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, 2010oro

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 30, 2010, 48,130,866 shares of the registrant's common stock, $0.02 par value per share, were outstanding.



---





TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q  FOR THE QUARTER ENDED JUNE 30, 2010

PAGEPART I

FINANCIAL INFORMATIONItem 1.

Financial Statements:Condensed Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December 31, 2009 (Note 1)


3Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)


4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited)


5Notes to Condensed Consolidated Financial Statements (Unaudited)


6Item 2.

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


22Item 3.

Quantitative and Qualitative Disclosures About Market Risk


31Item 4.

Controls and Procedures


31PART II

OTHER INFORMATIONItem 1A.

Risk Factors


32Item 5.

Other Information


33Item 6.

Exhibits


34Signatures


35Exhibit Index


36


2

---





PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

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

June 30, 2010

December 31, 2009(Unaudited)

(Note 1)ASSETSCurrent assets:Cash and cash equivalents

$
10,201

$
15,938Cashrestricted


158


281Investment securities


19,068


27,451Prepaid expenses and other current assets


721


826Total current assets


30,148


44,496Facilities and equipment, net of depreciation of $1,142 and $1,199 at June 30, 2010 and December 31, 2009, respectively


98


219Other assets


51


135Licensed products, net


6,985


7,592Total assets

$
37,282

$
52,442LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
543

$
849Accrued liabilities


3,490


7,679Current portion of note payable and capital lease obligations


7,886


8,599Total current liabilities


11,919


17,127Long-term liabilities:Note payable, noncurrent portion, net of debt discounts


6,781


10,186Capital lease obligations


1,529


1,485Total long-term liabilities


8,310


11,671Commitments and contingenciesShareholders' equity:Preferred stock, $0.02 par value, 2,998,425 shares authorized:Convertible preferred stock, Series 1, 78,768 and 205,340 shares issued and outstanding as of June 30, 2010 and December 31, 2009,
respectively (entitled in liquidation to $1,985 and $5,175, respectively)


2


4Common stock, $0.02 par value, 200,000,000 shares authorized:48,045,866 and 42,079,468 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively


961


842Additional paid-in capital


443,318


430,971Other comprehensive gain/(loss)


3


(17
)Accumulated deficit


(427,231
)

(408,156
)Total shareholders' equity


17,053


23,644Total liabilities and shareholders' equity

$
37,282

$
52,442


See notes to the condensed consolidated financial statements.

3

---





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

Three Months Ended
June 30,

Six Months Ended
June 30,2010

2009

2010

2009Operating expenses:Research and development

$
2,088

$
5,311

$
6,979

$
13,489General and administrative


3,888


3,777


8,687


6,787Restructuring








1,626


468Asset impairment loss











588Total operating expenses


5,976


9,088


17,292


21,332Loss from operations


(5,976
)

(9,088
)

(17,292
)

(21,332
)Other (expense) income:Interest expense


(594
)

(796
)

(1,228
)

(1,663
)Interest income and other, net


24


164


85


325Total other (expense) income, net


(570
)

(632
)

(1,143
)

(1,338
)Net loss


(6,546
)

(9,720
)

(18,435
)

(22,670
)Preferred stock dividends


(48
)

(125
)

(70
)

(250
)Preferred stock dividends, in-kind








(570
)

Net loss applicable to common shareholders

$
(6,594
)
$
(9,845
)
$
(19,075
)
$
(22,920
)Net loss per share applicable to common shareholdersbasic and diluted

$
(0.14
)
$
(0.28
)
$
(0.42
)
$
(0.66
)Weighted average common shares outstandingbasic and diluted


47,525


34,712


45,401


34,700


See
notes to the condensed consolidated financial statements.

4

---





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

Six Months Ended
June 30,2010

2009Cash flows from operating activities:Net loss

$
(18,435
)
$
(22,670
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


662


773Amortization of discount on notes payable


577


745Accretion of premium on investment securities


286


220Loss/(gain) on disposal of facilities and equipment


65


(18
)Asset impairment loss





588Restructuring


670


31Interest accrued on capital lease obligation


44


Share-based compensation issued for services


373


65Share-based employee compensation


5,429


2,719Change in operating assets and liabilities:Prepaid expenses and other assets


109


164Accounts payable


(306
)

1,425Accrued liabilities


(4,833
)

(2,835
)Net cash used in operating activities


(15,359
)

(18,793
)Cash flows from investing activities:Proceeds from sales and maturities of investment securities


15,439


24,650Purchases of investment securities


(7,322
)

(27,230
)Facilities and equipment purchases





(18
)Proceeds from disposals of facilities and equipment


42


24Net cash provided by (used in) investing activities


8,159


(2,574
)Cash flows from financing activities:Repayment of principal on note payable


(4,618
)

(3,943
)Repayment of capital lease obligation


(38
)

Decrease in restricted cash


123


Proceeds from stock options exercised





19Net proceeds from issuance of common stock


6,092


Payment of preferred dividends


(96
)

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


1,463


(4,174
)Net decrease in cash and cash equivalents


(5,737
)

(25,541
)Cash and cash equivalents:Beginning of period


15,938


44,144End of period

$
10,201

$
18,603Supplemental disclosure of non-cash financing activities:Accrual of preferred dividend

$
70

$
250Preferred stock dividends, in-kind


570


Supplemental disclosure of cash paid during the period for:Interest

$
635

$
946


See
notes to the condensed consolidated financial statements.

5

---





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

Note 1. Business Overview and Summary of Significant Accounting Policies

Overview

Poniard Pharmaceuticals, Inc. is a biopharmaceutical company focused on the development and commercialization of cancer
therapeutics. The accompanying condensed consolidated financial statements include the accounts of Poniard Pharmaceuticals, Inc. and its wholly-owned subsidiary, NeoRx Manufacturing
Group, Inc. (the "Company"). All intercompany balances and transactions have been eliminated.

Basis of Presentation

The accompanying condensed consolidated financial statements contained herein have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally
accepted in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company's management, the accompanying interim unaudited condensed
consolidated 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,
2010, results of operations for the three and six months ended June 30, 2010 and 2009, and cash flows for the six months ended June 30, 2010 and 2009.

The
results of operations for the period ended June 30, 2010 are not necessarily indicative of the expected operating results for the full year.

The
balance sheet as of December 31, 2009 has been derived from the audited financial statements at that date. The balance sheet does not include all of the information and
footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010, and available on the SEC's website, www.sec.gov.

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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain balances and results from the prior year have been reclassified to conform to the Company's current year presentation. In
particular, certain legal expenses related to intellectual property and patents have been reclassified from research and development expense to general and administrative expense in the condensed
consolidated statements of operations to conform with the current year's presentation. The amounts reclassified for these patent-related legal expenses for the three and six months ended
June 30, 2009 are $342,000 and $268,000, respectively. The Company's reclassifications had no effect on total operating expenses, net loss or shareholders' equity.

6

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1. Business Overview and Summary of Significant Accounting Policies (Continued)

Significant Risks and Uncertainties

The Company has historically suffered recurring operating losses and negative cash flows from operations. As of June 30, 2010,
the Company had net working capital of $18,229,000, an accumulated deficit of $427,231,000 and total shareholders' equity of $17,053,000. The Company's total cash, cash equivalents and investment
securities balances, net of restricted cash of $158,000, was $29,269,000 at June 30, 2010. The Company has financed its operations to date primarily through the sale of equity securities,
borrowings under debt instruments, technology licensing and collaborative agreements. The Company invests 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, 2010 totaled $15,359,000. The Company is focusing its resources on the continued development of its primary product candidate,
picoplatin. Based on the Company's activities to date for the development of registration strategies for picoplatin and its evaluation of strategic alternatives, the Company does not anticipate that
its picoplatin product will be commercially available before 2014, if at all. As a result, the Company does not have a predictable source of revenue or other cash flows and does not expect to generate
cash from operations for the foreseeable future. Thus, the Company is dependent upon its ability to sell equity instruments, borrow, or enter into licensing agreements or other strategic relationships
to provide capital to sustain its operations. In March 2010, in connection with the adoption of an initiative to develop registration strategies for picoplatin in multiple indications, the Company
engaged an investment banker to conduct a comprehensive review of strategic alternatives, including raising additional capital, a merger or sale of the Company or partnering with another company. The
Company may not be able to obtain required additional capital or enter into relationships with corporate partners or other third parties on a timely basis, on terms ultimately favorable to the
Company, or at all. Conditions in the capital markets in general, and in the life science capital markets specifically, may affect the Company's potential financing sources and opportunities for
partnering or other strategic relationships. If the Company is unable to secure additional capital to fund its working capital and capital expenditure requirements, it may be forced to explore
liquidation alternatives, including seeking protection from creditors through the application of bankruptcy laws.

