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



FORM 10-Q



ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  toCommission File No. 0-16614


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

Washington(State or other jurisdiction of
incorporation or organization)

91-1261311(IRS Employer Identification No.)


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

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

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

Yes    ý        No    o

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

Large accelerated filer

o



Accelerated filer

ýNon-accelerated filer

o

(Do not check if a smaller reporting company)

Smaller reporting company

o


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

Yes    o        No    ý

As of October 31, 2008, 34,687,724 shares of the Registrant's common stock, $.02 par value per share, were outstanding.



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TABLE OF CONTENTS    QUARTERLY REPORT ON FORM 10-Q  FOR THE QUARTER ENDED SEPTEMBER 30, 2008

PART I

FINANCIAL INFORMATION

PAGEItem 1.

Financial Statements:Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007 (unaudited)


3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007 (unaudited)


4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007 (unaudited)


5Notes to Condensed Consolidated Financial Statements (unaudited)


6Item 2.

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


14Item 3.

Quantitative and Qualitative Disclosures About Market Risk


19Item 4.

Controls and Procedures


19PART II

OTHER INFORMATIONItem 1A.

Risk Factors


20Item 6.

Exhibits


20Signatures




21Exhibit Index




22


2

---





PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

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

September 30, 2008

December 31, 2007ASSETSCurrent assets:Cash and cash equivalents

$
45,527

$
29,335Cashrestricted


281


281Investment securities


38,515


63,286Prepaid expenses and other current assets


1,370


955Total current assets


85,693


93,857Facilities and equipment, net of depreciation of $1,236 and $954


1,183


1,121Other assets


309


141Licensed products, net


9,110


10,021Total assets

$
96,295

$
105,140LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
892

$
677Accrued liabilities


8,425


4,550Current maturities of note payable and capital lease obligations


7,917


4,247Total current liabilities


17,234


9,474Long-term liabilities:Note payable and capital lease obligations, net of current portion and discount of $3,311 and $1,018


19,094


6,561Total long-term liabilities


19,094


6,561Shareholders' equity:Preferred stock, $.02 par value, 2,998,425 shares authorized:Convertible preferred stock, Series 1, 205,340 shares issued and outstanding (entitled in liquidation to $5,300 and $5,175, respectively)


4


4Common stock, $.02 par value, 200,000,000 shares authorized:34,687,724 and 34,662,689 shares issued and outstanding


694


693Additional paid-in capital


407,735


401,225Accumulated deficit, including other comprehensive income (loss) of $(592) and $59


(348,466
)

(312,817
)Total shareholders' equity


59,967


89,105Total liabilities and shareholders' equity

$
96,295

$
105,140


See notes to the condensed consolidated financial statements.

3

---





PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (unaudited)        (in thousands, except
per share amounts)

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Revenues

$


$


$


$
Operating expenses:Research and development


9,024


5,050


24,511


16,362General and administrative


3,383


2,806


11,289


8,584Total operating expenses


12,407


7,856


35,800


24,946Loss from operations


(12,407
)

(7,856
)

(35,800
)

(24,946
)Other income (expense):Interest income


547


1,319


2,210


3,062Interest expense


(329
)

(422
)

(1,021
)

(1,332
)Other, net


(48
)




(12
)

Other income, net


170


897


1,177


1,730Net loss


(12,237
)

(6,959
)

(34,623
)

(23,216
)Preferred stock dividends


(125
)

(125
)

(375
)

(375
)Net loss applicable to common shares

$
(12,362
)
$
(7,084
)
$
(34,998
)
$
(23,591
)Net loss per share applicable to common sharesbasic and diluted

$
(0.36
)
$
(0.20
)
$
(1.01
)
$
(0.80
)Weighted average common shares outstandingbasic and diluted


34,688


34,657


34,685


29,449


See
notes to the condensed consolidated financial statements.

