**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

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

**Forthe quarterly period ended September 30, 2006**

**CommissionFile No. 0-16614**

**PONIARD PHARMACEUTICALS, INC.**

**(Exact name of Registrant asspecified in its charter)**

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

 

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

**(Address of principal executiveoffices)**

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

Indicateby check mark whether the Registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

Yes x       No o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

| Large accelerated filer o | Accelerated filer o | Non-accelerated  filer x |
|--------------------------------|--------------------------|-------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o       No x

Asof November 7, 2006, 22,808,233 shares of the Registrant’s common stock,$.02 par value per share, were outstanding.

 

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**TABLE OF CONTENTSQUARTERLY REPORT ON FORM 10-QFOR THE QUARTER ENDED SEPTEMBER 30, 2006**
|                    | ** ** | ** **                                                                                                                        | ** ** | **PAGE** |
|--------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| **PART I**    |       | **FINANCIAL  INFORMATION**                                                                                                        |       |     |   |   |
| Item  1.           |       | Financial  Statements:                                                                                                            |       |     |   |   |
|               |       | Condensed Consolidated Balance Sheets as of  September 30, 2006 and December 31, 2005 (unaudited)                  |       |     | 3 |   |
|               |       | Condensed Consolidated Statements of Operations for  the Three and Nine Months Ended September 30, 2006 and 2005 (unaudited) |       |     | 4 |   |
|               |       | Condensed Consolidated Statements of Cash Flows for  the Nine Months Ended September 30, 2006 and 2005 (unaudited)      |       |     | 5 |   |
|               |       | Notes to Condensed Consolidated Financial Statements  (unaudited)                                                                 |       |     | 6 |   |
| Item 2.            |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations              |       |     | 15 |   |
| Item 3.            |       | Quantitative and Qualitative Disclosures About Market  Risk                                                                       |       |     | 21 |   |
| Item 4.            |       | Controls and Procedures                                                                                                           |       |     | 22 |   |
| **PART II**   |       | **OTHER  INFORMATION**                                                                                                            |       |     |   |   |
| Item  1A.          |       | Risk Factors                                                                                                                      |       |     | 23 |   |
| Item 4.            |       | Submission of Matters to a Vote of Security Holders                                                                               |       |     | 36 |   |
| Item 6.            |       | Exhibits                                                                                                                          |       |     | 36 |   |
| Signatures         |       |                                                                                                                              | 37         |     |
| Exhibit Index |       |                                                                                                                              | 38         |     |

 

2

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**PART I.FINANCIAL INFORMATION**

**Item1.**                        FinancialStatements

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

| ** **                                                                                                                                                                                                          | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                                                                                          | ** ** |                             | ** ** | ** **                      |       |   | ** ** | ** ** |   |
| **Current assets:**                                                                                                                                                                                                 | ** ** |                             | ** ** | ** **                      |       |   | ** ** | ** ** |   |
| Cash and cash  equivalents                                                                                                                                                                                          |       |                             | $          | 49,480                          |       |   |   | $ | 3,523 |   |   |
| Cash—restricted                                                                                                                                                                                                |       |                             | 136        |                            |       |   | 1,000 |   |   |
| Prepaid expenses and  other current assets                                                                                                                                                                          |       |                             | 542        |                            |       |   | 455 |   |   |
| Assets held for sale                                                                                                                                                                                                |       |                             | —     |                            |       |   | 83 |   |   |
| Total current assets                                                                                                                                                                                                |       |                             | 50,158     |                            |       |   | 5,061 |   |   |
| Facilities and equipment,  net                                                                                                                                                                                      |       |                             | 358        |                            |       |   | 273 |   |   |
| Other assets                                                                                                                                                                                                        |       |                             | 45         |                            |       |   | 45 |   |   |
| Assets held for sale                                                                                                                                                                                                |       |                             | 3,027      |                            |       |   | 3,027 |   |   |
| Licensed products, net  of accumulated amortization of $460 and $292                                                                                                                                           |       |                             | 11,540     |                            |       |   | 1,708 |   |   |
| **Total  assets**                                                                                                                                                                                                   |       |                             | $          | 65,128                          |       |   |   | $ | 10,114 |   |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                      | ** ** |                             | ** ** | ** **                      |       |   | ** ** | ** ** |   |
| **Current liabilities:**                                                                                                                                                                                            | ** ** |                             | ** ** | ** **                      |       |   | ** ** | ** ** |   |
| Accounts payable                                                                                                                                                                                                    |       |                             | $          | 856                             |       |   |   | $ | 995 |   |   |
| Accrued liabilities                                                                                                                                                                                                 |       |                             | 2,121      |                            |       |   | 2,078 |   |   |
| Licensed products  payable                                                                                                                                                                                          |       |                             | 10,000     |                            |       |   | — |   |   |
| Bank loan payable                                                                                                                                                                                                   |       |                             | —     |                            |       |   | 3,868 |   |   |
| Total current  liabilities                                                                                                                                                                                          |       |                             | 12,977     |                            |       |   | 6,941 |   |   |
| **Shareholders’ equity:**                                                                                                                                                                                      | ** ** |                             | ** ** | ** **                      |       |   | ** ** | ** ** |   |
| Preferred stock, $.02 par value, 3,000,000 shares  authorized:                                                                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Convertible preferred  stock, Series 1, 205,340 shares issued and outstanding at September 30,  2006 and December 31, 2005 (entitled in liquidation to $5,300 and  $5,175,   respectively)      |       |                             | 4          |                            |       |   | 4 |   |   |
| Convertible preferred  stock, Series B, 0 and 1,575 shares issued and outstanding at September 30,  2006 and December 31, 2005 (entitled in liquidation to $15,750 at   December 31, 2005) |       |                             | —     |                            |       |   | — |   |   |
| Common stock, $.02 par  value, 200,000,000 shares authorized, 22,808,233 and 5,720,382 shares issued  and outstanding at September 30, 2006 and December 31, 2005,  respectively                          |       |                             | 456        |                            |       |   | 114 |   |   |
| Additional paid-in  capital                                                                                                                                                                                         |       |                             | 325,039    |                            |       |   | 258,855 |   |   |
| Accumulated deficit, including  other comprehensive income of $0 at September 30, 2006 and December 31,  2005                                                                                        |       |                             | (273,348   | )                               |       |   | (255,800 | ) |   |
| Total shareholders’  equity                                                                                                                                                                                    |       |                             | 52,151     |                            |       |   | 3,173 |   |   |
| **Total  liabilities and shareholders’ equity**                                                                                                                                                                |       |                             | $          | 65,128                          |       |   |   | $ | 10,114 |   |   |

 

See accompanying notes to the condensed 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  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                     | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Revenues**                                   |       | $                                                    | —     |                                                | $          | 2 |   | $ | — |   | $ | 4 |   |
| **Operating expenses:**                        |       |                                                 |       |                                                |       |   |   |   |   |
| Research and  development                      |       | 3,369                                                |       | 1,978                                               |       | 9,135 |   | 7,699 |   |
| General and  administrative                    |       | 2,186                                                |       | 1,160                                               |       | 5,703 |   | 4,582 |   |
| Asset impairment  loss                         |       | —                                               |       | —                                              |       | — |   | 3,346 |   |
| Restructuring                                  |       | —                                               |       | 140                                                 |       | — |   | 1,644 |   |
| Gain on sale of  equipment                     |       | —                                               |       | (184                                                | )          | (73 | ) | (184 | ) |
| Total operating expenses                       |       | 5,555                                                |       | 3,094                                               |       | 14,765 |   | 17,087 |   |
| Loss from  operations                          |       | (5,555                                               | )          | (3,092                                              | )          | (14,765 | ) | (17,083 | ) |
| **Other  income (expense):**                   |       |                                                 |       |                                                |       |   |   |   |   |
| Interest income                                |       | 672                                                  |       | 81                                                  |       | 1,222 |   | 272 |   |
| Interest expense                               |       | (3                                                   | )          | (67                                                 | )          | (3,630 | ) | (196 | ) |
| Total other income (expense)                   |       | 669                                                  |       | 14                                                  |       | (2,408 | ) | 76 |   |
| Net loss                                       |       | (4,886                                               | )          | (3,078                                              | )          | (17,173 | ) | (17,007 | ) |
| Preferred stock  dividends                     |       | (125                                                 | )          | (125                                                | )          | (375 | ) | (375 | ) |
| Net loss applicable to common shares           |       | $                                                    | (5,011     | )                                                   | $          | (3,203 | ) | $ | (17,548 | ) | $ | (17,382 | ) |
| Loss per share  applicable to common shares:   |       |                                                 |       |                                                |       |   |   |   |   |
| Basic and diluted                              |       | $                                                    | (0.22      | )                                                   | $          | (0.56 | ) | $ | (1.13 | ) | $ | (3.12 | ) |
| Shares used in  calculation of loss per share: |       |                                                 |       |                                                |       |   |   |   |   |
| Basic and diluted                              |       | 22,805                                               |       | 5,713                                               |       | 15,546 |   | 5,574 |   |

 

See accompanying notes to the condensed consolidated financial statements.

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**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)(in thousands)

| ** **                                                                   | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| **Cash flows from operating activities:**                                    | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Net loss                                                                     |       | $                                                   | (17,173    | ) | $ | (17,007 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                                                |       |   |   |
| Depreciation and  amortization                                               |       | 249                                                 |       | 390 |   |
| Amortization of discount  on note payable                                    |       | 3,460                                               |       | — |   |
| (Gain)Loss on disposal  of equipment                                         |       | (27                                                 | )          | (167 | ) |
| Asset impairment loss                                                        |       | —                                              |       | 3,346 |   |
| Restructuring                                                                |       | —                                              |       | 905 |   |
| Stock options and  warrants issued for services                              |       | 10                                                  |       | (21 | ) |
| Stock-based employee  compensation                                           |       | 1,028                                               |       | 5 |   |
| Change in operating assets and liabilities:                                  |       |                                                |       |   |   |
| Prepaid expenses and  other assets                                           |       | (87                                                 | )          | 100 |   |
| Accounts payable                                                             |       | (139                                                | )          | (838 | ) |
| Accrued liabilities                                                          |       | (18                                                 | )          | 178 |   |
| Net cash used in  operating activities                                       |       | (12,697                                             | )          | (13,109 | ) |
| **Cash flows from investing activities:**                                    | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Proceeds from sales and  maturities of investment securities                 |       | —                                              |       | 1,500 |   |
| Facilities and equipment  purchases                                          |       | (166                                                | )          | (79 | ) |
| Proceeds from sales of  equipment                                            |       | 110                                                 |       | 207 |   |
| Net cash (used) provided  by investing activities                            |       | (56                                                 | )          | 1,628 |   |
| **Cash flows from financing activities:**                                    | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Net proceeds from  issuance of common stock and warrants                     |       | 58,485                                              |       | 3,813 |   |
| Repayment of bank note  payable principal                                    |       | (3,868                                              | )          | (172 | ) |
| Proceeds from bridge  notes payable                                          |       | 3,460                                               |       | — |   |
| Decrease in restricted  cash                                                 |       | 864                                                 |       | — |   |
| Proceeds from stock  options and warrants exercised                          |       | 19                                                  |       | 44 |   |
| Preferred stock  dividends                                                   |       | (250                                                | )          | (250 | ) |
| Net cash provided by  financing activities                                   |       | 58,710                                              |       | 3,435 |   |
| Net increase (decrease)  in cash and cash equivalents                        |       | 45,957                                              |       | (8,046 | ) |
| **Cash and cash equivalents:**                                               | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Beginning of period                                                          |       | 3,523                                               |       | 16,254 |   |
| End of period                                                                |       | $                                                   | 49,480     |   | $ | 8,208 |   |
| **Supplemental disclosure of non-cash investing  and financing activity:**   | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Accrual of preferred  dividend                                               |       | $                                                   | 375        |   | $ | 375 |   |
| Conversion of bridge  loan into common stock                                 |       | $                                                   | 3,523      |   | $ | — |   |
| Transfer of assets out  of Facilities and Equipment to Assets Held For Sale  |       | $                                                   | —     |   | $ | 3,255 |   |
| Increase in Licensed  Products with increase in current obligations payable  |       | $                                                   | 10,000     |   | $ | — |   |
| **Other supplemental disclosures:**                                          | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Cash paid for interest                                                       |       | $                                                   | 112        |   | $ | 195 |   |

 

See accompanying notes to the condensed consolidated financial statements.

