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

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008ORo

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


Commission file number: 001-33277

SYNTA PHARMACEUTICALS CORP.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

04-3508648(I.R.S. Employer Identification No.)45 Hartwell Avenue
Lexington, Massachusetts(Address of principal executive offices)

02421(Zip Code)


Registrant's
telephone number, including area code(781) 274-8200

Securities
registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Name of each exchange on which registeredCommon Stock, $0.0001 Par Value Per Share

The NASDAQ Stock Market LLC


Securities
registered pursuant to Section 12(g) of the Exchange Act:None.

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes o    No ý

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ý

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 the
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

The aggregate market value of the registrant's common stock held by non-affiliates of the registrant (without admitting that any person whose shares
are not included in such calculation is an affiliate), computed by reference to the price at which the common stock was last sold on June 30, 2008, the last business day of the registrant's
most recently completed second fiscal quarter, was $106,695,002.

As
of March 20, 2009 the registrant had 33,919,584 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The
following documents (or parts thereof) are incorporated by reference into the following parts of this Annual Report on Form 10-K: Certain information required in
Part III of this Annual Report on Form 10-K is incorporated from the registrant's Proxy Statement for the 2009 Annual Meeting of Stockholders to be held on June 10,
2009.



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PART I

Item 1.    BUSINESS

The Company

Synta Pharmaceuticals Corp. is a biopharmaceutical company focused on discovering, developing, and commercializing small molecule drugs
to extend and enhance the lives of patients with severe medical conditions, including cancer and chronic inflammatory diseases. We have three clinical-stage drug candidates and several drug candidates
in the preclinical and discovery stages, each of which has a distinct chemical structure, mechanism of action, and market opportunity. Each of our drug candidates was discovered and developed
internally using our proprietary, unique chemical compound library and integrated discovery engine. In October 2007, we entered into a global partnership with GlaxoSmithKline, or GSK, for the joint
development and commercialization of elesclomol, one of our oncology drug candidates. In December 2008, we entered into a partnership with Hoffmann-La Roche, or Roche, for our CRACM
inhibitor program. We retain all rights to our other drug candidates and programs.

We
believe that our efforts since the beginning of 2008 have resulted in significant progress on a number of fronts, including: (1) effectively conducting a pivotal,
Phase 3 clinical trial for elesclomol in approximately 150 centers in 15 countries and achieving a rapid enrollment rate; (2) earning $40 million in milestone payments from our
partner, GSK, for the elesclomol program; (3) initiating a prostate and a monotherapy trial for elesclomol; (4) making substantial progress in elucidating the mechanism of action of
elesclomol and generating productive academic collaborations to further explore the science underlying this mechanism of action; (5) initiating and advancing two solid-tumor
dose-escalating trials for our Hsp90 inhibitor, STA-9090, which have shown encouraging results, including signs of clinical and biological activity; (6) preparing for
and initiating trials in hematologic cancers for STA-9090; (7) generating productive academic collaborations that have provided substantial evidence of the advantages of
STA-9090 that have led and will continue to lead to publications in peer-reviewed scientific journals and presentations at scientific meetings; and (8) conducting an
in-depth partnership effort for our CRACM inhibitor program, which resulted in entering into a favorable agreement with a leading multinational pharmaceutical company. This partnership
provided us with a $16 million up-front payment, reimburses us for all program research, preclinical, and clinical costs that will be incurred by us, and provides us with
substantial milestone payments as well as royalties on sales from any resulting approved, marketed products.

We
believe that our demonstrated ability to generate promising new drug candidates from our discovery platform, our ability to effectively enroll and conduct robust clinical trials, and
our ability to enter into attractive partnerships with leading multinational pharmaceutical companies are important competitive advantages. We believe that these competitive advantages, together with
our current diverse pipeline of drug candidates with distinct chemical structures and mechanisms of action, provide us with both near-term and long-term sustainable growth
opportunities.

Key Post-2008 Developments

In February 2009, we suspended our global Phase 3 clinical trial of elesclomol plus paclitaxel in metastatic melanoma, called
the SYMMETRY trial, following a meeting of the independent data monitoring committee, or DMC. The DMC noted that while an interim review of the primary endpoint of progression-free
survival, or PFS, showed trends that favored the elesclomol arm of the study; the interim analysis of the secondary endpoint of overall survival, or OS, favored the control arm. The DMC report noted
that the DMC "cannot be sure whether this is an adverse treatment effect, an effect of differing post-progression (off-study) treatments or a chance effect not relating to the
study drugs at all" and that this was a "paradoxical outcome" not foreseen prior to study initiation. The DMC also noted in its report that the OS for the elesclomol arm is in the range of what one
would expect for

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survival
rates in large, multinational trials in metastatic melanoma; while the OS for the control arm was somewhat longer than would be expected. Of note is that the OS data from the SYMMETRY trial
are not yet mature, in that a relatively small fraction of the total survival events have occurred, meaning that OS results from this trial may change over time. We expect the survival data to mature
by the end of 2009.

Based
on the interim review, the DMC recommended that unblinded data be released to us, and that we provide appropriate notification to investigators and patients in order that they
could jointly make informed decisions on whether to continue therapy. Following our review of the data and further discussion with the DMC, we decided to suspend the SYMMETRY trial and our other
ongoing elesclomol trials, including our trial in prostate cancer and our single-agent dose-escalating trial, pending further analysis of the SYMMETRY trial results. We also notified the
Food and Drug Administration, or FDA, of the SYMMETRY trial findings and our decision to suspend all ongoing elesclomol trials. Following our report to the FDA, the FDA concurred with our decision and
placed each of these trials on clinical hold.

In
our analysis of the SYMMETRY trial results to date, we have not identified any target organ toxicities or adverse events related to elesclomol that might explain an imbalance of
deaths between the two arms. We and our partner for the elesclomol program, GSK, are currently investigating a number of aspects related to the SYMMETRY trial results that will inform our choices for
future direction of this program, including whether or not to restart the program in melanoma and/or other cancer indications. Following the suspension of our SYMMETRY clinical trial, in March 2009,
we implemented a workforce reduction of approximately 90 positions, to a total employee base of approximately 130 positions, in order to align our workforce with our revised operating plans.

Company Strategy

Our strategy is to use our proprietary chemical compound library and discovery capabilities, as well as strength in designing and
effectively conducting robust clinical trials, to discover, develop, and commercialize novel small-molecule drug candidates for treating cancer, autoimmune, and chronic inflammatory diseases.
Important elements of our long-term strategy include:



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Our Drug Candidate Pipeline

The following table summarizes the status of our most advanced research and development programs:

Product Candidate

Disease

Stage

Development StatusOncology

ElesclomolOxidative stress
inducer (partner: GSK)

Metastatic melanoma

Phase 2b

Completedmet primary endpointMetastatic melanoma

Phase 3
(SYMMETRY)

Suspended Feb 2009Prostate cancer

Phase 1/2

Suspended pending analysis of SYMMETRY resultsSolid tumor (monotherapy)

Phase 1

Suspended pending analysis of SYMMETRY resultsSTA-9090Hsp90 inhibitor (Synta owned)

Solid tumors (once per week administration)

Phase 1

OngoingSolid tumors (twice per week administration)

Phase 1

OngoingHematologic cancers (twice per week administration)

Phase 1/2

OngoingHematologic cancers (once per week administration)

Phase 2

Planned Q3 2009Additional cancers

Phase 2

Planned 2H 20092nd generation
Hsp90 inhibitor(Synta owned)

Cancer

Preclinical development

OngoingSTA-9584Vascular
disrupting agent (Synta owned)

Cancer

Preclinical development

Ongoing


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Product Candidate

Disease

Stage

Development StatusInflammatory Diseases

Apilimod (STA-
5326)Oral IL
-12/23 inhibitor (Synta owned)

Rheumatoid arthritis

Phase 2a

Results expected 2H 2009Oral CRACM
channel
inhibitor(partner: Roche)

Autoimmune diseases, Respiratory conditions (asthma/COPD)

Preclinical development

Targeting Phase 1 start in 20102nd generation
CRAC channel
inhibitor(partner: Roche)

Autoimmune diseases, Respiratory conditions (asthma/COPD)

Lead optimization

Ongoing


In
the above table and throughout this report, lead optimization indicates that compounds have shown activity, selectivity, and efficacy inin
vivomodels, as well as an acceptable preliminary safety profile. These compounds are being optimized for potency, drug-like properties, and safety before entering
into preclinical development. Preclinical development activities include manufacturing, formulation, and full toxicology studies in preparation for a Phase 1 clinical trial. Phase 1
indicates initial clinical safety testing and pharmacological profiling in healthy volunteers, with the exception that Phase 1 clinical trials in oncology are typically performed in patients
with cancer. Phase 2 involves efficacy testing and continued safety testing in patients with a specific disease, and may include separate Phase 2a and Phase 2b clinical trials.
Phase 2a clinical trials typically test the drug candidate in a small number of patients and are designed to provide early information on drug safety and efficacy. Phase 2b clinical
trials typically involve larger numbers of patients and comparison with placebo, standard treatments, or other active comparators. Phase 3 indicates a confirmatory study of efficacy and safety
in a larger patient population, and typically involves comparison with placebo, standard treatments, or other active comparators.

Oncology Programs

We have two clinical-stage programs and one preclinical-stage program in oncology:



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Oncology Background

Cancers are diseases characterized by abnormal and uncontrolled cell growth and division, typically leading to tumor formation. As a
tumor grows, it can directly disrupt organ function at its site of origin. In addition, cancer cells can also spread to other organs, such as the brain, bones and liver, by a process called
metastasis. The growth of metastatic tumors at these new sites can disrupt the function of these other organs. There are many kinds of cancer, but all are characterized by uncontrolled growth of
abnormal cells.

The
World Health Organization estimates that more than 11 million people are diagnosed with cancer every year worldwide, and seven million people die from the disease annually.
The American Cancer Society estimates that approximately 1.4 million people in the United States will be diagnosed with cancer in 2008, and approximately 566,000 people will die from the
disease.

According
to a 2007 IMS health report, oncology products are the largest therapeutic class of pharmaceuticals in the world with global sales of $41.4 billion in 2007.

Elesclomol

Elesclomol is an investigational oncology drug candidate which we believe triggers programmed cell death in cancer cells by elevating
levels of ROS. In a double-blind, randomized, controlled, multicenter Phase 2b clinical trial, elesclomol met the primary endpoint of extending PFS in patients with stage IV metastatic
melanoma.

In
February 2009, we suspended the Phase 3 SYMMETRY trial, following a DMC meeting in which the DMC noted that while an interim review of the primary endpoint of
progression-free survival, or PFS, showed trends that favored the elesclomol arm of the study; the interim analysis of the secondary OS endpoint favored the control arm. Based on the
interim review, the DMC recommended that unblinded data be released to us, and that we provide appropriate notification to investigators and patients in order that they could jointly make informed
decisions on whether to continue therapy. Following our review of the data and further discussion with the DMC, we decided to suspend the SYMMETRY trial and our other ongoing elesclomol trials,
including our trial in prostate cancer and our single-agent dose-escalating trial, pending further analysis of the SYMMETRY trial results. We also notified the FDA of the SYMMETRY trial
findings and our decision to suspend all ongoing elesclomol trials. Following our report to the FDA, the FDA concurred with our decision, and placed each of these trials on clinical hold.

In
our analysis of the SYMMETRY trial results to date, we have not identified any elesclomol-related target organ toxicities that might explain an imbalance of deaths between the two
arms. We and our partner for the elesclomol program, GSK, are currently investigating a number of aspects related to the SYMMETRY trial results that will inform our choices for future direction of
this program, including whether or not to restart the program in melanoma and/or other cancer indications.

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Elesclomol's Mechanism of Action

Elesclomol is a novel, injectable small molecule that we believe rapidly and potently induces the generation of ROS in cancer cells,
increasing the level of oxidative stress in cancer cell and ultimately leading to programmed cell death, or apoptosis.

ROS
is a collective term used to describe chemical species that are produced as byproducts of normal oxygen metabolism and include superoxide, hydrogen peroxide, and the hydroxyl
radical. In normal cells, ROS are produced at low levels and are effectively neutralized by the cells' antioxidant system. In contrast, cancer cells produce elevated levels of ROS due to their
increased metabolic activity, increased proliferation rate and alterations in mitochondria function, resulting in oxidative stress. Sustained levels of ROS that exceed the cells' antioxidant capacity
can readily induce cell death by apoptosis. We believe that oxidative stress is one of the most fundamental differences between cancer cells and normal cells, and that this difference causes cancer
cells to be particularly vulnerable to agents that can selectively elevate ROS.

We
believe the evidence that the primary mechanism of action of elesclomol is through induction of ROS is strong. This evidence includes:



We
believe that once ROS levels in cancer cells exceed the breaking point, cell death occurs through apoptosis via the intrinsic mitochondrial pathway. Apoptotic cell death through the
mitochondrial pathway involves the oxidation of cardiolipin, release of cytochrome c from the mitochondria, and activation of the caspase cascade. Critical in this process is the opening of the
mitochondrial outer membrane pores allowing the escape of cytochrome c which then activates the caspase cascade that causes apoptosis. By both direct action and indirect signaling, we believe that the
ROS generated by elesclomol treatment causes the opening of the mitochondrial pores and the release of cytochrome c. The effect of elesclomol on the Bcl-2 family of apoptosis regulators
may be of particular interest. ROS causes a change in the conformation of the pro-apoptotic protein Bax, leading to its association with the mitochondria and the opening of the pores. Much
academic and industry research has focused on inhibiting anti-apoptotic proteins such as Bcl-2 and XIAP. These proteins act to block the opening of the pores, and thereby
suppress apoptosis induced by many anti-cancer agents. We believe that elesclomol treatment causes a decrease in the level of these anti-apoptotic proteins.

By
activating multiple apoptosis signaling pathways, activating pro-apoptotic Bax, and inhibiting anti-apoptotic Bcl-2 family members, we believe that
elesclomol delivers a powerful apoptotic signal. Importantly, these activities appear to facilitate the ability of other cancer drugs to induce the opening of the mitochondrial pores leading to
apoptosis. In this way, we believe that elesclomol can drive apoptosis in the presence of another cancer drug which may be delivering an apoptotic signal that is below the threshold needed to activate
death or normally may be effectively blocked by anti-apoptotic proteins. We have shown in preclinicalin vivomodels that elesclomol
significantly enhanced the anti-tumor activity of paclitaxel, docetaxel, rituximab, and gemcitabine, while adding minimal additional toxicity. Efficacy has been demonstrated in a variety
of animal models of cancer, including breast, lung, lymphoma, colorectal, cervical carcinoma and melanoma.

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We
believe that this mechanism of apoptosis induction is highly cancer selective. Since normal cells have far lower baseline ROS levels and higher antioxidant capacity, they do not
experience the oxidative stress and apoptosis induction seen in cancer cells treated with elesclomol. Our preclinical safety studies showed that the addition of elesclomol added little or no toxicity
to that seen with paclitaxel alone, and that elesclomol has a relatively high therapeutic index, or margin between effective dose and toxic dose. We believe that the favorable safety profile that has
been observed preclinically and clinically with elesclomol is due to the pronounced difference between cancer cells and normal cells in their respective ability to withstand such an increase in
oxidative stress.

We
believe that elevated oxidative stress is one of the most fundamental features that differentiates cancer cells from normal cells. By taking advantage of this fundamental difference,
elesclomol may offer the potential for a novel anti-cancer approach that is broadly effective across cancer types in conjunction with ROS-sensitive chemotherapeutics such as
paclitaxel, while maintaining an attractive safety profile.

Phase 2b Clinical Data in Metastatic Melanoma

Melanoma is the deadliest type of skin cancer and is the sixth most commonly diagnosed cancer in the United States. The National Cancer
Institute has estimated that the prevalence of melanoma in the United States, or the number of patients alive who have been diagnosed with the disease, currently is more than 660,000. The American
Cancer Society estimates that in 2008 the incidence or number of newly diagnosed cases, of melanoma in the United States will be approximately 62,500, with 8,400 deaths from the disease.

Melanoma
is classified into four stages, which are based on well-defined criteria, including characteristics of the primary tumors, involvement of the regional lymph nodes,
and the extent and location of metastases. When melanoma is discovered and treated in the early stages, where the cancer is confined to a local area, patients have a relatively high rate of survival.
For example, stage I patients have a five-year survival rate of between 90 and 95%. Once melanoma has advanced to stage III, where the cancer has spread to the regional lymph
nodes, or stage IV, where the cancer has spread to distant organs, the prognosis for patients is much worse, with five-year survival rates less than 20%. We are unaware of any
reliable industry survey data specifically for the prevalence of metastatic melanoma in the United States or worldwide. Commonly used estimates assume that 5-10% of all patients diagnosed
have metastatic disease, which estimates the prevalence of metastatic melanoma at approximately 30,000 to 60,000 patients in the United States.

Our
Phase 2b clinical trial of elesclomol in metastatic melanoma enrolled a total of 81 metastatic melanoma patients at 21 centers in the United States. This clinical trial was
conducted in a double-blind, randomized, controlled fashion and compared the effects of elesclomol in combination with paclitaxel, a widely used chemotherapy, versus paclitaxel alone. The primary
endpoint for assessing efficacy was PFS. PFS is calculated for each patient by measuring the time from the patient's
assignment to a treatment group in the trial until a PFS event, which is the earlier of tumor progression or death.

In
our Phase 2b trial, elesclomol plus paclitaxel demonstrated a statistically significant improvement in PFS compared to treatment with paclitaxel alone. In the
intent-to-treat analysis, which includes all 81 patients, median PFS increased from 1.8 months for patients treated with paclitaxel alone to 3.7 months for
patients treated with elesclomol plus paclitaxel. The percentage of patients who survived and were free of tumor progression at six months more than doubled from 15% for patients treated with
paclitaxel alone to 35% for patients treated with elesclomol plus paclitaxel. The statistical significance of the improvement in PFS is described by a P-value, which measures the probability that the
difference is due to chance alone. AP-value of less
than 0.05 is considered statistically significant and unlikely due to chance. TheP-value in this analysis was 0.035.

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Including
this Phase 2b trial, we had generated safety data for approximately 300 patients from over 50 medical centers in the United States and Canada. These safety data
suggested that elesclomol was well tolerated.

Elesclomol Regulatory Events

In November 2006, we received Fast Track designation from the FDA, for the development of elesclomol for the treatment of metastatic
melanoma. Although Fast Track review does not affect the standards for approval, the FDA attempts to facilitate early and frequent meetings with a sponsor of a Fast Track designated drug. In December
2007, we received orphan drug designation for elesclomol in this indication in the United States from the FDA. Orphan drug status is designed to encourage biotechnology and pharmaceutical companies to
develop drugs for rare diseases affecting fewer than 200,000 people in the United States by providing seven years of market exclusivity following approval.

The SYMMETRY Phase 3 Clinical Trial

Based on the results of our Phase 2b trial, in the third quarter of 2007, we initiated a global, pivotal Phase 3 clinical
trial of elesclomol in metastatic melanoma, called the SYMMETRY trial. The SYMMETRY trial was being conducted under the terms of a Special Protocol Assessment, or SPA, agreed to by the FDA. The SPA
process provides for a written agreement between a clinical trial sponsor and the FDA that the proposed design and planned analyses of the clinical trial is sufficient to support regulatory approval
of a drug candidate, unless public health concerns unrecognized at the time of the protocol assessment become evident.

The
SYMMETRY trial was a double blind study calling for target enrollment of 630 patients to be treated with a combination of elesclomol and paclitaxel or paclitaxel alone. In early
February 2009, we achieved our enrollment target of 630 patients in the SYMMETRY trial. In late February 2009, the DMC reported to us at that time that while the primary endpoint of PFS showed trends
that favored the elesclomol arm of the study; early analysis of the secondary OS endpoint favored the control arm. The DMC report noted that the DMC "cannot be sure whether this is an adverse
treatment effect, an effect of differing post-progression (off-study) treatments or a chance effect not relating to the study drugs at all" and that this was a "paradoxical
outcome" not foreseen prior to study initiation. The DMC also noted in its report that the OS for the elesclomol arm is in the range of what one would expect for survival rates in large, multinational
trials in metastatic melanoma; while the overall survival for the control arm was somewhat longer than would be expected. Of note is that the OS data from the SYMMETRY trial are not yet mature, in
that a relatively small fraction of the total survival events have occurred, meaning that OS results from this trial may change over time. We expect the survival data to mature by the end of 2009.

Based
on these observations, the DMC recommended that unblinded data be released to us, and that we provide appropriate notification to investigators and patients in order that they
could jointly make informed decisions on whether to continue therapy. Following our review of the data and further discussion with the DMC, we decided to suspend the SYMMETRY trial and our other
ongoing elesclomol trials, including our trial in prostate cancer and our single-agent dose-escalating trial, pending further analysis of the SYMMETRY trial results. We also notified the
FDA, of the SYMMETRY trial findings and our decision to suspend all ongoing trials. Following our report to the FDA, the FDA concurred with our decision, and placed each of these trials on clinical
hold.

In
our analysis of the SYMMETRY trial results to date, we have not identified any elesclomol-specific target organ toxicities or adverse events related to elesclomol that might explain
an imbalance of deaths between the two arms. We and our partner for the elesclomol program, GSK, are currently investigating a number of aspects related to the SYMMETRY trial results that will inform
our choices

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for
future direction of this program, including whether or not to restart the program in melanoma and/or other cancer indications.

Prior
to suspension of the SYMMETRY trial, we had initiated clinical trials in the following settings. Currently, these studies are suspended pending the outcome of our investigation of
the SYMMETRY trial results:



GSK Elesclomol Alliance

In October 2007, we entered into a collaborative development, commercialization and license agreement with GSK for elesclomol, or the
GSK Agreement. In the
United States, we and GSK jointly develop and commercialize elesclomol. Outside the United States, GSK is responsible for regulatory filings and commercialization of elesclomol. We are responsible for
and fund activities related to seeking FDA approval of elesclomol for the treatment of metastatic melanoma. GSK pays the majority of total worldwide development costs for elesclomol; we pay a modest
proportion. GSK is responsible for the manufacturing of elesclomol.

Under
the GSK Agreement, we are eligible to receive up to $1.01 billion in milestone and other payments, share 40-50% of the profits and losses from sales in the
United States, and receive double-digit tiered royalties from sales outside of the United States. The milestone payments include $585 million in pre-commercial milestone
paymentswhich are related to operational progress, clinical progress, or regulatory filings and outcomesand $300 million in sales milestones. To date, we have received
$130 million in non-refundable payments from GSK, which include an $80 million upfront cash payment in 2007, $40 million in milestone payments in 2008 and
$10 million in milestone payments in 2009.

GSK
may terminate the agreement upon not less than three months' written notice at any time prior to the date of first commercial sale of elesclomol and not less than six months' written
notice at any time on and after such date. Under the terms of the agreement, if GSK elected to terminate, all rights to the elesclomol program would be returned to us and we may continue to develop
elesclomol alone or with another partner. In such case, we would owe a small royalty to GSK on future sales of elesclomol. We are currently working with GSK to evaluate the data from the SYMMETRY
trial to determine if we should continue the development of elesclomol or terminate the program. To date, GSK has not notified us of any intent to terminate the GSK agreement.

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STA-9090

STA-9090 is a novel, small molecule Hsp90 inhibitor drug candidate that we are developing for the treatment of a variety of
cancers. STA-9090 has a unique chemical structure that is distinct from 17-AAG (geldanamycin) and other ansamycin derivatives. In preclinical studies, STA-9090 has
shown the ability to inhibit multiple kinases with comparable potency to, and a broader activity profile than, specific kinase inhibitors such as imatinib (Gleevec), erlotinib (Tarceva), and sunitinib
(Sutent). In addition, STA-9090 has shown potency 10 to 100 times greater than the ansamycin family of Hsp90 inhibitors, as well as activity against a wider range of kinases. In in vivomodels, STA-9090
has shown strong efficacy in a wide range of cancer types, including cancers resistant to Gleevec, Tarceva, and
Sutent. We believe that this creates a distinct activity profile for STA-9090 and is a competitive advantage.