4

---





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

Nine Months Ended
September 30,2008

2007Cash flows from operating activities:Net loss

$
(34,623
)
$
(23,216
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


1,193


1,130Amortization of discount on notes payable


440


593Amortization of discount on investment securities


(392
)

(716
)Stock options and warrants issued for services


95


56Stock-based employee compensation


5,519


3,480Change in operating assets and liabilities:Prepaid expenses and other assets


(415
)

(662
)Accounts payable


215


(206
)Accrued liabilities


3,750


1,271Net cash used in operating activities


(24,218
)

(18,270
)Cash flows from investing activities:Proceeds from sales and maturities of investment securities


65,800


37,860Purchases of investment securities


(41,288
)

(87,032
)Facilities and equipment purchases


(344
)

(735
)Net cash provided by (used in) investing activities


24,168


(49,907
)Cash flows from financing activities:Net proceeds from bank note payable


19,997


Repayment of principal on notes payable


(3,375
)

(2,900
)Payment of debt issuance costs


(200
)

Proceeds from stock options and warrants exercised


91


Repayment of capital lease obligation


(21
)

(28
)Net proceeds from issuance of common stock and warrants





69,946Increase in restricted cash





(145
)Payment of licensed product payable





(5,000
)Payment of preferred dividends


(250
)

(250
)Net cash provided by financing activities


16,242


61,623Net increase (decrease) in cash and cash equivalents


16,192


(6,554
)Cash and cash equivalents:Beginning of period


29,335


44,148End of period

$
45,527

$
37,594Supplemental disclosure of non-cash financing activity:Accrual of preferred dividend

$
125

$
125Capital lease

$


$
133Supplemental disclosure of cash paid during the period for:Interest

$
529

$
759


See notes to the condensed consolidated financial statements.

5

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

Note 1. Basis of presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Poniard Pharmaceuticals, Inc. and subsidiary (the Company). All intercompany
balances and transactions have been eliminated in consolidation. The Company has historically experienced recurring operating losses and negative cash flows from operations. As of September 30,
2008, the Company had net working capital of $68,459,000 and had an accumulated deficit of $348,466,000 with total shareholders' equity of $59,967,000.

The
accompanying condensed consolidated financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been
condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on March 13, 2008, and
available on the SEC's website, www.sec.gov.

The
accompanying condensed consolidated financial statements are unaudited. In the opinion of the Company's management, the condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring accruals necessary to present fairly the Company's financial position and cash flows as of September 30, 2008 and the results of operations for
the three and nine months ended September 30, 2008 and 2007.

The
results of operations for the periods ended September 30, 2008 and 2007 are not necessarily indicative of the expected operating results for the full year.

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

Note 2. Fair value measurements

The Company holds available-for-sale securities that are measured at fair value which is determined on a recurring basis. These securities are classified within
Level 2 of the fair value hierarchy prescribed by Statement of Financial Accounting Standard (SFAS) No. 157, "Fair Value Measurements," because the value of the securities is based on
quoted market prices or broker/dealer quotations.

The
SFAS No. 157 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 establishes a fair value
hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring

6

---



PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Fair value measurements (Continued)

fair
value. The standard describes the following three levels of inputs that may be used to measure fair value:

The
determination of a financial instrument's level within the fair value hierarchy is based on an assessment of the lowest level of any input that is significant to the fair value
measurement. The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities. The Company's investment securities, consisting of debt securities, are classified as available-for-sale.
Unrealized holding gains or losses on these securities are included in other comprehensive income. Realized gains and losses and declines in value judged to be
other-than-temporary (of which there have been none to date) on available-for-sale securities are included in interest income.

The
following table presents a summary of the Company's assets and liabilities at fair value on a recurring basis:

Fair Value Measurements as of
September 30, 2008Total

Level 1

Level 2

Level 3(in thousands)Cash equivalents

$
44,679

$
44,679

$


$
Investment securities


38,515





38,515


Total

$
83,194

$
44,679

$
38,515

$



7

---



PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3. Investment securities

Investment securities consisted of the following at September 30, 2008 (in thousands):

