the twoyears following a change of control of the company, the executive or his or herlegal representatives are entitled to continued medical and dental insurancebenefits for up to one year. The estimated net present values of these benefitsare reflected in the preceding table.

**DirectorCompensation**

For 2006, non-employee directors received an annualfee of $20,000 for service on the board of directors, together with a fee of$1,500 for each in-person board meeting attended. Payment for attendance attelephonic board meetings was $500 for up to one hour, $1,000 for one to twohours and $1,500 for more than two hours. Non-employee directors also receiveda fee of $500 for attendance at each meeting of a committee on which theyserved. The audit committee chairman received an annual retainer in 2006 of$10,000, and each audit committee member received a 2006 annual retainer of$6,000. The chairmen of the 

22

----

compensation committee andthe nominating and corporate governance committee received annual retainers in2006 of $6,500. The members of each of the compensation committee and thenominating and corporate governance committee received a 2006 annual retainerof $4,000. We also reimburse each of our non-employee directors for reasonabletravel expenses incurred in connection with attending board and board committeemeetings. In 2006, we paid special cash awards of $50,000 each to Drs. Cravesand Goldfischer in recognition of their past services in assisting andrendering financial advice in connection with financial and strategicopportunities and our April 2006 equity financing.

Non-employee directors also receive stock optiongrants under our Stock Option Grant Program for Nonemployee Directors, or theNED Program, which is administered under our 2004 Plan. Each new non-employeedirector, upon election or appointment to the board of directors, receives aninitial option to purchase 8,333 shares of common stock at an exercise priceequal to the fair market value per share of common stock on the grant date. Inaddition, each non-employee director automatically receives an annual optiongrant to purchase 3,333 shares of common stock following each annual meeting ofshareholders at an exercise price equal to the fair market value per share ofcommon stock on the grant date, provided that a non-employee director who has receivedthe initial option grant for 8,333 shares of common stock within five monthsprior to any such annual meeting of shareholders, does not receive the annualoption grant for such annual meeting. In addition to annual option grants underthe NED Program, the equity awards subcommittee in 2006 approved special awardsof stock options to each non-employee director (except Dr. Glassberg and Messrs. Simonand Martell) related to the closing of our 2006 equity financing. All optionsgranted to non-employee directors under the NED Program have a term of tenyears and vest 50% one year after the date of grant and 50% two years after thedate of grant.

Thefollowing table presents information relating to total compensation ofdirectors for the fiscal year ended December 31, 2006.

| **Name(1)**                | ** ** | ** ** | ** ** | **Fees Earned  or Paid in  Cash  ($)(2)** | *** *** | **Option  Awards  ($)  (3),(4), (5)** | ** ** | **All Other  Compensation  ($)(6)** | ** ** | **Total  ($)** | ** ** |
|----------------------------|------------|------------|------------|----------------------------------------------------------|--------------|--------------------------------------------|------------|------------------------------------------|------------|----------------|------------|
| Fred B. Craves             |       |       | 35,000     |                                                     |         |                                       | 91,011     | (7)                                      |       |           | 50,000     |   |   | 176,011 |   |
| E. Rolland  Dickson        |       |       | 47,250     |                                                     |         |                                       | 92,241     | (7)                                      |       |           |       |   |   | 139,491 |   |
| Alan B.  Glassberg(8)      |       |       | 9,000      |                                                     |         |                                       | 23,057     |                                     |       |           |       |   |   | 32,057 |   |
| Carl S.  Goldfischer       |       |       | 33,000     |                                                     |         |                                       | 91,011     | (7)                                      |       |           | 50,000     |   |   | 174,011 |   |
| Robert M. Littauer         |       |       | 51,500     |                                                     |         |                                       | 98,342     | (7)                                      |       |           |       |   |   | 149,842 |   |
| Ronald A.  Martell(9)      |       |       | 31,500     |                                                     |         |                                       | 11,802     | (10)                                     |       |           |       |   |   | 43,302 |   |
| Nicholas J. Simon  III(11) |       |       | 33,250     |                                                     |         |                                       | 19,997     | (12)                                     |       |           |       |   |   | 53,247 |   |
| David R. Stevens           |       |       | 47,000     |                                                     |         |                                       | 98,342     | (7)                                      |       |           |       |   |   | 145,342 |   |
| Alan A. Steigrod(13)       |       |       | 30,500     |                                                     |         |                                       | 39,613     | (7)                                      |       |           |       |   |   | 70,113 |   |

----

(1)          GeraldMcMahon, our chief executive officer, president and chairman of the board, isnot included in this table because he is an employee of the company and doesnot receive separate compensation for his services as a director. Thecompensation received by Dr. McMahon as an executive officer of thecompany is shown in the Summary Compensation Table above.

