Use these links to rapidly review the documentTABLE OF CONTENTS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2009



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



FORM 10-Q



ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2009oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                             to


Commission File No. 0-16614

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

Washington
(State or other jurisdiction of
incorporation or organization)

91-1261311
(IRS Employer Identification No.)


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

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

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

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

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

Large accelerated filer o

Accelerated filer ý

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

Smaller reporting company o


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

As of October 30, 2009, 34,961,497 shares of the registrant's common stock, $0.02 par value per share, were outstanding.



---





Table of Contents



TABLE OF CONTENTS    QUARTERLY REPORT ON FORM 10-Q  FOR THE QUARTER ENDED SEPTEMBER 30, 2009



PAGEPART I

FINANCIAL INFORMATIONItem 1.

Financial Statements:Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31,
 2008 (Note 1)

3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2009 and 2008 (Unaudited)

4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2009 and 2008 (Unaudited)

5Notes to Condensed Consolidated Financial Statements
(Unaudited)

6Item 2.

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

18Item 3.

Quantitative and Qualitative Disclosures About Market
Risk

25Item 4.

Controls and Procedures

25PART II

OTHER INFORMATIONItem 1A.

Risk Factors

26Item 6.

Exhibits

26Signatures

27Exhibit Index

28


2

---





Table of Contents

PART I. FINANCIAL INFORMATION



Item 1.    Financial Statements



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

September 30, 2009

December 31, 2008(Unaudited)

(Note 1)ASSETSCurrent assets:Cash and cash equivalents

$
19,040

$
44,144Cashrestricted


281


281Investment securities


21,074


28,611Prepaid expenses and other current assets


918


977Total current assets


41,313


74,013Facilities and equipment, net of depreciation of $1,202 and $1,319


277


1,123Other assets


154


289Licensed products, net


7,896


8,807Total assets

$
49,640

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

$
825

$
604Accrued liabilities


8,188


10,688Current portion of note payable


8,561


7,886Total current liabilities


17,574


19,178Long-term liabilities:Note payable obligation, noncurrent portion, net


11,848


17,407Commitments and contingencies (Note 13)Shareholders' equity:Preferred stock, $0.02 par value, 2,998,425 shares authorized:Convertible preferred stock, Series 1, 205,340 shares issued and outstanding (entitled in liquidation to $5,300 and $5,175)


4


4Common stock, $0.02 par value, 200,000,000 shares authorized:34,820,603 and 34,687,724 shares issued and outstanding


696


694Additional paid-in capital


414,361


409,244Other comprehensive income/(loss)


23


(354
)Accumulated deficit


(394,866
)

(361,941
)Total shareholders' equity


20,218


47,647Total liabilities and shareholders' equity

$
49,640

$
84,232


See
notes to the condensed consolidated financial statements.

3

---





Table of Contents



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

Three Months Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Operating expenses:Research and development

$
5,396

$
9,024

$
19,153

$
24,511General and administrative


3,802


3,383


10,321


11,289Restructuring








468


Asset impairment loss








588


Total operating expenses


9,198


12,407


30,530


35,800Loss from operations


(9,198
)

(12,407
)

(30,530
)

(35,800
)Other income (expense):Interest expense


(750
)

(329
)

(2,413
)

(1,021
)Interest income and other, net


71


499


396


2,198Total other income (expense)


(679
)

170


(2,017
)

1,177Net loss


(9,877
)

(12,237
)

(32,547
)

(34,623
)Preferred stock dividends


(125
)

(125
)

(375
)

(375
)Net loss applicable to common shares

$
(10,002
)
$
(12,362
)
$
(32,922
)
$
(34,998
)Net loss per share applicable to common shares -basic and diluted

$
(0.29
)
$
(0.36
)
$
(0.95
)
$
(1.01
)Weighted average common shares outstanding -basic and diluted


34,769


34,688


34,723


34,685


See
notes to the condensed consolidated financial statements.

4

---





Table of Contents



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

Nine Months Ended
September 30,2009

2008Cash flows from operating activities:Net loss

$
(32,547
)
$
(34,623
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


1,126


1,193Amortization of discount on notes payable


1,088


440Accretion (amortization) of premium (discount) on investment securities


322


(392
)Gain on disposal of facilities and equipment


(43
)

Asset impairment loss


588


Restructuring


32


Stock-based compensation issued for services


387


95Stock-based employee compensation


4,325


5,519Change in operating assets and liabilities:Prepaid expenses and other assets


131


(415
)Accounts payable


221


215Accrued liabilities


(2,639
)

3,729Net cash used in operating activities


(27,009
)

(24,239
)Cash flows from investing activities:Proceeds from maturities of investment securities


39,150


65,800Purchases of investment securities


(31,561
)

(41,288
)Facilities and equipment purchases


(18
)

(344
)Proceeds from disposals of equipment and facilities


97


Net cash provided by investing activities


7,668


24,168Cash flows from financing activities:Net proceeds from bank note payable





19,997Repayment of principal on note payable


(5,914
)

(3,375
)Payment of debt issuance costs





(200
)Proceeds from stock options exercised


401


91Payment of preferred dividends


(250
)

(250
)Net cash (used in) provided by financing activities


(5,763
)

16,263Net (decrease) increase in cash and cash equivalents


(25,104
)

16,192Cash and cash equivalents at beginning of period


44,144


29,335Cash and cash equivalents at end of period

$
19,040

$
45,527Supplemental disclosure of non-cash financing activities:Accrual of preferred dividend

$
125

$
125Supplemental disclosure of cash paid during the period for:Interest

$
1,369

$
529


See
notes to the condensed consolidated financial statements.

5

---





Table of Contents

PONIARD PHARMACEUTICALS, INC.        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        (Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Poniard Pharmaceuticals, Inc. and its subsidiary (the "Company"). All intercompany
balances and transactions have been eliminated in consolidation.

