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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission File Number: 001-33054
 TRUBION PHARMACEUTICALS, INC.
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    52-2385898(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification No.)2401 FOURTH AVENUE, SUITE 1050SEATTLE, WASHINGTON
    
    98121(Address of registrants principal executive offices)
    
    (Zip Code)
 (206) 838-0500
(Telephone number, including area code)
 N/A
 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
 þ o
  o o þ
  o þ




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##### 



TRUBION PHARMACEUTICALS, INC.
 INDEX
 PAGE NO.
 PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    3Balance Sheets as of September 30, 2007 and December 31, 2006
    3Statements of Operations for the Three Months and Nine Months Ended September 30, 2007 and 2006
    4Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006
    5Notes to Financial Statements
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    11Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    19Item 4.
    
    Controls and Procedures
    19PART II. OTHER INFORMATIONItem 1
    
    Legal Proceedings
    19Item 1A.
    
    Risk Factors
    20Item 6.
    
    Exhibits
    33SIGNATURES
    34EXHIBIT INDEXEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 TRUBION PHARMACEUTICALS, INC.
 
 BALANCE SHEETS
(In thousands, except share and par value)
 September 30, 2007
    
    
    December 31, 2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    45,835
    
    
    $
    56,414Investments
    
    
    40,764
    
    
    
    49,387Receivable from collaboration
    
    
    3,172
    
    
    
    4,354Prepaid expenses and other current assets
    
    
    794
    
    
    
    792Total current assets
    
    
    90,565
    
    
    
    110,947Property and equipment, net
    
    
    11,176
    
    
    
    10,334Other assets
    
    
    46
    
    
    
    113Total assets
    
    $
    101,787
    
    
    $
    121,394LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    427
    
    
    $
    1,537Accrued liabilities
    
    
    4,429
    
    
    
    5,666Accrued compensation
    
    
    1,961
    
    
    
    1,351Current portion of notes payable
    
    
    2,206
    
    
    
    1,025Current portion of deferred rent
    
    
    180
    
    
    
    180Current portion of deferred revenue
    
    
    5,848
    
    
    
    8,000Total current liabilities
    
    
    15,051
    
    
    
    17,759Non-current portion of notes payable
    
    
    8,441
    
    
    
    6,708Non-current portion of deferred rent
    
    
    360
    
    
    
    495Non-current portion of deferred revenue
    
    
    20,468
    
    
    
    23,778Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value per
share; shares authorized  5,000,000 at
September 30, 2007 and December 31, 2006;
issued and outstanding  none at September
30, 2007 and December 31, 2006
    
    
    
    
    
    
    Common stock, $0.001 par value per share;
shares authorized  150,000,000 at
September 30, 2007 and December 31, 2006;
outstanding  17,786,927 at September 30,
2007 and 17,554,318 at December 31, 2006
    
    
    18
    
    
    
    18Additional paid-in capital
    
    
    119,769
    
    
    
    117,061Deferred stock-based compensation
    
    
    (411
    )
    
    
    (850
    )Accumulated other comprehensive income
    
    
    74
    
    
    
    21Accumulated deficit
    
    
    (61,983
    )
    
    
    (43,596
    )Total stockholders equity
    
    
    57,467
    
    
    
    72,654Total liabilities and stockholders equity
    
    $
    101,787
    
    
    $
    121,394
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TRUBION PHARMACEUTICALS, INC.
 
 STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Collaboration revenue
    
    $
    4,635
    
    
    $
    16,539
    
    
    $
    14,450
    
    
    $
    30,175Operating expenses:Research and development*
    
    
    8,877
    
    
    
    9,570
    
    
    
    28,201
    
    
    
    23,451General and administrative*
    
    
    2,578
    
    
    
    2,032
    
    
    
    7,652
    
    
    
    7,101Total operating expenses
    
    
    11,455
    
    
    
    11,602
    
    
    
    35,853
    
    
    
    30,552Income (loss) from operations
    
    
    (6,820
    )
    
    
    4,937
    
    
    
    (21,403
    )
    
    
    (377
    )Interest income
    
    
    1,120
    
    
    
    419
    
    
    
    3,582
    
    
    
    1,389Interest expense
    
    
    (213
    )
    
    
    (49
    )
    
    
    (566
    )
    
    
    (163
    )Other income
    
    
    