On
July 20, 2010, the Company received a letter from The Nasdaq Stock Market stating that the minimum bid price of its common stock has been below $1.00 per share for 30
consecutive business days and that the Company therefore is not in compliance with the minimum bid price requirements of The Nasdaq Global Market. The Company has 180 calendar days, or until
January 18, 2011, to regain compliance with the minimum bid price requirement, which would consist of the closing bid price of its common stock meeting or exceeding $1.00 per share for at least
ten consecutive business days during the 180-day grace period. If the Company does not regain compliance by January 18, 2011, it may, at that time, appeal any delisting
determination to a Nasdaq Hearings Panel. Alternatively, if at that time the Company satisfies all of the initial listing standards, with the exception of the minimum bid price, for The Nasdaq Capital
Market, it could apply to transfer the listing of its common stock to The Nasdaq Capital Market and thereby receive an additional 180 calendar days to regain compliance with the minimum bid price
requirement. The notification of noncompliance has no immediate effect on the listing or trading of the Company's common stock on The Nasdaq Global Market. There can be no assurance the Company will
be able to regain and/or maintain compliance with the minimum bid price or other Nasdaq continued listing requirements. For further information, see "Item 1A, Risk Factors," in Part I of
this Form 10-Q.

7

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1. Business Overview and Summary of Significant Accounting Policies (Continued)

The
Company's loan facility with GE Business Financial Services and Silicon Valley Bank, described in Note 5 below, requires that the Company maintain a minimum amount of cash,
cash equivalents and investments ("unrestricted cash") during the term of the loan equal to the lesser of (i) $17,940,000 or (ii) the outstanding aggregate principal balance of the term
loans plus $4,000,000. Taking into account the minimum unrestricted cash requirement under the Company's loan agreement and its 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 through the end of 2010. Thereafter, unless the Company raises additional funds, or
enters into a partnering or other strategic relationship, it will be in default of the minimum unrestricted cash requirement and potentially other provisions of the loan agreements. 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. 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. If an event of default were to occur, the Company might not have sufficient funds to repay the loan or to fund its continuing operations. Provisions of the loan agreement would limit the
Company's ability to dispose of certain assets, engage in certain mergers, incur certain indebtedness, make certain distributions, and engage in certain investment activities without the prior consent
of the lenders.

Subsequent Events Evaluation

The Company has reviewed and evaluated material subsequent events through the date that the financial statements were available for
issuance and all appropriate subsequent events disclosures, if any, have been made in the notes to the unaudited condensed consolidated financial statements.

Recent Accounting Standards

In October 2009, the Financial Accounting Standards Board ("FASB") issued new standards for revenue recognition with multiple
deliverables. These new standards impact the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally,
these new standards modify the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating
arrangement consideration. These new standards
are required to be adopted in the first quarter of 2011; however, early adoption is permitted. The Company believes that these new standards would have an impact on its consolidated financial
statements in the future were it to enter into an arrangement with multiple deliverables.

In
April 2010, the FASB issued updated guidance on defining milestones and determining when it may be appropriate to apply the milestone method of revenue recognition for research and
development transactions involving arrangements with deliverables in which one or more payments are contingent upon achieving uncertain future events or circumstances. The updates are effective on a
prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010, with early adoption permitted. The Company believes that
this new guidance would have an impact on its consolidated financial statements if it were to enter into any milestone-based revenue agreements in the future.

8

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Fair Value Measurements

The Company categorizes assets and liabilities recorded at fair value in its condensed consolidated balance sheets based upon the level of judgment associated with inputs used to measure
their value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then ranks the estimated values based on
the reliability of the inputs used following the fair value hierarchy set forth by the FASB. The three levels of the FASB fair value hierarchy are as follows:



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

The
following tables present 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, 2010Total

Level 1

Level 2

Level 3Cash equivalents

$
8,451

$
8,451

$


$
Investment securities


19,068





19,068


$
27,519

$
8,451

$
19,068

$





Fair Value Measurements as of
December 31, 2009Total

Level 1

Level 2

Level 3Cash equivalents

$
15,447

$
15,447

$


$
Investment securities


27,451





27,451


$
42,898

$
15,447

$
27,451

$



As
of June 30, 2010 and December 31, 2009, the Company's cash equivalents and investment securities are recorded at fair value as determined through market prices and other
observable and corroborated sources. At June 30, 2010, the cash equivalents balance consists of $7,301,000 in money market funds and $1,150,000 of corporate debt securities purchased with a
maturity date less than

9

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Fair Value Measurements (Continued)

90 days
from the purchase date. Investment securities are comprised of corporate debt securities and federal government and agency securities (see Note 3 below for further details on
investment securities).

When
the estimated fair value of a security is below its carrying value, the Company evaluates whether it is more likely than not that it will be required to sell the security before its
anticipated recovery in
market value and whether evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. The Company also evaluates whether or
not it intends to sell the investment. If the impairment is considered to be other-than-temporary, the security is written down to its estimated fair value. In addition, the
Company considers whether credit losses exist for any securities. A credit loss exists if the present value of cash flows expected to be collected is less than the amortized cost basis of the
security. Other-than-temporary declines in estimated fair value and credit losses are charged to investment income. The Company has not deemed it necessary to record any
charges related to impairments or other-than-temporary declines in the estimated fair values of its marketable debt securities or credit losses as of June 30, 2010.

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 gain/(loss) on the condensed consolidated balance sheets. Realized gains and losses and declines in value judged to be other-than-temporary
(of which there have been none to date) on available-for-sale securities are included in interest income and other, net, in the condensed consolidated statements of operations.

Investment
securities consisted of the following at June 30, 2010 (in thousands):

Gross UnrealizedAmortized
Cost

Estimated
Fair ValueGains

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

$
6,472

$
3

$


$
6,475Corporate debt securities, with unrealized losses


5,297





(5
)

5,292Federal government and agency securities, with unrealized gains


7,296


5





7,301$
19,065

$
8

$
(5
)
$
19,068Net unrealized gain







$
3Maturity:Less than one year

$
17,905







$
17,907Due in 1 - 2 years


1,160








1,161$
19,065







$
19,068


10

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3. Investment Securities (Continued)

Investment securities consisted of the following at December 31, 2009 (in thousands):

Gross UnrealizedAmortized
Cost

Estimated
Fair ValueGains

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

$
12,608

$
8

$


$
12,616Corporate debt securities, with unrealized losses


5,565





(13
)

5,552Federal government and agency securities, with unrealized gains


1,509


1





1,510Federal government and agency securities, with unrealized losses


7,786





(13
)

7,773$
27,468

$
9

$
(26
)
$
27,451Net unrealized loss







$
(17
)Maturity:Less than one year

$
23,199







$
23,198Due in 1 - 2 years


4,269








4,253$
27,468







$
27,451


Note 4. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

June 30,
2010

December 31,
2009Clinical trials

$
1,486

$
6,550Accrued expenses


646


803Compensation


688


326Severance


670


$
3,490

$
7,679


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 the lenders, 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

11

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5. Note Payable (Continued)

(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 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 $675,000 to GE Business Financial Services on
March 31, 2010. 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. At June 30, 2010, the outstanding principal balance under the loan facility was $14,667,000, net of
discount of $1,103,000.