The
accompanying condensed consolidated financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").
As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. In the opinion of the Company's management, the accompanying interim unaudited condensed financial statements include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the Company's financial position as of September 30, 2009, the results of operations for the three and nine months ended
September 30, 2009 and 2008 and cash flows for the nine months ended September 30, 2009 and 2008.

The
results of operations for the period ended September 30, 2009 are not necessarily indicative of the expected operating results for the full year.

The
balance sheet as of December 31, 2008 has been derived from the audited financial statements at that date. The balance sheet does not include all of the information and
footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended December 31, 2008 filed with the SEC on March 16, 2009, and available on the SEC's website, www.sec.gov.

Reclassifications:Certain balances and results from prior years have been reclassified to conform to the Company's current year
presentation. The
Company's reclassifications had no effect on net earnings or shareholders' equity.

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

Subsequent Events Evaluation:Management has reviewed and evaluated material subsequent events, if any, occurring after the balance
sheet date of
September 30, 2009 through the financial statements issuance date of November 6, 2009. All appropriate subsequent event disclosures, if any, have been made in the notes to the unaudited
condensed consolidated financial statements.

Going Concern:The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will
continue as a
going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for a reasonable period of time. The Company has historically
experienced recurring operating losses and negative cash flows from operations. As of September 30, 2009, the Company had working capital of $23,739,000, an accumulated deficit of $394,866,000
and total shareholders' equity of $20,218,000.

The
Company's current loan facility contains covenants that restrict certain financing activities by the Company and require the Company to maintain a minimum amount of unrestricted cash
(see

6

---



Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1. Basis of Presentation (Continued)

Note 5
for further details). Taking into account the minimum unrestricted cash requirement and the Company's projected operating results, the Company believes that its current cash, cash
equivalents and investment securities balances will provide adequate resources to fund operations at least into the first quarter of 2010. However, given the uncertainties of outcomes of the Company's
clinical trials, there is no assurance that the Company can achieve its projected operating results. The Company has no assurance that, especially in light of the current distressed economic
environment, the lenders will be willing to waive or renegotiate the terms of the loan agreement to address or avoid financial or other defaults. These factors, among others, raise substantial doubt
about the Company's ability to continue as a going concern. Management is developing plans to address the Company's liquidity needs, including raising additional capital through the public or private
sale of equity or debt securities or through the establishment of credit or other funding facilities and entering into strategic collaborations, which may include joint ventures or partnerships for
product development and commercialization, merger, sale of assets or other similar transactions, and taking actions to limit the Company's expenditures. There can be no assurance that the Company can
obtain financing or otherwise raise additional funds, if at all, on terms acceptable to the Company or to its lenders.

Note 2. Fair Value Measurements

We categorize assets and liabilities recorded at fair value in our condensed consolidated balance sheet based upon the level of judgment associated with inputs used to measure their
value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use
valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability
of the inputs used following the fair value hierarchy set forth by the Financial Accounting Standards Board ("FASB"). The three levels of the FASB fair value hierarchy are as
follows:



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

7

---



Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Fair Value Measurements (Continued)

The
following table presents a summary of the Company's assets that are measured at fair value on a recurring basis (in thousands):

Fair Value Measurements as of September 30, 2009Total

Level 1

Level 2

Level 3Cash equivalents

$
17,520

$
16,216

$
1,304

$
Investment securities


21,074





21,074


$
38,594

$
16,216

$
22,378

$



As
of September 30, 2009 and December 31, 2008, the Company's cash equivalents and investment securities are recorded at fair value as determined through market prices and
other observable and corroborated sources. At September 30, 2009 the cash equivalents balance consists of $16,216,000 in money market funds and $1,304,000 of corporate debt securities purchased
with a maturity date less than 90 days from the purchase date. Investment securities are comprised of corporate debt securities and federal government and agency securities (see Note 3
below for further details on investment securities).

When
the estimated fair value of a security is below its carrying value, the Company evaluates whether it is more likely than not that it will be required to sell the security before its
anticipated recovery in market value and whether evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. The Company
also evaluates whether or not it intends to sell the investment. If the impairment is considered to be other-than-temporary, the security is written down to its estimated fair
value. In addition, the Company considers whether credit losses exist for any securities. A credit loss
exists if the present value of cash flows expected to be collected is less than the amortized cost basis of the security. Other-than-temporary declines in estimated fair value
and credit losses are charged to investment income. The Company has not deemed it necessary to record any charges related to impairments or other-than-temporary declines in the
estimated fair values of its marketable debt securities or credit losses as of September 30, 2009.

Note 3. Investment Securities

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

8

---



Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3. Investment Securities (Continued)

Investment
securities consisted of the following at September 30, 2009 (in thousands):

Gross UnrealizedAmortized
Cost

Estimated
Fair ValueGains

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

$
12,081

$
15

$


$
12,096Federal government and agency securities


8,970


8





8,978$
21,051

$
23

$


$
21,074Net unrealized gain




$
23Maturity:Less than one year

$
21,051







$
21,074


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

Gross UnrealizedAmortized
Cost

Estimated
Fair ValueGains

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

$
10,706

$
26

$


$
10,732Corporate debt securities, with unrealized losses


13,261





(382
)