(2)          Includesall annual retainer fees, committee and chairmanship fees and meeting fees. Allannual retainer fees are paid to board members, committee members and committeechairs semi-annually in advance of services, rather than in arrears. Accordingly,retainer fees for the first half of 2006 were paid in December 2005, andretainer fees for the second half of the 2006 were paid in June 2006.

**(**3)          The amounts reported in the OptionAwards column represent the dollar amount recognized as stock-basedcompensation expense in 2006 for financial reporting purposes, related to stockoptions granted to each director in 2006 and prior years, excluding anyreduction for estimated forfeitures, determined 

23

----

in accordance with SFAS 123R. See Note 3, “Stock-BasedCompensation,” of the notes to consolidated financial statements of the companyset forth in our Annual Report on Form 10-K for the year ended December 31,2006 for the assumptions used in determining such amounts.

(4)          Alloptions reflected in this column have a ten-year term, vest 50% one year afterthe date of grant and 50% two years after the date of grant, and have anexercise price equal to the closing sales price of our common stock on the datethat the option was granted.

(5)          AtDecember 31, 2006, each director named in the table above held options forthe following number of common shares:  Dr. Craves:84,993; Dr. Dickson: 71,659; Dr. Glassberg: 111,250 (includes optionsfor 100,000 shares received in his capacity as chief medical officer); Dr. Goldfischer:92,494; Mr. Littauer: 50,831; Mr. Martell: 8,333; Mr. Simon:8,333; Dr. Stevens: 50,831; and Mr. Steigrod: 70,826. The full grantdate fair value of the options granted to each director in 2006, determined inaccordance with SFAS 123R, was as follows: Dr. Craves: $187,869; Dr. Dickson: $187,869; Dr. Glassberg:$0; Dr. Goldfisher: $187,869; Mr. Littauer: $187,869; Mr. Martell:$45,890; Mr. Simon; $58,705; Dr. Stevens: $187,869; and Mr. Steigrod:$187,869. See Note 3, “Stock-Based Compensation,” of the notes to consolidatedfinancial statements of the company set forth in our Annual Report on Form 10-Kfor the year ended December 31, 2006 for the assumptions used indetermining such fair value.

(6)          Reflectsspecial cash awards paid in recognition of past services in assisting andrendering financial advice to the company in connection with financial andstrategic opportunities and our 2006 equity financing.

(7)          Reflectsan option award to purchase 20,833 common shares at $ 7.50 per share granted onApril 29, 2006 and an option award to purchase 7,500 common shares at$6.48 per share granted on June 16, 2006.

(8)          Dr. Glassberg’sterm as a director expired on June 16, 2006. Dr. Glassberg joined thecompany as chief medical officer on July 24, 2006. This table reflectsonly the compensation that Dr. Glassberg earned in 2006 as a director. Thecompensation earned by Dr. Glassberg in 2006 as an executive officer ofthe company is shown in the Summary Compensation Table above. Dr. Glassbergresigned as chief medical officer on March 15, 2007.

(9)          Mr. Martelljoined the board on June 26, 2006.

(10) Reflects NED Program option award to purchase8,333 common shares at $6.00 per share granted on June 26, 2006.

(11) Mr. Simon joined the board on April 26,2006.

(12) Reflects NED Program option award to purchase8,333 common shares at $7.68 per share granted on April 26, 2006.

(13) Mr. Steigrod retired from the board on August 14,2006. In connection with such retirement, the board approved the accelerationof vesting of all of Mr. Steigrod’s outstanding stock options. Theincremental decrease in full grant date fair value that resulted from theacceleration of vesting of Mr. Steigrod’s stock options, determined inaccordance SFAS 123R, was $100,731.

24

----

**CompensationCommittee Interlocks and Insider Participation**

All members of the compensationcommittee of our board of directors are independent directors, and none of themare present or past employees of the company, except Mr. Littauer, whoserved the company in various management positions from 1987 to 1996. None ofour executive officers serves as a member of the compensation committee orboard of directors of any entity that has an executive officer serving as amember of our compensation committee or board of directors.

