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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549





FORM 10-Q







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

FOR THE QUARTERLY PERIOD ENDED September 30, 2010

OR



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

FOR THE TRANSITION PERIOD FROM  TO
.

COMMISSION FILE NUMBER: 0-31265





TELIK, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 93-0987903                          
|(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) |  | (I.R.S. EMPLOYER IDENTIFICATION NO.)

3165 PORTER DRIVE, PALO ALTO, CA
94304

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)

(650) 845-7700

(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)





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

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



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

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.



|                                    |  |                                                   
|----------------------------------- |  | --------------------------------------------------
|Class: Common Stock $0.01 par value |  | Outstanding at October 29, 2010: 53,613,572 shares



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TELIK, INC.

INDEX



|                              |  |                                                                                                    |    |      |    | 
|----------------------------- |  | -------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                              |  |                                                                                                    |    | Page |   
|PART I. FINANCIAL INFORMATION | 
|                              |  |                                                                                                   
|Item 1:                       |  | Financial Statements (Unaudited)                                                                   |    |      |    | 
|                              |  |                                                                                                   
|                              |  | Condensed Balance Sheets at September 30, 2010 and December 31, 2009                               |    |      | 3  | 
|                              |  |                                                                                                   
|                              |  | Condensed Statements of Operations for the three and nine months ended September 30, 2010 and 2009 |    |      | 4  | 
|                              |  |                                                                                                   
|                              |  | Condensed Statements of Cash Flows for the nine months ended September 30, 2010 and 2009           |    |      | 5  | 
|                              |  |                                                                                                   
|                              |  | Notes to Condensed Financial Statements                                                            |    |      | 6  | 
|                              |  |                                                                                                   
|Item 2:                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |    |      | 15 | 
|                              |  |                                                                                                   
|Item 3:                       |  | Quantitative and Qualitative Disclosures About Market Risk                                         |    |      | 24 | 
|                              |  |                                                                                                   
|Item 4:                       |  | Controls and Procedures                                                                            |    |      | 25 | 
|                             
|PART II. OTHER INFORMATION    | 
|                              |  |                                                                                                   
|Item 1A:                      |  | Risk Factors                                                                                       |    |      | 26 | 
|                              |  |                                                                                                   
|Item 5:                       |  | Other Information                                                                                  |    |      | 36 | 
|                              |  |                                                                                                   
|Item 6:                       |  | Exhibits                                                                                           |    |      | 38 | 
|                              | 
|SIGNATURES                    |  |                                                                                                    | 39 |     



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PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements (Unaudited)
|------- | --------------------------------

TELIK, INC.

CONDENSED BALANCE SHEETS

(In thousands)



|                                           |  |                   |          |   |                  |   |          |  
|------------------------------------------ |  | ----------------- | -------- | - | ---------------- | - | -------- | -
|                                           |  | September 30,2010 |          |   | December 31,2009 |  
|                                           |  | (Unaudited)       |          |   | (Note 1)         |  
|Assets                                     |  |                   |          |   |                  |   |          |  
|Current assets:                            |  |                   |          |   |                  |   |          |  
|Cash and cash equivalents                  |  | $                 | 2,802    |   |                  | $ | 12,251   |  
|Short-term investments                     |  |                   | 24,177   |   |                  |   | 27,475   |  
|Interest and other receivables             |  |                   | 159      |   |                  |   | 216      |  
|Prepaids and other current assets          |  |                   | 756      |   |                  |   | 4,122    |  
|                                           |  |                   |          |   |                  |   |          |  
|Total current assets                       |  |                   | 27,894   |   |                  |   | 44,064   |  
|                                           |  |                  
|Property and equipment, net                |  |                   | 1,136    |   |                  |   | 1,415    |  
|Restricted investments                     |  |                   | 449      |   |                  |   | 674      |  
|                                           |  |                   |          |   |                  |   |          |  
|Total assets                               |  | $                 | 29,479   |   |                  | $ | 46,153   |  
|                                           |  |                   |          |   |                  |   |          |  
|Liabilities and Stockholders Equity       |  |                   |          |   |                  |   |          |  
|Current liabilities:                       |  |                   |          |   |                  |   |          |  
|Accounts payable                           |  | $                 | 137      |   |                  | $ | 190      |  
|Accrued clinical trial costs               |  |                   | 295      |   |                  |   | 505      |  
|Accrued compensation                       |  |                   | 589      |   |                  |   | 528      |  
|Accrued liabilities                        |  |                   | 494      |   |                  |   | 519      |  
|Notes payable                              |  |                   |         |   |                  |   | 3,101    |  
|                                           |  |                   |          |   |                  |   |          |  
|Total current liabilities                  |  |                   | 1,515    |   |                  |   | 4,843    |  
|                                           |  |                  
|Long-term deferred rent                    |  |                   | 342      |   |                  |   | 376      |  
|                                           |  |                  
|Commitments and contingencies              |  |                   |          |   |                  |   |          |  
|Stockholders equity:                      |  |                   |          |   |                  |   |          |  
|Common stock                               |  |                   | 536      |   |                  |   | 534      |  
|Additional paid-in capital                 |  |                   | 545,597  |   |                  |   | 543,987  |  
|Accumulated other comprehensive loss       |  |                   |         |   |                  |   | (2       | )
|Accumulated deficit                        |  |                   | (518,511 | ) |                  |   | (503,585 | )
|                                           |  |                   |          |   |                  |   |          |  
|Total stockholders equity                 |  |                   | 27,622   |   |                  |   | 40,934   |  
|                                           |  |                   |          |   |                  |   |          |  
|                                           |  |                  
|Total liabilities and stockholders equity |  | $                 | 29,479   |   |                  | $ | 46,153   |  
|                                           |  |                   |          |   |                  |   |          |  

See accompanying Notes to Condensed Financial Statements.



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TELIK, INC.

CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per share
amounts)

(Unaudited)



|                                                              |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                              |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                              |  | 2010                            |        |   | 2009                           |   |        | 2010 |  |   | 2009    |  
|Operating costs and expenses:                                 |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Research and development                                      |  | $                               | 2,569  |   |                                | $ | 3,416  |      |  | $ | 8,202   |   |  | $ | 10,428  |  
|General and administrative                                    |  |                                 | 2,101  |   |                                |   | 2,759  |      |  |   | 6,856   |   |  |   | 8,845   |  
|Restructuring costs                                           |  |                                 |       |   |                                |   |       |      |  |   |        |   |  |   | 951     |  
|                                                              |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Total operating costs and expenses                            |  |                                 | 4,670  |   |                                |   | 6,175  |      |  |   | 15,058  |   |  |   | 20,224  |  
|                                                              |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|                                                              |  |                                 |        |  
|Loss from operations                                          |  |                                 | (4,670 | ) |                                |   | (6,175 | )    |  |   | (15,058 | ) |  |   | (20,224 | )
|                                                              |  |                                 |        |  
|Interest and other income, net                                |  |                                 | 17     |   |                                |   | 80     |      |  |   | 138     |   |  |   | 803     |  
|Interest expense                                              |  |                                 |       |   |                                |   | (12    | )    |  |   | (6      | ) |  |   | (72     | )
|                                                              |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Net loss                                                      |  | $                               | (4,653 | ) |                                | $ | (6,107 | )    |  | $ | (14,926 | ) |  | $ | (19,493 | )
|                                                              |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|                                                              |  |                                 |        |  
|Basic and diluted net loss per share                          |  | $                               | (0.09  | ) |                                | $ | (0.11  | )    |  | $ | (0.28   | ) |  | $ | (0.37   | )
|                                                              |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Shares used to calculate basic and diluted net loss per share |  |                                 | 53,553 |   |                                |   | 53,381 |      |  |   | 53,514  |   |  |   | 53,351  |  
|                                                              |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  

See accompanying Notes to Condensed Financial Statements.



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TELIK, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                            |  |                                |         |   |      |   |         |  
|--------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                            |  | Nine Months EndedSeptember 30, |        
|                                                                            |  | 2010                           |         |   | 2009 |  
|Cash flows from operating activities:                                       |  |                                |         |   |      |   |         |  
|Net loss                                                                    |  | $                              | (14,926 | ) |      | $ | (19,493 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                |         |   |      |   |         |  
|Depreciation and amortization                                               |  |                                | 279     |   |      |   | 420     |  
|Gain on disposal of property and equipment                                  |  |                                | (5      | ) |      |   | (344    | )
|Stock-based compensation expense                                            |  |                                | 1,547   |   |      |   | 1,799   |  
|Change in fair value of marketable securities                               |  |                                | 111     |   |      |   | (5,237  | )
|Change in fair value of rights to sell ARS to UBS                           |  |                                | (111    | ) |      |   | 5,196   |  
|Changes in assets and liabilities:                                          |  |                                |         |   |      |   |         |  
|Other receivables                                                           |  |                                | 57      |   |      |   | (236    | )
|Prepaids and other current assets                                           |  |                                | (54     | ) |      |   | (3,371  | )
|Other assets                                                                |  |                                |        |   |      |   | 3,513   |  
|Accounts payable                                                            |  |                                | (53     | ) |      |   | (951    | )
|Accrued liabilities                                                         |  |                                | (208    | ) |      |   | (582    | )
|                                                                            |  |                                |         |   |      |   |         |  
|Net cash used in operating activities                                       |  |                                | (13,363 | ) |      |   | (19,286 | )
|                                                                            |  |                                |         |   |      |   |         |  
|Cash flows from investing activities:                                       |  |                                |         |   |      |   |         |  
|Purchases of investments                                                    |  |                                | (31,080 | ) |      |   | (33,171 | )
|Sales of investments                                                        |  |                                | 14,024  |   |      |   | 224     |  
|Maturities of investments                                                   |  |                                | 24,000  |   |      |   | 8,000   |  
|Proceeds from sale of property and equipment                                |  |                                | 5       |   |      |   | 641     |  
|                                                                            |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) investing activities                         |  |                                | 6,949   |   |      |   | (24,306 | )
|                                                                            |  |                                |         |   |      |   |         |  
|Cash flows from financing activities:                                       |  |                                |         |   |      |   |         |  
|Payments under financing arrangement                                        |  |                                | (3,100  | ) |      |   |        |  
|Proceeds from issuance of common stock                                      |  |                                | 65      |   |      |   | 47      |  
|                                                                            |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                         |  |                                | (3,035  | ) |      |   | 47      |  
|                                                                            |  |                                |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                   |  |                                | (9,449  | ) |      |   | (43,545 | )
|Cash and cash equivalents at beginning of period                            |  |                                | 12,251  |   |      |   | 50,562  |  
|                                                                            |  |                                |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                  |  | $                              | 2,802   |   |      | $ | 7,017   |  
|                                                                            |  |                                |         |   |      |   |         |  
|Supplementary information:                                                  |  |                                |         |   |      |   |         |  
|Interest paid                                                               |  | $                              | 6       |   |      | $ | 72      |  

See accompanying Notes
to Condensed Financial Statements.



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TELIK, INC.

Notes to Condensed Financial Statements

(Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

We have prepared the accompanying condensed financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, or the Exchange Act. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe all
adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included herein. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2010 or any other future period. The condensed balance sheet at December 31, 2009 has been derived from the audited financial statements at that date. You should read these
condensed financial statements and notes in conjunction with our audited financial statements for the year ended December 31, 2009, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on
March 2, 2010.

Need for Additional Capital

We have incurred net losses since inception and we expect to incur substantial losses for at least the next several years as we continue
our research and development activities. To date, we have funded operations primarily through the sale of equity securities, non-equity payments from collaborators and interest income. Future revenue, if any, for at least the next few years is
expected to consist primarily of payments under corporate collaborations and government grants. The process of developing our products will require significant additional research and development, preclinical testing and clinical trials, as well as
regulatory approval. We expect these activities, together with general and administrative expenses, to result in substantial operating losses for the foreseeable future. We will not receive product revenue unless we, or our collaborative partners,
complete clinical trials, obtain regulatory approval and successfully commercialize one or more of our products.

We expect
continuing losses over the next several years. We plan to seek capital through public or private equity or debt financing, capital lease financing and collaborative arrangements with corporate partners. We may have to seek other sources of capital
or re-evaluate our operating plans if we are unable to consummate some or all of the capital financing arrangements noted above. We believe our existing cash resources will be sufficient to satisfy our current operating plan until the end of 2011.

Use of Estimates

In preparing our financial statements to conform with GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results may differ
from these estimates.

Cash and Cash Equivalents, Short-Term and Long-Term Investments

We currently invest our excess cash in money market funds, cash deposits, U.S. treasury and U.S. government agency securities. In previous
periods we held taxable municipal notes, some of which had an auction reset feature (auction rate securities, or ARS), and corporate notes. All investments with stated maturities of three months or less from date of purchase are classified as cash
equivalents. Debt securities with original maturities greater than three months and remaining maturities less than one year are classified as short-term investments.,. Debt securities with remaining maturities greater than one year and which we
intend to hold until maturity are classified as long-term investments. We classify all cash equivalents and non-ARS investments as available-for-sale. Available-for-sale securities are carried at estimated fair value, with unrealized gains and
losses reported as a component of accumulated other comprehensive income (loss).



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TELIK, INC.

Notes to Condensed Financial Statements(Continued)

(Unaudited)



Realized gains or losses on the sale of investments are determined on a specific
identification method, and such gains and losses are reflected as a component of interest income.

Due to the unprecedented
events in the ARS market and our November 2008 ARS Rights Agreement, or the Rights Agreement, with UBS AG and with its affiliates, or UBS, we elected a one-time transfer of our ARS investments from the classification of available-for-sale to trading
securities under ASC 320, Investments-Debt and Equity Securities,during the fourth quarter of fiscal 2008. Trading securities are carried at estimated fair value, with gains and losses resulting from changes in fair value
reported in earnings.

Marketable security investments are evaluated periodically for impairment. We take into account general
market conditions, changes in economic environment as well as specific investment attributes, such as credit downgrade or illiquidity for each investment, the expected cash flows from the security, our intent to sell the security and whether or not
we will be required to sell the security before the recovery of its amortized cost, to estimate the fair value of our investments and to determine whether impairment is other than temporary. If it is determined that a decline in fair value of any
investment is other than temporary, then the unrealized loss related to credit risk would be included in interest and other income (expense), net.

Fair Value of Financial Instruments

We used the provisions of ASC
820, Fair Value Measurements and Disclosure, to determine the fair values of our financial and nonfinancial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosure about fair value measurements. The objective of fair value measurement is to determine the price that would be received to sell the asset or paid to transfer the liability (an exit price) in an orderly
transaction between market participants at the measurement date. The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and that market participant assumptions include assumptions about risk and
effect of a restriction on the sale or use of an asset. To increase consistency and comparability in fair value measurement and related disclosures, this statement establishes a fair value hierarchy that prioritize the inputs to valuation techniques
used to measure fair value into three broad levels: (1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;
(2) Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data; and (3) Level 3 inputs are
unobservable inputs for asset or liability that reflect the reporting entitys own assumptions about risk and the assumptions market participants would use in pricing the asset or liability developed based on the best information available in
the circumstances.