STA-9090's Mechanism of Action

STA-9090 inhibits heat shock protein 90, or Hsp90, a chaperone protein that regulates the activity of numerous signaling
proteins that trigger uncontrolled proliferation in cancer cells, in particular kinase proteins. Examples of kinase proteins include c-Kit, Bcr-Abl, Her2, EGFR, and others that
are the targets of approved direct kinase inhibitors such as Gleevec, Herceptin, Tarceva, and Erbitux. We believe that inhibiting kinases indirectly, by disrupting the chaperone activities of Hsp90,
provides two advantages: first, a means to simultaneously attack multiple cancer-promoting kinases; and, second, an ability to kill tumor cells with mutated kinases that have lost responsiveness to a
direct kinase inhibitor.

STA-9090 Ongoing Clinical Trials

We are currently enrolling patients in two Phase 1, open-label studies in patients with solid-tumor cancers to
identify the maximum tolerated dose, or MTD, of STA-9090 based on once- and twice-a-week intravenous dosing schedules, respectively. In addition to an
evaluation of safety and tolerability, patients in each of these studies will be assessed for tumor response based on the industry standard Response Evaluation Criteria in Solid Tumors, or RECIST,
criteria. We also recently initiated a Phase 1/2 open-label clinical study of STA-9090 in patients with hematologic cancers, with a twice-a-week
dosing schedule. Later in 2009, we plan to initiate a Phase 2 trial in hematologic cancers with a once-a-week dosing schedule as well as one or more Phase 2
studies in solid-tumor cancers.

In
our Phase 1 solid-tumor trials, we have escalated multiple dose-level cohorts in each study and have to date observed an acceptable safety profile. We have also
seen biomarker activity that has increased with increasing doses of STA-9090. In addition to the acceptable safety profile and encouraging signs of biological activity, we have seen two
confirmed responses, as defined by RECIST criteria, and a number of cases of prolonged stable disease. These responses and cases of stable disease occurred in a patient population that is generally
refractory or resistant to treatments with other agents. We believe that these data are encouraging, suggest clinical activity of STA-9090 and support continued evaluation of
STA-9090 in further studies.

Future Development Plans for STA-9090

The mechanism of action and underlying biology we have observed with this compound suggest a number of specific, promising
opportunities for evaluating the potential of STA-9090 to benefit patients. We and our collaborators have shown that STA-9090 is active in a number of models of cancers highly
dependent on the client proteins of Hsp90. These models include hematologic cancers; cancers with specific characteristics such as resistance to known kinase inhibitors such as Gleevec, Sutent, and
Tarceva; and certain other solid tumor cancers highly dependent on the Hsp90 client proteins. Examples of cancer-associated client proteins of Hsp90 include c-KIT in gastrointestinal
stromal

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tumors,
epidermal growth factor receptor (EGFR) in lung cancer, and BCR-ABL in chronic myelogenous leukemia.

In
2009, we intend to initiate a number of clinical trials to explore the potential benefit of STA-9090 in different cancer types. In the first quarter of 2009, we initiated
one Phase 1/2 trial in hematologic malignancies with a twice-per-week dosing schedule, designed both to identify the dose for further study in this population and to
evaluate initial signs of activity. We also plan to initiate a Phase 2 study in hematologic malignancies, with a once-per-week dosing schedule, at the MTD determined
from our ongoing Phase 1 trial in solid tumors with the once-per-week dosing schedule. In addition, we plan to initiate one or more Phase 2 trials in certain
solid tumor cancers later this year. The specific choice of cancer indications and trial designs for these indications will be determined based on discussions with our clinical collaborators and
further analysis of the results from our ongoing trials.

We
expect to present data from this program at scientific and medical meetings and in peer-reviewed journals later this year.

2nd Generation Hsp90 Inhibitors

Earlier this year, we initiated preclinical development of a follow-on, small molecule, injectable Hsp90 inhibitor. This
compound has a unique chemical structure that we believe enhances certain desirable properties. In addition, we are currently working on a new series of Hsp90 inhibitor compounds that may be orally
administered. These compounds are in the lead optimization stage.

STA-9584

STA-9584 is a novel, injectable, small molecule compound that disrupts the blood vessels that supply tumors with oxygen and
essential nutrients. In preclinical testing, STA-9584 has been shown to target both new and established tumor blood vessels, in contrast to the mechanism of action of angiogenesis
inhibitors such as Avastin, which only prevent the formation of new tumor vasculature. STA-9584 has shown strong anti-tumor activity in a broad range of preclinical cancer
models, including prostate, lung, breast, melanoma, and lymphoma. This program is currently in preclinical development.

STA-9584's Mechanism of Action

STA-9584 is among a class of compounds known as Vascular Disrupting Agents, or VDAs. In preclinical models, we have
observed that STA-9584 efficiently kills both cancer cells in tumors, as well as the endothelial cells that form blood vessels in tumors, without affecting the vasculature of
non-tumor tissues. Because STA-9584 appears to be highly potent and possess a mechanism that is different from many other classes of anti-cancer agents, we believe
that STA-9584 has the potential to be used in both single-agent and combination settings in the clinic.

We
believe that the inhibition of angiogenesis and disruption of existing tumor vasculature is a compelling therapeutic approach, as it effectively prevents transport of oxygen and
essential nutrients needed by the tumor and can lead to tumor shrinkage, and possibly, complete tumor eradication. First generation angiogenesis inhibitors, such as Avastin, work primarily by
preventing the formation of new tumor vessels. In contrast, STA-9584's anti-vasculature effects are two-fold: disrupting both new and established tumor vessels. We
believe that STA-9584's more complete anti-vasculature mechanism, in combination with an independent ability to directly kill cancer cells, may increase the potential
anti-cancer activity of this compound versus first generation angiogenesis inhibitors and other endothelial cell-targeted agents.

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Our Inflammatory Disease Programs

We have one clinical-stage program and one preclinical-stage program focusing on treatments for inflammatory diseases. Both of our
inflammatory disease programs focus on oral, disease-modifying drug candidates that act through novel mechanisms and could potentially target multiple indications.

Inflammatory Disease Background

Inflammatory diseases are typically caused by aberrant activity of the immune system. The immune system normally protects the body from
injury and infection, but in autoimmune diseases it attacks and damages the body's own tissues. Major autoimmune diseases include rheumatoid arthritis, psoriasis, Crohn's disease, and multiple
sclerosis.

Despite
the availability of numerous therapeutic options for these diseases, inflammatory diseases remain major causes of impairment of daily activities, reduced quality of life,
significant disability, and sometimes death. Current therapeutic treatments for chronic inflammatory diseases have the potential to cause musculoskeletal, endocrine, neurologic, and metabolic side
effects, which can limit their long-term use. The limitations of conventional treatments, together with a growing understanding of the pathogenesis of inflammatory diseases, have
stimulated significant interest in the development of targeted immune modulators for the management of chronic inflammatory diseases.

Apilimod (STA-5326)

Apilimod is a novel, orally administered, small molecule drug candidate we are developing for the treatment of autoimmune and other
chronic inflammatory diseases. Apilimod inhibits the production of the cytokines interleukin-12, or IL-12, and interleukin-23, or IL-23, and thereby
down-regulates the inflammation pathways that underlie certain autoimmune and inflammatory diseases. We submitted the initial IND for apilimod in March 2003.

Apilimod Mechanism of Action

Apilimod selectively inhibits production of the cytokines IL-12 and IL-23. The IL-12 cytokine is an
important "master switch" that triggers the immune response of the T cell known as T helper type 1, or Th1. T cells play a critical role in the coordination of the body's immune response, and
while Th1 cells are normally involved in the body's defense against intracellular attack by bacteria and other micro organisms, an overactive Th1 response can lead to various autoimmune or
inflammatory diseases including Crohn's disease, psoriasis, rheumatoid arthritis, multiple sclerosis, and common variable immunodeficiency, or CVID. The IL-23 cytokine is critical to the
generation of a class of T cells known as Th17, which produce other pro-inflammatory proteins such as IL-17, which are critical in driving chronic inflammation. We believe that
the clinical trial results observed with anti-IL-12/23 antibody therapies validate the inhibition of IL-12/23 activity as a promising approach for the treatment of
inflammatory and autoimmune diseases.

Apilimod Ongoing Clinical Trial

We are currently conducting a Phase 2a clinical trial of apilimod in patients with rheumatoid arthritis, or RA. The RA study
completed initial enrollment of 22 patients and the preliminary results showed encouraging biomarker and clinical signals suggesting activity of apilimod in this indication. We have elected to enroll
an additional cohort in this trial to explore a higher dose of apilimod. We expect to have results from this higher dose cohort in the second half of 2009.

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Future Development Plans for Apilimod

We are also exploring the possibility of using apilimod in a topical formulation to treat inflammatory diseases of the skin, such as
psoriasis. We have developed a promising prototype formulation and expect to have proof-of-concept studies conducted in animals during the second half of 2009.

2nd Generation IL-12/23 Inhibitors

In addition to apilimod, we have also identified several other small molecule IL-12/23 inhibitors that we believe have
comparable activity to apilimod with significantly improved pharmaceutical properties. We believe that these new compounds represent a promising opportunity to develop next generation drug candidates
that could be administered orally at higher doses than apilimod and potentially address a wider range of serious inflammatory diseases with high unmet medical needs.

CRACM Ion Channel Inhibitors

We have developed novel, small molecule inhibitors of calcium release activated calcium modulator, or CRACM, ion channels expressed on
immune cells. The CRACM ion
channel is the primary route for calcium entry into T cells and other immune cells, regulating multiple immune cell processes important for initiating and maintaining an inflammatory immune response.
Our CRACM ion channel inhibitors have shown strong anti-inflammatory activity in preclinical studies both in vitro and in vivo, inhibiting T cell and mast cell activity, including cytokine
release, degranulation, and immune cell proliferation. Potential applications include a wide range of inflammatory diseases and disorders for which modulating T cell and mast cell function has been
shown to be critical, including rheumatoid arthritis, asthma, chronic obstructive pulmonary disease, or COPD, allergy, transplant rejection, and other autoimmune diseases and inflammatory conditions.
This program is in the lead optimization stage. In December 2008, we entered into a global partnership with Roche to further develop our CRACM inhibitors. We currently have one compound in preclinical
development and are targeting Phase 1 initiation in 2010.

We
also have additional CRACM inhibitors in lead optimization. Because there are a number of CRACM ion channel targets on immune cells, we believe that our next generation CRACM
inhibitor compounds could potentially apply to different immune system diseases and address distinct therapeutic areas, such as RA, allergy/asthma, and transplant rejection.

About Ion Channel Therapeutics

Ion channels, the gateways in cell membranes that regulate the flow of ions into and out of cells, play important roles in cell
signaling. Certain ion channels allow electrically excitable cells, such as neurons or muscle cells, to discharge. Drugs that modulate these ion channels have proven to be a successful therapeutic
category, with dozens of such drugs on the market and commonly prescribed for the treatment of various neurological and cardiovascular disorders. Our research program targets an ion channel known as
the CRACM channel, which is believed to play a key role specifically in immune cells rather than in neurons or muscle cells. CRACM channels regulate the calcium signaling pathway driving immune cell
activation and secretion of TNF-alpha, IL-2, and other inflammatory factors. The therapeutic importance of inhibiting this calcium signaling pathway has been demonstrated
through clinical experience with calcineurin inhibitors, such as cyclosporine, which are potent immunomodulators but have significant toxicities due to the broad role calcineurin plays in
non-immune cells. In contrast to calcineurin, CRACM channels are believed to be critical exclusively to immune cell function. CRACM inhibitors therefore have the potential to achieve
potent anti-inflammatory activity with an improved safety profile, creating a new category of disease-modifying agents comparable to biologic agents, such as TNF-alpha
inhibitors, but orally available.

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Roche CRACM Inhibitor Alliance

In December 2008, Synta and Roche formed a strategic alliance, or the Roche Agreement, to discover, develop, and commercialize
small-molecule drugs targeting CRACM channels. The goal of this program is to develop a novel category of oral, disease-modifying agents for the treatment of rheumatoid arthritis, asthma, chronic
obstructive pulmonary disease (COPD), allergy, transplant rejection, and other autoimmune diseases and inflammatory conditions. Under the terms of the Roche Agreement, Roche will fund research and
development to be conducted by us, which includes discovery and certain early development activities for our novel CRACM inhibitors. Roche will receive worldwide rights to develop and commercialize
certain products identified prior to the end of this research period. We retain certain co-development and co-promotion rights. All preclinical, clinical, and commercial costs
will be paid by Roche.

The
financial terms of the Roche Agreement include a $16 million non-refundable upfront license fee that we received in January 2009, and reimbursement by Roche of all research,
preclinical development, and clinical development costs that will be incurred by us for the program. These costs include $9 million in committed research support over the initial two year
research period. In addition to the committed research support, and preclinical and clinical cost reimbursement, we are eligible to receive milestone payments and royalties for products developed as a
result of this collaboration. Development milestones across multiple indications of up to $245 million could be earned for the first product, and up to half of this amount could be earned for
each of the second and third products. Commercialization milestones of up to $170 million could be earned for each of three products. We will receive tiered royalties on sales of all approved,
marketed products. Roche may terminate the agreement on a licensed compound-by-licensed compound basis upon providing advance written notice, but may not do so with respect to
all licensed compounds until after a specified date.

Our Drug Discovery Capabilities

Our drug discovery approach is based on the close integration and rapid cycle times among our chemistry, biology, and pharmaceutical
development groups. Drug candidates are typically identified using novel chemical structures from our chemical compound library in cell-based assays that are designed to preserve the
complexity of biological signaling. Earlyin vivotesting and a rapid optimization process allow us to generate a high number of promising leads from
our screening hits, improve the profiles of our compounds, and, in some cases, discover novel pathways or mechanisms of action with the potential to define entirely new categories of treatment.

Our
approach integrates the following capabilities and resources:



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Manufacturing

Our drug candidates and preclinical compounds are small molecules that can be readily synthesized by processes that we have developed.
Utilizing our medicinal chemistry and process development capabilities, we have developed manufacturing processes to produce the active pharmaceutical ingredient, or API, for our drug candidates. We
also have the internal capability to synthesize small molecule compounds in quantities of up to several hundred grams for use in our preclinical studies, including
proof-of-concept studies in animal models, early pharmacokinetic assays, initial toxicology studies, and formulation development. We currently contract with third parties for
the synthesis of all materials used in our clinical trials and rely on third party manufacturers for the supply of our drug candidates in bulk quantities and for the production of suitable dosage
forms.

The
starting materials and reagents required for synthesizing our drug candidates and preclinical compounds are commercially available from multiple sources. We have established a
quality control and quality assurance program, including a set of standard operating procedures, analytical methods, and specifications, designed to ensure that our drug candidates are manufactured in
accordance with the FDA's current Good Manufacturing Practices, or cGMP, and other applicable domestic and foreign regulations. We have selected manufacturers that we believe comply with cGMP and
other applicable regulatory standards. We do not currently expect to manufacture cGMP material internally for our clinical trials nor undertake the commercial scale manufacture of our drug candidates
after approval. We will discuss with our current suppliers and other third party manufacturers the long-term supply and manufacture of these and other drug candidates we may develop.

Elesclomol Manufacturing

We are using several different manufacturers for various process steps in the preparation of elesclomol drug product. Although we
believe that most of these steps are routine and can be accomplished by other possible manufacturers, the powder filling step involves highly specialized processing, including the automated filling of
vials with elesclomol API. We believe that our selected

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manufacturer
for this step may be one of a limited number of third party contract manufacturers currently capable of conducting this process on our behalf. We have entered into an agreement with this
third-party manufacturer that we believe is sufficient for our current requirements.

Under
the terms of the GSK Agreement, GSK is responsible for commercial manufacturing of elesclomol API and drug product.

Sales and Marketing

We currently have no sales or distribution capabilities as such, in order to commercialize any of our drug candidates. We will need to
develop these capabilities internally or through collaboration with third parties.

Competition

The development and commercialization of new drugs is highly competitive. We will face competition with respect to all drug candidates
we may develop or commercialize in the future from pharmaceutical and biotechnology companies worldwide. The key competitive factors affecting the success of any approved product will be its efficacy,
safety profile, price, method of administration and level of promotional activity. The efficacy and safety profile of our drug candidates relative to competitors will depend upon the results of our
clinical trials and experience with the approved product in the commercial marketplace. For risks associated with competition, see "Risks Related to Our IndustryOur market is subject to
intense
competition" under "Risk Factors" below in Part I, Item 1A of this Form 10-K.

Patents and Proprietary Rights

Our success depends in part on our ability to obtain and maintain proprietary protection for our drug candidates, technology, and
know-how, to operate without infringing on the proprietary rights of others, and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary
position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions, and improvements that are important to the development of our business.
We also rely on trade secrets, know-how, continuing technological innovation, and in-licensing opportunities to develop and maintain our proprietary position.

As
of March 20, 2009, our patent portfolio had a total of 710 patents and patent applications worldwide, including specific patent filings with claims to the
composition-of-matter and methods of use of elesclomol and apilimod. We own or have exclusively licensed a total of 30 issued U.S. patents and 97 U.S. patent applications, as
well as 583 foreign counterparts to these patents and patent applications. With respect to elesclomol, we have two issued U.S. patents that claim the chemical structure of elesclomol that expire no
earlier than 2022. Both of these issued U.S. patents also claim related chemical structures, pharmaceutical compositions, and methods for treating a subject with cancer. In addition, we have an issued
U.S. patent claiming the salt form of elesclomol that expires no earlier than 2025. We have also filed several U.S. patent applications that have the potential to extend the patent life of elesclomol,
including U.S. patent applications claiming aspects of the treatment regimen for metastatic melanoma which, if issued, would expire no earlier than 2026.

With
respect to apilimod, we have two issued U.S. patents that claim the chemical structure of apilimod and methods for treating specific disorders using apilimod, respectively. These
patents expire no earlier than 2021.

We
have pending U.S. patent applications covering compositions-of-matter, methods of treatment and other aspects of our STA-9090,
2nd generation Hsp90 inhibitor, 2nd generation IL-12/23 inhibitor, STA-9584 and CRACM ion channel programs. The patent term of our
U.S. patents may potentially be

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extended
under applicable law or regulations, such as the Patent Term Restoration Act. Counterpart filings to these patents and patent applications have been made in a number of other jurisdictions,
including Europe and Japan.

We
have also in-licensed various technologies to complement our ongoing clinical and research programs. These licenses generally extend for the term of the related patent and
contain customary royalty, termination, and other provisions. We have license agreements with Beth Israel Deaconess Medical Center and The Queen's Medical Center, Inc. that provide us with the
exclusive commercial right to certain patent filings made by Beth Israel and Queen's Medical in the field of ion channels. We do not believe that these license agreements are currently material to our
business. We also have a non-exclusive license to a U.S. patent assigned to Columbia University that could potentially cover a possible aspect of the elesclomol mechanism. This license is
not royalty bearing unless we include specific mechanism language on the label of any approved product, in which case a nominal royalty would be owed.

Government Regulation and Product Approval

Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among
other things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing and export and import of products such as those we are
developing. Our drugs must be approved by the FDA through the NDA process before they may be legally marketed in the United States.

United States Government Regulation



In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or the FDCA, and implementing regulations.
Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial
sanctions. These sanctions could include:



Any
agency or judicial enforcement action could have a material adverse effect on us. The process of obtaining regulatory approvals and the subsequent substantial compliance with appropriate federal,
state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources.

The
process required by the FDA before a drug may be marketed in the United States generally involves the following:



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Once
a pharmaceutical candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity
and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND.
Some preclinical or nonclinical testing may continue even after the IND is submitted. In addition to including the results of the preclinical studies, the IND will also include a protocol detailing,
among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy
determination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, specifically places the sponsor on clinical
hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin.

All
clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with Good Clinical Practices regulations. These regulations include the
requirement that all research subjects provide informed consent. Further, an institutional review board, or IRB, at each institution participating in the clinical trial must review and approve the
plan for any clinical trial before it commences at that institution. Each new clinical protocol must be submitted to the FDA as part of the IND. Progress reports detailing the results of the clinical
trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur.

Human
clinical trials are typically conducted in three sequential phases that may overlap or be combined:



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Phase 1, Phase 2, and Phase 3 testing may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend a clinical trial
at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. In addition, an IRB can suspend or terminate approval of a
clinical trial at its institutions for several reasons, including if the clinical trial is not being conducted in accordance with the IRB's requirements or if the drug has been associated with
unexpected serious harm to patients.

During
the development of a new drug, sponsors are given an opportunity to meet with the FDA at certain points. These points are prior to submission of an IND, at the end of
Phase 2, and before an NDA is submitted. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for
the sponsor and FDA to reach agreement on the next phase of development. Sponsors typically use the end of Phase 2 meeting to discuss their Phase 2 clinical results and present their
plans for the pivotal Phase 3 clinical trial that they believe will support approval of the new drug. If a Phase 2 clinical trial is the subject of discussion at an end of Phase 2
meeting with the FDA, a sponsor may be able to request a SPA, the purpose of which is to reach agreement with the FDA on the design of the Phase 3 clinical trial protocol design and analysis
that will form the primary basis of an efficacy claim. If such an agreement is reached, it will be documented and made part of the administrative record, and it will be binding on the FDA unless
public health concerns unrecognized at the time of protocol assessment are evident, and may not be changed except under a few specific circumstances.

On
occasion, the FDA may suggest or the sponsor of a clinical trial may decide to use an independent DMC to provide advice regarding the continuing safety of trial subjects and the
continuing validity and scientific merit of a trial. In 2006, the FDA published a final Guidance for Clinical Trial Sponsors on the Establishment and Operations of Clinical Trial Data Monitoring
Committees in which it describes the types of situations in which the use of a DMC is appropriate and suggests how a DMC should be established and operate. DMCs evaluate data that may not be available
to the sponsor during the course of the study to perform interim monitoring of clinical trials for safety and/or effectiveness and consider the impact of external information on the trial. They often
make recommendations to the sponsor regarding the future conduct of the trial.

Concurrent
with clinical trials, companies usually complete additional animal safety studies and must also develop additional information about the chemistry and physical characteristics
of the drug and finalize a process for manufacturing the product in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug
candidate and the manufacturer must develop methods for testing the quality, purity and potency of the final drugs. Additionally, appropriate packaging must be selected and tested and stability
studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf-life.

The
results of product development, preclinical studies and clinical studies, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the
drug, results of chemical studies and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the
payment of user fees, but a waiver of such fees may be obtained under specified circumstances. The FDA reviews all NDAs submitted before it accepts them for filing. It may request additional
information rather than accept a NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA
accepts it for filing.

Once
the submission is accepted for filing, the FDA begins an in-depth review. The FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or
may require additional clinical or other data. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA reviews an NDA to
determine, among

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other
things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product's identity, strength, quality
and purity. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured and tested.

Satisfaction
of FDA requirements or similar requirements of state, local and foreign regulatory authorities typically takes at least several years and the actual time required may vary
substantially, based upon, among other things, the indication and the type, complexity and novelty of the product. Government regulation may delay or prevent marketing of potential products for a
considerable period of time and impose costly procedures upon our activities. Success in early stage clinical trials does not assure success in later stage clinical trials. Data obtained from clinical
activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at
all. Even if a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could
restrict the commercial application of the product. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the
product or even complete withdrawal of the product from the market. Delays in obtaining, or failures to obtain, regulatory approvals for any drug candidate could substantially harm our business and
cause our stock price to drop significantly. In
addition, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.



The FDA has various programs, including Fast Track, priority review, and accelerated approval, that are intended to expedite or
simplify the process for reviewing drugs, and/or provide for approval on the basis of surrogate endpoints. Even if a drug qualifies for one or more of these programs, we cannot be sure that the FDA
will not later decide that the drug no longer meets the conditions for qualification or that the time period for FDA review or approval will be shortened. Generally, drugs that may be eligible for
these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that offer meaningful benefits over existing
treatments. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. Although Fast Track and priority review do not affect the
standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated drug and expedite review of the application for a drug designated for
priority review. Drugs that receive an accelerated approval may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on
a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of
approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform post-marketing clinical trials. We have applied for and received Fast Track designation from
the FDA for elesclomol for the treatment of metastatic melanoma. However, there can be no assurance that elesclomol will be reviewed or approved more expeditiously than would otherwise have been the
case.