***Item 12.****                   SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS*

The following table setsforth certain information regarding beneficial ownership, as of April 11,2007, of the company’s common stock by (a) each person known by the boardof directors to beneficially own more than 5% of the outstanding common stock, (b) eachdirector and nominee for director, (c) our chief executive officer andeach executive officer named in the Summary Compensation Table, and (d) allexecutive officers and directors as a group. Except as otherwise indicated, webelieve that the beneficial owners of the shares listed below have soleinvestment and voting power with respect to the shares.
| Name and Address of Beneficial Owner                                                                                                                                                     | ** ** | ** ** | ** ** | **Common   Shares   Beneficially   Owned(1)** | ** ** | **Percent of   Common   Shares   Outstanding(2)** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------------|------------|--------------------------------------------------------|------------|
| MPM BioVentures III, L.P.,  MPM BioVentures III-QP, L.P., MPM BioVentures III GmbH & Co. Beteiligungs  KG, MPM BioVentures III Parallel Fund, L.P. and MPM Asset Management  Investors 2005 BVIII LLC(3) |       | 7,748,092  |       |                                          | 31.5       | %                                                      |       |
| The John Hancock Tower  200 Carendon Street, 54th Floor  Boston, MA 02116                                                                                                                                    |       |       |       |                                          |       |                                                   |       |
| Bay City Capital  Fund IV, L.P. and Bay City Capital Fund IV Co-Investment Fund, L.P., Bay City  Capital Management IV LLC and Bay City Capital LLC(4)                                                  |       | 4,646,357  |       |                                          | 19.5       | %                                                      |       |
| 750 Battery  Street, Suite 400  San Francisco, CA 94111                                                                                                                                                      |       |       |       |                                          |       |                                                   |       |
| Deerfield Capital, L.P.,  Deerfield Special Situations Fund, L.P., Deerfield Management Company, L.P.,  Deerfield Special Situations Fund International Limited and James E. Flynn(5)                             |       | 2,323,177  |       |                                          | 9.95       | %                                                      |       |
| 780 Third Avenue, 37th Floor  New York, NY 10017                                                                                                                                                             |       |       |       |                                          |       |                                                   |       |
| Abingworth  Management Limited(6)                                                                                                                                                                                 |       | 1,548,784  |       |                                          | 6.7        | %                                                      |       |
| Princess House  38 Jermyn Street  London, England SW1Y 6DN                                                                                                                                                        |       |       |       |                                          |       |                                                   |       |
| Michael A. Roth and Brian J.  Stark (as joint filers pursuant to Rule 13d-1(k))(7)                                                                                                                           |       | 1,393,907  |       |                                          | 6.0        | %                                                      |       |
| 3600 South Lake Drive  St. Francis, WI 53235                                                                                                                                                                      |       |       |       |                                          |       |                                                   |       |

25

----

 
| OrbiMed Advisors LLC,  OrbiMed Capital LLC and Samuel D. Isaly(8)       |   | 1,343,000  |   |   | 5.9    | %      |   |
|-------------------------------------------------------------------------------------------------------|--------|------------|--------|--------|--------|--------|--------|
| 767 Third Avenue,  30th Floor  New York, NY 10017                                                     |   |       |   |   |   |   |   |
| Gerald McMahon(9)                                                                                     |   | 130,696    |   |   | *      |   |   |
| Fred B.  Craves(10)                                                                                   |   | 4,736,123  |   |   | 19.8   | %      |   |
| E. Rolland Dickson(11)                                                                                |   | 46,245     |   |   | *      |   |   |
| Carl S.  Goldfischer(12)                                                                              |   | 4,716,353  |   |   | 19.7   | %      |   |
| Robert M. Littauer(13)                                                                                |   | 25,000     |   |   | *      |   |   |
| Ronald A. Martell                                                                                     |   | 0          |   |   | *      |   |   |
| Nicholas J.  Simon, III(14)                                                                      |   | 7,748,092  |   |   | 31.5   | %      |   |
| David R.  Stevens(15)                                                                                 |   | 30,750     |   |   | *      |   |   |
| Caroline M. Loewy(16)                                                                                 |   | 8,333      |   |   | *      |   |   |
| David A.  Karlin(17)                                                                                  |   | 31,251     |   |   | *      |   |   |
| Anna L. Wight(18)                                                                                     |   | 64,025     |   |   | *      |   |   |
| Alan B.  Glassberg(19)                                                                                |   | 11,250     |   |   | *      |   |   |
| Susan D. Berland(20)                                                                                  |   | 0          |   |   | *      |   |   |
| Directors and  executive officers as a group (14 persons)(21)                               |   | 12,901,761 |   |   | 49.4   | %      |   |

----

*                    Less than 1%

(1)          Beneficial ownership isdetermined in accordance with the rules of the SEC and generally includesvoting or investment power with respect to securities. Shares of common stockowned as of April 11, 2007 and shares of common stock which are issuablewithin 60 days of April 11, 2007, including pursuant to options or warrantsto purchase common stock, are deemed beneficially owned for computing thepercentage of the person holding such securities, but are not consideredoutstanding for purposes of computing the percentage of any other person.

