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

Table of Contents



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 June 30, 2009oro

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


Commission File No. 0-16614

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

Washington(State or other jurisdiction of
incorporation or organization)

91-1261311(IRS Employer Identification No.)


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

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

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

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

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

Large accelerated filer o

Accelerated filer ý

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

Smaller reporting company o


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

As of July 31, 2009, 34,742,847 shares of the registrant's common stock, $0.02 par value per share, were outstanding.



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Table of Contents



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



PAGEPART I

FINANCIAL INFORMATIONItem 1.

Financial Statements:Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008
(unaudited)

3Condensed Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2009 and 2008 (unaudited)

4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2009 and 2008 (unaudited)

5Notes to Condensed Consolidated Financial Statements
(unaudited)

6Item 2.

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

17Item 3.

Quantitative and Qualitative Disclosures About Market
Risk

23Item 4.

Controls and Procedures

23PART II

OTHER INFORMATIONItem 1A.

Risk Factors

25Item 4.

Submission of Matters to a Vote of Security Holders

25Item 6.

Exhibits

25Signatures

26Exhibit Index

27


2

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Table of Contents

PART I. FINANCIAL INFORMATION



Item 1.    Financial Statements



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

June 30, 2009

December 31, 2008(Unaudited)

(Note 1)ASSETSCurrent assets:Cash and cash equivalents

$
18,603

$
44,144Cashrestricted


281


281Investment securities


31,306


28,611Prepaid expenses and other current assets


929


977Total current assets


51,119


74,013Facilities and equipment, net of depreciation of $1,183 and $1,319


331


1,123Other assets


174


289Licensed products, net


8,199


8,807Total assets

$
59,823

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

$
2,029

$
604Accrued liabilities


7,866


10,688Current portion of note payable


8,561


7,886Total current liabilities


18,456


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


13,496


17,407Commitments and contingencies (Note 12)Shareholders' equity:Preferred stock, $0.02 par value, 2,998,425 shares authorized:Convertible preferred stock, Series 1, 205,340 shares issued and outstanding (entitled in liquidation to $5,175)


4


4Common stock, $0.02 par value, 200,000,000 shares authorized:34,729,885 and 34,687,724 shares issued and outstanding


695


694Additional paid-in capital


412,052


409,244Other comprehensive loss


(19
)

(354
)Accumulated deficit


(384,861
)

(361,941
)Total shareholders' equity


27,871


47,647Total liabilities and shareholders' equity

$
59,823

$
84,232


See
notes to the condensed consolidated financial statements.

3

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

Three Months Ended
June 30,

Six Months Ended
June 30,2009

2008

2009

2008Operating expenses:Research and development

$
5,653

$
9,151

$
13,757

$
15,487General and administrative


3,435


3,723


6,519


7,906Restructuring








468


Asset impairment loss








588


Total operating expenses


9,088


12,874


21,332


23,393Loss from operations


(9,088
)

(12,874
)

(21,332
)

(23,393
)Other income (expense):Interest expense


(796
)

(331
)

(1,663
)

(692
)Interest income and other, net


164


674


325


1,699Total other income (expense)


(632
)

343


(1,338
)

1,007Net loss


(9,720
)

(12,531
)

(22,670
)

(22,386
)Preferred stock dividends


(125
)

(125
)

(250
)

(250
)Net loss applicable to common shares

$
(9,845
)
$
(12,656
)
$
(22,920
)
$
(22,636
)Net loss per share applicable to common sharesbasic and diluted

$
(0.28
)
$
(0.36
)
$
(0.66
)
$
(0.65
)Weighted average common shares outstandingbasic and diluted


34,712


34,688


34,700


34,684


See
notes to the condensed consolidated financial statements.