In
connection with the loan agreement, the Company issued 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 discount to notes payable. The total of the final loan payments and the proceeds allocated to the warrants of
approximately $4,051,000 is being amortized to interest expense using an effective interest rate of 13.8%. The warrants became exercisable upon issuance and are exercisable anytime during their term.
In October 2009, Silicon Valley Bank exercised its warrants held in connection with the 2006 and 2008 loan agreements to purchase an aggregate of 197,169 common shares, net of equivalent shares at
market to cover the total exercise price. In November 2009, the Company amended the warrants held by GE Business Financial Services in connection with the 2006 and 2008 loan agreements to purchase an
aggregate of 197,169 common shares to change the exercise price to $2.00 per share resulting in an increase in shareholders' equity and a charge to interest expense of $33,000 in 2009.

The
loan agreement contains restrictions on the Company's ability to, among other things, dispose of certain assets, engage in certain mergers and acquisition transactions, incur
indebtedness, create liens on assets, make investments, pay dividends and repurchase stock. The loan agreement also contains covenants requiring the Company to maintain unrestricted cash in an amount
equal to the lesser of (i) $17,940,000 or (ii) the outstanding aggregate principal balance of the term loans plus $4,000,000. The loan agreement contains events of default that include
nonpayment of principal, interest or fees, breaches of covenants, material adverse changes, bankruptcy and insolvency events, cross defaults to any other indebtedness, material judgments, inaccuracy
of representations and warranties, and events constituting a change of control. The occurrence of an event of default would increase the applicable rate of interest by 5% and could result in the
acceleration of the Company's payment obligations under the loan agreement. The Company was in compliance with all loan covenants as of June 30, 2010.

12

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 6. Common Stock Purchase Agreement

On February 23, 2010, the Company entered into an equity line of credit facility with Commerce Court Small Cap Value Fund, Ltd. ("Commerce Court"). The facility provides
that, upon the terms and subject to the price and share amount parameters and other conditions thereof, Commerce Court is committed to purchase up to $20,000,000 worth of shares of the Company's
registered common stock over approximately 18 months; provided, however, that in no event may the Company issue to Commerce Court more than 8,423,431 shares of common stock, which is equal to
one share less than 20% of the Company's outstanding common shares on the closing date of the facility, less 121,183 shares issued to Commerce Court as a commitment fee. The purchase price of the
shares will be equal to the daily volume weighted average price over eight consecutive trading days or such other draw down period mutually agreed upon by the parties, less a discount ranging from
3.125% to 5.0%, based on the trading price of the Company's common stock. In addition, Commerce Court may not at any time acquire shares if, after giving effect to such purchase, Commerce Court would
beneficially own 9.9% or more of the Company's outstanding common stock. Commerce Court is not obligated to purchase shares at a price that is less than $1.00 per share (before taking into account the
discount). On March 15, 2010, the Company completed a draw down and sale of 4,229,000 shares of its common
stock, at a price of approximately $1.49 per share, to Commerce Court under the equity line of credit facility. Net proceeds of approximately $6,092,000 were received, after deducting offering costs
of approximately $228,000.

Note 7. Restructuring and Asset Impairment

April 2010 Restructuring

On March 24, 2010, the Company announced a restructuring plan in connection with its decision to suspend efforts to pursue a New
Drug Application for its drug candidate, picoplatin, in small cell lung cancer. This restructuring plan resulted in a decrease in the number of employees by approximately 45%, to a total of 12
employees, effective April 30, 2010. In connection with this plan, the Company recorded a restructuring charge of approximately $543,000 for the period ended March 31, 2010, consisting
of one-time employee termination benefits, which will be paid in their entirety by January 31, 2011. As a consequence of the restructuring, approximately 965,000 restricted stock
units ("RSUs"), which were awarded in February 2010 pursuant to the Amended and Restated 2004 Incentive Compensation Plan (the "2004 Plan"), became fully vested in accordance with the terms of the
underlying RSU agreements (see Note 10 for additional information). These RSUs converted to common stock on a one-for-one basis in the second quarter of 2010. The
Company recognized approximately $1,486,000 in share-based compensation expense for terminated employees during the six month period ended June 30, 2010 related to the accelerated vesting of
these RSUs as a result of the restructuring.

The
following table summarizes the impact of the restructuring charges reported in the condensed consolidated statement of operations for the six months ended June 30, 2010 and in
accrued liabilities

13

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7. Restructuring and Asset Impairment (Continued)

in
the condensed consolidated balance sheet as of June 30, 2010 related to the April 2010 restructuring (in thousands):

Description

Initial
Restructuring
Charge
March 2010

Payment of
Restructuring
Obligations

Accrued
Restructuring
Charge as of
June 30, 2010Employee termination benefits

$
543

$
(297
)
$
246


February 2010 Restructuring

On February 5, 2010, the Company implemented a restructuring plan to conserve its capital resources, resulting in a reduction in
the Company's workforce by approximately 57%, to 22 employees. The Company incurred restructuring charges of approximately $1,083,000, primarily consisting of one-time employee termination
benefits. As a consequence of the restructuring, approximately 130,000 RSUs, which were awarded in July 2009 pursuant to the 2004 Plan, became fully vested in accordance with the terms of the
underlying RSU agreements (see Note 10 for additional information). These RSUs converted to common stock on a one-for-one basis in February 2010. The Company recognized
approximately $174,000 in share-based compensation expense in the first quarter of 2010 related to the accelerated vesting of these RSUs as a result of the restructuring.

The
following table summarizes the impact of the restructuring charges reported in the condensed consolidated statement of operations for the six months ended June 30, 2010 and in
accrued liabilities in the condensed consolidated balance sheet as of June 30, 2010 related to the February 2010 restructuring (in thousands):

Description

Initial
Restructuring
Charge
February 2010

Payment of
Restructuring
Obligations

Accrued
Restructuring
Charge as of
June 30, 2010Employee termination benefits

$
1,061

$
(637
)
$
424Other termination costs


22


(22
)

Total

$
1,083

$
(659
)
$
424


March 2009 Restructuring

On March 31, 2009, the Company implemented a strategic restructuring plan to refocus its cash resources on clinical and
commercial development of picoplatin, which resulted in the discontinuation of the Company's preclinical research operations and in the reduction of its workforce by approximately 12%, to a total of
57 employees. The Company incurred severance charges totaling $296,000 related to the reduction in staff. All severance charges related to the restructuring
were paid in 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. All outstanding liabilities
for contract and termination costs were paid in 2009.

14

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7. Restructuring and Asset Impairment (Continued)

The following table summarizes the impact of the restructuring charges reported in the condensed consolidated statements of operations for the periods ended June 30, 2009 and 2010
and in accrued
liabilities in condensed consolidated balance sheets as of December 31, 2009 and June 30, 2010 related to the March 2009 restructuring (in thousands):

Description

Initial
Restructuring
Charge
March 2009

Payment of
Restructuring
Obligations

Accrued
Restructuring
Charge as of
December 31, 2009Employee termination benefits

$
296

$
(296
)
$
Contract termination costs


125


(125
)

Other termination costs


47


(47
)

Subtotal


172


(172
)

Total

$
468

$
(468
)
$



In
conjunction with the decision to discontinue the Company's preclinical research operations during the quarter ended March 31, 2009, 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. All remaining impaired assets held for sale were sold in January 2010.