(2)          Based on 22,808,233 shares of commonstock outstanding on April 11, 2007.

(3)          Includes 1,785,713shares of common stock issuable upon exercise of warrants and 4,167 shares ofcommon stock subject to options issuable within 60 days. MPM BioVentures III GP, L.P. and MPM BioVenturesIII LLC (MPM III LLC) are the direct and indirect general partners of MPMBioVentures III-QP, L.P., MPM BioVentures III, L.P., BioVentures III ParallelFund, L.P. and MPM BioVentures III GmbH & Co. Beteiligungs KG (the MPMIII Funds). Luke Evnin, Ansbert Gadicke, Nicholas Galakatos, Dennis Henner,Nicholas J. Simon III, Michael Steinzmetz and Kurt Wheeler are members of MPMIII LLC and MPM Asset Management Investors 2005 BVIII LLC (AM 2005) andexercise voting and investment control over the securities owned by the MPM IIIFunds and AM 2005. Each such individual disclaims beneficial ownership of thesecurities held by the MPM III Funds and AM 2005. Mr. Simon is a directorof the company and the record holder of the option shares beneficially owned bythe MPM Funds and AM 2005.

26

----

(4)          Includes 1,071,428shares of common stock issuable upon exercise of warrants. Bay City Management is general partner to BayCity Capital Fund IV, L.P. and Bay City Capital Fund IV Co-Investment Fund, L.P.(the BCC Funds) and has voting and investment control over the securities heldby the BCC Funds. Such control is exercised by BCC as manager of Bay City Management.Fred B. Craves and Carl S. Goldfischer, directors of the company, are managersof Bay City Management and members and managing directors of BCC. Dr. Cravesand Dr. Goldfischer each disclaims beneficial ownership of the securitiesheld by the BCC Funds.

(5)          Includes 535,714 sharesof common stock issuable upon exercise of warrants. Deerfield Capital, L.P. is the general partner of Deerfield SpecialSituations Funds, L.P. Deerfield Management, L.P. is the investment manager ofthe Deerfield Special Situations Fund International Limited. James E.Flynn is the managing member of the general partner of Deerfield Capital, L.P.and Deerfield Management, L.P., respectively, and exercises voting andinvestment control over the securities owned by Deerfield Special SituationsFunds, L.P. and Deerfield Special Situations Fund Limited, International(together, the Deerfield Funds). Mr. Flynn disclaims beneficial ownershipof the securities held by the Deerfield Funds.

(6)          Includes 357,143 sharesof common stock issuable upon exercise of warrants. Abingworth Management Ltd. is the investment manager of AbingworthBioequities Master Fund Limited, Abingworth Bioventures IV LP, and AbingworthBioventures IV Executives LP (the Abingworth Funds) and exercises voting andinvestment control over the securities owned by the Abingworth Funds. Dr. JoeAnderson, Mr. Michael Bigham, Dr. Stephen Bunting, Mr. DavidLeathers and Dr. Jonathan McQuitty comprise the investment committee of AbingworthManagement Ltd. Each such individual disclaims beneficial ownership of thesecurities held by Abingworth Management Ltd. and the Abingworth Funds.

(7)          Includes 321,429 sharesof common stock issuable upon exercise of warrants. All shares beneficially ownedare held directly by Stark Master Fund, Ltd. Michael A. Roth and Brian J. Stark exercise voting and investment controlover the securities owned by Stark Master Fund Ltd.  Messrs. Roth and Stark each disclaimsbeneficial ownership of the securities held by Stark Master Fund, Ltd.

(8)          OrbiMedAdvisors LLC and OrbiMed Capital LLC hold these shares as investment advisorson behalf of Caduceus Capital Master Fund Limited, Caduceus Capital II, L.P.,UBS Eucalyptus Fund LLC, PW Eucalyptus Fund Ltd. and HFR Sch Aggressive MasterTrust, each of which has the right to receive or power to direct the receipt ofdividends from, or proceeds from the sale of, the securities held on its behalf.Samuel D. Isaly is President of OrbiMed Advisors LLC and Managing Director ofObiMed Capital LLC. See Schedule 13G filed with the SEC on April 3, 2007.

(9)          Includes 129,863 sharesof common stock subject to options exercisable within 60 days.