12,879Federal government and agency securities


4,998


2





5,000$
28,965

$
28

$
(382
)
$
28,611Net unrealized loss







$
(354
)Maturity:Less than one year

$
27,912







$
27,561Due in 1-2 years


1,053








1,050$
28,965







$
28,611


9

---



Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

September 30,
2009

December 31,
2008Clinical trials

$
5,671

$
8,266Accrued expenses


869


689Compensation


1,307


1,164Severance





285Other


341


284$
8,188

$
10,688


Note 5. Note Payable

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

The
loan agreement provides for a $27,600,000 senior secured term loan facility ("loan facility") to be made available as follows: (i) an initial term loan advance in the amount
of $17,600,000, which is comprised of (a) the outstanding principal balance of $7,600,000 remaining on the original loan and (b) an additional cash advance in the amount of $10,000,000
("cash portion"), which was fully funded on September 2, 2008; and (ii) a second term loan advance in the amount of $10,000,000, which was fully funded on September 30, 2008. The
cash portion of the initial term loan advance and the proceeds of the second term loan advance will be used to fund the Company's clinical trials and for general corporate purposes. The advances under
the loan facility are repayable over 42 months, commencing on October 1, 2008. Interest on the advances is fixed at 7.80% per annum. Final loan payments in the amounts of $1,070,000 and
$900,000 are due upon maturity or earlier repayment of the initial term loan advance and the second term loan advance, respectively. Additionally, as a condition to the amendment and restatement of
the original loan, the Company agreed to modification of the final payment obligations under the original loan, pursuant to which the Company paid $600,000 to Silicon Valley Bank on
September 2, 2008, the effective date of the loan facility, and will pay $675,000 to GE Business Financial Services on the earlier of March 31, 2010 or the date of repayment of the loan
facility. All final payment amounts are being accreted to the note payable balance over the term of the loan facility using the effective interest rate method and reflected as additional interest
expense. All interest payable under the loan agreement and the full amount of the final payments must be paid upon any prepayment of a term loan advance. The loan facility is secured by a first lien
on all of the non-intellectual property assets of the Company.

In
connection with the loan agreement, the Company issued to the lenders ten-year warrants to purchase an aggregate of 219,920 shares of the Company's common stock at an
exercise price of $4.297 per share. The fair value of the warrants using the Black-Scholes option-pricing model was approximately $928,000 based upon assumptions of expected volatility of 90%, a
contractual term of ten

10

---



Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5. Note Payable (Continued)

years,
an expected dividend rate of zero and a risk-free interest rate of 3.74%. The portion of the loan proceeds allocable to the warrants is approximately $806,000 based on the relative
fair value of the warrants, which the Company recorded as additional discount to notes payable. The total of the final loan payments and the proceeds allocated to the warrants of approximately
$4,051,000 are being amortized to interest expense using an effective interest rate of 13.8%. At September 30, 2009, the outstanding principal balance under the loan facility was $20,409,000,
net of discount of $1,951,000.

The
loan agreement contains restrictions on the Company's ability to, among other things, dispose of certain assets, engage in certain mergers and acquisition transactions, incur
indebtedness, create liens on assets, make investments, pay dividends and repurchase stock. The loan agreement also contains covenants requiring the Company to maintain unrestricted cash in an amount
equal to the lesser of (i) $17,940,000 or (ii) the outstanding aggregate principal balance of the term loans plus $4,000,000. The loan agreement contains events of default that include
nonpayment of principal, interest or fees, breaches of covenants, material adverse changes, bankruptcy and insolvency events, cross defaults to any other indebtedness, material judgments, inaccuracy
of representations and warranties, and events constituting a change of control. The occurrence of an event of default would increase the applicable rate of interest by 5% and could result in the
acceleration of the Company's payment obligations under the loan agreement. The Company was in compliance with all loan covenants as of September 30, 2009.

Note 6. Committed Equity Line of Credit

On August, 19, 2009, the Company entered into an equity line of credit arrangement with Azimuth Opportunity Ltd. ("Azimuth") pursuant to a Common Stock Purchase Agreement
("Purchase
Agreement"), which provides that, upon the terms and subject to the conditions set forth therein, Azimuth is committed to purchase up to $60 million worth of shares of the Company's common
stock over the 18-month term of the Purchase Agreement. From time to time over the term of the Purchase Agreement, the Company may, at its sole discretion and upon presentation of a draw
down notice, require Azimuth to purchase its common stock over ten consecutive trading days or such other period mutually agreed upon by the Company and Azimuth ("Draw Down Period"). Each draw down is
subject to limitations based on the price of the Company's common stock and a limit of 2.5% of the Company's market capitalization at the time of the draw down. The Purchase Agreement requires a
minimum price of $3.00 per share to allow the Company to issue shares to Azimuth. Under the Purchase Agreement, the Company may sell to Azimuth up to 6,955,606 shares of its common stock. The Company
may present Azimuth with up to 24 draw down notices during the term of the Purchase Agreement with only one such draw down notice allowed per Draw Down Period and a minimum of five trading days
required between each Draw Down Period. As of September 30, 2009, no shares have been sold under the Purchase Agreement.

Note 7. Restructuring and Asset Impairment

Effective March 31, 2009, the Company implemented a strategic restructuring plan to refocus its cash resources on clinical and commercial development of picoplatin, resulting in
the discontinuation of the Company's preclinical research operations and reducing its workforce by approximately 12%, or eight employees. The Company incurred severance charges totaling $296,000
related to the reduction in staff. All severance charges related to the restructuring have been paid as of September 30, 2009. The

11

---



Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7. Restructuring and Asset Impairment (Continued)

Company
incurred additional charges totaling approximately $172,000 related to the closure of its lab facilities in South San Francisco, California. Of this amount, $6,000 was incurred as share-based
compensation expense, $12,000 was a write-off of prepaid expenses, and $154,000 was incurred for contract and other termination costs. As of September 30, 2009, $14,000 remained
unpaid and is payable within one year.

The
following table summarizes the impact of the restructuring charges through September 30, 2009 (in thousands):

Description

Initial
Restructuring
Charge
March 31, 2009

Payment of
Restructuring
Obligations

Accrued
Restructuring
Charge as of
September 30, 2009Employee termination benefits

$
296

$
(296
)
$
Contract termination costs


125


(125
)

Other termination costs


47


(33
)

14Subtotal


172


(158
)

14Total

$
468

$
(454
)
$
14


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

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

So. San Francisco
Lab Equipment &
Leasehold
ImprovementsImpairment Loss

$
588Impaired Carrying Value Upon Restructuring (March 31, 2009)

$
57Disposals of Assets


(50
)Post Impairment Carrying Value as of September 30, 2009

$
7


12

---



Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 8. Picoplatin License and Amendment

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

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

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

Licensed
products consist of the picoplatin amortizable intangible asset with a gross amount of $12,000,000, net of accumulated amortization of $4,104,000 and $3,193,000 at
September 30, 2009 and December 31, 2008, respectively.