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**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**Note 1.   Basis of Presentation**

The accompanying unauditedcondensed consolidated financial statements include the accounts of PoniardPharmaceuticals, Inc. (formerly NeoRx Corporation) and subsidiary (theCompany). All intercompany balances and transactions have been eliminated inconsolidation. Unless otherwise indicated, all common stock related amountshave been adjusted to reflect the one-for-six reverse stock split effective onSeptember 22, 2006.

The Company hashistorically experienced recurring operating losses and negative cash flowsfrom operations. As of September 30, 2006, the Company had net workingcapital of $37,180,000 and had an accumulated deficit of $273,348,000 withtotal shareholders’ equity of $52,151,000. On April 26, 2006, the Company receivedapproximately $65,000,000 in gross proceeds from the issuance of shares of theCompany’s common stock and the concurrent issuance of warrants for the purchaseof additional shares of common stock. Management believes that the Company’scurrent cash and cash equivalent balances, which include funds from the equityfinancing, will provide adequate resources to fund operations at least untilthe end of 2007. These consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United States,assuming that the Company will continue as a going concern.

The accompanying condensedconsolidated financial statements contained herein have been prepared pursuantto the rules and regulations of the Securities and Exchange Commission(SEC). Certain information and note disclosures normally included in annualfinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been condensed or omittedpursuant to those rules and regulations, although the Company believesthat the disclosures made are adequate to make the information presented notmisleading. These financial statements should be read in conjunction with theCompany’s Annual Report on Form 10-K for the year endedDecember 31, 2005 filed with the SEC and available on the SEC’s website,www.sec.gov.

The accompanying condensedconsolidated financial statements are unaudited. In the opinion of management,the condensed consolidated financial statements reflect all adjustments,consisting only of normal recurring accruals necessary to present fairly theCompany’s financial position as of September 30, 2006 and the results ofoperations and cash flows for the periods ended September 30, 2006 and2005.

The results of operationsfor the periods ended September 30, 2006 and 2005 are not necessarilyindicative of the expected operating results for the full year.

*Estimatesand Uncertainties:**  *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.

**Note2.   Stock-Based Employee Compensation**

At September 30, 2006, the Company’s 2004 IncentiveCompensation Plan (the 2004 Plan) was the only compensation plan under whichoptions were available for grant. The Company’s 1991 Stock Option Plan forNon-Employee Directors (the Directors Plan) was terminated on March 31,2005, and no further options can be granted under that plan. The Company’s 1994Stock Option Plan (the 1994 Plan) was terminated on February 17, 2004 andno further options can be granted under that plan. The 2004 Plan, as 

6

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**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

amended and restated on September 13, 2006, authorizes theCompany’s board or a committee appointed by the board to grant options topurchase a maximum aggregate of 4,166,666 shares of common stock, of which2,500,000 shares are subject to shareholder approval at the 2007 annual meetingof shareholders. The 2004 Plan allows for the issuance of incentive stockoptions and nonqualified stock options to employees, officers, directors,agents, consultants, advisors and independent contractors of the Company,subject to certain restrictions. All option grants expire ten years from thedate of grant, except in the event of earlier termination of employment orservice. Option grants for employees with less than one year of servicegenerally become exercisable at a rate of 25% after one year from the grantdate and then in monthly increments at a rate of 1/48th per month over the following three years. Optiongrants for employees with more than one year of service or for employeesreceiving promotions become exercisable at a rate of 1/48th per month over thefollowing four years. As of September 30, 2006, there were 2,028,374shares of common stock available for issuance as new awards under the 2004Plan, of which 2,500,000 shares are subject to shareholder approval at the 2007annual meeting of shareholders. Although no Company securities are availablefor issuance under the Directors Plan or the 1994 Plan, options granted priorto termination of those plans continue in effect in accordance with theirterms.

On September 13, 2006, the Company issued stock option grantsto employees and consultants that were subject to shareholder approval of anincrease in the number of shares authorized for issuance under the 2004 Plan atthe Company’s 2007 annual meeting of shareholders. If the shareholders do notapprove an increase in the number of shares authorized under the 2004 Plan,these grants will immediately be cancelled after the 2007 annual meeting ofshareholders. No portion of any options granted subject to shareholder approvalis exercisable until the date on which the shareholders approve an increase inthe number of shares authorized for issuance under the 2004 Plan. Ifshareholder approval is obtained, these grants would be exercisable to theextent vested. The Company has not recognized compensation expense for thesegrants, because a grant date as defined in SFAS 123R has not occurred. This isbecause they are contingent upon shareholder approval, which cannot be assured.

Effective January 1,2006, the Company adopted Statement of Financial Accounting Standards (SFAS)No. 123R, “Share-Based Payments,” which revises SFAS 123, “Accounting forStock-Based Compensation.” Prior to this, the Company accounted for its stock option plans for employees inaccordance with the provisions of Accounting Principles Board Opinion (APBO)No. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations. Compensation expense related to employee stock options wasrecorded if, on the date of grant, the fair market value of the underlying stockexceeded the exercise price. The Company applied the disclosure-onlyrequirements of SFAS No. 123, “Accounting for Stock-Based Compensation,”and related interpretations, which allowed entities to continue to apply theprovisions of APBO No. 25 for transactions with employees and to providepro forma results of operations disclosures for employee stock option grants asif the fair value based method of accounting in SFAS No. 123 had beenapplied to these transactions. Stock compensation costs related to fixedemployee awards with pro rata vesting were disclosed on a straight-line basisover the period of benefit, generally the vesting period of the options. Foroptions and warrants issued to non-employees, the Company recognized stockcompensation costs utilizing the fair value methodology prescribed in SFASNo. 123 and EITF 96-18 over the related period of benefit.

Under SFAS 123R, theCompany is required to select a valuation technique or option-pricing modelthat meets the criteria as stated in the standard, which includes a binomialmodel and the Black-Scholes-Merton (Black-Scholes) model. At the present time,the Company is continuing to use the Black-Scholes model. The adoption of SFAS123R, applying the “modified prospective application” transition method, as 

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**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

elected by the Company,requires the Company to value stock options prior to its adoption of SFAS 123Runder the fair value method and expense these amounts over the stock optionsremaining vesting period. Under this transition method, compensation expenserecognized during the nine months ended September 30, 2006 includedcompensation expense for all share-based awards granted prior to, but not yetvested, as of December 31, 2005, based on the grant date fair valueestimated in accordance with the original provisions of SFAS 123. In accordancewith the modified prospective transition method, the Company’s ConsolidatedFinancial Statements for prior periods have not been restated to reflect theimpact of SFAS 123R.

As a result of adoptingSFAS 123R on January 1, 2006, the Company’s loss from operations and netloss for the nine months ended September 30, 2006 is $1,028,000 higherthan if it had continued to account for share-based compensation under therecognition and measurement provisions of APBO No. 25, and relatedInterpretations, as permitted by SFAS 123. Basic and diluted net loss per sharefor the nine months ended September 30, 2006 would have been $1.06 if theCompany had not adopted SFAS 123R.

Had compensation cost for these stock options for employees beendetermined prior to January 1, 2006 using the fair value based method ofaccounting under SFAS No. 123, the Company’s net loss applicable to commonshares and loss per share would have been the pro forma amounts indicated below(in thousands, except per share data): 

| ** **                                                                                         | ** ** | **Three Months Ended  September 30, 2005** | ** ** | **Nine Months Ended  September 30, 2005** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| Net loss  applicable to common shares:                                                             |       |                                                           |       |                                                          |       |   |   |   |   |
| As reported                                                                                        |       |                                                           | $          | (3,203                                                        | )          |   |   | $ | (17,382 | ) |   |
| Add: Stock-based employee compensation expense  included in reported net loss                      |       |                                                           | —     |                                                          |       |   | 6 |   |   |
| Deduct: Stock-based employee compensation determined  under fair value based method for all awards |       |                                                           | (286       | )                                                             |       |   | (906 | ) |   |
| Pro forma                                                                                          |       |                                                           | $          | (3,489                                                        | )          |   |   | $ | (18,282 | ) |   |
| Loss per common  share, basic and diluted:                                                         |       |                                                           |       |                                                          |       |   |   |   |   |
| As reported                                                                                        |       |                                                           | $          | (0.56                                                         | )          |   |   | $ | (3.12 | ) |   |
| Pro forma                                                                                          |       |                                                           | $          | (0.61                                                         | )          |   |   | $ | (3.28 | ) |   |

 

Disclosures for the threeand nine months ended September 30, 2006 are not presented becausestock-based payments were accounted for under SFAS 123R’s fair value methodduring these periods.

The Company modifiedcertain stock options, which had been granted to a member of the Company’sboard of directors, so as to be fully vested as of August 14, 2006, thedate that the member left the board. No other modifications were made to thesegrants. All other stock option grants held by the former director, which werefully vested as of August 14, 2006, were not modified. The effect of thismodification was a decrease in total stock compensation expense of $101,000 forthe three months ended September 30, 2006.

For the three and ninemonths ended September 30, 2006, the Company recognized stock compensationexpense of $440,000 and $1,028,000, respectively. These amounts reflect themodification of stock options described above. The remaining unrecognizedcompensation cost related to unvested awards 

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**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

at September 30,2006, was approximately $5,694,000 and the weighted-average period of time overwhich this cost will be recognized is 2.4 years.