4

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

Six Months Ended
June 30,2009

2008Cash flows from operating activities:Net loss

$
(22,670
)
$
(22,386
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


773


790Amortization of discount on notes payable


745


332(Amortization) accretion of (discount) premium on investment securities


220


(238
)Gain on disposal of facilities and equipment


(18
)

Asset impairment loss


588


Restructuring


31


Stock-based compensation issued for services


65


12Stock-based employee compensation


2,719


3,992Change in operating assets and liabilities:Prepaid expenses and other assets


164


(453
)Accounts payable


1,425


127Accrued liabilities


(2,835
)

2,644Net cash used in operating activities


(18,793
)

(15,180
)Cash flows from investing activities:Proceeds from maturities of investment securities


24,650


50,900Purchases of investment securities


(27,230
)

(29,901
)Facilities and equipment purchases


(18
)

(212
)Proceeds from disposals of equipment and facilities


24


Net cash provided by (used in) investing activities


(2,574
)

20,787Cash flows from financing activities:Repayment of principal on notes payable


(3,943
)

(2,082
)Proceeds from stock options and warrants exercised


19


91Payment of preferred dividends


(250
)

(250
)Net cash used in financing activities


(4,174
)

(2,241
)Net increase (decrease) in cash and cash equivalents


(25,541
)

3,366Cash and cash equivalents at beginning of period


44,144


29,335Cash and cash equivalents at end of period

$
18,603

$
32,701Supplemental disclosure of non-cash financing activities:Accrual of preferred dividend

$
250

$
250Supplemental disclosure of cash paid during the period for:Interest

$
946

$
371


See
notes to the condensed consolidated financial statements.

5

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

Note 1. Basis of presentation

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

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

The
results of operations for the periods ended June 30, 2009 and 2008 are not necessarily indicative of the expected operating results for the full year.

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

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

Use of Estimates:The preparation of financial statements in conformity with accounting principles generally accepted in the United
States 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 expenses during the reporting period. Actual results could differ from those estimates.

Subsequent Events Evaluation:Management has reviewed and evaluated material subsequent events, if any, occurring after the balance
sheet date of
June 30, 2009 through the financial statements issuance date of August 7, 2009. All appropriate subsequent event disclosures, if any, have been made in the notes to our unaudited
condensed consolidated financial statements.

Going concern:The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will
continue as a
going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for a reasonable period of time. The Company has historically
experienced recurring operating losses and negative cash flows from operations. As of June 30, 2009, the Company had working capital of $32,663,000, an accumulated deficit of $384,861,000, and
total shareholders' equity of $27,871,000.

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

6

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 1. Basis of presentation (Continued)

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

Note 2. Fair value measurements

Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements" (SFAS No. 157) as it applies to its financial assets and liabilities. 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 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.

7

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Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 2. Fair value measurements (Continued)

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

Fair Value Measurements
as of June 30, 2009Total

Level 1

Level 2

Level 3Cash equivalents

$
17,134

$
17,134

$


$
Investment securities


31,306





31,306


$
48,440

$
17,134

$
31,306

$



At
June 30, 2009 the cash equivalents balance consists of money market funds and investment securities are comprised of corporate debt securities and federal government and agency
securities.

Note 3. Investment securities

The Company's investment securities, consisting of debt securities, are classified as available-for-sale. Unrealized holding gains or losses on these securities
are included in other comprehensive income. 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.

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

Gross UnrealizedAmortized
Cost

Estimated
Fair ValueGains

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

$
13,599

$
27

$


$
13,626Corporate debt securities, with unrealized losses


7,234





(59
)

7,175Federal government and agency securities


10,492


13





10,505$
31,325

$
40

$
(59
)
$
31,306Net unrealized loss







$
(19
)Maturity:Less than one year

$
31,325







$
31,306


8

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Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 3. Investment securities (Continued)

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

Gross UnrealizedAmortized
Cost

Estimated
Fair ValueGains

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

$
10,706

$
26

$


$
10,732Corporate debt securities, with unrealized losses


13,261





(382
)