Gross UnrealizedAmortized
Cost

Estimated
Fair ValueGains

(Losses)Type of security:Corporate debt securities

$
39,107

$
11

$
(603
)
$
38,515Net unrealized loss







$
(592
)Maturity:Less than one year

$
36,858







$
36,694Due in 12 years


2,249








1,821$
39,107







$
38,515


As
of September 30, 2008, the Company held a debt security issued by American General Finance Corporation (AGFC), a wholly-owned subsidiary of American International
Group, Inc. (AIG), with a par value of $1,200,000, coupon rate of 3.875%, amortized cost of approximately $1,194,000 and maturity date of October 1, 2009. The market value for this
security as of September 30, 2008, based on Level 2 inputs as described in SFAS No. 157, was approximately $788,000, resulting in an unrealized loss of approximately $406,000.
This unrealized loss was the result of a downgrade by S&P in September 2008, reducing the credit rating of AGFC, from A+ to BBB, in connection with the downgrade in its rating on AIG. On
October 3, 2008, Moody's followed with a downgrade of AGFC's credit rating, from A3 to Baa1. The Company's management has concluded that the unrealized loss on the AGFC debt security, and the
other debt securities that it holds, is temporary due to a) the relatively short duration of the decline in value of the investments; b) the assessment of the Company's management that
it is probable that all contractual amounts under the debt securities will be received and c) the Company's intent and ability to hold the securities until at least substantially all of the
cost is recovered.

Note 4. Bank loan

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

The
loan agreement provides for a senior secured term loan facility (loan facility) to be made available as follows: (i) an initial term loan advance in the amount of $17,600,000,
which is comprised of (a) the outstanding principal balance of $7,600,000 remaining on the original loan and (b) an additional cash advance in the amount of $10,000,000 (cash portion),
which was fully funded on September 2, 2008; and (ii) a second term loan advance in the amount of $10,000,000, which was fully funded on September 30, 2008. The cash portion of
the initial term loan advance and the proceeds of the second term loan advance will be used to fund the Company's clinical trials and for general

8

---



PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4. Bank loan (Continued)

corporate
purposes. The advances under the loan facility are repayable over 42 months, commencing on October 1, 2008. Interest on the advances is fixed at 7.80% per annum. Final loan
payments in the amounts of $1,070,000 and $900,000 are due upon maturity or earlier repayment of the initial term loan advance and the second term loan advance, respectively. Additionally, as a
condition to the amendment and restatement of the original loan, the Company agreed to modification of the final payment obligations under the original loan, pursuant to which the Company paid
$600,000 to Silicon Valley Bank on September 2, 2008, the effective date of the loan facility, and will pay $675,000 to GE Business Financial Services on the earlier of March 31, 2010 or
the date of repayment of the loan facility. All final payment amounts will be accreted to the note payable balance over the term of the loan facility using the effective interest rate method and
reflected as additional interest expense. All interest payable under the loan agreement and the full amount of the final payments must be paid upon any prepayment of a term loan advance. The loan
facility is secured by a first lien on all of the non-intellectual property assets of the Company.

In
connection with the loan agreement, the Company issued to the lenders ten-year warrants to purchase an aggregate of 219,920 shares of the Company's common stock at an
exercise price of $4.297 per share. The fair value of the warrants using the Black-Scholes option-pricing model was approximately $928,000 based upon assumptions of expected volatility of 90%, a
contractual term of ten years, an expected dividend rate of zero and a risk-free interest rate of 3.74%. The portion of the loan proceeds allocable to the warrants is approximately
$806,000 based on the relative fair value of the warrants, which the Company recorded as additional discount to notes payable. The total of the final loan payments and the proceeds allocated to the
warrants of approximately $4,051,000 will be amortized to interest expense using an effective interest rate of 13.8%.

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

Note 5. Picoplatin license and amendment

The Company has entered into an exclusive worldwide license, as amended, with Genzyme Corporation (successor to AnorMED, Inc.) for the development and commercial sale of
picoplatin. Under that license, the Company is solely responsible for the development and commercialization of picoplatin. Genzyme retains the right, at the Company's cost, to prosecute its patent
applications and maintain all licensed patents. The parties executed the license agreement in April 2004, at which time the Company paid a one-time up-front payment of
$1,000,000 in common stock and $1,000,000 in cash. The original agreement excluded Japan from the licensed territory and provided for $13,000,000 in

9

---



PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5. Picoplatin license and amendment (Continued)

development
and commercialization milestones, payable in cash or a combination of cash and common stock, and a royalty rate of up to 15% on product net sales after regulatory approval. The parties
amended the license agreement on September 18, 2006, modifying several key financial terms and expanding the licensed territory to include Japan, thereby providing the Company worldwide rights.
In consideration of the amendment, the Company paid Genzyme $5,000,000 in cash on October 12, 2006 and an additional $5,000,000 in cash on March 30, 2007. The amendment eliminated all
development milestone payments to Genzyme. Genzyme remains entitled to receive up to $5,000,000 in commercialization milestones upon the attainment of certain levels of annual net sales of picoplatin
after regulatory approval. The amendment also reduced the royalty payable to Genzyme to a maximum of 9% of annual net product sales. In addition, the amendment reduced the sharing of sublicense
revenues with Genzyme on and after September 18, 2007.