13

---



Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 9. Net Loss Per Common Share

Basic and diluted loss per share are based on net loss applicable to common shares, which is comprised of net loss and preferred stock dividends in all periods presented. Shares used to
calculate basic loss per share are based on the weighted average number of common shares outstanding during the period. Shares used to calculate diluted loss per share are based on the potential
dilution that would occur upon the exercise or conversion of securities into common stock using the treasury stock method. The calculation of diluted loss per share excludes the effect of the
following stock options and warrants to purchase additional shares of common stock because the share increments would not be dilutive.

Three Months Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Common stock options


5,722,570


5,397,071


5,722,570


5,397,071Performance-based restricted stock units


514,668





514,668


Common stock warrants


5,496,651


6,165,129


5,496,651


6,165,129


In
addition, 39,015 shares of common stock that would be issuable upon conversion of the Company's Series 1 preferred stock are not included in the calculation of diluted loss per
share for the periods ended September 30, 2009 and 2008, respectively, because the effect of including such shares would not be dilutive.

Note 10. Stock-based Compensation

A summary of the fully vested stock options is presented below (shares and aggregate intrinsic value in thousands):

Number of
Shares

Weighted
Average
Exercise
Price

Weighted Average
Remaining
Contractual Term
in Years

Aggregate
Intrinsic
ValueOptions exercisable at September 30, 2009


3,232

$
7.10


6.6

$
5,377


The
Company recorded the following amounts of stock-based compensation expense, not including expense for options granted to non-employee consultants, for the periods
presented (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Research and development expense

$
493

$
387

$
1,097

$
1,192General and administrative expense


1,113


1,140


3,228


4,327Total

$
1,606

$
1,527

$
4,325

$
5,519


The
compensation expense for the nine months ended September 30, 2008 includes the grant of stock options in the first quarter to Company officers to purchase an aggregate of
460,000 shares of

14

---



Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10. Stock-based Compensation (Continued)

common
stock. Certain options that were granted to officers of the Company during 2006 and 2007 vest 50% in equal monthly installments over four years from the date of grant and vest 50% on the
seven-year anniversary of the date of grant, subject to accelerated vesting of up to 25% of such portion of the options, based on the Company's achievement of annual performance goals
established under its management incentive plan, at the discretion of the equity awards subcommittee
of the compensation committee of the Company's board of directors. Based on the overall achievement of corporate goals in 2007 the equity awards subcommittee accelerated vesting with respect to 20% of
the shares subject to the seven-year vesting schedule in the first quarter of 2008. As of September 30, 2009, the cumulative accelerated vesting equals 60% of the shares subject to
the seven-year vesting schedule.

Estimated
fair values of stock options granted have been determined using the Black-Scholes option pricing model with the following assumptions for the periods presented:

Three Months Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Expected term (in years)


2.3


4.0


5.8


4.9Risk-free interest rate


1.19
%

2.95
%

2.30
%

3.05
%Expected stock price volatility


95
%

90
%

95
%

90
%Expected dividend rate


0
%

0
%

0
%

0
%


During
2008 the Company awarded 92,000 restricted stock units ("RSUs") under the 2004 Incentive Compensation Plan, as amended and restated (the "2004 Plan"), to non-officer
employees as an incentive for future performance. An additional 4,000 RSUs were awarded in 2009 for this incentive program. Upon vesting, each RSU is payable with one share of the Company's common
stock. The average fair value of the RSUs was $3.13 per unit, or approximately $299,000 in total, based
upon the closing market price of the Company's common stock on the award dates. The RSUs vest based on the achievement of certain performance milestones during 2009 and 2010. As of
September 30, 2009, the first two performance milestones were achieved and therefore 40% of the shares have vested and been released. The third performance milestone, if achieved no later than
June 30, 2010, would result in the vesting of the remaining 60% upon the date of achievement. As of September 30, 2009, the Company determined that the third milestone is probable of
being achieved and is therefore recognizing the related stock-based compensation expense on a pro-rata basis through the estimated date of achievement.

On
July 23, 2009 the Company awarded an additional 290,400 RSUs under the 2004 Plan to non-officer employees as an incentive for future performance. The fair value of
the RSUs was $7.34 per unit, or approximately $2,132,000 in total, based upon the closing market price of the Company's common stock on the award date. The RSUs vest based on the achievement of
certain performance milestones during 2010. As of September 30, 2009, the Company determined that milestones are probable of being achieved and is therefore recognizing the related stock-based
compensation expense on a pro-rata basis through the estimated dates of achievement.

On
July 11, 2009, a Company director, was awarded 170,000 RSUs as compensation for consulting services. The RSUs vest 50% on each of the first two anniversaries of the grant and
is subject to 100% acceleration upon the achievement of a performance milestone. The fair value of the award is

15

---



Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10. Stock-based Compensation (Continued)

approximately
$1,272,000 at September 30, 2009, and will be re-measured at each reporting date because it is a non-employee award. As of September 30, 2009, the
Company determined that the performance milestone is probable of being achieved in 2010 and is thus recognizing stock compensation for the fair value of the award on a pro-rata basis
through the estimated date of achievement.

No
income tax benefit has been recorded for stock-based compensation expense as the Company has a full valuation allowance and management has concluded it is more likely than not that
the Company's net deferred tax assets will not be realized. As of September 30, 2009, total unrecognized costs related to employee stock-based compensation was $11,074,000, which is expected to
be recognized over a weighted average period of approximately 2.3 years.