We recorded the fair values of our treasury bills, treasury notes and government agencies securities based
on a monthly report provided by our investment provider. Since these government securities generally have market prices from multiple sources and it can be difficult to select the best individual price directly from the quoted prices in the active
markets, our investment provider uses Level 2 inputs for the valuation of these securities. Using the Level 2 inputs, a consensus price or a weighted average price for each of these securities can be derived from a
distribution-curve-based algorithm which includes market prices obtained from a variety of industrial standard data providers (e.g. Bloomberg), security master files from large financial institutions, and other third-party sources.

With the current financial market conditions, the assessment of fair values of certain financial instruments can be difficult and
subjective. For our ARS and put option, we use Level 3 inputs to determine their fair values since they do not have a readily determinable market value. The assumptions used in valuing the ARS and the put option included, basing on data as of the
reporting period then ended, interest rates, tax status, credit quality, expected holding periods of the ARS, insurance wraps, the portfolio composition of Federal Family Education Loan Program, or FFELP, and private loans, likelihood of redemption,
loan rates per the UBS Rights offering and bearer risk associated with UBSs financial ability to repurchase the ARS beginning June 30, 2010. These assumptions are volatile and subject to change, and therefore could result in significant
changes to the fair values of these financial instruments. See Notes 5 and 7 to Condensed Financial Statements for additional information.



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TELIK, INC.

Notes to Condensed Financial Statements(Continued)

(Unaudited)



Recent Accounting Pronouncements

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements
during the nine months ended September 30, 2010, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, that are of significance, or potential
significance to us.

In January 2010, the FASB issued Accounting Standard Update No. 2010-06, Fair Value Measurements
and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements, ASU 2010-06, to improve disclosures related to fair value measurements. This guidance requires new disclosures as well as clarifies certain
existing disclosure requirements. Under ASU 2010-06, companies are required to provide separate information about significant transfers in and out of Level 1 and Level 2 of the fair value hierarchy as well as the reasons for such
transfers, and a reconciliation of purchases, sales, issuances, and settlements activities valued using Level 3 inputs on a gross basis. ASU 2010-06 also clarifies the requirement to determine the level of disaggregation for fair value measurement
disclosures and the requirement to disclose valuation techniques and inputs used for both recurring and nonrecurring fair value measurements in either Level 2 or Level 3. ASU 2010-06 is effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosure about purchases, sales, issuances, and settlements in the rollforward of activity for Level 3 fair value measurement which will be effective for fiscal years beginning after December 15,
2010, and for interim periods within those fiscal years. We adopted ASU 2010-06 for Level 1 and 2 disclosure requirements in the quarter ended March 31, 2010. The adoption of this guidance increases the level of disclosures in our financial
statements related to fair value measurements.

On February 24, 2010, the FASB issued ASU No. 2010-09, Subsequent
Events (Topic 855)Amendments to Certain Recognition and Disclosure Requirements, ASU 2010-09. ASU 2010-09 removes the requirement that SEC filers disclose the date through which subsequent events have been evaluated.
This amendment alleviates potential conflicts between Subtopic 855-10 and the SECs requirements. We have adopted this guidance since its issuance.

2. Employee Stock-Based Compensation

Stock based compensation

Total estimated stock-based compensation expense, related to all of our share-based payment awards recognized under
ASC 718, CompensationStock Compensationcomprised of the following:



|                                                      |  |                                         |       |   |                                 |   |       |      |  |   |       |   |  |   |       |  
|----------------------------------------------------- |  | --------------------------------------- | ----- | - | ------------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                      |  | Three Months 
EndedSeptember 30,        |       |   | Nine Months 
EndedSeptember 30, |  
|                                                      |  | 2010                                    |       |   | 2009                            |   |       | 2010 |  |   | 2009  |  
|                                                      |  | (in thousands except per share amounts) |      
|Research and development                              |  | $                                       | 179   |   |                                 | $ | 134   |      |  | $ | 611   |   |  | $ | 425   |  
|General and administrative                            |  |                                         | 234   |   |                                 |   | 388   |      |  |   | 936   |   |  |   | 1,374 |  
|                                                      |  |                                         |       |   |                                 |   |       |      |  |   |       |   |  |   |       |  
|Stock-based compensation expense before taxes         |  |                                         | 413   |   |                                 |   | 522   |      |  |   | 1,547 |   |  |   | 1,799 |  
|                                                      |  |                                         |       |   |                                 |   |       |      |  |   |       |   |  |   |       |  
|Effect on net loss                                    |  | $                                       | 413   |   |                                 | $ | 522   |      |  | $ | 1,547 |   |  | $ | 1,799 |  
|                                                      |  |                                         |       |   |                                 |   |       |      |  |   |       |   |  |   |       |  
|Effect on net loss per basic and diluted common share |  | $                                       | (0.01 | ) |                                 | $ | (0.01 | )    |  | $ | (0.03 | ) |  | $ | (0.03 | )
|                                                      |  |                                         |       |   |                                 |   |       |      |  |   |       |   |  |   |       |  

Because we had a net operating loss carryforward as of September 30, 2010, no tax benefits for the tax
deductions related to stock-based compensation expense were recognized in our condensed statements of operations. Additionally, no incremental tax benefits were recognized from stock options exercised in the three and nine months ended
September 30, 2010 and 2009, which would have resulted in a reclassification to reduce net cash provided by operating activities with an offsetting increase in net cash provided by financing activities. As of September 30, 2010,
$1.7 million of total unrecognized compensation costs, net of forfeitures, related to non-vested service based awards is expected to be recognized over a weighted average period of 1.25 years.



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TELIK, INC.

Notes to Condensed Financial Statements(Continued)

(Unaudited)



3. Comprehensive Loss

Comprehensive loss consists of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes changes in unrealized gains (losses) on investments. The activity in comprehensive
loss was as follows:



|                                                    |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|--------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                    |  | Three Months EndedSeptember 30, |        |   | Nine Months
EndedSeptember 30, |  
|                                                    |  | 2010                            |        |   | 2009                           |   |        | 2010 |  |   | 2009    |  
|                                                    |  | (in thousands)                  |       
|Net loss                                            |  | $                               | (4,653 | ) |                                | $ | (6,107 | )    |  | $ | (14,926 | ) |  | $ | (19,493 | )
|Changes in unrealized gains (losses) on investments |  |                                 | (3     | ) |                                |   |       |      |  |   | 2       |   |  |   | (8      | )
|                                                    |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Comprehensive loss                                  |  | $                               | (4,656 | ) |                                | $ | (6,107 | )    |  | $ | (14,924 | ) |  | $ | (19,501 | )
|                                                    |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  

4. Basic and Diluted Net Loss per Share

Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period.

Outstanding options to purchase 12,379,236 and 8,479,063 shares of our common stock for the three months ended September 30, 2010
and 2009; and 12,445,164 and 9,253,976 shares of our common stock for the nine months ended September 30, 2010 and 2009 were excluded from the diluted net loss per common share calculations because inclusion of such options would be
anti-dilutive.

5. Fair Value Measurements on a Recurring Basis

We measure certain financial assets at fair value on a recurring basis, including cash equivalents, available-for-sale securities, trading
securities and put options. The fair value of these financial assets was determined based on a three-tier fair value hierarchy as described in Note 1, which prioritizes the inputs used in measuring fair value.

The following table presents information about our financial assets that are measured at fair value on a recurring basis as of
September 30, 2010 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value:



|                               |  |                   |        |  |                                                             |   |       |                                             |  |   |                                         |  |  |   |   | 
|------------------------------ |  | ----------------- | ------ |  | ----------------------------------------------------------- | - | ----- | ------------------------------------------- |  | - | --------------------------------------- |  |  | - | - | 
|                               |  |                   |        |  | Fair Value Measurement at September 30, 2010 Using          |  
|                               |  | September 30,2010 |        |  | Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) |   |       | Significant OtherObservableInputs (Level 2) |  |   | SignificantUnobservableInputs (Level 3) | 
|                               |  | (in thousands)    |       
|Available-for-sale securities: |  |                   |        | 
|Money market funds             |  | $                 | 2,025  |  |                                                             | $ | 2,025 |                                             |  | $ |                                        |  |  | $ |  | 
|US treasuries                  |  |                   | 3,019  |  |                                                             |   |      |                                             |  |   | 3,019                                   |  |  |   |  | 
|US government agencies         |  |                   | 21,158 |  |                                                             |   |      |                                             |  |   | 21,158                                  |  |  |   |  | 
|                               |  |                   |        |  |                                                             |   |       |                                             |  |   |                                         |  |  |   |   | 
|Total                          |  | $                 | 26,202 |  |                                                             | $ | 2,025 |                                             |  | $ | 24,177                                  |  |  | $ |  | 
|                               |  |                   |        |  |                                                             |   |       |                                             |  |   |                                         |  |  |   |   | 



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##### Table of Contents

TELIK, INC.

Notes to Condensed Financial Statements(Continued)

(Unaudited)



The following table presents information about our financial assets that are measured at
fair value on a recurring basis as of December 31, 2009, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.



|                               |  |                  |        |  |                                                             |   |        |                                             |  |   |                                         |  |  |   |        | 
|------------------------------ |  | ---------------- | ------ |  | ----------------------------------------------------------- | - | ------ | ------------------------------------------- |  | - | --------------------------------------- |  |  | - | ------ | 
|                               |  |                  |        |  | Fair Value Measurement at December 31, 2009 Using           |  
|                               |  | December 31,2009 |        |  | Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) |   |        | Significant OtherObservableInputs (Level 2) |  |   | SignificantUnobservableInputs (Level 3) | 
|                               |  | (in thousands)   |       
|Available-for-sale securities: |  |                  |        | 
|Money market funds             |  | $                | 11,583 |  |                                                             | $ | 11,583 |                                             |  | $ |                                        |  |  | $ |       | 
|US treasuries                  |  |                  | 17,095 |  |                                                             |   |       |                                             |  |   | 17,095                                  |  |  |   |       | 
|Trading securities:            |  |                  |        |  |                                                             |   |        |                                             |  |   |                                         |  |  |   |        | 
|Auction preferred stock        |  |                  | 1,600  |  |                                                             |   |       |                                             |  |   |                                        |  |  |   | 1,600  | 
|Auction rate certificates      |  |                  | 8,780  |  |                                                             |   |       |                                             |  |   |                                        |  |  |   | 8,780  | 
|                               |  |                  |        | 
|Other current assets:          |  |                  |        |  |                                                             |   |        |                                             |  |   |                                         |  |  |   |        | 
|Put option                     |  |                  | 3,420  |  |                                                             |   |       |                                             |  |   |                                        |  |  |   | 3,420  | 
|                               |  |                  |        |  |                                                             |   |        |                                             |  |   |                                         |  |  |   |        | 
|Total                          |  | $                | 42,478 |  |                                                             | $ | 11,583 |                                             |  | $ | 17,095                                  |  |  | $ | 13,800 | 
|                               |  |                  |        |  |                                                             |   |        |                                             |  |   |                                         |  |  |   |        | 

There were no transfers between Level 1 and Level 2 measurements in the three and nine months ended
September 30, 2010. The following is a reconciliation of our investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3):



|                                            |  |                                                                        |        |   |                        |   |        |       |  |   |        |  
|------------------------------------------- |  | ---------------------------------------------------------------------- | ------ | - | ---------------------- | - | ------ | ----- |  | - | ------ | -
|                                            |  | Fair Value Measurements Using SignificantUnobservable Inputs (Level
3) |       
|                                            |  | Put Option                                                             |        |   | Auction RateSecurities |   |        | Total | 
|                                            |  | (in thousands)                                                         |       
|Balance at December 31, 2009                |  | $                                                                      | 3,420  |   |                        | $ | 10,380 |       |  | $ | 13,800 |  
|Impairment gain (loss) included in net loss |  |                                                                        | 61     |   |                        |   | (61    | )     |  |   |       |  
|Sales or settlement                         |  |                                                                        | (2,400 | ) |                        |   | (1,600 | )     |  |   | (4,000 | )
|                                            |  |                                                                        |        |   |                        |   |        |       |  |   |        |  
|Balance at March 31, 2010                   |  | $                                                                      | 1,081  |   |                        | $ | 8,719  |       |  | $ | 9,800  |  
|Impairment gain (loss) included in net loss |  |                                                                        | 50     |   |                        |   | (50    | )     |  |   |       |  
|                                            |  |                                                                        |        |   |                        |   |        |       |  |   |        |  
|Balance at June 30, 2010                    |  | $                                                                      | 1,131  |   |                        | $ | 8,669  |       |  | $ | 9,800  |  
|Sales or settlement                         |  |                                                                        | (1,131 | ) |                        |   | (8,669 | )     |  |   | (9,800 | )
|                                            |  |                                                                        |        |   |                        |   |        |       |  |   |        |  
|Balance at September 30, 2010               |  |                                                                        |       |   |                        |   |       |       |  |   |       |  
|                                            |  |                                                                        |        |   |                        |   |        |       |  |   |        |  

Our ARS investments, purchased through UBS at par value, have an auction reset feature. Historically, the
fair value of ARS investments approximated par value due to the frequent resets through the auction process. Beginning in late 2007, our securities invested in ARS failed to settle in scheduled auctions due to liquidity crises. An auction failure
means that the parties wishing to sell securities could not make the sale, but does not result in the securities going into default because the issuer continues to pay interest. The interest rates may be reset to predetermined penalty or
maximum rates based on mathematical formulas in accordance with each securitys prospectus. While we continued earning interest on our ARS investments at the contractual rate, these investments were not trading and therefore did not
have a readily determinable market value. Accordingly, the estimated fair value of the ARS did not approximate par value.



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TELIK, INC.

Notes to Condensed Financial Statements(Continued)

(Unaudited)



We estimated the fair value of our ARS after consideration of several factors, including
input provided by UBS. Valuation techniques involved the use of a discounted cash flow approach. Although these securities would typically be measured using Level 2 inputs, the failure of auctions and the lack of market activity required that these
securities be measured using Level 3 inputs. The assumptions used in preparing the discounted cash flow model to determine the fair value of our auction preferred stock took into account factors such as interest rates, credit quality, likelihood of
redemption, duration and credit default swap data points for monoline insurers. The underlying assets of our auction rate certificates were primarily comprised of student loans, and their fair values were measured by considering factors such as
interest rates, tax status, credit quality, duration, insurance wraps, the portfolio composition of Federal Family Education Loan Program, or FFELP, and private loans and likelihood of redemption. These assumptions were highly subjective and involve
significant judgment and were subject to change as the underlying sources of these assumptions and market conditions change.