Depending upon the timing, duration and specifics of FDA approval of the use of our drugs, some of our U.S. patents may be eligible for
limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent
restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining
term of a patent beyond a total of 14 years from the product's

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approval
date. The patent term restoration period is generally one-half the time between the effective date of an IND, and the submission date of an NDA, plus the time between the
submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the extension must be applied for prior to expiration
of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend
to apply for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current expiration date, depending on the expected length of clinical
trials and other factors involved in the submission of the relevant NDA.

Market
exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of
non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not
previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not
accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right
of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The
FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were
conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages, or strengths of an existing drug. This
three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original
active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to
conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.



Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is
generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable
expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Orphan
drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by
the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If
a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product
exclusivity, which
means that the FDA may not approve any other applications to market the same drug for the same indication, except in very limited circumstances, for seven years. Orphan drug exclusivity, however, also
could block the approval of one of our products for seven years if a competitor obtains approval of the same drug as defined by the FDA or if our drug candidate is determined to be contained within
the competitor's product for the same indication or disease.

We
have been granted orphan drug designation from the FDA for elesclomol for the treatment of metastatic melanoma and plan to apply for orphan drug designation for other elesclomol
indications and for other drug candidates that meet the criteria for orphan designation. We may not be awarded

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orphan
drug status for elesclomol in indications other than melanoma or for any of our other drug candidates or indications. In addition, obtaining FDA approval to market a product with orphan drug
exclusivity may not provide us with a material commercial advantage.



Section 505(a) of the FDCA, as amended by the FDA Amendments Act of 2007, permits certain drugs to obtain an additional six
months of exclusivity, if the sponsor submits information requested in writing by the FDA, or a Written Request, relating to the use of the drug in children. The FDA may not issue a Written Request
for studies on unapproved or approved indications or where it determines that information relating to the use of a drug in a pediatric population, or part of the pediatric population, may not produce
health benefits in that population.

We
have not requested or received a Written Request for such pediatric studies, although we may ask the FDA to issue a Written Request for such studies in the future. To receive the
six-month pediatric market exclusivity, we would have to receive a Written Request from the FDA, conduct the requested studies in accordance with a written agreement with the FDA or, if
there is no written agreement, in accordance with commonly accepted scientific principles, and submit reports of the studies. The FDA will accept the reports upon its determination that the studies
were conducted in accordance with and are responsive to the original Written Request or commonly accepted scientific principles, as appropriate, and that the reports comply with the FDA's filing
requirements. The FDA may not issue a Written Request for such studies or accept the reports of the studies.



Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems
occur after the product reaches the market. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are
subject to further FDA review and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has
the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

Any
drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things:



Drug
manufacturers and their subcontractors are required to register their establishments with the FDA and some state agencies, and are subject to periodic unannounced inspections by the FDA and some
state agencies for compliance with cGMP and other laws.

We
rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products. Future FDA and state inspections may identify
compliance

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issues
at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct.

From
time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing
of products regulated by the FDA. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is
impossible to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.

Foreign Regulation

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and
commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of foreign countries before we
can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA
approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

Under
European Union regulatory systems, we may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, which is
compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders, or diabetes and optional for those medicines which are highly
innovative, provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national
approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications
and assessments report each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the
European Commission, whose decision is binding on all member states.

As
in the United States, we may apply for designation of a product as an orphan drug for the treatment of a specific indication in the European Union before the application for marketing
authorization is made. Orphan drugs in Europe enjoy economic and marketing benefits, including up to 10 years of market exclusivity for the approved indication unless another applicant can show
that its product is safer, more effective or otherwise clinically superior to the orphan-designated product.

Reimbursement

Sales of our products will depend, in part, on the extent to which the costs of our products will be paid by health maintenance,
managed care, pharmacy benefit and similar health care management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party
payors. These health care management organizations and third-party payors are increasingly challenging the prices charged for medical products and services. Additionally, the containment of health
care costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown
significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of
price controls and cost-containment measures in new jurisdictions or programs, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further
limit our net revenue and results. If these organizations and third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not
reimburse providers

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or
consumers of our products or, if they do, the level of reimbursement may not be sufficient to allow us to sell our products on a profitable basis.

The
Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, imposes requirements for the distribution and pricing of prescription drugs for Medicare
beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D
plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D
coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that
identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered
Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and
therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our
products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare
beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in
a similar reduction in payments from non-governmental payors.

On
February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009. This law provides funding for the federal government to compare the
effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and
the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies
are not intended to mandate any policies for public or private payors, it is not clear what if any effect the research will have on the sales of our product candidates, if any such product or the
condition that it is intended to treat is the subject of a study. Decreases in third party reimbursement for our product candidates or a decision by a third party payor to not cover our product
candidates could reduce physician usage of the product candidate and have a material adverse effect on our sales, results of operations and financial condition.

We
expect that there will continue to be a number of federal and state proposals to implement governmental pricing controls and limit the growth of healthcare costs, including the cost
of prescription drugs. At the present time, Medicare is prohibited from negotiating directly with pharmaceutical companies for drugs. However, Congress is currently considering passing legislation
that would lift the ban on federal negotiations. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse
effect on our business, financial condition and profitability.

In
addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from
country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide
reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or
indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for
pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products.

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Employees

As of March 20, 2009, we had 129 full time employees, including a total of 58 employees who hold M.D. or Ph.D. degrees. 97 of
our employees are primarily engaged in research and development activities, and 32 are primarily engaged in general and administrative activities. Our employees are not represented by any collective
bargaining unit, and we believe our relations with our employees are good.

Company History and Available Information

We commenced operations in July 2001. In September 2002, we acquired Principia Associates, Inc., which had previously acquired
Shionogi BioResearch Corp., a U.S.-based drug discovery subsidiary of the Japanese pharmaceutical company, Shionogi & Co., Ltd. In this acquisition, we acquired a unique chemical
compound library, an integrated set of drug discovery capabilities, and a pipeline of preclinical and research programs. Since 2002, we have been advancing these programs into later stages of
development; discovering and developing additional drug candidates; and expanding our management and scientific teams and capabilities to support more advanced stages of drug development and
commercialization.

Our
principal executive offices are located at 45 Hartwell Avenue, Lexington, Massachusetts 02421, and our telephone number is (781) 274-8200. Our website address is www.syntapharma.com. The
information contained on our website is not incorporated by reference into, and does not form any part of, this Annual Report
on Form 10-K. We have included our website address as a factual reference and do not intend it to be an active link to our website. Our trademarks include Synta
Pharmaceuticals, our corporate logo, SYMMETRY and the SYMMETRY logo. Other service marks, trademarks and trade names appearing in this Annual Report on Form 10-K are the property of
their respective owners. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to
those reports, are available free of charge through the Investors section of our website as soon as reasonably practicable after such materials have been electronically filed with, or furnished to,
the Securities and Exchange Commission.

Item 1A.    RISK FACTORS

If any of the following risks occurs, our business, business prospects, financial condition, results of operations, or cash flows could be materially harmed.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since our inception, and we expect to incur losses for the foreseeable future and may never reach profitability.

Since inception we have incurred significant operating losses and, as of December 31, 2008, we had an accumulated deficit of
$392.7 million. We expect to continue to incur significant operating expenses and capital expenditures and anticipate that our expenses and losses may increase substantially in the foreseeable
future as we:



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We
must generate significant revenue to achieve and maintain profitability. Even if we succeed in developing and commercializing one or more of our drug candidates, we may not be able to
generate sufficient revenue and we may never be able to achieve or maintain profitability.

Our operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.

We commenced operations in July 2001. Our operations to date have been limited to organizing and staffing our company, acquiring,
developing, and securing our technology, and undertaking preclinical studies and clinical trials of our drug candidates. We have not yet demonstrated an ability to obtain regulatory approval,
formulate and manufacture a commercial-scale product, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions about our future
success or viability may not be as accurate as they could be if we had a longer operating history or had previously discovered, developed, and/or commercialized an approved product.

If we fail to obtain the funding necessary to support our operations, we will be unable to successfully develop and commercialize our lead drug candidates.

Although we have raised substantial funding to date, we will require additional funding in order to complete clinical development and
commercialize our current drug candidates and to conduct the research and development and clinical and regulatory activities necessary to bring any future drug candidates to market. Our future funding
requirements will depend on many factors that are currently unknown to us, including:



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There
can be no assurance that additional funds will be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available on a timely basis,
we may be required to:



Based
on our current operating plans, we expect our existing funds, including the $16 million upfront license payment under the Roche Agreement that was received in January 2009
and the $10 million operational milestone payment under the GSK Agreement that was received in March 2009, together with research and development reimbursements and approximately
$5 million of milestone payments anticipated in connection with certain preclinical and clinical achievements anticipated under the Roche agreement, will be sufficient to fund operations for
approximately two years. While we believe that the milestone payments from Roche will be received as forecasted, we have contingency plans in place should the receipt of the milestone payments be
delayed or not achieved at all or if clinical progress in our various programs does not progress as expected, which plans focus on the reduction of spending on less critical research and development
activities.

However,
our operating plans may change as a result of many factors currently unknown to us, and we may need additional funds sooner than planned. In addition, we may seek additional
capital due to

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favorable
market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Raising additional capital may cause dilution to existing stockholders, restrict our operations or require us to relinquish rights.

We may seek the additional capital necessary to fund our operations through public or private equity offerings, debt financings, and
collaborative and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing stockholders' ownership interests will be
diluted and the terms may include liquidation or other preferences that adversely affect their rights as a stockholder. Pursuant to the terms of the GSK Agreement, GSK may, subject to our agreement,
purchase up to $45 million of our common stock in two separate tranches upon the future achievement of specified development and regulatory milestones related to the development of elesclomol.
However, we have recently suspended all clinical development related to elesclomol, and we are in the process of determining, along with GSK, whether to continue the development of elesclomol or to
terminate the development program. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional
debt, making capital expenditures, or declaring dividends. If we raise additional funds through collaboration and licensing arrangements with third parties, we may have to relinquish valuable rights
to our technologies or drug candidates, or grant licenses on terms that are not favorable to us.

Risks Related to the Development and Regulatory Approval of Our Drug Candidates

Suspension of the Phase 3 SYMMETRY trial of elesclomol could significantly affect our growth and our business prospects.

We have invested a significant portion of our time and financial resources in the development of elesclomol for the treatment of
malignant melanoma and other cancer types. During 2008, we spent approximately $60.1 million on the development of elesclomol. In February 2009, we announced that we were suspending the
SYMMETRY trial as well as all other ongoing studies of elesclomol following a meeting of the independent Data Monitoring Committee, or DMC. The DMC noted that while the primary endpoint of
progression-free survival, or PFS, showed a trend that favored the elesclomol arm of the study; early analysis of the secondary endpoint of overall survival, or OS, favored the control
arm. The DMC's report stated that the DMC "cannot be sure whether this is an adverse treatment effect, an effect of differing post-progression (off-study) treatments or a
chance effect not relating to the study drugs at all." Based on these observations, the DMC recommended that unblinded data be released to us, and that we provide appropriate notification to
investigators and patients.

We
are currently evaluating, along with our collaboration partner, GSK, the data from the SYMMETRY trial in an effort to determine whether or not to continue with the development of
elesclomol or to terminate the development program. There can be no assurances that we will continue the development of elesclomol, or if we do continue development, that elesclomol will prove
effective in and be approved for treating melanoma or any other forms of cancer. Our inability to continue to develop elesclomol given the results of the SYMMETRY trial would affect our growth and
impact various aspects of our business and our plans for the future.

Our success is largely dependent on the success of our current clinical-stage drug candidates, and we cannot be certain that we will be able to obtain regulatory approval
for or successfully commercialize any of these drug candidates.

We anticipate that our success will depend largely on the receipt of regulatory approval and successful commercialization of our
clinical-stage drug candidates, elesclomol, apilimod, STA-9090 and

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STA-9584.
In February 2009, we announced that we were suspending the development of elesclomol based on an analysis by the DMC of the data from our Phase 3 SYMMETRY trial. We are
currently evaluating the data from this trial along with our collaboration partner GSK in an effort to determine whether to continue the development of elesclomol or to terminate the development
program. The future success of our drug candidates will depend on several factors, including the following:



Many
of these factors are beyond our control. Accordingly, there can be no assurance that we will ever be able to generate revenues through the sale of an approved product or through strategic
collaborations based on our products.

If we do not obtain the required regulatory approval, we will be unable to market and sell our drug candidates.

Elesclomol, apilimod, STA-9090, STA-9584, and any other drug candidates we may discover or acquire and seek to
commercialize are subject to extensive governmental regulations relating to development, clinical trials, manufacturing, and commercialization. Rigorous preclinical testing and clinical trials and an
extensive regulatory approval
process are required to be successfully completed in the United States and in many foreign jurisdictions before a new drug can be sold. Satisfaction of these and other regulatory requirements is
costly, time consuming, uncertain, and subject to unanticipated delays. The time required to obtain approval by the FDA is unpredictable but typically exceeds five years following the commencement of
clinical trials, depending upon the complexity of the drug candidate. We initiated clinical development of elesclomol, apilimod and STA-9090 in 2002, 2003 and 2007, respectively, and thus
far, these drug candidates have been studied in only a relatively small number of patients. The SYMMETRY trial, our global, pivotal Phase 3 clinical trial of elesclomol for the treatment of
metastatic melanoma, met its enrollment target of 630 patients in February 2009. However, shortly after meeting this target, we announced that we were suspending the development of elesclomol. We are
currently evaluating the data from this trial along with our collaboration partner, GSK, in an effort to determine whether to continue the development of elesclomol or to terminate the development
program. Apilimod is currently in Phase 2a clinical trials for the treatment of RA. We initiated two Phase 1 clinical trials of STA-9090 in solid tumors and one Phase 1/2
trial of STA-9090 in hematologic cancers, with a Phase 2 trial in hematologic cancers to be initiated in the third quarter of 2009. STA-9584 is in preclinical
development.

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We
have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA. In connection with the clinical trials
of elesclomol, apilimod, STA-9090 and STA-9584 and any other drug candidate we may seek to develop in the future, we face risks that:



Of
the large number of drugs in development, only a small percentage result in the submission of an NDA to the FDA and even fewer are approved for commercialization. Furthermore, even if
we do receive regulatory approval to market a commercial product, any such approval may be subject to limitations on the indicated uses for which we may market the product.

Assuming that we decide to continue the development of elesclomol, if the current formulation and method of administering elesclomol is not commercially feasible, we may not
be able to commercialize elesclomol without reformulation and conducting additional clinical trials.

Until the fourth quarter of 2008, except for a human bridging study utilizing the salt form of elesclomol, all of our clinical trials,
including the Phase 3 SYMMETRY trial, were conducted using the free acid form of elesclomol. Because this free acid form of elesclomol is not water soluble, prior to administration, it must be
dissolved in an organic solvent. In the completed Phase 2b clinical trial in metastatic melanoma, this was achieved by combining the elesclomol with a volume of organic solvent included in the
paclitaxel solution and agitating the resulting mixture with a sonication machine. Once the elesclomol was fully dissolved, the resulting solution was added to the remaining paclitaxel solution, and
the combined elesclomol/paclitaxel solution was administered to the patient. Prior to the SYMMETRY trial, we made certain improvements to the process for preparing the active pharmaceutical
ingredient, or API, and drug product of elesclomol, such that elesclomol was dissolved in the paclitaxel solution without sonication. We believe these procedures replicated the results of the prior
methods and were suitable for preparing drug product for clinical trials and commercialization. These procedures were used in our SYMMETRY trial. Among other aspects of the SYMMETRY trial, we are
currently evaluating whether changes in the manufacturing process may have contributed to the difference in results of the Phase 3 SYMMETRY trial as compared to the Phase 2b clinical
trial in metastatic melanoma.

In
addition, in order to use the free acid form of elesclomol with other oncology products, including taxanes other than paclitaxel, it must be dissolved in an organic solvent, which may
cause additional toxicity due to the presence of the organic solvent. Accordingly, if we determine to continue the development of elesclomol, the free acid form of elesclomol may not prove to be
commercially feasible, in which case substantial time and effort will need to be devoted to the identification, testing (including clinical trials) and manufacturing of new elesclomol formulations. We
have developed a water-soluble sodium salt form of elesclomol, or elesclomol sodium, that does not need to be dissolved in an organic solvent and therefore may be used more easily with other oncology
products or potentially, as a stand alone agent without need for an organic solvent. However, development of this

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form
of elesclomol will require additional formulation development efforts and clinical studies. We can provide no guarantees that a commercially suitable elesclomol formulation will be feasible.

If we are unable to successfully reformulate STA-9090, it may limit the commercialize potential of this drug candidate, even if approved.

The current formulation and administration procedures for STA-9090 may be inconvenient or unacceptable to certain patients. These
factors may lead to slower enrollment rates in our clinical trials and, if approved, may limit the commercial potential of STA-9090. In addition, to date, we have only produced STA-9090 drug product
on a relatively small scale. The current STA-9090 drug product formulation may prove to be challenging to manufacture on a larger, commercial scale, which may add to the cost of manufacture or delay
the approval of STA-9090. While we are currently working to reformulate this drug candidate to broaden its commercial potential, the physicochemical properties of STA-9090 may limit the flexibility in
formulation development. Accordingly, if we are unable to develop a commercially acceptable formulation using our own know-how or technology, we may need to rely on third party proprietary formulation
technology. Such third party formulation development may require significant time and expense. We cannot assure you that our efforts to reformulate STA-9090 will be successful. If we are unable to
reformulate STA-9090 and develop a more convenient and acceptable procedure for administration, STA-9090 may have more limited potential target indications and market size.

While we believe that elesclomol's mechanism of action may have applicability to a broad range of solid tumor cancers, most of our clinical trials of elesclomol to date have
shown negative or inconclusive results and there can be no assurances that we will continue the development of elesclomol.

Based on our understanding of the mechanism of action and the preclinical activity we have seen with elesclomol, we believe that
elesclomol may have applicability to a broad range of solid tumor cancers. However, other than our Phase 2b clinical trial in metastatic melanoma, the results of our clinical trials of
elesclomol have been negative or inconclusive. We have completed Phase 2 clinical trials of elesclomol in sarcoma and non-small cell lung cancer.
The results of the soft tissue sarcoma clinical trial did not definitively establish evidence of clinical activity. In the non-small cell lung cancer clinical trial, no improvement was
observed in time-to-progression between combination treatment with elesclomol and a standard first-line combination therapy. In addition, in February 2009, we
announced that we were suspending the SYMMETRY trial, our global, pivotal Phase 3 clinical trial of elesclomol for the treatment of metastatic melanoma. Although we are currently analyzing data
from these trials to assess the future development of elesclomol in melanoma and other cancer types, there can be no assurances that we will continue the development of elesclomol in these
indications, or at all, or that elesclomol will prove effective in and be approved for treating these or other forms of cancer.

Because our drug candidates are in an early stage of development, there is a high risk of failure, and we may never succeed in developing marketable products or generating
product revenue.

We have no drug candidates that have received regulatory approval for commercial sale. We do not expect to have any commercial products
on the market in the foreseeable future, if at all. We are exploring human diseases at the cellular level and attempting to develop drug candidates that intervene with cellular processes. Drug
development is an uncertain process that involves trial and error, and we may fail at numerous stages along the way. Success in preclinical studies of a drug candidate may not be predictive of similar
results in humans during clinical trials, and successful results from early or small clinical trials of a drug candidate may not be replicated in later and larger clinical trials. For example,
although preclinical data and Phase 2a clinical trial results suggested that apilimod had activity in psoriasis and Crohn's disease, our Phase 2b clinical trials of apilimod in those
indications did not demonstrate clinical benefit. In addition, although our Phase 2b clinical trial of elesclomol for the

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treatment
of metastatic melanoma achieved the primary endpoint of increasing progression-free survival, or PFS, and there were no safety issues identified in this trial, we recently
announced that we were suspending clinical development of elesclomol due to possible safety concerns identified by the DMC in the SYMMETRY trial, our global, pivotal Phase 3 trial for the
treatment of metastatic melanoma. Accordingly, the results from preclinical studies and the completed and ongoing clinical trials for our drug candidates may not be predictive of the results we may
obtain in later stage clinical trials.

If clinical trials for our drug candidates are prolonged, delayed or suspended, we may be unable to commercialize our drug candidates on a timely basis, which would require
us to incur additional costs and delay our receipt of any revenue from potential product sales.

We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical trials that will cause us
or any regulatory authority to delay or
suspend those clinical trials or delay the analysis of data derived from them. For example, in February 2009, we announced that we were suspending our Phase 3 SYMMETRY trial of elesclomol for
the treatment of metastatic melanoma as well as all other ongoing studies of elesclomol. This decision to suspend the clinical development of elesclomol was based on the results of an interim analysis
by the independent DMC of the SYMMETRY trial data. The DMC noted that while the primary endpoint of progression-free survival, or PFS, showed a trend that favored the elesclomol arm of the
study; early analysis of the secondary endpoint of overall survival, or OS, favored the control arm. A number of events, including any of the following, could delay the completion of our other ongoing
and planned clinical trials and negatively impact our ability to obtain regulatory approval for, and to market and sell, a particular drug candidate, including our other clinical drug candidates
STA-9090 and apilimod:



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Commercialization of our drug candidates may be delayed by the imposition of additional conditions on our clinical trials by the FDA or the requirement of additional supportive studies
by the FDA. In addition, clinical trials require sufficient patient enrollment, which is a function of many factors, including the size of the patient population, the nature of the trial protocol, the
proximity of patients to clinical sites, the availability of effective treatments for the relevant disease, the conduct of other clinical trials that compete for the same patients as our clinical
trials, and the eligibility criteria for our clinical trials. Our failure to enroll patients in our clinical trials could delay the completion of the clinical trial beyond our expectations. In
addition, the FDA could require us to conduct clinical trials with a larger number of subjects than we have projected for any of our drug candidates. We may not be able to enroll a sufficient number
of patients in a timely or cost-effective manner. Furthermore, enrolled patients may drop out of our clinical trials, which could impair the validity or statistical significance of the
clinical trials.

We
do not know whether our clinical trials will begin as planned, will need to be restructured, or will be completed on schedule, if at all. Delays in our clinical trials will result in
increased development costs for our drug candidates. In addition, if our clinical trials are delayed, our competitors may be able to bring products to market before we do and the commercial viability
of our drug candidates could be limited.

Failure to comply with foreign regulatory requirements governing human clinical trials and marketing approval for drugs could prevent us from selling our drug candidates in
foreign markets, which may adversely affect our operating results and financial condition.

The requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement for marketing our drug
candidates outside the United States vary greatly from country to country and may require additional testing. If we determine to continue the development of elesclomol, under the GSK Agreement, GSK
has exclusive responsibility to develop elesclomol outside the United States. W also expect that our future clinical development of apilimod, STA-9090 and other drug candidates will
involve a number of clinical trials in foreign
jurisdictions, particularly in Europe. We have no experience in obtaining foreign regulatory approvals. The time required to obtain approvals outside the United States may differ from that required to
obtain FDA approval. We or GSK may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and
approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA. Failure to comply with these regulatory requirements or obtain
required approvals could impair our and GSK's ability to develop foreign markets for our drug candidates and may have a material adverse effect on our results of operations and financial condition.

Our drug candidates will remain subject to ongoing regulatory review even if they receive marketing approval, and if we fail to comply with continuing regulations, we could
lose these approvals and the sale of any approved commercial products could be suspended.

Even if we receive regulatory approval to market a particular drug candidate, the manufacturing, labeling, packaging, adverse event
reporting, storage, advertising, promotion, and record keeping related to the product will remain subject to extensive regulatory requirements. If we fail to comply with the regulatory requirements of
the FDA and other applicable domestic and foreign regulatory authorities or previously unknown problems with any approved commercial products, manufacturers, or manufacturing processes are discovered,
we could be subject to administrative or judicially imposed sanctions, including:



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If side effects increase or are identified during the time our drug candidates are in development or after they are approved and on the market, we may be required to perform
lengthy additional clinical trials, change the labeling of any such products, or withdraw any such products from the market, any of which would hinder or preclude our ability to generate revenues.