Note 11. Comprehensive Loss

The Company's comprehensive loss for the three and nine months ended September 30, 2009 and 2008 is summarized as follows (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Net loss

$
9,877

$
12,237

$
32,547

$
34,623Net unrealized (gain) loss on investment securities


(39
)

531


(377
)

651Comprehensive loss

$
9,838

$
12,768

$
32,170

$
35,274


Note 12. Recent Accounting Pronouncements

In June 2009, the FASB established the FASB Accounting Standards Codification ("FASB ASC") as the source of authoritative accounting principles recognized by the FASB. The FASB will
issue new standards in the form of Accounting Standards Updates ("ASUs"). FASB ASC is effective for financial statements issued for interim and annual periods ending after September 15, 2009
and therefore is effective for the Company in the third quarter of 2009. The issuance of FASB ASC does not change accounting principles generally accepted in the United States and therefore the
adoption of FASB ASC only affects the specific references to accounting literature in the notes to the Company's consolidated financial statements.

In
August 2009, the FASB issued ASU 2009-05, "Fair Value Measurements and Disclosures (Topic 820)Measuring Liabilities at Fair Value" ("ASU 2009-05,"
currently within the scope of ASC Subtopic 820-10). ASU 2009-05 provides clarification regarding valuation techniques when a quoted price in an active market for an identical
liability is not available in addition to treatment of the existence of restrictions that prevent the transfer of a liability. The ASU also clarifies that both a quoted price in an active market for
an identical liability at the measurement date and the quoted price for an identical liability when traded as an asset in an active market (when no adjustments to the quoted price of the asset are
required) are Level 1 fair value measurements. The ASU is effective for the first reporting

16

---



Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 12. Recent Accounting Pronouncements (Continued)

period,
including interim periods, beginning after issuance. Adoption of ASU 2009-05 did not have a material effect on the Company's condensed consolidated financial statements.

Note 13. Commitments and Contingencies

The Company entered into a picoplatin active pharmaceutical ingredient ("API") commercial supply agreement with W.C. Heraeus ("Heraeus") in March 2008. Under this agreement Heraeus will
produce picoplatin API to be used for preparing picoplatin finished drug product for commercial use. Manufacturing services are provided on a purchase order, fixed-fee basis, subject to
certain purchase price adjustments and minimum quantity requirements. The costs to Heraeus for the purchase and set-up of dedicated equipment as required under the commercial supply
agreement, estimated to be approximately $1,800,000 (including interest charges of approximately $336,000) will be repaid by the Company in the form of a surcharge on an agreed upon amount of the
picoplatin API ordered and delivered on or before December 31, 2013. If the Company orders and takes delivery of less than the agreed upon amount of picoplatin API through December 31,
2013, it will be obligated to pay the balance of the dedicated equipment cost as of that date. As of September 30, 2009, Heraeus had completed partial construction of the dedicated equipment at
a cost of approximately $1,722,000 (including interest). Because the Company is not under a present obligation to pay this amount and the agreement is not under any potential circumstance of default
or termination, it is not probable that a financial liability exists for this amount as of September 30, 2009 and therefore no such liability was recorded on the condensed consolidated balance
sheet as of that date. The Company anticipates that the dedicated equipment will be ready for use during the fourth quarter of 2009, after which it expects to account for the equipment and related
surcharge payments as a capital lease.

17

---





Table of Contents

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Important Information Regarding Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. These statements relate to future events or future financial performance and are subject to change based on various important factors, many of which are beyond our control. In some cases,
you can identify forward-looking statements by terminology such as "currently," "may," "will," "should," "expect," "plan," "intend," "anticipate," "believe," "target," "estimate," "predict,"
"potential," "propose" or "continue," the negative of these terms or other terminology. These statements reflect our current views with respect to future events
and are based on assumptions and are subject to risks and uncertainties that are difficult to predict. In evaluating these statements, you should specifically consider various factors described below
in the section entitled "Risk Factors." These and other factors may cause our actual results to differ materially from any forward-looking statements contained in this report or otherwise made by us.

Although
we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You
should not place undue reliance on our forward-looking statements, which speak only as of the date of this report. We undertake no obligation to update publicly any forward-looking statements to
reflect new information, events or circumstances after the date of this report, or to reflect the occurrence of unanticipated events.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates have not materially changed from those reported in our Annual Report on
Form 10-K for the year ended December 31, 2008 filed with the SEC on March 16, 2009. For a more complete description, please refer to our Annual Report on
Form 10-K.

Results of Operations

Three and Nine Months Ended September 30, 2009 Compared to the Three and Nine Months Ended September 30, 2008

Research and Development

Our major research and development program is picoplatin, a new generation platinum-based chemotherapeutic designed to overcome
platinum resistance in the treatment of solid tumors. We completed patient enrollment in our Phase II clinical study of picoplatin in small cell lung cancer in August 2006 and, based on
positive median overall survival data from that study, we initiated a Phase III pivotal trial of picoplatin in small cell lung cancer in April 2007. We completed enrollment in our
Phase III trial in March 2009. In September 2009, we announced that 320 evaluable events (patient deaths) have occurred in our Phase III trial, enabling us to begin final analysis of
data. We currently anticipate completing and reporting results of our preliminary analysis in November 2009 and, if positive, initiating a rolling submission of a new drug application ("NDA") with the
U.S. Food and Drug Administration ("FDA") by year-end.

In
May 2006, we treated our first patients in two Phase I/II studies evaluating picoplatin as a first-line treatment of: (1) advanced colorectal cancer and
(2) castration-resistant (or hormone-refractory) prostate cancer. We initiated enrollment in the Phase II component of our colorectal cancer study in November 2007 and completed
enrollment in May 2008. We initiated the Phase II component of our prostate cancer study in July 2007 and completed enrollment in December 2007. We also have completed a Phase I study of
an oral formulation of picoplatin in advanced solid tumors.