On November 10, 2008, we entered into an agreement with UBS whereby we received rights, or the Right, to sell all our ARS held in
our UBS account at par value ($18.7 million) to UBS at any time during a two-year period beginning on June 30, 2010 and ending on July 2, 2012. On February 12, 2010, UBS repurchased $4.0 million of our ARS from the original balance of
$13.8 million. On July 1, 2010, we exercised the Right and sold all our remaining ARS to UBS under the Rights Agreement at par value of $9.8 million. For the nine months ended September 30, 2010, we recorded (i) a reduction of
approximately $3.5 million and $10.3 million in fair values of our put option and ARS respectively, as a result of certain ARS repurchased by UBS in February 2010 and the exercise of the Rights Agreement on July 1, 2010 and (ii) no gain or
loss to interest and income, net due to offsetting changes in fair values of our ARS and put option. As a result, we have no ARS investments and put option balance at September 30, 2010. For additional information, see Note 7 to Condensed
Financial Statements.

6. Cash, Cash Equivalents, Investments and Restricted Investments

The following is a summary of estimated fair value of cash and cash equivalents, investments and restricted investments:



|                            |  |                |        |  |              |   |        | 
|--------------------------- |  | -------------- | ------ |  | ------------ | - | ------ | 
|                            |  | September 30,  |        |  | December 31, |  
|                            |  | 2010           |        |  | 2009         |  
|                            |  | (in thousands) |       
|Certificate of deposits     |  | $              | 449    |  |              | $ | 674    | 
|Auction rate securities     |  |                |       |  |              |   | 10,380 | 
|US treasuries               |  |                | 3,019  |  |              |   | 17,095 | 
|US government agencies      |  |                | 21,158 |  |              |   |       | 
|Cash and money market funds |  |                | 2,802  |  |              |   | 12,251 | 
|                            |  |                |        |  |              |   |        | 
|Total                       |  | $              | 27,428 |  |              | $ | 40,400 | 
|                            |  |                |        |  |              |   |        | 
|Reported as:                |  |                |        |  |              |   |        | 
|Cash and cash equivalents   |  | $              | 2,802  |  |              | $ | 12,251 | 
|Short-term investments      |  |                | 24,177 |  |              |   | 27,475 | 
|Restricted investments      |  |                | 449    |  |              |   | 674    | 
|                            |  |                |        |  |              |   |        | 
|Total                       |  | $              | 27,428 |  |              | $ | 40,400 | 
|                            |  |                |        |  |              |   |        | 

ARS securities with an aggregate estimated fair value of $10.4 million as of December 31, 2009 were
determined as securities held for trading. Accordingly, these securities are carried at estimated fair value, with unrealized gains and losses resulting from changes in fair value reported in earnings. All other marketable debt securities continue
to be held as available-for-sale.

The following is a summary of amortized cost, unrealized gains and losses, and estimated
fair value of cash and cash equivalents and market securities held as available-for-sale.



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TELIK, INC.

Notes to Condensed Financial Statements(Continued)

(Unaudited)



|                                      |  |                    |        |  |                      |   |   |                       |  |   |                     |   |  |   |        | 
|------------------------------------- |  | ------------------ | ------ |  | -------------------- | - | - | --------------------- |  | - | ------------------- | - |  | - | ------ | 
|                                      |  | September 30, 2010 |       
|                                      |  | AmortizedCost      |        |  | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |  |   | EstimatedFair Value |  
|                                      |  | (in thousands)     |       
|Certificate of deposits               |  | $                  | 449    |  |                      | $ |  |                       |  | $ |                    |   |  | $ | 449    | 
|US treasuries and government agencies |  |                    | 24,177 |  |                      |   | 3 |                       |  |   | (3                  | ) |  |   | 24,177 | 
|Cash and money market funds           |  |                    | 2,802  |  |                      |   |  |                       |  |   |                    |   |  |   | 2,802  | 
|                                      |  |                    |        |  |                      |   |   |                       |  |   |                     |   |  |   |        | 
|Total                                 |  | $                  | 27,428 |  |                      | $ | 3 |                       |  | $ | (3                  | ) |  | $ | 27,428 | 
|                                      |  |                    |        |  |                      |   |   |                       |  |   |                     |   |  |   |        | 
|                                      | 
|                                      |  | December 31, 2009  |       
|                                      |  | AmortizedCost      |        |  | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |  |   | EstimatedFair Value |  
|                                      |  | (in thousands)     |       
|Certificate of deposits               |  | $                  | 674    |  |                      | $ |  |                       |  | $ |                    |   |  | $ | 674    | 
|US treasuries                         |  |                    | 17,097 |  |                      |   | 1 |                       |  |   | (3                  | ) |  |   | 17,095 | 
|Cash and money market funds           |  |                    | 12,251 |  |                      |   |  |                       |  |   |                    |   |  |   | 12,251 | 
|                                      |  |                    |        |  |                      |   |   |                       |  |   |                     |   |  |   |        | 
|Total                                 |  | $                  | 30,022 |  |                      | $ | 1 |                       |  | $ | (3                  | ) |  | $ | 30,020 | 
|                                      |  |                    |        |  |                      |   |   |                       |  |   |                     |   |  |   |        | 

There were no realized gains or losses on sales of available-for-sale investments for the three and nine
months ended September 30, 2010 and 2009. Realized gains and losses were calculated based on the specific identification method.

Investments which were in unrealized loss positions for which other-than-temporary impairments were not recognized are summarized below:



|                                      |  |                     |        |  |                      |   |    |           |  |   |                  |  |  |           |   |  |                  |   |        |  |  |   |    |  
|------------------------------------- |  | ------------------- | ------ |  | -------------------- | - | -- | --------- |  | - | ---------------- |  |  | --------- | - |  | ---------------- | - | ------ |  |  | - | -- | -
|At September 30, 2010                 |  | Less Than 12 Months |        |  | 12 Months or Greater |   |    | Total     | 
|                                      |  | FairValue           |        |  | UnrealizedLosses     |   |    | FairValue |  |   | UnrealizedLosses |  |  | FairValue |   |  | UnrealizedLosses |  
|                                      |  | (in thousands)      |       
|US treasuries and government agencies |  | $                   | 13,038 |  |                      | $ | (3 | )         |  | $ |                 |  |  | $         |  |  |                  | $ | 13,038 |  |  | $ | (3 | )
|                                      |  |                     |        |  |                      |   |    |           |  |   |                  |  |  |           |   |  |                  |   |        |  |  |   |    |  
|Total                                 |  | $                   | 13,038 |  |                      | $ | (3 | )         |  | $ |                 |  |  | $         |  |  |                  | $ | 13,038 |  |  | $ | (3 | )
|                                      |  |                     |        |  |                      |   |    |           |  |   |                  |  |  |           |   |  |                  |   |        |  |  |   |    |  
|                                      |  |                     |       
|At December 31, 2009                  |  | Less Than 12 Months |        |  | 12 Months or Greater |   |    | Total     | 
|                                      |  | FairValue           |        |  | UnrealizedLosses     |   |    | FairValue |  |   | UnrealizedLosses |  |  | FairValue |   |  | UnrealizedLosses |  
|                                      |  | (in thousands)      |       
|US treasuries                         |  | $                   | 10,091 |  |                      | $ | (3 | )         |  | $ |                 |  |  | $         |  |  |                  | $ | 10,091 |  |  | $ | (3 | )
|                                      |  |                     |        |  |                      |   |    |           |  |   |                  |  |  |           |   |  |                  |   |        |  |  |   |    |  
|Total                                 |  | $                   | 10,091 |  |                      | $ | (3 | )         |  | $ |                 |  |  | $         |  |  |                  | $ | 10,091 |  |  | $ | (3 | )
|                                      |  |                     |        |  |                      |   |    |           |  |   |                  |  |  |           |   |  |                  |   |        |  |  |   |    |  



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TELIK, INC.

Notes to Condensed Financial Statements(Continued)

(Unaudited)



The following is a summary of the cost and estimated fair value of marketable debt
securities, held as available-for-sale at September 30, 2010 and December 31, 2009, classified by stated maturity date of the security:



|                             |  |                    |        |  |                   |   |        |               |  |   |           |  |  |   |        | 
|---------------------------- |  | ------------------ | ------ |  | ----------------- | - | ------ | ------------- |  | - | --------- |  |  | - | ------ | 
|                             |  | September 30, 2010 |        |  | December 31, 2009 |  
|                             |  | AmortizedCost      |        |  | FairValue         |   |        | AmortizedCost |  |   | FairValue | 
|                             |  | (in thousands)     |       
|Mature in less than one year |  | $                  | 24,177 |  |                   | $ | 24,177 |               |  | $ | 17,097    |  |  | $ | 17,095 | 
|                             |  |                    |        |  |                   |   |        |               |  |   |           |  |  |   |        | 

7. Prepaids and Other Current Assets

Prepaids and other current assets consist of the following:



|                           |  |                   |     |  |                  |   |       | 
|-------------------------- |  | ----------------- | --- |  | ---------------- | - | ----- | 
|                           |  | September 30,2010 |     |  | December 31,2009 |  
|                           |  | (in thousands)    |    
|Prepaids                   |  | $                 | 756 |  |                  | $ | 702   | 
|UBS Rights relating to ARS |  |                   |    |  |                  |   | 3,420 | 
|                           |  |                   |     |  |                  |   |       | 
|Total                      |  | $                 | 756 |  |                  | $ | 4,122 | 
|                           |  |                   |     |  |                  |   |       | 

On November 10, 2008, we entered into an agreement with UBS whereby we received the Right, to sell all
our ARS held in our UBS account at par value ($18.7 million) to UBS at any time during a two-year period beginning on June 30, 2010 and ending on July 2, 2012.

The enforceability of the Right results in a put option which is recognized as a separate freestanding asset and accounted for separately from the ARS investment. On June 10, 2009 and
February 12, 2010, UBS elected to repurchase a portion of our ARS under the Rights Agreement at par value of $4.9 million and $4.0 million, respectively. On July 1, 2010, we exercised the Right to sell all our remaining ARS to UBS under
the Rights Agreement at par value of $9.8 million. Proceeds from the sale were re-invested in US government agency securities and we did not have any ARS investments in our portfolio as of September 30, 2010.

8. Notes Payable

In
connection with our acceptance of the offer to enter into the agreement with UBS whereby we received the Right to sell all our ARS at par value to UBS at any time during a two-year period beginning on June 30, 2010 and ending on July 2,
2012, UBS would also make available to us no net cost loans up to 75% of the market value of our ARS. A no net cost loan as defined in the Rights Agreement means that the loan will bear interest at a rate equal to the average
rate of interest paid or deemed paid to Telik on the pledged ARS such that the interest cost, net of interest received by us on the pledged ARS, will be zero. The no net cost loans must be repaid upon commencement of the exercise of the
Right. According to the Rights Agreement, the loan is payable on demand. If UBS should exercise its discretionary right to demand repayment of any portion of the loan prior to the date we can exercise our repurchase rights, UBS and certain of its
affiliates will arrange for alternative financing on terms and conditions substantially the same as those contained in the loan, and if alternative financing cannot be established, then UBS or one of its affiliates will purchase our pledged ARS at
par. UBS obligation to arrange such alternative financing does not apply under certain circumstances, including, but not limited to, if we sell the ARS pledged as collateral. Proceeds of sales of our ARS will first be applied to repayment of
the credit line with the balance, if any, for our account.

On December 31, 2008, we entered into a loan agreement with
UBS and drew down $8 million with our ARS pledged as collateral. On June 10, 2009 and February 12, 2010, UBS elected to repurchase a portion of our ARS under the Rights Agreement at par value of $4.9 million and $4.0 million, respectively.
Proceeds from both sales of our ARS were applied to repayment of the credit line whereby $4.9 million was paid in June 2009 leaving a balance of $3.1 million due to UBS as of December 31, 2009. There was no interest paid on the loan for the
three months ended September 30, 2010 as the remaining balance of the loan was paid in full in February 2010. For the nine months ended September 30, 2010, interest paid on the loan was approximately $6,000 which was offset entirely by
interest earned on the pledged securities.



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TELIK, INC.

Notes to Condensed Financial Statements(Continued)

(Unaudited)



9. Restructuring Plan

In February 2009, we implemented a restructuring plan to further reduce our operating expenses and to streamline our infrastructure to focus on our most advanced preclinical and clinical development
programs. As a result of the restructuring plan, we reduced our workforce by 37 positions and recorded a charge of approximately $868,000 for the three months ended March 31, 2009 and an additional $83,000 in the quarter ended June 30,
2009. We paid $750,000 in the quarter ended March 31, 2009, $111,000 in the quarter ended June 30, 2009 and the remaining $90,000 in the quarter ended September 30, 2009, as severance, payroll taxes and other personnel related costs.

10. Subsequent Event

On October 29, 2010, we received notification from the Internal Revenue Service Department of Treasury that our applications for qualified investments in the Qualifying Therapeutic Discovery Project under
Section 48D of the Internal Revenue Code have been certified. As such, five grants for the total amount of $1,222,396 have been approved and we will recognize the full award as revenue in the fourth quarter of 2010.



14



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##### Table of Contents



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Special Note Regarding Statements of Expected Future Performance

This Quarterly Report on Form 10-Q contains statements indicating expectations about future performance and other forward-looking
statements that involve risks and uncertainties. We usually use words such as may, will, should, expect, plan, anticipate, believe, estimate,
predict, future, intend, potential, or continue or the negative of these terms or similar expressions to identify forward-looking statements. These statements appear throughout this
Quarterly Report on Form 10-Q and are statements regarding our current intent, belief or expectation, primarily with respect to our operations and related industry developments. Examples of these statements include, but are not limited to,
statements regarding the following: the implications of positive results of our Phase 2 clinical trials, the progress of our research programs, including clinical testing, the extent to which our issued and pending patents may protect our products
and technology, our ability to identify new product candidates using TRAP technology (our proprietary Target-Related Affinity Profiling technology), the potential of such product candidates to lead to the development of safer or more effective
therapies, our ability to develop the technology derived from our collaborations, our anticipated timing for filing additional Investigational New Drug applications, or INDs, with the FDA, or for the initiation or completion of Phase 1, Phase 2 or
Phase 3 clinical trials for any of our product candidates, our future operating expenses, our future losses, our future expenditures for research and development, the sufficiency of our cash resources and ability to raise adequate funds in the
future. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us and described in Part II, Item 1A of this Quarterly Report on Form 10-Q.

The following discussion and analysis should be read in conjunction with the unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on
Form 10-Q and with the financial statements and notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended
December 31, 2009 filed with the Securities and Exchange Commission on March 2, 2010.

TELIK, the Telik logo, TRAP,
TELCYTA and TELINTRA are trademarks of Telik, Inc. All other brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

Overview

Telik is engaged in the discovery and development of small molecule drugs. Our business strategy is to advance our product candidates through Phase 2 clinical studies, and to enter into a partnership with
a pharmaceutical or biotechnology company to assist in further development and commercialization, license product candidates outside our therapeutic focus, and identify and develop additional drug product candidates.