12,879Federal government and agency securities


4,998


2





5,000$
28,965

$
28

$
(382
)
$
28,611Net unrealized loss







$
(354
)Maturity:Less than one year

$
27,912







$
27,561Due in 1-2 years


1,053








1,050$
28,965







$
28,611


As
of June 30, 2009, 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 $1,198,000 and maturity date of October 1, 2009. The market value for this security as of
June 30, 2009, based on Level 2 inputs as described in SFAS No. 157, was approximately $1,146,000, resulting in an unrealized loss of approximately $52,000. This unrealized loss
has resulted from downgrades from various rating agencies since September 2008. 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. Accrued liabilities

Accrued liabilities consist of the following (in thousands):

June 30,
2009

December 31,
2008Clinical trials

$
5,939

$
8,266Accrued expenses


868


689Compensation


820


1,164Severance


2


285Other


237


284$
7,866

$
10,688


9

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Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 5. Note payable

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

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

In
connection with the loan agreement, the Company issued to the lenders ten-year warrants to purchase an aggregate of 219,920 shares of the Company's common stock at an
exercise price of $4.297 per share. The fair value of the warrants using the Black-Scholes option-pricing model was approximately $928,000 based upon assumptions of expected volatility of 90%, a
contractual term of ten years, an expected dividend rate of zero and a risk-free interest rate of 3.74%. The portion of the loan proceeds allocable to the warrants is approximately
$806,000 based on the relative fair value of the warrants, which the Company recorded as additional discount to notes payable. The total of the final loan payments and the proceeds allocated to the
warrants of approximately $4,051,000 are being amortized to interest expense using an effective interest rate of 13.8%. At June 30, 2009, the outstanding principal balance under the loan
facility was $22,057,000, net of discount of $2,274,000.

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

10

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Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 5. Note payable (Continued)

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 6. Restructuring and asset impairment

Effective March 31, 2009, the Company implemented a strategic restructuring plan to refocus its cash resources on clinical and commercial development of picoplatin, resulting in
the discontinuation of the Company's preclinical research operations and reducing its workforce by approximately 12%, or eight employees. The Company incurred severance charges totaling $296,000
related to the reduction in staff. All severance charges related to the restructuring have been paid as of June 30, 2009. The Company incurred additional charges totaling approximately $172,000
related to the closure of its lab facilities in South San Francisco, California. Of this amount, $6,000 was incurred as share-based compensation expense, $12,000 was a write-off of prepaid
expenses, and $154,000 was incurred for contract and other termination costs. As of June 30, 2009, $13,000 remained unpaid and is payable within one year.

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

Description

Initial
Restructuring
Charge

Payment of
Restructuring
Obligations

Accrued
Restructuring
Charge as of
March 31, 2009

Payment of
Restructuring
Obligations

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

$
296

$
(111
)
$
185

$
(185
)
$
Contract termination costs


125





125


(125
)

Other termination costs


47


(18
)

29


(16
)

13Subtotal


172


(18
)

154


(141
)

13Total

$
468

$
(129
)
$
339

$
(326
)
$
13


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

11

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 6. Restructuring and asset impairment (Continued)

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

So. San Francisco
Lab Equipment &
Leasehold
ImprovementsImpairment Loss

$
588Impaired Carrying Value as of March 31, 2009

$
57Disposals of Assets


Post Impairment Carrying Value as of March 31, 2009

$
57Disposals of Assets


(6
)Post Impairment Carrying Value as of June 30, 2009

$
51


Note 7. Picoplatin license and amendment

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

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

12

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 7. Picoplatin license and amendment (Continued)

The
Company determined the original useful life of the picoplatin intangible asset in accordance with the requirements of the Financial Accounting Standards Board's (FASB) SFAS
No. 142, "Goodwill and Other Intangible 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 consist of the picoplatin amortizable intangible asset with a gross amount of $12,000,000, net of accumulated amortization of $3,801,000 and $3,193,000 at
June 30, 2009 and December 31, 2008, respectively.