The Company recordscompensation expense for employee stock options based on the estimated fairvalue of the options on the date of grant using the Black-Scholesoption-pricing model. This fair value is then amortized on a straight-linebasis over the requisite service periods for the grants, which is generally thevesting period. The Company uses historical data, and other related informationas appropriate, to estimate the expected price volatility, the expected optionlife and the expected forfeiture rate. The risk-free rate is based on the U.S.Treasury yield curve in effect at the time of the grant. The fair value of theCompany’s stock options granted to employees for the three and nine monthsended September 30, 2006 and 2005, respectively, was estimated using theBlack-Scholes model with the following weighted-average assumptions: 

| ** **                   | ** ** | **Three Months Ended  September 30,** | ** **   | **Nine Months Ended  September 30,** | ** ** |
|------------------------------|------------|------------------------------------------------------|--------------|-----------------------------------------------------|------------|
| ** **                   | ** ** | **2006**                                             | ** **   | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Expected term  (years)       |       | 6.02  - 6.08                                         |         | 3.00                                                |       | 6.02  - 9.5 |   | 3.35 |   |
| Expected dividend  rate      |       | 0.0%                                                 |         | 0.0                                                 | %          | 0.0% |   | 0.0 | % |
| Risk-free interest  rate     |       | 5.00%  - 5.08%                                       |         | 4.18                                                | %          | 4.95%  - 5.25% |   | 3.87 | % |
| Expected  volatility         |       | 105.0%                                               |         | 120.2                                               | %          | 105.0% |   | 122.9 | % |
| Weighted-average fair  value |       | $                                                    | 3.94 - $4.19 |                                                | $          | 2.69 |   | $ | 3.94 - $7.02 |   | $ | 4.64 |   |
|                              |            |                                                      |              |                                                     |            |  |  |  |  |  |  |  |  |

 

The Company issues newshares of common stock upon exercise of stock options. The following tablesummarizes the Company’s stock option activity for the nine months endedSeptember 30, 2006 (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, 2006    |       |                       | 721        |                                   |       |                                                | $          | 16.15                           |       |   |   |   |   |   |   |   |   |   |
| Granted                                 |       |                       | 957        |                                   |       |                                                | 6.55       |                            |       |   |   |   |   |   |   |   |   |
| Exercised                               |       |                       | (6         | )                                      |       |                                                | 3.17       |                            |       |   |   |   |   |   |   |   |   |
| Forefeited or  expired                  |       |                       | (83        | )                                      |       |                                                | 9.13       |                            |       |   |   |   |   |   |   |   |   |
| Outstanding at September 30, 2006  |       |                       | 1,589      |                                   |       |                                                | $          | 10.78                           |       |   |   | 8.4 |   |   |   | $ | 35 |   |   |
| Exercisable at  September 30, 2006 |       |                       | 572        |                                   |       |                                                | $          | 17.77                           |       |   |   | 6.5 |   |   |   | $ | 35 |   |   |

 

Cash proceeds andintrinsic value related to total stock options exercised during the three andnine months ended September 30, 2006 and 2005 are provided in thefollowing table (dollars in thousands): 

| ** **                                  | ** ** | **Three Months Ended  September 30,**     | ** ** | **Nine Months Ended  September 30,**      | ** ** |
|---------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                  | ** ** | **    2006    ** | ** ** | **    2005    ** | ** ** | **    2006    ** | ** ** | **    2005    ** | ** ** |
| Proceeds from  stock options exercised      |       |                                                     | $          | 9                                                        |       |   |   | $ | 44 |   |   |   | $ | 19 |   |   |   | $ | 44 |   |   |
| Intrinsic value of stock  options exercised |       |                                                     | $          | 2                                                        |       |   |   | $ | 49 |   |   |   | $ | 11 |   |   |   | $ | 50 |   |   |

 

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**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

**Note3.   Loss Per Common Share**

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

| ** **            | ** ** | **Quarter Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |      |
|-----------------------|------------|--------------------------------------------|------------|-----------------------------------------------------|------------|-----------|
| ** **            | ** ** | **2006**                                   | ** ** | **2005**                                            | ** ** | **2006**  | ** ** | **2005** | ** ** |   |
| Common stock  options |       | 1,589,461                                  |       | 723,513                                             |       | 1,589,461 |   | 723,513 |   |
| Common stock warrants |       | 5,772,458                                  |       | 537,566                                             |       | 5,772,458 |   | 537,566 |   |

 

In addition, 38,890 shares of common stock that wouldbe issuable upon conversion of the Company’s Series 1 preferred stock arenot included in the calculation of diluted loss per share for the periods endedSeptember 30, 2006 and 2005, respectively, because the effect ofincluding such shares would not be dilutive.

**Note4.   Comprehensive Loss**

The Company’s comprehensive loss for the quartersended September 30, 2006 and 2005 was $4,886,000 and $3,078,000,respectively, and consisted only of net loss. The comprehensive loss for thenine months ended September 30, 2006 and 2005 was $17,173,000 and$17,006,000, respectively. The comprehensive loss for the nine months endedSeptember 30, 2006 and 2005 consisted of net loss of $17,173,000 and$17,007,000, respectively, and a net unrealized gain on investment securitiesof $0 and $1,000, respectively.

**Note5.   AnorMED License Amendment**

On September 18,2006, the Company entered into amendment no. 1 (the amendment) to amend thelicense agreement dated April 2, 2004 between the Company andAnorMED, Inc. (the original agreement). Under the original agreement, the Companyholds an exclusive worldwide license (except Japan) for the development andcommercialization of picoplatin, the Company’s lead product candidate. Theoriginal agreement provided for development and commercialization milestonepayments to AnorMED of up to $13,000,000, payable in cash or a combination ofcash and Company common stock. The original agreement also provided thatAnorMED would receive royalty payments of up to 15% on net product sales afterregulatory approval.

Under the terms of the amendment, the Company receivedexclusive rights to picoplatin in Japan, thereby giving the Company worldwidelicense rights to picoplatin. In consideration of the amendment, Poniard paidAnorMED $5,000,000 in cash on October 12, 2006 and will pay AnorMED an additional$5,000,000 in cash by March 31, 2007. The amendment eliminates $8,000,000in development milestone payments to AnorMED. AnorMED 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 AnorMED to a range of 5% to 9% ofnet product 

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**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

sales.In addition, the amendment reduces the sharing of sublicense revenues for anysublicenses entered into during the first year following the amendment andeliminates the sharing of sublicense revenues with AnorMED after the first yearof the amendment. The Company accounted for this transaction by recording a$10,000,000 increase in Licensed Products and the recognition of a currentliability for $10,000,000. The Company concluded that no change in the expectedlife of the intangible asset occurred and will, therefore, amortize theincrease in Licensed Products over the same period as the Licensed Productsamount that corresponds to the original agreement. The Company recognized$44,000 of additional amortization expense during the three months endedSeptember 30, 2006 as a result of this increase in Licensed Products.

**Note6.   Bridge Financing**

On February 1, 2006, the Company received loanproceeds of $3,460,000 from private investors (the bridge financing). Pursuantto the bridge financing, the Company issued convertible promissory notes in theprincipal amount of the loan and five-year warrants to purchase an aggregate of411,906 shares of common stock at an exercise price of $4.62 per share. Thefair value attributable to the warrants using the Black-Scholes option-pricingmodel was approximately $1,647,000 based upon assumptions of expectedvolatility of 114%, a contractual term of five years, an expected dividend rateof zero and a risk-free rate of interest of 4.5%. The Company recorded thewarrants’ fair value as a discount to the promissory notes payable. Theconvertibility of the promissory notes gave rise to a beneficial conversionfeature, which the Company recorded as additional discount on the promissorynotes of approximately $1,813,000. The proceeds of the bridge loan were usedfor working capital through April 26, 2006, the date of the closingof the Company’s equity financing (see Note 8). The convertible promissorynotes provided for an interest rate of 8% per annum and, at the closing of theequity financing, the principal amount of the notes, together with approximately$63,000 of accrued interest thereon, automatically converted, at a conversionrate of $4.20 per share, into an aggregate of 838,976 shares of common stock.

**Note7.   Reverse Stock Split**

On September 22, 2006, the Company’s shareholdersapproved a one-for-six reverse split of the Company’s outstanding common stock.The reverse stock split became effective at 5:00 PM (Pacific time) onSeptember 22, 2006. As a result of the reverse split, every six shares ofCompany common stock outstanding at the effective time automatically werecombined into one outstanding share of Company common stock. The reverse stocksplit did not change the number of authorized shares of Company common stockdesignated in the Company’s Articles of Incorporation, nor did it change thepar value of the Company’s common stock. In lieu of fractional shares,shareholders are entitled to receive an amount in cash equal to the value oftheir fractional shares based on $0.57, the closing price per share of theCompany’s common stock on September 22, 2006.

**Note8.   Liquidity**

The Company receivedapproximately $61,945,000 in net cash proceeds from the sale of common stockand warrants, including the bridge financing, in April 2006 (the equityfinancing). The Company will need to raise additional capital or enter intostrategic partnerships for the clinical development of its picoplatin platinumcompound and other proposed product candidates.

On January 30, 2006,the Company entered into a letter agreement with Texas State Bank, pursuant towhich the Company agreed to change the maturity date of its promissory notewith the Bank to June 5, 

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**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

2006. The Texas State Bankloan, which was secured by the Company’s radiopharmaceutical plant and otherSTR assets located in Denton, Texas, had an adjustable interest rate equal tothe bank prime rate reported in the Wall Street Journal (8.00% at May 23,2006). The Company paid off the outstanding balance of the loan, $2,714,000, onMay 23, 2006.

During the second quarterof 2005, the Company terminated its STR manufacturing operations in Denton,Texas and began actively marketing the facility for sale. In 2005, the Companyrecorded costs associated with the closure and maintenance of the Dentonfacility of approximately $900,000. The Company estimates costs in 2006 relatedto these activities to be approximately $285,000.

On August 4, 2005,the Company entered into a research funding and option agreement with TheScripps Research Institute (TSRI). Under the agreement, the Company committedto provide TSRI an aggregate of $2,500,000 over a 26-month period to fundresearch relating to synthesis and evaluation of novel small molecule,multi-targeted protein kinase inhibitors as therapeutic agents, including forthe treatment of cancer. The Company has the option to negotiate a worldwideexclusive license to use, enhance and develop any compounds arising from thecollaboration. The research funding is payable by the Company to TSRI quarterlyin accordance with a negotiated budget. On August 8, 2005, the Companymade an initial funding payment to TSRI of $137,500. The Company paid TSRI$487,500 on April 28, 2006, $287,500 on July 28, 2006 and $237,500 onOctober 13, 2006. The Company has charged all such payments toresearch and development expense. The agreement provides for additionalaggregate funding payments of $1,350,000 in 2007.

On April 26, 2006,the Company completed a $65,000,000 equity financing pursuant to a securitiespurchase agreement dated as of February 1, 2006. In connection with thefinancing, the Company issued to a group of institutional and other accreditedinvestors an aggregate of 15,491,000 shares of common stock at a cash purchaseprice of $4.20 per share. Investors in the financing also received five-yearwarrants to purchase an aggregate of 4,643,000 shares of common stock at anexercise price of $4.62 per share. Concurrent with the closing of thefinancing, the Company issued an aggregate of 1,591,000 shares of common stockto the holders of its Series B preferred stock upon conversion of theoutstanding Series B preferred shares (the Series B shares).

As a result of thecompletion of the financing and the conversion of the Series B shares, theCompany’s outstanding common stock increased from approximately 5,722,000shares to approximately 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 thefinancing. Entities affiliated with Bay City Capital LLC (BCC) acquiredbeneficial ownership of 4,646,000 common shares, or approximately 19.5% of thecommon shares outstanding immediately following the financing. Two of theCompany’s directors, Fred B. Craves and Carl S. Goldfischer, are managingdirectors of BCC and possess capital and carried interests in the BCC entitiesthat participated in the financing. The Company has agreed, for as long as MPMowns at least 10% of the shares of common stock and warrants purchased in thefinancing, to use its best efforts to cause one person designated by MPM andone person designated by mutual agreement of MPM and BCC to be nominated andelected to the Company’s board of directors. Nicholas J. Simon III, arepresentative of MPM, was appointed to the Company’s board of directors onApril 26, 2006. Mr. Simon is a general partner of certain of the MPMentities that participated in the financing and possesses capital and carriedinterests in those entities.

