**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**

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**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe quarterly period ended March 31, 2007**

**CommissionFile No. 0-16614**

**PONIARD PHARMACEUTICALS, INC.**

(Exact name of Registrantas specified in its charter)

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

 

**7000 Shoreline Court, Suite 270,South San Francisco, CA  94080**

(Address of principalexecutive offices)

**Registrant’s telephone number,including area code:** (206) 281-7001

Indicate by check markwhether the Registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

Yes x   No o

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

Large accelerated filer o         Acceleratedfiler x         Non-accelerated filer o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

Yes o   No x

Asof May 3, 2007, 34,656,574 shares of the Registrant’s common stock, $.02par value per share, were outstanding.

 

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**TABLE OF CONTENTS**

**QUARTERLYREPORT ON FORM 10-QFOR THE QUARTER ENDED March 31, 2007**
|                    | ** ** | ** **                                                                                                                      | ** ** | **PAGE** |
|--------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| **PART I**    | ** ** | **FINANCIAL INFORMATION**                                                                                                       |       |     |
| Item 1.            |       | Financial Statements:                                                                                                           |       |     |
|               |       | Condensed Consolidated Balance Sheets as of  March 31, 2007 and December 31, 2006 (unaudited)                         |       | 3        |
|               |       | Condensed  Consolidated Statements of Operations for the Three Months Ended  March 31, 2007 and 2006 (unaudited)           |       | 4        |
|               |       | Condensed  Consolidated Statements of Cash Flows for the Three Months Ended  March 31, 2007 and 2006 (unaudited)           |       | 5        |
|               |       | Notes to Condensed  Consolidated Financial Statements (unaudited)                                                               |       | 6        |
| Item 2.            |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations       |       | 14       |
| Item 3.            |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                     |       | 21       |
| Item 4.            |       | Controls and  Procedures                                                                                                        |       | 22       |
| **PART II**   | ** ** | **OTHER INFORMATION**                                                                                                           |       |     |
| Item  1A.          |       | Risk Factors                                                                                                                    |       | 23       |
| Item  6.           |       | Exhibits                                                                                                                        |       | 39       |
| Signatures         |       | 40                                                                                                                              |
| Exhibit Index |       | 41                                                                                                                              |

 

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**PART I. FINANCIALINFORMATION**

**Item 1. FinancialStatements**

**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARYCONDENSED CONSOLIDATED BALANCE SHEETS(in thousands, except share data)(unaudited)**

| ** **                                                                                                                                                                                                                                                        | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                                        |       |                         |       |                            |       |   |   |   |   |
| **Current assets:**                                                                                                                                                                                                                                               |       |                         |       |                            |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                                                                         |       |                         | $          | 23,635                          |       |   |   | $ | 44,148 |   |   |
| Cash—restricted                                                                                                                                                                                                                                              |       |                         | 281        |                            |       |   | 136 |   |   |
| Investment securities                                                                                                                                                                                                                                             |       |                         | 17,003     |                            |       |   | 9,562 |   |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                                         |       |                         | 1,041      |                            |       |   | 654 |   |   |
| Total current assets                                                                                                                                                                                                                                              |       |                         | 41,960     |                            |       |   | 54,500 |   |   |
| Facilities and equipment, net of depreciation of  $739 and $686, respectively                                                                                                                                                                                     |       |                         | 707        |                            |       |   | 525 |   |   |
| Other assets                                                                                                                                                                                                                                                      |       |                         | 228        |                            |       |   | 182 |   |   |
| Assets held for sale                                                                                                                                                                                                                                              |       |                         | 2,624      |                            |       |   | 2,624 |   |   |
| Licensed products, net of accumulated amortization  of $1,068 and $764                                                                                                                                                                                            |       |                         | 10,932     |                            |       |   | 11,236 |   |   |
| **Total assets**                                                                                                                                                                                                                                                  |       |                         | $          | 56,451                          |       |   |   | $ | 69,067 |   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                                                                     |       |                         |       |                            |       |   |   |   |   |
| **Current liabilities:**                                                                                                                                                                                                                                          |       |                         |       |                            |       |   |   |   |   |
| Accounts payable                                                                                                                                                                                                                                                  |       |                         | $          | 752                             |       |   |   | $ | 775 |   |   |
| Accrued liabilities                                                                                                                                                                                                                                               |       |                         | 3,053      |                            |       |   | 2,520 |   |   |
| Current portion of notes payable                                                                                                                                                                                                                                  |       |                         | 3,979      |                            |       |   | 3,906 |   |   |
| Licensed products payable                                                                                                                                                                                                                                         |       |                         | —     |                            |       |   | 5,000 |   |   |
| Total current liabilities                                                                                                                                                                                                                                         |       |                         | 7,784      |                            |       |   | 12,201 |   |   |
| **Long-term liabilities:**                                                                                                                                                                                                                                        |       |                         |       |                            |       |   |   |   |   |
| Notes payable, net of current portion and discount  of $1,559                                                                                                                                                                                                     |       |                         | 9,144      |                            |       |   | 9,975 |   |   |
| Total long-term liabilities                                                                                                                                                                                                                                       |       |                         | 9,144      |                            |       |   | 9,975 |   |   |
| **Shareholders’ equity:**                                                                                                                                                                                                                                    |       |                         |       |                            |       |   |   |   |   |
| Preferred stock, $.02 par value, 2,998,425 shares  authorized: Convertible preferred stock, Series 1, 205,340 shares issued  and outstanding at March 31, 2007 and December 31, 2006 (entitled  in liquidation to $5,300 and $5,175, respectively) |       |                         | 4          |                            |       |   | 4 |   |   |
| Common stock, $.02 par value, 200,000,000 shares  authorized, 22,808,233 shares issued and outstanding at March 31, 2007  and December 31, 2006                                                                                                         |       |                         | 456        |                            |       |   | 456 |   |   |
| Additional paid-in capital                                                                                                                                                                                                                                        |       |                         | 326,512    |                            |       |   | 326,025 |   |   |
| Accumulated deficit, including other comprehensive  income of $0 at March 31, 2007 and December 31, 2006                                                                                                                                                |       |                         | (287,449   | )                               |       |   | (279,594 | ) |   |
| Total shareholders’ equity                                                                                                                                                                                                                                   |       |                         | 39,523     |                            |       |   | 46,891 |   |   |
| **Total  liabilities and shareholders’ equity**                                                                                                                                                                                                              |       |                         | $          | 56,451                          |       |   |   | $ | 69,067 |   |   |

 

See accompanying notes to the consolidated financial statements.

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**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)(In thousands, except per share data)**

| ** **                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                         | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Revenues**                                                       |       | $                                                | —     |   | $ | — |   |
| **Operating expenses:**                                            |       |                                             |       |   |   |
| Research and development                                           |       | 5,500                                            |       | 2,523 |   |
| General and  administrative                                        |       | 2,400                                            |       | 1,513 |   |
| Gain on sale of  real estate and equipment                         |       | —                                           |       | (37 | ) |
| Total operating expenses                                           |       | 7,900                                            |       | 3,999 |   |
| Loss from  operations                                              |       | (7,900                                           | )          | (3,999 | ) |
| **Other income (expense):**                                        |       |                                             |       |   |   |
| Interest income                                                    |       | 637                                              |       | 38 |   |
| Interest expense                                                   |       | (466                                             | )          | (1,838 | ) |
| Total other (expense) income                                       |       | 171                                              |       | (1,800 | ) |
| Net loss                                                           |       | (7,729                                           | )          | (5,799 | ) |
| Preferred stock  dividends                                         |       | (125                                             | )          | (125 | ) |
| Net loss  applicable to common shares                              |       | $                                                | (7,854     | ) | $ | (5,924 | ) |
| Loss per share:                                                    |       |                                             |       |   |   |
| Basic and diluted loss applicable to common shares                 |       | $                                                | (0.34      | ) | $ | (1.04 | ) |
| Weighted average  common shares outstanding—basic and diluted |       | 22,808                                           |       | 5,721 |   |

 

See accompanying notes to the consolidated financial statements.

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**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)(In thousands)**
|                                                                              | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| **Cash flows from operating  activities:**                                   |       |                                                 |       |   |   |
| Net loss                                                                     |       | $                                                    | (7,729     | ) | $ | (5,799 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities: |       |                                                 |       |   |   |
| Depreciation and  amortization                                               |       | 357                                                  |       | 67 |   |
| Amortization of  discount on notes payable                                   |       | 204                                                  |       | 1,730 |   |
| Amortization of  discount on investment securities                           |       | (68                                                  | )          | — |   |
| (Gain) loss on  disposal of real estate and equipment                        |       | —                                               |       | (37 | ) |
| Stock options and  warrants issued for services                              |       | 8                                                    |       | 3 |   |
| Stock-based  employee compensation                                           |       | 479                                                  |       | 245 |   |
| Change in operating  assets and liabilities:                                 |       |                                                 |       |   |   |
| Prepaid expenses and other assets                                            |       | (387                                                 | )          | 15 |   |
| Accounts payable                                                             |       | (23                                                  | )          | 327 |   |
| Accrued liabilities                                                          |       | 408                                                  |       | 228 |   |
| Net cash used in operating activities                                        |       | (6,751                                               | )          | (3,221 | ) |
| **Cash  flows from investing activities:**                                   |       |                                                 |       |   |   |
| Proceeds from  sales and maturities of investment securities                 |       | 1,500                                                |       | — |   |
| Purchases of investment  securities                                          |       | (8,874                                               | )          | — |   |
| Facilities and  equipment purchases                                          |       | (235                                                 | )          | (47 | ) |
| Proceeds from  sales of equipment and facilities                             |       | —                                               |       | 64 |   |
| Net cash (used in) provided by investing activities                          |       | (7,609                                               | )          | 17 |   |
| **Cash  flows from financing activities:**                                   |       |                                                 |       |   |   |
| Proceeds from  bridge note payable                                           |       | —                                               |       | 3,460 |   |
| Payment of  licensed product payable                                         |       | (5,000                                               | )          | — |   |
| Payment of  principal on notes payable                                       |       | (952                                                 | )          | (1,134 | ) |
| (Increase)  decrease in restricted cash                                      |       | (145                                                 | )          | 1,000 |   |
| Payment of  offering costs                                                   |       | (56                                                  | )          | (449 | ) |
| Proceeds from  stock options and warrants exercised                          |       | —                                               |       | 7 |   |
| Net cash (used in) provided by financing activities                          |       | (6,153                                               | )          | 2,884 |   |
| Net decrease in cash and cash equivalents                                    |       | (20,513                                              | )          | (320 | ) |
| **Cash  and cash equivalents:**                                              |       |                                                 |       |   |   |
| Beginning of  period                                                         |       | 44,148                                               |       | 3,523 |   |
| End of period                                                                |       | $                                                    | 23,635     |   | $ | 3,203 |   |
| **Supplemental  disclosure of non-cash financing activity:**                 |       |                                                 |       |   |   |
| Accrual of  preferred dividend                                               |       | $                                                    | 125        |   | $ | 125 |   |
| Warrants and  beneficial conversion feature                                  |       | $                                                    | —     |   | $ | 3,460 |   |
| **Supplemental  disclosure of cash paid during the period for:**             |       |                                                 |       |   |   |
| Cash paid for interest                                                       |       | $                                                    | 268        |   | $ | 62 |   |

 

See accompanying notes to the consolidated financial statements.

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**Note 1. Basis ofPresentation**

The accompanying unaudited condensed consolidatedfinancial statements include the accounts of Poniard Pharmaceuticals, Inc.and subsidiary (the Company). All intercompany balances and transactions havebeen eliminated in consolidation. Unless otherwise indicated, all commonstock-related amounts in this report have been adjusted to reflect ourone-for-six reverse stock split effective September 22, 2006. The Companyhas historically experienced recurring operating losses and negative cash flowsfrom operations. As of March 31, 2007, the Company had net working capitalof $34,176,000 and had an accumulated deficit of $287,449,000 with totalshareholders’ equity of $39,523.

On April 30, 2007, the Company completed a publicoffering of 11,848,341 shares of its common stock at a public offering price of$6.33 per share. Net proceeds of the offering, after payment of underwriters’discounts and commissions and deducting estimated expenses, were approximately$70,000,000. The Company believes that current cash, cash equivalent balances,investment securities balances and funds from the public offering will provideadequate resources to fund operations at least through the second quarter of2009. See Note 8 for a discussion of the Company’s liquidity and capitalresources.

The accompanying condensed consolidated financialstatements contained herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission (SEC). Certaininformation and note disclosures normally included in annual financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America have been condensed or omitted pursuant tothose rules and regulations, although the Company believes that thedisclosures made are adequate to make the information presented not misleading.These financial statements should be read in conjunction with the Company’sAnnual Report on Form 10-K for the year ended December 31,2006, as amended, filed with the SEC and available on the SEC’s website,www.sec.gov.

The accompanying condensed consolidated financialstatements are unaudited. In the opinion of the Company’s management, thecondensed consolidated financial statements reflect all adjustments, consistingonly of normal recurring accruals necessary to present fairly the Company’sfinancial position as of March 31, 2007 and the results of operations andcash flows for the periods ended March 31, 2007 and 2006.

The results of operations for the periods ended March 31,2007 and 2006 are not necessarily indicative of the expected operating resultsfor the full year.

*Estimates andUncertainties:**  *Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates.

**Note 2. NewAccounting Pronouncements**

In June 2006, the Financial Accounting StandardsBoard (FASB) issued Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes: An Interpretation of FASB Statement No. 109” (FIN 48). FIN48 clarifies certain aspects of accounting for uncertain tax positions,including issues related to the recognition and measurement of those taxpositions. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006. The Company has been in a net operating loss positionsince its inception and has not recognized any tax benefits for any of itsincome tax positions as a result of a full valuation allowance. The Companyadopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN48 did not have an impact on the Company’s consolidated financial statements.Historically, the Company has not incurred any interest or penalties associatedwith tax matters and no interest or penalties were recognized during the threemonths ended March 31, 2007. The Company has adopted a policy wherebyamounts related to 

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interest and penaltiesassociated with tax matters are classified as additional income tax expensewhen incurred. Tax years that remain open for examination include 2003, 2004,2005, and 2006. In addition, tax years from 1992 to 2002 may be subject toexamination in the event that the Company utilizes the net operating losscarryforward’s from those years in its current or future tax returns.

In September 2006, the FASB issued Statement ofFinancial Accounting Standards (SFAS) No. 157, “Fair Value Measurements”.SFAS 157 defines fair value, establishes a framework for measuring fair value,and expands disclosure requirements about fair value measurements. SFAS 157applies to other accounting pronouncements that require or permit fair valuemeasurements, but does not in itself require any new fair value measurements. Theprovisions of SFAS No. 157 are effective for fiscal years beginning after November 15,2007 and interim periods within those fiscal years. The Company is currentlyevaluating this statement and its impact, if any, on the Company’s consolidatedfinancial statements.

In February 2007, theFASB released SFAS No. 159, “TheFair Value Option for Financial Assets and Financial Liabilities.”  SFAS No. 159 allows companies to chooseto elect, at specified dates, to measure eligible financial instruments at fairvalue. Companies are required to report unrealized gains and losses on itemsfor which the fair value option has been elected in earnings at each subsequentreporting date, and recognize upfront costs and fees related to those items inearnings as incurred. SFAS No. 159 applies to fiscal years beginning afterNovember 15, 2007, with early adoption permitted for companies that havealso elected to apply the provisions of SFAS No. 157, “Fair Value Measurements.”  Companies are prohibited from retrospectivelyapplying SFAS No. 159 unless they choose to early adopt both SFAS No. 157and SFAS No. 159. SFAS No. 159 also applies to eligible itemsexisting at November 15, 2007 (or early adoption date). The Company iscurrently evaluating the impact, if any, of adopting SFAS No. 159 on theCompany’s consolidated financial statements.