In our completed Phase 2b clinical trial of elesclomol for metastatic melanoma, there were four patients with possible or
probable drug-related serious adverse events related to treatment with elesclomol. In addition, in February 2009, we announced that
we were suspending our Phase 3 SYMMETRY trial of elesclomol for the treatment of metastatic melanoma as well as all other ongoing studies of elesclomol. This decision to suspend the clinical
development of elesclomol was based on the results of an analysis by the DMC of the SYMMETRY trial data. The DMC noted that while the primary endpoint of progression-free survival, or PFS,
showed a trend that favored the elesclomol arm of the study; early analysis of the secondary endpoint of overall survival, or OS, favored the control arm. We have also observed significant toxicities
in preclinical animal studies of our clinical drug candidate, STA-9090. If significant toxicities occur at a clinical dose of STA-9090 which is not sufficiently efficacious, we
may not be able to demonstrate an adequate therapeutic index to obtain regulatory approval for STA-9090. Furthermore, even if we are successful in obtaining regulatory approval for one or
more of our drug candidates, as the drug is used in a larger patient population, if the incidence of side effects increases or if other effects are identified:



Any
of these events could harm or prevent sales of the affected products or could substantially increase the costs and expenses of commercializing and marketing any such products.

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While we choose to test our drug candidates in specific clinical indications based in part on our understanding of their mechanisms of action, our understanding may be
incorrect or incomplete and, therefore, our drugs may not be effective against the diseases tested in our clinical trials.

Our rationale for selecting the particular therapeutic indications for each of our drug candidates is based in part on our
understanding of the mechanism of action of these drug candidates. However, our understanding of the drug candidate's mechanism of action may be incomplete or incorrect, or the mechanism may not be
clinically relevant to the diseases treated. In such cases, our drug candidates may prove to be ineffective in the clinical trials for treating those diseases.

We deal with hazardous materials and must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our activities involve the controlled storage, use, and disposal of hazardous materials, including cytotoxic agents, genotoxic agents,
infectious agents, corrosive, explosive and flammable chemicals, and various radioactive compounds. We are subject to federal, state, and local laws and regulations governing the use, manufacture,
storage, handling, and disposal of these hazardous materials. Although we believe that our safety procedures for the handling and disposing of these materials comply with the standards prescribed by
these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials.

In
the event of an accident, state or federal authorities may curtail our use of these materials, and we could be liable for any civil damages that result, which may exceed our financial
resources and may seriously harm our business. We currently maintain insurance covering hazardous waste clean up costs in an amount of up to $250,000 per site. Because we believe that our laboratory
and materials handling policies and practices sufficiently mitigate the likelihood of materials liability or third-party claims, we currently carry no insurance covering such claims. While we believe
that the amount of insurance we carry is sufficient for typical risks regarding our handling of these materials, it may not be sufficient to cover pollution conditions or other extraordinary or
unanticipated events. Additionally, an accident could damage, or force us to shut down, our operations.

Risks Related to Our Dependence on Third Parties

In 2007, we entered into an agreement with GSK relating to the development and commercialization of elesclomol. If this agreement is unsuccessful or terminated by GSK for
any reason, our ability to commercialize elesclomol on a timely basis, or at all, could be affected and our business could be materially harmed.

On October 8, 2007, we entered into a Collaborative Development, Commercialization and License Agreement with GSK for the joint
development and commercialization of elesclomol. We have a limited history of working together with GSK and cannot predict the success of this collaboration. The agreement involves a complex
allocation of responsibilities, costs and benefits and provides for milestone payments to us upon the achievement of specified operational progress, positive clinical and regulatory outcomes and sales
milestones.

With
respect to responsibilities and control over decisions, we and GSK have established a series of joint committees which will be responsible for the development and commercialization
of elesclomol. We have the right, but not the obligation to participate in these various joint governance committees. Under the committee structure, if the committees are unable to reach a decision,
the matter is referred to senior executives of each of the parties. Each party has ultimate decision making authority with respect to a specified set of issues. For certain other specified issues, the
matter must be resolved by consensus of the parties, and for all other issues, the matter must be resolved through arbitration. Accordingly, GSK's failure to devote sufficient financial and human
resources to the development and commercialization of elesclomol or the failure of the parties to reach consensus on the conduct of

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development
or commercialization activities with respect to elesclomol may delay its clinical development, which could lead to the delay in payment of clinical and regulatory milestones under the
collaboration agreement and may delay commercialization of elesclomol.

In
addition, the agreement provides that GSK may terminate the agreement upon not less than three months' written notice at any time prior to the date of the first commercial sale of an
elesclomol product and not less than six months' written notice at any time on and after such date. Should GSK elect to terminate the partnership, all rights to the elesclomol program would be
returned to us and we would be free to develop elesclomol alone or with another partner. In such case, we would owe a small royalty to GSK on future sales of elesclomol. We are currently working with
GSK to evaluate the data from the Phase 3 SYMMETRY trial to determine if we should continue the development of elesclomol
or terminate the program. To date, GSK has not notified us of any intent to terminate the GSK Agreement. There can be no assurances that we will agree with GSK as to the future of the program
and if we determine to continue the program and GSK determines otherwise, they may terminate the agreement.

Loss
of GSK as a collaborator in the development and commercialization of elesclomol, any dispute over the terms of, or decisions regarding the agreement, including any disputes over the
payment of milestone payments or funding obligations of GSK, or any other adverse developments in our relationship with GSK could result in our inability to fully develop and/or commercialize
elesclomol, or at all, and could materially harm our business and could accelerate our need for additional capital.

In 2008, we entered into an agreement with Roche relating to the discovery, development and commercialization of our CRACM ion channel inhibitors. If this agreement is
unsuccessful or terminated by Roche for any reason, our ability to develop and commercialize a CRACM inhibitor on a timely basis, or at all, could be affected and our business could be materially
harmed.

On December 23, 2008, we entered into a Collaboration and Commercialization and License Agreement with Roche, or the Roche
Agreement, for the discovery, development and commercialization of our small-molecule drugs targeting calcium release activated calcium modulator, or CRACM, ion channels expressed on immune cells. We
do not have a history of working together with Roche and cannot predict the success of this collaboration. The agreement involves a complex allocation of responsibilities, costs and benefits and
provides for milestone payments to us upon the achievement of specified achievements, positive clinical and regulatory outcomes and sales milestones.

With
respect to responsibilities and control over decisions, we and Roche have established a series of joint committees which will be responsible for the development and
commercialization of CRACM inhibitors. We have the right, but not the obligation to participate in these various joint governance committees. Under the committee structure, if the committees are
unable to reach a decision, the matter is referred to senior executives of each of the parties. Each party has ultimate decision making authority with respect to a specified set of issues. For certain
other specified issues, the matter must be resolved by consensus of the parties, and for all other issues, the matter must be resolved through arbitration.

The
Roche Agreement provides for certain termination provisions, under which Roche is obligated to fund a minimum of $9 million in committed research support. Loss of Roche as a
collaborator in the development or commercialization of a CRACM inhibitor, any dispute over the terms of, or decisions regarding the agreement, or any other adverse developments in our relationship
with Roche could result in our inability to fully develop and/or commercialize a CRACM inhibitor, or at all, and could materially harm our business and could accelerate our need for additional
capital. Roche may terminate the agreement on a licensed compound-by-licensed compound basis upon providing advance written notice, but may not do so with respect to all licensed compounds until after
a specified date.

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We rely on third parties to conduct our clinical trials and nonclinical safety assessment studies, and those third parties may not perform satisfactorily, including failing
to meet established timelines for the completion of such clinical trials and studies.

We do not have the ability to independently conduct clinical trials and certain nonclinical safety assessment studies, particularly
those studies conducted under Good Laboratory Practices, or GLP, for our drug candidates, and we rely on third parties such as contract research organizations, medical institutions, and clinical
investigators in the case of clinical trials, and contract research organizations in the case of nonclinical safety assessment studies, to perform these functions. Our reliance on these third parties
for clinical development activities reduces our control over these activities. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors.
To date, our contract research organizations and other similar entities with which we are working have performed well; however, if these third parties do not successfully carry out their contractual
duties or meet expected timelines, we may be delayed in obtaining regulatory approvals for our drug candidates and may be delayed in our efforts to successfully commercialize our drug candidates for
targeted diseases.

We have no manufacturing capacity and depend on third-party manufacturers to produce our clinical trial drug supplies.

We do not currently operate manufacturing facilities for clinical or commercial production of elesclomol, apilimod or
STA-9090, or any of our preclinical drug candidates. We have limited experience in drug manufacturing, and we lack the resources and the capabilities to manufacture any of our drug
candidates on a clinical or commercial scale. As a result, we currently rely on third-party manufacturers to supply, store, and distribute drug supplies for our clinical trials. Any performance
failure on the part of our existing or future manufacturers could delay clinical development or regulatory approval of our drug candidates or commercialization of any approved products, producing
additional losses and depriving us of potential product revenue.

Our
drug candidates require precise, high quality manufacturing. Failure by our contract manufacturers to achieve and maintain high manufacturing standards could result in patient injury
or death, product recalls or withdrawals, delays or failures in testing or delivery, cost overruns, or other problems that could seriously hurt our business. Contract manufacturers may encounter
difficulties involving production yields, quality control, and quality assurance. These manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state and
foreign agencies to ensure strict compliance with current Good Manufacturing Practice, or cGMP, and other applicable government regulations and corresponding foreign standards. We provide direct
oversight of our contract manufacturing organizations for supply of all clinical drug materials and have put quality agreements in place that we believe are appropriate for our materials. However, we
do not have direct control over third party manufacturers' compliance with these regulations and standards and therefore, cannot provide assurance regarding such compliance.

If
for some reason our contract manufacturers cannot perform as agreed, we may be unable to replace such third-party manufacturers in a timely manner and the production of our drug
candidates would be interrupted, resulting in delays in clinical trials and additional costs. Switching manufacturers may be difficult because the number of potential manufacturers is limited and the
FDA must approve any replacement manufacturer prior to manufacturing our drug candidates. Such approval would require new testing and compliance inspections. In addition, a new manufacturer would have
to be educated in, or develop substantially equivalent processes for, production of our drug candidates after receipt of FDA approval. It may be difficult or impossible for us to find a replacement
manufacturer on acceptable terms quickly, or at all.

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We use a single manufacturer for the supply of elesclomol powder- filled vials for clinical trials and potentially, for commercial supply, and the failure of this
manufacturer to supply sufficient quantities of elesclomol powder-filled vials could have a material adverse effect on our business.

We used a single manufacturer for the supply of elesclomol powder-filled vials for the SYMMETRY trial. This process involves highly
specialized processing, including the automated filling of vials with elesclomol. We believe that this manufacturer may be one of a limited number of third-party contract manufacturers currently
capable of conducting this process on our behalf, and we entered into a clinical supply agreement and a quality agreement with this manufacturer. If we determine to continue the development of
elesclomol, any performance failure on the part of this manufacturer, could delay clinical development, regulatory approval or commercialization of elesclomol, which could have a material adverse
effect on our business. Moreover, although we believe we have identified a suitable backup manufacturer for elesclomol powder-filled vials, neither GSK nor we have an agreement with this manufacturer
for producing this product and there can be no assurance that we will be able to enter into such an agreement on favorable terms, if at all.

We anticipate continued reliance on third-party manufacturers if we are successful in obtaining marketing approval from the FDA and other regulatory agencies for any of our
drug candidates.

To date, our drug candidates have been manufactured in relatively small quantities for preclinical testing and clinical trials by
third-party manufacturers. If the FDA or other regulatory agencies approve any of our drug candidates for commercial sale, we expect that we would continue to rely, at least initially, on third-party
manufacturers to produce commercial quantities of our approved drug candidates. These manufacturers may not be able to successfully increase the manufacturing capacity for any of our approved drug
candidates in a timely or economic manner, or at all. Significant scale-up of manufacturing may require additional validation studies, which the FDA or other regulatory authorities must
review and approve. If they are unable to successfully increase the manufacturing capacity for a drug candidate, particularly elesclomol, or we are unable to establish our own manufacturing
capabilities, the commercial launch of any approved products may be delayed or there may be a shortage in supply.

If we do not establish additional collaborations, we may have to alter our development plans.

Our drug development programs and potential commercialization of our drug candidates will require substantial additional cash to fund
expenses. Although we have established a collaboration with GSK relating to the joint development and commercialization of elesclomol and a collaboration with Roche relating to the discover,
development, manufacturing and commercialization of CRACM inhibitors, our strategy also includes potentially selectively collaborating with leading pharmaceutical and biotechnology companies to assist
us in furthering development and potential commercialization of some of our other drug candidates and research programs. We may enter into one or more of such collaborations in the future, especially
for target indications in which the potential collaborator has particular therapeutic expertise or that involve a large, primary care market that must be served by large sales and marketing
organizations or for markets outside of North America. We face significant competition in seeking appropriate collaborators and these collaborations are complex and time-consuming to
negotiate and document. We may not be able to negotiate collaborations on acceptable terms, or at all. If that were to occur, we may have to curtail the development of a particular drug candidate,
reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of our sales or marketing activities, or increase
our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own,
we may need to obtain additional capital, which may not be

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available
to us on acceptable terms, or at all. If we do not have sufficient funds, we will not be able to bring our drug candidates to market and generate product revenue.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our drug candidates, we may be unable to
generate product revenue.

Although we have entered into a collaborative development, commercialization and license agreement with GSK for elesclomol, we do not
currently have robust organization for the sales, marketing, and distribution of pharmaceutical products. If we determine to continue the development of elesclomol, in order to
co-commercialize elesclomol in the United States under our arrangement with GSK or market any other products that may be approved by the FDA, we must build our sales, marketing,
managerial, and other non-technical capabilities or make arrangements with third parties to perform these services. If we are unable to establish adequate sales, marketing, and
distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and we may not become profitable.

Risks Related to Our Intellectual Property

If our patent position does not adequately protect our drug candidates or any future products, others could compete against us more directly, which would harm our business.

Our success depends in part on our ability to obtain and maintain proprietary protection for our drug candidates, technology, and
know-how, to operate without infringing on the proprietary rights of others, and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary
position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions, and improvements that are important to the development of our business.
We also rely on trade secrets, know-how, continuing technological innovation, and in-licensing opportunities to develop and maintain our proprietary position.

As
of March 20, 2009, our patent portfolio had a total of 710 patents and patent applications worldwide, including specific patent filings with claims to the
composition-of-matter and methods of use of elesclomol and apilimod. We own or have exclusively licensed a total of 30 issued U.S. patents and 97 U.S. patent applications, as
well as 583 foreign counterparts to these patents and patent applications. With respect to elesclomol, we have two issued U.S. patents that claim the chemical structure of elesclomol that expire no
earlier than 2022. Both of these issued U.S. patents also claim related chemical structures, pharmaceutical compositions, and methods for treating a subject with
cancer. In addition, we have an issued U.S. patent claiming the salt form of elesclomol that expires no earlier than 2025. We have also filed several U.S. patent applications that have the potential
to extend the patent life of elesclomol, including U.S. patent applications claiming aspects of the treatment regimen for metastatic melanoma which, if issued, would expire no earlier than 2026.

With
respect to apilimod, we have two issued U.S. patents that claim the chemical structure of apilimod and methods for treating specific disorders using apilimod, respectively. These
patents expire no earlier than 2021.

We
have pending U.S. patent applications covering compositions-of-matter, methods of treatment and other aspects of our STA-9090,
2nd generation Hsp90 inhibitors, 2nd generation IL-12/23 inhibitors, STA-9584 and our CRACM ion channel program.. The patent term of our U.S. patents may
potentially be extended under applicable law or regulations, such as the Patent Term Restoration Act. Counterpart filings to these patents and patent applications have been made in a number of other
jurisdictions, including Europe and Japan.

We
have also in-licensed various technologies to complement our ongoing clinical and research programs. These licenses generally extend for the term of the related patent and
contain customary

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royalty,
termination, and other provisions. We have license agreements with Beth Israel Deaconess Medical Center and The Queen's Medical Center, Inc. that provide us with the exclusive
commercial right to certain patent filings made by Beth Israel and Queen's Medical in the field of ion channels. We do not believe that these license agreements are currently material to our business
We also have a non-exclusive license to a U.S. patent assigned to Columbia University that could potentially cover a possible aspect of the elesclomol mechanism. This license is not
royalty bearing unless we include specific mechanism language on the label of any approved product, in which case a nominal royalty would be owed.

Our
commercial success will depend in part on our ability to obtain additional patents and protect our existing patent position as well as our ability to maintain adequate protection of
other intellectual property for our technologies, drug candidates, and any future products in the United States and other countries. If we do not adequately protect our intellectual property,
competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. The laws of some foreign
countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries.

The
patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factual questions, and, therefore, validity and
enforceability cannot be predicted with certainty. Patents may be challenged, deemed unenforceable, invalidated, or circumvented. We will be able to protect our proprietary rights from unauthorized
use by third parties only to the extent that our proprietary technologies, drug candidates, and any future products are covered by valid and enforceable patents or are effectively maintained as trade
secrets.

In
addition, although we do not believe that any of the patents or patent applications that we currently license are material to our business, we may in the future license intellectual
property that is material to us. In such cases, we may be dependent upon the licensors to obtain, maintain and enforce patent protection for the licensed intellectual property. These licensors may not
successfully prosecute patent applications or may fail to maintain issued patents. The licensors may also determine not to pursue litigation against other companies that infringe the patents, or may
pursue such litigation less aggressively than we would. If any of the foregoing occurs, and the terms of any such future license do not allow us to assume control of patent prosecution, maintenance
and enforcement, any competitive advantage we may have due to the license may be diminished or eliminated.

The
degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:



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Although
third parties may challenge our rights to, or the scope or validity of our patents, to date we have not received any communications from third parties challenging our patents or
patent applications covering our drug candidates.

We
typically file for patent protection first on the composition-of-matter of our drug candidates and also claim their activities and methods for their production
and use to the extent known at that time. As we learn more about the mechanisms of action and new methods of manufacture and use of these drug candidates, we generally file additional patent
applications for these new inventions. Although our patents may prevent others from making, using, or selling similar products, they do not ensure that we will not infringe the patent rights of third
parties. For example, because we sometimes identify the mechanism of action or molecular target of a given drug candidate after identifying its composition-of-matter and
therapeutic use, we may not be aware until the mechanism or target is further elucidated that a third party has an issued or pending patent claiming biological activities or targets that may cover our
drug candidate. If such a patent exists or is granted in the future, we cannot provide assurances that a license will be available on commercially reasonable terms, or at all.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers,
and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate
remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Costly and
time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect
our competitive business position.

Litigation or other proceedings or third-party claims of intellectual property infringement would require us to spend time and money and could prevent us from developing or
commercializing our drug candidates.

Our commercial success will depend in part on not infringing upon the patents and proprietary rights of other parties and enforcing our
own patents and proprietary rights against others. Certain of our research and development programs are in highly competitive fields in which numerous third parties have issued patents and patent
applications with claims closely related to the subject matter of our programs. We are not currently aware of any litigation or other proceedings or claims by third parties that our drug candidates,
technologies or methods infringe their intellectual property.

However,
while it is our practice to conduct freedom to operate searches and analyses, we cannot guarantee that we have identified every patent or patent application that may be relevant
to the research, development or commercialization of our drug candidates. In the case of patent applications, we assess the likelihood of claims in pending, third party patent applications being
allowed which may interfere with our freedom to operate relative to our drug candidates. We cannot provide assurances that our assessments in this regard will be correct and that patent claims
covering our drug candidates that were assessed a low likelihood of issuance by us will not issue to a third party in the future. Moreover, there can be no assurance that third parties will not assert
against us patents that we believe are not infringed by us or are invalid. For example, we are aware of a U.S. patent and a related European patent that claim generic chemical structures,
pharmaceutical formulations and methods of treatment relating to compounds similar to STA-9090 and a U.S. patent that claims methods of treating certain cancers using heat shock protein
90, or Hsp90, inhibitors. The claims of these patents may be relevant to the commercialization of our drug candidate, STA-9090. However, based on our analysis of these patents, we do not
believe that the manufacture, use, importation or sale of STA-9090 would

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infringe
any valid claim of these patents. However, we cannot guarantee that these patents would not be asserted against us and, if asserted, that a court would find these patents to be invalid or not
infringed.

In
the event of a successful infringement action against us with respect to any third party patent rights, we may be required to:



We
may not be able to obtain licenses from other parties at a reasonable cost, or at all. If we are not able to obtain necessary licenses at a reasonable cost, or at all, we could
encounter substantial delays in product introductions while we attempt to develop alternative technologies, methods, and products, which we may not be able to accomplish.

We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or disclosed alleged confidential
information or trade secrets of their former employers.

As is commonplace in our industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical
companies, including our competitors or potential competitors. Although no claims against us are currently pending, we have previously been subject to a claim by an alleged competitor that a
prospective employee we sought to hire was bound by an ongoing non-competition obligation which prevented us from hiring this employee. We may be subject in the future to claims that our
employees or prospective employees are subject to a continuing obligation to their former employers (such as non-competition or non-solicitation obligations) or claims that our
employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims.
Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Risks Related to the Commercialization of Our Drug Candidates

If physicians and patients do not accept our future products or if the markets for indications for which any drug candidate is approved is smaller than expected, we may be
unable to generate significant revenue, if any.

Even if any of our current drug candidates or any other drug candidates we may develop or acquire in the future obtain regulatory
approval, they may not gain market
acceptance among physicians, healthcare payors, patients, and the medical community. Physicians may elect not to recommend these drugs for a variety of reasons including:



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If
any approved drugs fail to achieve market acceptance, we may not be able to generate significant revenue and our business would suffer.

If the government and third-party payors fail to provide adequate coverage and reimbursement rates for our future products, if any, our revenue and prospects for
profitability will be harmed.

In both domestic and foreign markets, our sales of any future products will depend in part upon the availability of reimbursement from
third-party payors. Such third-party payors include government health programs such as Medicare, managed care providers, private health insurers, and other organizations. These third-party payors are
increasingly attempting to contain healthcare costs by demanding price discounts or rebates and limiting both coverage and the amounts that they will pay for new drugs, and, as a result, they may not
cover or provide adequate payment for our drugs. We might need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any future products to such
payors' satisfaction. Such studies might require us to commit a significant amount of management time and financial and other resources. Our future products might not ultimately be considered
cost-effective. Adequate third-party reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product
development.

U.S.
and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare. For example, in some foreign markets, the government controls the pricing
and profitability of prescription pharmaceuticals. In the United States, we expect that there will continue to be federal and state proposals to implement similar governmental controls. In addition,
recent changes in the Medicare program and increasing emphasis on managed care in the United States will continue to put pressure on pharmaceutical product pricing. Cost control initiatives could
decrease the price that we would receive for any products in the future, which would limit our revenue and profitability. Accordingly, legislation and regulations affecting the pricing of
pharmaceuticals might change before our drug candidates are approved for marketing. Adoption of such legislation could further limit reimbursement for pharmaceuticals.

For
example, the Medicare Prescription Drug Improvement and Modernization Act of 2003, or MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation
expanded Medicare coverage for drug purchases by the elderly and disabled and introduced new reimbursement methodologies, based on average sales prices for drugs that are administered in an
in-patient setting or by physicians, such as elesclomol, if approved. In addition, this legislation provides authority for limiting the number of drugs that will be covered in any
therapeutic class. Although we do not know what the full impact of the new reimbursement methodologies will have on the prices of new drugs, we expect that there will be added pressure to contain and
reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products and could seriously harm our
business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates,
and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

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If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, we could be forced to pay
substantial damage awards.