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

The
Company determined the original useful life of the picoplatin intangible asset in accordance with the requirements of FASB SFAS No. 142, "Goodwill and Other Assets." The
Company, at the time of acquisition of the picoplatin license, reasonably anticipated using intravenous picoplatin in clinical trials that could be conducted during the remaining term of the primary
patent, which is active through 2016. The Company concluded that the twelve years remaining for the primary patent term was the appropriate useful life for the picoplatin intangible asset, in
satisfaction of the expected use and legal life provisions of SFAS No. 142, and is amortizing the initial $2,000,000 license payment over this twelve year useful life beginning in April 2004.
The Company concluded that no change in the twelve-year useful life of the picoplatin intangible asset occurred as a result of the 2006 license amendment and is, therefore, continuing to
amortize the initial $2,000,000 license payment over the twelve year useful life and is amortizing the license amendment payment of $10,000,000 over the remainder of the twelve year useful life of the
picoplatin intangible asset.

Licensed
Products consists of the picoplatin amortizable intangible asset with a gross amount of $12,000,000 and net of accumulated amortization of $2,890,000 and $1,979,000 at
September 30, 2008 and December 31, 2007, respectively.

Note 6. Net loss per common share

Basic and diluted loss per share are based on net loss applicable to common shares, which is comprised of net loss and preferred stock dividends in all periods presented. Shares used to
calculate basic loss per share are based on the weighted average number of common shares outstanding during

10

---



PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 6. Net loss per common share (Continued)

the
period. Shares used to calculate diluted loss per share are based on the potential dilution that would occur upon the exercise or conversion of securities into common stock using the treasury
stock
method. The calculation of diluted loss per share excludes the effect of the following stock options and warrants to purchase additional shares of common stock because the share increments would not
be dilutive.

Three and Nine Months
Ended September 30,2008

2007Common stock options


5,397,071


4,434,039Common stock warrants


6,165,129


5,946,876


In
addition, 39,015 shares of common stock that would be issuable upon conversion of the Company's Series 1 preferred stock are not included in the calculation of diluted loss per
share for the periods ended September 30, 2008 and 2007, respectively, because the effect of including such shares would not be dilutive.

Note 7. Stock-based compensation

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

Number of
Shares

Weighted Average
Exercise Price

Weighted Average
Remaining
Contractual Term
(Years)

Aggregate
Intrinsic ValueExercisable at September 30, 2008


2,247

$
7.97


7.4

$
351


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

Three Months
Ended
September 30,

Nine Months
Ended
September 30,2008

2007

2008

2007Research and development expense

$
387

$
223

$
1,192

$
857General and administrative expense


1,140


929


4,327


2,623Total

$
1,527

$
1,152

$
5,519

$
3,480


The
amounts for the three and nine months ended September 30, 2008 include the grant of stock options during the first quarter of 2008 to Company officers to purchase an aggregate
of 460,000 shares of common stock. Certain options that were granted to officers of the Company during 2006 and 2007 vest 50% in equal monthly installments over four years from the date of grant and
vest 50% on the seven-year anniversary of the date of grant, subject to accelerated vesting of up to 25% of such portion of the option, to the extent of the Company's achievement of annual
performance goals established under its annual incentive plan, at the discretion of the equity awards subcommittee of the Company's

11

---



PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7. Stock-based compensation (Continued)

board
of directors. Based on the overall achievement of corporate goals in 2006 and 2007, the equity awards subcommittee accelerated vesting with respect to 20% of the shares subject to the
seven-year vesting in both the second quarter of 2007 and the first quarter of 2008, resulting in cumulative accelerated vesting of 40% of the shares subject to the seven-year
vesting as of September 30, 2008.