    
    
    
    83
    
    
    
    
    
    
    
    22Net income (loss)
    
    $
    (5,913
    )
    
    $
    5,390
    
    
    $
    (18,387
    )
    
    $
    871Basic net income (loss) per share
    
    $
    (0.33
    )
    
    $
    3.79
    
    
    $
    (1.04
    )
    
    $
    0.63Diluted net income (loss) per share
    
    $
    (0.33
    )
    
    $
    0.40
    
    
    $
    (1.04
    )
    
    $
    0.06Shares used in computation of basic net income (loss) per share
    
    
    17,758
    
    
    
    1,421
    
    
    
    17,654
    
    
    
    1,376Shares used in computation of diluted net income (loss) per share
    
    
    17,758
    
    
    
    13,245
    
    
    
    17,654
    
    
    
    13,163
 
 * Includes non-cash stock-based compensation as follows:Research and development
    
    $
    362
    
    
    $
    514
    
    
    $
    1,222
    
    
    $
    1,944General and administrative
    
    
    632
    
    
    
    504
    
    
    
    1,478
    
    
    
    2,141Total non-cash stock-based compensation
    
    $
    994
    
    
    $
    1,018
    
    
    $
    2,700
    
    
    $
    4,085
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TRUBION PHARMACEUTICALS, INC.
 
 STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006Operating activities:Net income (loss)
    
    $
    (18,387
    )
    
    $
    871Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Non-cash stock-based employee compensation expense
    
    
    2,624
    
    
    
    3,415Non-cash stock-based consulting expense
    
    
    76
    
    
    
    670Depreciation expense
    
    
    2,171
    
    
    
    897Amortization of debt discount
    
    
    17
    
    
    
    19Revaluation of warrants to fair value
    
    
    
    
    
    
    (22
    )Changes in operating assets and liabilities:Receivable from collaboration
    
    
    1,182
    
    
    
    25,461Prepaid expenses and other assets
    
    
    65
    
    
    
    (245
    )Deferred financing costs
    
    
    
    
    
    
    (1,914
    )Accounts payable
    
    
    (1,110
    )
    
    
    (65
    )Accrued liabilities and compensation
    
    
    (627
    )
    
    
    4,262Deferred revenue
    
    
    (5,462
    )
    
    
    (6,000
    )Deferred rent
    
    
    (135
    )
    
    
    (130
    )Net cash provided by (used in) operating activities
    
    
    (19,586
    )
    
    
    27,219Investing activities:Purchase of property and equipment
    
    
    (3,013
    )
    
    
    (4,556
    )Purchase of investments
    
    
    (188,215
    )
    
    
    (70,048
    )Maturities of investments
    
    
    196,891
    
    
    
    51,555Net cash provided by (used in) investing activities
    
    
    5,663
    
    
    
    (23,049
    )Financing activities:Proceeds from issuance of notes payable
    
    
    3,515
    
    
    
    2,847Payments on notes payable
    
    
    (618
    )
    
    
    (920
    )Proceeds from exercise of stock options
    
    
    447
    
    
    
    50Net cash provided by financing activities
    
    
    3,344
    
    
    
    1,977Net increase (decrease) in cash and cash equivalents
    
    
    (10,579
    )
    
    
    6,147Cash and cash equivalents at beginning of period
    
    
    56,414
    
    
    
    4,681Cash and cash equivalents at end of period
    
    $
    45,835
    
    
    $
    10,828Supplemental disclosure information:Cash paid for interest
    
    $
    521
    
    
    $
    141
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TRUBION PHARMACEUTICALS, INC.
 
 NOTES TO FINANCIAL STATEMENTS
 (Unaudited)
 1. The Company and Basis of Presentation
 Business
  tm
 Basis of Presentation
   2. Summary of Significant Accounting Policies
 Revenue Recognition
   Up-Front Fees and License Fees:
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Collaborative Research Funding:
 Milestones:
 Royalties:
 Research and Development
 Accounting for
Research and Development Costs
 Accounting for Nonrefundable Advance Payments for Goods or Services
to Be Used in Future Research and Development Activities,
 Accounting for Stock-Based Compensation
 Share-Based Payment, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB 25 Accounting for Stock-Based
Compensation, Accounting for Stock-Based Compensation  Transition and
Disclosure.
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Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
  Fair Value Measurements,
 The Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement No. 115
 Use of Estimates
  3. Net Income (Loss) per Share
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Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    (5,913
    )
    