**Note 3. Stock-BasedCompensation**

At March 31,2007, the Company’s Amended and Restated 2004 Incentive Compensation Plan (the2004 Plan) was the only compensation plan under which options were availablefor grant. The Company’s 1991 Stock Option Plan for Non-Employee Directors (theDirectors Plan) was terminated on March 31, 2005, and no further optionscan be granted under that plan. The Company’s 1994 Stock Option Plan (the 1994Plan) was terminated on February 17, 2004 and no further options can begranted under that plan. Although no Company securities are available forissuance under the Directors Plan or the 1994 Plan, options granted prior totermination of those plans continue in effect in accordance with their terms.

The 2004 Plan, asamended and restated on September 13, 2006, authorizes the Company’s boardor a committee appointed by the board to grant options to purchase a maximumaggregate of 4,166,666 shares of common stock, of which 2,500,000 shares aresubject to shareholder approval at the Company’s 2007 annual meeting ofshareholders to be held on June 14, 2007. The 2004 Plan allows for theissuance of incentive stock options and nonqualified stock options toemployees, officers, directors, agents, consultants, advisors and independentcontractors of the Company, subject to certain restrictions. All option grantsexpire ten years from the date of grant, except in the event of earliertermination of employment or service. Option grants for employees with lessthan one year of service generally become exercisable at a rate of 25% afterone year from the grant date and then in monthly increments at a rate of 1/36th of the remainingbalance per month over the following three years. Option grants for employeeswith more than one year of service and for employees receiving promotionsbecome exercisable at a rate of 1/48th per month over the following four years.As of March 31, 2007, there were 1,362,371 shares of common stockavailable for issuance as new awards under the 2004 Plan.

On September 13,2006, February 7, 2007 and February 27, 2007, the Company issuedstock option grants to employees and consultants that are subject toshareholder approval of an increase in the number of shares authorized forissuance under the 2004 Plan at the Company’s 2007 annual meeting of 

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shareholders. If the shareholders do not approve an increase inthe number of shares authorized under the 2004 Plan, these grants willimmediately be cancelled after the 2007 annual meeting. No portion of anyoptions granted subject to shareholder approval is exercisable until the dateon which the shareholders approve an increase in the number of sharesauthorized for issuance under the 2004 Plan. If shareholder approval isobtained, these grants would be exercisable to the extent vested. The Companyhas not recognized compensation expense for these grants, because a grant dateas defined in SFAS 123R has not occurred. This is because the grant of theseoptions is contingent upon shareholder approval, which cannot be assured. Ifshareholder approval is not received, these options will terminate followingthe annual meeting.

The Company recognized stock compensation expense of$479,000 and $245,000, for the three months ended March 31, 2007 and 2006,respectively. The remaining unrecognized compensation cost related tonon-vested awards at March 31, 2007, was approximately $5,082,000 and theweighted-average period of time over which this cost will be recognized is 3.1years.

TheCompany records compensation expense for employee stock options based on theestimated fair value of the options on the date of grant using theBlack-Scholes option-pricing model. This fair value is then amortized on astraight-line basis over the requisite service periods for the grants, which isgenerally the vesting period. The Company uses historical data, and otherrelated information as appropriate, to estimate the expected price volatility,the expected option life and the expected forfeiture rate. The risk-free rateis based on the U.S. Treasury yield curve in effect at the time of the grant. TheCompany did not grant any options during the three months ended March 31,2006. The fair value of the Company’s stock options granted to employees forthe three months ended March 31, 2007 was estimated using theBlack-Scholes model with the following weighted-average assumptions: 

| ** **                  | ** ** | **Three Months Ended  March 31, 2007** | ** ** |
|-----------------------------|------------|------------------------------------------------------------|------------|
| Expected term in  years     |       |                                                       | 6.05       |   |   |
| Expected dividend  rate     |       |                                                       | 0.0        | % |   |
| Expected volatility  factor |       |                                                       | 102.0      | % |   |
| Risk-free interest rate     |       |                                                       | 4.65       | % |   |

 

The weighted-average grant date fair value of optionsgranted during the three months ended March 31, 2007 was $4.96.

TheCompany issues new shares of common stock upon exercise of stock options. Thefollowing table summarizes the Company’s stock option activity for the threemonths ended March 31, 2007 (in thousands, except per share data):

| ** **                            | ** ** | **Number  of Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------|------------|----------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at  January 1, 2007  |       |                       | 1,660      |                                       |       |                                                    | 10.50      |                            |       |   |   |   |   |   |   |   |   |
| Granted                               |       |                       | 93         |                                       |       |                                                    | 6.04       |                            |       |   |   |   |   |   |   |   |   |
| Exercised                             |       |                       | —     |                                       |       |                                                    | —     |                            |       |   |   |   |   |   |   |   |   |
| Forefeited/cancelled/expired          |       |                       | (110       | )                                          |       |                                                    | 7.36       |                            |       |   |   |   |   |   |   |   |   |
| Outstanding at  March 31, 2007   |       |                       | 1,643      |                                       |       |                                                    | $          | 10.46                           |       |   |   | 7.6 |   |   |   | $ | 538 |   |   |
| *Exercisable at March 31,  2007* | * *   | * *                   | *611*      |                                       | * *   | * *                                                | *$*        | *16.81*                         |       |   |   | 5.1 |   |   |   | $ | 294 |   |   |

 

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Cashproceeds and intrinsic value related to total stock options exercised duringthe three months ended March 31, 2007 and 2006 were as follows (dollars inthousands): 

| ** **                                  | ** ** | **Quarter Ended  March 31,** | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|
| ** **                                  | ** ** | **2007**                               | ** ** | **2006** | ** ** |
| Proceeds from  stock options exercised      |       |                                   | $          | — |   |   |   | $ | 7 |   |   |
| Intrinsic value of stock  options exercised |       |                                   | $          | — |   |   |   | $ | 6 |   |   |

 

**Note 4. Loss PerCommon Share**

Basic and diluted loss per share are based on net lossapplicable to common shares, which is comprised of net loss and preferred stockdividends in all periods presented. Shares used to calculate basic loss pershare are based on the weighted average number of common shares outstandingduring the period. Shares used to calculate diluted loss per share are based onthe potential dilution that would occur upon the exercise or conversion ofsecurities into common stock using the treasury stock method. The calculationof diluted loss per share excludes the effect of the following stock optionsand warrants to purchase additional shares of common stock because the shareincrements would not be dilutive.

| ** **            | ** ** | **Quarter Ended March 31,** | ** ** |
|-----------------------|------------|--------------------------------------------|------------|
| ** **            | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| Common stock  options |       | 1,642,544                                  |       | 717,379 |   |
| Common stock warrants |       | 5,946,876                                  |       | 1,400,554 |   |

 

In addition, 39,015 sharesof common stock that would be issuable upon conversion of the Company’s Series 1preferred stock are not included in the calculation of diluted loss per sharefor the periods ended March 31, 2007 and 2006, respectively, because theeffect of including such shares would not be dilutive.

**Note 5. ComprehensiveLoss**

The Company’scomprehensive loss for the quarters ended March 31, 2007 and 2006 was$7,730,000 and $5,799,000, respectively. The comprehensive loss for thequarters ended March 31, 2007 and 2006 consisted of net loss of $7,729,000and $5,799,000, respectively, and a net unrealized loss on investmentsecurities of $1,000 and $0, respectively.

**Note 6. BridgeFinancing**

On February 1, 2006,the Company received loan proceeds of $3,460,000 from private investors (thebridge financing). Pursuant to the bridge financing, the Company issuedconvertible promissory notes in the principal amount of the loan and five-yearwarrants to purchase an aggregate of 411,906 shares of common stock at anexercise price of $4.62 per share. The fair value attributable to the warrantsusing the Black-Scholes option-pricing model was approximately $1,647,000 basedupon assumptions of expected volatility of 114%, a contractual term of fiveyears, an expected dividend rate of zero and a risk-free rate of interest of4.5%. The Company recorded the warrants’ fair value as a discount to thepromissory notes payable. The convertibility of the promissory notes gave riseto a beneficial conversion feature, which the Company recorded as additionaldiscount on the promissory notes of approximately $1,813,000. The proceeds ofthe bridge loan were used for working capital through April 26, 2006,the date of the closing of the Company’s 2006 equity financing (see Note 8). Theconvertible promissory notes provided for an interest rate of 8% per annum and,at the closing of the 2006 equity financing, the principal amount of the notes,together with approximately $63,000 of accrued interest thereon, automaticallyconverted, at a conversion rate of $4.20 per share, into an aggregate of838,976 shares of common stock.

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**Note 7. PicoplatinLicense and Amendment**

In April 2004, theCompany acquired from AnorMED, Inc. the worldwide exclusive rights,excluding Japan, to develop, manufacture and commercialize picoplatin, aplatinum-based anti-cancer agent. AnorMED, Inc. was acquired by GenzymeCorporation in November 2006. Under the terms of the agreement, theCompany paid a one-time upfront milestone payment of $1,000,000 in its commonstock and $1,000,000 in cash. The agreement also initially provided for$13,000,000 in development and commercialization milestones, payable in cash ora combination of cash and common stock, and a royalty rate of up to 15% on netproduct sales after regulatory approval. The license agreement was amended on September 18,2006 to modify several key financial terms and expand the licensed territory toinclude Japan, thereby providing the Company worldwide rights. In considerationof the amendment, the Company paid Genzyme $5,000,000 in cash on October 12,2006 and $5,000,000 in cash on March 30, 2007. The amendment eliminatesall development milestone payments to Genzyme. Genzyme remains entitled toreceive up to $5,000,000 in commercialization milestones upon the attainment ofcertain levels of annual net sales of picoplatin after regulatory approval. Theamendment also reduces the royalty payable to Genzyme to a maximum of 9% ofannual net product sales. In addition, the amendment reduces the sharing ofsublicense revenues for any sublicenses entered into during the first yearfollowing the amendment and eliminates the sharing of sublicense revenues withGenzyme on and after September 18, 2007.

**Note 8. Liquidity**

The Company received approximately $61,945,000 in netcash proceeds from the sale of common stock and warrants, including the bridgefinancing, in April 2006 (the 2006 equity financing). The Company willneed to raise additional capital or enter into strategic partnerships for theclinical development of its picoplatin platinum compound and other proposedproduct candidates.

On January 30, 2006, the Company entered into aletter agreement with Texas State Bank, pursuant to which the Company agreed tochange the maturity date of its promissory note with the Bank to June 5,2006. The Texas State Bank loan, which was secured by the Company’sradiopharmaceutical plant and other STR assets located in Denton, Texas, had anadjustable interest rate equal to the bank prime rate reported in the WallStreet Journal (8.00% at May 23, 2006). The Company paid off theoutstanding balance of the loan, $2,714,000, on May 23, 2006.

On August 4, 2005, the Company entered into aresearch funding and option agreement with The Scripps Research Institute(TSRI). Under the agreement, as amended December 2006 and February 2007,the Company committed to provide TSRI an aggregate of $2,500,000 over a 26-monthperiod to fund research relating to synthesis and evaluation of novel smallmolecule, multi-targeted protein kinase inhibitors as therapeutic agents,including for the treatment of cancer. The Company has the option to negotiatea worldwide exclusive license to use, enhance and develop any compounds arisingfrom the collaboration. The research funding is payable by the Company to TSRIquarterly in accordance with a negotiated budget. On August 8, 2005, theCompany made an initial funding payment to TSRI of $138,000. The Company paidTSRI $1,012,000 in 2006 and $129,000 in the first quarter of 2007, whichamounts were charged to research and development expense. The agreementprovides for additional aggregate funding payments of $1,221,000 during thebalance of 2007.

On April 26, 2006, the Company completed the 2006equity financing pursuant to a securities purchase agreement dated as of February 1,2006. In connection with the 2006 equity financing, the Company issued to agroup of institutional and other accredited investors an aggregate of15,491,000 shares of common stock at a cash purchase price of $4.20 per share. Investorsin the financing also received five-year warrants to purchase an aggregate of4,643,000 shares of common stock at an exercise price of $4.62 per share. Concurrentwith the closing of the financing, the Company issued an aggregate of 

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1,591,000 shares of commonstock to the holders of its Series B preferred stock upon conversion ofthe outstanding Series B preferred shares (the Series B shares).

As a result of the completion of the 2006 equityfinancing and the conversion of the Series B shares, the Company’soutstanding common stock increased from approximately 5,722,000 shares toapproximately 22,805,000 shares. Entities affiliated with MPM CapitalManagement (MPM) acquired beneficial ownership of 7,744,000 common shares, orapproximately 31.5% of the common stock outstanding immediately following the2006 equity financing. Entities affiliated with Bay City Capital LLC (BCC)acquired beneficial ownership of 4,646,000 common shares, or approximately19.5% of the common shares outstanding immediately following the financing. SeeNote 10 below with respect to related person transactions.

In September 2006, the Company completed therelocation of its corporate headquarters to South San Francisco. The Companyintends to maintain clinical and development and support activities andfacilities in Seattle. The addition of the South San Francisco facility willresult in a substantial increase in rent and operating costs of the Company. OnJuly 10, 2006, the Company entered into an agreement with ARE-San FranciscoNo. 17 LLC to lease 17,045 square feet of office and laboratory space inSouth San Francisco, California. The initial term of the lease is 60 months.The annual base rent under the lease is approximately $542,000 and is subjectto annual adjustments based on disbursements for tenant improvements andincreases in the Consumer Price Index in the San Francisco metropolitan market.Base rent is payable in monthly installments of approximately $45,200. Additionalrent is payable monthly based on the Company’s share of operating expenses ofthe project in which the leased facilities are located, as described in thelease agreement. Monthly base rent during the first seven months of the leaseaveraged $21,000 during the construction of tenant improvements. Base rent andoperating expenses paid by the Company during 2006 was $143,000. Annualoperating expenses under the lease may increase substantially as the Companyestablishes laboratory facilities in the leased space. The Company may, uponwritten notice delivered at least nine months prior to expiration of theinitial term of the lease, extend the lease for an additional three years, withrent payable at the then market rate.

On October 25, 2006, the Company entered into aloan and security agreement (the loan agreement) with Silicon Valley Bank andMerrill Lynch Capital. Under the loan agreement, the Company obtained a$15,000,000 capital loan. The Company used $10,000,000 of the proceeds of theloan to fund its cash payment obligations to Genzyme Corporation (the successorto AnorMED, Inc.) under the picoplatin license amendment described in Note7 above, and plans to use the remaining proceeds to support its late-stageclinical trials of picoplatin and general working capital needs. The loan isfor a term of 42 months, maturing on April 1, 2010, with the firstprincipal payment on November 1, 2006. Interest on the loan is fixed at7.67%. An additional payment of $1,350,000 is due on the maturity date. Allinterest payable under the loan agreement and the full amount of the additionalpayment must be paid upon any prepayment of the loan. The loan is secured by afirst lien on substantially all of the non-intellectual property assets of theCompany. The loan agreement contains restrictions on the Company’s ability to,among other things, dispose of certain assets, engage in certain mergers andacquisition transactions, incur indebtedness, create liens on assets, makeinvestments and pay dividends or repurchase stock. The loan agreement alsocontains covenants requiring the Company to maintain unrestricted cash of$7,500,000 during the loan term and, not later than December 31, 2007, toprovide evidence of positive Phase II data for the picoplatin drug developmentprogram and commence enrollment of patients in a Phase III trial for picoplatin.The loan contains events of default that include, among other things,nonpayment of principal and interest or fees, breaches of covenants, materialadverse changes, bankruptcy and insolvency events, cross defaults to otherindebtedness, material judgments, inaccuracy of representations and warrantiesand events constituting a change of control. The occurrence of an event ofdefault would increase the applicable rate of interest by 5% and could resultin acceleration of the Company’s obligations under the loan agreement.