No
income tax benefit has been recorded for stock option exercises as the Company has a full valuation allowance and management has concluded it is more likely than not that the net
deferred tax asset will not be realized. As of September 30, 2008, total unrecognized compensation costs related to stock options was $14,361,000, which is expected to be recognized over a
weighted average period of approximately three years.

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

Three Months
Ended
September 30,

Nine Months
Ended
September 30,2008

2007

2008

2007Expected term (in years)


3.99


6.08


4.87


6.42Risk-free interest rate


2.95
%

4.62
%

3.05
%

5.15
%Expected stock price volatility


90
%

93
%

90
%

102
%Expected dividend rate


0
%

0
%

0
%

0
%


Note 8. Comprehensive loss

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

Three Months
Ended
September 30,

Nine Months
Ended
September 30,2008

2007

2008

2007Net loss

$
12,237

$
6,959

$
34,623

$
23,216Net unrealized (gain) loss on investment securities


531


(60
)

651


(52
)Comprehensive loss

$
12,768

$
6,899

$
35,274

$
23,164


Note 9. Recent accounting pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, "Fair Value Measurements," for all financial instruments and non-financial
instruments accounted for at fair value on a recurring basis. SFAS No. 157 introduces a framework for measuring fair value and expands disclosure requirements about fair value measurements.
SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements, but does not in itself require any new fair value measurements. SFAS No. 157 for
financial assets and liabilities is effective for fiscal years

12

---



PONIARD PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 9. Recent accounting pronouncements (Continued)

beginning
after November 15, 2007. The Company adopted the standard for those assets and liabilities as of January 1, 2008 with no material impact on its consolidated financial
statements.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities." SFAS No. 161 requires companies with derivative instruments
to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted
for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and how derivative instruments and related hedged items affect a company's financial position, financial
performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.
The Company is currently evaluating this statement and its impact, if any, on the Company's consolidated financial statements.

In
April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, "Determination of the Useful Life of Intangible Assets." This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets." The
intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value
of the asset under SFAS No. 141R, and other GAAP. FSP FAS 142-3 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating this statement and its impact,
if any, on the Company's consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 141R (revised 2007), "Business Combinations," which replaces SFAS No. 141. The statement retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the accounting for a purchase. It also changes the recognition of
assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective for acquisitions occurring in fiscal years beginning after December 15, 2008. While the Company is currently evaluating
this statement and its impact, if any, on the Company's consolidated financial statements, it believes that the adoption of SFAS No. 141R would have an impact on the accounting for any future
acquisition, if one were to occur.

In
June 2007, the FASB ratified the EITF consensus on EITF Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in
Future Research and Development Activities." EITF Issue No. 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research
and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the related services are performed. Entities should
continue to evaluate whether they expect the goods to be delivered or services to be rendered. If an entity does not expect the goods to be delivered or services to be rendered, the capitalized
advance payment should be charged to expense. The Company adopted EITF Issue No. 07-3 on January 1, 2008, resulting in the temporary deferral of costs incurred for research
and development activities from the time payouts are made until the time goods or services are provided.

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

Important Information Regarding Forward-Looking Statements

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

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

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates have not materially changed, except for our accounting for the fair value measurements
of financial assets and liabilities, from those reported in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on March 13, 2008.
For a more complete description, please refer to our Annual Report on Form 10-K. Refer to Note 9, Fair Value Measurements, included in this Form 10-Q for
the three and nine months ended September 30, 2008, for a more complete discussion of our accounting for the fair value measurements of our financial assets and liabilities and the related
disclosures.

Results of Operations

Three and Nine Months Ended September 30, 2008 Compared to the Three and Nine Months Ended September 30, 2007

We had no revenue for the three and nine months ended September 30, 2008 and 2007, respectively.

Total
operating expenses for the third quarter of 2008 increased 58% to $12.4 million, from $7.9 million for the third quarter of 2007, and increased 44% to
$35.8 million for the nine months ended September 30, 2008, from $24.9 million for the same period in 2007.

Research
and development (R&D) expenses increased 79% to $9.0 million for the third quarter of 2008, from $5.1 million for the third quarter of 2007. R&D expenses increased
50% to $24.5 million for the nine months ended September 30, 2008, from $16.4 million for the same period in 2007. The increase in R&D expenses for the three and nine months ended
September 30, 2008 resulted primarily from increased costs associated with our picoplatin clinical trials and pre-clinical programs.