    $
    5,390
    
    
    $
    (18,387
    )
    
    $
    871Preferred stock warrant liability income
    
    
    
    
    
    
    (83
    )
    
    
    
    
    
    
    (22
    )Net income (loss), dilutive
    
    $
    (5,913
    )
    
    $
    5,307
    
    
    $
    (18,387
    )
    
    $
    849Weighted average common shares outstanding, basic
    
    
    17,758
    
    
    
    1,421
    
    
    
    17,654
    
    
    
    1,376Dilutive stock options and warrants
    
    
    
    
    
    
    1,153
    
    
    
    
    
    
    
    1,116Dilutive preferred stock
    
    
    
    
    
    
    10,652
    
    
    
    
    
    
    
    10,652Shares subject to repurchase
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    19Weighted average common shares outstanding, diluted
    
    
    17,758
    
    
    
    13,245
    
    
    
    17,654
    
    
    
    13,163Net income (loss) per common share, basic
    
    $
    (0.33
    )
    
    $
    3.79
    
    
    $
    (1.04
    )
    
    $
    0.63Net income (loss) per common share, diluted
    
    $
    (0.33
    )
    
    $
    0.40
    
    
    $
    (1.04
    )
    
    $
    0.06
  As of September 30,2007
    
    2006Stock options
    
    
    1,561
    
    
    
    1,543Warrants to purchase convertible preferred stock
    
    
    
    
    
    
    20Common shares subject to repurchase
    
    
    
    
    
    
    19Convertible preferred stock
    
    
    
    
    
    
    10,6521,561
    
    
    
    12,234
 4. Collaboration Agreement
 tm tm
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5. Property and Equipment
  September 30,
    
    
    December 31,2007
    
    
    2006Lab equipment
    
    $
    8,742
    
    
    $
    6,053Leasehold improvements
    
    
    6,529
    
    
    
    6,385Furniture and fixtures
    
    
    447
    
    
    
    359Computer equipment and software
    
    
    962
    
    
    
    711Construction in progress
    
    
    45
    
    
    
    20416,725
    
    
    
    13,712Accumulated depreciation and amortization
    
    
    (5,549
    )
    
    
    (3,378
    )$
    11,176
    
    
    $
    10,334
 6. Accrued Liabilities
  September 30,
    
    
    December 31,2007
    
    
    2006Accrued professional fees
    
    $
    459
    
    
    $
    576Accrued manufacturing
    
    
    532
    
    
    
    1,583Accrued clinical trials
    
    
    2,179
    
    
    
    1,994Other
    
    
    1,259
    
    
    
    1,513$
    4,429
    
    
    $
    5,666
 7. Notes Payable  Equipment Financing Arrangements
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 This quarterly report on Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, or the Exchange Act, which are subject to the safe harbor created by
those sections. Forward-looking statements are based on our managements beliefs and assumptions
and on information currently available to them. In some cases you can identify forward-looking
statements by words such as may, will, should, could, would, expect, plans,
anticipates, believes, estimates, projects, predicts, potential, and similar
expressions intended to identify forward-looking statements. Examples of these statements include,
but are not limited to, statements regarding: the implications of interim or final results of our
clinical trials, the progress of our research programs, including clinical testing, the extent to
which our issued and pending patents may protect our products and technology, our ability to
identify new product candidates, the potential of such product candidates to lead to the
development of commercial products, our anticipated timing for initiation or completion of our
clinical trials for any of our product candidates, our future operating expenses, our future
losses, our future expenditures for research and development, and the sufficiency of our cash
resources. Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us and described in
Part II, Item 1A of this quarterly report on Form 10-Q and our other filings with the SEC. You
should not place undue reliance on these forward-looking statements, which apply only as of the
date of this quarterly report on Form 10-Q . You should read this quarterly report on Form 10-Q
completely and with the understanding that our actual future results may be materially different
from those we expect. Except as required by law, we assume no obligation to update these
forward-looking statements, whether as a result of new information, future events, or otherwise.
 The following discussion and analysis should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I, Item 1 of this quarterly report on Form
10-Q.
 Overview
 tm
  tm tm
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Critical Accounting Policies and Significant Judgments and Estimates
  12