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The Company had cash, cash equivalents and investmentsecurities balances totaling $40,638,000 at March 31, 2007. On April 30,2007, the Company completed a public offering of 11,848,341 shares of itscommon stock at a public offering price of $6.33 per share (the publicoffering). Net proceeds of the public offering, after payment of underwriters’discounts and commissions and deducting estimated expenses, were approximately$70,000,000. The Company believes that current cash and cash equivalentbalances and funds from the public offering will provide adequate resources tofund operations at least through the second quarter of 2009. See Note 9 below.

The Company’sactual capital requirements will depend upon numerous factors, including:

·       thescope and timing of the Company’s picoplatin clinical program and otherresearch and development efforts, including the progress and costs of theCompany’s ongoing Phase II and Phase III trials of picoplatin in small celllung cancer, as well as its ongoing Phase I/II trials in colorectal andprostate cancers;

·       theCompany’s ability to obtain clinical supplies of picoplatin activepharmaceutical ingredient and finished drug product in a timely andcost-effective manner;

·       actionstaken by the US Food and Drug Administration (FDA) and other regulatoryauthorities;

·       thetiming and amounts of proceeds from any sale of the Denton facility and assets;

·       thetiming and amount of any milestone or other payments the Company might receivefrom potential strategic partners;

·       theCompany’s degree of success in commercializing picoplatin or any other productcandidates;

·       theemergence of competing technologies and products, and other adverse marketdevelopments;

·       theacquisition or in-licensing of other products or intellectual property;

·       thecosts, including lease and operating costs, incurred in connection with theCompany’s relocation of its corporate headquarters to South San Francisco andthe planned expansion of its workforce;

·       thecosts of any research collaborations or strategic partnerships established;

·       thecosts of preparing, filing, prosecuting, maintaining and enforcing patentclaims and other intellectual property rights; and

·       thecosts of performing the Company’s obligations under the loan with SiliconValley Bank and Merrill Lynch Capital, including the cost of interest and otherpayment obligations and penalties and the cost of complying with unrestrictedcash, product development and other covenants and restrictions under the loanagreement.

The Company had net operating loss carryforwards ofapproximately $62,300,000 available for future use as of December 31,2006, which will expire from 2007 through 2026. During 2006, the Companyexperienced significant changes to its capital structure which resulted in anownership change, as defined under Section 382 of the Internal RevenueCode of 1986, as amended (the IRC). Consequently, the amount of net operatingloss carryforwards and research and experimentation credit carryforwardsavailable to be used in future years are limited under IRC Sections 382 and 383.This limitation resulted in the loss of approximately $93,300,000 of theCompany’s net operating loss carryforwards and $9,100,000 of the Company’sresearch and development credit carryforwards. The public offering completed onApril 30, 2007, resulted in a significant change in the Company’s capitalstructure which will likely be considered to be an ownership change, as definedin Section 382 of the IRC. Consequently, the amount of net operating losscarryforwards and research and experimentation carryforwards available for usein future years will likely be further limited under IRC Sections 382 and 383.

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There can be no assurancethat the Company will be able to raise additional capital or enter intorelationships with corporate partners on a timely basis, on favorable terms, orat all. Conditions in the capital markets in general and the life sciencecapital market specifically may affect the Company’s potential financingsources and opportunities for strategic partnering.

**Note 9. SubsequentEvent—Completion of Public Offering**

On April 30, 2007, the Company completed a publicoffering of 11,848,341 shares of its common stock at a public offering price of$6.33 per share. Net proceeds of the public offering, after payment ofunderwriters’ discounts and commissions and deducting estimated expenses, wereapproximately $70,000,000. These proceeds will be used for the continuedclinical and preclinical development of picoplatin, including funding theCompany’s ongoing clinical trails in small cell lung cancer, metastaticcolorectal cancer and hormone-refractory prostate cancer, for discovery andresearch for new products candidates, and for general corporate purposes,including working capital.

As a result of the completion of the public offering,the Company’s outstanding common stock increased from 22,808,233 shares to34,656,574. Entities affiliated with MPM and BCC were purchasers in the publicoffering. Immediately following closing of the public offering, MPMbeneficially owned approximately 8,648,000 shares of our common stock, orapproximately 23.7% of the common shares outstanding.  BCC beneficially owned approximately 5,546,000shares of our common stock, or approximately 15.5% of the common sharesoutstanding, immediately following the public offering.  See Note 10 below with respect to related partytransactions.

Effective May 7,2007, Ronald A. Martell, a member of the Company’s Board of Directors, wasnamed President and Chief Operating Officer of Poniard Pharmaceuticals, Inc.

**Note 10. Related PartyTransactions**

As described in Notes 8 and 9 above, MPM and BCC aresignificant shareholders of the Company. Nicholas J. Simon III, a director ofthe Company, is a general partner of certain of the MPM entities that acquiredthe Company’s common stock in the 2006 equity financing and in the publicoffering. In addition, two Company directors, Fred B. Craves and Carl S.Goldfischer, are managing directors of BCC and possess capital and carriedinterests in the BCC entities that acquired stock in the 2006 equity financingand in the public offering. The Company has agreed, for as long as MPM owns atleast 10% of the shares of common stock and warrants purchased in the 2006equity financing, to use its best efforts to cause one person designated by MPMand one person designated by mutual agreement of MPM and BCC to be nominatedand elected to the Company’s board of directors. Mr. Simon serves as MPM’sdesignee on the Company’s board. MPM and BCC have not named the other designee.

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**Item 2.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

***Important Information Regarding Forward-LookingStatements***

This Form 10-Q contains forward-lookingstatements. These statements relate to future events or future financialperformance. In some cases, you can identify forward-looking statements byterminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,”“believe,” “estimate,” “predict,” “potential,” “propose” or “continue,” thenegative of these terms or other terminology. These statements are onlypredictions. Actual events or results may differ materially. In evaluatingthese statements, you should specifically consider various factors describedbelow in the section entitled “Risk Factors.” These factors may cause ouractual results to differ materially from any forward-looking statement.

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

Poniard, PoniardPharmaceuticals, NeoRx and associated logos are registered trademarks ortradenames of Poniard Pharmaceuticals, Inc. This report also containstrademarks, tradenames and service marks of other companies, which are theproperty of their respective owners.

***Critical Accounting Policies and Estimates***

Our critical accountingpolicies and estimates have not changed from those reported in our AnnualReport on Form 10-K for the year ended December 31, 2006, asamended. For a more complete description, please refer to our Annual Report on Form 10-K,as amended.

***Results of Operations***

***Three months ended March 31, 2007 compared to thethree months ended March 31, 2006***

We had no revenue for either of the first quarters of2007 and 2006.

Total operating expenses for the first quarter of 2007increased 98% to $7.9 million, from $4.0 million for the first quarter of 2006.

Research and development (R&D) expenses increased118% to $5.5 million for the first quarter of 2007, from $2.5 million for thefirst quarter of 2006. The increase in R&D expenses for the first quarterof 2007 resulted primarily from clinical costs associated with our picoplatintrials, of which approximately $1.7 million is attributable to start-up costsfor our Phase III trial in small cell lung cancer. Also contributing to theincrease were other picoplatin development related costs of approximately $0.8million and general development costs of approximately $0.4 million.

General and administrative (G&A) expensesincreased 59% to $2.4 million for the first quarter of 2007, from $1.5 millionfor the first quarter of 2006. Theincrease in G&A costs for the quarter ended March 31, 2007 is dueprimarily to increased personnel costs of $0.3 million, increased recordedstock option expense resulting from the adoption of Statement of FinancialAccounting Standard 123R of $0.1 million and increased accounting fees of $0.1million due to higher audit costs resulting from our status as an acceleratedfiler.

Interest expense for the three months ended March 31,2007 decreased to $0.5 million from $1.8 million. The significant decrease ininterest expense was due primarily to first quarter 2006 amortization of debtdiscount of $1.7 million compared to debt discount amortization of $0.2 millionfor the first quarter of 2007. The first quarter 2006 debt discount expensedrepresented 50% of the total debt discount of $3.46 

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million on the 2006 equityfinancing bridge notes (see section “Liquidity and Capital Resources” below),which had a term of four months, while the first quarter 2007 debt discountexpensed represented 10% of the total debt discount of $1.9 million on theSilicon Valley Bank loan (see section “Liquidity and Capital Resources” below),which has a term of 42 months. The increase in interest income of $0.6 millionfor the quarter ended March 31, 2007 resulted primarily from interestearned from investing the net proceeds of our 2006 equity financing.

Cash, cash equivalents and investment securitiesbalances as of March 31, 2007 were $40.6 million, compared with $53.7million at December 31, 2006. On April 26, 2006, we completed anequity financing, in which we raised approximately $62.0 million in net cashproceeds through the private sale to institutional and other sophisticatedinvestors of an aggregate of 15.5 million shares of common stock. Thepurchasers in the 2006 equity financing also received five-year warrants topurchase an aggregate of 4.6 million shares of common stock at an exerciseprice of $4.62 per share. In connection with the 2006 equity financing, weissued $3.5 million face amount of convertible promissory notes to investors onFebruary 1, 2006 (the bridge financing). The notes provided for aninterest rate of 8% per annum. We used the funds received in the bridgefinancing for working capital pending receipt of required shareholder approvalsand other conditions to completion of the 2006 equity financing. The outstandingprincipal amount of the notes, together with $63,000 of accrued interest,automatically converted, at a conversion price of $4.20 per share, intoapproximately 839,000 shares of common stock at the closing of the equityfinancing.

On April 30, 2007, we received approximately $70million in net proceeds from an underwritten, firm commitment public offeringof 11,848,341 shares of our common stock. These proceeds will be used for thecontinued clinical and preclinical development of picoplatin, including fundingour ongoing clinical trails in small cell lung cancer, metastatic colorectalcancer and hormone-refractory prostate cancer, for discovery and research fornew products candidates, and for general corporate purposes, including workingcapital. We believe that current cash and cash equivalent balances and fundsfrom the public offering will provide adequate resources to fund operations atleast through the second quarter of 2009.

As discussed below, wecurrently are conducting multiple ongoing studies of picoplatin and, in April 2007,treated our first patient in our Phase III pivotal study in small cell lungcancer. In addition, in 2006, we relocated our corporate headquarters to SouthSan Francisco into office space and laboratory facilities that are under afive-year lease. These, as well as increases in personnel, initiation ofinternal research programs and plans for continued future growth, are expectedto result in significant increases in our operating costs, including researchand development and administrative expenses. We will require substantialadditional funding to support our picoplatin and other proposed clinicaldevelopment programs and to fund our operations. In the event that we do notobtain sufficient additional funds, we may be required to delay, reduce orcurtail the scope of our picoplatin and other product development activities.

***Major Research andDevelopment Projects***

Our major research and development project ispicoplatin, a new-generation platinum-based cancer therapy that is designed totreat cancers that are resistant to existing platinum-based cancer therapies,to prolong time to relapse, and to have an improved safety profile relative toexisting platinum-based cancer therapies. We completed patient enrollment inour Phase II clinical study of picoplatin in small cell lung cancer in August 2006and, based on interim data from that ongoing study, initiated a Phase III trialof picoplatin in small cell lung cancer in the second quarter of 2007. In May 2006,we treated our first patients in separate Phase I/II studies evaluatingpicoplatin in the front-line treatment of advanced colorectal cancer andhormone refractory prostate cancer. We expect to complete patient enrollment inthe dose-evaluation components of these trials and to initiate enrollment inthe Phase II efficacy components of our colorectal study in the third quarterof 2007 and our prostate cancer study in the second quarter of 2007. Weinitiated patient enrollment in a Phase I trial of an oral formulation ofpicoplatin in April 2007. As of March 31, 2007, we have incurredexternal costs of approximately $18 million in connection with our entire 

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picoplatin clinicalprogram. Total estimated future costs of our picoplatin Phase II and Phase IIItrials in small cell lung cancer are in the ranges of $1 million to $2 millionand $23 million and $25 million, respectively, through 2008, including the costof drug supply. Total estimated future costs of our picoplatin Phase I/II trialin colorectal cancer and our Phase I/II trial in hormone refractory prostatecancer are in the ranges of $11 million to $13 million and $5 million to $6million, respectively, through 2008, including the cost of drug supply. Totalestimated future costs of our Phase I trial in oral picoplatin are in the rangeof $2 million to $3 million through 2008, including the cost of drug supply. Thesecosts could be substantially higher if we have to repeat, revise or expand thescope of any of our trials. Material cash inflows relating to our picoplatindevelopment will not commence unless and until we complete required clinicaltrials and obtain FDA marketing approvals, and then only if picoplatin findsacceptance in the marketplace. To date, we have not received any revenues fromproduct sales of picoplatin.

The risks anduncertainties associated with completing the development of picoplatin onschedule or at all, include the following, as well as the other risk factorsdescribed in this report:

·       wemay not have adequate funds to complete the development of picoplatin;

·       wemay be unable to secure adequate supplies of picoplatin active pharmaceuticalingredient and finished drug product in order to complete our clinical trials;

·       picoplatinmay not be shown to be safe and efficacious in clinical trials; and

·       wemay be unable to obtain regulatory approval of the drug or may be unable toobtain such approval on a timely basis.

If we fail toobtain marketing approval for picoplatin, are unable to secure adequateclinical and commercial supplies of picoplatin active pharmaceutical ingredientand finished drug product, or do not complete development and obtain UnitedStates and foreign regulatory approvals on a timely basis, our operations,financial position and liquidity could be severely impaired, including asfollows:

·       wewould not earn any sales revenue from picoplatin, which would increase thelikelihood that we would need to obtain additional financing for our otherdevelopment efforts; and

·       ourreputation among investors might be harmed, which could make it more difficultfor us to obtain equity capital on attractive terms, or at all.

Because of the many risks and uncertainties relatingto completion of clinical trials, receipt of marketing approvals and acceptancein the marketplace, we cannot predict the period in which material cash inflowsfrom our picoplatin program will commence, if ever.

*Summary of Research andDevelopment Costs.***  **Ourdevelopment overhead costs, consisting of rent, utilities, consulting fees,patent costs and other various overhead costs, are included in total researchand development expense for each period, but are not allocated among ourvarious projects. Our total development costs include the costs of variousother research efforts directed toward the identification and evaluation offuture product candidates. These other research projects are pre-clinical andnot considered major projects. Our total research and development costs aresummarized below**:**

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**Summary of Researchand Development Costs**

| ** **                            | ** ** | **Quarter Ended  March 31,** | ** ** |
|---------------------------------------|------------|----------------------------------------|------------|
| ** **                            | ** ** | **2007**                               | ** ** | **2006** | ** ** |
| ** **                            | ** ** | **(in thousands)**                | ** ** |
| Picoplatin                            |       | $                                      | 4,008      |   | $ | 1,802 |   |
| Discontinued  programs                |       | 64                                     |       | 32 |   |
| Other overhead  and research costs    |       | 1,428                                  |       | 689 |   |
| Total research and  development costs |       | $                                      | 5,500      |   | $ | 2,523 |   |

 

***Completion ofPublic Offering***

On April 30, 2007, we completed a public offeringof 11,848,341 shares of our common stock at a public offering price of $6.33per share. Net proceeds of the public offering, after payment of underwriters’commissions and deducting estimated expenses, were approximately $70.0 million.We plan to use these proceeds for the continued clinical and preclinicaldevelopment of picoplatin, including funding our ongoing clinical trails insmall cell lung cancer, metastatic colorectal cancer and hormone-refractory prostatecancer, for discovery and research for new products candidates, and for generalcorporate purposes, including working capital. We believe that current cash,cash equivalents, securities balances and funds from the public offering willprovide adequate resources to fund operations at least through the secondquarter of 2009.