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**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

In September 2006,the Company completed the relocation of its corporate headquarters to South SanFrancisco. The Company intends to maintain clinical and development and supportactivities and facilities in Seattle. The addition of the South San Franciscofacility will result in a substantial increase in rent and operating costs ofthe Company. On July 10, 2006, the Company entered into an agreement withARE-San Francisco No. 17 LLC to lease 17,045 square feet of office andlaboratory space in South San Francisco, California. The initial term of thelease is 60 months. The annual base rent under the lease is approximately$542,000 and is subject to annual adjustments based on disbursements for tenantimprovements and increases in the Consumer Price Index in the San Franciscometropolitan market. Base rent is payable in monthly installments ofapproximately $45,200. Additional rent is payable monthly based on theCompany’s share of operating expenses of the project in which the leasedfacilities are located, as described in the lease agreement. Monthly base rentduring the first seven months of the lease will average $21,000 during theconstruction of tenant improvements. Base rent and operating expenses payableby the Company during 2006 are estimated at $106,000. Annual operating expensesunder the lease may increase substantially as the Company moves forward withits plans to establish laboratory facilities in the leased space. The Companymay, upon written notice delivered at least nine months prior to expiration ofthe initial term of the lease, extend the lease for an additional three years,with rent payable at the then market rate.

On October 25, 2006,the Company entered into a loan and security agreement (the loan agreement)with Silicon Valley Bank and Merrill Lynch Capital. Under the loan agreement,the Company obtained a $15,000,000 capital loan. The Company plans to use theproceeds of the loan to fund its cash payment obligations to AnorMED, Inc.under the license amendment described in Note 5 above and to support itslate-stage clinical trials of picoplatin and general corporate needs. The loanis for 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. All interestpayable under the loan agreement and the full amount of the additional paymentmust be paid upon any prepayment of the loan. The loan is secured by a firstlien 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 forpicoplatin. 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 the Company’s obligations under the loan agreement.

TheCompany had cash and cash equivalents of $49,480,000 at September 30,2006. Company management believes that current cash and cash equivalentbalances will provide adequate resources to fund operations at least until theend of 2007. The Company’s actual capital requirements will depend uponnumerous 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 on-going Phase II and planned Phase III trials of picoplatin in smallcell lung cancer;

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**PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

·       theCompany’s ability to obtain clinical supplies of picoplatin drug product in atimely and cost-effective manner;

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

·       thetiming and amounts of proceeds from the sale, if consummated, of the Dentonfacility 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 cancertherapy product candidates;

·       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 potential 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 netoperating loss carryforwards of approximately $138,435,000 as ofDecember 31, 2005, which expire from 2006 through 2025. The closing of theequity financing resulted in a change of control, which will limit theCompany’s ability to utilize these net operating loss carryforwards. Given suchlimitation, the Company may incur higher tax expense if it becomes profitablein the future, which also would affect its capital requirements.

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.

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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,” the negative of these terms or other terminology. These statementsare only predictions. Actual events or results may differ materially. Inevaluating these statements, you should specifically consider various factorsdescribed below in the section entitled “Risk Factors.” These factors may causeour actual 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 and STR are our trademarks or registeredtrademarks in the United States and/or foreign countries.

Unless otherwiseindicated, all common stock related amounts have been adjusted to reflect theone-for-six reverse stock split effective September 22, 2006.

***Critical Accounting Policies and Estimates***

Except as indicated below, our critical accountingpolicies and estimates have not changed from those reported in our AnnualReport on Form 10-K for the year ended December 31, 2005. For amore complete description, please refer to our Annual Report on Form 10-K.

*Share-basedCompensation*—Beginning January 1, 2006, weaccount for share-based compensation arrangements in accordance with theprovisions of Statement of Financial Accounting Standards No. 123R,“Share-Based Payments,” which requires the measurement and recognition ofcompensation expense for all share-based payment awards to employees and directorsbased on estimated fair values. We use the Black-Scholes option valuation modelto estimate the fair value of our stock options at the date of grant. TheBlack-Scholes option valuation model was developed for use in estimating thefair value of traded options which have no vesting restrictions and are fullytransferable. Our employee stock options, however, have characteristicssignificantly different from those of traded options. For example, employeestock options are generally subject to vesting restrictions and are generallynot transferable. In addition, option valuation models require the input ofhighly subjective assumptions including the expected stock price volatility,the expected life of an option and the number of awards ultimately expected tovest. Changes in subjective input assumptions can materially affect the fairvalue estimates of an option. Furthermore, the estimated fair value of anoption does not necessarily represent the value that will ultimately berealized by an employee. We use historical data, and other related informationas appropriate, to estimate the expected price volatility, the expected optionlife and the expected forfeiture rate. The risk-free rate is based on the U.S.Treasury yield curve in effect at the time of a grant. If actual results arenot consistent with the Company’s assumptions and judgments used in estimatingthe key assumptions, we may be required to increase or decrease compensationexpense, which could be material to our results of operations.

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***Results of Operations***

***Three and nine months ended September 30, 2006compared to three and nine months ended September 30, 2005***

There was no revenue for the three and nine monthsended September 30, 2006, compared with revenue of $2,000 and $4,000,respectively, for the three and nine months ended September 30, 2005.Revenue for the three and nine months ended September 30, 2005 consistedof royalties from out-licensed intellectual property.

Total operating expenses for the third quarter of 2006increased 80% to $5.6 million, from $3.1 million for the third quarter of 2005,and decreased 14% to $14.8 million for the nine months ended September 30,2006, from $17.1 million for the same period in 2005. Total operating expensesfor the quarter and nine months ended September 30, 2005 included an assetimpairment charge of $3.3 million. Additionally, a restructuring charge of $1.6million was incurred relating to termination benefits for the reduction instaff completed in September 2005 and for other costs related to thetermination of our skeletal targeted radiation (STR) program.

Research and development (R&D) expenses increased70% to $3.4 million for the third quarter of 2006, from $2.0 million for thethird quarter of 2005, and increased 19% to $9.1 million for the nine monthsended September 30, 2006, from $7.7 million for the same period in 2005.The increase in R&D expenses for the third quarter of 2006 resulted fromhigher clinical costs associated with our picoplatin trials. The increase inR&D expenses for the nine months ended September 30, 2006 resultedfrom higher clinical costs associated with our picoplatin trials, offset by thetermination of activities related to STR during the second quarter of 2005.

General and administrative (G&A) expensesincreased 88% to $2.2 million for the third quarter of 2006, from $1.2 millionfor the third quarter of 2005, and increased 25% to $5.7 million for the firstnine months of 2006, from $4.6 million for the same period in 2005. The increase in G&A costs for thequarter and nine months ended September 30, 2006 is due primarily to therecording of stock option expense resulting from the adoption of Statement ofFinancial Accounting Standard 123R.

Interest expense for the nine months endedSeptember 30, 2006 was $3.6 million, consisting of $3.6 million for thesix months ended June 30, 2006 and $3,000 for the third quarter 2006. Thesignificant decrease in interest expense for the third quarter of 2006 comparedto the six months ended June 30, 2006 was due primarily to two factors: 1)interest expense from the Texas State Bank loan was included in interestexpense for the first and second quarters of 2006, but not in the third quarterof 2006 (see discussion of Texas State Bank loan below) and 2) interest expensefor the first and second quarters of 2006 included the amortization of debtdiscount of $3.5 million related to the bridge financing (see discussion ofbridge financing below). The increase in interest income for the quarter andnine months ended September 30, 2006 is due primarily to the interestearned from investing the net proceeds of the equity financing that closed inApril 2006.

Cash and cash equivalents as of September 30,2006 were $49.5 million, compared with $3.5 million at December 31, 2005. OnApril 26, 2006, we completed an equity financing, in which we raisedapproximately $62.0 million in net cash proceeds through the private sale toinstitutional and other sophisticated investors of an aggregate of 15.5 millionshares of common stock. The purchasers in the equity financing also receivedfive-year warrants to purchase an aggregate of 4.6 million shares of commonstock at an exercise price of $4.62 per share. In connection with the equityfinancing, we issued $3.5 million face amount of convertible promissory notesto investors on February 1, 2006 (the bridge financing). The notesprovided for an interest rate of 8% per annum. We used the funds received inthe bridge financing for working capital pending receipt of requiredshareholder approvals and other conditions to completion of the equityfinancing. The outstanding principal amount of the notes, together with $63,000of accrued 

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interest, automaticallyconverted, at a conversion price of $4.20 per share, into 839,000 shares ofcommon stock at the closing of the equity financing.

As discussed below, wecurrently are conducting multiple on-going studies of picoplatin and plan toinitiate a Phase III pivotal study in the first half of 2007. In addition, wehave relocated our corporate headquarters to South San Francisco into officespace and laboratory facilities that are under a five-year lease. These, aswell as increases in personnel and other plans for 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 (NX 473), a new-generation platinum-based cancer therapy designed toovercome platinum resistance in the treatment of solid tumors. We completedpatient enrollment in our Phase II clinical study of picoplatin in small celllung cancer in August 2006 and, based on interim data from that ongoingstudy, plan to initiate a Phase III trial of picoplatin in small cell lungcancer in the first half of 2007. In May 2006, we treated our firstpatients in separate Phase I/II studies evaluating picoplatin in the front-linetreatment of advanced colorectal cancer and hormone refractory prostate cancer.We expect to complete patient enrollment in these ongoing Phase I trials andinitiate the Phase II components of these trials by the end of 2006. As ofSeptember 30, 2006, we have incurred costs of approximately $11 million inconnection with the entire picoplatin clinical program. Total estimated costsof our picoplatin Phase II trial in small cell lung cancer are in the range of$9 million to $11 million through 2007, including the cost of drug supply.Total estimated costs of our picoplatin Phase I/II trial in colorectal cancerand our Phase I/II trial in hormone refractory prostate cancer are in the rangeof $4 million to $5 million and $6 million to $7 million, respectively, through2007, including the cost of drug supply. These costs could be substantiallyhigher if we have to repeat, revise or expand the scope of any of our trials.Material cash inflows relating to our picoplatin development will not commenceunless and until we complete required clinical trials and obtain FDA marketingapprovals, and then only if picoplatin finds acceptance in the marketplace. Todate, we have not received any revenues from product 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 drug product in orderto 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 to obtainsuch approval on a timely basis.

If we fail toobtain marketing approval for picoplatin, are unable to secure adequateclinical and commercial supplies of picoplatin drug product, or do not completedevelopment and obtain US and foreign regulatory approvals on a timely basis,our operations, financial position and liquidity could be severely impaired,including as follows:

·       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

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·       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.***  **Our developmentoverhead costs, consisting of rent, utilities, consulting fees, patent costsand other various overhead costs, are included in total research anddevelopment expense for each period, but are not allocated among our variousprojects. Our total development costs include the costs of various otherresearch efforts directed toward the identification and evaluation of futureproduct candidates. These other research projects are pre-clinical and notconsidered major projects. Our total research and development costs aresummarized below:

**Summaryof Research and Development Costs**

| ** **                            | ** ** | **Quarter Ended   September 30,** | ** ** | **Nine Months Ended   September 30,** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                            | ** ** | **2006**                                         | ** ** | **2005**                                                  | ** ** | **   2006   ** | ** ** | **   2005   ** | ** ** |
| ** **                            | ** ** | **(in thousands)**                          | ** ** | **(in thousands)**                                   | ** ** |
| Picoplatin                            |       | $                                                | 1,987      |                                                      | $          | 1,121 |   |   | $ | 6,188 |   |   |   | $ | 2,473 |   |   |
| Discontinued  programs                |       | —                                           |       | —                                                    |       |   | — |   |   |   | 3,004 |   |   |
| Overhead and  other research costs    |       | 1,382                                            |       | 857                                                       |       |   | 2,947 |   |   |   | 2,222 |   |   |
| Total research  and development costs |       | $                                                | 3,369      |                                                      | $          | 1,978 |   |   | $ | 9,135 |   |   |   | $ | 7,699 |   |   |

 

***Liquidity and capital resources***

We have historically experienced recurring operatinglosses and negative cash flows from operations. As of September 30, 2006,we had an accumulated deficit of $273.3 million with a shareholders’ equity of$52.2 million.