(10) Includes 3,574,928 shares of common stock beneficially owned by theBCC Funds (see note (4) above), 1,071,428 shares of common stock subjectto warrants owned by BCC Funds and 49,162 shares of common stock subject tooptions exercisable within 60 days held by Dr. Craves. Dr. Craves disclaims beneficial ownership ofthe securities held by the BCC Funds.

(11) Includes 45,412 shares of common stock subject to optionsexercisable within 60 days.

(12) Consists of 3,574,928 shares of common stock beneficially owned by theBCC Funds (see note (4) above), 1,071,428 shares of common stock subject towarrants owned by BCC Funds and 66,663 shares of common stock subject tooptions exercisable within 60 days held by Dr. Goldfischer. Dr. Goldfischerdisclaims beneficial ownership of the securities held by the BCC Funds.

(13) Includes 25,000 shares of common stock subject to optionsexercisable within 60 days.

27

----

(14) Consists of 7,748,092 shares of common stock beneficially owned bythe MPM Funds and AM 2005 (see note (3) above).  Mr. Simon disclaims beneficial ownershipof the securities held by the MPM Funds and AM 2005.

(15) Includes 25,000 shares of common stock subject to options exercisablewithin 60 days.

(16) Includes 8,333 shares of common stock subject to options exercisablewithin 60 days.  Ms. Loewy became anexecutive officer on June 23, 2006.

(17) Includes 31,251 shares of common stock subject to optionsexercisable within 60 days.

(18) Includes 60,744 shares of common stock subject to optionsexercisable within 60 days.

(19) Includes 11,250 shares of common stock subject to optionsexercisable within 60 days. Dr. Glassberg resigned as chief medicalofficer effective March 15, 2007.

(20) Ms. Berland resigned as chief financial officer effective July 21,2006.

(21)   Includes 2,857,143 shares ofcommon stock issuable upon exercise of warrants and 456,706 shares of commonstock subject to options exercisable within 60 days.

28

----

**Equity Compensation Plan Information**

Thefollowing table presents information as of December 31, 2006 with respectto our compensation plans, including individual compensation arrangements,under which equity securities of the company are authorized for issuance toemployees and non-employees of the company (such as directors, consultants,advisors, vendors, customers, suppliers or lenders):
| Plan Category                                         | ** ** | ** ** | ** ** | **(a)  Number of Securities to  be Issued Upon Exercise  of Outstanding Options,  Warrants and Rights(#)** | ** ** | **(b)  Weighted-Average  Exercise Price of  Outstanding Options,  Warrants and Rights($)** | ** ** | **(c)  Number of Securities  Remaining Available for  Future Issuance Under  Equity Compensation  Plans (excluding  securities reflected in  column (a))(#)** | ** ** |
|------------------------------------------------------------|------------|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  Compensation Plans Approved by Shareholders(1)     |       |       | 1,659,613  |                                                                                                                                                         |       |                                                                                                                | 10.50      |                                                                                                                                                                                                                 |       |   | 293,197 |   |   |
| Equity  Compensation Plans Not Approved by Shareholders(2) |       |       | 5,946,876  |                                                                                                                                                         |       |                                                                                                                | 6.09       |                                                                                                                                                                                                                 |       |   | 0 |   |   |
| Total                                                      |       |       | 7,606,489  |                                                                                                                                                         |       |                                                                                                                | 7.05       |                                                                                                                                                                                                                 |       |   | 293,197 |   |   |

----

(1)          Includes the 1991 StockOption Plan for Non-Employee Directors (1991 Plan), the 1991 Restricted StockPlan (Restricted Plan), the 1994 Stock Option Plan (1994 Plan), and the 2004Plan. The 1991 Plan was terminated on March 31 2005 and the 1994 Plan wasterminated on February 17, 2004. Accordingly, no further equity derivativesecurities can be issued under the 1991 and 1994 Plans. For a description ofthe foregoing plans, see Note 12 to the notes to consolidated financialstatements contained in our Annual Report on Form 10-K for the yearended December 31, 2006.

(2)          Reflectsa warrant issued for placement agent services in connection with our April 2006equity financing, warrants issued to financial institutions participating in aterm loan, and a warrant issued to a consultant for investor relationsservices.