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Revenue Recognition
   Up-Front Fees and License Fees:
 Collaborative Research Funding:
 Milestones:
 Royalties:
 Preclinical Study and Clinical Trial Accruals
  13




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
    
    fees paid to contract research organizations in connection with preclinical studies;
    
    fees paid to contract research organizations and other clinical sites in connection with
clinical trials; and
    
    fees paid to contract manufacturers in connection with the production of components and
drug materials for preclinical studies and clinical trials.
  Stock-Based Compensation
 Share-Based
Payment Accounting for Certain Transactions Involving Stock Compensation,
an interpretation of APB 25 Accounting for Stock-Based Compensation, Accounting for
Stock-Based Compensation  Transition and Disclosure.
  Accounting for Stock-Based Compensation  Transition and Disclosure Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services
  14




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Accounting for Stock Appreciation Rights and Other Variable
Stock Option or Award Plans
 Results of Operations for the Three Months and Nine Months Ended September 30, 2007 and 2006
 Revenue
  Research and Development Expenses
   15




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Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Research and preclinical programs
    
    $
    4,974
    
    
    $
    3,673
    
    
    $
    16,637
    
    
    $
    9,448Clinical development programs
    
    
    3,903
    
    
    
    5,897
    
    
    
    11,564
    
    
    
    14,003Total research and development
    
    $
    8,877
    
    
    $
    9,570
    
    
    $
    28,201
    
    
    $
    23,451
   tm tm
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General and Administrative Expenses
  Net Interest Income
  Liquidity and Capital Resources
   Operating Activities:
 Investing Activities:
 Financing Activities:
  17




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
    
    expenditures related to continued preclinical and clinical development of our product candidates
during this period will be within budgeted levels; and
    
    unexpected costs related to the development of our manufacturing capability will not be material.
  
    
    milestone payments projected to be received under the Wyeth collaboration agreement;
    
    the scope, rate of progress, results and costs of our preclinical testing, clinical
trials, and other research and development activities;
    
    the cost of establishing clinical and commercial supplies of our product candidates;
    
    the terms and timing of any additional collaborative or licensing agreements that we may establish;
    
    the cost, timing, and outcomes of regulatory approvals;
    
    the number and characteristics of product candidates that we pursue;
    
    the cost of preparing, filing, prosecuting, defending, and enforcing any patent claims and other
intellectual property rights; and
    
    the extent to which we acquire or invest in businesses, products, or technologies.
  18




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
     
    
    strengthened our internal staffing and technical expertise in financial and SEC
accounting and reporting;
    
    improved the segregation of duties within our accounting and finance department;
    
    upgraded our accounting software systems;
    
    engaged an outside compliance consulting firm to advise us on improving our
internal controls to take advantage of best practices; and
    
    implemented additional controls.
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 19




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Item 1A. Risk Factors
  Risks Related to Our Business
 Our success depends on the success of our lead product candidate, TRU-015, and we cannot be
certain that it will complete clinical trials, receive regulatory approval, or be successfully
commercialized.
  We depend on our collaborative relationship with Wyeth to develop, manufacture, and commercialize
our lead product candidate, TRU-015, and other selected product candidates.
 tm tm
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We have incurred operating losses in each year since our inception and expect to continue to incur
substantial and increasing losses for the foreseeable future.
  We cannot assure you we will be granted regulatory approval for any of our product candidates.
  Any failure or delay in commencing or completing clinical trials for product candidates could
severely harm our business.
  
    
    our or our collaborators ability to obtain regulatory approval to commence a clinical
trial;
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
    
    our or our collaborators ability to manufacture or obtain from third parties
materials sufficient for use in preclinical studies and clinical trials;
    
    delays in patient enrollment and variability in the number and types of patients
available for clinical trials;
    
    poor effectiveness of product candidates during clinical trials;
    
    unforeseen safety issues or side effects;
    
    governmental or regulatory delays and changes in regulatory requirements, policy, and
guidelines; and
    
    varying interpretation of data by us, any or all of our collaborators, the FDA, and
similar foreign regulatory agencies.
  Our relationship with Wyeth may have a negative effect on our ability to enter into
relationships with third parties.
 tm
 If our SMIP tm technology or our product candidates, including TRU-015,
conflict with the rights of others, we may not be able to manufacture or market our product
candidates, which could have a material adverse effect on us and on our collaboration agreement
with Wyeth.
   22