We finance our operations primarily through the saleof equity securities, technology licensing, collaborative agreements and debtinstruments. We invest excess cash in investment securities that will be usedto fund future operating costs. Cash and cash equivalents totaled $49.5 millionat September 30, 2006 compared to $3.5 million at December 31,2005. We primarily fund current operations with our existing cash andinvestments. Cashused for operating activities for the nine months ended September 30, 2006totaled $12.7 million. There were no revenues, and other income sources for thethird quarter of 2006 were not sufficient to cover operating expenses duringthe quarter.

We received approximately $62.0 million in net cashproceeds from the sale of common stock and warrants in April 2006. Withthe proceeds of the equity financing, we believe that our current cash and cashequivalent balances will provide adequate resources to fund operations at leastuntil the end of 2007.

On January 30, 2006, we entered into a letteragreement with Texas State Bank, pursuant to which we agreed to change thematurity date of our promissory note with the Bank to June 5, 2006. TheTexas State Bank loan, which was secured by our radiopharmaceutical plant andother STR assets located in Denton, Texas, had an adjustable interest rateequal to the bank prime rate reported in the Wall Street Journal (8.00% atMay 23, 2006). We paid off the outstanding balance of the loan, $2.7million, on May 23, 2006.

On August 4, 2005, we entered into a researchfunding and option agreement with The Scripps Research Institute (TSRI). Underthe agreement, we committed to provide TSRI an aggregate of $2.5 million over a26-month period to fund research relating to synthesis and evaluation ofnovel small molecule, multi-targeted protein kinase inhibitors as therapeuticagents, including for the treatment of cancer. We have the option to negotiatea worldwide exclusive license to use, enhance and develop any 

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compounds arising from thecollaboration. The research funding is payable by us to TSRI quarterly inaccordance with a negotiated budget. We made an initial funding payment to TSRIof $137,500 on August 8, 2005. We paid TSRI $487,500 on April 28,3006, $287,500 on July 28, 2006 and $237,500 on October 13, 2006. Allsuch amounts were charged to R&D expense. The agreement provides foradditional aggregate funding payments of $1.4 million in 2007.

We acquired the worldwide exclusive rights, excludingJapan, to develop, manufacture and commercialize picoplatin fromAnorMED, Inc. in April 2004. Under the terms of the agreement, wepaid AnorMED a one-time upfront milestone payment of $1.0 million in commonstock and $1.0 million in cash. The agreement initially provided for $13.0million in development and commercialization milestones, payable in cash or acombination of cash and Poniard common stock, and a royalty rate of up to 15%of product net sales after regulatory approval. In September 2006, weentered into an amendment of the original license agreement, under which wereceived exclusive rights to picoplatin in Japan, thereby giving us worldwidelicense rights to picoplatin. In consideration of the amendment, we paidAnorMED $5.0 million in cash on October 12, 2006 and will pay AnorMED anadditional $5.0 million in cash by March 31, 2007. The amendmenteliminates $8.0 million in development milestone payments to AnorMED. AnorMEDremains entitled to receive up to $5.0 million in commercialization milestonesupon the attainment of certain levels of annual net sales of picoplatin afterregulatory approval. The amendment also reduces the royalty payable to AnorMEDto a range of 5% to 9% of net product sales. In addition, the amendment reducesthe sharing of sublicense revenues for any sublicenses entered into during thefirst year following the amendment and eliminates the sharing of sublicenserevenues with AnorMED after the first year of the amendment. We currently planto initiate a Phase III trial of picoplatin in small cell lung cancer in thefirst half of 2007, with the goal of filing a New Drug Application with the FDAin 2009. Because we cannot predict the length of time to regulatory approval,if any, or the extent of annual sales, if any, of picoplatin, we are unable topredict when or if milestone and royalty payments under the license agreementmay be triggered.

On April 26, 2006, we completed a $65 millionequity financing pursuant to a securities purchase agreement dated as ofFebruary 1, 2006. In connection with the financing, we issued to a 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 financing, we issued an aggregate of 1.6million shares of common stock to the holders of our Series B preferredstock upon conversion of our outstanding Series B preferred shares.

As a result of the completion of the financing and theconversion of the Series B preferred shares, our outstanding common stockincreased from approximately 5.7 million shares to approximately 22.8 millionshares. Entities affiliated with MPM Capital Management (MPM) acquired beneficialownership of 7.7 million common shares, or approximately 31.5% of ourcommon stock outstanding immediately following the financing. Entitiesaffiliated with Bay City Capital LLC (BCC) acquired beneficial ownership of 4.6million common shares, or approximately 19.5% of the common shares outstandingimmediately following the financing. Two of our directors, Fred B. Craves andCarl S. Goldfischer, are managing directors of BCC and possess capital andcarried interests in the BCC entities that participated in the financing. Wehave agreed, for as long as MPM owns at least 10% of the shares of common stockand warrants purchased in the financing, to use our best efforts to cause oneperson designated by MPM and one person designated by mutual agreement of MPM andBCC to be nominated and elected to our board of directors. Nicholas J. SimonIII, a representative of MPM, was appointed to our board of directors onApril 26, 2006. Mr. Simon is a general partner of certain of the MPMentities that participated in the financing and possesses capital and carriedinterests in those entities.

In September 2006, we completed the relocation ofour corporate headquarters to South San Francisco. We intend to maintainclinical and development and support activities and facilities in Seattle. 

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The addition of the SouthSan Francisco facility will result in a substantial increase in rent andoperating costs. On July 10, 2006, we entered into an agreement withARE-San Francisco No. 17 LLC to lease 17,045 square feet of officeand laboratory space in South San Francisco, California. The initial term ofthe lease is 60 months. The annual base rent under the lease is approximately$542,000 and is subject to annual adjustments based on disbursements for tenantimprovements and increases in the Consumer Price Index in the San Franciscometropolitan market. Base rent is payable in monthly installments ofapproximately $45,200. Additional rent is payable monthly based on theCompany’s share of operating expenses of the project in which the leasedfacilities are located, as described in the lease agreement. Monthly base rentduring the first seven months of the lease will average $21,000 during theconstruction of tenant improvements. Base rent and operating expenses payableduring 2006 are estimated at $106,000. Annual operating expenses under thelease may increase substantially as we move forward with our plans to establishlaboratory facilities in the leased space. We may, upon written noticedelivered at least nine months prior to expiration of the initial term of thelease, extend the lease for an additional three years, with rent payable at thethen market rate.

On October 25, 2006, we entered into a loan andsecurity agreement with Silicon Valley Bank and Merrill Lynch Capital, under whichwe obtained a $15 million capital loan. We plan to use a portion of theproceeds of the loan to fund our cash payment obligations to AnorMED under thelicense amendment described above and to support our late-stage clinical trialsof picoplatin and general corporate needs. The loan is for a term of 42 months,maturing on April 1, 2010, with the first principal payment onNovember 1, 2006. Interest on the loan is fixed at 7.67%. An additionalpayment of $1,350,000 is due on the maturity date. All interest payable underthe loan agreement and the full amount of the additional payment must be paidupon any prepayment of the loan. The loan is secured by a first lien onsubstantially all of our non-intellectual property assets. The loan agreementcontains restrictions on our ability to, among other things, dispose of certainassets, engage in certain mergers and acquisition transactions, incurindebtedness, create liens on assets, make investments and pay dividends orrepurchase stock. The loan agreement also contains covenants requiring us tomaintain unrestricted cash of $7.5 million during the loan term and, not laterthan December 31, 2007, to provide evidence of positive Phase II data forthe picoplatin drug development program and commence enrollment of patients ina Phase III trial for picoplatin. The loan contains events of default thatinclude, among other things, nonpayment of principal and interest or fees,breaches of covenants, material adverse changes, bankruptcy and insolvencyevents, cross defaults to other indebtedness, material judgments, inaccuracy ofrepresentations and warranties and events constituting a change of control. Theoccurrence of an event of default would increase the applicable rate ofinterest by 5% and could result in acceleration of our obligations under theloan agreement.

We will requiresubstantial additional funding to develop and commercialize picoplatin and anyother proposed products and to fund our operations. Management is continuouslyexploring 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.

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 on-going Phase II andplanned Phase III trials of picoplatin in small cell lung cancer;

·       ourability to obtain clinical supplies of picoplatin drug product in a timely andcost effective manner;

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·       actionstaken by the FDA and other regulatory authorities;

·       thetiming and amounts of proceeds from any sale, if consummated, of the Dentonfacility 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 cancer therapyproduct candidates;

·       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 thepotential expansion 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 agreement 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.

We had net operating loss carryforwards ofapproximately $138.4 million as of December 31, 2005, which expire from2006 through 2025. The closing of the equity financing resulted in a change ofcontrol, which will limit our ability to utilize these net operating losscarryforwards. Given such limitation, we may incur higher tax expense if webecome profitable in the future, which also would affect our capitalrequirements.

AtSeptember 30, 2006, we had the following long-term commitments (inthousands):

| ** **                        | ** ** | **Less than   1 year** | ** ** | **2-3 years** | ** ** | **4-5 years** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|---------------------------------------|------------|--------------------|------------|--------------------|------------|----------------|------------|-----------|------------|
| Lease  commitments:               |       |                                  |       |               |       |               |       |           |       |      |       |   |   |   |   |   |   |   |   |
| Seattle office                    |       |                                  | $          | 572                |       |               |       | $              | 1,080      |      |       |   | $ | 45 |   |   |   | $ | — |   |   | $ | 1,697 |   |
| South San Francisco   premises(1) |       |                                  | 418        |               |       |               | 1,084      |           |       |      | 949        |   |   |   | — |   |   | 2,451 |   |
|                              |       |                                  | 990        |               |       |               | 2,164      |           |       |      | 994        |   |   |   | — |   |   | 4,148 |   |
| Purchase commitments—Scripps |       |                                  | 1,338      |               |       |               | 250        |           |       |      | —     |   |   |   | — |   |   | 1,588 |   |
| Total commitments                 |       |                                  | $          | 2,328              |       |               |       | $              | 2,414      |      |       |   | $ | 994 |   |   |   | $ | — |   |   | $ | 5,736 |   |

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

**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 

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financial instruments. TheCompany invests in money market funds, debt instruments of the US Governmentand its agencies and high-quality corporate issuers. Investments in both fixedrate and floating rate interest earning instruments carry a degree of interestrate risk. The fair market value of fixed rate securities may be adverselyimpacted due to a rise in interest rates, while floating rate securities mayproduce less income than expected if interest rates decrease. Due in part tothese factors, the Company’s future investment income may fall short ofexpectations 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 September 30, 2006, the Companydid not directly own either government debt instruments no corporate debtsecurities.

The Company’s onlymaterial outstanding debt is its loan obligation to Silicon Valley Bank andMerrill Lynch Capital. The outstanding balance of this loan was $14.6 millionon November 7, 2006. 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 our obligations under the loan agreement.