The use of any of our drug candidates in clinical trials, and the sale of any approved products, might expose us to product liability
claims. For example, we may face product liability claims by patients treated with elesclomol, whether or not elesclomol harmed the patients in any way. We currently maintain product liability
insurance, and we monitor the amount of coverage we maintain as the size and design of our clinical trials evolve and adjust the amount of coverage we maintain accordingly. However, there can be no
assurance that such insurance coverage will fully protect us against some or all of the claims to which we might become subject. We might not be able to maintain adequate insurance coverage at a
reasonable cost or in sufficient amounts or scope to protect us against potential losses. In the event a claim is brought against us, we might be required to pay legal and other expenses to defend the
claim, as well as uncovered damages awards resulting from a claim brought successfully against us. Furthermore, whether or not we are ultimately successful in defending any such claims, we might be
required to direct financial and managerial resources to such defense and adverse publicity could result, all of which could harm our business.

If we inadvertently violate the guidelines pertaining to promotion and advertising of our clinical candidates or approved products, we may be subject to disciplinary action
by the FDA's Division of Drug Marketing, Advertising, and Communications or other regulatory bodies.

The FDA's Division of Drug Marketing, Advertising, and Communications, or DDMAC, is responsible for reviewing prescription drug
advertising and
promotional labeling to ensure that the information contained in these materials is not false or misleading. There are specific disclosure requirements and the applicable regulations mandate that
advertisements cannot be false or misleading or omit material facts about the product. Prescription drug promotional materials must present a fair balance between the drug's effectiveness and the
risks associated with its use. Most warning letters from DDMAC cite inadequate disclosure of risk information.

DDMAC
prioritizes its actions based on the degree of risk to the public health, and often focuses on newly introduced drugs and those associated with significant health risks. There are
two types of letters that DDMAC typically sends to companies which violate its drug advertising and promotional guidelines: notice of violation letters, or untitled letters, and warning letters. In
the case of an untitled letter, DDMAC typically alerts the drug company of the violation and issues a directive to refrain from future violations, but does not typically demand other corrective
action. A warning letter is typically issued in cases that are more serious or where the company is a repeat offender. Although we have not received any such letters from DDMAC, we may inadvertently
violate DDMAC's guidelines in the future and be subject to a DDMAC untitled letter or warning letter, which may have a negative impact on our business.

Risks Related to Our Industry

We may not be able to keep up with the rapid technological change in the biotechnology and pharmaceutical industries, which could make any future approved products obsolete
and reduce our revenue.

Biotechnology and related pharmaceutical technologies have undergone and continue to be subject to rapid and significant change. Our
future will depend in large part on our ability to maintain a competitive position with respect to these technologies. Our competitors may render our technologies obsolete by advances in existing
technological approaches or the development of new or different approaches, potentially eliminating the advantages in our drug discovery process that we believe we derive from our research approach
and proprietary technologies. In addition, any future products that we develop, including our clinical drug candidates, may become obsolete before we recover expenses

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incurred
in developing those products, which may require that we raise additional funds to continue our operations.

Our market is subject to intense competition. If we are unable to compete effectively, our drug candidates may be rendered noncompetitive or obsolete.

We are engaged in segments of the pharmaceutical industry that are highly competitive and rapidly changing. Many large pharmaceutical
and biotechnology companies, academic institutions, governmental agencies, and other public and private research organizations are pursuing the development of novel drugs that target cancer and
chronic inflammatory diseases. We face, and expect to continue to face, intense and increasing competition as new products enter the market and advanced technologies become available. In addition to
currently approved drugs, there are a significant number of drugs that are currently under development and may become available in the future for the treatment of cancer and chronic inflammatory
diseases. We would expect our drug candidates to compete with marketed drugs and potentially with drug candidates currently under development. Many of our competitors have:



Competitive
products may render our products obsolete or noncompetitive before we can recover the expenses of developing and commercializing our drug candidates. Furthermore, the
development of new treatment methods and/or the widespread adoption or increased utilization of any vaccine for the diseases we are targeting could render our drug candidates noncompetitive, obsolete
or uneconomical. If we successfully develop and obtain approval for our drug candidates, we will face competition based on the safety and effectiveness of our drug candidates, the timing of their
entry into the market in relation to competitive products in development, the availability and cost of supply, marketing and sales
capabilities, reimbursement coverage, price, patent position and other factors. If we successfully develop drug candidates but those drug candidates do not achieve and maintain market acceptance, our
business will not be successful.

In
particular, we believe that our products face the following sources of significant competition:

Elesclomol.If approved for the treatment of metastatic melanoma, elesclomol may compete with:



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Apilimod.If approved, apilimod is expected to compete against the currently approved therapies for the treatment of chronic
inflammatory diseases,
including:



Apilimod
may also compete with CNTO-1275 currently awaiting approval and ABT-874 currently in a Phase 3 trial for psoriasis, two injectable antibody-based
clinical candidates targeting IL-12 that are being developed by Johnson & Johnson and Abbott Laboratories, respectively. We expect that as an oral, small molecule drug, apilimod may
prove competitive relative to current and future biologic therapies in manufacturing costs and convenience of administration. We are not aware of any orally administered, selective inhibitors of
IL-12 production in clinical trials. Other novel, oral agents in development for inflammatory diseases represent potential competition to apilimod. These include chemokine inhibitors, oral
fumarates, and calcineurin inhibitors.

STA-9090.If approved, STA-9090 may compete against the currently approved therapies for the treatment of cancers and other
cancer treatments currently under development. In particular, STA-9090 may compete with other agents that inhibit Hsp90, including Hsp90 inhibitors from Infinity Pharmaceuticals,
BMS/Kosan, BiogenIdec, Novartis/Vernalis, Pfizer, Kyowa Hakko, and Astex.

STA-9584.If approved, STA-9584 may compete with the currently approved therapies for the treatment of cancers, and other
cancer treatments currently under development, including other vascular disrupting agents, such as ABT-751, being developed by Abbott Laboratories; ASA404, being developed by
Novartis/Antisoma; CA4P, being developed by Oxigene; and AVE8062 being developed by Sanofi-Aventis.

CRACM Ion Channel Inhibitors.If approved, CRACM inhibitors may compete with the currently approved therapies for the treatment of
inflammatory
diseases, and other anti-inflammatory treatments currently under development, including other CRACM inhibitors, oral inhibitors of other targets, and biologics approaches.

Many
of our potential competitors have substantially greater financial, technical, and personnel resources than us. In addition, many of these competitors have significantly greater
commercial infrastructures. Our ability to compete successfully will depend largely on our ability to leverage our experience in drug discovery, development and commercialization
to:



46

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Risks Related to Employee Matters and Managing Growth

Depending upon the final determination with respect to the continued development of elesclomol, we may be forced to significantly reduce our current workforce. Furthermore,
we may be unsuccessful in retaining certain key personnel.

Following the suspension of the SYMMETRY trial, on March 13, 2009, we announced a workforce reduction of approximately 90
positions, to a total of approximately 130 positions, allowing us to operate with current cash reserves for approximately two more years without the need for additional equity financing. If future
circumstances dictate we may need to further reduce our current workforce. Accordingly, as a result of such reductions in force, we may be required to continue our ongoing development efforts with a
shortage of resources. In addition, the competition for qualified personnel in the biotechnology field is intense and we must retain and motivate highly qualified scientific personnel. Notwithstanding
the reduction in force, we will remain highly dependent on certain officers and employees, including Safi R. Bahcall, Ph.D., our President and Chief Executive Officer, and certain
principal members of our executive and scientific teams. All of the agreements with these principal members of our executive and scientific teams provide that employment is at-will and may
be terminated by the employee at any time and without notice. Although we currently do not have any reason to believe that we may lose the services of any of these persons in the foreseeable future,
the developments in the elesclomol program and the recent reduction in force may cause certain officers and employees to seek employment elsewhere. The loss of the services of any of these persons
might impede the achievement of our research, development, and commercialization objectives. Recruiting and retaining qualified scientific personnel and possibly sales and marketing personnel will
also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for
similar personnel. We also experience competition for the hiring of scientific personnel from universities and research institutions. We do not maintain "key person" insurance on any of our employees.
In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants
and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

If we make strategic acquisitions, we will incur a variety of costs and might never realize the anticipated benefits.

All of our acquisitions to date have been of related parties. Accordingly, we have very limited experience in independently identifying
acquisition candidates and integrating the operations of truly independent acquisition candidates with our company. Currently we are not a party to any acquisition agreements, nor do we have any
understanding or commitment with respect to any such acquisition. If appropriate opportunities become available, however, we might attempt to acquire approved products, additional drug candidates, or
businesses that we believe are a strategic fit with our business. If we pursue any transaction of that sort, the process of negotiating the acquisition and integrating an acquired product, drug
candidate, or business might result in operating difficulties and expenditures and might require significant management attention that would otherwise be available for ongoing development of our
business, whether or not any such transaction is ever consummated. Moreover, we might never realize the anticipated benefits of any acquisition. Future acquisitions could result in

47

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potentially
dilutive issuances of equity securities, the incurrence of debt, contingent liabilities, or impairment expenses related to goodwill, and impairment or amortization expenses related to
other intangible assets, which could harm our financial condition.

Risks Related to Our Common Stock

Our stock price has been and is likely to continue to be volatile and the market price of our common stock may drop.

Prior to our February 2007 initial public offering, there was not a public market for our common stock. There is a limited history on
which to gauge the volatility of our stock price; however, since our common stock began trading on The NASDAQ Global Market on February 6, 2007 through December 31, 2008, our stock price
has fluctuated from a low of $4.29 to a high of $11.25. In addition, between February 27, 2009 (the trading day immediately following the announcement of the suspension of our elesclomol
development program) and March 20, 2009, our stock price has been as low as $1.20. Furthermore, the stock market has recently experienced significant volatility, particularly with respect to
pharmaceutical, biotechnology, and other life sciences company stocks. The volatility of pharmaceutical, biotechnology, and other life sciences company stocks often does not relate to the
operating performance of the companies represented by the stock. Some of the factors that may cause the market price of our common stock to fluctuate include:



48

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These
and other external factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their
shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have
instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the
lawsuit. Such a lawsuit could also divert the time and attention of our management.

If the market price of our common stock decreases, we may not be able to maintain our listing on the NASDAQ Global Market.

Our common stock is listed on the NASDAQ Global Market, and we are subject to a number of continued listing requirements, including
that we maintain a market value of our common stock of at least $50 million. Accordingly, if the market value of our common stock is below $50 million for a period of 10 consecutive
business days, we would receive a notice of delisting from NASDAQ and would have a period of 90 calendar days from such notification to regain compliance. To regain compliance, the market value of our
common stock would need to be at least $50 million for 10 consecutive business days during the 90 day compliance period. Based on the number of shares of our common stock currently
outstanding of 33,919,584 shares, we need to maintain a closing bid price of at least approximately $1.48 to maintain a market value of our common stock of at least $50 million. Between
February 27, 2009 (the trading day immediately following the announcement of the suspension of our elesclomol development program) and the date we filed this Form 10-K, our
stock price has been as low as $1.20, although the market value of our common stock only fell below $50 million for one day during this period. If, however, the price of our common stock
decreased and we were to fall out of compliance with the continued listing criteria for the NASDAQ Global Market and could not regain compliance, we would be eligible to switch to the NASDAQ Capital
Market if we met the continued listing requirements of that market, which includes a market value of our common stock of at least $35 million. If our common stock were to be delisted by NASDAQ,
we could face significant material adverse consequences, including:



49

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Insiders have substantial control over us which could delay or prevent a change in corporate control or result in the entrenchment of management and/or the board of
directors.

Our directors, executive officers and principal stockholders, together with their affiliates and related persons, beneficially own, in
the aggregate, approximately 48% of our outstanding common stock. These stockholders, if acting together, may have the ability to determine the outcome of matters submitted to our stockholders for
approval, including the election and removal of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, these persons, acting together, may have the
ability to control the management and affairs of our company. Accordingly, this concentration of ownership may harm the market price of our common stock by:



Provisions of our charter, bylaws, and Delaware law may make an acquisition of us or a change in our management more difficult.

Certain provisions of our restated certificate of incorporation and restated bylaws could discourage, delay, or prevent a merger,
acquisition, or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions also
could limit the price that investors might be
willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the
opportunity to do so. Furthermore, these provisions could prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions:



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In
addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria
are met, prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a prescribed period of time.

We do not anticipate paying cash dividends, and accordingly, our stockholders must rely on stock appreciation for any return on their investment.

We currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, capital
appreciation, if any, of our common stock will be the sole source of gain on an investment in our common stock for the foreseeable future.

Item 1B.    UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2.    PROPERTIES

Our operations are based primarily in Lexington, Massachusetts, which is located approximately 10 miles west of Boston, Massachusetts.
We currently lease a total of 106,800 square feet of office and laboratory space, including 91,800 square feet in Lexington and 15,000 square feet in the neighboring town of Bedford, Massachusetts. We
lease the following properties:

Location

Approximate
Square Feet

Use

Lease
Expiration Date45 Hartwell Avenue
Lexington, Massachusetts


34,520

Office and Laboratory

November 201191 Hartwell Avenue
Lexington, Massachusetts


30,220

Office

August 2009125 Hartwell Avenue
Lexington, Massachusetts


27,060

Office and Laboratory

November 201145-47 Wiggins Avenue
Bedford, Massachusetts


15,000

Office and Laboratory

October 2011


On
March 12, 2009, we committed to a restructuring that consisted primarily of a workforce reduction of approximately 90 positions, to a total of approximately 130 positions to
better align our workforce to our revised operating plans following the suspension of our SYMMETRY clinical trial. Accordingly, we are evaluating our facilities needs and anticipate we will
consolidate our operations to fewer than four facilities. We have not renewed our lease for our 91 Hartwell Avenue office facility and are reviewing our options for our 47 Wiggins Avenue office and
laboratory facility for which its lease provides for termination by us at any time with nine months advance notice.

Item 3.    LEGAL PROCEEDINGS

We are currently not a party to any material legal proceedings.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2008.

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PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock began trading on The NASDAQ Global Market on February 6, 2007 under the symbol "SNTA." Prior to that time,
there was no established public trading market for our common stock. The following table sets forth the high and low sales prices of our common stock as quoted on The NASDAQ Global Market for the
periods indicated.

2007:

High

LowFirst Quarter (from February 6, 2007)

$
10.10

$
8.07Second Quarter


10.27


7.92Third Quarter


9.86


4.93Fourth Quarter


11.25


6.31




2008:

High

LowFirst Quarter

$
9.85

$
5.91Second Quarter


8.25


5.90Third Quarter


10.30


5.48Fourth Quarter


8.36


4.29


Stockholders

As of March 20, 2009, there were approximately 80 stockholders of record of the 33,919,584 outstanding shares of our common
stock.

Dividends

We have never paid or declared any cash dividends on our common stock. We currently intend to retain all available funds and any future
earnings to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the
discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, and other factors that our board of directors deems relevant. In addition,
the terms of any future debt or credit facility may preclude us from paying dividends.

Unregistered Sales of Securities

None.

Issuer Purchases of Equity Securities

None.

Stock Performance Graph

The following graph compares the cumulative total stockholder return on our common stock from February 6, 2007 (the first
trading date following our initial public offering) to December 31, 2008 with the cumulative total return of (i) the NASDAQ Market Index and (ii) the NASDAQ Biotechnology Index.
This graph assumes the investment of $100.00 on February 6, 2007 in our common stock, the NASDAQ Market Index and the NASDAQ Biotechnology Index, and assumes any dividends are reinvested. We
have not paid any dividends on our common stock, and we do not include dividends in

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the
representation of our performance. The stock price performance on the graph below does not necessarily indicate future price performance.

COMPARISON OF CUMULATIVE TOTAL RETURN  AMONG SYNTA PHARMACEUTICALS CORP.,  NASDAQ BIOTECH AND NASDAQ MARKET INDEX

GRAPHIC

2/06/2007

3/31/2007

6/30/2007

9/30/2007

12/31/2007

3/31/2008

6/30/2008

9/30/2008

12/31/2008Synta Pharmaceuticals Corp.

$
100.00

$
88.78

$
91.31

$
72.61

$
73.71

$
89.00

$
67.11

$
83.83

$
67.33NASDAQ Biotech

$
100.00

$
93.58

$
97.79

$
103.68

$
98.13

$
95.22

$
96.34

$
100.03

$
91.48NASDAQ Market Index

$
100.00

$
98.33

$
105.74

$
109.66

$
107.75

$
92.32

$
92.94

$
85.02

$
63.91


The information in this section shall not be deemed "soliciting material" or to be "filed" with the Securities and Exchange Commission, and is not
to be incorporated by reference in any filing of Synta Pharmaceuticals Corp. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or
after the date of this Annual Report on Form 10-K and irrespective of any general incorporation language in those filings.

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Item 6.    SELECTED FINANCIAL DATA

The following table sets forth our selected consolidated financial data and has been derived from our audited consolidated financial
statements. Consolidated balance sheets as of December 31, 2008 and 2007, as well as consolidated statements of operations for the years ended December 31, 2008, 2007, and 2006, and the
reports thereon are included elsewhere in this Annual Report on Form 10-K. The information below should be read in conjunction with our audited consolidated financial statements
(and notes thereon) and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included below in Item 7.

Years ended December 31,2008

2007

2006

2005

2004(all amounts in thousands except per share data)Consolidated Statement of Operations Data:Revenues:License and milestone revenue(1)(2)

$
8,513

$
743

$


$


$
Cost sharing reimbursements, net(1)


(5,898
)










Grant revenue














173Total revenues


2,615


743








173Operating expenses:Research and development


81,581


52,025


50,503


59,901


38,136Acquired in-process research and development














1,583General and administrative


14,742


14,934


8,648


11,279


7,383Total operating expenses


96,323


66,959


59,151


71,180


47,102Loss from operations


(93,708
)

(66,216
)

(59,151
)

(71,180
)

(46,929
)Investment income, net


1,090


2,721


1,881


2,317


995Net loss


(92,618
)

(63,495
)

(57,270
)

(68,863
)

(45,934
)Convertible preferred stock dividends








1,859





Convertible preferred stock beneficial conversion feature





58,585








Net loss attributable to common stockholders

$
(92,618
)
$
(122,080
)
$
(59,129
)
$
(68,863
)
$
(45,934
)Basic and diluted net loss attributable to common stockholders per share

$
(2.75
)
$
(3.76
)
$
(2.66
)
$
(3.09
)
$
(2.46
)Weighted average shares used in computing basic and diluted net loss per common share


33,736


32,466


22,265


22,253


18,704




As of December 31,2008

2007

2006

2005

2004Consolidated Balance Sheet Data:Cash, cash equivalents and marketable securities

$
73,563

$
115,577

$
46,824

$
62,057

$
124,968Collaboration receivable(2)


16,000











Working capital


57,898


96,225


36,081


48,476


113,147Total assets


97,253


122,649


54,789


71,210


132,019Capital lease obligations, net of current portion


2,012


2,815


3,170


4,259


1,188Deferred collaboration revenue, net of current portion(1)(2)


114,415


74,166








Convertible preferred stock








41,820





Common stock


3


3


2


2


2Additional paid-in capital


333,862


324,946


234,807


239,029


238,930Accumulated deficit


(392,671
)

(300,053
)

(236,558
)

(179,288
)

(110,425
)Total stockholders' equity (deficit)


(58,791
)

24,896


(1,747
)

52,477


117,956


---

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read
together with the consolidated financial statements, related notes and other financial information included elsewhere in this Annual Report on Form 10-K.

Overview

We are a biopharmaceutical company focused on discovering, developing, and commercializing small molecule drugs to extend and enhance
the lives of patients with severe medical conditions, including cancer and chronic inflammatory diseases. We have three clinical-stage drug candidates and several drug candidates in the preclinical
and discovery stages, each of which has a distinct chemical structure, mechanism of action, and market opportunity. Each of our drug candidates was discovered and developed internally using our
proprietary, unique chemical compound library and integrated discovery engine. In October 2007, we entered into a global partnership, or GSK Agreement, with GlaxoSmithKline, or GSK, for the
joint development and commercialization of elesclomol, one of our oncology drug candidates. In December 2008, we entered into a partnership, or Roche Agreement, with Hoffmann-La Roche, or
Roche, for our CRACM inhibitor program, which is currently in the lead optimization stage. We retain all rights to our other drug candidates and programs.

We
believe that our demonstrated ability to generate promising new drug candidates from our discovery platform, our ability to effectively enroll and conduct robust clinical trials, and
our ability to enter into attractive partnerships with leading multinational pharmaceutical companies are important competitive advantages. We believe that these competitive advantages, together with
our current diverse pipeline of drug candidates with distinct chemical structures and mechanisms of action, provide us with both near-term and long-term sustainable growth
opportunities.

We
were incorporated in March 2000 and commenced operations in July 2001. Since that time, we have been principally engaged in raising capital and in the discovery and development of
novel drug candidates. Since our inception, we have had no revenues from product sales. We have funded our operations principally with $235.4 million in net proceeds from private placements of
our common stock and Series A convertible preferred stock, $44.7 million in net proceeds from our initial public offering, or IPO, and $120 million in non-refundable
payments under the GSK Agreement, including the $80 million upfront payment and $40 million in operational milestones, which, together with the exercise of common stock warrants and
options, provided aggregate net cash proceeds of approximately $401.4 million through December 31, 2008. We have also generated funds from government grants, equipment lease financings
and investment income.

As
of December 31, 2008, we had $89.6 million in cash, cash equivalents, marketable securities and collaboration payments receivable, which includes the $16 million
non-refundable upfront payment under the Roche Agreement that was received in January 2009. Also, in January 2009, we achieved a $10 million non-refundable operational
milestone under the GSK Agreement, related to the development of elesclomol for the treatment of metastatic melanoma, which was paid by GSK in March 2009.

In
February 2007, we raised $50.0 million in gross proceeds from the sale of 5,000,000 shares of our common stock in our IPO at $10.00 per share. The net offering proceeds to us
after deducting approximately $5.3 million in expenses for underwriters' discounts, fees and commissions, legal, accounting, printing, listing and filing fees, and miscellaneous expenses were
approximately $44.7 million. All outstanding shares of our Series A convertible preferred stock and $1.9 million in accumulated dividends on the Series A convertible
preferred stock were converted into 6,278,765 shares of common stock upon the completion of the IPO. In accordance with Emerging Issues Task Force, or EITF, No. 98-5, Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently

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Adjustable Conversion Ratios, and EITF No. 00-27,Application of Issue No. 98-5 to Certain Convertible
Instruments,we recorded a non-cash beneficial conversion charge of approximately $58.6 million in February 2007 in connection with the contingent adjustable
conversion feature of the Series A convertible preferred stock.

We
have devoted substantially all of our capital resources to the research and development of our drug candidates. We have never been profitable and, as of December 31, 2008, we
had an accumulated deficit of $392.7 million. We expect to incur significant operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical
development and clinical trials, and seek regulatory approval and eventual commercialization. We will need to generate significant revenues to achieve profitability and may never do so.

Key Post-2008 Developments

The SYMMETRY Phase 3 Clinical Trial

On February 26, 2009, we suspended our global Phase 3 clinical trial of elesclomol plus paclitaxel in metastatic
melanoma, called the SYMMETRY trial, following a meeting of the independent data monitoring committee, or DMC. The DMC noted that while an interim review of the primary endpoint of
progression-free survival, or PFS, showed trends that favored the elesclomol arm of the study; the interim analysis of the secondary endpoint of overall survival, or OS, favored the
control arm. The DMC report noted that the DMC "cannot be sure whether this is an adverse treatment effect, an effect of differing post-progression (off-study) treatments or a
chance effect not relating to the study drugs at all" and that this was a "paradoxical outcome" not foreseen prior to study initiation. The DMC also noted in its report that the OS for the elesclomol
arm is in the range of what one would expect for survival rates in large, multinational trials in metastatic melanoma; while the OS for the control arm was somewhat longer than would be expected. Of
note is that the OS data from the SYMMETRY trial are not yet mature, in that a relatively small fraction of the total survival events have occurred, meaning that OS results from this trial may change
substantially over time. We expect the survival data to mature by the end of 2009.