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

Lab Equipment &
Leasehold
ImprovementsImpairment loss

$
588Impaired carrying value upon restructuring March 31, 2009

$
57Disposals of assets


(52
)Post impairment carrying value as of December 31, 2009


5Disposals of assets


(5
)Post impairment carrying value as of June 30, 2010

$



Note 8. Picoplatin License and Amendment

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

15

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 8. Picoplatin License and Amendment (Continued)

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 2 clinical trial in patients with small
cell lung cancer and reasonably expected that the intravenous formulation could be used in additional, currently identifiable R&D
projects in the form of clinical trials for other solid tumor cancer indications, such as prostate and colorectal cancers.

The
Company, at the time of acquisition of the picoplatin license, reasonably anticipated using intravenous picoplatin in clinical trials that could be conducted during the remaining
term of the primary patent, which is active through 2016. The Company concluded that the 12 years remaining for the primary patent term was the appropriate useful life for the picoplatin
intangible asset, in accordance with the FASB's guidance for intangibles, and is amortizing the initial $2,000,000 license payment over this 12 year useful life beginning in April 2004. The
Company concluded that no change in the 12 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 12 year useful life and is amortizing the license amendment payment of $10,000,000 over the remainder of the 12 year useful life of the
picoplatin intangible asset.

The
Company reviews its long-lived assets for possible impairment whenever significant events indicate such impairment may have occurred. In November 2009, the Company
announced that its pivotal Phase 3 SPEAR trial of picoplatin in the second-line treatment of patients with small cell lung cancer did not meet its primary endpoint of overall
survival. The Company considers this event to be a trigger for testing its picoplatin intangible asset for possible impairment; however, upon review of the expected future undiscounted net cash flows
identifiable to the picoplatin license, the Company determined that the picoplatin intangible asset is recoverable and that no impairment occurred.

Licensed
products consists of the picoplatin amortizable intangible asset with a gross amount of $12,000,000, net of accumulated amortization of $5,015,000 and $4,408,000 at
June 30, 2010 and December 31, 2009, respectively.

16

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 9. Net Loss Per Common Share

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

Three Months Ended
June 30,

Six Months Ended
June 30,2010

2009

2010

2009Common stock options


5,842,289


5,782,192


5,842,289


5,782,192Restricted stock units


3,214,639


56,901


3,214,639


56,901Common stock warrants


5,085,196


5,496,651


5,085,196


5,496,651


In
addition, 14,966 and 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, 2010 and 2009, respectively, because the effect of including such shares would not be dilutive.

Note 10. Share-based Compensation

A summary of the Company's 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, 2010


4,047

$
6.46


5.95

$



The
Company recorded the following amounts of share-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 30,2010

2009

2010

2009Research and development expense

$
634

$
284

$
2,003

$
604General and administrative expense


1,388


1,142


3,426


2,115Total

$
2,022

$
1,426

$
5,429

$
2,719


The
share-based compensation expense for the six months ended June 30, 2009 includes a stock option granted during the first quarter of 2009 to a Company officer to purchase an
aggregate of

17

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10. Share-based Compensation (Continued)

200,000
shares of common stock that vests over a four year period. The share-based compensation expense for the six months ended June 30, 2010 includes a stock option granted during the first
quarter of 2010 to a Company officer to purchase an aggregate of 500,000 shares of common stock that vests
over a four year period. There were no options granted during the three month period ended June 30, 2010.

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 30,2010

2009

2010

2009Expected term (in years)





8.5


5.0


6.2Risk-free interest rate





3.41
%

2.22
%

2.42
%Expected stock price volatility





95
%

95
%

95
%Expected dividend rate





0
%

0
%

0
%


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 2009, the equity awards subcommittee accelerated vesting with respect to 25% of the shares subject
to the seven year vesting schedule in the first quarter of 2010. As of June 30, 2010, the cumulative accelerated vesting for options subject to the seven year vesting schedule equals 85% of the
shares granted in 2006 and 65% of the shares granted in 2007.

18

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10. Share-based Compensation (Continued)

The
Company's share-based compensation expense also includes RSUs awarded to employees and non-employee consultants. The table below summarizes RSU awards outstanding as of
June 30, 2010 (RSUs in thousands):

Award Date

RSUs
Awarded

RSUs
Vested

RSUs
Forfeited

Unvested
RSUs as of
June 30,
2010

Weighted
Average
Grant Date
Fair Value
per RSU06/09/2010


961








961

$
0.8304/20/2010


15


(7
)




8


1.2004/09/2010


587








587


1.1402/04/2010


2,354


(965
)




1,389


1.54
(A)12/08/2009


15





(15
)




2.30
(B)10/06/2009


100








100


7.2707/23/2009


290


(264
)

(26
)




7.34
(C)07/11/2009


170








170


6.60
(B)10/31/2008


96


(89
)

(7
)




3.13Total RSUs


4,588


(1,325
)

(48
)

3,215


(A)On
February 4, 2010, the Company awarded approximately 2,354,000 RSUs to certain employees and officers as an incentive for future performance. The
RSUs become fully vested on December 31, 2010, subject to earlier acceleration upon termination of employment by the Company without cause. Due to the Company's restructuring that was effective
April 30, 2010 (see Note 7 for further discussion), approximately 965,000 of these RSUs became fully vested on April 30, 2010. The Company determined the expense for these awards
on a straight-line basis from grant date through the accelerated vesting date.(B)RSUs
awarded to non-employee consultants. For share-based compensation expense, these awards are revalued to the underlying market price of the
Company's common stock as of June 30, 2010, or $0.60 per unit.(C)On
July 23, 2009, the Company awarded 290,400 RSUs to non-officer employees as an incentive for future performance. The vesting schedule
for these awards was based on the achievement of certain performance milestones during 2010, subject to acceleration upon termination of employment by the Company without cause. Due to the Company's
February 2010 restructuring (see Note 7 for further discussion), approximately 157,000 of these RSUs became fully vested on February 5, 2010.


No
income tax benefit has been recorded for share-based compensation expense as the Company has a full valuation allowance and management has concluded that it is more likely than not
that the Company's net deferred tax assets will not be realized. As of June 30, 2010, total unrecognized costs related to employee share-based compensation is approximately $7,146,000.
Unrecognized share-based compensation expense from outstanding stock options is approximately $3,861,000 and is expected to be recognized over a weighted average period of approximately
2.0 years. Unrecognized share-based

19

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10. Share-based Compensation (Continued)

compensation
expense from outstanding RSUs is approximately $3,285,000 and is expected to be recognized over a weighted average period of approximately 1.3 years subject to acceleration with
the occurrence of certain qualifying events.

Note 11. Comprehensive Loss

The Company's comprehensive loss for the three and six months ended June 30, 2010 and 2009 is summarized as follows (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2010

2009

2010

2009Net loss

$
6,546

$
9,720

$
18,435

$
22,670Net unrealized gain on investment securities


(13
)

(337
)

(20
)

(335
)Comprehensive loss

$
6,533

$
9,383

$
18,415

$
22,335


Note 12. Commitments and Contingencies

The Company entered into a picoplatin active pharmaceutical ingredient ("API") commercial supply agreement with W.C. Heraeus GmbH ("Heraeus") in March 2008. Under this agreement
Heraeus will produce the 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, 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 December 31, 2009, Heraeus had completed construction of the dedicated equipment at a total cost of approximately $1,485,000. The Company determined that the equipment should
be accounted for as a capital lease and accordingly recognized an asset and long term obligation for the equipment of $1,485,000 on its consolidated balance sheet as of December 31, 2009. The
Company will reflect the surcharge payments as reductions to the capital lease balance outstanding, and will accrete a finance charge to interest expense as specified under the agreement. The balance
of the obligation at June 30, 2010 was $1,529,000, including accreted interest of approximately $44,000. The Company does not anticipate beginning production of commercial supplies of
picoplatin API, thereby utilizing the dedicated equipment, within the next 12 months and has, therefore, classified the obligation as long-term. Due to the delay in the Company's
plans for the commercialization of picoplatin, the Company determined that its capital lease asset for equipment under the Heraeus agreement was impaired as of December 31, 2009 and, therefore,
recognized an asset impairment charge of $1,485,000 in the consolidated statement of operations during the quarter ended December 31, 2009.