General
and administrative (G&A) expenses increased 21% to $3.4 million for the third quarter of 2008, from $2.8 million for the third quarter of 2007. G&A expenses
increased 32% to $11.3 million for the nine months ended September 30, 2008, from $8.6 million for the same period in 2007. The increases in G&A expenses for the three months
ended September 30, 2008 are due primarily to higher stock-based compensation expense, higher costs for consultants and increased legal costs. The increases

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in
G&A expenses for the nine months ended September 30, 2008 are due primarily to higher stock-based compensation expense and increased personnel costs.

Cash,
cash equivalents and investment securities as of September 30, 2008 were $84.0 million, compared with $92.6 million at December 31, 2007. During
September 2008, we received approximately $20.0 million in net proceeds from our amended and restated bank term loan facility. On April 30, 2007, we received approximately
$70.0 million in net proceeds from a public offering of 11.8 million shares of our common stock. We are using these proceeds for the continued clinical development of picoplatin,
including funding our ongoing clinical trials in small cell lung cancer, advanced colorectal cancer and hormone-refractory prostate cancer, for discovery and research for new product candidates, and
for general corporate purposes, including working capital. We believe that our current cash and cash equivalent balances will provide adequate resources to fund operations at least through the first
quarter of 2010.

As
discussed below, we currently are conducting multiple ongoing clinical studies of picoplatin and, in April 2007, treated our first patient in our Phase III pivotal clinical
study in small cell lung cancer. These clinical studies, as well as increases in personnel, initiation of internal research programs and plans for continued future growth, are expected to result in
significant increases in our operating costs, including research and development and administrative expenses. We will require substantial additional funding to support our picoplatin and other
proposed clinical development programs and to fund our operations. In the event that we do not obtain sufficient additional funds, we may be required to delay, reduce or curtail the scope of our
picoplatin and other product development activities.

Major Research and Development Programs

Our major research and development program is picoplatin, a new generation platinum-based chemotherapeutic designed to overcome
platinum resistance in the treatment of solid tumors. We completed patient enrollment in our Phase II clinical study of picoplatin in small cell lung cancer in August 2006 and, based on
positive interim median overall survival data from that ongoing study, we initiated a Phase III pivotal clinical trial of picoplatin in small cell lung cancer in April 2007. In May 2006, we
treated our first patients in separate Phase I/II clinical studies evaluating picoplatin as a first-line treatment of advanced colorectal cancer and hormone-refractory prostate
cancer. We initiated the Phase II component of our prostate cancer study in July 2007 and completed enrollment in December 2007. We initiated enrollment in the Phase II
component of our colorectal cancer study in November 2007 and completed enrollment in May 2008. In April 2007, we initiated a Phase I study of an oral formulation of picoplatin in advanced
solid tumors.

As
of September 30, 2008, we have incurred external costs of approximately $47.0 million in connection with our entire picoplatin clinical program. Total estimated future
costs of our picoplatin Phase II and Phase III clinical trials in small cell lung cancer are in the ranges of $0.1 million to $0.3 million and $33.0 million to
$39.0 million, respectively, through 2009, including the cost of drug supply. Total estimated future costs of our picoplatin Phase II clinical trial in colorectal cancer and our
Phase II clinical trial in hormone-refractory prostate cancer are in the ranges of $4.0 million to $6.0 million and $1.8 million to $2.5 million, respectively,
through 2009, including the cost of drug supply. Total estimated future costs of our Phase I clinical trial in oral picoplatin are in the range of $0.2 million to $0.5 million
through 2009, including the cost of drug supply. These costs could be substantially higher if we repeat, revise or expand the scope of any of our clinical trials. Material cash inflows relating to our
picoplatin development will not commence unless and until we complete required clinical trials and obtain U.S. Food and Drug Administration, or FDA, and foreign regulatory agency marketing approvals,
and then only if picoplatin finds acceptance in the marketplace. To date, we have not received any revenues from product sales of picoplatin.