Based
on the interim review, the DMC recommended that unblinded data be released to us, and that we provide appropriate notification to investigators and patients in order that they
could jointly make informed decisions on whether to continue therapy. Following our review of the data and further discussion with the DMC, we decided to suspend the SYMMETRY trial and our other
ongoing elesclomol trials, including our trial in prostate cancer and our single-agent dose-escalating trial, pending further analysis of the SYMMETRY trial results. We also notified the
Food and Drug Administration, or FDA, of the SYMMETRY trial findings and our decision to suspend all ongoing elesclomol trials. Following our report to the FDA, the FDA concurred with our decision and
placed each of these trials on clinical hold.

In
our analysis of the SYMMETRY trial results to date, we have not identified any target organ toxicities or adverse events related to elesclomol that might explain an imbalance of
deaths between the two arms. We and our partner for the elesclomol program, GSK, are currently investigating a number of aspects related to the SYMMETRY trial results that will inform our choices for
future direction of this program, including whether or not to restart the program in melanoma and/or other cancer indications.

Restructuring

On March 12, 2009, we committed to a restructuring that consisted primarily of a workforce reduction of approximately 90
positions, to a total of approximately 130 positions to better align our workforce to our revised operating plans following the suspension of our SYMMETRY clinical trial. We estimate our costs in
connection with the workforce reduction, comprised principally of severance,

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unused
vacation payments, benefits continuation costs and outplacement services, will range from $1.4 million to $1.5 million. As a result of terminating these employees, we estimate we
may incur an impairment charge for certain research laboratory equipment, computer equipment, and furniture and fixtures due to the fact that these assets may no longer be utilized. We estimate we
will incur additional costs in connection with the suspension of the SYMMETRY trial, including one-time contract termination costs and fees and other related costs. At this time, we are
unable to estimate the amount of a possible impairment or contract termination costs as we are in the process of evaluating our facilities and equipment needs and are in contract termination
negotiations with certain of our vendors. Substantially all cash payments under the restructuring are expected to be paid during 2009. Employees directly affected by the restructuring have received
notification and will be provided with severance payments. We expect to complete the restructuring in the second quarter of 2009.

Company Strategy

Our strategy is to use our proprietary chemical compound library and discovery capabilities, as well as strength in designing and
effectively conducting robust clinical trials, to discover, develop, and commercialize novel small-molecule drug candidates for treating cancer, autoimmune, and chronic inflammatory diseases.
Important elements of our long-term strategy include:



Oncology Programs

We have two clinical-stage programs and one preclinical-stage program in oncology:

Elesclomol

Elesclomol is our first-in-class oncology drug candidate that we believe kills cancer cells by triggering
programmed cell death through elevating levels of reactive oxygen species, or ROS. In October 2007, we entered into a global partnership with GSK to jointly develop and commercialize elesclomol for
all indications. In February 2009, we suspended the Phase 3 SYMMETRY trial, following a DMC meeting in which the DMC noted that while the primary endpoint of PFS showed trends that favored the
elesclomol arm of the study; early analysis of the secondary OS endpoint favored the control arm. We simultaneously suspended the other ongoing studies with elesclomol, including a Phase 1/2 trial of
elesclomol in combination with docetaxel and prednisone in prostate cancer and a monotherapy Phase 1 trial in solid tumors. The FDA has also placed our elesclomol trials on clinical hold. We
and our partner for the elesclomol program, GSK, are currently investigating a

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number
of aspects related to the SYMMETRY trial results that will inform our choices for future direction of this program, including whether or not to restart the program in melanoma and/or other
cancer indications.



In October 2007, as amended in June 2008, we entered into the GSK Agreement, under which we are eligible to receive up to
$1.01 billion in milestones and other payments, as well as share 40-50% of the profits and losses from sales in the United States and receive double-digit tiered royalties from net
sales outside of the United States. Under the terms of the agreement, we and GSK will jointly develop and commercialize elesclomol in the United States, and GSK will have exclusive responsibility for
the development and commercialization of elesclomol outside the United States. Pursuant to the agreement, we received a non-refundable upfront license payment of $80 million in
November 2007. We are also eligible to receive potential operational, clinical and regulatory milestone payments from GSK of up to $585 million, which include both payments for operational
progress, such as trial initiation and enrollment, and payments for positive clinical and regulatory outcomes, such as regulatory approval. Of the $585 million in potential payments,
$145 million are related to the development in metastatic melanoma and $440 million are related to the development in other cancer indications. In addition to milestones related to
operational progress in development and clinical and regulatory outcomes, we are eligible to receive up to $300 million in potential commercial milestone payments from GSK based on achieving
certain net sales thresholds. In the year ended December 31, 2008, we achieved $35 million in non-refundable operational milestones related to the development of elesclomol
for the treatment of metastatic melanoma and a $5 million non-refundable operational milestone related to the development of elesclomol in another cancer indication. The
corresponding milestone payments were received from GSK in the fourth quarter of 2008. In January 2009, we achieved a
$10 million non-refundable operational milestone under the GSK Agreement, related to the development of elesclomol for the treatment of metastatic melanoma, which was paid by GSK in
March 2009.

Under
the GSK Agreement, the total worldwide development costs for elesclomol, including the development in metastatic melanoma, are shared according to an agreed targeted percentage,
which represents for us a modest share of total costs. This cost share is realized by us over time through both direct cost reimbursement payments and operational milestone payments.

The
GSK Agreement specifies an initial period during which we are solely responsible for all development costs, up to an agreed-upon limit, associated with specific
development activities related to seeking FDA approval of elesclomol for the treatment of metastatic melanoma, whether incurred by us or GSK. Also, during this period, GSK is responsible for certain
operational milestone payments to us in the amount of up to $50 million. Costs may be incurred by GSK during this period that are related to the development of elesclomol in metastatic
melanoma. Such costs are our responsibility and have been recognized as a reduction of revenue under the GSK collaboration in the statement of operations; however, these costs are not required to be
paid to GSK until after the final completion of the SYMMETRY trial, as defined in the GSK Agreement. Following the initial period when total melanoma development costs have exceeded the
pre-specified limit, additional costs incurred for the program will no longer be our sole responsibility and will be shared by GSK in accordance with the targeted percentage defined in the
GSK Agreement. Depending upon the future direction of the elesclomol program, we may be eligible for cost sharing payments under the GSK Agreement. In addition to development in metastatic melanoma,
we also fund early clinical development of elesclomol in two other cancer indications. Satisfactory completion of these initial trials would result in certain milestone payments from GSK.

In
the United States, our share of the operating profits and losses from the commercialization and sales of elesclomol over the life of the product will range from 40-50%,
with the percentage increasing

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as
the level of annual sales increases. Prior to commercialization, we are responsible for funding 40% of pre-commercialization costs in the United States. We may elect not to participate
in co-commercialization, in which case we would earn royalties in lieu of profit sharing. Outside of the United States, we will receive double-digit tiered royalties.

Under
the GSK Agreement, GSK may, subject to our agreement, purchase up to $45 million of our common stock in two separate tranches upon the achievement of specified development
and regulatory milestones. In the first tranche, GSK would be obligated to buy $25 million of our common stock at our sole discretion. The per share purchase price would be at a specified
premium. We attributed $260,000 of value to this option to require GSK to purchase our common stock. The second tranche of $20 million of common stock would be subject to the agreement of both
us and GSK. The per share purchase price would be at a specified premium.

GSK
may terminate the GSK Agreement upon not less than three months' written notice at any time prior to the date of the first commercial sale of elesclomol and not less than six months'
written notice at any time on and after such date. We are currently working with GSK to evaluate the data from the SYMMETRY trial to determine if we should continue the development of elesclomol or
terminate the program. Should GSK elect to terminate the partnership, all rights to the elesclomol program would be returned to us and we would be free to develop elesclomol alone or with another
partner. In such case, we would owe a small royalty to GSK on future sales of elesclomol. To date, GSK has not notified us of any intent to terminate the GSK Agreement.

STA-9090

STA-9090 is a novel, small molecule Hsp90 inhibitor drug candidate that we are developing for the treatment of a variety of
cancers. STA-9090 has a unique chemical structure that is distinct from 17-AAG (geldanamycin) and other ancamycin derivatives. In preclinical studies, STA-9090 has
shown the ability to inhibit multiple kinases with comparable potency to, and a broader activity profile than, specific kinase inhibitors such as imatinib (Gleevec), erlotinib (Tarceva), and sunitinib
(Sutent). In addition, STA-9090 has shown potency 10 to 100 times greater than the ancamycin family of Hsp90 inhibitors, as well as activity against a wider range of kinases. In in vivomodels, STA-9090
has shown strong efficacy in a wide range of cancer types, including cancers resistant to Gleevec, Tarceva, and
Sutent. We believe that this creates a distinct activity profile for STA-9090 and is a competitive advantage.



We are currently enrolling patients in two Phase 1, open-label studies in patients with solid-tumor cancers to
identify the maximum tolerated dose, or MTD, of STA-9090 based on once- and twice-a-week intravenous dosing schedules, respectively. In addition to an
evaluation of safety and tolerability, patients in each of these studies will be assessed for tumor response based on the industry standard Response Evaluation Criteria in Solid Tumors, or RECIST,
criteria. We also recently initiated a Phase 1/2 open-label clinical study of STA-9090 in patients with hematologic cancers, with a twice-a-week dosing
schedule. Later in 2009, we plan to initiate a Phase 2 trial in hematologic cancers with a once-a-week dosing schedule as well as one or more Phase 2 studies in
solid-tumor cancers.

In
our Phase 1 solid-tumor trials, we have escalated multiple dose-level cohorts in each study and have to date observed an acceptable safety profile. We have also
seen biomarker activity that has increased with increasing doses of STA-9090. In addition to the acceptable safety profile and encouraging signs of biological activity, we have seen two
confirmed responses, as defined by RECIST criteria, and a number of cases of prolonged stable disease. These responses and cases of stable disease occurred in a patient population that is generally
refractory or resistant to treatments with other agents.

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We
believe that these data are encouraging, suggest clinical activity of STA-9090 and support continued evaluation of STA-9090 in further studies.

2nd Generation Hsp90 Inhibitors

Earlier this year, we initiated preclinical development of a follow-on, small molecule, injectable Hsp90 inhibitor. This
compound has a unique chemical structure that we believe enhances certain desirable properties. In addition, we are currently working on a new series of Hsp90 inhibitor compounds that may be orally
administered. These compounds are in the lead optimization stage.

STA-9584

STA-9584 is a novel, injectable, small molecule compound that disrupts the blood vessels that supply tumors with oxygen and
essential nutrients. In preclinical testing, STA-9584 has been shown to target both new and established tumor blood vessels, in contrast to the mechanism of action of angiogenesis
inhibitors such as Avastin, which only prevent the formation of new tumor vasculature. STA-9584 has shown strong anti-tumor activity in a broad range of preclinical cancer
models, including prostate, lung, breast, melanoma, and lymphoma. This program is currently in preclinical development.

Our Inflammatory Disease Programs

We have one clinical-stage program and one pre-clinical stage-program focusing on treatments for inflammatory diseases.
Both of our inflammatory disease programs focus on oral, disease-modifying drug candidates that act through novel mechanisms and could potentially target multiple indications.

Apilimod (STA-5326)

Apilimod is a novel, orally administered, small molecule drug candidate we are developing for the treatment of autoimmune and other
chronic inflammatory diseases. Apilimod inhibits the production of the cytokines interleukin-12, or IL-12, and interleukin-23, or IL-23, and thereby
down-regulates the inflammation pathways that underlie certain autoimmune and inflammatory diseases. We submitted the initial IND for apilimod in March 2003.

We
are currently conducting a Phase 2a clinical trial of apilimod in patients with rheumatoid arthritis, or RA. The RA study completed initial enrollment of 22 patients and the
preliminary results showed encouraging biomarker and clinical signals suggesting activity of apilimod in this indication. We have elected to enroll an additional cohort in this trial to explore a
higher dose of apilimod. We expect to have results from this higher dose cohort in the second half of 2009.

We
are also exploring the possibility of using apilimod in a topical formulation to treat inflammatory diseases of the skin, such as psoriasis. We have developed a promising prototype
formulation and are planning to conduct proof-of-concept studies in animals during the second half of 2009.

In
addition to apilimod, we have also identified several other small molecule IL-12/23 inhibitors that we believe have comparable activity to apilimod with significantly
improved pharmaceutical properties. We believe that these new compounds represent a promising opportunity to develop next-generation drug candidates that could be administered orally at
higher doses than apilimod and potentially address a wider range of serious inflammatory diseases with high unmet medical needs.

CRACM Ion Channel Inhibitors

We have developed novel, small molecule inhibitors of calcium release activated calcium modulator, or CRACM, ion channels expressed on
immune cells. The CRACM ion channel is the primary route for calcium entry into T cells and other immune cells, regulating multiple immune cell

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processes
important for initiating and maintaining an inflammatory immune response. Our CRACM ion channel inhibitors have shown strong anti-inflammatory activity in preclinical studies
bothin vitroandin vivo,inhibiting T cell and mast cell activity, including cytokine release,
degranulation, and immune cell proliferation. Potential applications include a wide range of inflammatory diseases and disorders for which modulating T cell and mast cell function has been shown to be
critical, including rheumatoid arthritis, asthma, chronic obstructive pulmonary disease, or COPD, allergy, transplant rejection, and other autoimmune diseases and inflammatory conditions. This program
is in the lead optimization stage. In December 2008, we entered into a global partnership with Roche to further develop our CRACM inhibitors. We anticipate nominating a development candidate for
preclinical development in 2009 and are targeting Phase 1 initiation in 2010.



In December 2008, we entered into the Roche Agreement to discover, develop, and commercialize small-molecule drugs targeting CRACM
channels. The goal is to develop a novel category of oral, disease-modifying agents for the treatment of rheumatoid arthritis, asthma, chronic obstructive pulmonary disease, or COPD, allergy,
transplant rejection, and other autoimmune diseases and inflammatory conditions. Under the terms of the agreement, Roche will fund research to be conducted by us during an initial two-year
research period. Roche will receive worldwide rights to develop and commercialize certain products identified prior to the end of this research period. We retain certain co-development and
co-promotion rights. All preclinical, clinical, and commercial costs will be paid by Roche.

Pursuant
to the agreement, we received a non-refundable upfront license payment of $16 million in January 2009. Roche will pay all of our research costs, with a
minimum of $9 million in committed research support, and all of our development costs for compounds nominated for clinical development. We are eligible to receive additional payments, for each
of three licensed products, should specified development and commercialization milestones be successfully achieved. Development milestones across multiple indications of up to $245 million
could be earned for the first product, and up to half of this amount could be earned for each of the second and third products. Commercialization milestones of up to $170 million could be
earned for each of three products. In
addition, all commercial costs will be paid by Roche. We will receive tiered royalties on sales of all approved, marketed products. Roche may terminate the agreement on a licensed
compound-by-licensed compound basis upon providing advance written notice, but may not do so with respect to all licensed compounds until after a specified date.

Financial Operations Overview

Revenue

We have not yet generated any product revenue and do not expect to generate any product revenue in the foreseeable future, if at all.
We will seek to generate revenue from product sales and from future collaborative or strategic relationships, which could include research and development, milestone payments, profit sharing and
royalties.

In
October 2007, we entered into the GSK Agreement for our lead drug candidate, elesclomol. The $80 million non-refundable upfront payment we received from GSK in
November 2007, together with the $260,000 estimated value of an option to require GSK to purchase $25 million of our common stock, is being recognized ratably as collaboration revenue using the
time-based model over the estimated performance period, the 15-year period through the earliest expiration date of the related patents, which we estimate to be the effective
life of the GSK Agreement. We are also recognizing product development milestones as collaboration revenue using the time-based model over the same performance period through November 2022
and recognize as revenue on the date the milestone is

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achieved
the portion of the milestone payment equal to the applicable amount of the performance period that has elapsed as of the date the milestone is achieved, with the balance being deferred and
recognized on a straight-line basis over the remaining development period. (see "Critical Accounting Policies and EstimatesRevenue Recognition"). In the year ended
December 31, 2008, we achieved $35 million in non-refundable operational milestones related to the development of elesclomol for the treatment of metastatic melanoma and a
$5 million non-refundable operational milestone related to the development of elesclomol in another cancer indication. The corresponding milestone payments were received from GSK in
the fourth quarter of 2008. In the years ended December 31, 2008 and 2007, we recognized $8.4 million and $0.7 million, respectively, of license and milestone revenue under the
GSK Agreement. In January 2009, we achieved a $10 million non-refundable operational milestone related to the
development of elesclomol for the treatment of metastatic melanoma, which was paid by GSK in March 2009.

Reimbursements
of development costs to us by GSK are recorded as cost sharing revenue in the period in which the related development costs are incurred. Reimbursements by us to GSK for
costs GSK incurs under the development program are recorded as a reduction of cost sharing revenue in the period in which the costs are incurred by GSK. Reimbursement of GSK's costs in an amount in
excess of collaboration revenues otherwise recognized by us in a reporting period may result in negative revenue. In the year ended December 31, 2008, we recognized, as a reduction to revenue,
$5.9 million of net cost sharing reimbursements to GSK under the GSK Agreement as we are solely responsible for funding 100% of the development costs of elesclomol for the treatment of
metastatic melanoma until a specified limit of expenses has been incurred, after which continuing development costs are shared by GSK with us responsible for a modest share of the costs. Depending
upon the future direction of the elesclomol program, we may be eligible for cost sharing payments under the GSK Agreement.

In
December 2008, we entered into the Roche Agreement to discover, develop, and commercialize small-molecule drugs targeting CRACM channels. The $16 million
non-refundable upfront license payment we received from Roche in January 2009 is being recognized ratably using the time-based model over the estimated performance period which
has been defined as the 3.5-year period through the estimated date of completion of a phase 2a clinical trial for the first licensed compound. In the year ended December 31,
2008, we recognized $0.1 million of license revenue under the Roche Agreement. Reimbursements of research and development costs to us by Roche will be recorded as cost sharing revenue in the
period in which the related research and development costs are incurred. Development milestones will be recognized as collaboration revenue using the time-based model over the same
performance period through mid-2012.

In
the future, we expect any revenue we generate will fluctuate from quarter-to-quarter as a result of the timing and amount of payments received under the GSK
Agreement and the Roche Agreement and from future collaborations or strategic relationships, and the amount and timing of payments we receive upon the sale of our drug candidates, to the extent any
are successfully commercialized.

Research and Development

Research and development expense consists of costs incurred in connection with developing and advancing our drug discovery technology
and identifying and developing our drug candidates. We charge all research and development expenses to operations as incurred.

Our
research and development expense consists of:



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We
do not know if we will be successful in developing our drug candidates. We believe that accurately projecting total program-specific expenses through commercialization is not possible
at this time. The timing and amount of these expenses will depend upon the costs associated with potential future clinical trials of our drug candidates, and the related expansion of our research and
development organization, regulatory requirements, advancement of our preclinical programs and product manufacturing costs, many of which cannot be determined with accuracy at this time based on our
stage of development. This is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as a result of
unanticipated events arising during clinical development, including with respect to:



Our
expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals and the expense of filing, prosecuting, defending or enforcing any patent
claims or other intellectual property rights. In addition, we may obtain unexpected or unfavorable results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of
some drug candidates or focus on others. A change in the outcome of any of the foregoing variables in the development of a drug candidate could mean a significant change in the costs and timing
associated with the development of that drug candidate. For example, if the FDA or other regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate,
or if we experience significant delays in any of our clinical trials, we would be required to expend significant additional financial resources and time on the completion of clinical development.
Additionally, future commercial and regulatory factors beyond our control will evolve and therefore impact our clinical development programs and plans over time.

In
2009, we anticipate that our overall research and development expenses, including personnel costs and external costs in connection with clinical development activities, will decrease
due to the suspension of our elesclomol program and subsequent restructuring. However, certain program costs are expected to increase as we advance clinical development of our STA-9090
program and commence preclinical development of our CRACM program. Also, a possible restart of the elesclomol program based upon the outcome of the investigation of the results of the SYMMETRY trial
may result in increased research and development expenses.

Beyond
our current lead drug candidates, we anticipate that we will select drug candidates and research projects for further development on an ongoing basis in response to their
preclinical and clinical success, as well as commercial potential.

General and Administrative

General and administrative expense consists primarily of salaries and related expenses for personnel in executive, finance, business
and commercial development, investor and medical community relations, human resources and administrative functions. Other costs include stock-based compensation

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costs,
directors' and officers' liability insurance premiums, legal costs of pursuing patent protection of our intellectual property, fees for general legal, accounting, public-company requirements
and compliance, and other professional services, as well as overhead-related costs not otherwise included in research and development. In 2009, we anticipate that our overall general and
administrative expenses, including personnel costs and external commercial development costs, will decrease due to the suspension of our elesclomol program and subsequent restructuring.

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements
which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reported periods. We are required to make estimates and judgments with respect to accrued expenses, including long-term contract accruals, the recoverability of
long-lived and deferred tax assets, measurement of stock-based compensation and the period of performance under the GSK Agreement and the Roche Agreement. We base our estimates on
historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources and the reported amounts of revenues and expenses. Actual results may differ from these estimates under
different assumptions or conditions.

We
believe the following accounting policies and estimates are most critical to aid in understanding and evaluating our reported financial results.

Revenue Recognition



Our principal sources of revenue may include upfront license payments, development milestones, reimbursement of research and
development costs, profit sharing payments, sales milestones and royalties from our collaborations. We recognize revenue from these sources in accordance with Staff Accounting Bulletin (SAB) 104, Revenue
Recognition, or SAB 104, Emerging Issues Task Force (EITF) No. 99-19,Reporting Revenue Gross
as a Principal Versus Net as an Agent, or EITF No. 99-19, EITF No. 00-21,Revenue Arrangements with Multiple
Deliverables, or EITF No. 00-21, and EITF No. 01-09,Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products), or EITF No. 01-09. The application of EITF No. 00-21 requires subjective analysis and
requires management to make estimates and assumptions about whether deliverables within multiple-element arrangements are separable from the other aspects of the contractual arrangement into separate
units of accounting and to determine the fair value to be allocated to each unit of accounting.

We
evaluate the multiple deliverables within our respective collaborations in accordance with the provisions of EITF No. 00-21 to determine whether the delivered
elements that are our obligation have value to our collaborators on a stand-alone basis and whether objective reliable evidence of fair value of the undelivered items exists. Deliverables that meet
these criteria are considered a separate unit of accounting. Deliverables that do not meet these criteria are combined and accounted for as a single unit of accounting. The appropriate recognition of
revenue is then applied to each separate unit of accounting.

Our
deliverables under our collaboration agreements, including the related rights and obligations, contractual cash flows and performance periods, are more fully described in
Notes 9 and 10 of the

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accompanying
consolidated financial statements. Certain of the deliverables have been combined as a single unit of accounting.

The
cash flows associated with the single unit of accounting from the research and development portions of our collaborations are recognized as revenue using a time-based
model. Under this model, cash flow streams are recognized as revenue over the estimated performance period. Upon achievement of milestones, as defined in the collaboration agreements, revenue is
recognized to the extent the accumulated service time, if any, has occurred. The remainder is deferred and recognized as revenue ratably over the remaining estimated performance period. A change in
the period of time expected to complete the deliverable is accounted for as a change in estimate on a prospective basis. Revenue is limited to amounts that are non-refundable and that our
collaborators are contractually obligated to pay us.



In October 2007, we and GSK entered into the GSK Agreement, as amended in June 2008, for elesclomol, a novel injectable, small molecule
compound that triggers apoptosis, or programmed cell death, in cancer cells, which we believe has potential for the treatment of a broad range of cancer types. The GSK Agreement consists of the
following key funding streams: an upfront license payment, product development milestones, reimbursements of certain development costs, sales milestones, profit sharing payments and product royalty
payments.