18

---



Table of Contents

Research
and development expenses decreased 40% to $5.4 million from $9.0 million during the third quarter of 2009 and decreased 22% to $19.2 million from
$24.5 million in the nine months ended September 30, 2009 compared to the comparable periods in 2008. Our research and development expenses are summarized as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,2009

2008

% Change

2009

2008

% Change($ in thousands)



($ in thousands)Research

$


$
1,043


(100
)%
$
764

$
2,614


(71
)%Contract manufacturing


717


1,149


(38
)%

2,524


3,270


(23
)%Clinical


4,155


6,360


(35
)%

14,672


17,338


(15
)%Share-based compensation


524


472


11
%

1,193


1,289


(7
)%Total

$
5,396

$
9,024


(40
)%
$
19,153

$
24,511


(22
)%


Research
and development expenses decreased significantly during the third quarter of 2009 from the comparable period in 2008 as a result of our picoplatin trials entering their final
stages. We did not incur any research expenses during the third quarter of 2009 due to our strategic restructuring implemented effective March 31, 2009. Contract manufacturing costs decreased
38% to $0.7 million in the third quarter of 2009 and decreased 23% to $2.5 million in the first nine months of 2009 from the comparable periods in 2008. These decreases reflect reduced
clinical drug production activity resulting from our trials nearing completion. Clinical costs decreased 35% to $4.2 million in the third quarter of 2009 and decreased 15% to
$14.7 million in the first nine months of 2009 from the comparable periods in 2008. These decreases reflect reduced clinical activity in connection with our current picoplatin studies, all of
which are fully enrolled and two of which are in a follow-up or extended follow-up stage. Share-based compensation expense increased 11% to $0.5 million in the third
quarter of 2009 from the comparable period in 2008, due primarily to an employee incentive program introduced during the third quarter of 2009. Share-based compensation expense decreased 7% to
$1.2 million for the nine months ended September 30, 2009 from the comparable period in 2008, primarily due to the effects of the acceleration of vesting of certain stock options in the
first quarter of 2008.

The
following table shows expenses incurred for preclinical study support, contract manufacturing for clinical supplies and clinical trial services provided by third parties, as well as
other associated costs for
our picoplatin product candidate. The table also presents unallocated costs which consist of facilities, consulting fees, patent costs and other costs not directly allocable to development programs:

Three Months Ended
September 30,

Nine Months Ended
September 30,2009

2008

% Change

2009

2008

% Change($ in thousands)



($ in thousands)Picoplatin

$
3,741

$
6,538


(43
)%
$
14,286

$
17,377


(18
)%Other unallocated costs and overhead


1,131


2,014


(44
)%

3,674


5,845


(37
)%Share-based compensation


524


472


11
%

1,193


1,289


(7
)%Total research and development costs

$
5,396

$
9,024


(40
)%
$
19,153

$
24,511


(22
)%


Our
external costs for picoplatin for the three and nine month periods ended September 30, 2009 and for the comparable periods in 2008, reflect costs associated with our various
picoplatin clinical studies and the manufacture of drug product to support our clinical trials. We expect our external costs for picoplatin to increase slightly during the balance of 2009, compared to
early 2009, as we prepare for submission of our rolling NDA, offset by lower costs for clinical trials upon completion of our Phase III pivotal trial of picoplatin in small cell lung cancer.

19

---



Table of Contents

As
of September 30, 2009, we have incurred external costs of approximately $68.6 million in connection with our entire picoplatin clinical program. Total estimated future
costs of our picoplatin Phase III trial in small cell lung cancer is in the range of $20.0 million to $25.0 million through 2010, including the cost of drug supply. Total
estimated future costs of our picoplatin Phase II trial in colorectal cancer and our Phase II trial in castration-resistant prostate cancer are in the ranges of $3.5 million to
$4.0 million and $1.0 million to $1.5 million, respectively, through 2010, including the cost of drug supply. Total remaining estimated future costs of our Phase I trial of
an oral formulation of picoplatin are in the range of $50,000 to $100,000 through 2010. These costs could be substantially higher if we have to repeat, revise or expand the scope of any of our trials.
Material cash inflows relating to our picoplatin development will not commence unless and until we complete required clinical trials and obtain FDA and foreign marketing approvals, and then only if
picoplatin finds acceptance in the marketplace. To date, we have not received any revenues from product sales of picoplatin.

The
risks and uncertainties associated with completing the development of picoplatin on schedule, or at all, include the following, as well as the other risks and uncertainties described
in this report and our
Annual Report on Form 10-K for the year ended December 31, 2008:



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



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

General and Administrative

Three Months Ended
September 30,

Nine Months Ended
September 30,2009

2008

% Change

2009

2008

% Change($ in thousands)



($ in thousands)General and administrative

$
2,398

$
2,245


7
%
$
6,802

$
6,964


(2
)%Share-based compensation


1,404


1,138


23
%

3,519


4,325


(19
)%Total

$
3,802

$
3,383


12
%
$
10,321

$
11,289


(9
)%


The
increase in general and administrative expense of 7% to $2.4 million for the third quarter of 2009, is due primarily to higher compensation costs and, for the nine months
ended September 30, 2009, the decrease of 2% to $6.8 million is due primarily to lower consulting costs. Share-based compensation expense included in general and administrative expenses
increased 23% to $1.4 million

20

---



Table of Contents

for
the third quarter of 2009, over the comparable period of 2008, due primarily to the effects of restricted stock units awarded during the third quarter of 2009 to non-officer employees
and a consultant. Share-based compensation expense decreased 19% to $3.5 million for the first nine months of 2009 from the comparable period in 2008 primarily due to the effects of the
acceleration of vesting of certain stock options in the first quarter of 2008.

Restructuring and Asset Impairment Loss

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

In
conjunction with the decision to discontinue our preclinical research operations, we also recognized an asset impairment loss of $0.6 million on certain facilities and
equipment related to the lab in South San Francisco, California. The loss on the assets was determined based on estimates of potential sales values of used equipment. These impairment charges
established new cost bases for the impaired assets, which are included in assets held for sale and reported in the prepaid expenses and other assets line on the accompanying Condensed Consolidated
Balance Sheets.