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The
risks and uncertainties associated with completing the development of picoplatin on schedule, or at all, include the following, as well as the other risks and uncertainties described
in this report and in our Annual Report on Form 10-K for the year ended December 31, 2007:



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



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

Summary of Research and Development Costs.Our development administration overhead costs, consisting of rent, utilities, consulting fees, patent costs and other
various overhead costs, are included in total research and development expense for each period, but are not allocated among our various projects. Our total research and development costs include the
costs of various research efforts directed toward the identification and evaluation of future product candidates. These other research projects are preclinical and not considered major projects. Our
total research and development costs are summarized below:

Summary of Research and Development Costs

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007(in thousands)

(in thousands)Picoplatin

$
6,773

$
2,972

$
17,860

$
10,602Discontinued programs





12





123Other overhead and research costs


2,251


2,066


6,651


5,637Total research and development costs

$
9,024

$
5,050

$
24,511

$
16,362


Liquidity and Capital Resources

We have historically experienced recurring operating losses and negative cash flows from operations. As of September 30, 2008,
we had net working capital of $68.5 million, an accumulated deficit of $348.5 million and total shareholders' equity of $60.0 million.

We
have financed our operations primarily through the sale of equity securities, technology licensing, collaborative agreements and debt instruments. We invest excess cash in investment
securities

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that
will be used to fund future operating costs. Cash used for operating activities for the nine months ended September 30, 2008 totaled $24.4 million. There were no revenues or other
income sources for the quarter ended September 30, 2008. Cash, cash equivalents and investment securities, net of restricted cash of $0.3 million, totaled $84.0 million at
September 30, 2008 compared to $92.6 million at December 31, 2007. We believe that our current cash, cash equivalents and investment securities will provide adequate resources to
fund operations at least through the first quarter of 2010.

On
September 2, 2008, we entered into an amended and restated loan and security agreement (loan agreement) with GE Business Financial Services Inc. and Silicon Valley Bank,
establishing a $27.6 million senior secured loan facility. The loan agreement amends and restates our earlier loan and security agreement with Silicon Valley Bank and Merrill Lynch Capital
dated as of October 25, 2006, pursuant to which we obtained a $15.0 million capital loan that was to mature on April 1, 2010 (original loan). Funds under the loan facility were
made available as follows: (i) an initial term loan advance in the amount of $17.6 million, which was comprised of (a) the outstanding principal balance of $7.6 million
remaining on the original loan and (b) an additional cash advance in the amount of $10.0 million, which was fully funded on September 2, 2008; and (ii) a second term loan
advance in the amount of $10.0 million, which was fully funded on September 30, 2008. The advances under the loan facility are repayable over 42 months, commencing on
October 1, 2008. Interest on the advances is fixed at 7.80% per annum. Final payments in the amounts of $1.1 million and $0.9 million are due upon maturity or earlier repayment of
the initial term loan advance and the second term loan advance, respectively. Additionally, as a condition to the amendment and restatement of the original loan, we agreed to modification of the final
payment obligations under the original loan pursuant to which we paid $0.6 million to Silicon Valley Bank on September 2, 2008, the effective date of the loan facility, and will pay
$0.7 million to GE Business Financial Services on the earlier of March 31, 2010 or the date of repayment of the loan facility. The loan facility is secured by a first lien on all of our
non-intellectual property assets. The loan agreement contains restrictions on our ability to, among other things, dispose of certain assets, engage in certain mergers and acquisition
transactions, incur indebtedness, create liens on assets, make investments, pay dividends and repurchase stock. The loan agreement also contains covenants requiring us to maintain unrestricted cash in
an amount equal to the lesser of (i) $17.94 million or (ii) the outstanding aggregate principal balance of the term loans plus $4.0 million. The loan agreement contains
events of default that include nonpayment of principal, interest or fees, breaches of covenants, material adverse changes, bankruptcy and insolvency events, cross defaults to any other indebtedness,
material judgments, inaccuracy of representations and warranties and events constituting a change of control. The occurrence of an event of default would increase the applicable rate of interest by 5%
and could result in the acceleration of our payment obligations under the loan agreement. In connection with the loan agreement, we issued to the lenders ten-year warrants to purchase an
aggregate of 219,920 shares of common stock at an exercise price of $4.297 per share. At September 30, 2008, the outstanding principal amount under the loan facility was $26.9 million.
We intend to use the term loan advances to fund our clinical trials and for general corporate purposes.