The
$80 million non-refundable upfront license payment we received from GSK in November 2007, together with the $260,000 fair value of an option to require GSK to
purchase $25 million of our common stock, is being recognized ratably using the time-based model over the estimated performance period which has been defined as the
15-year period through the earliest expiration date of the related patents, which we estimate to be the effective life of the GSK Agreement. There has been no change to this estimate to
date. We are also recognizing product development milestones as collaboration revenue using the time-based model over the same performance period through November 2022. We recognize as
revenue on the date the milestone is achieved the portion of the milestone payment equal to the applicable amount of the performance period that has elapsed as of the date the milestone is achieved,
with the balance being deferred and recognized on a straight-line basis over the remaining development period. In the year ended December 31, 2008, we achieved $35 million in
non-refundable operational milestones related to the development of elesclomol for the treatment of metastatic melanoma and a $5 million non-refundable operational
milestone related to the development of elesclomol in another cancer indication. The corresponding milestone payments were received from GSK in the fourth quarter of 2008. In the years ended
December 31, 2008 and 2007, we recognized $8.4 million and $0.7 million, respectively, of license and milestone revenue under the GSK Agreement. In January 2009, we achieved a
$10 million non-refundable operational milestone related to the development of elesclomol for the treatment of metastatic melanoma, which was paid by GSK in March 2009.

Reimbursements
of development costs to us by GSK are recorded as cost sharing revenue in the period in which the related development costs are incurred. Reimbursements by us to GSK for
costs GSK incurs under the development program are recorded as a reduction of cost sharing revenue in the period in which the costs are incurred by GSK in accordance with EITF
No. 01-09. Reimbursement of GSK's costs in an amount in excess of collaboration revenues otherwise recognized by us in a reporting period may result in negative revenue. Based on
the guidance of EITF No. 99-19, we have determined that we are acting as a principal under the GSK Agreement and, as such, record these amounts as collaboration revenue. In the year
ended December 31, 2008, we recognized, as a reduction to revenue, $5.9 million of net cost sharing reimbursements to GSK under the GSK Agreement as we are solely responsible for funding
100% of the development costs of elesclomol for the treatment of metastatic

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melanoma
until a specified limit of expenses has been incurred, after which continuing development costs are shared by GSK with us responsible for a modest share of the costs.

Profit
sharing payments are based upon a formula that provides for a range of 40-50% of net profits earned on U.S. sales of products included in the GSK Agreement. Royalty
revenues are based upon a percentage of net sales in non-U.S. territories. Profit sharing payments and royalties from the sales of products included in the GSK Agreement will be recorded
on the accrual basis when results are reliably measurable, collectibility is reasonably assured and all other revenue recognition criteria are met. Sales milestones, which are based upon the
achievement of certain agreed-upon sales thresholds, will be recognized in the period in which the respective sales threshold is achieved and collectability is reasonably assured.



In December 2008, we and Roche entered into the Roche Agreement to discover, develop, and commercialize small-molecule drugs targeting
CRACM channels. The Roche Agreement consists of the following key funding streams: an upfront license payment, product development milestones, reimbursements of certain research and development costs,
sales milestones and product royalty payments.

The
$16 million non-refundable upfront license payment that we received from Roche in January 2009 is being recognized ratably using the time-based model
over the estimated performance period which has been defined as the 3.5-year period through the estimated date of completion of a phase 2a clinical trial for the first licensed
compound. In the year ended December 31, 2008, we recognized $0.1 million of license revenue under the Roche Agreement. Reimbursements of research and development costs to us by Roche
will be recorded as cost sharing revenue in the period in which the related research and development costs are incurred. Development
milestones will be recognized as collaboration revenue using the time-based model over the same performance period through mid-2012.

Royalty
revenues are based upon a percentage of net sales. Royalties from the sales of products included in the Roche Agreement will be recorded on the accrual basis when results are
reliably measurable, collectibility is reasonably assured and all other revenue recognition criteria are met. Sales milestones, which are based upon the achievement of certain agreed-upon
sales thresholds, will be recognized in the period in which the respective sales threshold is achieved and collectability is reasonably assured.

Deferred Collaboration Revenue

Consistent with our policy on revenue recognition, deferred collaboration revenue represents cash received and amounts earned and
invoiced for licensing and option fees and milestones, as well as cash received and amounts invoiced for research and development services to be performed by us. Such amounts are reflected as deferred
collaboration revenue until revenue can be recognized under our revenue recognition policy. Deferred collaboration revenue is classified as current if management believes we will complete the earnings
process and be able to recognize the deferred amount as revenue within 12 months of the balance sheet date. As of December 31, 2008, total deferred collaboration revenue was
approximately $127 million, of which $12.6 million is current and will be recognized as revenue during the next 12 months.

Accrued Expenses and Accrued Contract Research Liabilities

As part of the process of preparing financial statements, we are required to estimate accrued expenses. This process involves
identifying services which have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for such service as of each balance sheet date in our
financial statements. Given our current business, the primary area of

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uncertainty
concerning accruals which could have a material effect on our business is with respect to service fees paid to contract manufacturers in conjunction with the production of clinical drug
supplies and to contract research organizations in connection with our preclinical studies and clinical trials. In connection with all of the foregoing service fees, our estimates are most affected by
our understanding of the status and timing of services provided. The majority of our service providers, including contract research organizations, invoice us in arrears for services performed. In the
event that we do not identify
some costs which have begun to be incurred, or we under or over estimate the level of services performed or the costs of such services in a given period, our reported expenses for such period would be
understated or overstated. We currently reflect the over or under accrual of expenses directly in our operations in the period the amount was determined.

Our
arrangements with contract research organizations in connection with clinical trials often provide for payment prior to commencing the project or based upon predetermined milestones
throughout the period during which services are expected to be performed. We recognize expense relating to these arrangements based on the various services provided over the estimated time to
completion. The date on which services commence, the level of services performed on or before a given date, and the cost of such services are often determined based on subjective judgments. We make
these judgments based upon the facts and circumstances known to us based on the terms of the contract or our ongoing monitoring of service performance. In the years ended December 31, 2008,
2007 and 2006, respectively, we had arrangements with multiple contract research organizations whereby these organizations commit to performing services for us over multiple reporting periods. We
currently recognize and plan to continue to recognize the expenses associated with these arrangements based on our expectation of the timing of the performance of components under these arrangements
by these organizations. Generally, these components consist of the costs of setting up the trial, monitoring the trial, closing the trial and preparing the resulting data.

With
respect to financial reporting periods presented in this Annual Report on Form 10-K, and based on our receipt of invoices from our third party providers, the
timing of our actual costs incurred have not differed materially from our estimated timing of such costs. In light of the foregoing, we do not believe our estimates of future expenses and our practice
of making judgments concerning the accrual of expenses are reasonably likely to change in the future. There were no changes in our estimates and accruals for contract service fees that had a material
effect on our net losses in the years ended December 31, 2008, 2007 and 2006, respectively.

Stock-Based Compensation

We continue to use the Black-Scholes option pricing model as the most appropriate valuation method for our option grants. The
Black-Scholes model requires inputs for risk-free interest rate, dividend yield, volatility and expected lives of the options. Since we do not have a significant history of stock trading
activity, expected volatility is based on historical data from several public companies similar in size and value to us. We will continue to use a weighted average approach using historical volatility
and other similar public entity volatility information until historical volatility of our common stock is relevant to measure expected volatility for future option grants. We estimate the forfeiture
rate based on historical data. Our options generally vest 25% after one year of service and quarterly over three years thereafter. Based on an analysis of historical forfeitures, we applied a
forfeiture rate of 10% to all options that vest upon completion of the first year of service following the date of grant. The analysis will be re-evaluated at least annually and the
forfeiture rate will be adjusted as necessary. The risk-free interest rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the
time of the grant. The expected lives for options granted represents the period of time that options
granted are expected to be outstanding. Since January 1, 2006, we have used the simplified method for determining the expected lives of options.

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For awards with graded vesting, we allocate compensation costs under Statement of Financial Accounting Standards, or SFAS, No. 123R,Share-Based
Payment,on a straight-line basis over the requisite service period. Accordingly, we amortize the fair value of each option over each option's service period, which
is generally the vesting period.

We
account for stock options issued to non-employees in accordance with the provisions of SFAS No. 123,Accounting for Stock-Based
Compensation, and EITF No. 96-18,Accounting for Equity Instruments that are Issued to Other than Employees, or in Conjunction with
Selling Goods or Services,which requires valuing and remeasuring such stock options to the current fair value until the performance date has been reached.

Our
net loss includes compensation costs in the amount of $7.6 million, $5.4 million and $4.8 million for the years ended December 31, 2008, 2007 and 2006,
respectively, and no income tax benefit related to our stock-based compensation arrangements for employee and non-employee awards. As of December 31, 2008, the total amount of
unrecognized stock-based compensation expense was $9.8 million, which will be recognized over a weighted average period of 2.7 years.

Consolidated Results of Operations

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007



Year Ended
December 31,

2008 to 2007
Change2008

2007

$

%(dollars in millions)License and milestone revenue

$
8.5

$
0.7

$
7.8


1,114
%Cost sharing reimbursements, net


(5.9
)




(5.9
)


%Total collaboration revenue

$
2.6

$
0.7

$
1.9


271
%


In
October 2007, we entered into a collaborative development, commercialization and license agreement with GSK for elesclomol. In the year ended December 31, 2008,
we recognized a full year of license revenue in connection with the $80 million non-refundable upfront payment we received from GSK in November 2007, together with the $260,000
estimated value of an option to require GSK to purchase $25 million of our common stock. In the year ended December 31, 2008, we achieved $35 million in non-refundable
operational milestones related to the development of elesclomol for the treatment of metastatic melanoma and a $5 million non-refundable operational milestone related to the
development of elesclomol in another cancer indication. The corresponding milestone payments were received from GSK in the fourth quarter of 2008. In the years ended December 31, 2008 and 2007,
we recognized $8.4 million and $0.7 million, respectively, of license and milestone revenue under the GSK Agreement. In addition, in the year ended December 31, 2008, we began
recognizing, as a reduction to revenue, net cost sharing reimbursements due to GSK for costs they incurred under the development program. (See Notes 2 and 9 in the accompanying consolidated
financial statements.)

In
December 2008, we entered into a collaborative license agreement with Roche to discover, develop, and commercialize small-molecule drugs targeting CRACM channels. In the year ended
December 31, 2008, we recognized $0.1 million of license revenue in connection with the $16 million non-refundable upfront license payment we received from Roche in
January 2009. (See Notes 2 and 10 in the accompanying consolidated financial statements.)

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Year Ended
December 31,

2008 to 2007
Change2008

2007

$

%(dollars in millions)Clinical-stage drug candidatesElesclomol

$
60.1

$
32.0

$
28.1


88
%STA-9090


6.3


7.0


(0.7
)

(10
)%Apilimod


0.4


1.3


(0.9
)

(69
)%Total clinical-stage drug candidates


66.8


40.3


26.5


66
%CRACM


5.7


8.0


(2.3
)

(29
)%Other early stage programs


9.1


3.7


5.4


146
%Total research and development

$
81.6

$
52.0

$
29.6


57
%


In
the year ended December 31, 2008, costs incurred under our elesclomol program increased by $28.1 million over the year ended December 31, 2007,
including a $5.7 million increase for personnel costs, related research supplies, operational overhead and stock compensation, and a $22.4 million increase for external costs. These
increases were principally due to expenses incurred in connection with elesclomol for the treatment of metastatic melanoma, including the advancement of the SYMMETRY trial, our global, pivotal
Phase 3 clinical trial which was initiated in the third quarter of 2007, and the conduct of registration manufacturing and other supporting activities required for a possible new drug
application, or NDA, filing in 2009. In addition, we advanced elesclomol sodium in support of the Phase 1/2 trial in combination with docetaxel in hormone refractory prostate cancer that was
initiated in the fourth quarter of 2008 and in support of the single agent, dose escalation clinical study in solid tumors that was initiated in the first quarter of 2009, as well as conducted further
evaluation of elesclomol in other cancer types. In 2009, we anticipate that costs under our elesclomol program will decrease significantly due to the suspension of the elesclomol program in February
2009 and the subsequent restructuring.

In
the year ended December 31, 2008, costs incurred under our STA-9090 program decreased by $0.7 million over the year ended December 31, 2007, including
a $1.8 million decrease for personnel costs, related research supplies, operational overhead and stock compensation, offset by a $1.1 million increase for external costs. The decrease in
internal-related costs was principally due to a decrease in resource allocation in connection with the advancement of the STA-9090 program from preclinical development into clinical
development in the second half of 2007. The increase in external costs was principally due to a full year of clinical trial costs and related drug supply manufacturing in support of the two
Phase 1 clinical trials that were initiated in the fourth quarter of 2007 and the Phase 1/2 trial in hematological cancers that was initiated in the first quarter of 2009, offset by
nonrecurring costs incurred in 2007 to complete preclinical development. In 2009, we anticipate that our costs incurred under our STA-9090 program will increase based upon the
Phase 1/2 trial in hematological cancers that was initiated in the first quarter of 2009 and additional clinical trials planned to commence later in the year.

In
the year ended December 31, 2008, costs incurred in connection with apilimod decreased by $0.9 million over the year ended December 31, 2007, including a
$0.3 million decrease for personnel costs, related research supplies, operational overhead and stock compensation, and a $0.6 million decrease for external costs. These decreases were
principally due to the timing of treating patients in our Phase 2a trial for RA as the treatment for the initial two cohorts of patients was completed in 2007 and we began enrolling additional
patients to explore a higher dose of apilimod in the second half of 2008.

69

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In
the year ended December 31, 2008, costs incurred under our CRACM program decreased by $2.3 million over the year ended December 31, 2007, including a
$2.5 million decrease for personnel costs, related research supplies, operational overhead and stock compensation, offset by a $0.2 million increase for external costs. The net decrease
was principally due to resource allocation. In 2009, we anticipate that development costs incurred under our CRACM program will increase as we anticipate nominating a candidate and conducting
preclinical development.

In
addition, in the year ended December 31, 2008, costs incurred under our other early-stage programs increased by $5.4 million over the year ended December 31,
2007, including increases of $4.9 million for personnel costs, related research supplies, operational overhead and stock compensation, and $0.5 million for external costs.



Year Ended
December 31,

2008 to 2007
Change2008

2007

$

%(dollars in millions)General and administrative

$
14.7

$
14.9

$
(0.2
)

(1
)%


The
decrease in general and administrative expense principally resulted from an increase of $0.8 million for personnel costs and related overhead in connection
with increased headcount and stock compensation, offset by a $1.0 million decrease in external professional fees, including intellectual property and general legal fees, public-company
reporting and compliance requirements, director and officer insurance premiums, investor and medical-community relations and commercial development, as well as in corporate taxes. In 2009, we
anticipate that our overall general and administrative expenses, including personnel costs and external commercial development costs, will decrease due to the suspension of our elesclomol program and
subsequent restructuring.



Year Ended
December 31,

2008 to 2007
Change2008

2007

$

%(dollars in millions)Investment income, net

$
1.1

$
2.7

$
(1.6
)

(59
)%


The
decrease in net investment income was principally due to declining interest rates and lower average cash balances.

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006



Year Ended
December 31,

2007 to 2006
Change2007

2006

$

%(dollars in millions)Revenues

$
0.7

$


$
0.7





In
October 2007, we entered into a collaborative development, commercialization and license agreement with GSK for elesclomol. The $80 million
non-refundable upfront payment we received from GSK in November 2007, together with the $260,000 estimated value of an option to require GSK to purchase $25 million of our common
stock, is being recognized ratably as collaboration revenue using the time-based model over the estimated performance period, the 15-year period through the earliest

70

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expiration
date of the related patents, which we estimate to be the effective life of this agreement. (See Notes 2 and 9 in the accompanying consolidated financial statements.)



Year Ended
December 31,

2007 to 2006
Change2007

2006

$

%(dollars in millions)Clinical-stage drug candidatesElesclomol

$
32.0

$
9.6

$
22.4


233
%Apilimod


1.3


16.8


(15.5
)

(92
)%STA-9090


7.0


12.3


(5.3
)

(43
)%Total clinical-stage drug candidates


40.3


38.7


1.6


4
%Early stage and discontinued programs


11.7


11.8


(0.1
)

(1
)%Total research and development

$
52.0

$
50.5

$
1.5


3
%


In
the year ended December 31, 2007, costs incurred under our elesclomol program increased by $22.4 million over the year ended December 31, 2006,
including a $13.7 million increase for personnel costs, related research supplies, operational overhead and stock compensation, and an $8.7 million increase for external costs. These
increases were principally due to start-up expenses incurred in connection with the SYMMETRY trial, our global, pivotal Phase 3 clinical trial of elesclomol for the treatment of
metastatic melanoma, which was initiated in the third quarter of 2007, offset by non-recurring external costs incurred in 2006 in connection with the completion of the Phase 2b
clinical trial for metastatic melanoma.

In
the year ended December 31, 2007, costs incurred in connection with apilimod for the treatment of Crohn's disease decreased by $15.5 million over the year ended
December 31, 2006, including a $6.8 million decrease for personnel costs, related research supplies, operational overhead and stock compensation, and an $8.7 million decrease for
non-recurring external costs. These decreases were principally due to the completion of the Phase 2b clinical trial in June 2006.

In
the year ended December 31, 2007, costs incurred under our STA-9090 program decreased by $5.3 million over the year ended December 31, 2006, including
a $2.9 million decrease for personnel costs, related research supplies, operational overhead and stock compensation, and a $2.4 million decrease for external costs. These decreases were
principally due to the advancement of the program from preclinical development into clinical development upon the filing of an IND application in the third quarter of 2007 and the initiation of two
Phase 1 clinical trials in the fourth quarter of 2007.

In
addition, in the year ended December 31, 2007, costs incurred under our early-stage and discontinued programs decreased by $0.1 million over the year ended
December 31, 2006, including a $0.6 million increase for personnel costs, related research supplies, operational overhead and stock compensation, offset by a $0.7 million decrease
for external costs.



Year Ended
December 31,

2007 to 2006
Change2007

2006

$

%(dollars in millions)General and administrative

$
14.9

$
8.6

$
6.3


73
%


The
increase in general and administrative expense principally resulted from increases of $1.9 million for personnel costs and related overhead in connection with
increased headcount and stock

71

---



compensation,
and $4.4 million in external professional fees, including investor and medical community relations, public-company reporting and compliance requirements and increased director and
officer insurance premiums following completion of our IPO in February 2007, as well as intellectual property and general legal fees.



Year Ended
December 31,

2007 to 2006
Change2007

2006

$

%(dollars in millions)Investment income, net

$
2.7

$
1.9

$
0.8


42
%


The
increase in net investment income was principally due to the higher average cash balances resulting from the net cash proceeds of $44.7 million raised from the
sale of our common stock in our IPO in February 2007 and the $80 million non-refundable upfront payment received from GSK in November 2007.

Liquidity and Capital Resources

Sources of Liquidity

We have incurred significant operating losses since our inception. We have funded our operations principally with $235.4 million
in net proceeds from private placements of our common stock and Series A convertible preferred stock, $44.7 million in net proceeds from our IPO, and $120 million in
non-refundable payments under the GSK Agreement, including the $80 million upfront payment and $40 million in operational milestones, which, together with the exercise of
common stock warrants and options, provided aggregate net cash proceeds of approximately $401.4 million through December 31, 2008. We have also generated funds from government grants,
equipment lease financings and investment income.

As
of December 31, 2008, we had $89.6 million in cash, cash equivalents, marketable securities and collaboration payments receivable, which includes the $16 million
non-refundable upfront payment under the Roche Agreement that was paid in January 2009. This compares to $115.6 million in cash, cash equivalents and marketable securities as of
December 31, 2007. There were no collaboration payments receivable as of December 31, 2007. This decrease principally reflects net cash used in operations as discussed under "Cash Flows"
below. In addition, in January 2009, we achieved a $10 million non-refundable operational milestone under the GSK Agreement, related to the development of elesclomol for the
treatment of metastatic melanoma, which was paid by GSK in March 2009.

In
October 2007, we entered into the GSK Agreement with GSK and received a non-refundable upfront cash payment of $80 million in November 2007. We are also eligible to
receive potential operational, clinical and regulatory milestone payments from GSK of up to $585 million, which include both payments for operational progress, such as trial initiation and
enrollment, and payments for positive clinical and regulatory outcomes, such as regulatory approval. Of the $585 million in potential payments, $145 million are related to the
development in metastatic melanoma and up to $440 million are related to the development of elesclomol in other cancer indications. In addition, we are eligible to receive up to
$300 million in potential commercial milestone payments from GSK based on achieving certain net sales thresholds. In the year ended December 31, 2008, we achieved $35 million in
non-refundable operational milestones related to the development of elesclomol for the treatment of metastatic melanoma and a $5 million non-refundable operational
milestone related to the development of elesclomol in another cancer indication. The corresponding milestone payments were received from GSK in the fourth quarter of 2008. In January 2009, we achieved
a $10 million

72

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non-refundable
operational milestone related to the development of elesclomol for the treatment of metastatic melanoma, which was paid by GSK in March 2009. Depending upon the future
direction of the elesclomol program, we may be eligible for cost sharing and additional milestone payments under the GSK Agreement.

In
December 2008, we entered into the Roche Agreement with Roche and received a non-refundable upfront license payment of $16 million in January 2009. Under the terms
of the agreement, Roche will pay all of our research costs, with a minimum of $9 million in committed research support, and all of our development costs for compounds nominated for clinical
development. We are eligible to receive additional payments, for each of three licensed products, should specified development and commercialization milestones be successfully achieved. Development
milestones across multiple indications of up to $245 million could be earned for the first product, and up to half of this amount could be earned for each of the second and third products.
Commercialization milestones of up to $170 million could be earned for each of three products. In addition, all commercial costs will be paid by Roche. We will receive tiered royalties on sales
of all approved, marketed products.

Cash Flows

The following table provides information regarding our cash position, cash flows and capital expenditures for the years ended
December 31, 2008, 2007 and 2006.

Year Ended December 31,2008

2007

2006(dollars in millions)Cash, cash equivalents and marketable securities

$
73.6

$
115.6

$
46.8Working capital


57.9


96.2


36.1Cash flows (used in) provided by:Operating activities


(37.9
)

27.2


(53.0
)Investing activities


(23.7
)

10.8


23.6Financing activities


(1.9
)

43.9


39.3Capital expenditures (included in investing activities)


(2.2
)

(2.4
)

(1.6
)


Our
operating activities used cash of $37.9 million and $53.0 million in the years ended December 31, 2008 and 2006, respectively. Our operating
activities provided cash of $27.2 million in the year ended December 31, 2007, including the $80 million non-refundable upfront payment received under the GSK
Agreement in November 2007, offset by $52.8 million in the use of cash in operations. The use of cash in all of these periods principally resulted from our losses from operations, as adjusted
for non-cash charges for depreciation and stock-based compensation, and changes in our working capital accounts.

Our
investing activities used cash of $23.7 million in the year ended December 31, 2008, including purchases of marketable securities in the amount of $21.5 million
and purchases of property and equipment in the amount of $2.2 million. Our investing activities provided cash of $10.8 million in the year ended December 31, 2007, including sales
and maturities of marketable securities in our investment portfolio in the amount of $28.1 million, offset by the purchases of marketable securities in the amount of $15.0 million and
purchases of property and equipment in the amount of $2.4 million. Our investing activities provided cash of $23.6 million in the year ended December 31, 2006, including sales and
maturities of marketable securities in our investment portfolio in the amount of $143.4 million, offset by the purchases of marketable securities in the amount of $118.2 million and
purchases of property and equipment in the amount of $1.6 million.

Our
financing activities used cash of $1.9 million in the year ended December 31, 2008 and provided cash of $43.9 million and $39.3 million in the years ended
December 31, 2007 and 2006,

73

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respectively.
In February 2007, we raised net cash proceeds of $44.7 million from the sale of 5,000,000 shares of common stock in our IPO. In June 2006, we raised gross proceeds of
$40.0 million from the sale of 8,000,000 shares of our Series A convertible preferred stock. We raised $0.9 million, $2.0 million and $1.4 million in proceeds from
the sale and lease-back of property and equipment in the years ended December 31, 2008, 2007 and 2006, respectively. We repaid $2.8 million, $2.6 million and
$2.1 million in capital equipment leases in the years ended December 31, 2008, 2007 and 2006, respectively. In January 2007, we repurchased 29,046 shares of our previously issued
restricted common stock in the amount of $0.3 million from certain officers and non-officer employees in order to fund the minimum statutory tax withholding requirements related to
the vesting of 80,000 shares of restricted common stock.