Other Income and Expense

Three Months Ended
September 30,

Nine Months Ended
September 30,2009

2008

% Change

2009

2008

% Change($ in thousands)



($ in thousands)Interest expense

$
(750
)
$
(329
)

128
%
$
(2,413
)
$
(1,021
)

136
%Interest income and other, net


71


499


(86
)%

396


2,198


(82
)%Total

$
(679
)
$
170


(499
)%
$
(2,017
)
$
1,177


(271
)%


Interest
expense increased 128% and 136% for the three and nine months ended September 30, 2009 to $0.8 million and $2.4 million, respectively, from the comparable
periods in 2008. The increase was primarily due to increased interest costs resulting from additional borrowings in September 2008 under our loan facility. Interest income and other, net decreased 86%
to $0.1 million during the third quarter of 2009 and decreased 82% to $0.4 million for the first nine months of 2009 from the comparable periods in 2008. The decreases were primarily due
to lower average yields from our investment securities portfolio.

Liquidity and Capital Resources

September 30,
2009

December 31,
2008($ in thousands)Cash, cash equivalents and

$
40,114

$
72,755investment securitiesWorking capital


23,739


54,835Shareholders' equity


20,218


47,647


21

---



Table of Contents



Nine Months Ended
September 30,2009

2008($ in thousands)Cash provided by (used in):Operating activities

$
(27,009
)
$
(24,239
)Investing activities


7,668


24,168Financing activities


(5,763
)

16,263


We
have historically experienced recurring operating losses and negative cash flows from operations. Cash, cash equivalents and investment securities, net of restricted cash of
$0.3 million, totaled $40.1 million at September 30, 2009 compared to $72.8 million at December 31, 2008. As of September 30, 2009, we had net working capital
of $23.7 million, an accumulated deficit total of $394.9 million, and total shareholders' equity of $20.2 million.

We
have financed our operations to date primarily through the sale of equity securities, debt instruments, technology licensing and collaborative agreements. We invest excess cash in
investment securities that will be used to fund future operating costs. Cash used for operating activities for the nine months ended September 30, 2009 totaled $27.0 million.

On
September 2, 2008, we entered into an amended and restated loan and security agreement ("loan agreement") with GE Healthcare Financial Services Inc. (formerly known as
Merrill Lynch Capital) and Silicon Valley Bank, establishing a $27.6 million senior secured loan facility. The loan agreement amends and restates our earlier loan and security agreement with
Silicon Valley Bank and Merrill Lynch Capital dated as of October 25, 2006, pursuant to which we obtained a $15.0 million capital loan that was to mature on April 1, 2010
("original loan"). Funds under the loan facility were made available as follows: (i) an initial term loan advance in the amount of $17.6 million, which was comprised of (a) the
outstanding principal balance of $7.6 million remaining on the original loan and (b) an additional cash advance of approximately $10.0 million, which was fully funded on
September 2, 2008; and (ii) a second term loan advance in the amount of $10.0 million, which was fully funded on September 30, 2008. The advances under the loan facility
are repayable over 42 months, commencing on October 1, 2008. Interest on the advances is fixed at 7.80% per annum. Final payments in the amounts of $1.1 million and
$0.9 million are due upon maturity or earlier repayment of the initial term loan advance and the second term loan advance, respectively. Additionally, as a condition to the amendment and
restatement of the original loan, we agreed to modification of the final payment obligations under the original loan pursuant to which we paid $0.6 million to Silicon Valley Bank on
September 2, 2008, the effective date of the loan facility, and will pay $0.7 million to GE Healthcare Financial Services on the earlier of March 31, 2010 or the date of repayment
of the loan facility. The loan facility is secured by a first lien on all of our non-intellectual property assets. In connection with the loan agreement, we issued to the lenders
ten-year warrants to purchase an aggregate of 219,920 shares of common stock at an exercise price of $4.297 per share. At September 30, 2009, the net loan balance under the loan
facility was $20.4 million.

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

22

---



Table of Contents

obligations
under the loan agreement. We were in compliance with all loan covenants as of September 30, 2009.

Taking
into account the minimum unrestricted cash requirement under the loan agreement and our projected operating results, we believe that our current cash, cash equivalent and
investment securities balances will provide adequate resources to fund operations at least into the first quarter of 2010. However, given the uncertainties of outcomes of our clinical trials, there is
no assurance that we can achieve our projected operating results. Thereafter, unless we raise additional funds, we will be in default of the minimum unrestricted cash requirement and potentially other
provisions of the loan agreement. The occurrence of an event of default would increase the applicable rate of interest by 5% and could result in the acceleration of our payment obligations under the
loan agreement. We have no assurance that, especially in light of the current distressed economic environment, the lenders will be willing to waive or renegotiate the terms of the loan agreement to
address or avoid financial or other defaults.

During
the nine months ended September 30, 2009, we paid total rent (base rent and additional rent based on our share of facility common operating expenses) of $1.1 million
under the operating leases for our South San Francisco headquarters and our Seattle facility. Of this amount, $0.9 million represents total aggregate minimum lease payments under these leases.

We
have entered into clinical supply agreements with Heraeus and Baxter, pursuant to which they produce picoplatin active pharmaceutical ingredient ("API") and finished drug product,
respectively, for our clinical trials. Manufacturing services under these clinical supply agreements are provided on a purchase order, fixed-fee basis. Our API clinical supply agreement
continues in effect until it is terminated by mutual agreement of the parties or by either party in accordance with its terms. Our finished drug product clinical supply agreement runs for an initial
term ending December 31, 2009, and is subject to renewal for two additional one-year terms, at our option. The total aggregate cost of clinical supplies of picoplatin API and
finished drug product for the three and nine months ended September 30, 2009 was $0.3 million and $1.3 million, respectively. We believe that we presently have adequate supplies
of picoplatin API and finished drug product to complete our current clinical trials.