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tm
   We rely on third parties to conduct our clinical trials. If these third parties do not perform as
contractually required or otherwise expected, we may not be able to obtain regulatory approval for
or commercialize our product candidates.
  23




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Even if our product candidates receive regulatory approval, they could be subject to restrictions
or withdrawal from the market and we may be subject to penalties if we fail to comply with
regulatory requirements or if we experience unanticipated problems with our products.
  
    
    restrictions on the products or manufacturing processes;
    
    withdrawal of the products from the market;
    
    voluntary or mandatory recalls;
    
    fines;
    
    suspension of regulatory approvals;
    
    product seizures; or
    
    injunctions or the imposition of civil or criminal penalties.
  Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.
  
    
    our ability to provide acceptable evidence of safety and efficacy;
    
    the prevalence and severity of adverse side effects;
    
    availability, relative cost, and relative efficacy of alternative and competing
treatments;
    
    the effectiveness of our marketing and distribution strategy;
    
    publicity concerning our products or competing products and treatments; and
    
    our ability to obtain sufficient third-party insurance coverage or reimbursement.
  Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our
products internationally.
  24




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If we are unable to obtain, maintain, and enforce our proprietary rights, we may not be able to
compete effectively or operate profitably.
  
    
    obtain and maintain patent and other proprietary protection for our technology,
processes, and product candidates;
    
    enforce patents once issued and defend those patents if their enforceability is
challenged;
    
    preserve trade secrets; and
    
    operate without infringing the patents and proprietary rights of third parties.
  
    
    we might not have been the first to make the inventions covered by any of our
patents, if issued, or our pending patent applications;
    
    we might not have been the first to file patent applications for these inventions;
    
    others may independently develop similar or alternative technologies or duplicate any
of our technologies;
    
    it is possible that none of our pending patent applications will result in issued
patents or, if issued, these patents may not be sufficient to protect our technology or
provide us with a basis for commercially-viable products, and may not provide us with any
competitive advantages;
    
    if our pending applications issue as patents, they may be challenged by third
parties as not infringed, invalid, or unenforceable under U.S. or foreign laws;
    
    if issued, the patents under which we hold rights may not be valid or enforceable; or
    
    we may develop additional proprietary technologies that are not patentable and that
may not be adequately protected through trade secrets, if, for example, a competitor were
to independently develop duplicative, similar, or alternative technologies.
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We may incur substantial costs as a result of litigation or other proceedings relating to patent
and other intellectual property rights.
  If any products we develop become subject to unfavorable pricing regulations, third-party
reimbursement practices, or healthcare reform initiatives, our business could be harmed.
  26




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##### Table of Contents



We face potential product liability exposure, and if successful claims are brought against us, we
may incur substantial liability for a product candidate and may have to limit its
commercialization.
  
    
    decreased demand for our product candidates;
    
    impairment of our business reputation;
    
    withdrawal of clinical trial participants;
    
    costs of related litigation;
    
    substantial monetary awards to patients or other claimants;
    
    loss of revenues; and
    
    the inability to commercialize our product candidates.
  We currently rely on third-party manufacturers to supply our product candidates, which could delay
or prevent the clinical development and commercialization of our product candidates.
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We face substantial competition, which may result in others discovering, developing, or
commercializing products before, or more successfully, than we do.
  TRU-015 Product Candidate. ® ® ® ® ® tm ® tm
 TRU-016 Product Candidate. ® ® ® ® ® tm
  
    
    design and develop products that are superior to other products in the market;
    
    attract qualified scientific, medical, sales and marketing, and commercial personnel;
    
    obtain patent and/or other proprietary protection for our processes and product
candidates;
    
    operate without infringing the patents and proprietary rights of third parties;
    
    obtain required regulatory approvals; and
    
    successfully collaborate with others in the design, development, and commercialization
of new products.
  28




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If we are unable to establish a sales and marketing infrastructure or enter into collaborations
with partners to perform these functions, we will not be able to commercialize our product
candidates.
  