We have incurred net losses since inception and expect to incur losses for the next several years as we continue our research and
development activities. During the nine months ended September 30, 2010, loss from operations was $15.1 million and net loss was $14.9 million. Net cash used in operations for the nine months ended September 30, 2010 was $13.4 million and
net cash, cash equivalents, investments and restricted investments at September 30, 2010 were $27.4 million. As of September 30, 2010, we had an accumulated deficit of $518.5 million.

Our expenses consist primarily of those incurred for research and development and general and administrative costs associated with our
operations. The process of carrying out the development of our product candidates to later stages of development and our research programs may require significant additional research and development expenditures, including for preclinical testing
and clinical trials, as well as for manufacturing development efforts and obtaining regulatory approval. We outsource our clinical trials and our manufacturing development activities to third parties to maximize efficiency and minimize our internal
overhead. To date, we have funded our operations primarily through the sale of equity securities, non-equity payments from collaborative partners and interest income.



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We are subject to
risks common to biopharmaceutical companies, including risks inherent in our research, development and commercialization efforts, preclinical testing, clinical trials, uncertainty of regulatory and marketing approvals, enforcement of patent and
proprietary rights, the need for capital, potential competition, use of hazardous materials and retention of key employees. In order for a product to be commercialized, it will be necessary for us to conduct preclinical tests and clinical trials,
demonstrate efficacy and safety of our product candidates to the satisfaction of regulatory authorities, obtain marketing approval, enter into manufacturing, distribution and marketing arrangements, obtain market acceptance and, in many cases,
obtain adequate reimbursement from government and private insurers. We cannot provide assurance that we will generate revenues or achieve and sustain profitability in the future.

We have carried out three workforce reductions since 2007, the most recent of which was completed in February 2009. As a result of our
restructuring plans, we believe our existing cash resources will be sufficient to satisfy our current operating plan until the end of 2011. Changes in our research and development plans or other changes affecting our operating expenses may affect
actual future consumption of existing cash resources as well. In any event, we will require substantial additional financing to fund our operations in the future.

We expect that our quarterly and annual results of operations will fluctuate for the foreseeable future due to several factors, including the timing and extent of our research and development efforts and
the outcome of our clinical trial activities. The successful development of our products is uncertain. As such, an accurate prediction of future operating results is difficult or impossible.

Clinical Product Development

TELINTRA, our current drug product candidate in clinical development, is a small molecule glutathione analog inhibitor of the enzyme glutathione S-transferase P1-1. We are developing TELINTRA for the
treatment of blood disorders associated with low blood cell levels, such as neutropenia or anemia. In May 2008, we initiated a Phase 2 clinical trial of TELINTRA tablets for the treatment of patients with MDS and completed enrollment of 86 patients
in 2009. In June 2010, we announced positive results of our Phase 2 clinical trial of TELINTRA tablets for the treatment of patients with MDS and plan to present the data at a scientific conference later this year. In the second quarter of 2009, we
initiated a Phase 2 randomized study in SCN to determine the effect of TELINTRA tablets on absolute neutrophil count in patients with this disease. The trial for SCN is intended to enroll a total of 20 patients. In the fourth quarter of 2009,
we initiated a Phase 1 dose-ranging study of TELINTRA tablets in combination with Lenalidomide in patients with MDS. We expect to enroll up to 30 patients for this study.

TELCYTA, our first product candidate, is a small molecule cancer drug product candidate designed to be activated in cancer cells. TELCYTA has shown clinical antitumor activity alone and in combination
with standard chemotherapeutic agents in multiple Phase 2 clinical trials in refractory or resistant ovarian, non-small cell lung, breast and colorectal cancer. In addition, TELCYTA demonstrated clinical activity in two Phase 2 trials in combination
regimens as first line treatment in patients with Stage IIIb or IV non-small cell lung cancer.

We have completed multiple
Phase 1, Phase 2 and Phase 3 clinical trials with TELCYTA alone and in combination with standard chemotherapy drugs. These trials were conducted in refractory ovarian and non-small cell lung cancer. The Phase 3 trials did not achieve their primary
endpoints. At the ASCO meeting in June 2009, we reported results of the trial comparing treatment with Doxil alone and TELCYTA plus Doxil in platinum refractory ovarian cancer in which a sub-set of patients with platinum refractory disease
demonstrated a statistically significant improvement in progression free survival when treated with the combination containing TELCYTA as compared to Doxil alone. In addition, we published in a peer reviewed publication the results of a Phase 2
multicenter trial treating previously untreated lung cancer patients for the first time with carboplatin, paclitaxel and TELCYTA followed by TELCYTA maintenance that demonstrated a statistically significant improvement in the group of patient
undergoing TELCYTA maintenance. In May 2010, we initiated an investigator led study at a single site of TELCYTA in patients with Refractory or Relapsed Mantle Cell



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lymphoma, Diffuse Large B Cell Lymphoma, and Multiple Myeloma. Enrollment for this study is expected to range between 18 to 48 patients based on the number of responses observed. We also plan to
seek a partnership with a pharmaceutical or biotechnology company to advance the development and potential commercialization of TELCYTA.

Preclinical Drug Product Development

TLK60404Aurora
Kinase/VEGFR Inhibitors

We have a small molecule compound inhibiting both Aurora kinase and VEGFR kinase. Aurora kinase is
a signaling enzyme whose function is required for cancer cell division, while VEGF plays a key role in tumor blood vessel formation, ensuring an adequate supply of nutrients to support tumor growth. The lead compounds of our first dual inhibitor
program met a development milestone in August 2008 by demonstrating anticancer activity in preclinical models of human colon cancer and human leukemia. These lead compounds prevented tumor growth in preclinical models of human colon cancer and human
leukemia by inhibiting both Aurora kinase and VEGFR kinase. Our data support the concept that dual inhibition of Aurora kinase and VEGFR kinase represents a promising approach for anticancer therapy. A development drug product candidate, TLK60404,
has been selected. We are conducting the required preclinical safety studies that if successful may support the potential filing of an IND application with the FDA.

TLK60357Antimitotic Agent

Using our TRAP technology, we have
discovered TLK60357, a novel, potent small molecule inhibitor of cell division. TLK60357 inhibits the formation of microtubules that are necessary for cancer cell growth leading to persistent cancer cell block and subsequent cell death at the G2/M
cell cycle. This compound demonstrates potent broad-spectrum anticancer activity against a number of human cancer cells. This compound also displays oral efficacy in multiple, standard preclinical models of cancer. TLK60357 is currently being
evaluated in preclinical safety studies.

TLK60596  VEGFR Inhibitor

TLK60596 is a small-molecule dual inhibitor of VEGFR1 and VEGFR2 kinase. VEGFR1/2 kinases are known to mediate the formation of new blood
vessels in human cancers allowing them to grow. In standard animal models of human colon cancer, oral administration of TLK60596 significantly reduced tumor growth. TLK60596 is undergoing further preclinical assessment.

TLK58747Cytotoxic Small Molecule

TLK58747 is a novel metabolically activated cytotoxic small molecule. TLK58747 induces apoptosis and G2/M, or cell division, cell cycle arrest in a broad array of human cancer cell lines including those
not expressing GST P1-1. It has shown significant antitumor activity in human breast, pancreatic, brain and colon tumors in preclinical models of human cancer when administered either orally or by injection.

Other

We discovered all of our drug product candidates using our proprietary technology, TRAP, which we believe enables the rapid and efficient discovery of small molecule drug product candidates. We expect to
enter into collaborative arrangements with third parties, such as contract research organizations for clinical trials, development, manufacturing, regulatory approvals or commercialization of some of our products, particularly outside North America,
or in disease areas requiring larger and longer clinical trials than cancer.



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Nasdaq Stock
Listing Compliance

On September 19, 2008, we received notification from Nasdaq informing us that the bid price
for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Global Market under Nasdaq Marketplace Rule 5550(a)(2). Effective January 7, 2010, we transferred the listing of our common
stock from the Nasdaq Global Market to the Nasdaq Capital Market. On April 22, 2010, we received notification from Nasdaq that we have regained compliance with the minimum bid price requirement. Since May 20, 2010, the bid price for our
common stock had again fluctuated below the levels required by Nasdaq rules for continued listing. On July 21, 2010, we received notification from Nasdaq informing us that the bid price for our common stock had closed below the minimum $1.00
per share requirement for continued inclusion on the Nasdaq Capital Market and that we have 180 calendar days, or until January 18, 2011, to regain compliance. For more information regarding this notification, see Item 1A entitled
Risk Factors and Item 5 entitled Other Information of Part II of this filing.

UBS Purchase
Rights and Loan

On November 10, 2008, we entered into a Rights Agreement with UBS AG and with its affiliates, or
UBS, whereby we received rights, or the Right, to sell all our auction rate securities, or ARS, held in our UBS account at par value to UBS at any time during a two-year period beginning on June 30, 2010 and ending on July 2, 2012. UBS is
also granted the right to purchase or sell our ARS at any time after acceptance of the Rights Agreement until July 2, 2012, so long as we receive par value for the ARS.

In connection with our acceptance of the offer to enter into the agreement, UBS has made available to us no net cost loans for up to 75% of the market value of our ARS, where interest payable
on the loan does not exceed interest earned on our ARS. The loan is secured by our ARS. On December 31, 2008, we borrowed $8 million from UBS in accordance with such a secured, no net cost demand facility. On June 10, 2009 and
February 12, 2010, UBS elected to repurchase a portion of our ARS under the Rights Agreement at par value of $4.9 million and $4.0 million, respectively. Proceeds from sales of our ARS were applied to the repayments of the credit line, which
was paid in full in February 2010. For the nine months ended September 30, 2010, interest paid on the loan was approximately $6,000 which was offset entirely by interest earned on the pledged securities.

On July 1, 2010, we exercised the Right to sell all our remaining ARS to UBS under the Rights Agreement at par value of $9.8
million. Proceeds from the sale are re-invested in US government agencies and we no longer have any ARS investments in our portfolio. To date, we have not incurred any losses on our ARS investments, total par value of $18.7 million, as a result of
the Rights Agreement with UBS.

Critical Accounting Policies and Significant Judgments and Estimates

Our managements discussion and analysis of our financial condition and results of operations are based on our financial statements,
which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an on-going basis, we evaluate our estimates and judgments
related to revenue recognition and clinical development costs. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates under different assumptions or conditions.

There has been no material change in our critical accounting policies and significant judgments and estimates as described in our Annual
Report on Form 10-K for the year ended December 31, 2009.

Use of Estimates

In preparing our financial statements to conform with GAAP, we make estimates and assumptions that affect the amounts reported in our
financial statements and accompanying notes. Actual results may differ from these estimates.



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Results of
Operations

Revenues

We did not record any revenues for the three and nine months ended September 30, 2010 or in 2009. In October 2010, we were awarded grants totaling $1.2 million from the Qualifying Therapeutic Discovery
Project program under Section 48D of the Internal Revenue Code and will recognize the award as revenue in the fourth quarter of 2010. Future non-product revenues, if any, will depend upon the extent to which we enter into new collaborative research
agreements and the amounts of payments relating to such agreements.

Research and Development Expenses

Research and development expenses for the three months ended September 30, 2010 and 2009 were $2.6 million and $3.4 million. Research
and development expenses for the nine months ended September 30, 2010 and 2009 were $8.2 million and $10.4 million. Our research and development activities consist primarily of drug development, clinical supply manufacturing, clinical
activities, discovery research, screening and identification of product candidates and preclinical studies. We group these activities into two major categories: research and preclinical and clinical development.

The approximate costs associated with research and preclinical and clinical development activities were as follows:



|                               |  |                                    |       |  |      |   |       |                                |  |  |      |    |  |      |       |  |        |   |        |  |  |  |     |   
|------------------------------ |  | ---------------------------------- | ----- |  | ---- | - | ----- | ------------------------------ |  |  | ---- | -- |  | ---- | ----- |  | ------ | - | ------ |  |  |  | --- | --
|                               |  | Three Months 
EndedSeptember 30,   |       |  | %    |   |       | Nine Months EndedSeptember 30, |  |  | %    |   
|                               |  | 2010                               |       |  | 2009 |   |       | Change                         |  |  | 2010 |    |  | 2009 |       |  | Change |  
|                               |  | (In thousands, except percentages) |      
|Research and preclinical       |  | $                                  | 663   |  |      | $ | 828   |                                |  |  | (20  | )% |  | $    | 2,160 |  |        | $ | 3,781  |  |  |  | (43 | )%
|Clinical development           |  |                                    | 1,906 |  |      |   | 2,588 |                                |  |  | (26  | )% |  |      | 6,042 |  |        |   | 6,647  |  |  |  | (9  | )%
|                               |  |                                    |       |  |      |   |       |                                |  |  |      |    |  |      |       |  |        |   |        |  |  |  |     |   
|Total research and development |  | $                                  | 2,569 |  |      | $ | 3,416 |                                |  |  | (25  | )% |  | $    | 8,202 |  |        | $ | 10,428 |  |  |  | (21 | )%
|                               |  |                                    |       |  |      |   |       |                                |  |  |      |    |  |      |       |  |        |   |        |  |  |  |     |   

The decrease of 25%, or $847,000, in research and development expenses for the three months ended
September 30, 2010 compared to the same period in 2009 was principally due to the following:



| |  |  | decreased expenses of approximately $670,000 for TLK58747-Cytotoxic Small Molecule pre-clinical development program and pre-clinical expenses related
to TLK60404-Aurora Kinase;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | decreased clinical trial expenses of approximately $203,000 related to the near completion of our Phase 2 TELINTRA tablets for MDS and the
discontinuation of our Phase 2 TELINTRA tablets for CIN; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | decreased costs of approximately $157,000 associated with headcount reduction and reduced research activities;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | offset by increased clinical development expenses of approximately $184,000 for our ongoing Phase 1 dose-ranging study of TELINTRA tablets in
combination with Lenalidomide in patients with MDS, Phase 2 TELINTRA tablets randomized study in SCN and TELCYTA in patients with Refractory or Relapsed Mantle Cell lymphoma, Diffuse Large B Cell Lymphoma, and Multiple Myeloma clinical studies.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The decrease of 21%, or $2.2 million, in research and development expenses for the nine months ended
September 30, 2010 compared to the same period in 2009 was principally due to the following:



| |  |  | decreased costs of approximately $1.8 million in connection with headcount reduction as a result of our restructuring in 2009 and reduced research
activities;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | decreased expenses of approximately $892,000 for TLK58747-Cytotoxic Small Molecule pre-clinical development program;
| | - |  | --------------------------------------------------------------------------------------------------------------------



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| |  |  | decreased clinical trial expenses of approximately $564,000 related to the near completion our Phase 2 TELINTRA tablets for MDS and the discontinuation
of our Phase 2 TELINTRA tablets for CIN;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | offset by a $409,000 increase in clinical development expenses for our ongoing Phase 1 dose-ranging study of TELINTRA tablets in combination with
Lenalidomide in patients with MDS, Phase 2 TELINTRA tablets randomized study in SCN and TELCYTA in patients with Refractory or Relapsed Mantle Cell lymphoma, Diffuse Large B Cell Lymphoma, and Multiple Myeloma clinical studies; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in addition, the nine months ended September 30, 2009 included approximately $639,000 reduction in accrued clinical trials expenses as a result of
final close-out of clinical sites for completed clinical studies while there were no such adjustments in 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We expect total research and development expenditures to decrease in 2010 as we complete our Phase 2 TELINTRA tablets for MDS clinical trial and continue other smaller ongoing TELINTRA and TELCYTA
clinical trials as well as advancing new drug candidates into the clinic.