20

---



PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 13. Exchange of Preferred Stock

On February 6, 2010, the Company issued 379,956 shares of its common stock to an institutional shareholder in exchange for the shareholder's delivery to the Company of 126,572
shares of the Company's outstanding $2.4375 convertible exchangeable preferred stock, Series 1 ("Series 1 shares"). The shareholder approached the Company with the proposed exchange
transaction and the final terms of the exchange were determined by arms-length negotiation between the parties. A portion of the common stock issued by the Company in the exchange was in
addition to the number of shares that were calculable under the exchange provisions of the Series 1 preferred stock designation of rights in the Company's articles of incorporation. This
portion was accounted for by the Company as an in-kind dividend, the fair value of which is $570,000. The Series 1 shares received by the Company in the exchange constitute
authorized but unissued shares of preferred stock of the Company.

21

---





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 Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "could," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "project," "potential," "propose," "continue," "assume"
or other similar expressions, or the negatives of those expressions. All statements contained in this Form 10-Q regarding our corporate objectives and strategies, future operations,
potential partnering and other strategic transactions, projected financial position, planned product development activities, proposed registration strategies and product indications, future regulatory
approvals, proposed product commercialization, adequacy of current cash resources, projected costs, potential sources and availability of capital, ability to regain and maintain compliance with Nasdaq
continued listing requirements, future prospects, the future of our industry, and results that might be obtained by pursuing management's current plans and objectives are forward-looking statements.

You
should not place undue reliance on our forward-looking statements because 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. Our forward-looking statements are based on the information currently available to us and speak only as of the date of this report
or, in the case of forward-looking statements incorporated herein by reference, the date of the filing that includes the statement. Over time, our actual results, performance or achievements may
differ from those expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our security holders. Except as required by law, 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.

We
have identified some of the important factors that could cause future events to differ from our current expectations and they are described in our Annual Report on
Form 10-K for the year ended December 31, 2009, filed with the SEC on March 16, 2010 and available on the SEC's website, www.sec.gov,including under the heading "Risk Factors" in the
Form 10-K, and in this Form 10-Q, including in this
"Management's Discussion and Analysis of Financial Condition and Results of Operation" and in the section entitled "Risk Factors" in Part II of this report. Please consider our forward-looking
statements in light of these risks as you read this report.

Background and Corporate Update

During the first quarter of 2010, we completed a management restructuring and reduced our workforce as we refocused our clinical and
regulatory goals. On March 24, 2010, we announced that we were suspending our effort to file a New Drug Application, or NDA, seeking approval of picoplatin as a second-line
treatment for patients with small cell lung cancer. We made this decision following a detailed analysis of primary and updated data from our Phase 3 SPEAR (Study of Picoplatin Efficacy After
Relapse) study and an evaluation of the NDA process with the U.S. Food and Drug Administration, or FDA. We now are focusing our efforts on developing registration strategies for picoplatin in
colorectal, prostate, ovarian and small cell lung cancers and are continuing to evaluate partnering and other arrangements to fund these strategies. In April 2010, we restructured our operations to
conserve resources and support our registration and partnering strategies. This followed an earlier reduction in workforce headcount in February 2010. Through these two restructuring steps, our
headcount was reduced from 22 to 12 employees. Concurrent with these events, we engaged

22

---



Leerink
Swann LLC to conduct a comprehensive review of strategic alternatives aimed at supporting and optimizing the value of our picoplatin program to our shareholders. These alternatives may
include a potential cash raise, merger, sale or partnership. As of June 30, 2010, we had approximately $29.3 million in cash, cash equivalents and investment securities balances, net of
restricted cash of $158,000, which we believe will provide adequate resources to fund our operations at least through the end of 2010. Thereafter, we will need to raise additional funds or enter into
a partnering or other
strategic relationship to avoid a default under our current credit facility and sustain our current operations. Our ability to continue to evaluate strategic alternatives and potentially resume
development activities with respect to picoplatin will be dependent on our ability to obtain substantial additional funding. We may seek to raise necessary additional funds through public or private
equity, debt financings, collaborative arrangements with corporate partners or other sources. We can provide no assurance that any particular alternative will be pursued or that any transaction will
occur, or on what terms. We do not plan to release additional information about the status of the review of alternatives until a definitive agreement is entered into or the process is otherwise
completed.

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, 2009 filed with the SEC on March 16, 2010. 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, 2010 Compared to the Three and Six Months Ended June 30, 2009

Research and Development

Research and development expenses decreased 61% to approximately $2.1 million during the second quarter of 2010 and decreased
48% to approximately $7.0 million in the first six months of 2010 from the comparable periods in 2009. The significant decrease in our research
and development expenses during the three and six months ended June 30, 2010 is primarily a result of our picoplatin trials winding down. Our research and development expenses are summarized as
follows:

Three Months Ended June 30,

Six Months Ended June 30,2010

2009

% Change

2010

2009

% Change($ in thousands)



($ in thousands)Research

$


$
15


(100
)%
$


$
764


(100
)%Contract manufacturing


339


845


(60
)%

857


1,807


(53
)%Clinical


1,009


4,110


(75
)%

3,723


10,249


(64
)%Share-based compensation


740


341


117
%

2,399


669


259
%Total

$
2,088

$
5,311


(61
)%
$
6,979

$
13,489


(48
)%


We
did not incur any research expenses during the second quarter of 2010 due to the discontinuation of our research operations effective March 31, 2009. Contract manufacturing
costs decreased 60% to approximately $0.3 million in the second quarter of 2010 and decreased 53% to approximately $0.9 million in the first six months of 2010 from the comparable
periods in 2009. These decreases reflect the absence of drug production in the current year due to the completion of our trials and reduced drug product stability testing and analysis activity.
Clinical costs decreased 75% to approximately $1.0 million in the second quarter of 2010 and decreased 64% to approximately $3.7 million in the first six months of 2010 from the
comparable periods in 2009. This decrease resulted primarily from reduced clinical activity in connection with our current picoplatin studies, all of which are either completed or in extended
follow-up stage. Share-based compensation expense increased

23

---



117%
to approximately $0.7 million in the second quarter of 2010 from the comparable period in 2009, due primarily to the recognition of expense for accelerated vesting of RSUs held by
employees terminated in connection with our April 2010 restructuring. Share-based compensation expense increased 259% to approximately $2.4 million for the six months ended June 30, 2010
from the comparable period in 2009, primarily due to the recognition of expense for accelerated vesting of stock options held by certain officers based on the overall achievement of corporate goals in
2009, accelerated vesting of RSUs held by employees terminated in connection with our February 2010 and April 2010 restructuring activities, and awards of RSUs granted in February 2010 and July 2009
as incentives for future performance.

Recap of Development and Clinical Program Costs.Our research and development administrative overhead costs, consisting of rent,
utilities,
consulting fees and other various overhead costs, are included in total research and development expense for each period, but are not allocated to our picoplatin project. Also, our total research and
development costs include the costs of various research
efforts that support our trial activities and may also be directed toward the identification and evaluation of future product candidates. These other research projects are preclinical and not
considered major projects. We implemented a restructuring on March 31, 2009, which resulted in the discontinuation of our preclinical research operations. Our total research and development
costs are summarized below:

Three Months Ended June 30,

Six Months Ended June 30,2010

2009

% Change

2010

2009

% Change($ in thousands)



($ in thousands)Picoplatin

$
872

$
3,947


(78
)%
$
3,251

$
10,019


(68
)%Other unallocated costs and overhead


476


1,023


(53
)%

1,329


2,801


(53
)%Share-based compensation


740


341


117
%

2,399


669


259
%Total

$
2,088

$
5,311


(61
)%
$
6,979

$
13,489


(48
)%


Our
external costs for picoplatin for the three and six month periods ended June 30, 2010 and for the comparable periods in 2009, reflect costs associated with our various
picoplatin clinical studies and the manufacture and development of drug product to support our clinical trials. We expect our external costs for picoplatin to continue to decrease in 2010, reflecting
lower costs for our completed small cell lung, colorectal and prostate cancer trials and our completed oral picoplatin study, partially offset by clinical, consulting and other development costs
associated with our efforts to identify a strategic partner and explore other alternatives to support the continued development of picoplatin in multiple indications and two formulations.