**Item 4.**                        Controlsand Procedures

Under thesupervision and with the participation of the Company’s management, includingthe Company’s President and Chief Executive Officer and the Chief FinancialOfficer, the Company has evaluated the effectiveness and design of itsdisclosure controls and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e)) as of September 30, 2006, to ensure that the informationdisclosed by the Company in the reports that the Company files or submits underthe Securities Exchange Act of 1934, as amended, is recorded, processed,summarized and reported within the time periods specified in the rules andforms. Based on this evaluation, the President and Chief Executive Officer andthe Chief Financial Officer have concluded that, as of September 30, 2006,these disclosure controls and procedures 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 President and Chief Executive Officer and its ChiefFinancial Officer**,**does not expect that theCompany’s disclosure controls or internal controls will prevent all errors andall fraud. A control system, no matter how well conceived and operated, canprovide only reasonable, not absolute, assurance that the objectives of thatcontrol system are met. Further, the design of a control system must reflectthe fact that there are resource constraints, and the benefits of control mustbe considered relative to their costs. Because of the inherent limitation inall control systems, no evaluation of controls can provide absolute assurancethat all control issues and instances of fraud, if any, within the Company havebeen detected. 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, of the degree of compliance with the policies andprocedures may deteriorate. 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 toOur Business***

**We have a historyof operating losses, we expect to continue to incur losses, and we may neverbecome profitable.**

We have not been profitable since our formation in1984. As of September 30, 2006, we had an accumulated deficit of $273.3million. Our net loss for the quarter ended September 30, 2006 was $4.9million. We had net losses of $21.0 million for the year ended December 31,2005 and $19.4 million for the year ended December 31, 2004. 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 revenues from product sales. In May 2005, we announced thediscontinuation of our skeletal targeted radiotherapy (STR) development programas part of a strategic plan to refocus our limited resources on the developmentof picoplatin (NX 473), a platinum-based cancer therapy. We do not anticipatethat our picoplatin product candidate, or any other proposed products, will becommercially available for several years, if at all. We expect to incuradditional operating losses in the future. These losses may increasesignificantly if we expand research, clinical development, manufacturing andcommercialization efforts.

Our ability to achievelong-term profitability is dependent upon obtaining regulatory approvals forour picoplatin product candidate and any other proposed products andsuccessfully commercializing our products alone or with third parties.

**We will need toraise additional capital to develop and commercialize our product candidatesand fund operations**,and our future access to capital is uncertain.

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 future. On April 26, 2006, we completed a $65 million equityfinancing; however, we will require substantial additional funding to developand commercialize picoplatin and any other proposed products and to fund ourfuture operations.

Management iscontinuously 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.

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 the life science capital market specifically, may affect our potentialfinancing sources and opportunities for strategic partnering. If we raiseadditional funds by issuing common stock or securities convertible into orexercisable for common stock, our shareholders may experience substantialdilution, and new investors could have rights superior to current securityholders. If we are unable to obtain sufficient additional cash 

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when needed, we may beforced to reduce expenses though the delay, reduction or curtailment of ourpicoplatin and other development and commercialization 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 on-going Phase IIand planned Phase III trials of picoplatin in small cell lung cancer;

·       ourability to obtain clinical supplies of picoplatin drug product in a timely andcost effective manner;

·       actionstaken by the FDA and other regulatory authorities;

·       thetiming and proceeds from the sale, if consummated, of the Denton facility andassets;

·       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 cancer therapyproduct candidates;

·       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 thepotential expansion 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.

We had net operating losscarryforwards of approximately $138.4 million as of December 31, 2005,which expire from 2006 through 2025. The closing of the equity financingresulted in a change of control, which will limit our ability to utilize thesenet operating loss carryforwards. Given such limitation, we may incur highertax expense if we become profitable in the future, which also would affect ourcapital requirements.

**Our potentialproducts must undergo rigorous clinical testing and regulatory approvals, whichcould be costly, time consuming, and subject us to unanticipated delays orprevent 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 authorities in other 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.

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We have had only limited experience in filing andpursuing applications necessary to gain regulatory approvals. This may impedeour ability to obtain timely approvals from the FDA or foreign regulatoryagencies. We will not be able to commercialize our product candidates until weobtain regulatory approval, and consequently any delay in obtaining, orinability to obtain, regulatory approval could harm our business.

If we violate regulatory requirements at any stage,whether before or after marketing approval is obtained, we may be fined, forcedto remove a product from the market or experience other adverse consequences,including delay, which could materially harm our financial results.Additionally, we may not be able to obtain the labeling claims necessary ordesirable for product promotion. In addition, if we or other parties identifyserious side effects after any of our products are on the market, or ifmanufacturing problems occur, regulatory approval may be withdrawn and reformulationof our products, additional clinical trials, changes in labeling of ourproducts, 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 longerto complete our clinical trials than we project, or we may be unable tocomplete them at all.**

We completed enrollment in our Phase II clinical trialof picoplatin for the treatment of patients with small cell lung cancer in August 2006.Our on-going Phase II study is a randomized trial comparing picoplatin totopotecan in patients with small cell lung cancer who are refractory (failed torespond or progressed) or resistant (relapsed 60 to 90 days after treatment) toprevious platinum-based therapy. Topotecan is an anti-tumor drug currentlyapproved by the FDA as a treatment for small cell lung cancer sensitive diseaseafter failure of first line chemotherapy. The endpoints of the picoplatin trialinclude survival, response rate (tumor shrinkage), duration of response andtime to progression. We amended our Phase II clinical trial protocol in January 2006from a two-arm study of picoplatin versus topotecan to a single arm study ofpicoplatin. We discontinued the topotecan arm of the study because patients andinvestigators often were unwilling to accept the topotecan arm of the two-armstudy. The rationale for the amendment was that the dose and schedule oftopotecan approved for use in patients with platinum-sensitive small cell lungcancer have minimal, if any, efficacy in patients with resistant or refractorysmall cell lung cancer and unacceptable toxicity, thus presenting a situationin which an ineffective but toxic treatment regimen was to be used as one armof the randomized Phase II trial. In April 2006 we amended the Phase IIclinical trial protocol to include platinum sensitive patients (patients whohave relapsed 90 to 180 days after completing first line chemotherapy with aplatinum-containing agent).

Based upon interim data from our Phase II study, weplan to initiate an international muti-center randomized Phase III pivotaltrial of picoplatin in small cell lung cancer in the first half of 2007. Ourplanned Phase III study is expected to take approximately 20 months tocomplete, with a 2:1 randomization comparing picoplatin plus best supportivecase to best supportive care alone. The planned trial would enrollapproximately 400 patients who have failed to respond to, or who haveprogressed within six months of completing, treatment with first-line platinumchemotherapy, such as cisplatin or carboplatin. The primary endpoint of theproposed Phase III study would be overall survival. The planned study alsowould measure overall response rates, progression-free survival and diseasecontrol.

In May 2006, we treated our first patient in anapproximately 30-patient Phase I/II study evaluating picoplatin in thefront-line treatment of patients with newly diagnosed metastatic colorectalcancer. This 

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study is designed todetermine the safety and efficacy of picoplatin when combined with fluorouraciland leucovorin to treat patients newly diagnosed with metastatic disease. Alsoin May 2006, we enrolled our first patient in an approximately 12-patientPhase I/II trial of picoplatin in patients with newly diagnosed metastatichormone refractory prostate cancer. This study is designed to determine the safetyand efficacy of picoplatin when combined with docetaxel. Docetaxel (Taxotere®)is the current standard of care in the treatment of metastatic hormonerefractory prostate cancer. We anticipate completing enrollment of the Phase Icomponents of these trials and initiating enrollment in the Phase II componentsof these trials by the end of 2006

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 enroll qualified patients into our studies;

·       ourability to obtain sufficient, reliable and affordable supplies of thepicoplatin drug product;

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

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

·       theextent of scheduling conflicts with participating clinicians and clinicalinstitutions.

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 clinical research organizations to conduct, supervise ormonitor some or all aspects of clinical trials involving picoplatin. Further,to the extent that we now or in the future participate in collaborativearrangements in connection with the development and commercialization of ourproposed products, we will have less control over the timing, planning andother aspects of our clinical trials. If we fail to initiate, advance orcomplete, or experience delays in or are forced to curtail our current orplanned clinical trials, our stock price and our ability to conduct ourbusiness could be materially negatively affected.

**If testing of aparticular product does not yield successful results, we will be unable tocommercialize 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;

·       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;

·       ourpotential collaborators or regulators may suspend or terminate clinical trialsif the participating subjects or patients are being exposed to unacceptablehealth risks; and

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·       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 earlyclinical trials may not be indicative of 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 regulatoryapprovals. Data obtained from preclinical and clinical activities are subjectto varying interpretations, which may delay, limit or prevent regulatoryapproval.

**We are dependent onsuppliers for the timely delivery of materials and services and may experiencefuture interruptions in supply.**

For our picoplatin product candidate to be successful,we need sufficient, reliable and affordable supplies of the picoplatin drugproduct. Sources of picoplatin drug product may be limited, and third-partysuppliers of picoplatin drug product may be unable to manufacture drug productin amounts and at prices necessary to successfully commercialize our picoplatinproduct. Moreover, third-party manufacturers must continuously adhere tocurrent Good Manufacturing Practice (cGMP) regulations enforced by the FDAthrough its facilities inspection program. If the facilities of thesemanufacturers cannot pass a pre-approval plant inspection, the FDA will notgrant a New Drug Application (NDA) for our proposed products. In complying withcGMP and foreign regulatory requirements, any of our third-party manufacturerswill be obligated to expend time, money and effort in production,record-keeping and quality control to assure that our products meet applicablespecifications and other requirements. If any of our third-party manufacturersfails to comply with these requirements, we may be subject to regulatoryaction.

We have a limited supply of picoplatin drug productthat was manufactured by a prior licensee. This supply is not, however,sufficient for our planned clinical trials. We have entered into agreementswith third parties to manufacture and supply additional picoplatin ActivePharmaceutical Ingredient (API) and drug product for our clinical trials. Wealso currently are in negotiation with another third party manufacturer andsupplier of picoplatin drug product. There is no assurance that third partieswill be able to provide sufficient supplies of picoplatin drug product on atimely or cost-effective basis. There are in general relatively fewmanufacturers and suppliers of picoplatin drug product. If manufacturer isunable or unwilling to manufacture and provide drug product at a cost and onother terms acceptable to us, we may suffer delays in, or be prevented from,initiating or completing our clinical trials of picoplatin.

In connection with ourproduct development activities, we rely on third-party contractors to performfor us, or assist us with, certain specialized services, including drugmanufacture and supply, dispensing, distribution and shipping, and clinicaltrial management. Because these contractors provide specialized services, theiractivities and quality of performance may be outside our direct control. Ifthese contractors do not perform their obligations in a timely manner, or if weencounter difficulties with the quality of 

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serviceswe receive from these contractors, we may incur significant additional costsand delays in product development activities, which could have a materialnegative effect on our business.