***Item 13.****                   CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE*

In accordance with its audit charter, the auditcommittee of our board of directors reviews all relationships and transactionsin which the company and our directors and executive officers or theirimmediate family members are participants to determine whether such personshave a direct or indirect material interest. As required under the SEC rules,transactions that are determined to be directly or indirectly material to thecompany or a related person are disclosed in the company’s Annual Report onForm 10-K and proxy statement. In addition, the audit committee reviewsand approves or ratifies any related person transaction that is required to bedisclosed. Any member of the audit committee who is a related person withrespect to a transaction under review cannot participate in the deliberationsor vote respecting approval or ratification of the transaction.

BCC, an affiliate of BayCity Management, is a financial advisor to and indirectly controls the Bay CityFunds, which were among the lead investors in our $65 million equity financingthat closed on April 26, 2006. Two of our directors, Dr. Fred Cravesand Dr. Carl Goldfischer, are managing directors of BCC and possesscapital and carried interests in the Bay City Funds. Nicholas J. Simon, who wasnamed a company director following the financing, is affiliated with the MPMFunds and AM 2005, which also were lead investors in our April 2006financing, and possesses capital and carried interests in the MPM Funds and AM2005. The audit committee reviewed and approved or ratified the 2006 equityfinancing and related transactions.

29

----

**Board Independence**

The board of directors hasdetermined that, with the exceptions of Drs. McMahon, Craves andGoldfischer, all of our current directors and director nominees are “independentdirectors” as defined in Rule 4200 of the Nasdaq Marketplace Rules.

***Item 14.****                   PRINCIPALACCOUNTANT FEES AND SERVICES*

**Principal AccountantFees and Services**

Theaggregate fees billed for professional services rendered by KPMG LLP for fiscalyears 2006 and 2005 were as follows:

| ** **             | ** ** | **Year Ended December 31,** | ** ** |
|------------------------|------------|--------------------------------------------|------------|
| ** **             | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| Audit Fees(1)          |       | $                                          | 300,000    |   | $ | 236,000 |   |
| Audit-Related  Fees(2) |       | 38,000                                     |       | 20,000 |   |
| Tax Fees(3)            |       | 0                                          |       | 10,200 |   |
| All Other Fees         |       | 0                                          |       | 0 |   |
|                        |            |                                            |            |  |  |  |  |

----

(1)          Audit Fees consisted offees for audit of our financial statements for fiscal years 2006 and 2005,respectively, and reviews of our quarterly financial statements. Additionalaudit fees in 2006 related to the audit of management’s report on internalcontrol over financial reporting pursuant to Section 404 of the Sarbanes-OxleyAct of 2002. 

(2)          Audit-Related Feesconsisted principally of fees related to providing auditors’ consents forForm S-3 and S-8 registration statements filed with the SEC. 

(3)          Tax Fees consisted oftax compliance, tax planning and tax advice.

 

The audit committee hasconsidered and believes the provision of non-audit services is compatible withmaintaining the independence of KPMG LLP. All of the hours expended on KPMG LLP’sengagement to audit our financial statements for fiscal years 2006 and 2005were attributed to work performed by persons who are full-time, permanentemployees of KPMG LLP.

**Audit CommitteePre-Approval Policy**

The audit committee of ourboard of directors has adopted a policy for the pre-approval of all audit andnon-audit services provided by our independent accountants. The policy isdesigned to ensure that the provision of these services does not impair theaccountants’ independence. Under this policy, any services provided by theindependent accountants, including audit, audit-related, tax and otherservices, must be specifically pre-approved by the audit committee. The auditcommittee may delegate pre-approval authority to one or more of its members. Theaudit committee does not delegate responsibilities to pre-approve servicesperformed by the independent accountants to management. All audit and non-auditservices provided by our independent accountants in 2006 were pre-approved bythe audit committee.

**PART IV**

***Item 15.****                   EXHIBITSAND FINANCIAL STATEMENT SCHEDULES*

(a)          (3) Exhibits—See Exhibit Index filed herewith.

(b)         Exhibits—See Exhibit Index filed herewith.

30

----

**SIGNATURES**

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

|        |   | PONIARD PHARMACEUTICALS,  INC. |
|--------|--------|--------------------------------|
|   |   | (Registrant)                   |
|   |   | /s/ CAROLINE  M. LOEWY         |
|   |   | Caroline M. Loewy              |
|   |   | Chief Financial Officer        |

 