Note 8. Net loss per common share

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

Three Months Ended
June 30,

Six Months Ended
June 30,2009

2008

2009

2008Common stock options


5,782,192


5,337,944


5,782,192


5,337,944Performance-based restricted stock units


56,901





56,901


Common stock warrants


5,496,651


5,946,876


5,496,651


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 June 30, 2009 and 2008, respectively, because the effect of including such shares would not be dilutive.

13

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Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 9. Stock-based compensation

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

Number of
Shares

Weighted
Average
Exercise
Price

Weighted Average
Remaining
Contractual Term
in Years

Aggregate
Intrinsic
ValueOptions exercisable at June 30, 2009


3,068

$
7.18


6.7

$
2,310


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
June 30,

Six Months Ended
June 30,2009

2008

2009

2008Research and development expense

$
284

$
372

$
604

$
805General and administrative expense


1,142


1,262


2,115


3,187Total

$
1,426

$
1,634

$
2,719

$
3,992


The
compensation expense for the six months ended June 30, 2008 includes the grant of stock options in the first quarter 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 options, based on the Company's achievement of annual performance goals
established under its management incentive plan, at the discretion of the equity awards subcommittee of the compensation committee of the Company's board of directors. Based on the overall achievement
of corporate goals in 2007 the equity awards subcommittee accelerated vesting with respect to 20% of the shares subject to the seven-year vesting schedule in the first quarter of 2008. As
of June 30, 2009, the cumulative accelerated vesting equals 60% of the shares subject to the seven-year vesting schedule.

No
income tax benefit has been recorded for stock option expense as the Company has a full valuation allowance and management has concluded it is more likely than not that the Company's
net deferred tax assets will not be realized. As of June 30, 2009, total unrecognized costs related to employee stock compensation was $9,744,000, which is expected to be recognized over a
weighted average period of approximately 2.5 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
June 30,

Six Months
Ended
June 30,2009

2008

2009

2008Expected term (in years)


8.5


7.8


6.2


5.0Risk-free interest rate


3.41
%

3.67
%

2.42
%

3.06
%Expected stock price volatility


95
%

90
%

95
%

90
%Expected dividend rate


0
%

0
%

0
%

0
%


14

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Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 9. Stock-based compensation (Continued)

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

Note 10. Comprehensive loss

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

Three Months
Ended
June 30,

Six Months
Ended
June 30,2009

2008

2009

2008Net loss

$
9,720

$
12,531

$
22,670

$
22,386Net unrealized loss (gain) on investment securities


(337
)

107


(335
)

120Comprehensive loss

$
9,383

$
12,638

$
22,335

$
22,506


Note 11. Recent accounting pronouncements

In June 2009, the FASB issued SFAS No. 168, "TheFASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles." This standard replaces SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles," and establishes only two levels of U.S. generally accepted
accounting principles ("GAAP"), authoritative and nonauthoritative. The FASB Accounting Standards Codification (the "Codification") will become the source of authoritative, nongovernmental GAAP,
except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature
not included in the Codification will become nonauthoritative. This standard is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. The
Company will begin to use the new guidelines and numbering system prescribed by the Codification when referring to GAAP for the quarter ended September 30, 2009. As the Codification was not
intended to change or alter existing GAAP, it will not have any other impact on the Company's consolidated financial statements.

In
June 2008, the FASB ratified the consensus opinion in EITF Issue No. 07-5, "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own
Stock" (EITF 07-5). EITF 07-5 provides guidance for determining whether an equity-linked financial instrument or embedded feature is considered indexed to an
entity's own stock. The consensus establishes a two-step