The following table summarizes our principal drug
product candidate development initiatives:



|                                        |  |                                                      |       |  |      |   |        | 
|--------------------------------------- |  | ---------------------------------------------------- | ----- |  | ---- | - | ------ | 
|                                        |  | Related R&D 
ExpensesNine Months ended September 30, |      
|Product                                 |  | 2010                                                 |       |  | 2009 |  
|                                        |  | (in thousands)                                       |      
|TELCYTA                                 |  | $                                                    | 1,553 |  |      | $ | 694    | 
|TELINTRA                                |  |                                                      | 5,588 |  |      |   | 5,318  | 
|TLK58747                                |  |                                                      | 128   |  |      |   | 2,840  | 
|TLK60404                                |  |                                                      | 359   |  |      |   | 700    | 
|Other (1)                               |  |                                                      | 574   |  |      |   | 876    | 
|                                        |  |                                                      |       |  |      |   |        | 
|Total research and development expenses |  | $                                                    | 8,202 |  |      | $ | 10,428 | 
|                                        |  |                                                      |       |  |      |   |        | 



|(1) | Other constitutes research and development activities that cannot be allocated to any individual project.
|--- | -----------------------------------------------------------------------------------------------------------

The largest component of our total operating expenses is our on-going investment in our research and development activities and, in
particular, the clinical development of our product candidate pipeline. The process of conducting the clinical research necessary to obtain FDA approval is costly and time consuming. Current FDA requirements for a new human drug to be marketed in
the United States include:



| |  |  | the successful conclusion of preclinical laboratory and animal tests, if appropriate, to gain preliminary information on the products safety;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | filing with the FDA of an IND, to conduct initial human clinical trials for drug candidates;
| | - |  | --------------------------------------------------------------------------------------------

| |  |  | the successful completion of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | filing by company and acceptance and approval by the FDA of a New Drug Application, or NDA, for a product candidate to allow commercial distribution of
the drug.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

In view of the factors mentioned above, we consider the active management and development of our
clinical pipeline to be crucial to our long-term success. The actual probability of success for each candidate and clinical program may be impacted by a variety of factors, including, among others, the quality of the candidate, the validity of the
target and disease indication, early clinical data, investment in the program, competition, manufacturing capability and commercial viability. Due to these and other factors, it is difficult to give accurate guidance on the anticipated proportion of
our research and development investments or the future cash inflows from these programs.



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General and
Administrative Expenses



|                           |  |                                    |       |  |      |   |       |                                |  |  |      |    |  |      |       |  |        |   |       |  |  |  |     |   
|-------------------------- |  | ---------------------------------- | ----- |  | ---- | - | ----- | ------------------------------ |  |  | ---- | -- |  | ---- | ----- |  | ------ | - | ----- |  |  |  | --- | --
|                           |  | Three Months 
EndedSeptember 30,   |       |  | %    |   |       | Nine Months EndedSeptember 30, |  |  | %    |   
|                           |  | 2010                               |       |  | 2009 |   |       | Change                         |  |  | 2010 |    |  | 2009 |       |  | Change |  
|                           |  | (In thousands, except percentages) |      
|General and administrative |  | $                                  | 2,101 |  |      | $ | 2,759 |                                |  |  | (24  | )% |  | $    | 6,856 |  |        | $ | 8,845 |  |  |  | (22 | )%

The decrease in general
and administrative expenses of 24%, or $658,000, for the three months ended September 30, 2010 compared to the same period in 2009 was primarily due to a decrease of $504,000 in headcount and corporate administrative expenses and decreased
stock-based compensation expense of approximately $154,000 as a result of higher fair value stock options fully vested in 2009.

The decrease in general and administrative expenses of 22%, or $2.0 million, in the nine months ended September 30, 2010 compared to
the same period in 2009 was primarily due a decrease of $931,000 in headcount and corporate administrative expenses, decreased stock-based compensation expense of approximately $438,000 as a result of higher fair value stock options fully vested in
2009 and a decrease of $619,000 in legal and professional service expenses.

We expect 2010 general and administrative
expenses to be lower than the 2009 spending level as we undertake efforts to control expenses.

Stock-Based Compensation
Expense

Employee stock-based compensation expense related to our share-based payment awards was as follows:



|                                              |  |                                         |     |  |                                |   |     |      |  |   |       |  |  |   |       | 
|--------------------------------------------- |  | --------------------------------------- | --- |  | ------------------------------ | - | --- | ---- |  | - | ----- |  |  | - | ----- | 
|                                              |  | Three Months 
EndedSeptember 30,        |     |  | Nine Months
EndedSeptember 30, |  
|                                              |  | 2010                                    |     |  | 2009                           |   |     | 2010 |  |   | 2009  | 
|                                              |  | (in thousands except per share amounts) |    
|Research and development                      |  | $                                       | 179 |  |                                | $ | 134 |      |  | $ | 611   |  |  | $ | 425   | 
|General and administrative                    |  |                                         | 234 |  |                                |   | 388 |      |  |   | 936   |  |  |   | 1,374 | 
|                                              |  |                                         |     |  |                                |   |     |      |  |   |       |  |  |   |       | 
|Stock-based compensation expense before taxes |  |                                         | 413 |  |                                |   | 522 |      |  |   | 1,547 |  |  |   | 1,799 | 
|                                              |  |                                         |     |  |                                |   |     |      |  |   |       |  |  |   |       | 
|Effect on net loss                            |  | $                                       | 413 |  |                                | $ | 522 |      |  | $ | 1,547 |  |  | $ | 1,799 | 
|                                              |  |                                         |     |  |                                |   |     |      |  |   |       |  |  |   |       | 

Employee stock-based compensation expenses for research and development for the three and nine months ended
September 30, 2010 compared with the same periods in 2009 were higher principally due to expense from options granted in November 2009. The decreases in employee stock-based compensation expense for general and administrative for the three and
nine months ended September 30, 2010 compared with the same periods in 2009 were primarily due to higher fair value stock options fully vested in 2009.

Restructuring Costs

In February 2009, we implemented a restructuring plan
and reduced our workforce by 37 positions and recorded charges of approximately $951,000 for the nine months ended September 30, 2009. We paid $750,000 in the quarter ended March 31, 2009, $111,000 in the quarter ended June 30, 2009
and $90,000 in the quarter ended September 30, 2009 as severance, payroll taxes and other personnel related costs. There were no restructuring costs recorded for the three and nine months ended September 30, 2010.

Interest Income and Interest Expense



|                               |  |                                    |    |  |      |   |     |                                |  |  |      |    |  |      |     |   |        |   |     |   |  |  |     |   
|------------------------------ |  | ---------------------------------- | -- |  | ---- | - | --- | ------------------------------ |  |  | ---- | -- |  | ---- | --- | - | ------ | - | --- | - |  |  | --- | --
|                               |  | Three Months 
EndedSeptember 30,   |    |  | %    |   |     | Nine Months EndedSeptember 30, |  |  | %    |   
|                               |  | 2010                               |    |  | 2009 |   |     | Change                         |  |  | 2010 |    |  | 2009 |     |   | Change |  
|                               |  | (In thousands, except percentages) |   
|Interest and other income, net |  | $                                  | 17 |  |      | $ | 80  |                                |  |  | (79  | )% |  | $    | 138 |   |        | $ | 803 |   |  |  | (83 | )%
|Interest expense               |  |                                    |   |  |      |   | (12 | )                              |  |  | (100 | )% |  |      | (6  | ) |        |   | (72 | ) |  |  | (92 | )%



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The decrease in
interest and other income, net of approximately $63,000 for the three months ended September 30, 2010 compared to the same period in 2009 was due primarily to a decrease in investment income resulting from lower investment cash balances and
lower interest rates.

The decrease in interest and other income, net of approximately $665,000 for the nine months ended
September 30, 2010 compared to the same period in 2009 was due primarily to a decrease of $285,000 in investment income resulting from lower investment cash balances and lower interest rates, and a gain of $339,000 on the sale of computer and
laboratory equipment recorded in 2009.

Interest expenses for the periods reported were solely for interest payments on our
UBS loan. There was no interest expense for the three months ended September 30, 2010 and the decrease of approximately $66,000 for the nine months ended September 30, 2010 compared to the same period in 2009 was due to the full payment of
our UBS loan balance in February 2010.

Liquidity and Capital Resources



|                                                               |  |                              |          |  |                  |   |         | 
|-------------------------------------------------------------- |  | ---------------------------- | -------- |  | ---------------- | - | ------- | 
|                                                               |  | September 30,2010            |          |  | December 31,2009 |  
|                                                               |  | (in millions, except ratios) |         
|Cash, cash equivalents, investments and restricted investments |  | $                            | 27.4     |  |                  | $ | 40.4    | 
|Working capital                                                |  | $                            | 26.4     |  |                  | $ | 39.2    | 
|Current ratio                                                  |  |                              | 18.4 : 1 |  |                  |   | 9.1 : 1 | 



|                              |  |                                |       |   |      |   |       |  
|----------------------------- |  | ------------------------------ | ----- | - | ---- | - | ----- | -
|                              |  | Nine Months EndedSeptember 30, |      
|                              |  | 2010                           |       |   | 2009 |  
|                              |  | (in millions)                  |      
|Cash (used in) / provided by: |  |                                |       |   |      |   |       |  
|Operating activities          |  | $                              | (13.4 | ) |      | $ | (19.3 | )
|Investing activities          |  | $                              | 6.9   |   |      | $ | (24.3 | )
|Financing activities          |  | $                              | (3.0  | ) |      | $ |      |  

Sources and Uses
of Cash. Due to the significant research and development expenditures and the lack of any approved products to generate revenue, we have not been profitable and have generated operating losses since we incorporated in 1988. As such, we have
funded our research and development operations through the sale of equity securities, non-equity payments from corporate partners, interest earned on investments and equipment lease and loan financings. At September 30, 2010, we had available
cash, cash equivalents, investments and restricted investments of $27.4 million. Our cash and investment balances are held in a variety of interest-bearing instruments including obligations of U.S. government agencies and money market accounts. Cash
in excess of immediate requirements is invested with regard to liquidity and capital preservation. Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk.

Cash Flows from Operating Activities. Cash used in operations for the nine months ended September 30, 2010 was $13.4 million
compared with $19.3 million for the same period in 2009. Net loss of $14.9 million in 2010 included non-cash charges of $1.5 million for stock-based compensation, $279,000 for depreciation and amortization and $111,000 for the decrease in the fair
value of our ARS which were partially offset by a $111,000 reduction in value of the put option associated with the UBS ARS Rights. Cash used in operations was further impacted by a $208,000 reduction in accrued liabilities related primarily to
payments made during the nine months ended September 30, 2010 for clinical trials site costs. Operating cash outflows for the same period in 2009 resulted primarily from a net loss of $19.5 million which included non-cash charges of $1.8



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million for stock-based compensation, $420,000 for depreciation and amortization and $5.2 million for the reduction in value of the put option associated with the UBS ARS Right and were partially
offset by a $5.2 million increase in the fair value of marketable securities and a $344,000 gain on the disposal of property and equipment. Cash used in operations in 2009 was further impacted by a $1.3 million reduction in accrued clinical trials
related primarily to the completion of our Phase 3 clinical trials and a $951,000 decrease in accounts payable and partially offset by an increase of $552,000 in accrued compensation. In addition, in 2009 our put option valued at $3.5 million was
reclassified from other assets to other current assets based on the intention to sell our ARS in less than one year.

Cash
Flows from Investing Activities. Cash provided by investing activities for the nine months ended September 30, 2010 was $6.9 million compared with cash used in investing activities of $24.3 million for the same period in 2009. Cash provided
in the nine months ended September 30, 2010 was primarily from $24 million in investment maturities and $14.0 million in investment sales which included $13.8 million in sales of our ARS to UBS and was partially offset by the purchase of
available-for-sale investments of $31.1 million. We had $5,000 in proceeds from the sale of property and equipment and no capital expenditures for the nine months ended September 30, 2010. Cash used in the same period in 2009 was primarily for
the purchase of available-for-sale investments of $33.2 million and were partially offset by $224,000 in investment sales, $8 million in investment maturities which included a $4.9 million sale of our ARS to UBS on June 20, 2009 and the
proceeds were used to repay our loan with UBS. We had $641,000 in proceeds from the sale of property and equipment and no capital expenditures for the nine months ended September 30, 2009.

Cash Flows from Financing Activities. Cash used in financing activities for the nine months ended September 30, 2010 was
approximately $3.0 million compared with cash provided by financing activities of $47,000 for the same period in 2009. Cash used in financing activities for the nine months ended September 30, 2010 was primarily due to $3.1 million payment of
our remaining UBS loan balance on February 16, 2010 and was offset by $65,000 in proceeds from stock purchases under our employee stock purchase plan. Financing activities for the same period in 2009 comprised $47,000 in proceeds from stock
purchases under our employee stock purchase plan.

Working Capital. Working capital decreased to $26.4 million at
September 30, 2010 from $39.2 million at December 31, 2009. The decrease in working capital was primarily due to our use of cash for our clinical studies, pre-clinical programs and operating expenses.