As a result of thecompletion of the public offering, our outstanding common stock increased from22.8 million shares to 34.7 million shares. Entities affiliated with MPMCapital Management, or MPM, and Bay City Capital LLC, or BCC, which prior tothe public offering beneficially owned 31.5% and 19.5% shares of our commonstock, respectively, participated as purchasers in the public offering. Immediatelyfollowing closing of the public offering, MPM beneficially owned approximately8.6 million shares of our common stock, or approximately 23.7% of our commonshares outstanding. BCC beneficially owned approximately 5.5 millionshares of our common stock, or approximately 15.5% of our common sharesoutstanding, immediately following the public offering. Nicholas J. Simon III,a director of our company, is a general partner of certain of the MPM entitiesthat acquired common shares in the public offering. In addition, two of ourdirectors, Fred B. Craves and Carl S. Goldfischer, are managing directors ofBCC and possess capital and carried interests in the BCC entities that acquiredcommon shares in the public offering.

***Liquidity and capital resources***

We have historically suffered recurring operatinglosses and negative cash flows from operations. As of March 31, 2007, wehad net working capital of $34.2 million, an accumulated deficit of $287.4million and total shareholders’ equity of $39.5 million.

We have financed our operations primarily through thesale of equity securities, technology licensing, collaborative agreements anddebt instruments. We invest excess cash in investment securities that will beused to fund future operating costs. Cash used for operating activities for the three months ended March 31,2007 totaled $6.8 million. There were no revenues and other income sources forfirst quarter of 2007. Cash, cash equivalents and investment securities,net of restricted cash of $0.3 million, totaled $40.6 million at March 31,2007 compared to $53.7 million at December 31, 2006.

On April 30, 2007, we completed the publicoffering of common shares described under the heading “Completion of PublicOffering” above. With the net proceeds of the public offering, estimated to be$70.0 million after payment of underwriting discounts and commissions andestimated offering expenses, we believe that our cash, cash equivalent andinvestment securities balances will provide adequate resources to fundoperations at least through the second quarter of 2009.

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On April 26, 2006, we completed an equityfinancing, pursuant to which we issued to a group of institutional and otheraccredited investors an aggregate of 15.5 million shares of common stock at acash purchase price of $4.20 per share. Investors in the 2006 equity financingalso received five-year warrants to purchase an aggregate of 4.6 million sharesof common stock at an exercise price of $4.62 per share. We received $62.0million in net proceeds from the 2006 equity financing, which, along with thenet proceed received from our April 2007 public offering, we intend to useto fund our picoplatin clinical program and general working capital needs.Concurrent with the closing of the 2006 equity financing, we issued anaggregate of 1.6 million shares of common stock to the holders of our Series Bpreferred stock upon conversion of their outstanding Series B preferredshares. As a result of the completion of the 2006 equity financing and theconversion of the Series B preferred shares, our outstanding common stockincreased from approximately 5.7 million shares to approximately 22.8 millionshares.

In connection with our 2006 equity financing, weentered into a letter agreement with Texas State Bank, pursuant to which weagreed to accelerate the maturity date of our promissory note with the Bank to June 5,2006. The Texas State Bank note, which was secured by our radiopharmaceuticalplant and other STR assets located in Denton, Texas, had an adjustable interestrate equal to the bank prime rate reported in the Wall Street Journal (8.00% atMay 23, 2006). We paid off the outstanding balance of the note, $2.7million, on May 23, 2006.

We completed the relocation of our corporateheadquarters to South San Francisco in September 2006. We intend to maintainour current clinical and development and support activities in Seattle. Theaddition of 17,045 square feet of office and laboratory space leased in SouthSan Francisco facility will result in a substantial increase in our future rentand operating costs. Under the lease agreement dated July 10, 2006, theannual base rent for the leased facilities is approximately $542,000 and issubject to annual adjustment based on disbursements for tenant improvements andincreases in the Consumer Price Index in the San Francisco metropolitan market.Base rent is payable in monthly installments of approximately $45,200.Additional rent is payable monthly based on our share of operating expenses ofthe project in which the leased facilities are located, as described in thelease agreement. Monthly base rent during the first seven months of the leaseaveraged $21,000 during the construction of tenant improvements. We paid totalrent (base rent and additional rent based on our share of project operatingexpenses) during 2006 of $143,000. We estimate total rent payable by us during2007 will be approximately $542,000. Annual operating expenses payable underthe lease may increase substantially as we establish laboratory facilities inthe leased space. The initial term of the lease is 60 months. We may, uponwritten notice delivered at least nine months prior to expiration of theinitial lease term, extend the lease for an additional three years, with rentpayable at the then market rate.

In April 2004, we acquired the worldwideexclusive rights, excluding Japan, to develop, manufacture and commercializepicoplatin from AnorMED, Inc. AnorMED was acquired by Genzyme Corporationin November 2006. Under the terms of the original agreement, we paid aone-time upfront milestone payment of $1.0 million in common stock and $1.0million in cash. The original agreement provided for development andcommercialization milestone payments of up to $13.0 million, payable in cash ora combination of cash and common stock, and a royalty rate of up to 15% of netproduct sales after regulatory approval. The parties executed an amendment tothe license agreement on September 18, 2006, modifying several keyfinancial terms and expanding the licensed territory to include Japan, therebyproviding us worldwide rights. In consideration of the amendment, we paidGenzyme $5.0 million in cash on October 12, 2006 and $5.0 million in cashon March 30, 2007. The amendment eliminates $8.0 in development milestonepayments to Genzyme. Genzyme remains entitled to receive up to $5.0 million incommercialization milestones upon the attainment of certain levels of annualnet sales of picoplatin after regulatory approval. The amendment also reducesthe royalty payable to Genzyme to a maximum of 9% of annual net product sales.In addition, the amendment reduces the sharing of sublicense revenues for any 

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sublicenses entered intoduring the first year following the amendment and eliminates the sharing ofsublicense revenues on and after September 18, 2007.

On October 25, 2006, we entered into a loan andsecurity agreement with Silicon Valley Bank and Merrill Lynch Capital, pursuantto which we obtained a $15.0 million capital loan. We have used $10.0 millionof the proceeds of the loan to fund our cash payment obligations to Genzymeunder license agreement amendment and plan to use the remaining proceeds tosupport our late-stage clinical trials of picoplatin and general workingcapital needs. The loan is for a term of 42 months and matures on April 1,2010. We are required to pay a 7.67% fixed interest rate on the outstandingprincipal balance plus a $1.35 million additional payment upon the maturitydate of the loan. This additional payment will be accreted to the note payablebalance over the term of the loan using the effective interest rate method andreflected as additional interest expense. All interest payable under the loanagreement and the full amount of the additional payment must be paid upon anyprepayment of the loan. The loan is secured by a first lien on substantiallyall of our non-intellectual property assets. The loan agreement containsrestrictions 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 and pay dividends or repurchase stock.The loan agreement also contains covenants requiring us to maintainunrestricted cash of $7.5 million during the loan term and, not later than December 31,2007, to provide evidence of positive Phase II data for the picoplatin drugdevelopment program and commence enrollment of patients in a Phase III trialfor picoplatin. The loan contains events of default that include, among otherthings, nonpayment of principal and interest or fees, breaches of covenants,material adverse changes, bankruptcy and insolvency events, cross defaults toother indebtedness, material judgments, inaccuracy of representations andwarranties and events constituting a change of control. The occurrence of anevent of default would increase the applicable rate of interest by 5% and couldresult in acceleration of our payment obligations under the loan agreement.

On August 4, 2005, we entered into a researchfunding and option agreement with The Scripps Research Institute, or TSRI.Under the agreement, as amended in December 2006 and February 2007,we committed to provide TSRI an aggregate of $2.5 million over a 26-monthperiod to fund research relating to synthesis and evaluation of novel smallmolecule, multi-targeted protein kinase inhibitors and focal adhesion kinaseinhibitors as therapeutic agents, including for the treatment of cancer. Wehave the option to negotiate a worldwide exclusive license to use, enhance anddevelop any compounds arising from the collaboration. The research funding ispayable by us to TSRI quarterly in accordance with a negotiated budget. On August 8,2005, we made an initial funding payment to TSRI of approximately$0.2 million. We paid TSRI total funding payments of $1.0 million in 2006and $0.1 million in the first quarter of 2007, which amounts were charged toR&D expense. The agreement provides for aggregate additional fundingpayments of $1.2 million during the balance of 2007. We have no assurance thatthe research funded under this arrangement will be successful or ultimatelywill give rise to any viable product candidates. Further, there can be noassurance that we will be able to negotiate, on acceptable terms, a licensewith respect to any compounds arising from the collaboration.

We will requiresubstantial additional funding to develop and commercialize picoplatin and anyother proposed products and to fund our operations.**Managementis continuously exploring financing alternatives, including:

·       raisingadditional capital through the public or private sale of equity or debtsecurities or through the establishment of credit or other funding facilities;and

·       enteringinto strategic collaborations, which may include joint ventures or partnershipsfor product development and commercialization, merger, sale of assets or othersimilar transactions.

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Our actual capitalrequirements will depend upon numerous factors, including:

·       thescope and timing of our picoplatin clinical program and other research anddevelopment efforts, including the progress and costs of our ongoing Phase IIand Phase III trials of picoplatin in small cell lung cancer, as well as ourongoing Phase I/II studies in colorectal and prostate cancers;

·       ourability to obtain clinical supplies of picoplatin active pharmaceutical ingredientand finished drug product in a timely and cost-effective manner;

·       actionstaken by the FDA and other regulatory authorities;

·       thetiming and amounts of proceeds from any sale of the Denton facility and assets;

·       thetiming and amount of any milestone or other payments we might receive frompotential strategic partners;

·       ourdegree of success in commercializing picoplatin or any other productcandidates;

·       theemergence of competing technologies and products, and other adverse marketdevelopments;

·       theacquisition or in-licensing of other products or intellectual property;

·       thecosts, including lease and operating costs, incurred in connection with therelocation of our corporate headquarters to South San Francisco and the plannedexpansion of our workforce;

·       thecosts of any research collaborations or strategic partnerships established;

·       thecosts of preparing, filing, prosecuting, maintaining and enforcing patentclaims and other intellectual property rights; and

·       thecosts of performing our obligations under the loan with Silicon Valley Bank andMerrill Lynch Capital, including the cost of interest and other paymentobligations and penalties and the cost of complying with unrestricted cash,product development and other covenants and restrictions under the loanagreement.

During 2006, we experienced significant changes to ourcapital structure which resulted in an ownership change, as defined under Section 382of the IRC. Consequently, the amount of net operating loss carryforwards andresearch and experimentation credit carryforwards available to be used infuture years are limited under IRC Sections 382 and 383. This limitationresulted in the loss of approximately $93.3 million of our net operating losscarryforwards and $9.1 million of our research and development creditcarryforwards. We had net operating loss carryforwards of approximately $62.3million available for future use as of December 31, 2006, which willexpire from 2007 through 2026. The public offering completed on April 30,2007, resulted in a significant change in our capital structure which willlikely be considered to be an ownership change, as defined in Section 382of the IRC. Consequently, the amount of net operating loss carryforwards andresearch and experimentation carryforwards available for use in future yearswill likely be further limited under IRC Sections 382 and 383.

There can be no assurance that we will be able toraise additional capital or enter into relationships with corporate partners ona timely basis, on favorable terms, or at all. Conditions in the capitalmarkets in general, and in the life science capital market specifically, mayaffect our potential financing sources and opportunities for strategicpartnering. Our financial statements are prepared on a going concern basis;however, our inability to obtain additional cash as needed could have amaterial adverse effect on our financial position, results of operations andour ability to continue in existence. Our consolidated financial statements donot include any adjustments that might result from the outcome of thisuncertainty.

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At March 31, 2007, we had thefollowing contractual obligations (in thousands):

| ** **                       | ** ** | **Total** | ** ** | **Less than  1 year** | ** ** | **1 - 3 years** | ** ** | **3 - 5 years** | ** ** | **More than  5 years** | ** ** |
|----------------------------------|------------|-----------|------------|---------------------------------|------------|--------------------------------|------------|--------------------------------|------------|----------------------------------|------------|
| *Contractual Obligations*        |       |      |       |                            |       |                           |       |                           |       |                             |       |   |   |   |   |   |   |   |   |
| Long-term debt  obligations:     |       |      |       |                            |       |                           |       |                           |       |                             |       |   |   |   |   |   |   |   |   |
| Notes payable (2) (3)       |       | $         | 15,044     |                            |       | $                              | 4,879      |                           |       |                             | $          | 9,758 |   |   |   | $ | 407 |   |   |   | $ | — |   |   |
| Operating lease  obligations:    |       |      |       |                            |       |                           |       |                           |       |                             |       |   |   |   |   |   |   |   |   |
| Seattle office space             |       | 1,268     |       |                            | 548        |                           |       |                           | 720        |                             |       |   | — |   |   |   | — |   |   |
| South San Francisco premises (1) |       | 2,318     |       |                            | 535        |                           |       |                           | 1,070      |                             |       |   | 713 |   |   |   | — |   |   |
|                             |       | 3,586     |       |                            | 1,083      |                           |       |                           | 1,790      |                             |       |   | 713 |   |   |   | — |   |   |
| Purchase obligations:            |       |      |       |                            |       |                           |       |                           |       |                             |       |   |   |   |   |   |   |   |   |
| Scripps research collaboration   |       | 1,222     |       |                            | 1,222      |                           |       |                           | —     |                             |       |   | — |   |   |   | — |   |   |
| Total                            |       | $         | 19,852     |                            |       | $                              | 7,184      |                           |       |                             | $          | 11,548 |   |   |   | $ | 1,120 |   |   |   | $ | — |   |   |

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(1)          Lease executed in July 2006.See discussion above for details.

(2)          Amounts include interestpayments.

(3)          Amountin “Total” column includes total principal payment of $13,123 as refected onthe Condensed Consolidated Balance Sheet as of ended March 31, 2007.

**Item 3.**                        Quantitativeand Qualitative Disclosures about Market Risk

The Company is exposed tothe impact of interest rate changes and changes in the market values of itsinvestments.

**Interest Rate Risk**

The Company’s exposure to market rate risk for changesin interest rates relates primarily to the Company’s debt securities includedin its investment portfolio. The Company does not have any derivative financialinstruments. The Company invests in money market funds, debt instruments of theUS Government and its agencies and high-quality corporate issuers. Investmentsin both fixed rate and floating rate interest earning instruments carry adegree of interest rate risk. The fair market value of fixed rate securitiesmay be adversely impacted due to a rise in interest rates, while floating ratesecurities may produce less income than expected if interest rates decrease. Duein part to these factors, the Company’s future investment income may fall shortof expectations due to changes in interest rates or the Company may experiencelosses in principal if forced to sell securities that have declined in marketvalue due to changes in interest rates. At March 31, 2007, the Companyowned government debt instruments totaling $2.6 million and owned corporatedebt securities totaling $8.9 million. The Company’s exposure to losses as aresult of interest rate changes is managed through investing primarily insecurities with relatively short maturities of up to two years and securitieswith variable interest rates. All government debt instruments and corporatedebt securities owned by the Company at March 31, 2007 had maturities ofless than one year.