As
of June 30, 2010, we have incurred external costs of approximately $76.6 million in connection with our entire picoplatin clinical program. Total estimated future costs
of both our picoplatin Phase 3 trial in small cell lung cancer and our Phase 2 trial in colorectal cancer are approximately $0.6 million through the end of 2010. These future
costs reflect activities to complete our trials through data analysis and data lock and could be substantially higher if we determine that it is necessary to repeat, revise or expand the scope of any
of our trials. Material cash inflows relating to the commercialization of picoplatin will not commence unless and until we complete required clinical studies and obtain FDA marketing approvals, and
then only if picoplatin finds acceptance in the marketplace. To date, we have not received any revenues from 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 in our Annual Report on Form 10-K for the year ended December 31, 2009:



24

---





If
we fail to obtain marketing approvals for picoplatin, are unable to secure adequate commercial supplies of picoplatin active pharmaceutical ingredient, or API, 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 30,2010

2009

% Change

2010

2009

% Change($ in thousands)



($ in thousands)General and administrative

$
2,539

$
2,635


(4
)%
$
5,284

$
4,672


13
%Share-based compensation


1,349


1,142


18
%

3,403


2,115


61
%Total

$
3,888

$
3,777


3
%
$
8,687

$
6,787


28
%


Total
general and administrative expenses costs increased 3% to approximately $3.9 million in the second quarter of 2010 and increased 28% to approximately $8.7 million in
the first six months of 2010 from the comparable periods in 2009. Excluding share-based compensation expense, general and administrative expenses decreased 4% to approximately $2.5 million in
the second quarter of 2010 from the comparable period in 2009, primarily due to decreased personnel costs and increased 13% to approximately $5.3 million in the first six months of 2010 from
the comparable period in 2009, primarily due to a one-time credit for reimbursement of patent related legal costs in the first quarter of 2009 and higher general legal expenses in 2010,
offset by decreased personnel costs in 2010. Share-based compensation expense increased 18% to approximately $1.3 million in the second quarter of 2010 from the comparable period in 2009, due
primarily to the recognition of expense for accelerated vesting of RSUs held by employees terminated in connection with our April 2010 restructuring. Share-based compensation expense increased 61% to
approximately $3.4 million for the six months ended June 30, 2010 from the comparable period in 2009, primarily due to the recognition of expense for accelerated vesting of stock options
held by certain officers based on the overall achievement of corporate goals in 2009, accelerated vesting of RSUs held by employees terminated in connection with our February 2010 and April 2010
restructuring activities, and awards of RSUs granted in February 2010 and July 2009 as incentives for future performance.

Restructuring and Asset Impairments



On March 24, 2010, we announced a restructuring plan in connection with our decision to suspend efforts to pursue an NDA for our
drug candidate, picoplatin, in small cell lung cancer, resulting in a

25

---



reduction
of our workforce by approximately 45%, to a total of 12 employees, effective April 30, 2010. In connection with this plan, we recorded a restructuring charge of approximately
$0.5 million upon our commitment to the restructuring plan in the first quarter of 2010, consisting of one-time employee termination benefits, which will be paid in their entirety
by January 31, 2011. As a consequence of the restructuring, approximately 965,000 RSUs, which were awarded in February 2010 and held by the terminated employees, became fully vested in
accordance with the terms of the
underlying RSU agreements. These RSUs converted to common stock on a one-for-one basis in the second quarter of 2010. We recognized approximately $1.5 million in
share-based compensation expense for the terminated employees for the six month period ended June 30, 2010 related to the accelerated vesting of these RSUs as a result of the restructuring.



On February 5, 2010, we implemented a restructuring plan to conserve our capital resources, resulting in a reduction of our
workforce by approximately 57%, to a total of 22 employees. We recorded restructuring charges of approximately $1.1 million in the first quarter of 2010, primarily consisting of
one-time employee termination benefits. As a consequence of the restructuring, approximately 130,000 RSUs, which were awarded in July 2009 and held by the employees who were terminated,
became fully vested in accordance with the terms of the underlying RSU agreements. These RSUs converted to common stock on a one-for-one basis in February 2010. We recognized
approximately $0.2 million in share-based compensation expense in the first quarter of 2010 related to the accelerated vesting of these RSUs as a result of the restructuring.



On March 31, 2009, we implemented a strategic restructuring plan to refocus our cash resources on clinical and commercial
development of picoplatin, which resulted in the discontinuation of our preclinical research operations and in the reduction of our workforce by approximately 12%, to a total of 57 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 during the quarter ended March 31, 2009, we 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 prepaid expenses and other assets on our
consolidated balance sheet as of December 31, 2009. Additionally, during the quarter ended December 31, 2009, we recognized an impairment charge of approximately $1.5 million for
our dedicated manufacturing equipment asset. The impairment charge was determined based on the delay in our plans for the commercialization of picoplatin, which we do not anticipate will occur before
2014, if at all.

Other Income and Expense

Three Months Ended June 30,

Six Months Ended June 30,2010

2009

% Change

2010

2009

% Change($ in thousands)



($ in thousands)Interest expense

$
(594
)
$
(796
)

(25
)%
$
(1,228
)
$
(1,663
)

(26
)%Interest income and other, net


24


164


(85
)%

85


325


(74
)%Total

$
(570
)
$
(632
)

(10
)%
$
(1,143
)
$
(1,338
)

(15
)%


26

---





Interest expense decreased 25% and 26% for the three and six months ended June 30, 2010 to approximately $0.6 million and approximately $1.2 million, respectively,
from the comparable periods in 2009. The decrease in interest expense was primarily due to reduced borrowings between periods. Interest income and other, net decreased 85% to $24,000 during the second
quarter of 2010 and decreased 74% to $85,000 for the first six months of 2010 from the comparable periods in 2009. The decreases were primarily due to decreased balances in and lower average yields
from our investment securities portfolio.

Liquidity and Capital Resources

June 30,
2010

December 31,
2009($ in thousands)Cash, cash equivalents and investment securities

$
29,269

$
43,389Working capital


18,229


27,369Shareholders' equity


17,053


23,644




Six Months Ended
June 30,2010

2009($ in thousands)Cash provided by (used in):Operating activities

$
(15,359
)
$
(18,793
)Investing activities


8,159


(2,574
)Financing activities


1,463


(4,174
)


We
have historically experienced recurring operating losses and negative cash flows from operations. Cash, cash equivalents and investment securities, net of restricted cash of
$0.2 million, totaled $29.3 million at June 30, 2010. As of June 30, 2010, we had net working capital of $18.2 million, an accumulated deficit of
$427.2 million and total shareholders' equity of $17.1 million.

We
have historically maintained our financial position through strategic management of our resources, including, the sale of equity securities, borrowings under 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, 2010 totaled $15.4 million.