On
April 30, 2007, we completed a public offering of 11.8 million shares of our common stock at a price of $6.33 per share. Net proceeds of the public offering were
$70.0 million. On April 26, 2006, we completed an equity financing, pursuant to which we issued to a group of institutional and other
accredited investors an aggregate of 15.5 million shares of common stock at a cash purchase price of $4.20 per share. Investors in the 2006 equity financing also received five-year
warrants to purchase an aggregate of 4.6 million shares of common stock at an exercise price of $4.62 per share. We received $62.0 million in net proceeds from the 2006 equity financing,
which, along with the net proceeds received from our April 2007 public offering, we intend to use to fund the continued clinical and preclinical development of picoplatin, including funding our
ongoing clinical trials and for general corporate purposes, including working capital.

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During
the first nine months of 2008, we paid total rent (base rent and additional rent based on our share of facility common operating expenses) of $1.1 million under the
operating leases for our South San Francisco headquarters facility and our Seattle facility. Of this amount, $0.9 million represents total aggregate minimum lease payments under these leases.

On
March 28, 2008, we entered into a commercial picoplatin API manufacturing agreement with W.C. Heraeus GmbH, which is also the manufacturer of picoplatin API for our
clinical trials. The costs to Heraeus for the purchase and set-up of dedicated equipment, estimated to be approximately $1.5 million, will be repaid by us in the form of a surcharge
on an agreed upon amount of the picoplatin API ordered and delivered on or before December 31, 2013. If we order and take delivery of less than the agreed upon amount of picoplatin API through
December 31, 2013, we will be obligated to pay the balance of the dedicated equipment cost as of that date.

If
we are successful in our efforts to commercialize picoplatin, we would, under our amended license agreement with Genzyme Corporation, be required to pay Genzyme up to
$5.0 million in commercialization milestones upon the attainment of certain levels of annual net sales of picoplatin. Genzyme also would be entitled to royalty payments of up to 9% of annual
net product sales.

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



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



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There
can be no assurance that we will be able to raise additional capital or enter into relationships with corporate partners on a timely basis, on favorable terms, or at all.
Conditions in the capital markets in general, and in the life science capital market specifically, may affect our potential financing sources and opportunities for strategic partnering. Our financial
statements are prepared on a going concern basis; however, our inability to obtain additional cash as needed could have a material adverse effect on our financial position, results of operations and
our ability to continue in existence. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Our market rate risks at September 30, 2008 have not changed materially from those discussed in Item 7A of our
Form 10-K for the year ended December 31, 2007.

Item 4.    Controls and Procedures

Under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, the Company has evaluated the effectiveness and design of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e)) as of September 30, 2008, to ensure that the information disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms. Based on this evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that, as of September 30, 2008, these disclosure controls and procedures were effective.

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

Limitations on the Effectiveness of Controls

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

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on March 13,
2008, contains a detailed discussion of certain risk factors that could materially adversely affect our business, operating results and/or financial condition. In addition to other information
contained in this report, you should carefully consider the potential risks or uncertainties that we have identified in Part I, "Item 1A, Risk Factors," in our
Form 10-K. Other than the updated risk factor set forth in our Form 10-Q for the period ended June 30, 2008, which was filed with the SEC on
August 7, 2008, there have not been any material changes in the risk factors disclosed in our Form 10-K. These risk factors are not the only ones affecting our company.
Additional risks and uncertainties not currently deemed to be material also may materially or adversely affect our business, financial condition or results of operations.

Item 6. Exhibits



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SIGNATURES

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

PONIARD PHARMACEUTICALS, INC.(Registrant)Date: November 6, 2008

By:

/s/ CAROLINE M. LOEWY Caroline M. Loewy Chief Financial Officer


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EXHIBIT INDEX

Exhibit

Description10.1

Amended and Restated Loan and Security Agreement dated as of September 2, 2008, by and among the Company, GE Business Financial Services Inc. and Silicon Valley Bank

(A)31.1

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

(B)31.2

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

(B)32.1

Section 1350 Certification of Chairman and Chief Executive Officer

(B)32.2

Section 1350 Certification of Chief Financial Officer

(B)


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