The Company’s onlymaterial outstanding debt is its loan obligation to Silicon Valley Bank andMerrill Lynch Capital. The outstanding balance of this loan was $13.1 millionon March 31, 2007. The loan, which matures on April 1, 2010, bearsinterest at a fixed rate of 7.67%. The occurrence of an event of default underthe loan, as described above, would increase the applicable rate of interest by5% during the continuance of the event of default and could result inacceleration of the Company’s payment obligations under the loan agreement.

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**Item 4.**                        Controlsand Procedures

Under thesupervision and with the participation of the Company’s management, includingthe Company’s Chief Executive Officer and Chief Financial Officer, the Companyhas evaluated the effectiveness and design of its disclosure controls andprocedures (as such term is defined in Rules 13a-15(e) and 15d-15(e))as of March 31, 2007, to ensure that the information disclosed by theCompany in the reports that the Company files or submits under the SecuritiesExchange Act of 1934, as amended, is recorded, processed, summarized andreported within the time periods specified in the rules and forms. Basedon this evaluation, the Chief Executive Officer and the Chief Financial Officerhave concluded that, as of March 31, 2007, these disclosure controls andprocedures were effective.

There were no changes in the Company’s internal control overfinancial reporting that occurred during the quarter that have materiallyaffected, or are reasonably likely to materially affect, the Company’s controlover financial reporting.

***Limitations on theEffectiveness of Controls***

The Company’smanagement, including its Chief Executive Officer and its Chief FinancialOfficer**,**does not expect that the Company’sdisclosure controls or internal controls will prevent all errors and all fraud.A control system, no matter how well conceived and operated, can provide onlyreasonable, not absolute, assurance that the objectives of that control systemare met. Further, the design of a control system must reflect the fact thatthere are resource constraints, and the benefits of control must be consideredrelative to their costs. Because of the inherent limitation in all controlsystems, no evaluation of controls can provide absolute assurance that allcontrol issues and instances of fraud, if any, within the Company have beendetected. These inherent limitations include the reality that judgments indecision-making can be faulty, and breakdowns can occur because of simple erroror mistake. Additionally, controls can be circumvented by the individual actsof some persons, by collusion of two or more persons, or by management overrideof the control. The design of any system of controls is also based in part uponcertain assumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions. Over time controls may become inadequate becauseof changes in conditions or deterioration in the degree of compliance with thepolicies and procedures. Because of the inherent limitations in acost-effective control system, misstatements due to error or fraud may occurand not be detected.

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**PART II. OTHERINFORMATION**

**Item 1A.**                RiskFactors

In addition to the otherinformation contained in this report, the following factors could affect ouractual results and could cause our actual results to differ materially fromthose achieved in the past or expressed or implied by our forward lookingstatements.

***Risks Related to Our Business***

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

We have not been profitable since our formation in1984. As of March 31, 2007, we had an accumulated deficit of $287.4million. Our net loss for the quarter ended March 31, 2007 was $7.7million. We had net losses of $23.3 million for the year ended December 31,2006 and $21.0 million for the year ended December 31, 2005. These lossesresulted principally from costs incurred in our research and developmentprograms and from our general and administrative activities. To date, we havebeen engaged only in research and development activities and have not generatedany significant revenue from product sales. In May 2005, we announced thediscontinuation of our skeletal targeted radiotherapy, or STR, developmentprogram as part of a strategic plan to refocus our limited resources on thedevelopment of picoplatin, a platinum-based cancer therapy. We do notanticipate that our picoplatin product candidate, or any other proposedproducts, will be commercially available for several years, if at all. Weexpect to incur additional operating losses in the future. These losses mayincrease significantly as we expand our clinical trials and increase ourresearch and development activities and seek to commercialize picoplatin or anyfuture product candidates.

Our ability to achievelong-term profitability is dependent upon achieving successful results inclinical trials and obtaining regulatory approvals for our picoplatin productcandidate and any other proposed products and successfully commercializing ourproducts alone or with third parties.

**We will need to raise additional capital to developand commercialize our product candidates and fund operations, and our futureaccess to capital is uncertain and additional financing may have dilutive oradverse effects on our stockholders.**

It is expensive to develop cancer therapy products andconduct clinical trials for these products. We have not generated revenue fromthe commercialization of any product, and we expect to continue to incursubstantial net operating losses and negative cash flows from operations forthe foreseeable future. On April 30, 2007, we completed a $75.0 millionequity financing; however, we will require substantial additional funding todevelop and commercialize picoplatin and any other proposed products and tofund our future operations.

Management is continuously exploring financingalternatives, including:

·       raisingadditional capital through the public or private sale of equity or debtsecurities or through the establishment of credit or other funding facilities;and

·       enteringinto strategic collaborations, which may include joint ventures or partnershipsfor product development and commercialization, merger, sale of assets or othersimilar transactions.

We may not be able to obtain the required additionalcapital 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 potentialfinancing sources and opportunities for strategic partnering. If we raise additionalfunds by issuing common stock or securities convertible into or exercisable forcommon stock, our shareholders may experience substantial dilution, and newinvestors 

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could have rights superiorto current security holders. If we are unable to obtain sufficient additionalcash when needed, we may be forced to reduce expenses through the delay,reduction or curtailment of our picoplatin and other development andcommercialization activities.

The amount ofadditional financing we will require in the future will depend on a number offactors, including:

·       thescope and timing of our picoplatin clinical program and other research anddevelopment efforts, including the progress and costs of our ongoing Phase IIand Phase III trials of picoplatin in small cell lung cancer, as well as ourongoing Phase I/II trials in colorectal and prostate cancers;

·       ourability to obtain clinical supplies of picoplatin active pharmaceuticalingredient and finished drug product in a timely and cost effective manner;

·       actionstaken by the FDA and other regulatory authorities;

·       thetiming and amount of proceeds from any sale of the Denton facility and assets;

·       thetiming and amount of any milestone or other payments we might receive from orpay to potential strategic partners;

·       ourdegree of success in commercializing picoplatin or any other productcandidates;

·       theemergence of competing technologies and products, and other adverse marketdevelopments;

·       theacquisition or in-licensing of other products or intellectual property;

·       thecosts, including lease and operating costs, incurred in connection with therelocation of our corporate headquarters to South San Francisco and the plannedexpansion of our workforce;

·       thecosts of any research collaborations or strategic partnerships established;

·       thecosts of preparing, filing, prosecuting, maintaining and enforcing patentclaims and other intellectual property rights; and

·       the costs of performing ourobligations under our loan with Silicon Valley Bank and Merrill Lynch Capital,including the cost of interest and other payment obligations and penalties andthe cost of complying with unrestricted cash, product development and othercovenants and restrictions under the loan agreement.

**Our potential products must undergo rigorous clinicaltesting and regulatory approvals, which are costly and time consuming, and maysubject us to unanticipated delays or prevent us from marketing any products.**

The manufacture and marketing of our picoplatinproduct candidate and our research and development activities are subject toregulation for safety, efficacy and quality by the FDA in the United States andby comparable regulatory authorities in foreign countries.

The process of obtaining FDA and other requiredregulatory approvals, including foreign approvals, is expensive, often takesmany years and can vary substantially depending on the type, complexity andnovelty of the products involved. We will not be able to commercialize ourproduct candidates until we obtain regulatory approvals, and consequently anydelay in obtaining, or our inability to obtain, regulatory approvals could harmour business. We have had only limited experience in filing and pursuingapplications necessary to gain regulatory approvals. This may impede our abilityto obtain timely approvals from the FDA or foreign regulatory agencies.

If we violate regulatory requirements at any stage,whether before or after our marketing approval is obtained, we may be fined,forced to remove a product from the market or experience other adverse 

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consequences, includingdelay of the approval of our marketing applications, which would materiallyharm our business and financial results. Additionally, we may not be able toobtain the labeling claims necessary or desirable for product promotion andcould be required to conduct post-marketing studies on the safety oreffectiveness of our products. If we or other parties identify serious sideeffects after any of our products are on the market, or if manufacturing orregulatory problems occur, regulatory approval may be withdrawn andreformulation of our products, additional clinical trials, changes in labelingof our products, and/or additional marketing applications may be required.

The requirements governingthe conduct of clinical trials and manufacturing and marketing of our proposedproducts outside the United States vary widely from country to country. Foreignapprovals may take longer to obtain than FDA approvals and can involveadditional testing. Foreign regulatory approval processes include all of therisks associated with the FDA approval processes. Also, approval of a productby the FDA does not ensure approval of the same product by the healthauthorities of other countries.

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

We completed enrollment in our Phase II clinical trialof picoplatin in small cell lung cancer in August 2006, and we continue totreat and follow patients on this study for survival. This Phase II study is anopen-label, multi-center trial evaluating picoplatin in patients with smallcell lung cancer that did not respond to, or who relapsed within six monthsafter completing prior platinum-containing chemotherapy. The endpoints of thetrial include survival, response rate (tumor shrinkage), duration of responseand time to progression.

Based upon positive interim overall survival data fromour Phase II study, we have initiated an our international, multi-centerrandomized Phase III SPEAR pivotal trial of picoplatin in small cell lungcancer. The Phase III trial, which is being conducted pursuant to a SpecialProtocol Assessment, or SPA, with the FDA, is designed to compare the efficacyand safety of picoplatin plus best supportive care with best supportive carealone as a second-line therapy. The study is expected to enroll approximately400 patients with small cell lung cancer whose disease did not respond to afirst-line platinum-containing (cisplatin or carboplatin) chemotherapy regimenor whose disease responded initially to first-line platinum-containing therapy,but then progressed within six months after completion of treatment. Patientsare being randomized on a 2:1 ratio to receive picoplatin plus best supportivecare or best supportive care alone. The primary endpoint of the study isimproved overall survival as measured in time from randomization to death.Secondary endpoints include overall response rates, disease control andprogression-free survival. We currently estimate that the study will takeapproximately 20 months to complete; however, the actual time to completion ofthe study will depend on the rate of patient enrollment, survival times of allpatients in the trial, as well as other factors such as patient performancestatus, extent of disease and the risks and uncertainties described in thisreport.

In May 2006, we treated our first patient in ourPhase I/II study of picoplatin in the first-line treatment of patients withmetastatic colorectal cancer. This study is designed to determine the safetyand efficacy of picoplatin substituted for oxaliplatin in the FOLFOX regimen(combination of chemotherapy agents 5-fluorouracil, leucovorin andoxaliplatin) to treat patients newly diagnosed with metastatic disease. Also inMay 2006, we enrolled our first patient in our Phase I/II trial ofpicoplatin in the first-line treatment of patients with hormone-refractoryprostate cancer. This study is designed to determine the safety and efficacy ofpicoplatin when combined with the chemotherapy agent docetaxel (Taxotere®). Weanticipate completing enrollment of the Phase I dose-evaluation components ofthese trials and initiating enrollment in the Phase II efficacy components ofour colorectal cancer study in the third quarter of 2007 and our prostatecancer study in the second quarter of 2007. Endpoints of these studies willinclude safety, disease reduction, time to progression, progression-freesurvival and overall survival.

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The actual timesfor initiation and completion of our picoplatin clinical trials depend uponnumerous factors, including:

·       approvalsand other actions by the FDA and other regulatory agencies and the timingthereof;

·       ourability to open clinical sites;

·       ourability to recruit and enroll qualified patients into our studies;

·       ourability to obtain sufficient, reliable and affordable supplies of thepicoplatin active pharmaceutical ingredient and finished drug product;

·       ourability to obtain adequate additional funding or enter into strategicpartnerships;

·       theextent of competing trials at the clinical institutions where we conduct ourtrials;

·       reachingagreement on acceptable terms with prospective clinical research organizations,or CROs, and trial sites, the terms of which can be subject to extensivenegotiation and may vary significantly among different CROs and trial sites;

·       obtaininginstitutional review board, or IRB, approval to conduct a clinical trial at aprospective site;

·       failureto conduct the clinical trial in accordance with regulatory requirements or ourclinical protocols;

·       inspectionof the clinical trial operations or trial sites by the FDA or other regulatoryauthorities resulting in the imposition of a clinical hold;

·       unforeseensafety issues;

·       theextent of scheduling conflicts with participating clinicians and clinicalinstitutions; and

·       theidentified endpoints of the studies, the extent of patient disease and patientperformance status.

We may not initiate, advance or complete ourpicoplatin or any other proposed clinical studies as projected or achievesuccessful results.

We will rely on academicinstitutions and CROs to conduct, supervise or monitor some or all aspects ofclinical trials involving picoplatin. Further, to the extent that we now or inthe future participate in collaborative arrangements in connection with thedevelopment and commercialization of our proposed products, we will have lesscontrol over the timing, planning and other aspects of our clinical trials. Ifwe fail to initiate, advance or complete, or experience delays in or are forcedto curtail our current or planned clinical trials, our stock price and ourability to conduct our business could be materially negatively affected.

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

Our research anddevelopment programs are designed to test the safety and efficacy of ourproposed products in humans through extensive preclinical and clinical testing.We may experience numerous unforeseen events during, or as a result of, thetesting process that could delay or prevent commercialization of picoplatin orany other proposed products, including the following:

·       thesafety and efficacy results obtained in early human clinical trials may not beindicative of results obtained in later clinical trials;

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·       theresults of preclinical studies may be inconclusive, or they may not beindicative of results that will be obtained in human clinical trials;

·       afterreviewing test results, we or any potential collaborators may abandon projectsthat we previously believed were promising;

·       we,our potential collaborators or regulators may suspend or terminate clinicaltrials if the participating subjects or patients are being exposed tounacceptable health risks; and

·       theeffects of our potential products may not be the desired effects or may includeundesirable side effects or other characteristics that preclude regulatoryapproval or limit their commercial use if approved.

Clinical testing is veryexpensive, can take many years, and the outcome is uncertain. The data that wemay collect from our picoplatin clinical trials may not be sufficient tosupport regulatory approval of our proposed picoplatin product. The clinicaltrials of picoplatin and any other proposed products may not be initiated orcompleted on schedule, and the FDA or foreign regulatory agencies may notultimately approve any of our product candidates for commercial sale. Ourfailure to adequately demonstrate the safety and efficacy of a cancer therapyproduct under development would delay or prevent regulatory approval of theproduct, which would prevent us from marketing the proposed product.

**Success in early clinical trials may not be indicativeof results obtained in later trials.**

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

**If we cannot negotiate and maintain licenses orcollaborative arrangements with third parties, our research, development,manufacturing, sales and marketing activities may not be cost-effective orsuccessful.**

Our success will depend in significant part on ourability to attract and maintain collaborative partners and strategicrelationships to support the development, manufacture, sale, marketing anddistribution of picoplatin and any other future product candidates in theUnited States and Europe.