We believe our existing cash resources will be sufficient to satisfy our current operating plan until the end of 2011. Changes in our
research and development plans or other changes affecting our operating expenses may affect actual future consumption of existing cash resources as well. In any event, we will require substantial additional financing to fund our operations in the
future. We may seek to raise any necessary additional funds through equity or debt financings, collaborative arrangements with corporate partners or other sources. To the extent that we raise additional capital by issuing equity securities, our
stockholders may experience dilution. Debt financing may subject us to restrictive covenants that may adversely affect our operations. To the extent that we raise additional capital through licensing arrangements or arrangements with collaborative
partners, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. Our future capital uses and requirements
depend on numerous factors, including the following:



| |  |  | the progress and success of preclinical studies and clinical trials of our product candidates;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | the progress and number of research programs in development;
| | - |  | ------------------------------------------------------------



| |  |  | the costs associated with conducting Phase 2 clinical trials;
| | - |  | -------------------------------------------------------------



| |  |  | the costs and timing of obtaining regulatory approvals;
| | - |  | -------------------------------------------------------



| |  |  | our ability to establish, and the scope of, any new collaborations;
| | - |  | -------------------------------------------------------------------



| |  |  | our ability to meet the milestones identified in our collaborative agreements that trigger payments;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | the costs and timing of obtaining, enforcing and defending our patent and intellectual property rights;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | competing technological and market developments; and
| | - |  | ----------------------------------------------------



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| |  |  | the timing and scope of commercialization expenses for our product candidates as they approach regulatory approval.
| | - |  | -------------------------------------------------------------------------------------------------------------------

We currently have no commitments for any additional financings. If we need to raise additional money to fund our operations, funding may
not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may not be able to continue development of our product candidates, or we could be required to delay, scale back or eliminate some or
all of our research and development programs.

Our future contractual obligations at September 30, 2010 were as follows:



|                 |  |                |        |  |      |   |     |           |  |   |           |  |  |           |       |  |  |   |   | 
|---------------- |  | -------------- | ------ |  | ---- | - | --- | --------- |  | - | --------- |  |  | --------- | ----- |  |  | - | - | 
|                 |  | Total          |        |  | 2010 |   |     | 2011-2012 |  |   | 2013-2014 |  |  | After2014 |      
|                 |  | (in thousands) |       
|Operating leases |  | $              | 13,877 |  |      | $ | 935 |           |  | $ | 7,823     |  |  | $         | 5,119 |  |  | $ |  | 

We are currently
evaluating an option to sublease our facility at 3165 Porter Drive in Palo Alto, California which consists of approximately 92,000 square feet of research and office space. If and when we are successful in executing a sublease agreement we expect to
record material charges in the period a sublease is executed.

We also have a contractual obligation under the terms of our
manufacturing supply agreement with AMRI wherein we are obligated to purchase a majority of our United States requirements for the active ingredient in TELCYTA for a number of years. However, we currently do not have any requirements for the active
ingredient. We have agreed on a pricing schedule for such supply, which will be subject to future renegotiation after a defined time period.

Off-Balance Sheet Arrangements

We have no material off-balance
sheet arrangements as defined in Regulation S-K 303(a)(4)(ii).



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk.
|------- | -----------------------------------------------------------

The following discussion about our market risk exposure involves forward-looking statements. We do not use or hold derivative financial instruments; however we are exposed to market risk related to
changes in interest rates and market conditions.

Our investment policy is to manage our marketable securities portfolio to
preserve principal and liquidity while maximizing the return on the investment portfolio. To minimize the exposure due to adverse shifts in interest rates, we maintain investments of shorter maturities. Our marketable securities portfolio is
primarily invested in corporate debt securities and commercial papers with an average maturity of under one year and a minimum investment grade rating of A or A-1 or better to minimize credit risk. Although changes in interest rates may affect the
fair value of the marketable securities portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments were sold prior to maturity. Through our money managers, we maintain risk management control
systems to monitor interest rate risk. The risk management control systems use analytical techniques, including sensitivity analysis. We have operated primarily in the United States and all funding activities with our collaborators to date have been
made in U.S. dollars. Accordingly, we do not have any exposure to foreign currency rate fluctuations.



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The table below
presents the principal amounts and weighted-average interest rates by year of stated maturity for our investment portfolio:



|                              |  |                                    |        |   |               |   |        |       |  |   |                                |   |  |   |        | 
|----------------------------- |  | ---------------------------------- | ------ | - | ------------- | - | ------ | ----- |  | - | ------------------------------ | - |  | - | ------ | 
|                              |  | 2010                               |        |   | 2011andBeyond |   |        | Total |  |   | Fair Value atSeptember 30,2010 |  
|                              |  | (In thousands, except percentages) |       
|Available-for-sale securities |  | $                                  | 11,695 |   |               | $ | 12,482 |       |  | $ | 24,177                         |   |  | $ | 24,177 | 
|Average interest rate         |  |                                    | 0.28   | % |               |   | 0.27   | %     |  |   | 0.28                           | % |  |   |        | 



|Item 4. | Controls and Procedures.
|------- | ------------------------

Evaluation of disclosure controls and procedures. Based on our managements evaluation (with the participation of our chief
executive officer and chief financial officer), our chief executive officer and chief financial officer have concluded that, subject to limitations described below, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended), were effective as of September 30, 2010.

Changes in internal
control over financial reporting. There were no changes in our internal controls over financial reporting during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.

Limitations on the effectiveness of controls. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set
forth above, our chief executive officer and chief financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were sufficiently effective to provide
reasonable assurance that the objectives of our disclosure control system were met.



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PART II. OTHER INFORMATION



|Item 1A. | Risk Factors.
|-------- | -------------

Included below is a description of risk factors related to our business to enable readers to assess, and be appropriately apprised of,
many of the risks and uncertainties applicable to the forward-looking statements made in this Quarterly Report on Form 10-Q. The risks and uncertainties set forth below are not all of the risks and uncertainties facing our business, but we do
believe that they reflect the more important ones. You should carefully consider these risk factors as each of these risks could adversely affect our business, operating results and financial condition. Given these risks and uncertainties, you are
cautioned not to place undue reliance on forward-looking statements.

The risk factors described in Part I,
Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on March 2, 2010, are set forth below. These risk factors have not substantively changed, except for those identified by asterisk
and restated below.

If we are unable to raise adequate funds in the future, we will not be able to continue to fund our operations,
research programs, preclinical testing and clinical trials to develop and manufacture our drug product candidates.*

The
process of carrying out the development of our own unpartnered product candidates to later stages of development and developing other research programs to the stage that they may be partnered to a pharmaceutical or biotechnology company will require
significant additional expenditures, including the expenses associated with preclinical testing, clinical trials and obtaining regulatory approval. We believe that our existing cash and investment securities will be sufficient to support our current
operating plan until the end of 2011. Unanticipated changes in our research and development plans or other changes affecting our operating expenses may affect actual consumption of existing cash resources as well. In any event, we will require
substantial additional financing to fund our operations in the future. We do not know whether additional financing will be available when needed or that, if available, we will be able to obtain financing on terms favorable to our stockholders. In
addition, the recent tightening of credit markets and concerns regarding the availability of credit, particularly in the United States, may also have negatively impacted our ability to raise additional capital to fund our business. As of
September 30, 2010, our accumulated deficit was $518.5 million, and we expect to incur capital outlays and operating expenditures for the next several years as we continue our clinical, research and development activities. The extent of any
actual increase in operating or capital spending will depend in part on the clinical success of our product candidates. If we fail to raise adequate funds on terms acceptable to us, if at all, we will not be able to continue to fund our operations,
research programs, preclinical testing, clinical trials and manufacturing efforts.

We have a history of net losses, which we expect to
continue for the next several years. We will never be profitable unless we develop, and obtain regulatory approval and market acceptance of, our product candidates.*

To date, we have not obtained regulatory approval for the commercial sale of any products, and we have not received any revenue from the commercial sale of products. Due to the significant research and
development expenditures required to develop our TRAP technology and identify new product candidates, and the lack of any products to generate revenue, we have not been profitable and have incurred operating losses since we were incorporated in
1988. As of September 30, 2010, we had an accumulated deficit of $518.5 million. We expect to incur losses for the next several years as we continue our research and development activities and incur significant clinical testing and drug supply
manufacturing costs. We do not anticipate that we will generate product revenue for several years. Our losses, among other things, have caused and will cause our stockholders equity and working capital to decrease. We expect that this trend
will continue until we develop, and obtain regulatory approval and market acceptance of, our product candidates, if at all. We may never generate product revenue sufficient to become profitable.



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Both of our most advanced drug
product candidates, TELINTRA and TELCYTA, are in clinical development. If clinical trials of our product candidates are delayed or unsuccessful, or if we are unable to complete the preclinical development of our other preclinical product candidates,
our business may suffer. *

Preclinical testing and clinical trials are long, expensive and uncertain processes. It may
take us or our collaborators several years to complete this testing, and failure can occur at any stage of the process. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and
interim results of clinical trials do not necessarily predict final results. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after
promising results in earlier clinical trials. To obtain regulatory approvals, we must, among other requirements, complete carefully controlled and well-designed clinical trials demonstrating that a particular drug is safe and effective for the
applicable disease.

In January 2007, we completed a Phase 2 clinical trial of the intravenous formulation of TELINTRA in MDS,
a form of pre-leukemia, to evaluate safety, pharmacokinetics, pharmacodynamics and efficacy. In February 2006, we initiated a Phase 1-2a clinical trial of a tablet formulation of TELINTRA in MDS and announced final data at the American Society of
Hematology meeting in December 2007. In May 2008, we initiated a Phase 2 clinical trial of TELINTRA tablets for the treatment of patients with MDS. In April 2009, we initiated another randomized Phase 2 clinical trial in Severe Chronic Neutropenia,
or SCN; and in November 2009, we initiated a Phase 1 Dose-Ranging Study of TELINTRA tablets in combination with Lenalidomide in patients with MDS. Our success depends in part on our ability to continue clinical development of TELINTRA.

TELCYTA has been evaluated in multiple Phase 1, Phase 2 and Phase 3 clinical trials. On June 3, 2007, we announced that the Phase 3
trials did not achieve their primary endpoints. Subsequently, on June 4, 2007, the FDA initiated a full clinical hold for TELCYTA. On June 15, 2007, the FDA converted the full clinical hold to a partial hold, thereby enabling patients that
had been enrolled in the trials the opportunity to continue to receive study treatments, including TELCYTA in combination with chemotherapy, subject to re-consenting procedures. In October 2007, after completing their review of the detailed safety
and other information we submitted, the FDA removed the partial hold, permitting the resumption of our TELCYTA clinical development. As a result of these circumstances, the FDA requires that we conduct additional studies of TELCYTA to complete
clinical development. In May 2010, we initiated an investigator led study at a single site of TELCYTA in patients with Refractory or Relapsed Mantle Cell lymphoma, Diffuse Large B Cell Lymphoma, and Multiple Myeloma.

Our success depends in part on our ability to continue clinical development of TELINTRA and TELCYTA. If we do not have sufficient capital
required to conduct additional studies or if the data on future clinical trials are not positive, we may not be able to continue clinical development on TELINTRA or TELCYTA and our business will suffer.

We rely on third-party clinical investigators to conduct our clinical trials and, as a result, we may face additional delays outside our
control. We have in the past engaged contract research organizations, or CROs, to facilitate the administration of our Phase 3 clinical trials of TELCYTA. Dependence on a CRO subjects us to a number of risks. We may not be able to control the amount
and timing of resources the CRO may devote to our clinical trials. Should the CRO fail to administer our Phase 3 clinical trials properly and on a timely basis, regulatory approval, development and commercialization of TELCYTA will be delayed.

We do not know whether we will begin planned clinical trials on time or whether we will complete any of our on-going clinical
trials on schedule, if at all. Clinical trials can be delayed for a variety of other reasons, including delays in clinical testing, obtaining regulatory approval to commence a study, delays in reaching agreement on acceptable clinical study
agreement terms with prospective clinical sites, delays in obtaining institutional review board approval to conduct a study at a prospective clinical site and delays in recruiting subjects to participate in a study. Even if we are able to complete
such clinical trials, we do not know whether any such trials will result in marketable products. Typically, there is a high rate of failure for product candidates in preclinical and clinical trials. We do not anticipate that any of our product
candidates will reach the market for at least the next several years.



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Delays in clinical
testing can also materially impact our product candidates development costs. If we experience delays in clinical testing or approvals, our product candidates development costs will increase. For example, we may need to make additional
payments to third-party investigators and organizations to retain their services or we may need to pay additional recruitment incentives. If the delays are significant, our financial results and the commercial prospects for our product candidates
will be harmed, and our ability to become profitable will be significantly impaired or delayed.

If we do not find collaborators for our
product candidates, we may have to reduce or delay our rate of product development and/or increase our expenditures.

Our
strategy to develop, manufacture and commercialize our products includes entering into relationships with pharmaceutical companies to advance certain programs and reduce our expenditures with respect to such programs. Our product candidates will
target highly competitive therapeutic markets in which we have limited experience and expertise. If we are unable to develop this expertise ourselves, we will need to enter into agreements with one or more biotechnology or pharmaceutical companies
to provide us with the necessary resources and experience for the development and commercialization of products in these markets. In particular, we intend to seek a partnership with a pharmaceutical or biotechnology company to further advance the
development and commercialization of TELCYTA. There are a limited number of companies with the resources necessary to develop our future products commercially, and we may be unable to attract any of these firms. The current credit and financial
market conditions could also impact our ability to find a collaborator for our development programs. A company that has entered into a collaboration agreement with one of our competitors may choose not to enter into a collaboration agreement with
us. We may not be able to negotiate a collaboration agreement on acceptable terms or at all. If we are not able to establish collaborative arrangements, we may have to reduce or delay further development of some of our programs and/or increase our
expenditures and undertake the development activities at our own expense. If we elect to increase our expenditures to fund our development programs, we will need to obtain additional capital, which may not be available on acceptable terms or at all.

In addition, there have been a significant number of recent business combinations among biotechnology and pharmaceutical
companies that have reduced the number of potential future collaborators that would be willing to enter into a collaboration agreement with us. If business combinations involving potential collaborators continue to occur, our ability to find a
collaborative partner could be diminished, which could result in the termination or delay in one or more of our product candidate development programs.

We will depend on collaborative arrangements to complete the development and commercialization of some of our product candidates. These collaborative arrangements may place the development of our
product candidates outside of our control, may require us to relinquish important rights or may otherwise not be on terms favorable to us.

We expect to enter into collaborative arrangements with third parties for clinical trials, development, manufacturing, regulatory approvals or commercialization of some of our product candidates.
Dependence on collaborative arrangements will subject us to a number of risks. We may not be able to control the amount and timing of resources our collaborative partners may devote to the product candidates. Our collaborative partners may
experience financial difficulties. Should a collaborative partner fail to develop or commercialize a compound or product candidate to which it has rights from us, we may not receive any future milestone payments and will not receive any royalties
for that compound or product candidate. Business combinations or significant changes in a collaborative partners business strategy may also adversely affect a partners willingness or ability to complete its obligations under an
arrangement. If we fail to enter into additional collaborative agreements on favorable terms, our business, financial condition and results of operations could be materially adversely affected.

Some of our collaborations are for early stage programs and allow partners significant discretion in electing whether to pursue any of
the planned activities. We do not anticipate significant revenues to result from these relationships until the collaborator has advanced product candidates into clinical trials, which will not occur for several years, if at all. These arrangements
are subject to numerous risks, including the right of the collaboration partner to control the timing of the research and development efforts, the advancement of lead product candidates to clinical trials and the commercialization of product
candidates. In addition, a collaborative partner could independently move forward with a competing lead candidate developed either independently or in collaboration with others, including our competitors.