Date: April 12,2007

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the Registrant and in the capacities and as ofthe dates indicated:
| /s/ GERALD MCMAHON         |   | Chairman, President and |   | April 12, 2007 |
|----------------------------|--------|-------------------------|--------|---------------------|
| Gerald McMahon             |   | Chief Executive Officer |   |                |
| /s/ FRED  B. CRAVES        |   | Director                |   | April 12, 2007 |
| Fred B. Craves             |   |                    |   |                |
| /s/ E.  ROLLAND DICKSON    |   | Director                |   | April 12, 2007 |
| E. Rolland Dickson         |   |                    |   |                |
| /s/ CARL  S. GOLDFISCHER   |   | Director                |   | April 12, 2007 |
| Carl S. Goldfischer        |   |                    |   |                |
| /s/ ROBERT  M. LITTAUER    |   | Director                |   | April 12, 2007 |
| Robert M. Littauer         |   |                    |   |                |
| /s/ DAVID  R. STEVENS      |   | Director                |   | April 12, 2007 |
| David R. Stevens           |   |                    |   |                |
| /s/ NICHOLAS  J. SIMON III |   | Director                |   | April 12, 2007 |
| Nicholas J. Simon III      |   |                    |   |                |
| /s/ RONALD  A. MARTELL     |   | Director                |   | April 12, 2007 |
| Ronald A. Martell          |   |                    |   |                |
| /s/ MICHAEL  K. JACKSON    |   | Principal Accounting    |   | April 12, 2007 |
| Michael K. Jackson         |   | Officer                 |   |                |

 

31

----

**EXHIBITINDEX**
| Exhibit                     | ** ** | **Description**                                                                                                                                                                                                                        | ** ** | ** ** |
|-----------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|   3.1   |       | Amended and Restated Articles of Incorporation, as amended  February 7, 2007                                                                                                                                                      |       | (N)        |
|   3.2   |       | Restated Bylaws, as amended March 28, 2006                                                                                                                                                                                        |       | (V)        |
| 10.1              |       | Restated 1994 Stock Option Plan (‡)                                                                                                                                                                                               |       | (F)        |
| 10.2              |       | 1991 Stock Option Plan for Non-Employee Directors, as amended  (‡)                                                                                                                                                                |       | (E)        |
| 10.3              |       | Reserved.                                                                                                                                                                                                                              |       |       |
| 10.4              |       | Indemnification Agreement (‡)                                                                                                                                                                                                     |       | (H)        |
| 10.5              |       | Stock Option Grant Program for Nonemployee Directors under the  NeoRx 2004 Incentive Compensation Plan, as amended (‡)                                                                                                            |       | (B)        |
| 10.6              |       | Stock Option Agreement, dated December 19, 2000, between  NeoRx Corporation and Carl S. Goldfischer (‡)                                                                                                                      |       | (I)        |
| 10.7              |       | Stock Option Agreement, dated January 17, 2001, between  NeoRx Corporation and Carl S. Goldfischer (‡)                                                                                                                       |       | (I)        |
| 10.8              |       | 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)        |
| 10.9              |       | 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)        |
| 10.10                       |       | Stock Option Grant Program for Nonemployee Directors under the  NeoRx Corporation 1994 Restated Stock Option Plan (‡)                                                                                                             |       | (M)        |
| 10.11                       |       | Facilities Lease dated February 15, 2002, between NeoRx  Corporation and Selig Real Estate Holdings Six                                                                                                                           |       | (A)        |
| 10.12                       |       | Amended and Restated 2004 Incentive Compensation Plan as amended  and restated June 16, 2006 (‡)                                                                                                              |       | (G)        |
| 10.13                       |       | Reserved.                                                                                                                                                                                                                              |       |       |
| 10.14                       |       | Key Executive Severance Agreement dated as of February 28,  2003, between the Company and Anna Wight (‡)                                                                                                                     |       | (C)        |
| 10.15                       |       | Amendment No. 1 dated as of March 30, 2005 to Key  Executive Severance Agreement dated as of February 28, 2003, between the  Company and Anna Wight (‡)                                                            |       | (L)        |
| 10.16                       |       | Change of Control Agreement dated as of February 28, 2003,  between the Company and Anna Wight (‡)                                                                                                                           |       | (C)        |
| 10.17                       |       | Key Executive Severance Agreement dated as of June 23,  2005, between the Company and David A. Karlin (‡)                                                                                                                    |       | (P)        |
| 10.18                       |       | Change of Control Agreement dated as of June 23, 2005,  between the Company and David A. Karlin (‡)                                                                                                                     |       | (P)        |
| 10.19                       |       | Employment Letter dated as of April 26, 2004, between the  Company and Gerald McMahon (‡)                                                                                                                                    |       | (L)        |
| 10.20                       |       | Key Executive Severance Agreement dated as of May 11, 2004,  between the Company and Gerald McMahon (‡)                                                                                                                      |       | (R)        |
| 10.21                       |       | Change of Control Agreement dated as of May 11, 2004,  between the Company and Gerald McMahon (‡)                                                                                                                            |       | (R)        |
| 10.22                       |       | Reserved.                                                                                                                                                                                                                              |       |       |