We have entered into an exclusive worldwide license,as amended, with Genzyme Corporation (successor to AnorMED, Inc.) for thedevelopment and commercial sale of picoplatin. Under that license, we aresolely responsible for the development and commercialization of picoplatin.Genzyme retains the right, at our cost, to prosecute its patent applicationsand maintain all licensed patents. The parties executed the license agreementin April 2004, at which time we paid a one-time upfront milestone paymentof $1.0 million in common stock and $1.0 million in cash. The originalagreement excluded Japan from the licensed territory and provided for $13.0million in development and commercialization milestones, payable in cash or acombination of cash and common stock, and a royalty rate of up to 15% onproduct net sales after regulatory approval. The parties amended the licenseagreement on September 18, 2006, modifying several key financial terms andexpanding the licensed territory to include Japan, thereby providing usworldwide rights. In consideration of the amendment, we paid Genzyme $5.0million in cash on October 12, 2006 and an additional $5.0 million in cashon March 30, 2007. The amendment eliminates all development milestonepayments to Genzyme. Genzyme remains entitled to receive up to $5.0 million incommercialization milestones upon the attainment of certain levels of annualnet sales of picoplatin 

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after regulatory approval.The amendment also reduces the royalty payable to Genzyme to a maximum of 9% ofannual net product sales. In addition, the amendment reduces the sharing ofsublicense revenues for any sublicenses entered into during the first yearfollowing the amendment and eliminates the sharing of sublicense revenues withGenzyme on and after September 18, 2007. We began dosing patients in thesecond quarter of 2007 in our single pivotal Phase III SPEAR trial under ourapproved SPA. If successful, this trial will be the basis of a NDA targeted forsubmission in 2009. However, because we cannot predict the length of time toregulatory approval, if any, or the extent of annual sales, if any, ofpicoplatin, we are unable to predict when or if the milestone and royaltypayments under our license agreement with Genzyme may be triggered. The licenseagreement may be terminated by either party for breach, or if the other partyfiles a petition in bankruptcy or insolvency or for reorganization or isdissolved, liquidated or makes assignment for the benefit of creditors. We canterminate the license at any time upon prior written notice to Genzyme. If notearlier terminated, the license agreement will continue in effect, in eachcountry in the territory in which the licensed product is sold or manufactured,until the earlier of (i) expiration of the last valid claim of a pendingor issued patent covering the licensed product in that country or (ii) aspecified number of years after first commercial sale of the licensed productin that country. If Genzyme were to breach its obligations under the license,or if the license expires or is terminated and we cannot renew, replace, extendor preserve our rights under the license agreement, we would be unable to moveforward with our current and planned picoplatin clinical studies.

On August 4, 2005, weentered into a research funding and option agreement with The Scripps ResearchInstitute, or TSRI. Under the agreement, as amended in December 2006 and February 2007,we will provide TSRI an aggregate of $2.5 million over a 26-month periodto fund research relating to synthesis and evaluation of novel small molecule,multi-targeted protein kinase inhibitors and focal adhesion kinase inhibitorsas therapeutic agents, including for the treatment of cancer. We have theoption to negotiate a worldwide exclusive license to use and develop anycompounds arising from the collaboration. The research funding is payable by usto TSRI quarterly in accordance with a negotiated budget. We made an initialfunding payment to TSRI of approximately $0.2 million, on August 8, 2005.We paid TSRI total funding payments of $1.0 million in 2006 and $0.1 million inthe first quarter of 2007, which amounts were charged to R&D expense. Theagreement provides for aggregate additional funding payments of $1.2 millionduring the balance of 2007. We have no assurance that the research funded underthis arrangement will be successful or ultimately will give rise to any viableproduct candidates. Further, there can be no assurance that we will be able tonegotiate, on acceptable terms, a license with respect to any compounds arisingfrom the collaboration.

**We are dependent on third-party suppliers for thetimely delivery of materials and services and may experience futureinterruptions in supply.**

For our picoplatin product candidate to be successful,we need sufficient, reliable and affordable supplies of the picoplatin activepharmaceutical ingredient, or API, and finished drug product. Sources of thesesupplies may be limited, and third-party suppliers may be unable to manufacturepicoplatin API and finished drug product in amounts and at prices necessary tosuccessfully commercialize our picoplatin product. Moreover, third-partymanufacturers must continuously adhere to current Good Manufacturing Practice,or cGMP, regulations enforced by the FDA through its facilities inspectionprogram. If the facilities of these manufacturers cannot pass a pre-approvalplant inspection, the FDA will not grant a New Drug Application NDA for ourproposed products. In complying with cGMP and foreign regulatory requirements,any of our third-party manufacturers will be obligated to expend time, moneyand effort in production, record-keeping and quality control to assure that ourproducts meet applicable specifications and other requirements. If any of ourthird-party manufacturers or suppliers fails to comply with these requirements,we may be subject to regulatory action.

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We have a limited supply of picoplatin drug productthat was manufactured by a prior licensee and supplier. The drug product hasbeen demonstrated to be stable for up to 30 months from the date ofmanufacture. Our current supply will not be sufficient for our current andplanned clinical trials. We have no experience in drug formulation ormanufacturing, and we lack the resources and capability to manufacturepicoplatin or any other product candidate on a clinical or commercial scale. Asa result, we rely on third parties to manufacture picoplatin API and finisheddrug product for our clinical trials. We currently have separate agreementswith one supplier each of API and finished drug product. Manufacturing servicesunder these agreements are provided on a purchase order, fixed-fee basis.Unless earlier terminated, each agreement continues for an initial term ending December 31,2009 and may be extended beyond the initial term upon agreement of the parties.The agreements generally provide that they may be terminated by either party ifthere is a material breach by the other party that remains uncured or in theevent of solvency or bankruptcy of the other party. We may terminate thefinished drug supply agreement at any time with one year’s advance notice. Wemay terminate the API manufacturing agreement if there is a change in controlof the manufacturer. We have no assurance that our current suppliers will beable to manufacture sufficient picoplatin API and/or finished drug product on atimely or cost-effective basis at all times in the future. If we are requiredto seek out alternative manufacturers, we may incur significant additionalcosts and suffer delays in, or be prevented from, completing or initiating ourongoing or planned clinical trials.

We also rely on third-partycontractors to perform for us, or assist us with, the set-up, conduct, supportand management of our clinical studies. Because these contractors providespecialized services, their activities and quality of performance may beoutside our direct control. If these contractors do not perform theircontractual duties or obligations, do not meet expected deadlines, or need tobe replaced, or if the quality or accuracy of the clinical data they obtain iscompromised due to the failure to adhere to our clinical trial protocols or forany other reasons, we may need to enter into new arrangements with alternativethird parties. If any of these circumstances were to occur, our clinical trialsmay be extended, delayed or terminated or may need to be repeated, we may notbe able to obtain regulatory approval for or commercialize the productcandidate being tested in such trials, and we may be subject to regulatoryaction.

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

None of our currentemployees has experience selling, marketing or distributing therapeuticproducts. To the extent we are successful in obtaining approval for thecommercial sale of picoplatin or any other product candidate, we may need tosecure one or more corporate partners to conduct these activities. We may notbe able to enter into partnering arrangements in a timely manner or on termsacceptable to us. To the extent that we enter into co-promotion or otherlicensing arrangements, our product revenues are likely to be lower than if wedirectly marketed and sold our products, and any revenues we receive woulddepend upon the efforts of third parties, which efforts may not be successful.If we are not able to secure adequate partnering arrangements, we would have tohire additional employees or consultants with expertise in sales, marketing anddistribution. Employees with relevant skills may not be available to us.Additionally, any increase in the number of employees would increase ourexpense level and could have a material adverse effect on our financialposition. If we are not successful in commercializing any future products,either on our own or through collaborations with one or more parties, ourfuture product revenue will suffer and we may incur significant additionallosses.

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**We face substantial competition in the development ofcancer therapies and may not be able to compete successfully, and our potentialproducts may be rendered obsolete by rapid technological change.**

The competition fordevelopment of cancer therapies is substantial. There is intense competitionfrom biotechnology and pharmaceutical companies, as well as academic researchinstitutions, clinical reference laboratories and government agencies that arepursuing research and development activities similar to ours in the UnitedStates and abroad. Our initial focus for picoplatin is small cell lung cancer,the most aggressive and deadly form of lung cancer. Although platinum therapiesare the preferred treatment, no FDA-approved therapies are available forpatients with platinum-refractory or -resistant disease. If approved,picoplatin will be competing with existing treatment regimens, as well asemerging therapies for small cell lung cancer and other platinum-basedtherapeutics. Large pharmaceutical/biotechnology companies, includingBristol-Myer Squibb Company, Bayer Schering Pharma AG, Dainippon SumitomoPharma Co. Ltd., Eli Lilly and Company, GlaxoSmithKline PLC, Novartis AG,Pfizer Inc., Genentech, Inc., Shionogi & Co. Ltd., SK Pharma andSanofi-Aventis Group, are marketing and/or developing therapeutics inlate-stage clinical trials for the treatment of small cell lung cancer orplatinum agents for the treatment of cancer. Multiple biotechnology companiesare engaged in clinical trials for the treatment of small cell lung cancer andother platinum-based therapeutics, including Aeterna Zentaris Inc., AccessPharmaceuticals Inc., GPC Biotech AG, Onyx Pharmaceuticals Inc., PharmionCorporation, Sunesis Pharmaceuticals Inc., Keryx Biopharmaceuticals Inc.,Transave Inc., Vion Pharmaceuticals Inc., PharmaMar (Zeltia Group), ImmunoGen, Inc.,Meabco A/S, Antigenics, Inc., Ipsen Group and Menarini Group. As we expandthe utility of picoplatin into other oncology indications such as prostate andcolon cancers, we will be facing additional competition from majorpharmaceutical companies, biotechnology companies, research institutions andgovernment agencies. We cannot assure you that we will be able to effectivelycompete with these or future third party product development programs. Many ofour existing or potential competitors have, or have access to, substantiallygreater financial, research and development, marketing and production resourcesthan we do and may be better equipped than we are to develop, manufacture andmarket competing products. Further, our competitors may have, or may developand introduce, new products that would render our picoplatin or any otherproposed product candidates less competitive, uneconomical or obsolete.

**Even if any of our drug candidates receives regulatoryapproval, our drug candidates will still be subject to extensive post-marketingregulation.**

If we or our collaborators receive regulatory approvalfor our drug candidates, we will also be subject to ongoing FDA obligations andcontinued regulatory review, such as cGMP regulations and continued adverseevent reporting requirements. We may also be subject to additional FDApost-marketing obligations, all of which may result in significant expense andlimit our ability to commercialize such drugs.

If any of our drugcandidates receive U.S. regulatory approval, the FDA may still imposesignificant restrictions on the indicated uses for which such drugs may bemarketed or impose ongoing requirements for potentially costly post-approvalstudies. In addition, regulatory agencies subject a drug, its manufacturer andthe manufacturer’s facilities to continual review and inspections. Thesubsequent discovery of previously unknown problems with a drug, includingadverse events of unanticipated severity or frequency, or problems with thefacility where the drug is manufactured, may result in restrictions on themarketing of that drug, up to and including withdrawal of the drug from themarket. Failure to comply with applicable regulatory requirements may resultin:

·       issuanceof warning letters by the FDA;

·       impositionof fines and other civil penalties;

·       criminalprosecutions;

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·       injunctions,suspensions or revocations of marketing licenses;

·       suspensionof any ongoing clinical trials;

·       suspensionof manufacturing;

·       delaysin commercialization;

·       refusalby the FDA to approve pending applications or supplements to approved applicationsfiled by us or our collaborators;

·       refusalsto permit drugs to be imported to or exported from the United States;

·       restrictionson operations, including costly new manufacturing requirements; and

·       productrecalls or seizures.

The FDA’s policies maychange and additional government regulations may be enacted that could preventor delay regulatory approval of our drug candidates or further restrict orregulate post-approval activities. We cannot predict the likelihood, nature orextent of adverse government regulation that may arise from future legislationor administrative action, either in the United States or abroad. If we are notable to maintain regulatory compliance, we might not be permitted to market ourdrugs and our business could suffer.

**As a result of our 2006 and 2007 stock offerings, theamount of net operating loss carryforwards and research and experimentationcredit carryforwards available to be used by us in future years may be limited.**

During 2006, weexperienced significant changes to our capital structure which resulted in anownership change, as defined under Section 382 of the Internal RevenueCode of 1986, as amended, or the IRC. Consequently, the amount of net operatingloss carryforwards and research and experimentation credit carryforwardsavailable to be used in future years are limited under IRC Sections 382 and383. This limitation resulted in the loss of approximately $93.3 million of ournet operating loss carryforwards and $9.1 million of our research anddevelopment credit carryforwards. As of December 31, 2006, we had netoperating loss carryforwards of approximately $62.3 million available forfuture use which will expire from 2007 through 2026. Our public offeringcompleted on April 30, 2007, resulted in a significant change to ourcapital structure which will likely be considered to be an ownership change, asdefined under Section 382 of the IRC. Consequently, the amount of netoperating loss carryforwards and research and experimentation creditcarryforwards available to be used in future years will likely be furtherlimited under IRC Sections 382 and 383.

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

Our success is dependent in part on obtaining,maintaining and enforcing our patents and other proprietary rights and ourability to avoid infringing the proprietary rights of others. The United StatesPatent and Trademark Office, or the USPTO, may not issue patents from thepatent applications owned by or licensed to us. If issued, the patents may notgive us an advantage over competitors with similar technologies. The issuanceof a patent is not conclusive as to its validity or enforceability and it isuncertain how much protection, if any, will be given to our patents if weattempt to enforce them and they are challenged in court or in otherproceedings, such as oppositions, which may be brought in foreign jurisdictionsto challenge the validity of a patent. A third party may challenge the validityor enforceability of a patent after its issuance by the USPTO. It is possiblethat a competitor may successfully challenge our patents or that a challengewill result in limiting their coverage. Moreover, the cost of litigation touphold the validity of patents and to prevent infringement can be substantial.If the outcome of litigation is 

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adverse to us, thirdparties may be able to use our patented invention without payment to us.Moreover, it is possible that competitors may infringe our patents or successfullyavoid them through design innovation. We may need to file lawsuits to stopthese activities. These lawsuits can be expensive and would consume time andother resources, even if we were successful in stopping the violation of ourpatent rights. In addition, there is a risk that a court would decide that ourpatents are not valid and that we do not have the right to stop the other partyfrom using the inventions. There is also the risk that, even if the validity ofour patents was upheld, a court would refuse to stop the other party on theground that its activities do not infringe our patents.

In addition, the protection afforded by issued patentsis limited in duration. With respect to picoplatin, in the United States weexpect to rely primarily on US Patent Number 5,665,771 (expiring February 7,2016), which is licensed to us by Genzyme, and additional licensed patentsexpiring in 2016 covering picoplatin in Europe. The FDA has also designatedpicoplatin as an orphan drug for the treatment of small cell lung cancer underthe provisions of the Orphan Drug Act, which entitles us to exclusive marketingrights for picoplatin in the United States for seven years following marketapproval. If approved, we may also be able to extend the term of a U.S. patentcovering picoplatin under the Hatch-Waxman Act, which Act permits the extensionof the term of a United States Patent on a new drug for up to a maximum of fiveyears. We intend to submit an application for orphan drug status for small celllung cancer in Europe during 2007 which, if granted, would also entitle us toexclusive marketing rights in Europe for ten years following market approval.Additional potential avenues exist which may supplement patent protection andexclusivity for our picoplatin product in Europe**.**

Under our license agreement with Genzyme, Genzymeretains the right to prosecute its patent applications and maintain alllicensed patents, with us reimbursing such expenses. We have the right to sueany third party infringers of the picoplatin patents. If we do not file suit,Genzyme, in its sole discretion, has the right to sue the infringer at itsexpense. U.S. Patent 5,665,771 is co-owned by Genzyme and a third party, whichhas exclusively licensed its rights to the patent to Genzyme (as successor toAnorMED, Inc.).

In addition to theintellectual property rights described above, we rely on unpatented technology,trade secrets and confidential information. Therefore, others may independentlydevelop substantially equivalent information and techniques or otherwise gainaccess to or disclose our technology. We may not be able to effectively protectour rights in unpatented technology, trade secrets and confidentialinformation. We require each of our employees, consultants and advisors to executea confidentiality agreement at the commencement of an employment or consultingrelationship with us. However, these agreements may not provide effectiveprotection of our information or, in the event of unauthorized use ordisclosure, may not provide adequate remedies.