15

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Table of Contents

PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 11. Recent accounting pronouncements (Continued)

approach
as a framework for determining whether an instrument or embedded feature is indexed to an entity's own stock. The approach includes evaluating (1) the instrument's contingent exercise
provisions, if any, and (2) the instrument's settlement provisions. If a financial instrument is shown not to be indexed solely to its issuing company's stock, it is required to be classified
as a liability and re-measured at fair value at each reporting period, with changes in fair value recognized in operating results. EITF 07-5 is effective for financial
statements issued for fiscal years beginning after December 15, 2008. The Company adopted EITF 07-5 on January 1, 2009 and, for the three months ended March 31,
2009, applied the requirements of the consensus to warrants issued by the Company in connection with a financing in 2005 (the 2005 financing warrants), which contain provisions requiring the
adjustment of the exercise price and the number of shares issuable if the Company sells shares of common stock at a price lower than the then-current exercise price of the warrants. The
Company recorded the cumulative effect of adopting EITF 07-5 with respect to the 2005 financing warrants as of January 1, 2009 (reductions in both additional
paid-in capital and accumulated deficit of approximately $1,255,000). The fair value of the liability recorded with respect to the 2005 financing warrants was estimated to be $57,000 and
$54,000 as of January 1, 2009 and March 31, 2009, respectively, resulting in a credit of $3,000 to other income for the three months ended March 31, 2009. Subsequent to
March 31, 2009 and upon further review of the adjustment terms of the warrants, the Company determined that the warrants' exercise provisions became fixed when an adjustment floor was reached
in connection with a financing in 2006, and, therefore, the Company's application of EITF 07-5 to the 2005 financing warrants in the first quarter of 2009 was not appropriate.
Accordingly, (i) the liability associated with the 2005 financing warrants was derecognized as of June 30, 2009, (ii) the $3,000 credit to other income recognized for the three
months ended March 31, 2009 was reversed for the three months ended June 30, 2009, and (iii) the $1,255,000 reduction in additional paid in capital and accumulated deficit that
was recognized as the cumulative effect of adopting EITF 07-5 as of January 1, 2009 were reversed as of June 30, 2009. Management believes that the effect was not
material to either the March 31, 2009 or the June 30, 2009 financial statements and accordingly, has reflected the correction in the June 30, 2009 financial statements.

Note 12. Commitments and contingencies

The Company entered into a picoplatin active pharmaceutical ingredient (API) commercial supply agreement with W.C. Heraeus (Heraeus) in March 2008. Under this agreement Heraeus will
produce picoplatin API to be used for preparing picoplatin finished drug product for commercial use. Manufacturing services are provided on a purchase order, fixed-fee basis, subject to
certain purchase price adjustments and minimum quantity requirements. The costs to Heraeus for the purchase and set-up of dedicated equipment as required under the commercial supply
agreement, estimated to be approximately $1,727,000 (including interest charges of approximately $322,000) will be repaid by the Company in the form of a surcharge on an agreed upon amount of the
picoplatin API ordered and delivered on or before December 31, 2013. If the Company orders and takes delivery of less than the agreed upon amount of picoplatin API through December 31,
2013, it will be obligated to pay the balance of the dedicated equipment cost as of that date. As of June 30, 2009, Heraeus had completed partial construction of the dedicated equipment at a
cost of approximately $1,421,000 (including interest). Because the Company is not under a present obligation to pay this amount and the agreement is not under any potential circumstance of default or
termination, it is not probable that a financial liability exists for this amount as of June 30, 2009 and therefore no such liability was recorded on the condensed consolidated balance sheet as
of that date.

16

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Table of Contents

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

Important Information Regarding Forward-Looking Statements

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

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

Critical Accounting Policies and Estimates

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

Results of Operations

Three and Six Months Ended June 30, 2009 Compared to the Three and Six Months Ended June 30, 2008

Research and Development

Our major research and development program is picoplatin, a new generation platinum-based chemotherapeutic designed to overcome
platinum resistance in the treatment of solid tumors. We completed patient enrollment in our Phase II clinical study of picoplatin in small cell lung cancer in August 2006 and, based on
positive median overall survival data from that study, we initiated a Phase III pivotal trial of picoplatin in small cell lung cancer in April 2007. We completed enrollment in our
Phase III trial in March 2009. In May 2006, we treated our first patients in two Phase I/II studies evaluating picoplatin as a first-line treatment of: (1) advanced
colorectal cancer and (2) castration-resistant (or hormone-refractory) prostate cancer. We initiated enrollment in the Phase II component of our colorectal cancer study in November 2007
and completed enrollment in May 2008. We initiated the Phase II component of our prostate cancer study in July 2007 and completed enrollment in December 2007. We also have completed a
Phase I study of an oral formulation of picoplatin in advanced solid tumors.