**If we cannot negotiate and maintain collaborativearrangements with third parties, our research, development, manufacturing,sales and marketing activities may not be cost-effective or successful.**

Our success will depend in significant part on ourability to attract and maintain collaborative partners and strategicrelationships to support the development, sale, marketing, distribution andmanufacture of picoplatin and any other future product candidates andtechnologies in the US and Europe. At present, our only material collaborativeagreement is the exclusive worldwide license, as amended, granted to us byAnorMED, Inc. for the development and commercial sale of picoplatin. Underthat license, we are solely responsible for the development andcommercialization of picoplatin. AnorMED retains the right, at our cost, toprosecute patent applications and maintain all patents. The parties executedthe license agreement in April 2004, at which time we paid AnorMED aone-time upfront milestone payment of $1.0 million in our common stock and $1.0million in cash. The agreement also initially provided for $13 million indevelopment and commercialization milestones, payable in case or a combinationof cash and Poniard common stock, and a royalty rate of up to 15% on productnet sales after regulatory approval. The license agreement was amended on September 18,2006, revising several key financial terms and expanding the licensed territoryto include Japan, thereby granting us the worldwide rights to picoplatin. Inconsideration of the amendment, we paid AnorMED $5.0 million in cash on October 12,2006 and will pay AnorMED an additional $5.0 million in cash by March 31,2007. The amendment eliminates $8.0 million in development milestone paymentsto AnorMED. AnorMED 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 AnorMED to a range of 5% to 9% of net product sales. Inaddition, the amendment reduces the sharing of sublicense revenues for any sublicensesentered into during the first year following the amendment and eliminates thesharing of sublicense revenues with AnorMED after the first year of theamendment. We currently plan to initiate a Phase III trial of picoplatin insmall cell lung cancer in the first half of 2007, with the goal of filing a New DrugApplication with the FDA in 2009. However, because we cannot predict the lengthof time to regulatory approval, if any, or the extent of annual sales, if any,of picoplatin, we are unable to predict when or if the milestone and royaltypayments under the license agreement may be triggered. The license agreementmay be terminated by either party for breach if the other party files apetition in bankruptcy or insolvency or for reorganization or is dissolved,liquidated or makes assignment for the benefit of creditors. We can terminatethe license at any time upon prior written notice to AnorMED. If not earlierterminated, the license agreement will continue in effect, in each country inthe territory in which the licensed product is sold or manufactured, until theearlier of (i) expiration of the last valid claim of a pending or issuedpatent covering the licensed product in that country or (ii) a specifiednumber of years after first commercial sale of the licensed product in thatcountry. If AnorMED were to breach its obligations under the license, or if thelicense expires or is terminated and we cannot renew, replace, extend orpreserve our rights under the license agreement, we would be unable to moveforward with our current and planned picoplatin clinical studies.

On August 4, 2005, we entered into a researchfunding and option agreement with The Scripps Research Institute (TSRI). Underthe agreement, we will 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 as therapeutic agents,including for the treatment of cancer. We have the option to negotiate aworldwide exclusive license to use, enhance and develop any compounds arisingfrom the collaboration. The research funding is payable by us to TSRI quarterlyin accordance with a negotiated budget. We made an initial funding payment toTSRI of $137,500, on August 8, 2005. We paid TSRI $487,500 on April 28,2006, $287,500 on July 28, 2006 and $237,500 on October 13, 2006. Wehave charged all such payments to R&D expense. The agreement provides foradditional aggregate 

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funding payments of $1.4million in 2007. We have no assurance that the research funded under thisarrangement 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 of the compoundsarising from the collaboration.

None of our currentemployees has experience selling, marketing and 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.

**We face substantialcompetition in the development of cancer therapies and may not be able tocompete successfully, and our potential products may be rendered obsolete byrapid 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. Large pharmaceutical companies,including Bristol-Myers Squibb Company, Eli Lilly and Company, GlaxoSmithKlinePLC, Pfizer Inc., Genentech, Inc. and Sanofi-Aventis Group, are marketingor developing therapeutics in late stage clinical trials for the treatment ofsmall cell lung cancer in the United States. Multiple biotechnology companies,including Exelixis Inc., Sunesis Pharmaceuticals, Inc., VionPharmaceuticals, Inc., Onyx Pharmaceuticals, Inc., ImmunoGen, Inc.,Ipsen Group, Menarini Group and Cabrellis Pharmaceuticals Corporation, also areengaged in clinical trials for the treatment of small cell lung cancer. As weexpand the utility of picoplatin into other oncology indications such ashormone refractory prostate cancer and colorectal cancer, we will be facingadditional competition from major pharmaceutical companies, biotechnologycompanies, research institutions and government agencies. We cannot assure youthat we will be able to effectively compete with these or future third partyproduct development programs. Many of our existing or potential competitorshave, or have access to, substantially greater financial, research anddevelopment, marketing and production resources than we do and may be betterequipped than we are to develop, manufacture and market competing products. Further,our competitors may have, or may develop and introduce, new products that wouldrender our picoplatin or any other proposed product candidates lesscompetitive, uneconomical or obsolete.

**If we are unable toprotect our proprietary rights, we may not be able to compete effectively, oroperate 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 

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or licensed to us. Ifissued, the patents may not give us an advantage over competitors with similartechnologies.

The issuance of a patent is not conclusive as to itsvalidity or enforceability and it is uncertain how much protection, if any,will be given to our patents if we attempt to enforce them and they are challengedin court or in other proceedings, such as oppositions, which may be brought inforeign jurisdictions to challenge the validity of a patent. A third party maychallenge the validity or enforceability of a patent after its issuance by theUSPTO. It is possible that a competitor may successfully challenge our patentsor that a challenge will result in limiting their coverage. Moreover, the costof litigation to uphold the validity of patents and to prevent infringement canbe substantial. If the outcome of litigation is adverse to us, third partiesmay be able to use our patented invention without payment to us. Moreover, itis possible that competitors may infringe our patents or successfully avoidthem through design innovation. We may need to file lawsuits to stop theseactivities. These lawsuits can be expensive and would consume time and otherresources, even if we were successful in stopping the violation of our patentrights. In addition, there is a risk that a court would decide that our patentsare not valid and that we do not have the right to stop the other party fromusing the inventions. There is also the risk that, even if the validity of ourpatents was upheld, a court would refuse to stop the other party on the groundthat 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 AnorMED, 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. We may also be able to rely on the Hatch-Waxman Act to extend theterm of a US patent covering picoplatin after regulatory approval, if any, ofsuch product in the US.

Under our license agreement with AnorMED, AnorMEDretains the right to prosecute patent applications and maintain all licensedpatents, with Poniard reimbursing such expenses. Under the AnorMED agreement,we have the right to sue any third party infringers of the picoplatin patentsin the licensed territory. If we do not file suit, AnorMED, in its solediscretion, has the right to sue the infringer at its expense.

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 toexecute a confidentiality agreement at the commencement of an employment orconsulting relationship with us. However, these agreements may not provideeffective protection of our information or, in the event of unauthorized use ordisclosure, may not provide adequate remedies.

**The use of ourtechnologies could potentially conflict with the rights of others.**

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

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**We may incursubstantial costs as a result of litigation or other proceedings relating topatent and other intellectual property 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 costsof complex patent litigation because they have substantially greater resources.If there is litigation against us, we may not be able to continue ouroperations. If third parties file patent applications, or are issued patentsclaiming technology also claimed by us in pending applications, we may berequired to participate in interference proceedings in the USPTO to determinepriority of invention. We may be required to participate in interferenceproceedings involving our issued patents and pending applications. We may berequired to cease using the technology or license rights from prevailing thirdparties as a result of an unfavorable outcome in an interference proceeding. Aprevailing party in that case may not offer us a license on commerciallyacceptable terms.

In April 2003, wereceived $10 million from the sale to Boston Scientific Corporation (BSC) ofcertain non-core patents and patent applications and the grant to BSC ofexclusive license rights to certain non-core patents and patent applications. BSCoriginally 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 thelitigation, including the patents that were assigned to BSC. BSC acquiredGuidant in April 2006. Although we are not currently a party to thelawsuits, our management and counsel have been deposed in connection with thelawsuits. It is possible that BSC, if it is unsuccessful or has limited successwith its claims, may seek damages from us, including recovery of all or aportion of the amounts it paid to us in 2003. We cannot assess the likelihoodof whether such claim will be brought against us or the extent of recovery, ifany, on any such claim***.***

**Product liabilityclaims in excess of the amount of our insurance would adversely affect ourfinancial condition.**

The testing,manufacturing, marketing and sale of picoplatin and any other proposed cancertherapy products, including past clinical and manufacturing activities inconnection with our terminated STR radiotherapeutic, may subject us to productliability claims. We are insured against such risks up to a $10 millionannual aggregate 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 product liabilityclaim or product recall may result in losses that could be material.

**Our past use ofradioactive and other hazardous materials exposes us to the risk of materialenvironmental liabilities, and we may incur significant additional costs tocomply with environmental laws in the future.**

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 

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withenvironmental and health and safety regulations in the future. Because we havediscontinued operations in facilities that have had past research andmanufacturing processes where hazardous or radioactive materials have been inuse, we may have significant decommissioning costs associated with thetermination of operation of these facilities. These potential decommissioningcosts also may reduce the market value of the facilities and may limit ourability to sell or otherwise dispose of these facilities in a timely andcost-effective manner. We have terminated our STR manufacturing operations inDenton, Texas and are actively marketing the facility for sale. In 2005, werecorded costs associated with the closure of the Denton facility of $0.9million. We estimate costs in 2006 related to these activities at $0.2 million.These costs could increase substantially, depending on actions of regulators orif we discover previously unknown contamination in or around the facility. Inaddition, the risk of accidental contamination or injury from hazardous orradioactive materials cannot be completely eliminated. In the event of such anaccident, we could be held liable for any resulting damages, and any suchliability could exceed our resources. Our current insurance does not coverliability for the clean-up of hazardous waste materials or otherenvironmental risks.

**Even if we bringproducts to market, changes in healthcare reimbursement could adversely affectour ability to effectively price our products or obtain adequate reimbursementfor 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 ofhealthcare 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 keyemployees could adversely affect our operations.**

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.

As of September 30, 2006, we had a total workforce of 28 full-time employees and 6 part-time employees. In September 2006,we moved our corporate headquarters to newly leased facilities in South San Francisco.We intend to maintain clinical development and support activities andfacilities in Seattle 

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and do not have plans torelocate any of our 23 employees currently in Seattle. Our success depends, toa significant extent, on the continued contributions of our principalmanagement and scientific personnel participating in our picoplatin developmentprogram. We have limited or no redundancy of personnel in key developmentareas, including finance, legal, clinical operations, regulatory affairs andquality control and assurance. The loss of the services of one or more of ouremployees could delay our picoplatin product development activities or anyother proposed programs and research and development efforts. We do notmaintain key-person life insurance on any of our officers, employees orconsultants.

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 skilled employeesand consultants. In order to commercialize our proposed products successfully,we will in the future be required to substantially expand our workforce,particularly in the areas of manufacturing, clinical trials management,regulatory affairs, business development and sales and marketing. Theseactivities will require the addition of new personnel, including management,and the development of additional expertise by existing management personnel.

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

**Risks Related toOur Common Stock**

**Our common stockmay be delisted from The Nasdaq Capital Market if we are unable to maintaincompliance with Nasdaq Capital Market 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. We will not be eligible to relist ourcommon stock on The Nasdaq Global Market unless and until our common stockmaintains a minimum bid price of $5.00 per share for 90 consecutive tradingdays and we otherwise comply with the initial listing requirements for TheNasdaq Global Market. Trading on the Nasdaq Capital Market may have a negativeimpact on the value of our common stock, because securities trading on theNasdaq Capital Market typically are less liquid than those traded on The NasdaqGlobal Market.

On August 7, 2006, we received a notice fromNasdaq indicating that we are not in compliance with Nasdaq Marketplace Rule 4310(c)(4) (theMinimum Bid Price Rule) because the closing bid price of our common stock hasbeen below $1.00 per share for 30 consecutive trading days. We completed aone-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 Rule because the closing bid price of ourcommon stock had been at or above $1.00 per share for 10 consecutive tradingdays. The closing bid price of our common stock may in the future fall belowthe Minimum Bid Price Rule 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.

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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 the over-the-countermarket on an electronic bulletin board established for unlisted securities suchas the Pink Sheets or the OTC Bulletin Board. As a result, an investor wouldfind it more difficult to dispose of, or obtain accurate quotations for theprice of, our common stock.