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Our ability to publicly or
privately sell equity securities and the liquidity of our common stock could be adversely affected if we are delisted from Nasdaq or if we are unable to transfer our listing to another stock market.*

On September 19, 2008, we received a letter from the Nasdaq Listing Qualifications Department indicating that, for 30 consecutive
business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Global Market under Nasdaq Marketplace Rule 5550(a)(2). The letter also stated that in accordance with
Nasdaq Marketplace Rule 5810(c)(3)(A), we were given 180 calendar days to regain compliance with this listing requirement, which may be accomplished if the bid price of our common stock closes at $1.00 per share or more for a minimum of 10
consecutive business days. Subsequently, Nasdaq implemented temporary suspensions of the minimum bid price requirement, allowing us until January 4, 2010 to regain compliance. Effective January 7, 2010, we transferred the listing of our
common stock from the Nasdaq Global Market to the Nasdaq Capital Market. In accordance with Listing Rule 5810(c)(3)(A), we were provided an additional 180-day period, or until July 6, 2010, to regain compliance with the minimum bid price
requirement. On April 22, 2010, we received notice from Nasdaq that we have regained compliance with the minimum bid price requirement. Since May 20, 2010, the bid price for our common stock had again fluctuated below the levels required
by Nasdaq rules for continued listing. On July 21, 2010, we received notification from Nasdaq informing us that the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq
Capital Market and that we have 180 calendar days, or until January 18, 2011, to regain compliance. We cannot assure you that we will be able to regain compliance as required by Nasdaq rules.

Delisting from Nasdaq could adversely affect our ability to raise additional financing through the public or private sale of equity
securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock. Delisting could also have other negative results, including the potential loss of
confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

We believe that our
ability to compete depends, in part, on our ability to use our proprietary TRAP technology to discover new pharmaceutical products.

TRAP, our proprietary drug discovery technology, is a relatively new drug discovery method that uses a protein panel of approximately 20 proteins selected for their distinct patterns of interacting with
small molecules. This panel may lack essential types of interactions that we have not yet identified, which may result in our inability to identify active compounds that we could potentially develop into commercially viable drugs.

Raising additional capital by issuing securities or through collaboration and licensing arrangements may cause dilution to existing stockholders or
require us to relinquish rights to our technologies or product candidates.

We may seek to raise additional funds through
equity or debt financings, collaborative arrangements with corporate partners or other sources. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience dilution. To the extent that we raise
additional capital through licensing arrangements or arrangements with collaborative partners, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise
seek to develop or commercialize ourselves.

It may be difficult for us to retain our current employees and identify, hire and retain
future employees.

Our future success depends in part upon our ability to attract and retain highly skilled personnel.
Several factors could make it difficult for us to achieve this. Competition among numerous companies, academic and other research institutions for skilled personnel and experienced scientists may be intense and turnover rates



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high. The cost of living in the San Francisco Bay Area is high compared to other parts of the country, which could adversely affect our ability to compete for qualified personnel and increase our
costs. Because of this competitive environment, we have encountered and may continue to encounter increasing difficulty attracting qualified personnel, particularly if our operations expand and the demand for these professionals increases.

In addition, we may have difficulty attracting and retaining personnel as a result of having carried out three workforce
reductions since 2007, the most recent of which was completed in February 2009. We cannot assure you that future reductions or adjustments of our workforce will not be made or that issues, such as voluntary departures by some employees, associated
with such reductions will not recur. These circumstances could significantly impede the achievement of our business objectives.

If our
competitors develop and market products that are more effective than our product candidates or any products that we may develop, or obtain marketing approval before we do, our commercial opportunity will be reduced or eliminated.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Some
of the drugs that we are attempting to develop will have to compete with existing therapies. In addition, a large number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting.
We face competition from pharmaceutical and biotechnology companies in the United States and abroad. Our competitors may develop new screening technologies and may utilize discovery techniques or partner with collaborators in order to develop
products more rapidly or successfully than we or our collaborators are able to do.

Many of our competitors, particularly
large pharmaceutical companies, have substantially greater financial, technical and human resources than we do. These organizations also compete with us to attract qualified personnel and parties for acquisitions, joint ventures, licensing
arrangements or other collaborations. In addition, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competing products or technologies
and may establish exclusive collaborative or licensing relationships with our competitors.

Our competitors may succeed in
developing technologies and drugs that are more effective, better tolerated or less costly than any which are being developed by us or which would render our technology and potential drugs obsolete and noncompetitive. In addition, our competitors
may succeed in obtaining FDA or other regulatory approvals for product candidates more rapidly than us or our collaborators. Any drugs resulting from our research and development efforts, or from our joint efforts with our existing or future
collaborative partners, may not be able to compete successfully with our competitors existing products or product candidates under development or may not obtain regulatory approval in the United States or elsewhere.

If we do not obtain regulatory approval to market products in the United States and foreign countries, we or our collaborators will not be permitted
to commercialize our product candidates.

Even if we are able to achieve success in our preclinical testing, we, or our
collaborators, must provide the FDA and foreign regulatory authorities with clinical data that demonstrate the safety and efficacy of our product candidates in humans before they can be approved for commercial sale. Failure to obtain regulatory
approval will prevent commercialization of our product candidates.

The pharmaceutical industry is subject to stringent
regulation by a wide range of regulatory authorities. We cannot predict whether regulatory clearance will be obtained for any product candidate that we are developing or hope to develop. A pharmaceutical product cannot be marketed in the United
States until it has completed rigorous preclinical testing and clinical trials and an extensive regulatory clearance process implemented by the FDA. Satisfaction of regulatory requirements typically takes many years and depends on the type,
complexity and novelty of the product candidate and requires the expenditure of substantial resources. Of particular significance are the requirements covering research and development, testing, manufacturing, quality control, labeling and promotion
of drugs for human use.



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Before commencing
clinical trials in humans, we, or our collaborators, must submit and receive approval from the FDA of an IND application. We must comply with FDA Good Laboratory Practices regulations in our preclinical studies. Clinical trials are
subject to oversight by Institutional Review Boards, or IRBs, of participating clinical sites and the FDA and:



| |  |  | must be conducted in conformance with the FDA regulations;
| | - |  | ----------------------------------------------------------



| |  |  | must meet requirements for IRB approval;
| | - |  | ----------------------------------------



| |  |  | must meet requirements for informed consent;
| | - |  | --------------------------------------------



| |  |  | must meet requirements for Good Clinical Practices;
| | - |  | ---------------------------------------------------



| |  |  | may require large numbers of participants; and
| | - |  | ----------------------------------------------



| |  |  | may be suspended by us, our collaborators or the FDA at any time if it is believed that the subjects participating in these trials are being exposed to
unacceptable health risks or if the FDA finds deficiencies in the IND application or the conduct of these trials. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the
IRBs requirements, or may impose other conditions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Before receiving FDA clearance to market a product
candidate, we, or our collaborators must demonstrate that the product candidate is safe and effective in the patient population that will be treated. Negative or inconclusive results or adverse medical events during a clinical trial could cause a
clinical trial to be repeated, a program to be terminated and could delay approval. We typically rely on third-party clinical investigators to conduct our clinical trials and other third-party organizations to perform data collection and analysis.
As a result, we may face additional delaying factors outside our control. In addition, we may encounter delays or rejections based upon additional government regulation from future legislation or administrative action or changes in FDA policy or
interpretation during the period of product development, clinical trials and FDA regulatory review. Failure to comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or
seizure of products, total or partial suspension of production or injunction, as well as other regulatory action. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval.

If regulatory clearance of a product candidate is granted, this clearance will be limited to those disease states and conditions for
which the product candidate is demonstrated through clinical trials to be safe and efficacious, which could limit our market opportunity. Furthermore, product approvals, once granted, may be withdrawn if problems occur after initial marketing. We
cannot ensure that any product candidate developed by us, alone or with others, will prove to be safe and efficacious in clinical trials and will meet all of the applicable regulatory requirements needed to receive marketing clearance. Regulatory
clearance may also contain requirements for costly post-marketing testing and surveillance to monitor the safety and efficacy of the product candidate. If problems occur after initial marketing, such as the discovery of previously unknown problems
with our product candidates, including unanticipated adverse events or adverse events of unanticipated severity or frequency, or manufacturer or manufacturing issues, marketing approval can be withdrawn.

Outside the United States, the ability to market a product depends on receiving a marketing authorization from the appropriate regulatory
authorities. Most foreign regulatory approval processes include all of the risks associated with FDA clearance described above and some may include additional risks.

As our product programs advance, we may need to hire additional scientific and management personnel. Our research and development efforts will be seriously jeopardized if we are unable to attract and
retain key personnel.

Our success depends in part on the continued contributions of our principal management and
scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, scientists and companies in the face of intense competition for such personnel. As we plan for additional advanced clinical
trials, including Phase 2 and Phase 3, we may also need to expand our clinical development personnel. If we lose the services of Dr. Wick or any of our other key personnel, our research and development efforts could be seriously and adversely
affected. We have generally entered into consulting or other agreements with our scientific and clinical collaborators and advisors. We do not carry key person insurance that covers Dr. Wick or any of our other key employees.



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If we or our licensees cannot
obtain and defend our respective intellectual property rights, or if our product candidates, technologies or any products that we may develop are found to infringe patents of third parties, we could become involved in lengthy and costly legal
proceedings that could adversely affect our business.

Our success will depend in a large part on our own and our
licensees ability to obtain and defend patents for each partys respective technologies and the compounds and other products, if any, resulting from the application of these technologies. The patent positions of pharmaceutical and
biotechnology companies can be highly uncertain and involve complex legal and factual questions. As a result, the degree of future protection for our proprietary rights is uncertain, and we cannot assure you that:



| |  |  | we were the first to make the inventions covered by each of our pending patent applications;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | we were the first to file patent applications for these inventions;
| | - |  | -------------------------------------------------------------------



| |  |  | others will not independently develop similar or alternative technologies or duplicate any of our technologies;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | any of our pending patent applications will result in issued patents;
| | - |  | ---------------------------------------------------------------------



| |  |  | any patents issued to us or our collaborators will provide a basis for commercially viable products, will provide us with any competitive advantages or
will not be challenged by third parties;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any of our issued patents will be valid or enforceable; or
| | - |  | ----------------------------------------------------------



| |  |  | we will develop additional proprietary technologies that are patentable.
| | - |  | ------------------------------------------------------------------------

Accordingly, we cannot predict the breadth of claims allowed in our or other companies patents.

For TRAP, we hold patents in the United States that will expire between 2014 and 2015. For TELCYTA, we hold compound patents in the
United States and internationally that will expire in 2013 and 2014. For TELINTRA, we hold compound patents in the United States and internationally that will expire in 2014. We can generally apply for patent term extensions on the patents for
TELCYTA and TELINTRA when and if marketing approvals for these compounds are obtained in the relevant countries. In foreign countries, these extensions are available only if approval is obtained before the patent expires, but in the United States,
extensions are available even if approval is obtained after the patent would expire normally through a system of interim extensions until approval.

Our success will also depend, in part, on our ability to operate without infringing the intellectual property rights of others. We cannot assure you that our activities will not infringe patents owned by
others. To date, we have not received any communications with the owners of related patents alleging that our activities infringe their patents. However, if our product candidates, technologies or any products that we may develop are found to
infringe patents issued to third parties, the manufacture, use and sale of any products that we may develop could be enjoined, and we could be required to pay substantial damages. In addition, we may be required to obtain licenses to patents or
other proprietary rights of third parties. We cannot assure you that any licenses required under any such patents or proprietary rights would be made available on terms acceptable to us, if at all. Failure to obtain such licenses could negatively
affect our business.

Others may have filed and in the future may file patent applications covering small molecules or
therapeutic products that are similar to ours. We cannot assure you that our patent applications will have priority over patent applications filed by others. Any legal action against us or our collaborators claiming damages and seeking to enjoin
commercial activities relating to the affected products and processes could, in addition to subjecting us to potential liability for damages, require us or our collaborators to obtain a license to continue to manufacture or market the affected
products and processes. We cannot predict whether we, or our collaborators, would prevail in any of these actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. We believe
that there may be significant litigation in the industry regarding patent and other intellectual property rights. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources, and we may not
be successful in any such litigation.



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In addition, we could
incur substantial costs and use of our key employees time and efforts in litigation if we are required to defend against patent suits brought by third parties or if we initiate these suits, and we cannot predict whether we would be able to
prevail in any of these suits.

Furthermore, some of our patents and intellectual property rights are owned jointly by us and
our collaborators. While there are legal and contractual restraints on the rights of these joint owners, they may use these patents and other intellectual property in ways that may harm our business. We may not be able to prevent this type of use.

We also rely on trade secrets to protect technology, including aspects of our TRAP technology, where we believe patent
protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we require employees, academic collaborators and consultants to enter into confidentiality agreements, we may not be able to adequately protect our
trade secrets or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information. If the identity of specific proteins or other elements of our TRAP technology become known,
our competitive advantage in drug discovery could be reduced.

Many of our collaborators and scientific advisors have
publication and other rights to certain information and data gained from their collaborations and research with us. Any publication or other use could limit our ability to secure intellectual property rights or impair any competitive advantage that
we may possess or realize by maintaining the confidentiality of that information or data.

If we are unable to enter into or maintain
existing contracts with third parties to manufacture our product candidates or any products that we may develop in sufficient quantities and at an acceptable cost, clinical development of product candidates could be delayed and we may be unable to
meet demand for any products that we may develop and lose potential revenue.

We do not currently operate manufacturing
facilities for clinical or commercial production of our product candidates. We expect to continue to rely on third parties for the manufacture of our product candidates and any products that we may develop. We currently lack the resources and
capability to manufacture any of our product candidates on a clinical scale or any products that we may develop on a commercial scale. As a result, we will be dependent on corporate partners, licensees or other third parties for the manufacturing of
clinical and commercial scale quantities of our product candidates and any products that we may develop. Our product candidates and any products that we may develop may be in competition with other product candidates and products for access to these
manufacturing facilities. For this and other reasons, our collaborators or third parties may not be able to manufacture our product candidates and products in a cost effective or timely manner. While we currently possess sufficient inventory of
TELCYTA and TELINTRA that are stored in multiple locations and an additional, substantial quantity of the active ingredient in TELCYTA, if these inventories are lost or damaged, the clinical development of our product candidates or their submission
for regulatory approval could be delayed, and our ability to deliver any products that we may develop on a timely basis could be impaired or precluded.

We are currently dependent on a single source of supply of the active ingredient in TELCYTA, AMRI. We currently depend upon two sources for the drug product manufacture of TELCYTA.