Capital Resources

Equity Financing.On February 23, 2010, we entered into an equity line of credit facility with Commerce
Court. On March 15, 2010, we completed a draw down and sale of an aggregate of approximately 4.2 million shares of our common stock, at a price of approximately $1.49 per share, to
Commerce Court under the equity line of credit facility. Net proceeds of approximately $6.1 million were received, after deducting offering expenses of approximately $0.2 million. We are
using the proceeds of this draw down to fund our efforts to develop registrational strategies and explore partnering and other strategic relationships to support the continued development of
picoplatin in small cell lung, colorectal, prostate and ovarian cancers. The equity line of credit facility provides that, unless otherwise mutually agreed between the parties, Commerce Court is not
obligated to purchase common shares at a price that is less than $1.00 per share (before discount). Given our current stock price, we have no assurance that Commerce Court will agree to purchase
additional shares under the facility. See Note 6 to the Notes to condensed consolidated financial statements for additional information.

During
2009, we sold an aggregate of approximately 7.0 million shares of our common stock to Azimuth Opportunity Ltd., or Azimuth, pursuant to two draw downs under an
equity line of credit

27

---



facility
with Azimuth. In the first draw down on November 23, 2009, we sold approximately 3.5 million common shares to Azimuth at a purchase price of approximately $2.15 per share. We
sold Azimuth approximately 3.5 million common shares for approximately $1.87 per share in the second draw down on December 22, 2009. The equity facility terminated by its terms on
December 22, 2009. We received aggregate net proceeds from the draw downs of approximately $13.7 million. The proceeds of the draw downs under the Azimuth facility will be used for
general corporate purposes, including working capital.

Secured Loan Facility.On September 2, 2008, we entered into an amended and restated loan and security 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. 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 $0.7 million to GE Business Financial Services on March 31, 2010. The loan facility is secured by a first lien on all of our non-intellectual property
assets. In connection with the loan agreement, we issued to the lenders ten-year warrants to purchase an aggregate of 219,920 shares of common stock at an exercise price of $4.297 per
share. In October 2009, Silicon Valley Bank exercised its warrants. In November 2009, we amended the warrants held by GE Business Financial Services to change the
exercise price to $2.00 per share. At June 30, 2010, the outstanding principal amount under the loan facility was $14.7 million, net of discount of approximately $1.1 million.

The
loan agreement contains restrictions on our ability to, among other things, dispose of certain assets, engage in certain mergers and acquisition transactions, incur indebtedness,
create liens on assets, make investments, pay dividends and repurchase stock. The loan agreement also contains covenants requiring us to maintain a minimum amount of unrestricted cash during the term
of the loan equal to the lesser of (i) $17.9 million or (ii) the outstanding aggregate principal balance of the term loans plus $4.0 million. The loan agreement contains
events of default that include nonpayment of principal, interest or fees, breaches of covenants, material adverse changes, bankruptcy and insolvency events, cross defaults to any other indebtedness,
material judgments, inaccuracy of representations and warranties and events constituting a change of control. The occurrence of an event of default would increase the applicable rate of interest by 5%
and could result in the acceleration of our payment obligations under the loan agreement. We were in compliance with all loan covenants as of June 30, 2010.

Taking
into account the minimum unrestricted cash requirement under the loan agreement and our projected operating results, we believe that our current cash, cash equivalents and
investment securities balances will provide adequate resources to fund operations at least through the end of 2010. However, given the uncertainties of outcomes of our strategies to support the
continued development of picoplatin, 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 loan
agreement. We have no assurance that,

28

---



especially
in light of the current difficult 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.

If
an event of default were to occur, we might not have sufficient funds to repay the loan or to fund our continuing operations. 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 without the prior consent of the lenders. We
have no assurance that we can obtain financing or otherwise raise additional funds, if at all, on terms acceptable to us or to our lenders.

Operating Agreements.On February 12, 2010, we entered into a sublease agreement with Veracyte, Inc., pursuant to which
Veracyte is
subleasing, effective March 1, 2010, approximately 11,000 square feet of our 17,045 square feet of executive office space located at 7000 Shoreline Court, South San Francisco, California. Base
sublease rental income for this space is $17,600 per month. On September 1, 2010, the subleased space will expand to encompass the entire 17,045 square feet of our executive office space. After
delivery of this expanded sublease space, base sublease rental income will be $28,124 per month until expiration of the sublease on July 10, 2011, at which time Veracyte will lease the entire
space
directly from the landlord. Additional rent under the sublease will be payable monthly to us by Veracyte, based on Veracyte's share of operating expenses attributable to the subleased space. We expect
to save approximately $700,000 in aggregate rental and operating expenses over the term of the sublease.

We
have entered into clinical supply agreements with W. C. Heraeus GmbH, or Heraeus, and Baxter Oncology GmbH, or 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 had an initial term ending December 31, 2009, and in December 2009, we exercised our first renewal option, extending the term to December 31, 2010. This agreement remains
subject to renewal, at our option, for an additional one-year term. The total aggregate cost during the three and six months ended June 30, 2010 attributable to
follow-on activities for clinical supplies of picoplatin API and finished drug product produced in prior periods was approximately $0.1 million and $0.2 million,
respectively. We do not have any purchase commitments under these agreements.

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 API commercial supply agreement continues for an initial term ending
December 31, 2013, and the finished drug product commercial supply agreement continues for an initial term ending November 22, 2013, in each case subject to extension. The costs to
Heraeus for the purchase and set-up of dedicated manufacturing equipment costing 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 equipment cost as of that date. Heraeus completed construction of the equipment as of December 31, 2009. We determined that the equipment should
be accounted for as a capital lease and, accordingly, recognized an asset and long term obligation for the equipment of approximately $1.5 million, respectively. We will reflect the surcharge
payments as reductions in the capital lease balance outstanding and will accrete a finance charge to interest expense as specified under the agreement. The balance of the obligation at June 30,
2010 was approximately $1.5 million, including accreted interest of approximately $44,000. Due to the

29

---



delay
in our plans for the commercialization of picoplatin, which we do not anticipate will occur before 2014, if at all, we determined that our capital lease asset for equipment under the Heraeus
agreement was impaired as of December 31, 2009 and therefore recognized an impairment charge of $1.5 million. We do not have any purchase commitments under these agreements.

During
the six months ended June 30, 2010, we paid total rent (base rent and additional rent based on our share of facility common operating expenses) of $0.8 million under
the operating leases for our
South San Francisco headquarters facility and our Seattle facility. Of this amount, $0.6 million represents total aggregate minimum lease payments under these leases. As discussed above, we
have entered into a sublease of most, and, as of September 1, 2010, all of our executive office space in South San Francisco. We currently are finalizing plans to lease space and relocate our
executive offices to San Francisco. Our Seattle office lease expires December 2010. We are currently exploring alternatives with respect to future office space for the Seattle site.

Potential Milestone and Royalty Obligations.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 picoplatin related products.

We
will require substantial additional capital to pursue our strategies to support the continued development of picoplatin and to fund our future operations. Management is continuously
exploring financing alternatives, including:



The
amount of additional financing we will require in the future will depend on a number of factors, including:



30

---





We
may not be able to obtain required additional capital or enter into relationships with potential corporate partners on a timely basis, on terms that ultimately prove favorable to us,
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. If
we are unable to secure additional capital to fund our working capital and capital expenditure requirements, we may be forced to explore liquidation alternatives, including seeking protection from
creditors through the application of bankruptcy laws.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Our market rate risks at June 30, 2010 have not changed materially from those discussed in Item 7A of our
Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010.

Item 4.    Controls and Procedures

Under the supervision and with the participation of management, including the Chief Executive Officer and the Interim Chief Financial
Officer, the Company has evaluated the effectiveness and design of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of June 30, 2010. Based
on that evaluation, the Chief Executive Officer and the Interim Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of June 30, 2010.

There
were no changes in the Company's internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2010 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 Interim 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.

31

---





PART II. OTHER INFORMATION

Item 1A.    Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16,
2010, 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 factors set forth below, there have not been any material changes to the risk factors set forth in our annual report on
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.