Research
and development expenses decreased 38% to $5.7 million, from $9.2 million during the second quarter of 2009, and decreased 11% to $13.8 million, from
$15.5 million in the six months

17

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Table of Contents

ended
June 30, 2009 compared to the comparable periods in 2008. Our research and development expenses are summarized as follows:

Three Months Ended June 30,

Six Months Ended June 30,2009

2008

% Change

2009

2008

% Change($ in thousands)



($ in thousands)Research

$
15

$
894


(98
)%
$
764

$
1,571


(51
)%Contract manufacturing


845


1,489


(43
)%

1,807


2,121


(15
)%Clinical


4,452


6,380


(30
)%

10,517


10,978


(4
)%Share-based compensation


341


388


(12
)%

669


817


(18
)%Total

$
5,653

$
9,151


(38
)%
$
13,757

$
15,487


(11
)%


Research
expenses decreased significantly during the second quarter of 2009 from the comparable period in 2008 as a result of the discontinuation of our in-house preclinical
research operations in connection with our strategic restructuring implemented effective March 31, 2009. Contract manufacturing costs decreased 43% to $0.8 million in the second quarter
of 2009 and decreased 15% to $1.8 million in the first six months of 2009 from the comparable periods in 2008. These decreases reflect reduced drug production activity due to the Company's
trials nearing completion. Clinical costs decreased 30% to $4.5 million in the second quarter of 2009 and decreased 4% to $10.5 million in the first six months of 2009 from the
comparable periods in 2008. These decreases reflect reduced clinical activity in connection with our current picoplatin studies, all of which are fully enrolled and two of which are in a
follow-up or extended follow-up stage. Share-based compensation expense decreased 12% and 18% to $0.3 million and $0.7 million, respectively, for the three and
six month periods ended June 30, 2009 from the comparable periods in 2008, due primarily to lower per share fair values of options granted in the first half of 2009, which reflect lower price
levels in our common stock during the first half of 2009, and, for the six months ended June 30, 2009, to the acceleration of vesting of certain stock options in the first quarter of 2008.

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

Three Months Ended June 30,

Six Months Ended June 30,2009

2008

% Change

2009

2008

% Change($ in thousands)



($ in thousands)Picoplatin

$
4,072

$
6,789


(40
)%
$
10,446

$
10,839


(4
)%Other unallocated costs and overhead


1,240


1,974


(37
)%

2,642


3,831


(31
)%Share-based compensation


341


388


(12
)%

669


817


(18
)%Total research and development costs

$
5,653

$
9,151


(38
)%
$
13,757

$
15,487


(11
)%


Our
external costs for picoplatin for the three and six month periods ended June 30, 2009 and for the comparable periods in 2008, reflect costs associated with our various
picoplatin clinical studies and the manufacture of drug product to support our clinical trials. We expect our external costs for picoplatin to increase slightly during the balance of 2009 as we
prepare for submission of our rolling New Drug Application, offset by lower costs for clinical trials upon completion.

As
of June 30, 2009, we have incurred external costs of approximately $64.8 million in connection with our entire picoplatin clinical program. Total estimated future costs
of our picoplatin Phase II and Phase III trials in small cell lung cancer are in the ranges of $0.1 million to $0.2 million and $20.0 million to
$25.0 million, respectively, through 2010, including the cost of drug supply. Total estimated future costs of our picoplatin Phase II trial in colorectal cancer and our Phase II
trial in

18

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Table of Contents

castration-resistant
prostate cancer are in the ranges of $4.0 million to $6.0 million and $1.5 million to $3.0 million, respectively, through 2010, including the cost of
drug supply. Total estimated future costs of our Phase I trial of an oral formulation of picoplatin are in the range of $0.1 million to $0.3 million through 2010. These costs
could be substantially higher if we have to repeat, revise or expand the scope of any of our trials. Material cash inflows relating to our picoplatin development will not commence unless and until we
complete required clinical trials and obtain FDA and foreign marketing approvals, and then only if picoplatin finds acceptance in the marketplace. To date, we have not received any revenues from
product sales of picoplatin.