**The use of our technologies could potentially conflictwith the rights of others.**

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

**We may incur substantial costs as a result oflitigation or other proceedings relating to patent and other intellectualproperty rights.**

The cost to us of any litigation or other proceedingsrelating to intellectual property rights, even if resolved in our favor, couldbe substantial. Some of our competitors may be better able to sustain the costs

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of complex patentlitigation because they have substantially greater resources. If there islitigation against us, we may not be able to continue our operations. If thirdparties file patent applications, or are issued patents claiming technologyalso claimed by us in pending applications, we may be required to participatein interference proceedings in the USPTO to determine priority of invention. Wemay be required to participate in interference proceedings involving our issuedpatents and pending applications. We may be required to cease using thetechnology or license rights from prevailing third parties as a result of anunfavorable outcome in an interference proceeding. A prevailing party in thatcase may not offer us a license on commercially acceptable terms.

In April 2003, wereceived $10.0 million from the sale to Boston Scientific Corporation, or BSC,of certain non-core patents and patent applications and the grant to BSC ofexclusive license rights to certain non-core patents and patent applications.BSC originally asserted four such patents in two lawsuits against Johnson &Johnson, Inc., its subsidiary, Cordis Corporation, and GuidantCorporation, alleging infringement of such patents. In both lawsuits, thedefendants denied infringement and asserted invalidity and unenforceability ofthe patents. BSC subsequently withdrew three of the patents from the litigation,including the patents that were assigned to BSC. BSC acquired Guidant in April 2006.On April 4, 2007, the court issued a summary judgment that the defendantsdid not infringe the patents licensed to BSC. Although we were not a party tothe lawsuits, our management and counsel have been deposed in connection withthe lawsuits. It is possible that BSC, due to its lack of success with itsclaims, may seek damages from us, including recovery of all or a portion of theamounts it paid to us in 2003. We cannot assess the likelihood of whether suchclaim will be brought against us or the extent of recovery, if any, on any suchclaim.

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

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

**Our past use of radioactive and other hazardousmaterials exposes us to the risk of material environmental liabilities, and wemay incur significant additional costs to comply with environmental laws in thefuture.**

Our past research anddevelopment and manufacturing processes, as well as the manufacturing processesthat may have been used by our collaborators, involved the controlled use ofhazardous and radioactive materials. As a result, we are subject to foreign,federal, state and local laws, rules, regulations and policies governing theuse, generation, manufacture, storage, air emission, effluent discharge,handling and disposal of certain materials and wastes in connection with ouruse of these materials. Although we believe that our safety procedures forhandling and disposing of such materials complied with the standards prescribedby such laws and regulations, we may be required to incur significant costs tocomply with environmental and health and safety regulations in the future.Because we have discontinued operations in facilities that have had pastresearch and manufacturing processes where hazardous or radioactive materialshave been in use, we may have significant decommissioning costs associated withthe 

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terminationof operation of these facilities. These potential decommissioning costs alsomay reduce the market value of the facilities and may limit our ability to sellor otherwise dispose of these facilities in a timely and cost-effective manner.We have terminated our STR manufacturing operations in Denton, Texas and are activelymarketing the facility for sale. In 2005, we recorded costs associated with theclosure of the Denton facility of $0.9 million. We estimate costs in 2006related to these activities at $0.2 million. These costs could increasesubstantially, depending on actions of regulators or if we discover previouslyunknown contamination in or around the facility. In addition, the risk ofaccidental contamination or injury from hazardous or radioactive materialscannot be completely eliminated. In the event of such an accident, we could beheld liable for any resulting damages, and any such liability could exceed ourresources. Our current insurance does not cover liability for the clean-up ofhazardous waste materials or other environmental risks.

**Even if we bring products to market, changes in healthcare reimbursement could adversely affect our ability to effectively price ourproducts or obtain adequate reimbursement for sales of our products.**

Potential sales of our products may be affected by theavailability of reimbursement from governments or other third parties, such asinsurance companies. It is difficult to predict the reimbursement status ofnewly approved, novel medical products. In addition, third-party payors areincreasingly challenging the prices charged for medical products and services.If we succeed in bringing one or more products to market, we cannot be certainthat these products will be considered cost-effective and that reimbursement tothe consumer will be available or will be sufficient to allow us tocompetitively or profitably sell our products.

The levels of revenues andprofitability of biotechnology companies may be affected by the continuingefforts of government and third-party payors to contain or reduce the costs ofhealth care through various means. For example, in certain foreign markets,pricing or profitability of prescription pharmaceuticals is subject togovernmental control. In the United States, there have been, and we expect thatthere will continue to be, a number of federal and state proposals to implementsimilar governmental controls. It is uncertain what legislative proposals willbe adopted or what actions federal, state or private payors for health caregoods and services may take in response to any health care reform proposals orlegislation. Even in the absence of statutory change, market forces arechanging the health care sector. We cannot predict the effect health carereforms may have on the development, testing, commercialization andmarketability of our proposed cancer therapy products. Further, to the extentthat such proposals or reforms have a material adverse effect on the business,financial condition and profitability of other companies that are prospectivecollaborators for certain of our potential products, our ability tocommercialize our products under development may be adversely affected.

**The loss of key employees could adversely affect ouroperations.**

Alan Glassberg, M.D. resigned as our chief medicalofficer effective March 15, 2007. Although Dr. Glassberg was anexecutive officer of the company, we did not experience any materialdisruptions as a consequence of his resignation. Dr. Glassberg serves onour clinical advisory board and provides us consulting services.

Susan D. Berland resigned as our chief financialofficer effective July 21, 2006. Although Ms. Berland was anexecutive officer of the company, we did not experience any materialdisruptions or delays as a consequence of her resignation. Caroline M. Loewywas appointed executive vice president, strategic planning on June 23,2006 and assumed the role of chief financial officer of the company upon Ms. Berland’sdeparture. Michael K. Jackson, formerly corporate controller, was appointedprincipal accounting officer of the company effective July 21, 2006.

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As of May 3, 2007, we had a total workforce of 38full-time employees and 5 part-time employees. In September 2006, we movedour corporate headquarters to newly leased facilities in South San Francisco.We intend to maintain clinical development and support activities andfacilities in Seattle and do not have plans to relocate any of our 29 employeescurrently in Seattle. Our success depends, to a significant extent, on thecontinued contributions of our principal management and scientific personnelparticipating in our picoplatin development program. We have limited or noredundancy of personnel in key development areas, including finance, legal,clinical operations, regulatory affairs and quality control and assurance. Theloss of the services of one or more of our employees could delay our picoplatinproduct development activities or any other proposed programs and research anddevelopment efforts. We do not maintain key-person life insurance on any of ourofficers, employees or consultants.

Competition for qualified employees among companies inthe biotechnology and biopharmaceutical industry is intense. Our future successdepends upon our ability to attract, retain and motivate highly skilledemployees and consultants. In order to commercialize our proposed productssuccessfully, we will in the future be required to substantially expand ourworkforce, particularly in the areas of manufacturing, clinical trialsmanagement, regulatory affairs, business development and sales and marketing.These activities will require the addition of new personnel, includingmanagement, and the development of additional expertise by existing managementpersonnel.

We have change of controlagreements and severance agreements with all of our executive officers and consultingagreements with various of our scientific advisors. Our agreements with ourexecutive officers provide for “at will” employment, which means that eachexecutive may terminate his or her service with us at any time. In addition,our scientific advisors may terminate their services to us at any time.

**Our operations might be interrupted by the occurrenceof a natural disaster or other catastrophic event.**

Our principal executiveoffices are in South San Francisco, California and we maintain clinical developmentand support activities in Seattle, Washington. We depend on our facilities andon our collaborators, contractors and vendors for the continued operation ofour business. Natural disasters or other catastrophic events, includingterrorist attacks, power interruptions, wildfires and other fires, actions ofanimal rights activists, earthquakes and wars could disrupt our operations orthose of our collaborators, contractors and vendors. Even though we believe wecarry commercially reasonable business interruption and liability insurance,and our contractors may carry liability insurance that protect us in certainevents, we might suffer losses as a result of business interruptions thatexceed the coverage available under our and our contractors’ insurance policiesor for which we or our contractors do not have coverage. Any natural disasteror catastrophic event could have a significant negative impact on ouroperations and financial results. Moreover, any such event could delay ourresearch and development programs.

***Risks Relating to Our Securities***

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

Our common stock listing was transferred from TheNasdaq Global Market (formerly The Nasdaq National Market) to The NasdaqCapital Market (formerly The Nasdaq SmallCap Market) on March 20, 2003. Weelected to seek a transfer to The Nasdaq Capital Market because we had beenunable to regain compliance with The Nasdaq Global Market minimum $1.00 bidprice requirement for continued listing. By transferring to The Nasdaq CapitalMarket, we were afforded an extended grace period in which to satisfy TheNasdaq Capital Market $1.00 minimum bid price requirement. On May 6, 2003,we received notice from Nasdaq confirming that we were in compliance with the$1.00 minimum bid price requirement. 

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We will not be eligible torelist our common stock on The Nasdaq Global Market unless and until our commonstock maintains a minimum bid price of $5.00 per share for 90 consecutivetrading days and we otherwise comply with the initial listing requirements forThe Nasdaq Global Market. Trading on the Nasdaq Capital Market may have anegative impact on the value of our common stock, because securities trading onthe Nasdaq Capital Market typically are less liquid than those traded on TheNasdaq Global Market.

On August 7, 2006, we received a notice fromNasdaq indicating that we were not in compliance with Nasdaq Marketplace Rule 4310(c)(4) (theMinimum Bid Price Requirement) because the closing bid price of our commonstock had been below $1.00 per share for thirty consecutive trading days. Wecompleted a one-for-six reverse stock split on September 22, 2006. On October 10,2006, we received a notice from Nasdaq stating that we had regained compliancewith the Minimum Bid Price Requirement because the closing bid price of ourcommon stock had been at or above $1.00 per share for ten consecutive tradingdays. The closing bid price of our common stock may in the future fall belowthe Minimum Bid Price Requirement or we may in the future fail to meet otherrequirements for continued listing on the Nasdaq Capital Market. If we areunable to cure any future events of noncompliance in a timely or effectivemanner, our common stock could be delisted from The Nasdaq Capital Market.

If our common stock were to be delisted from TheNasdaq Capital Market, we may seek quotation on a regional stock exchange, ifavailable. Such listing could reduce the market liquidity for our common stock.If our common stock is not eligible for quotation on another market orexchange, trading of our common stock could be conducted in theover-the-counter market on an electronic bulletin board established forunlisted securities such as the Pink Sheets or the OTC Bulletin Board. As aresult, an investor would find it more difficult to dispose of, or obtainaccurate quotations for the price of, our common stock.

If our common stock wereto be delisted from The Nasdaq Capital Market, and our trading price remainedbelow $5.00 per share, trading in our common stock might also become subject tothe requirements of certain rules promulgated under the SecuritiesExchange Act of 1934, as amended, or the Exchange Act, which require additionaldisclosure by broker-dealers in connection with any trade involving a stockdefined as a “penny stock” (generally, any equity security not listed on anational securities exchange or quoted on Nasdaq that has a market price ofless than $5.00 per share, subject to certain exceptions). Many brokerage firmsare reluctant to recommend low-priced stocks to their clients. Moreover,various regulations and policies restrict the ability of shareholders to borrowagainst or “margin” low-priced stocks, and declines in the stock price belowcertain levels may trigger unexpected margin calls. Additionally, becausebrokers’ commissions on low-priced stocks generally represent a higherpercentage of the stock price than commissions on higher priced stocks, thecurrent price of the common stock can result in an individual shareholderpaying transaction costs that represent a higher percentage of total sharevalue than would be the case if our share price were higher. This factor mayalso limit the willingness of institutions to purchase our common stock.Finally, the additional burdens imposed upon broker-dealers by theserequirements could discourage broker-dealers from facilitating trades in ourcommon stock, which could severely limit the market liquidity of the stock andthe ability of investors to trade our common stock.

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

There has been ahistory of significant volatility in the market prices of securities ofbiotechnology companies, including our common stock. In the quarter ended March 31,2007, the reported high and low closing sale prices of our common stock were$6.25 and $4.72. In 2006, the reported high and low closing sale prices were$9.42 and $3.00. The reported high and low closing sale prices during theperiod from January 3, 2006 through September 22, 2006 (the lasttrading day preceding the effectiveness of our one-for-six reverse stock split)were $1.57 and $0.50. The reported high and low closing sale prices during the 

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periodfrom September 25, 2006 through December 31, 2006 (after theeffective date of the reverse stock split) were $7.74 and $3.00. Our stockprice has been and may continue to be affected by this type of marketvolatility, as well as our own performance. Our business and the relative priceof our common stock may be influenced by a large variety of factors, including:

·       announcementsby us or our competitors concerning acquisitions, strategic alliances,technological innovations, new commercial products or changes in productdevelopment strategies;

·       theavailability of critical materials used in developing our proposed picoplatinproduct;

·       ourability to conduct our picoplatin clinical development program on a timely andcost-effective basis and the progress and results of our clinical trials andthose of our competitors;

·       developmentsconcerning potential agreements with collaborators;

·       theexpense and time associated with, and the extent of our ultimate success in,securing regulatory approvals;

·       ouravailable cash or other sources of funding; and

·       futuresales of significant amounts of our common stock by us or our shareholders.

In addition, potential public concern about the safetyof our proposed picoplatin product and any other products we develop, commentsby securities analysts, our ability to maintain the listing of our common stockon the Nasdaq system, and conditions in the capital markets in general and inthe life science capital market specifically, may have a significant effect onthe market price of our common stock. The realization of any of the risksdescribed in this report, as well as other factors, could have a materialadverse impact on the market price of our common stock and may result in a lossof some or all of your investment in our securities.

In the past, securitiesclass action litigation often has been brought against companies followingperiods of volatility in their stock prices. We may in the future be the targetof similar litigation. Securities litigation could result in substantial costsand divert our management’s time and resources, which could cause our businessto suffer.

**As a result of our 2006 and 2007 stock offerings, thenumber of shares of our common stock outstanding increased substantially andcertain investors beneficially own significant blocks of our common stock; suchcommon shares are generally available for resale in the public market.**

On April 26, 2006, we completed a $65.0 millionequity financing pursuant to a securities purchase agreement dated as of February 1,2006. In connection with the 2006 equity financing, we issued to a small groupof institutional and other accredited investors an aggregate of 15.5 millionshares of common stock at a cash purchase price of $4.20 per share. Investorsin the financing also received five-year warrants to purchase an aggregate of4.6 million shares of common stock at an exercise price of $4.62 per share.Concurrent with the closing of the 2006 equity financing, we issued anaggregate of 1.6 million shares of common stock to the holders of our Series Bpreferred stock upon conversion of their outstanding Series B preferredshares. At the time of closing, the placement agent for the financing alsoreceived a five-year warrant to purchase, on the same terms as the investors,139,000 common shares. As a result of the completion of the 2006 equityfinancing, our outstanding common stock increased from 5.7 million shares toapproximately 22.8 million shares. On April 30, 2007, we completed a $75.0million public offering, pursuant to which we sold 11,848,341 shares of ourcommon stock at a public offering price of $6.33 per share. As a result of thecompletion of the public offering, our outstanding common stock increased from22.8 million shares to approximately 34.7 million shares. Both the 2006 and2007 stock offerings have resulted in substantial dilution to shareholders whoheld our common stock prior to those offerings. Entities affiliated with MPMand BCC participated as purchasers in both our 2006 equity financing and 

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our 2007 public offering. Immediatelyfollowing closing of our public offering, MPM beneficially owned approximately8.6 million shares of our common stock, or approximately 23.7% of our commonshares outstanding. BCC beneficially owned approximately 5.5 million shares ofour common stock, or approximately 15.5% of our common shares outstanding,immediately following the public offering. Nicholas J. Simon III, a director ofour company, is a general partner of certain of the MPM entities that acquiredcommon shares in the stock offerings. In addition, two of our directors, FredB. Craves and Carl S. Goldfischer, are managing directors of BCC and possesscapital and carried interests in the BCC entities that acquired common sharesin the stock offerings.