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

On July 20, 2010, we received a letter from The Nasdaq Stock Market stating that the minimum bid price of our common stock has
been below $1.00 per share for 30 consecutive business days and that we therefore are not in compliance with the minimum bid price requirement for continued listing set forth in Marketplace
Rule 5450(a)(1). The notification of noncompliance has no immediate effect on the listing or trading of our common stock on The Nasdaq Global Market.

We
have been provided 180 calendar days, or until January 18, 2011, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of our
common stock must meet or exceed $1.00 per share for at least ten consecutive business days during this 180-day grace period. Nasdaq may, in its discretion, require our common stock to
maintain a closing bid price of at least $1.00 for a period in excess of ten consecutive trading days, but generally no more than 20 consecutive business days, before determining that we have
demonstrated an ability to maintain long-term compliance. If we do not regain compliance by January 18, 2011, we will receive written notification from Nasdaq that our common stock
is subject to delisting. We may, at that time, appeal the delisting determination to a Nasdaq Hearings Panel. Such an appeal, if granted, would stay delisting until a Panel ruling. Alternatively, if
at that time we satisfy all of the initial listing standards, with the exception of the minimum bid price, for The Nasdaq Capital Market, we could apply to transfer the listing of our common stock to
The Nasdaq Capital Market and thereby receive an additional 180 calendar days to regain compliance with the minimum bid price requirement.

There
can be no assurance that we will be able to regain or maintain compliance with the minimum bid price rule or other listing criteria. In addition to a minimum bid price of $1.00 per
share, The Nasdaq Global Market continued listing standards require us to maintain either (A) stockholders' equity of at least $10 million and market value of shares beneficially owned
by persons who are not officers, directors or greater than 10% shareholders ("unaffiliated shares") of at least $5 million or (B) market value of listed securities of at least
$50 million and market value of unaffiliated shares of at least $15 million. At June 30, 2010, the market value of our listed securities was approximately $28.8 million,
the market value of our unaffiliated shares was approximately $22.1 million and our stockholders' equity was approximately $17.1 million. If we do not maintain sufficient stockholders'
equity and/or increase the market value of our common stock, we may not be able to sustain compliance with these requirements in the future. In such case, we would be required, separate from the
minimum bid price deficiency, to demonstrate a short or near-term plan to cure such noncompliance.

If
we are unable to cure any events of noncompliance in a timely or effective manner, our common stock could be delisted from The Nasdaq Global Market. If our common stock were
threatened with delisting from The Nasdaq Global Market, we may, depending on the circumstances,

32

---



seek
to extend the period for regaining compliance with Nasdaq listing requirements by moving our common stock to The Nasdaq Capital Market. Failing that, we may seek quotation on a regional stock
exchange, if available. Any such change in listing could reduce the market liquidity for our common stock. If our common stock is not eligible for quotation on another market or exchange, trading of
our common stock could be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC
Bulletin Board. As a result, an investor would find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock.

If
our common stock were to be delisted from The Nasdaq Stock Market, and our trading price remained below $5.00 per share, trading in our common stock might also become subject to the
requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which require additional disclosure by broker-dealers in connection with any trade
involving a stock defined as a "penny stock" (generally, any equity security not listed on a national securities exchange or quoted on Nasdaq that has a market price of less than $5.00 per share,
subject to certain exceptions). Many brokerage firms are reluctant to recommend low-priced stocks to their clients. Moreover, various regulations and policies restrict the ability of
shareholders to borrow against or "margin" low-priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers'
commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of the common stock can result in an
individual shareholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the
willingness of institutions to purchase our common stock. The additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitating trades in our
common stock, which could severely limit the market liquidity of the stock and the ability of investors to trade our common stock.

Further,
if our common stock were to be delisted, we may no longer qualify for exemptions from state securities registration requirements. Without an exemption from registration, we may
need to file time-consuming and costly registration statements for future securities transactions and issuances and to amend our stock incentive plans. Furthermore, if our common stock is
delisted, we would be required to utilize the long-form registration statement on SEC Form S-1 in order to register any future securities under the Securities Act of
1933, as amended, or the Securities Act, either for sale by us or for resale by investors who previously acquired securities from us in a private placement. The SEC Form S-1
requires more information than SEC Form S-3 and would take longer and be more expensive to prepare and keep current than SEC Form S-3.

Item 5.    Other Information.

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On August 5, 2010, the Board of Directors approved the termination without cause of Gregory L. Weaver as Chief Financial
Officer, Senior Vice President, Finance and Treasurer of the Company, effective as of the close of business on August 6, 2010.

The
Board appointed Michael K. Jackson to serve as Interim Chief Financial Officer and Treasurer of the Company on and after the effective time of Mr. Weaver's termination and
until a permanent Chief Financial Officer is named. Mr. Jackson, age 58, also is Controller of the Company (since 2003) and, prior to his appointment as Interim Chief Financial Officer, served
as Senior Director, Finance of the Company (since 2008). Prior to joining the Company, Mr. Jackson served as Controller for Xylo, Inc., an internet development company, from 2001 to 2003
and as Director, Finance Operations at Spacelabs Medical, a public medical device company, from 1998 to 2001. From

33

---



1992
to 1998, Mr. Jackson served as Controller for Ride, Inc., a public recreational consumer products company. Prior to that, Mr. Jackson served in increasingly senior finance
and accounting roles with high technology firms, Ernst & Young and Price Waterhouse. Mr. Jackson is a certified public accountant and received his M.B.A in finance and B.S. in
mathematics from Brigham Young University. In connection with his appointment, Mr. Jackson will receive an annual base salary of $180,000 and will be eligible for an annual cash bonus under the
Company's Management Incentive Plan of up to 20% of his annual base salary.

Mr. Weaver
will receive severance benefits under his Amended and Restated Key Executive Severance Agreement dated as of February 18, 2009, a copy of which has been filed
with the SEC as Exhibit 10.21 to the Company's Form 10-K for the year ended December 31, 2008 and is incorporated herein by reference to Exhibit 99.1 to this
Report. Pursuant to its original terms, Mr. Weaver's restricted stock unit award granted on February 4, 2010 for 188,312 shares of the Company's common stock will become fully vested
upon his termination, subject to effectiveness of a general release and waiver of claims by Mr. Weaver against the Company. The form of Mr. Weaver's restricted stock unit award is
incorporated by reference to Exhibit 99.2 of this Report.

Results of Operations and Financial Condition.

On August 9, 2010, the Company issued a press release announcing the financial results for the quarter and
six-months ended June 30, 2010. The full text of the press release is set forth in Exhibit 99.3 to this Report. The press release should be read in conjunction with the note
regarding forward-looking statements, which is included in the text of the press release.

The
information in under this heading "Results of Operations and Financial Condition" and Exhibit 99.3 to this Report will not be treated as "filed" for the purposes of
Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section. This information will not be incorporated by reference into any filing under the Securities Act, or into
another filing under the Exchange Act, unless that filing expressly incorporates the information under this heading and Exhibit 99.3 to this Report.

Item 6.    Exhibits



34

---







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 9, 2010

By:

/s/ MICHAEL K. JACKSON Michael K. Jackson Interim Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)


35

---





EXHIBIT INDEX

Exhibit

Description10.1

Form of Restricted Stock Unit Award Notice and Restricted Stock Unit Award Agreement (Independent Directors)()

(A)31.1

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

(A)31.2

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

(A)32.1

Section 1350 Certification of Chief Executive Officer

(A)32.2

Section 1350 Certification of Interim Chief Financial Officer

(A)99.1

Amended and Restated Key Executive Severance Agreement dated as of February 18, 2009, between the Company and Gregory L. Weaver()

(B)99.2

Form of Restricted Stock Unit Award Notice & Restricted Stock Unit Award Agreement()

(C)99.3

Press Release dated August 9, 2010

(A)


()Management
contract or compensatory plan(A)Filed
herewith.(B)Incorporated
by reference herein to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2008(C)Incorporated
by reference herein to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010


36

---



QuickLinks