    
    our inability to recruit and retain adequate numbers of effective sales and marketing
personnel;
    
    the inability of sales personnel to obtain access to or persuade adequate numbers
of physicians to prescribe our products;
    
    the lack of complementary products to be offered by sales personnel, which may
put us at a competitive disadvantage relative to companies with more extensive product
lines; and
    
    unforeseen costs and expenses associated with creating a sales and marketing
organization.
  The loss of members of our management team could substantially disrupt our business operations.
  We rely on highly skilled personnel, and if we are unable to retain or motivate key personnel or
hire qualified personnel, we may not be able to maintain our operations or grow effectively.
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If we use biological and hazardous materials in a manner that causes contamination or injury or
violates laws, we may be liable for damages.
  Our management and auditors have identified a material weakness in our internal controls that, if
not properly remediated, could result in material misstatements in our financial statements and
the inability of our management to provide its report on the effectiveness of our internal
controls as required by the Sarbanes-Oxley Act of 2002 for the year ending December 31, 2007,
either of which could cause investors to lose confidence in our reported financial information
and have a negative effect on the trading price of our stock.
    
    
    strengthened our internal staffing and technical expertise in financial and SEC
accounting and reporting;
    
    improved the segregation of duties within our accounting and finance department;
    
    upgraded our accounting software systems;
    
    engaged an outside compliance consulting firm to advise us on improving our
internal controls to take advantage of best practices; and
    
    implemented additional control procedures.
  30




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If we fail to obtain the capital necessary to fund our operations, we may be unable to develop our
product candidates and we could be forced to share our rights to these product candidates with
third parties on terms that may not be favorable to us.
   Risks Related to Our Common Stock
 The trading price of our common stock may be volatile subject to significant fluctuations and
volatility, and our stockholders may be unable to resell their shares at a profit.
  
    
    quarterly variations in our operating results or those of our collaborators or
competitors;
    
    our ability to develop and market new and enhanced product candidates on a timely
basis;
    
    announcements by us or our collaborators or competitors of new commercial
products, clinical progress or the lack thereof, significant contracts, commercial
relationships, or capital commitments;
    
    commencement of, or our involvement in, litigation;
    
    changes in governmental regulations or in the status of our regulatory approvals;
    
    changes in earnings estimates or recommendations by securities analysts;
    
    any major change in our board or management;
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
    
    general economic conditions and slow or negative growth of our markets; and
    
    political instability, natural disasters, war, and/or events of terrorism.
  If securities analysts do not publish research or reports about our business, or if they downgrade
our stock, the price of our stock could decline.
  The concentration of our capital stock ownership with insiders will likely limit your ability to
influence corporate matters.
  Anti-takeover provisions in our charter documents and under Delaware law could make an
acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent
attempts by our stockholders to replace or remove our current management.
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ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation (Exhibit 3.1) (A)3.2
    
    Bylaws (Exhibit 3.1) (B)4.1
    
    Amended and Restated Investor Rights Agreement, dated July 13, 2004 (Exhibit 4.2) (A)4.2
    
    Amendment No. 1 to Amended and Restated Investor Rights Agreement, dated December 19, 2005
(Exhibit 4.3) (A)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C § 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (A)
    
    Incorporated by reference to the specified exhibit to the registrants registration statement
on Form S-1 (File No. 333-134709), filed with the SEC on June 2, 2006.(B)
    
    Incorporated by reference to the specified exhibit to the registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2007 (File No. 001-33054), filed with the SEC on May 14,
2007. 33




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SIGNATURES
   TRUBION PHARMACEUTICALS, INC.By:
    /s/ Michelle G. BurrisMichelle G. BurrisSenior Vice President and
               Chief Financial Officer(Principal Accounting and Financial Officer) 34




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EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation (Exhibit 3.1) (A)3.2
    
    Bylaws (Exhibit 3.1) (B)4.1
    
    Amended and Restated Investor Rights Agreement, dated July 13, 2004 (Exhibit 4.2) (A)4.2
    
    Amendment No. 1 to Amended and Restated Investor Rights Agreement, dated December 19, 2005
(Exhibit 4.3) (A)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C § 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (A)
    
    Incorporated by reference to the specified exhibit to the registrants registration statement
on Form S-1 (File No. 333-134709), filed with the SEC on June 2, 2006.(B)
    
    Incorporated by reference to the specified exhibit to the registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2007 (File No. 001-33054), filed with the SEC on May 14,
2007. 35