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



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



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

General and Administrative

Three Months Ended June 30,

Six Months Ended June 30,2009

2008

% Change

2009

2008

% Change($ in thousands)



($ in thousands)General and administrative

$
2,293

$
2,461


(7
)%
$
4,404

$
4,719


(7
)%Share-based compensation


1,142


1,262


(10
)%

2,115


3,187


(34
)%Total

$
3,435

$
3,723


(8
)%
$
6,519

$
7,906


(18
)%


The
decrease in general and administrative expense for the three months ended June 30, 2009 is due primarily to lower consulting costs and, for the six months ended
June 30, 2009, the decrease is due primarily to lower travel costs and lower consulting costs. Share-based compensation expense included in general and administrative expenses decreased 10% and
34% to $1.1 million and $2.1 million, respectively, for the three and six month periods ended June 30, 2009 from the comparable periods in 2008, due primarily to lower per share
fair values of options granted during the first half of 2009, which reflect lower price levels in our common stock during the first half of 2009, and, for the six months ended June 30, 2009, to
the acceleration of vesting of certain stock options in the first quarter of 2008.

19

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Table of Contents

Restructuring and Asset Impairment Loss

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

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

Other Income and Expense

Three Months Ended June 30,

Six Months Ended June 30,2009

2008

% Change

2009

2008

% Change($ in thousands)



($ in thousands)Interest expense

$
(796
)
$
(331
)

140
%
$
(1,663
)
$
(692
)

140
%Interest income and other, net


164


674


(76
)%

325


1,699


(81
)%Total

$
(632
)
$
343


(284
)%
$
(1,338
)
$
1,007


(233
)%


Interest
expense increased 140% for the three and six months ended June 30, 2009 to $0.8 million and $1.7 million, respectively, from the comparable periods in 2008.
The increase was primarily due to increased interest costs resulting from additional borrowings in September 2008 under our loan facility. Interest income and other, net decreased 76% to
$0.2 million during the second quarter of 2009 and 81% to $0.3 million for the first six months of 2009 from the comparable periods in 2008. The decrease was primarily due to decreased
average yields from our investment securities portfolio.

Liquidity and Capital Resources

June 30,
2009

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

$
49,909

$
72,755Working capital


32,663


54,835Shareholders' equity


27,871


47,647




Six Months Ended
June 30,2009

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

$
(18,793
)
$
(15,180
)Investing activities


(2,574
)

20,787Financing activities


(4,174
)

(2,241
)


We
have historically experienced recurring operating losses and negative cash flows from operations. Cash, cash equivalents and investment securities, net of restricted cash of
$0.3 million, totaled $49.9 million at June 30, 2009 compared to $72.8 million at December 31, 2008. As of June 30,

20

---



Table of Contents

2009,
we had net working capital of $32.7 million, an accumulated deficit total of $384.9 million, and total shareholders' equity of $27.9 million.

We
have financed our operations to date primarily through the sale of equity securities, debt instruments, technology licensing and collaborative agreements. We invest excess cash in
investment securities that will be used to fund future operating costs. Cash used for operating activities for the six months ended June 30, 2009 totaled $18.8 million.