----

 
| 10.23            |   | Reserved.                                                                                                                                                                                                                        |   |   |
|------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| 10.24            |   | Key Employee Severance Agreement dated as of July 11, 2006,  between the Company and Michael K. Jackson (‡)                                                                                                            |   | (X)    |
| 10.25            |   | Form of Non-Qualified Stock Option Agreement under 2004  Incentive Compensation Plan (‡)                                                                                                                               |   | (O)    |
| 10.26            |   | Form of Incentive Stock Option Agreement under 2004  Incentive Compensation Plan (‡)                                                                                                                              |   | (O)    |
| 10.27            |   | Key Executive Severance Agreement dated as of June 23,  2006, between the Company and Caroline M. Loewy (‡)                                                                                                            |   | (S)    |
| 10.28            |   | Change of Control Agreement dated as of June 23, 2006,  between the Company and Caroline M. Loewy (‡)                                                                                                                  |   | (S)    |
| 10.29            |   | Executive Severance Agreement dated as of June 23, 2006,  between the Company and Cheni Kwok (‡)                                                                                                             |   | (S)    |
| 10.30            |   | Change of Control Agreement dated as of July 1, 2006,  between the Company and Cheni Kwok (‡)                                                                                                 |   | (S)    |
| 10.31            |   | Research Funding and Option Agreement dated August 4, 2005,  between the Company and The Scripps Research Institute. Certain portions of  the agreement have been omitted pursuant to a request for confidential  treatment |   | (U)    |
| 10.32            |   | Form of Directors’ Indemnification Agreements (‡)                                                                                                                                                                 |   | (K)    |
| 10.33            |   | Lease Agreement dated as of July 10, 2006, between the  Company and ARE San Francisco No. 17 LLC                                                                                                                  |   | (W)    |
| 10.34            |   | Loan and Security Agreement dated as of October 25, 2006,  among the Company, Silicon Valley Bank and Merrill Lynch Capital                                                                                                 |   | (J)    |
| 10.35            |   | Secured  Promissory Notes to Silicon Valley Bank and Merrill Lynch Capital                                                                                                                                                       |   | (J)    |
| 23.1   |   | Consent of KPMG  LLP                                                                                                                                                                                                             |   | (**)   |
| 31.1   |   | Rule 13a-14(a)/15d-14(a) Certification  of President and 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 President and Chief Executive Officer                                                                                                                                                        |   | (**)   |
| 32.2   |   | Section 1350  Certification of Chief Financial Officer                                                                                                                                                                      |   | (**)   |

----

| (**)     |   | Previously filed with the Annual Report on Form 10-K  filed on March 16, 2007.                                                                                                        |
|----------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (‡) |   | 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)      |   | Filed as an exhibit to the Company’s Current Report on  Form 8-K filed June 16, 2005, and incorporated herein by  reference.                                                     |
| (C)      |   | Filed as an exhibit to the Company’s Registration Statement on  Form S-3/A (Registration No. 333-111344) filed on  February 23, 2004, and incorporated herein by reference. |
| (D)      |   | Reserved.                                                                                                                                                                                       |
| (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 June 21, 2006 and incorporated herein by  reference.                                |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (H) |   | Filed as an exhibit to the Company’s Form 10-Q for  the quarterly period ended March 31, 1996, and incorporated herein by  reference.                         |
| (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 October 31, 2006, 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 and June 27, 2006,  and incorporated herein by reference. |
| (L) |   | Filed as an exhibit to the Company’s Form 10-Q for  the quarterly period ended March 31, 2005, 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 September 26, 2006, 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 Current Report on  Form 8-K filed on June 29, 2005, 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 Form 10-Q for  the quarterly period ended June 30, 2004, and incorporated herein by  reference.                          |
| (S) |   | Filed as an exhibit to the Company’s Current Report on  Form 8-K filed June 23, 2006, and incorporated herein by  reference.                                  |
| (T) |   | Reserved.                                                                                                                                                                    |
| (U) |   | Filed as an exhibit to the Company’s Form 10-Q for  the quarterly period ended September 30, 2005, and incorporated herein  by reference.                     |
| (V) |   | Filed as an exhibit to the Company’s Form 10-Q for  the quarterly period ended March 31, 2006 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 June 30, 2006 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.                                                                                                                                                              |

 

----