We
also have entered into a picoplatin API commercial supply agreement with Heraeus in March 2008 and a finished drug product commercial supply agreement with Baxter in November 2008.
Under these agreements, Heraeus and Baxter will produce picoplatin API and finished drug product, respectively, for commercial use. Manufacturing services are provided on a purchase order,
fixed-fee basis, subject to certain purchase price adjustments and minimum quantity requirements. The costs to Heraeus for the purchase and set-up of dedicated equipment,
estimated to be approximately $1.8 million (including interest charges of approximately $0.3 million), will be repaid by us in the form of a surcharge on an agreed upon amount of the
picoplatin API ordered and delivered on or before December 31, 2013. If we order and take delivery of less than the agreed upon amount of picoplatin API through December 31, 2013, we
will be obligated to pay the balance of the dedicated equipment cost as of that date. As of September 30, 2009, Heraeus had completed partial construction of the dedicated equipment at a cost
of approximately $1.7 million (including interest). Because we are not under a present obligation to pay this amount and the agreement is not under any potential circumstance of default or
termination, it is not probable that a financial liability exists for this amount as of September 30, 2009 and therefore no such liability was recorded on the condensed consolidated balance
sheet as of that date. We anticipate that the dedicated equipment will be ready for use during the fourth quarter of 2009, after which we expect to account for the equipment and related surcharge
payments as a capital lease.

If
we are successful in our efforts to commercialize picoplatin, we would, under our amended license agreement with Genzyme, be required to pay Genzyme up to $5.0 million in
commercialization

23

---



Table of Contents

milestones
upon the attainment of certain levels of annual net sales of picoplatin. Genzyme also would be entitled to royalty payments of up to 9% of annual net sales of product.

On
August, 19, 2009, we entered into a common stock purchase agreement with Azimuth Opportunity Ltd. ("Azimuth"), pursuant to which we obtained a committed equity line of credit
facility under which we may sell up to $60 million newly issued registered shares of our common stock to Azimuth at a pre-negotiated discount to market price. We will determine, at
our sole discretion, the timing and amount of any sales of our common stock, subject to certain conditions, including limitations based on the price of our common stock (minimum price of $3.00 per
share) and a limit of 2.5% of our market capitalization at the time of the stock issuance. In no event may we sell
more than 6,955,606 shares of our common stock to Azimuth. The term of the purchase agreement is 18 months. We are not obligated to utilize the facility with Azimuth and remain free to enter
into other financing transactions. As of September 30, 2009, no shares have been sold to Azimuth under the facility.

We
will require substantial additional funding to develop and commercialize picoplatin and to fund our operations. Management is continuously exploring financing alternatives,
including:



If
we are unable to obtain sufficient additional cash when needed, we may be forced to delay, scale back or eliminate some or all of our picoplatin trials and commercialization efforts,
reduce our workforce, license our picoplatin product candidates for development and commercialization by third parties, attempt to sell the company or, if these efforts fail, cease operations or
declare bankruptcy. Provisions of the loan agreement would limit our ability to dispose of certain assets, engage in certain mergers, incur certain indebtedness, make certain distributions and engage
in certain investment activities.

Our
actual capital requirements will depend upon numerous factors, including:



24

---



Table of Contents



We
may not be able to obtain capital or enter into relationships with corporate partners on a timely basis, on favorable terms, or at all. Conditions in the capital markets in general,
and in the life science capital market specifically, may affect our potential financing sources and opportunities for strategic partnering. Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States, assuming that we will continue as a going concern and do not include any adjustments that might result from the outcome
of this uncertainty. The report of independent registered public accountants issued in connection with our annual report on Form 10-K for the year ended December 31, 2008
contains a statement expressing substantial doubt regarding our ability to continue as a going concern.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Our market rate risks at September 30, 2009 have not changed materially from those discussed in Item 7A of our
Form 10-K for the year ended December 31, 2008.

Item 4.    Controls and Procedures

Under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, the Company has evaluated the effectiveness and design of its disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of September 30, 2009, to ensure that the information disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of
1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the rules and forms. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that,
as of September 30, 2009, these disclosure controls and procedures were effective.

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

Limitations on the Effectiveness of Controls

The Company's management, including its Chief Executive Officer and its Chief Financial Officer, does not expect that the Company's
disclosure controls or internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that
the objectives of that control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of control must be considered
relative to their costs. Because of the inherent limitation in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations include the reality that judgments in decision-making can be faulty, and breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more persons, or by management override of the control. The design of any system of controls
is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies and procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

25

---





Table of Contents

PART II. OTHER INFORMATION

Item 1A.    Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on March 16,
2009, contains a detailed discussion of certain risk factors that could materially adversely affect our business, operating results and/or financial condition. In addition to other information
contained in this report, you should carefully consider the potential risks or uncertainties that we have identified in Part I, "Item 1A, Risk Factors," in our
Form 10-K. These risk factors are not the only ones affecting our company. Additional risks and uncertainties not currently deemed to be material also may materially or adversely
affect our business, financial condition or results of operations.

Item 6.    Exhibits



26

---







Table of Contents

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.

PONIARD PHARMACEUTICALS, INC.
(Registrant)Date:    November 6, 2009

By:

/s/ GREGORY L. WEAVERGregory L. Weaver Chief Financial Officer


27

---





Table of Contents

EXHIBIT INDEX

Exhibit

Description3.2

Restated Bylaws, as amended June 23, 2009

(A)10.1

Indemnification Agreement dated July 7, 2009, between the Company and Gary A. Lyons

(B)10.2

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

(B)10.3

Restricted Stock Unit Award Notice and Restricted Stock Unit Award Agreement, dated July 11, 2009, with Gary A. Lyons

(B)31.1

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

(C)31.2

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

(C)32.1

Section 1350 Certification of Chief Executive Officer

(C)32.2

Section 1350 Certification of Chief Financial Officer

(C)


---

28

---