We maintain an effectiveregistration statement with the SEC covering the resale of the 15.5 millionshares of common stock issued in our 2006 equity financing and the 4.6 millionshares of common stock issuable upon exercise of the warrants. Accordingly,these shares are generally available for immediate resale in the public market.In addition, the approximately 1.6 million shares of common stock issued uponconversion of the Series B preferred stock currently are available forimmediate resale pursuant to a registration statement or an exemption fromregistration under Rule 144(k) of the Securities Act of 1933, asamended. All of the shares acquired by purchasers in our public offering arefreely resalable in the public market, except for common shares acquired by MPMand BCC, which can be resold after termination of lock-up periods expiring on July 23,2007. The market price of our common stock could fall as a result of suchresales due to the increased number of shares available for sale in the market.

**Our largest shareholders may take actions that arecontrary to your interests, including selling their stock.**

A small number of ourshareholders hold a significant amount of our outstanding stock. Theseshareholders may support competing transactions and have interests that aredifferent from yours. Sales of a large number of shares of our stock by theselarge shareholders or other shareholders within a short period of time couldadversely affect our stock price.

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

We have financed our operations, and we expect tocontinue to finance our operations, primarily by issuing and selling our commonstock or securities convertible into or exercisable for shares of our commonstock. In light of our need for additional financing, we may issue additionalshares of common stock or convertible securities that could dilute yourownership in our company and may include terms that give new investors rightsthat are superior to yours. Moreover, any issuances by us of equity securitiesmay be at or below the prevailing market price of our common stock and in anyevent may have a dilutive impact on your ownership interest, which could causethe market price of our common stock to decline.

We may also raiseadditional funds through the incurrence of debt, and the holders of any debt wemay issue would have rights superior to your rights in the event we are notsuccessful and are forced to seek the protection of bankruptcy laws.

**Certain provisions in our articles of incorporationand Washington state law could discourage a change of control.**

Our articles of incorporation authorize our board ofdirectors to issue up to 200,000,000 shares of common stock and up to 2,998,425shares of preferred stock. With respect to preferred stock, our board has theauthority to determine the price, rights, preferences, privileges andrestrictions, including voting rights, of those shares without any further voteor action by our shareholders. Our shareholder rights plan adopted on April 10,1996, and the preferred stock purchase rights issued to each common shareholderthereunder, expired on April 10, 2006.

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Washington lawimposes restrictions on certain transactions between a corporation andsignificant shareholders. Chapter 23B.19 of the Washington Business CorporationAct prohibits a target corporation, with some exceptions, from engaging inparticular significant business transactions with an acquiring person, which isdefined as a person or group of persons that beneficially owns 10% or more ofthe voting securities of the target corporation, for a period of five yearsafter the date the acquiring person first became a 10% beneficial owner ofvoting securities of the target corporation, unless the business transaction orthe acquisition of shares is approved by a majority of the members of thetarget corporation’s board of directors prior to the time the acquiring personfirst became a 10% beneficial owner of the target corporation’s votingsecurities. Prohibited business transactions include, among other things:

·       amerger or consolidation with, disposition of assets to, or issuance orredemption of stock to or from the acquiring person;

·       terminationof 5% or more of the employees of the target corporation; or

·       receiptby the acquiring person of any disproportionate benefit as a shareholder.

After the five-year period, a significant businesstransaction may occur if it complies with “fair price” provisions specified inthe statute. A corporation may not opt out of this statute. This provision mayhave an anti-takeover effect with respect to transactions that our board doesnot approve in advance.

The provisions of ourarticles of incorporation and Washington law discussed above may have theeffect of delaying, deterring or preventing a change of control of the company,even if this change would be beneficial to our shareholders. These provisionsalso may discourage bids for our common stock at a premium over market priceand may adversely affect the market price of, and the voting and other rightsof the holders of, our common stock. In addition, these provisions could makeit more difficult to replace or remove our current directors and management inthe event our shareholders believe this would be in the best interests of thecorporation and our shareholders.

**Item 6.**                        Exhibits

(a)          Exhibits—See Exhibit Indexbelow.

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                         |   | PONIARD  PHARMACEUTICAL, INC.  (Registrant) |
|-------------------------|--------|---------------------------------------------|
| Date: May 10, 2007 |   | By:                                         |   | /s/ CAROLINE M. LOEWY |
|                    |   |                                        |   | Caroline M. Loewy |
|                    |   |                                        |   | Chief Financial Officer |
|                    |   |                                        |   | (Principal Financial Officer) |

 

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**EXHIBIT INDEX**
| Exhibit | ** ** | **Description** | ** ** | ** **                                                                                                                                                                                                                             | ** ** |
|---------|------------|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|    | 3.1        |            |       | Amended and Restated Articles of Incorporation, as amended  February 7, 2007                                                                                                                                                      |       | (N) |   |
|    | 3.2        |            |       | Restated Bylaws,  as amended March 28, 2006                                                                                                                                                                                       |       | (V) |   |
|    | 10.1       |            |       | Restated 1994  Stock Option Plan (‡)                                                                                                                                                                                              |       | (F) |   |
|    | 10.2       |            |       | 1991 Stock  Option Plan for Non-Employee Directors, as amended (‡)                                                                                                                                                                |       | (E) |   |
|    | 10.3       |            |       | Reserved.                                                                                                                                                                                                                              |       |   |   |
|    | 10.4       |            |       | Indemnification  Agreement (‡)                                                                                                                                                                                                    |       | (H) |   |
|    | 10.5       |            |       | Stock Option  Grant Program for Nonemployee Directors under the 2004 Incentive Compensation  Plan, as amended (‡)                                                                                                                 |       | (B) |   |
|    | 10.6       |            |       | Stock Option  Agreement, dated December 19, 2000, between NeoRx Corporation and Carl  S. Goldfischer (‡)                                                                                                                     |       | (I) |   |
|    | 10.7       |            |       | Stock Option  Agreement, dated January 17, 2001, between NeoRx Corporation and Carl S.  Goldfischer (‡)                                                                                                                      |       | (I) |   |
|    | 10.8       |            |       | License  Agreement dated as of April 2, 2004, between the Company and  AnorMED, Inc. Certain portions of the agreement have been omitted  pursuant to a request for confidential treatment                                   |       | (Q) |   |
|    | 10.9       |            |       | Amendment No. 1  to License Agreement effective as of September 18, 2006, between the  Company and AnorMED, Inc. Certain portions of the agreement have been  omitted pursuant to a request for confidential treatment. |       | (Y) |   |
|    | 10.10      |            |       | Stock Option  Grant Program for Nonemployee Directors under the NeoRx Corporation 1994  Restated Stock Option Plan (‡)                                                                                                            |       | (M) |   |
|    | 10.11      |            |       | Facilities Lease  dated February 15, 2002, between NeoRx Corporation and Selig Real Estate  Holdings Six                                                                                                                          |       | (A) |   |
|    | 10.12      |            |       | Amended and  Restated 2004 Incentive Compensation Plan as amended and restated  June 16, 2006 (‡)                                                                                                             |       | (G) |   |
|    | 10.13      |            |       | Reserved.                                                                                                                                                                                                                              |       |   |   |
|    | 10.14      |            |       | Key Executive  Severance Agreement dated as of February 28, 2003, between the Company  and Anna Wight (‡)                                                                                                                    |       | (C) |   |
|    | 10.15      |            |       | Amendment No. 1 dated as of March 30, 2005 to Key  Executive Severance Agreement dated as of February 28, 2003, between the  Company and Anna Wight (‡)                                                            |       | (L) |   |
|    | 10.16      |            |       | Change of Control Agreement dated as of February 28, 2003,  between the Company and Anna Wight (‡)                                                                                                                           |       | (C) |   |
|    | 10.17      |            |       | Key Executive Severance Agreement dated as of June 23,  2005, between the Company and David A. Karlin (‡)                                                                                                                    |       | (P) |   |
|    | 10.18      |            |       | Change of Control Agreement dated as of June 23, 2005,  between the Company and David A. Karlin (‡)                                                                                                                     |       | (P) |   |
|    | 10.19      |            |       | Employment Letter dated as of April 26, 2004, between the  Company and Gerald McMahon (‡)                                                                                                                                    |       | (L) |   |

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|        | 10.20 |   |   | Key Executive  Severance Agreement dated as of May 11, 2004, between the Company and  Gerald McMahon (‡)                                                                                                               |   | (R) |   |
|--------|-------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----|--------|
|   | 10.21 |   |   | Change of Control Agreement dated as of May 11, 2004,  between the Company and Gerald McMahon (‡)                                                                                                                      |   | (R) |   |
|   | 10.22 |   |   | Key Executive  Severance Agreement dated as of May 7, 2007, between the Company and  Ronald A. Martell (‡)                                                                                                             |   | (Z) |   |
|   | 10.23 |   |   | Change of  Control Agreement dated as of May 7, 2007, between the Company and Ronald  A. Martell(‡)                                                                                                                    |   | (Z) |   |
|   | 10.24 |   |   | Key Employee  Severance Agreement dated as of July 11, 2006, between the Company and  Michael K. Jackson (‡)                                                                                                           |   | (X) |   |
|   | 10.25 |   |   | Form of  Non-Qualified Stock Option Agreement under 2004 Incentive Compensation Plan  (‡)                                                                                                                              |   | (O) |   |
|   | 10.26 |   |   | Form of  Incentive Stock Option Agreement under 2004 Incentive Compensation  Plan (‡)                                                                                                                             |   | (O) |   |
|   | 10.27 |   |   | Key Executive  Severance Agreement dated as of June 23, 2006, between the Company and  Caroline M. Loewy (‡)                                                                                                           |   | (S) |   |
|   | 10.28 |   |   | Change of  Control Agreement dated as of June 23, 2006, between the Company and  Caroline M. Loewy (‡)                                                                                                                 |   | (S) |   |
|   | 10.29 |   |   | Executive  Severance Agreement dated as of June 23, 2006, between the Company and  Cheni Kwok (‡)                                                                                                            |   | (S) |   |
|   | 10.30 |   |   | Change of  Control Agreement dated as of July 1, 2006, between the Company and  Cheni Kwok (‡)                                                                                                |   | (S) |   |
|   | 10.31 |   |   | Research Funding  and Option Agreement dated August 4, 2005, between the Company and The  Scripps Research Institute. Certain portions of the agreement have been  omitted pursuant to a request for confidential treatment |   | (U) |   |
|   | 10.32 |   |   | Form of  Directors’ Indemnification Agreements (‡)                                                                                                                                                                |   | (K) |   |
|   | 10.33 |   |   | Lease Agreement  dated as of July 10, 2006, between the Company and ARE San Francisco  No. 17 LLC                                                                                                                 |   | (W) |   |
|   | 10.34 |   |   | Loan and  Security Agreement dated as of October 25, 2006, among the Company,  Silicon Valley Bank and Merrill Lynch Capital                                                                                                |   | (J) |   |
|   | 10.35 |   |   | Secured  Promissory Notes to Silicon Valley Bank and Merrill Lynch Capital                                                                                                                                                       |   | (J) |   |
|   | 31.1  |   |   | Rule 13a-14(a)/15d-14(a) Certification  of Chief Executive Officer                                                                                                                                                     |   | (Z) |   |
|   | 31.2  |   |   | Rule 13a-14(a)/15d-14(a) Certification  of Chief Financial Officer                                                                                                                                                     |   | (Z) |   |
|   | 32.1  |   |   | Section 1350  Certification of Chief Executive Officer                                                                                                                                                                      |   | (Z) |   |
|   | 32.2  |   |   | Section 1350 Certification of Chief Financial Officer                                                                                                                                                                       |   | (Z) |   |

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(‡)          Management contract or compensatory plan.

(A)       Filed as an exhibit to the Company’s Form 10-K for thefiscal year ended December 31, 2001, and incorporated herein by reference.

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(B)        Filed as an exhibit to the Company’s Current Report on Form 8-Kfiled June 16, 2005, and incorporated herein by reference.

(C)        Filed as an exhibit to the Company’s Registration Statement onForm S-3/A (Registration No. 333-111344) filed onFebruary 23, 2004, and incorporated herein by reference.

(D)       Reserved.

(E)        Incorporated by reference to Exhibit A to the Company’sdefinitive proxy statement on Schedule 14A filed April 10, 1996.

(F)         Filed as an exhibit to the Company’s Form 10-K for thefiscal year ended December 31, 1995, and incorporated herein by reference.

(G)      Filed as an exhibit to the Company’s Current Report on Form 8-Kfiled on June 21, 2006 and incorporated herein by reference.

(H)      Filed as an exhibit to the Company’s Form 10-Q for thequarterly period ended March 31, 1996, and incorporated herein byreference.

(I)            Filed as an exhibit to theCompany’s Form 10-K for the fiscal year ended December 31,2000, and incorporated herein by reference.

(J)           Filed as an exhibit to the Company’s Current Report on Form 8-Kfiled on October 31, 2006, and incorporated herein by reference.

(K)       Filed as an exhibit to the Company’s Current Reports onForm 8-K filed on April 28, 2006, June 27, 2006 andMay 9, 2007, and incorporated herein by reference.

(L)         Filed as an exhibit to the Company’s Form 10-Q for thequarterly period ended March 31, 2005, and incorporated herein byreference.

(M)     Filed as an exhibit to the Company’s Form 10-Q for thequarterly period ended June 30, 2002, and incorporated herein byreference.

(N)       Filed as an exhibit to the Company’s Current Report on Form 8-Kfiled on September 26, 2006, and incorporated herein by reference.

(O)      Filed as an exhibit to the Company’s Form 10-Q for thequarterly period ended September 30, 2004, and incorporated herein byreference.

(P)         Filed as an exhibit to the Company’s Current Report on Form 8-Kfiled on June 29, 2005, and incorporated herein by reference. 

(Q)      Filed as an exhibit to the Company’s Form 10-Q for thequarterly period ended March 31, 2004, and incorporated herein byreference.

(R)       Filed as an exhibit to the Company’s Form 10-Q for thequarterly period ended June 30, 2004, and incorporated herein byreference.

(S)          Filed as an exhibit to the Company’s Current Report on Form 8-Kfiled June 23, 2006, and incorporated herein by reference.

(T)        Reserved.

(U)      Filed as an exhibit to theCompany’s Form 10-Q for the quarterly period endedSeptember 30, 2005, and incorporated herein by reference.

(V)       Filed as an exhibit to theCompany’s Form 10-Q for the quarterly period ended March 31,2006 and incorporated herein by reference.

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(W)    Filed as an exhibit to theCompany’s Current Report Form 8-K filed on July 13, 2006 andincorporated herein by reference.

(X)       Filed as an exhibit to theCompany’s Form 10-Q for the quarterly period ended June 30,2006 and incorporated herein by reference.

(Y)       Filed as an exhibit to theCompany’s Form 10-Q for the quarterly period endedSeptember 30, 2006 and incorporated herein by reference.

(Z)        Filed herewith.

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