If our common stock wereto be delisted from The Nasdaq Capital Market, and our trading price remainsbelow $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, which require additional disclosure by broker-dealersin connection with any trade involving a stock defined as a “penny stock”(generally, any equity security not listed on a national securities exchange orquoted on Nasdaq that has a market price of less than $5.00 per share, subjectto certain exceptions). Many brokerage firms are reluctant to recommendlow-priced stocks to their clients. Moreover, various regulations and policiesrestrict the ability of shareholders to borrow against or “margin” low-pricedstocks, and declines in the stock price below certain levels may triggerunexpected margin calls. Additionally, because brokers’ commissions onlow-priced stocks generally represent a higher percentage of the stock pricethan commissions on higher priced stocks, the current price of the common stockcan result in an individual shareholder paying transaction costs that representa higher percentage of total share value than would be the case if our shareprice were higher. This factor may also limit the willingness of institutionsto purchase our common stock. Finally, the additional burdens imposed uponbroker-dealers by these requirements could discourage broker-dealersfrom facilitating trades in our common stock, which could severely limit themarket liquidity of the stock and the ability of investors to trade our commonstock.

**Our stock price isvolatile and, as a result, you could 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 2005, the reported highand low closing sale prices of our common stock were $2.34 and $0.47. In 2004,the reported high and low closing sale prices were $5.78 and $1.43. Thereported high and low closing sale prices during the period from January 3,2006 through September 22, 2006 (the last trading day preceding theeffectiveness of our one-for-six reverse stock split) were $1.57 and $0.50. Thereported high and low closing sales prices during the period from September 25,2005 through November 7, 2006 (after the effective date of the reversestock split) were $4.62 and $3.00. Our stock price has been and may continue tobe affected by this type of market volatility, as well as our own performance.Our business and the relative price of our common stock may be influenced by alarge 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 patents, proprietary rights and potential infringement;

·       developmentsconcerning potential agreements with collaborators;

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

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·       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 material adverseimpact on the market price of our common stock and may result in a loss of someor 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.

**Certain provisionsin our articles of incorporation and Washington state law could discourage achange of control.**

Our articles of incorporation authorize our board ofdirectors to issue up to 200 million shares of common stock and up to 3.0million shares of preferred stock. With respect to preferred stock, our boardhas the authority 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, by their respective terms, on April 10, 2006.

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 acquisition, unless the transaction or acquisition of shares isapproved by a majority of the members of the target corporation’s board ofdirectors prior to the acquisition. Prohibited transactions include, amongother 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.

A corporation may not opt out of this statute. Thisprovision may have the effect of delaying, deterring or preventing a change incontrol of the company or limiting future investment in the company bysignificant shareholders and their affiliates and associates.

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.

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**As a result of the closing of the equity financing,the number of shares of our common stock outstanding increased substantiallyand certain investors beneficially own significant blocks of our common stock;such common shares are generally available for resale in the public market.**

On April 26, 2006, wecompleted a $65 million equity financing pursuant to a securities purchaseagreement dated as of February 1, 2006. In connection with the financing,we issued to a small group of institutional and other accredited investors anaggregate of 15.5 million shares of common stock at a cash purchase price of$4.20 per share. Investors in the 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. Concurrent with the closing of the financing, weissued an aggregate of 1.6 million shares of common stock to the holders of ourSeries B preferred stock upon conversion of our outstanding Series Bpreferred shares. At the time of closing, the placement agent for the financingalso received a five-year warrant to purchase, on the same terms as theinvestors, 139,000 common shares. The issuance of such shares and warrantsresulted in substantial dilution to shareholders who held our common stockprior to the financing.

As a result of thecompletion of the financing and the conversion of the Series B preferredshares, our outstanding common stock increased from approximately 5.7 million sharesto approximately 22.8 million shares. Entities affiliated with MPM CapitalManagement (MPM) acquired beneficial ownership of 7.7 million common shares, orapproximately 31.5% of our common stock outstanding immediately following thefinancing. Entities affiliated with Bay City Capital LLC (BCC) acquiredbeneficial ownership of 4.6 million common shares, or approximately 19.5% ofthe common shares outstanding immediately following the financing. Two of ourdirectors, Fred B. Craves and Carl S. Goldfischer, are managing directors ofBCC and possess capital and carried interests in the BCC entities thatparticipated in the financing. We have agreed, for as long as MPM owns at least10% of the shares of common stock and warrants purchased in the financing, touse our best efforts to cause one person designated by MPM and one persondesignated by mutual agreement of MPM and BCC to be nominated and elected toour board of directors. Nicholas J. Simon III, a representative of MPM, wasappointed to our board of directors on April 26, 2006. Mr. Simon is ageneral partner of certain of the MPM entities that participated in thefinancing and possesses capital and carried interests in those entities.

Pursuant to the securitiespurchase agreement, we maintain an effective registration statement with theSEC covering the resale of the 15.5 million shares of common stock issued inthe equity financing and the 4.6 million shares of common stock issuable uponexercise of the warrants. Accordingly, these shares are generally available forimmediate resale in the public market. In addition, the approximately 1.6million shares of common stock issued upon conversion of the Series Bpreferred stock currently are available for immediate resale pursuant to aregistration statement or an exemption from registration under Rule 144(k) ofthe Securities Act. The market price of our common stock could fall as a resultof such resales due to the increased number of shares available for sale in themarket.

**Item4.**                        Submissionof Matters to a Vote of Security Holders

TheCompany held a special meeting of shareholders on September 22, 2006 tovote on a proposal to approve an amendment to the Company’s Articles ofIncorporation effecting a one-for-six reverse stock split to decrease the numberof issued and outstanding shares of common stock. This proposal was approved bythe shareholder vote set forth below:

| For     |   | 17,235,317 |   |
|---------|--------|------------|--------|
| Against |   | 544,778    |   |
| Abstain |   | 29,998     |   |

 

**Item 6.**                        Exhibits

(a)   Exhibits—SeeExhibit Index below.

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                                   | PONIARD PHARMACEUTICAL, INC. |
|-----------------------------------|------------------------------|
|                              | (Registrant)                 |
| Date: November 14, 2006 | By:                          | /s/ CAROLINE M. LOEWY |   |
|                              |                         | Caroline M. Loewy |   |
|                              |                         | *Chief  Financial Officer* |   |
|                              |                         | *(Principal  Financial Officer)* |   |

 

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**EXHIBITINDEX**
| Exhibit | ** ** | ** **                                                                                                                                                                                                                               | ** ** | **Description** |
|---------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 3.1     |       | Amended and Restated Articles of Incorporation, as amended  September 22, 2006(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    |       | 1991 Restricted Stock Plan(‡)(D)                                                                                                                                                                                                    |
| 10.4    |       | Indemnification Agreement(‡)(H)                                                                                                                                                                                                     |
| 10.5    |       | Stock Option Grant Program for Nonemployee Directors under the  NeoRx 2004 Incentive Compensation Plan, as amended(‡)(B)                                                                                                            |
| 10.6    |       | Stock Option Agreement, dated December 19, 2000, between  NeoRx Corporation and Carl S. Goldfischer(‡)(I)                                                                                                                      |
| 10.7    |       | Stock Option Agreement, dated January 17, 2001, between  NeoRx Corporation and Carl S. Goldfischer(‡)(I)                                                                                                                       |
| 10.8    |       | License Agreement dated as of April 2, 2004, between the  Company and AnorMED, Inc. Certain portions of the agreement have been  omitted pursuant to a request for confidential treatment(Q)                                   |
| 10.9    |       | Amendment No. 1 to License Agreement effective as of  September 18, 2006, between the Company and AnorMED, Inc. Certain  portions of the agreement have been omitted pursuant to a request for  confidential treatment(Y) |
| 10.10   |       | Stock Option Grant Program for Nonemployee Directors under the  NeoRx Corporation 1994 Restated Stock Option Plan(‡)(M)                                                                                                             |
| 10.11   |       | Facilities Lease, dated February 15, 2002, between NeoRx  Corporation and Selig Real Estate Holdings Six(A)                                                                                                                         |
| 10.12   |       | Amended and Restated 2004 Incentive Compensation Plan as amended  and restated June 16, 2006(‡)(G)                                                                                                                        |
| 10.13   |       | Manufacturing and Supply Agreement dated as of May 4, 2004,  between Hyaluron, Inc. and the Company. Certain portions of the  agreement have been omitted pursuant to a request for confidential treatment.(T)                 |
| 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 July 24,  2006, between the Company and Alan B. Glassberg(‡)(X)                                                                                                        |
| 10.23 |   | Change of Control Agreement dated as of July 24, 2006,  between the Company and Alan B. Glassberg(‡)(X)                                                                                                                   |
| 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 Note to Merrill Lynch Capital(J)                                                                                                                                                                                 |
| 31.1  |   | Rule 13a-14(a)/15d-14(a) Certification of  President and Chief Executive Officer(Y)                                                                                                                                       |
| 31.2  |   | Rule 13a-14(a)/15d-14(a) Certification of  Chief Financial Officer(Y)                                                                                                                                                     |
| 32.1  |   | Section 1350 Certification of President and Chief Executive  Officer(Y)                                                                                                                                                        |
| 32.2  |   | Section 1350 Certification of Chief Financial Officer(Y)                                                                                                                                                                       |

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(‡)          Managementcontract or compensatory plan.

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

(B)        Filed as an exhibit to theCompany’s Current Report on Form 8-K filed June 16, 2005, andincorporated herein by reference.

(C)        Filed as an exhibit to theCompany’s Registration Statement on Form S-3/A (Registration No. 333-111344)filed on February 23, 2004, and incorporated herein by reference.

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(D)       Filed as an exhibit to the Company’s Annual Report on Form 10-Kfor the fiscal year ended September 30, 1991, and incorporated herein byreference.

(E)        Incorporated by reference toExhibit A to the Company’s definitive proxy statement on Schedule 14Afiled April 10, 1996.

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

(G)      Filed as an exhibit to theCompany’s Current Report on Form 8-K filed on June 21, 2006 andincorporated herein by reference.

(H)      Filed as an exhibit to theCompany’s Form 10-Q for the quarterly period ended March 31,1996, and incorporated herein by reference.

(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 theCompany’s Current Report on Form 8-K filed on October 31, 2006,and incorporated herein by reference.

(K)       Filed as an exhibit to theCompany’s Current Reports on Form 8-K filed on April 28, 2006and June 27, 2006, and incorporated herein by reference.

(L)         Filed as an exhibit to theCompany’s Form 10-Q for the quarterly period ended March 31,2005, and incorporated herein by reference.

(M)     Filed as an exhibit to theCompany’s Form 10-Q for the quarterly period ended June 30,2002, and incorporated herein by reference.

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

(O)      Filed as an exhibit to theCompany’s Form 10-Q for the quarterly period endedSeptember 30, 2004, and incorporated herein by reference.

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

(Q)      Filed as an exhibit to theCompany’s Form 10-Q for the quarterly period ended March 31,2004, and incorporated herein by reference.

(R)       Filed as an exhibit to theCompany’s Form 10-Q for the quarterly period ended June 30,2004, and incorporated herein by reference.

(S)          Filed as an exhibit to theCompany’s Current Report on Form 8-K filed June 23, 2006, andincorporated herein by reference.

(T)        Filed as an exhibit to theCompany’s Form 10-Q for the quarterly period ended June 30,2005, and incorporated herein by reference.

(U)      Filed as an exhibit to theCompany’s Form 10-Q for the quarterly period ended September 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.

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

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(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 herewith.

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