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

The
loan agreement contains restrictions on our ability to, among other things, dispose of certain assets, engage in certain mergers and acquisition transactions, incur indebtedness,
create liens on assets, make investments, pay dividends and repurchase stock. The loan agreement also contains covenants requiring us to maintain a minimum amount of unrestricted cash during the term
of the loan equal to the lesser of (i) $17.9 million or (ii) the outstanding aggregate principal balance of the term loans plus $4.0 million. The loan agreement contains
events of default that include nonpayment of principal, interest or fees, breaches of covenants, material adverse changes, bankruptcy and insolvency events, cross defaults to any other indebtedness,
material judgments, inaccuracy of representations and warranties and events constituting a change of control. The occurrence of an event of default would increase the applicable rate of interest by 5%
and could result in the acceleration of our payment 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 June 30, 2009, the net loan balance under the loan facility was $22.1 million.

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

21

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Table of Contents

During
the six months ended June 30, 2009, we paid total rent (base rent and additional rent based on our share of facility common operating expenses) of $0.7 million under
the operating leases for our South San Francisco headquarters and our Seattle facility. Of this amount, $0.6 million represents total aggregate minimum lease payments under these leases.

We
have entered into clinical supply agreements with Heraeus and Baxter, pursuant to which they produce picoplatin API and finished drug product, respectively, for our clinical trials.
Manufacturing services under these clinical supply agreements are provided on a purchase order, fixed-fee basis. Our API clinical supply agreement continues in effect until it is
terminated by mutual agreement of the parties or by either party in accordance with its terms. Our finished drug product clinical supply agreement runs for an initial term ending December 31,
2009, and is subject to renewal for two additional one-year terms, at our option. The total aggregate cost of clinical supplies of picoplatin API and finished drug product for the three
and six months ended June 30, 2009 was $0.4 million and $1.0 million, respectively. We believe that we presently have adequate supplies of picoplatin API and finished drug product
to complete our current clinical trials.

We
also have entered into a picoplatin API commercial supply agreement with Heraeus in March 2008 and a finished drug product commercial supply agreement with Baxter in November 2008.
Under these agreements, Heraeus and Baxter will produce picoplatin API and finished drug product, respectively, for commercial use. Manufacturing services are provided on a purchase order,
fixed-fee basis, subject to certain purchase price adjustments and minimum quantity requirements. The costs to Heraeus for the purchase and set-up of dedicated equipment,
estimated to be approximately $1.7 million (including interest charges of approximately $0.3 million), will be repaid by us in the form of a surcharge on an agreed upon amount of the
picoplatin API ordered and delivered on or before December 31, 2013. If we order and take delivery of less than the agreed upon amount of picoplatin API through December 31, 2013, we
will be obligated to pay the balance of the dedicated equipment cost as of that date. As of June 30, 2009, Heraeus had completed partial construction of the dedicated equipment at a cost of
approximately $1.4 million (including interest). Because we are not under a present obligation to pay this amount and the agreement is not under any potential circumstance of default or
termination, it is not probable that a financial liability exists for this amount as of June 30, 2009 and therefore no such liability was recorded on the condensed consolidated balance sheet as
of that date.

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

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



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

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



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

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

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

Item 4.    Controls and Procedures

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

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

Item 4.    Submission of Matters to a Vote of Security Holders

The Company's annual meeting of shareholders was held on June 24, 2009. The following nine nominees were reelected as directors,
each to hold office until his successor is elected and qualified, by the vote set forth below:

Nominee

For

AbstainGerald Mc Mahon


29,793,694


260,649Robert S. Basso


28,942,295


1,112,048Frederick B. Craves


29,809,691


244,652E. Rolland Dickson


28,940,610


1,113,733Carl S. Goldfischer


29,806,213


248,130Robert M. Littauer


28,884,803


1,169,540Ronald A. Martell


29,809,396


244,947Nicholas J. Simon III


28,602,180


1,452,163David R. Stevens


29,811,948


242,395


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:    August 7, 2009

By:

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


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EXHIBIT INDEX

Exhibit

Description10.1

Poniard Pharmaceuticals, Inc. Management Incentive Plan

(A)31.1

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

(A)31.2

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

(A)32.1

Section 1350 Certification of Chairman and Chief Executive Officer

(A)32.2

Section 1350 Certification of Chief Financial Officer

(A)


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