We presently depend upon one source of supply, Isochem, for clinical quantities of the active ingredient in TELINTRA. We currently depend
upon one source, Patheon, for the manufacture of TELINTRA tablets. While we are evaluating potential alternative sources of these materials, we have no such alternative sources that are immediately available.

If manufacturing is not performed in a timely manner, if our suppliers fail to perform or if our relationships with our suppliers or
manufacturers should terminate, our clinical trials and commercialization of TELCYTA and TELINTRA could be delayed. We may not be able to enter into or maintain any necessary third-party manufacturing arrangements on acceptable terms, if at all. Our
current dependence upon others for the manufacture of our product candidates and our anticipated dependence upon others for the manufacture of any products that we may develop may adversely affect our future profit margins and our ability to
commercialize any products that we may develop on a timely and competitive basis.



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Working capital constraints may
force us to delay our efforts to develop certain product candidates in favor of developing others, which may prevent us from commercializing all product candidates as quickly as possible.

Because we have limited resources, and because research and development is an expensive process, we must regularly assess the most
efficient allocation of our research and development budget. As a result, we may have to prioritize development candidates and may not be able to fully realize the value of some of our product candidates in a timely manner, as they will be delayed
in reaching the market, if at all.

If product liability lawsuits are successfully brought against us, we may incur substantial liabilities
and may be required to limit commercialization of our product candidates and any products that we may develop.

The
testing and marketing of medical products entail an inherent risk of product liability. Although we are not aware of any historical or anticipated product liability claims or specific causes for concern, if we cannot successfully defend ourselves
against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates and any products that we may develop. In addition, product liability claims may also result in withdrawal of
clinical trial volunteers, injury to our reputation and decreased demand for any products that we may commercialize. We currently carry product liability insurance that covers our clinical trials up to a $10 million annual aggregate limit. We will
need to increase the amount of coverage if and when we have a product that is commercially available. If we are unable to obtain sufficient product liability insurance at an acceptable cost, potential product liability claims could prevent or
inhibit the commercialization of any products that we may develop, alone or with corporate partners.

If we use biological and hazardous
materials in a manner that causes injury, we may be liable for damages.*

Our research and development activities involve
the controlled use of potentially harmful biological materials, hazardous materials, chemicals and various radioactive compounds, and are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of
these materials and specified waste products. We cannot eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal of these materials. We currently have insurance applying to various types of biological and
pollution exposures for a total amount of $125,000 in coverage. However, in the event of contamination or injury, we could be held liable for damages that result from our use of hazardous materials, and any liability could significantly exceed our
coverage and resources.

We have implemented anti-takeover provisions which could discourage or prevent a takeover, even if an acquisition
would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.

Provisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third-party to acquire us, even if doing so would
be beneficial to our stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of
directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. These provisions
include:



| |  |  | establishing a classified board of directors requiring that members of the board be elected in different years, which lengthens the time needed to
elect a new majority of the board;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | authorizing the issuance of blank check preferred stock that could be issued by our board of directors to increase the number of
outstanding shares or change the balance of voting control and thwart a takeover attempt;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | prohibiting cumulative voting in the election of directors, which would otherwise allow for less than a majority of stockholders to elect director
candidates;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limiting the ability of stockholders to call special meetings of the stockholders;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | prohibiting stockholder action by written consent and requiring all stockholder actions to be taken at a meeting of our stockholders; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | establishing 90 to 120 day advance notice requirements for nominations for election to the board of directors and for proposing matters that can be
acted upon by stockholders at stockholder meetings.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We adopted a stockholder rights plan that may discourage, delay or
prevent a merger or acquisition that is beneficial to our stockholders.

In November 2001, our board of directors adopted
a stockholder rights plan that may have the effect of discouraging, delaying or preventing a merger or acquisition that is beneficial to our stockholders by diluting the ability of a potential acquiror to acquire us. Under the plan, except under
certain circumstances, if a person or group acquires 20% or more of our outstanding common stock, or 10 business days after a person or group commences or announces a tender or exchange offer for 20% or more of our outstanding common stock, that
person or group becomes an Acquiring Person, and the rights (except those rights held by the Acquiring Person) would generally become exercisable for shares of our common stock at a discount. In May 2006, we amended the stockholder
rights plan to exclude Eastbourne Capital Management, L.L.C. and certain related persons and entities, collectively Eastbourne, from the definition of Acquiring Person so long as neither Eastbourne nor its affiliates or associates, either
individually or in the aggregate, becomes the beneficial owner of 25% or more of the common stock then outstanding. On December 11, 2006, the plan was further amended to increase this threshold to 30% with respect to Eastbourne. Because the
potential acquirors rights would not become exercisable for our shares of common stock at a discount, the potential acquiror would suffer substantial dilution and may lose its ability to acquire us. In addition, the existence of the plan
itself may deter a potential acquiror from acquiring us. As a result, either by operation of the plan or by its potential deterrent effect, mergers and acquisitions of us that our stockholders may consider in their best interests may not occur.

Substantial future sales of our common stock by us or by our existing stockholders could cause our stock price to fall.

Additional equity financings or other share issuances by us, including shares issued in connection with strategic alliances and corporate
partnering transactions, could adversely affect the market price of our common stock. Sales by existing stockholders of a large number of shares of our common stock in the public market or the perception that additional sales could occur could cause
the market price of our common stock to drop. Substantially all of our outstanding shares of common stock were freely tradable and, in limited cases, subject to certain volume, notice and manner of sale restrictions under Rule 144 of the Securities
Act of 1933.

If we do not progress in our programs as anticipated, our stock price could decrease.

For planning purposes, we estimate the timing of a variety of clinical, regulatory and other milestones, such as when a certain product
candidate will enter clinical development, when a clinical trial will be completed or when an application for regulatory approval will be filed. Our estimates are based on present facts and a variety of assumptions. Many of the underlying
assumptions are outside of our control. If milestones are not achieved when we estimated that they would be, investors could be disappointed, and our stock price may decrease.

Our stock price may be volatile, you may not be able to resell your shares at or above your purchase price.*

Our stock prices and the market prices for securities of biotechnology companies in general have been highly volatile, with recent significant price and volume fluctuations, and may continue to be highly
volatile in the future. For example, our stock price dropped by 71% on the day following the announcement in December 2006 that the preliminary top-line results of our first three Phase 3 trials did not meet primary end-points. During the nine
months ended September 30, 2010, our common stock traded between $0.64 and $1.49, and on September 30, 2010, our common stock closed at $0.71. You may not be able to sell your shares quickly or at



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the market price if we are delisted from Nasdaq or if we are unable to transfer listing to another stock market, or if trading in our stock is not active or the volume is low. The following
factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock, some of which are beyond our control:



| |  |  | developments regarding, or the results of, our clinical trials;
| | - |  | ---------------------------------------------------------------



| |  |  | announcements of technological innovations or new commercial products by our competitors or us;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | developments concerning proprietary rights, including patents;
| | - |  | --------------------------------------------------------------



| |  |  | developments concerning our collaborations;
| | - |  | -------------------------------------------



| |  |  | publicity regarding actual or potential medical results relating to products under development by our competitors or us;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | regulatory developments in the United States and foreign countries;
| | - |  | -------------------------------------------------------------------



| |  |  | litigation;
| | - |  | -----------



| |  |  | economic and other external factors or other disaster or crisis; or
| | - |  | -------------------------------------------------------------------



| |  |  | period-to-period fluctuations in our financial results.
| | - |  | -------------------------------------------------------

We have been, and in the future may be, subject to securities class action lawsuits and shareholder derivative actions. These, and potential similar or related litigation, could result in substantial
damages and may divert managements time and attention from our business.

Beginning on June 6, 2007, a series
of putative securities class action lawsuits were commenced in the United States District Courts for the Southern District of New York and the Northern District of California, naming as defendants Telik, Inc. and certain of our current officers, one
of whom is also a director. The complaints filed in the Southern District of New York, which were consolidated and amended in 2007, also name as defendants the underwriters of our November 2003 and/or January 2005 stock offerings. Plaintiffs in the
Northern District of California subsequently voluntarily dismissed their complaints without prejudice. The complaints alleged violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 arising out of the issuance of allegedly
false and misleading statements about our business and prospects, including the efficacy, safety and likelihood of success of our product candidate TELCYTA. The allegations of the consolidated amended complaint were similar, but more narrow than the
original complaints. Plaintiffs sought unspecified damages and injunctive relief on behalf of purchasers of our common stock during the period between March 27, 2003 and June 4, 2007, including purchasers in the January 2005 stock
offering.

In January 2008, the parties to the securities class action reached an agreement in principle to settle the claims,
the settlement to be funded primarily by proceeds from insurance. In October 2008, the court entered a final judgment approving the settlement and resolving all class claims.

We may in the future be the target of securities class actions or shareholder derivative claims. Any such actions or claims could result in substantial damages and may divert managements time and
attention from our business.



|Item 5. | Other Information
|------- | -----------------

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On July 21, 2010, we received from Nasdaq a deficiency notice letter indicating that for 30 consecutive business days the bid price
of our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on The Nasdaq Capital Market under Marketplace Rule 5550(a)(2). In accordance with Marketplace Rule 5810(c)(3)(A), we have 180 calendar days, or
until January 18, 2011, to regain compliance. The letter also indicates that if at any time before January 18, 2011 the bid price or our common stock closes at $1.00 per share or more for a minimum of ten consecutive business days, Nasdaq
will provide written notification that we have achieved compliance. Nasdaq may also require us to maintain a closing bid price of at least $1.00 per share for a longer period before determining that we have achieved compliance. The letter further
indicates that if we do not regain compliance by January 18, 2011, Nasdaq will provide written



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notification that our common stock will be delisted, after which we may appeal to a Hearings Panel. Finally, the letter indicates that, in the alternative, we may be eligible for an additional
grace period if we meet the initial listing standards, with the exception of bid price, for The Nasdaq Capital Market. If we meet the initial listing criteria, Nasdaq will notify us that we have been granted an additional 180 calendar day compliance
period.



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|Item 6. | Exhibits.
|------- | ---------



| | 3.1 | Amended and Restated Certificate of Incorporation. (1)
| | --- | ------------------------------------------------------



| | 3.2 | Amended and Restated Bylaws. (2)
| | --- | --------------------------------



| | 4.1 | Specimen Stock Certificate. (3)
| | --- | -------------------------------



| | 4.2 | Teliks Certificate of Designation of Series A Junior Participating Preferred Stock. (4)
| | --- | ----------------------------------------------------------------------------------------



| | 4.3 | Rights Agreement, between Telik and Wells Fargo Bank Minnesota, N.A., replaced by EquiServe Trust Company, N.A., as Rights Agent, dated November 2, 2001. (4)
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.4 | Amendment to Rights Agreement between Telik, Inc. and Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A., dated as of May 18, 2006. (5)
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.5 | Second Amendment to Rights Agreement between Telik and Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A., dated December 11, 2006. (6)
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.6 | Amended and Restated Standstill Agreement between Telik and Eastbourne Capital Management, L.L.C. and certain related persons and entities, dated December 11,
2006. (6)
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.7 | Agreement, by and among Telik, Eastbourne Capital Management, L.L.C., Black Bear Offshore Master Fund, L.P., Black Bear Fund I, L.P., Black Bear
Fund II, L.L.C., and Richard J. Barry, dated May 18, 2006. (7)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 31.1 | Certification required by Rule 13a-14(a) or Rule 15d-14(a).
| | ---- | -----------------------------------------------------------



| | 31.2 | Certification required by Rule 13a-14(a) or Rule 15d-14(a).
| | ---- | -----------------------------------------------------------



| | 32.1 | Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(1) | Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 2001, as filed on March 27, 2002 (File No.
000-31265).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K dated December 11, 2007, as filed on December 14, 2007 (File No. 000-31265).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-1A filed on July 3, 2000 (File No. 333-33868).
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to exhibits to our Current Report on Form 8-K dated November 2, 2001, as filed on November 5, 2001 (File No. 000-31265).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to Exhibit 4.5 on our Current Report on Form 8-K, dated and filed on May 18, 2006 (File No. 000-31265).
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to exhibits to our Current Report on Form 8-K dated December 11, 2006, as filed on December 12, 2006 (File No. 000-31265).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, as filed on August 3, 2006 (File
No. 000-31265).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

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



|                       |  |  |  |  |  |                                                                                                              
|---------------------- |  |  |  |  |  | -------------------------------------------------------------------------------------------------------------
|                       |  |  |  |  |  | TELIK, INC.                                                                                                  
|                       |  |  | 
|                       |  |  |  |  |  | /S/    CYNTHIA M.
BUTITTA                                                                                    
|                       |  |  |  |  |  | Cynthia M. Butitta                                                                                           
|                       |  |  |  |  |  | Chief Operating Officer and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
|                       |  |  | 
|Date: November 3, 2010 |  |  |  |  |  |                                                                                                              



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EXHIBIT INDEX



|3.1 | Amended and Restated Certificate of Incorporation. (1)
|--- | ------------------------------------------------------



|3.2 | Amended and Restated Bylaws. (2)
|--- | --------------------------------



|4.1 | Specimen Stock Certificate. (3)
|--- | -------------------------------



|4.2 | Teliks Certificate of Designation of Series A Junior Participating Preferred Stock. (4)
|--- | ----------------------------------------------------------------------------------------



|4.3 | Rights Agreement, between Telik and Wells Fargo Bank Minnesota, N.A., replaced by EquiServe Trust Company, N.A., as Rights Agent, dated November 2, 2001. (4)
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.4 | Amendment to Rights Agreement between Telik, Inc. and Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A., dated as of May 18, 2006. (5)
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.5 | Second Amendment to Rights Agreement between Telik and Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A., dated December 11, 2006. (6)
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.6 | Amended and Restated Standstill Agreement between Telik and Eastbourne Capital Management, L.L.C. and certain related persons and entities, dated December 11,
2006. (6)
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.7 | Agreement, by and among Telik, Eastbourne Capital Management, L.L.C., Black Bear Offshore Master Fund, L.P., Black Bear Fund I, L.P., Black Bear
Fund II, L.L.C., and Richard J. Barry, dated May 18, 2006. (7)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|31.1 | Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|---- | -----------------------------------------------------------



|31.2 | Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|---- | -----------------------------------------------------------



|32.1 | Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(1) | Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 2001, as filed on March 27, 2002 (File No.
000-31265).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K dated December 11, 2007, as filed on December 14, 2007 (File No. 000-31265).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-1A filed on July 3, 2000 (File No. 333-33868).
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to exhibits to our Current Report on Form 8-K dated November 2, 2001, as filed on November 5, 2001 (File No. 000-31265).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to Exhibit 4.5 on our Current Report on Form 8-K, dated and filed on May 18, 2006 (File No. 000-31265).
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to exhibits to our Current Report on Form 8-K dated December 11, 2006, as filed on December 12, 2006 (File No. 000-31265).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, as filed on August 3, 2006 (File
No. 000-31265).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40