Contractual Obligations and Commitments

The following tables summarize our contractual obligations at December 31, 2008 and the effects such obligations are expected to
have on our liquidity and cash flows in future periods (in millions).

Contractual Obligations (as of December 31, 2008)

Total

2009

2010
through
2011

2012
through
2013

More than
5 yearsCapital lease obligations(1)

$
4.7

$
2.5

$
2.1

$
0.1

$
Operating lease obligations


6.2


2.5


3.7





Research and development contracts(2)


16.6


15.4


1.2





Consulting


0.1


0.1








Purchase obligations


0.2


0.1


0.1





Total

$
27.8

$
20.6

$
7.1

$
0.1





---

Under
various license agreements, substantially all of which are related to our early-stage discovery programs, we may be obligated to pay up to an aggregate of
$2.2 million if specified development and commercialization milestones are met, as follows (in millions). These amounts are not included in the table of Contractual Obligations and Commitments
above.

Milestone

AmountPhase 1 clinical trials

$
0.2Phase 2 clinical trials


0.3Phase 3 clinical trials


0.3Completion of Phase 3 clinical trials


0.1FDA new drug approval


1.1European market approval


0.2Total

$
2.2


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---



Funding Requirements

We expect to incur substantial expenses and generate significant operating losses as we continue to advance our drug candidates into
preclinical studies and clinical trials and as we:



Our
funding requirements will depend on a number of factors, including:



75

---





Liquidity

On February 26, 2009, we announced that we were suspending all clinical development of our lead drug candidate, elesclomol. On
March 12, 2009, we committed to a restructuring that consisted primarily of a workforce reduction of approximately 90 positions, to a total of approximately 130 positions to better align our
workforce to our revised operating plans following the suspension of our SYMMETRY clinical trial. We estimate our costs in connection with the workforce reduction, comprised principally of severance,
unused vacation payments, benefits
continuation costs and outplacement services, will range from $1.4 million to $1.5 million. As a result of terminating these employees, we estimate we may incur an impairment charge for
certain research laboratory equipment, computer equipment, and furniture and fixtures due to the fact that these assets may no longer be utilized. We estimate we will incur additional costs in
connection with the suspension of the SYMMETRY trial, including one-time contract termination costs and fees and other related costs. At this time, we are unable to estimate the amount of
impairment or contract termination costs as we are in the process of evaluating our facilities and equipment needs and are in contract termination negotiations with certain of our vendors.
Substantially all cash payments under the restructuring are expected to be paid during 2009. Employees directly affected by the restructuring have received notification and will be provided with
severance payments. We expect to complete the restructuring in the second quarter of 2009.

We
do not anticipate that we will generate product revenue in the foreseeable future, if at all. We expect our continuing operating losses to use cash for operations over the next
several years and such cash use may increase from year to year. Based on our current operating plans, we expect our existing funds, including the $16 million upfront license payment under the
Roche Agreement that was received in January 2009 and the $10 million operational milestone payment under the GSK Agreement that was received in March 2009, together with research and
development reimbursements and approximately $5 million of milestone payments anticipated in connection with certain preclinical and clinical achievements anticipated under the Roche agreement,
will be sufficient to fund operations for approximately two years. While we believe that the milestone payments from Roche will be received as forecasted, we have contingency plans in place should the
receipt of the milestone payments be delayed or not achieved at all or if clinical progress in our various programs does not progress as expected, which plans focus on the reduction of spending on
less critical research and development activities.

There
are numerous factors that are likely to affect our spending levels, including the extent of clinical trials and other development activities for STA-9090, our second
generation Hsp90 inhibitor, STA-9584, apilimod, CRACM inhibitors in collaboration with Roche, the timing and amount of milestone payments to be received from Roche, the rate of enrollment
of patients in clinical trials, the progress of our discovery research and preclinical programs, the impact of potential business development activities and future direction of the elesclomol program,
among other factors. In

76

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addition,
depending upon the future direction of the elesclomol program, we may also incur additional expenses and may correspondingly receive cost sharing and milestone payments under our agreement
with GSK. These variables could result in higher or lower spending levels which could impact the sufficiency of our current funds if we are to continue operations in accordance with our current plans
and achieve our intended timelines for development.

We
may require significant additional funds earlier than we currently expect in order to conduct additional clinical trials and conduct additional pre-clinical and discovery
activities. Because of the numerous risks and uncertainties associated with the development and commercialization of our drug candidates, we are unable to estimate the amounts of increased capital
outlays and operating expenditures associated with our current and anticipated clinical trials.

To
the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings,
collaboration agreements, debt financings or licensing arrangements. However, the credit markets and the financial services industry have recently been experiencing a period of unprecedented turmoil
and upheaval characterized by the bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented level of intervention from the United States federal government. These
events have generally made equity and debt financing more difficult to obtain. Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may
adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities or by selling debt securities, if convertible, further dilution
to our existing stockholders may result. If we raise funds through collaboration agreements or licensing arrangements, we may be required to relinquish rights to our technologies or drug candidates,
or grant licenses on terms that are not favorable to us.

If
adequate funds are not available, we may be required to terminate, significantly modify or delay our research and development programs, reduce our planned commercialization efforts,
or obtain funds through collaborators that may require us to relinquish rights to our technologies or drug candidates that we might otherwise seek to develop or commercialize independently. We may
elect to raise additional funds even before we need them if the conditions for raising capital are favorable.

Cash, Cash Equivalents and Marketable Securities

As of December 31, 2008, we had cash, cash equivalents and marketable securities of $73.6 million consisting of cash
deposited in a highly rated financial institution in the United States and in a short-term U.S. Treasury money market fund. Marketable securities consist of investments in
high-grade corporate obligations and United States government agencies that are guaranteed by the United States government. The primary objective of our investment activities is to
preserve our capital for the purpose of funding operations and we do not enter into investments for trading or speculative purposes. We believe that we did not have material exposure to
high-risk investments, such as mortgage-backed securities, auction rate securities or other special investment vehicles, or SIV's, within our money-market fund investments. We also believe
that we do not have any material exposure to changes in fair value as a result of changes in interest rates. Declines in interest rates, however, would reduce future investment income.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose entities.

Tax Loss Carryforwards

In 2005 and in 2007, we performed analyses to determine if there were changes in ownership, as defined by Section 382 of the
Internal Revenue Code, that would limit our ability to utilize certain net

77

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operating
loss and tax credit carryforwards. We determined that we experienced a change in ownership, as defined by Section 382, in connection with the acquisition of Principia
Associates, Inc. on September 20, 2002, but did not experience a change in ownership upon the effectiveness of our IPO. As a result, the utilization of our federal tax net operating loss
carryforwards generated prior to the ownership change is limited. As of December 31, 2008 we have net operating loss carryforwards for U.S. federal tax purposes of approximately
$270.6 million, after taking into consideration net operating losses expected to expire unused as a result of this limitation, and the remainder will expire in varying amounts through 2028
unless utilized. In addition, as of December 31, 2008, we have state net operating loss carryforwards of approximately $234.1 million, which will expire through 2012 unless utilized. The
utilization of these net operating loss carryforwards may be further limited as we experience future ownership changes as defined in Section 382 of the Internal Revenue Code.

Recent Accounting Pronouncements

In December 2007, the EITF issued EITF Issue No. 07-1,Accounting for Collaborative
Arrangements,or EITF No. 07-1, which requires collaborators to present the results of activities for which they act as the principal on a gross basis and
report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a
reasonable, rational, and consistently applied accounting policy election. Further, EITF No. 07-1 clarified that the determination of whether transactions within a collaborative
arrangement are part of a vendor-customer (or analogous) relationship subject to EITF
No. 01-9,Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products). EITF
No. 07-1 is effective for fiscal years beginning on or after December 15, 2008. We do not believe the adoption of EITF No. 07-1 will have a material impact
on our overall financial position or results of operations.

Certain Factors That May Affect Future Results of Operations

The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better
understand a company's future prospects and make informed investment decisions. This Annual Report on Form 10-K contains such "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.

Words
such as "may," "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance used in connection with any discussion of
future operating or financial performance, identify forward-looking statements. All forward-looking statements are management's present expectations of future events and are subject to a number of
risks and uncertainties that could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to those set
forth under the heading "Risk Factors" contained in Item 1A of this Annual Report on Form 10-K.

In
light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Annual Report on Form 10-K
or in any document incorporated by reference might not occur. Stockholders are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new
information, future events or otherwise. All subsequent forward-looking statements attributable to Synta or to any person acting on its behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section.

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Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity.As of December 31, 2008, we had cash, cash equivalents and marketable securities of $73.6 million
consisting
of cash deposited in a highly rated financial institution in the United States and in a short-term U.S. Treasury money market fund, as well as of high-grade commercial paper
and government-agency securities that are guaranteed by the U.S. government. The primary objective of our investment activities is to preserve our capital for the purpose of funding operations and we
do not enter into investments for trading or speculative purposes. We believe that we did not have material exposure to high-risk investments such as mortgage-backed securities, auction
rate securities or other special investment vehicles, or SIV's, within our money-market fund investments. We believe that we do not have any material exposure to changes in fair value as a result of
changes in interest rates. Declines in interest rates, however, would reduce future investment income. During the year ended December 31, 2008, we had investment income of $1.6 million.
If overall interest rates fell by 10% during the year ended December 31, 2008, our interest income would have decreased by less than $0.2 million, assuming consistent investment levels.

Capital Market Risk.We currently have no product revenues and depend on funds raised through other
sources. One possible source of funding is through further equity offerings. Our ability to raise funds in this manner depends upon capital market forces affecting our stock price.

Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item 8 is included at the end of this Annual Report on Form 10-K beginning
on page F-1.

Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

Item 9A.    CONTROLS AND PROCEDURES

1. Disclosure Controls and Procedures

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on
Form 10-K. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Our disclosure controls
and procedures are designed to provide reasonable assurance of achieving their desired control objectives. Based on the evaluation of our disclosure controls and procedures as of December 31,
2008, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

2. Internal Control Over Financial Reporting



Management's Annual Report On Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of

79

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1934,
as amended. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published
financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our
management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, it used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment we believe that, as of December 31, 2008, our
internal control over financial reporting is effective at a reasonable assurance level based on those criteria.

Our
independent registered public accounting firm has issued its report on the effectiveness of our internal control over financial reporting. This report appears below.



Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders of Synta Pharmaceuticals Corp.

We
have audited Synta Pharmaceuticals Corp.'s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Synta Pharmaceuticals Corp.'s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the
financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject

80

---



to
the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, Synta Pharmaceuticals Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO
criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Synta Pharmaceuticals Corp. as
of December 31, 2008, and the related consolidated statement of operations, stockholders' equity (deficit) and comprehensive loss, and cash flows for the year then ended and our report dated
March 24, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP


Boston,
Massachusetts
March 24, 2009



There
were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the fourth quarter of
our last fiscal year, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    OTHER INFORMATION

Not applicable.

81

---





PART III

Item 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The response to this item is incorporated by reference from the discussion responsive thereto under the captions "Management,"
"Section 16(a) Beneficial Ownership Reporting Compliance" and "Code of Conduct and Ethics" in our Proxy Statement for the 2009 Annual Meeting of Stockholders to be held on June 10, 2009.

We
have adopted a code of conduct and ethics that applies to all of our directors, officers and employees. This code is publicly available on our website at www.syntapharma.com.Amendments to the code of
conduct and ethics or any grant of a waiver from a provision of the code requiring disclosure under
applicable Securities and Exchange Commission and The NASDAQ Stock Market rules will be disclosed in a Current Report on Form 8-K.

Item 11.    EXECUTIVE COMPENSATION

The response to this item is incorporated by reference from the discussion responsive thereto under the captions "Compensation
Discussion and Analysis," "Executive Compensation," "ManagementCommittees of the Board of Directors and Meetings," "ManagementCompensation Committee Interlocks and Insider
Participation" and "Compensation Committee Report" in our Proxy Statement for the 2009 Annual Meeting of Stockholders to be held on June 10, 2009.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The response to this item is incorporated by reference from the discussion responsive thereto under the captions "Security Ownership of
Certain Beneficial Owners and Management" and "Executive CompensationEquity Compensation Plan Information" in our Proxy Statement for the 2009 Annual Meeting of Stockholders to be held on
June 10, 2009.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The response to this item is incorporated by reference from the discussion responsive thereto under the captions "Certain Relationships
and Related Person Transactions," "ManagementThe Board of Directors" and "ManagementDirector Independence" in our Proxy Statement for the 2009 Annual Meeting of Stockholders
to be held on June 10, 2009.

Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The response to this item is incorporated by reference from the discussion responsive thereto under the caption "Proposal
No. 2Independent Public Accountants" in our Proxy Statement for the 2009 Annual Meeting of Stockholders to be held on June 10, 2009.

82

---





PART IV

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULESItem 15(a)

The following documents are filed as part of this Annual Report on Form 10-K:Item 15(a)(1) and (2)

The Consolidated Financial Statements beginning on page F-1 are filed as part of this Annual Report on Form 10-K. Other financial statement schedules have not been included because they are not applicable or
the information is included in the financial statements or notes thereto.Item 15(a)(3)

Exhibits


The
following is a list of exhibits filed as part of this Annual Report on Form 10-K.

Exhibit
Number

Description of Exhibit3.1
(1)
Restated Certificate of Incorporation of the Registrant. (3.2)3.2
(1)
Restated Bylaws of the Registrant. (3.4)4.1
(1)
Form of Common Stock Certificate. (4.1)4.2.1
(1)
Amended and Restated Investor Rights Agreement, dated December 13, 2002, by and among the Registrant and certain stockholders of the Registrant. (4.2.1)4.2.2
(1)
First Amendment, dated January 11, 2005, to the Amended and Restated Investor Rights Agreement, dated December 13, 2002, by and among the Registrant and certain stockholders of the Registrant.
(4.2.2)4.2.3
(1)
Second Amendment, dated January 31, 2007, to the Amended and Restated Investor Rights Agreement, dated December 13, 2002, by and among the Registrant and certain stockholders of the Registrant.
(4.2.3)10.1
(1)*
2001 Stock Plan. (10.1)10.2
(2)*
Amended and Restated 2006 Stock Plan. (99.1)10.2(a)
(1)*
Form of incentive stock option agreement under 2006 Stock Plan. (10.2(a))10.2(b)
(1)*
Form of nonqualified stock option agreement under 2006 Stock Plan. (10.2(b))10.2(c)
(1)*
Form of restricted stock agreement under 2006 Stock Plan. (10.2(c))10.2(d)
(1)*
Form of nonqualified stock option agreement for directors under 2006 Stock Plan. (10.2(d))10.2(e)
(1)*
Form of restricted stock agreement for directors under 2006 Stock Plan. (10.2(e))10.3
(3)*
Amended and Restated Director Compensation Policy, effective June 11, 2008. (10.3)10.4
(4)*
Non-Qualified Stock Option Agreement, dated February 27, 2008, by and between the Registrant and Keith R. Gollust. (10.4)10.5
(1)
Duffy Hartwell Limited Partnership Commercial Lease, dated November 4, 1996, by and between Duffy Hartwell Limited Partnership and Shionogi BioResearch Corp., as amended by First Amendment to Commercial Lease,
dated August 30, 2006. (10.5)


83

---



Exhibit
Number

Description of Exhibit10.5.1
(3)
Second Amendment, dated May 27, 2008, to Commercial Lease by and between Duffy Hartwell LLC, as successor in interest to Duffy Hartwell Limited Partnership, and the Registrant, as successor in interest to
Shionogi BioResearch Corp., dated November 4, 1996, as amended. (10.1)10.6
(1)
Lease of 125 Hartwell Avenue, Lexington, MA, dated October 26, 1992, by and between Fuji ImmunoPharmaceuticals Corp. and 125 Hartwell Trust, as amended by First Amendment dated January 31, 1993, Second
Amendment dated October 1, 1997, Third Amendment dated November 1, 2002, Assignment and Assumption of Lease and Consent of Release by Landlord and Fourth Amendment of Lease, dated July 9, 2004, Fifth Amendment, dated October 22,
2004 and Sixth Amendment, dated August 1, 2005. (10.6)10.6.1
(4)
Seventh Amendment, dated November 26, 2007, to Lease of 125 Hartwell Avenue, Lexington, MA, dated October 26, 1992, by and between the Registrant, as successor-by-assignment, and 125 Hartwell Trust.
(10.6.1)10.6.2
(3)
Eighth Amendment, dated June 19, 2008, to Lease of 125 Hartwell Avenue, Lexington, MA, dated October 26, 1992, by and between the Registrant, as successor-by-assignment, and 125 Hartwell Trust.
(10.2)10.7
(1)
Lease, dated January 13, 2005, by and between the Registrant and Mortimer B. Zuckerman and Edward H. Linde, Trustees of 91 Hartwell Avenue Trust, as extended on August 14, 2006. (10.7)10.7.1
(4)
First Amendment to Lease, dated as of September 7, 2007, to Lease, dated January 13, 2005, by and between the Registrant and Mortimer B. Zuckerman and Edward H. Linde, Trustees of 91 Hartwell Avenue Trust.
(10.7.1)10.7.2
(5)
Second Amendment to Lease, dated as of August 22, 2008, to Lease, dated January 13, 2005, by and between the Registrant and Mortimer B. Zuckerman and Edward H. Linde, Trustees of 91 Hartwell Avenue Trust.
(10.1)10.8
(1)
Pinnacle Properties Management, Inc. Standard Form Commercial Lease, dated May 31, 1999, by and between 6-8 Preston Court, L.L.C. and Asiana Pharmaceuticals Corporation, as amended by Amendment to Lease #1,
dated July 31, 2000, Amendment to Lease #2, dated November 26, 2001, and Amendment to Lease #3, dated December 2003, and as assigned to the Registrant by Assignment and Assumption of Lease and Landlord's Consent, dated May 25, 2005,
and Subordination, Non-Disturbance and Attornment Agreement, dated May 25, 2005. (10.8)10.9
(1)
Master Lease Agreement, dated November 10, 2004, by and between the Registrant and General Electric Capital Corporation, as amended by Letter Agreement, dated June 24, 2005, and as extended by Letter
Agreement, dated November 29, 2006. (10.9)10.9.1
(4)
Extension, dated as of June 29, 2007, of Master Lease Agreement, dated November 10, 2004, by and between the Registrant and General Electric Capital Corporation, as amended. (10.9.1)10.10
(1)*
Letter Agreement, dated April 18, 2005, by and between the Registrant and Safi R. Bahcall, Ph.D. (10.13)10.11
(1)*
Letter Agreement, dated October 12, 2002, by and between the Registrant and Dr. Keizo Koya. (10.14)


84

---



Exhibit
Number

Description of Exhibit10.12
(1)*
Letter Agreement, dated January 22, 2003, by and between the Registrant and Dr. James Barsoum. (10.15)10.13
(1)*
Letter Agreement, dated April 15, 2004, by and between the Registrant and Dr. Jeremy Chadwick. (10.16)10.14
(1)*
Letter Agreement, dated February 19, 2004, by and between the Registrant and Keith Ehrlich. (10.17)10.15
(1)*
Letter Agreement, dated January 14, 2003, by and between the Registrant and Wendy E. Rieder. (10.18)10.16
(1)*
Letter Agreement, dated March 24, 2005, by and between the Registrant and Eric W. Jacobson. (10.19)10.17
(5)*
Letter Agreement, dated July 9, 2008, by and between the Registrant and Michael P. Bailey. (10.2)10.18
(5)*
Severance and Change in Control Agreement, dated August 6, 2008, between the Registrant and Michael P. Bailey. (10.3)10.19
(6)*
Form of Severance and Change in Control Agreement, dated April 28, 2008, between the Registrant and each of James Barsoum, Ph.D., Eric W. Jacobson, M.D., and Keizo Koya, Ph.D. (10.1)10.20
(6)*
Severance and Change of Control Agreement, dated April 28, 2008, between the Registrant and Keith S. Ehrlich. (10.2)10.21
(1)*
Agreement and Release, dated January 14, 2005, by and between the Registrant and Lan Bo Chen, Ph.D. (10.22)10.22
(1)*
Consulting Agreement, dated April 18, 2005, by and between the Registrant and Lan Bo Chen, Ph.D. (10.23)10.22.1
(4)*
Amendment to Consulting Agreement, dated March 23, 2007, by and between the Registrant and Lan Bo Chen, Ph.D. (10.19.1)10.23
(1)*
Form of Indemnification Agreement between the Registrant and its directors and executive officers. (10.26)10.24
(1)
Lease Agreement, dated December 14, 2006, by and between ARE-MA Region No. 24, LLC and the Registrant. (10.27)10.25
(4)*
Summary of bonus arrangements applicable to the Registrant's Named Executive Officers. (10.23)10.26
(4)**
Collaborative Development, Commercialization and License Agreement, dated October 8, 2007, by and between the Registrant and GlaxoSmithKline. (10.24)10.26.1
(3)**
Amendment No. 1, dated June 27, 2008, to Collaborative Development, Commercialization and License Agreement, dated October 8, 2007, by and between the Registrant and GlaxoSmithKline. (10.4)10.27
**
Collaboration and License Agreement, dated December 23, 2008, by and between the Registrant and F. Hoffmann-La Roche Ltd, and its affiliate, Hoffman-La Roche Inc.21.1
(7)
List of Subsidiaries. (21.1)23.1

Consent of KPMG LLP, Independent Registered Public Accounting Firm.


85

---



Exhibit
Number

Description of Exhibit23.2

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.31.1

Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.31.2

Certification of Principal Accounting and Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Certification of the Principal Executive Officer and the Principal Accounting and Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.


---

86

---





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

SYNTA PHARMACEUTICALS CORP.Date: March 26, 2009

By:

/s/ SAFI R. BAHCALL, PH.D. Safi R. Bahcall, Ph.D. President and Chief Executive Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
indicated below and on the dates indicated.

Signatures

Title

Date/s/ SAFI R. BAHCALL, PH.D. Safi R. Bahcall, Ph.D.

President, Chief Executive Officer and Director
(principal executive officer)

March 26, 2009/s/ KEITH S. EHRLICH, C.P.A. Keith S. Ehrlich, C.P.A.

Vice President, Finance and Administration,
Chief Financial Officer (principal accounting and financial officer)

March 26, 2009/s/ KEITH R. GOLLUST Keith R. Gollust

Chairman of the Board

March 26, 2009/s/ LAN BO CHEN, PH.D Lan Bo Chen, Ph.D

Director

March 26, 2009/s/ BRUCE KOVNER Bruce Kovner

Director

March 26, 2009/s/ WILLIAM REARDON, C.P.A. William Reardon, C.P.A.

Director

March 26, 2009/s/ ROBERT N. WILSON Robert N. Wilson

Director

March 26, 2009


87

---





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS        SYNTA PHARMACEUTICALS CORP.        Years ended December 31, 2008, 2007, and 2006

PageReports of Independent Registered Public Accounting Firms

F-2Consolidated Financial Statements:Balance Sheets

F-4Statements of Operations

F-5Statements of Stockholders' Equity (Deficit) and Comprehensive Loss

F-6Statements of Cash Flows

F-7Notes to Financial Statements

F-8


F-1

---





Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders of Synta Pharmaceuticals Corp.

We
have audited the accompanying consolidated balance sheet of Synta Pharmaceuticals Corp. as of December 31, 2008, and the related consolidated statement of operations,
stockholders' equity (deficit) and comprehensive loss, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Synta Pharmaceuticals Corp. at
December 31, 2008, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Synta Pharmaceutical Corp.'s internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 24, 2009, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP


Boston,
Massachusetts
March 24, 2009

F-2

---





Report of Independent Registered Public Accounting Firm

The
Board of Directors
Synta Pharmaceuticals Corp.:

We
have audited the accompanying consolidated balance sheet of Synta Pharmaceuticals Corp. (the Company) as of December 31, 2007, and the related consolidated statements of
operations, stockholders' equity (deficit) and comprehensive loss, and cash flows for each of the years in the two-year period ended December 31, 2007. These consolidated financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Synta Pharmaceuticals Corp. as of
December 31, 2007, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2007 in conformity with U.S.
generally accepted accounting principles.

As
discussed in Note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 123R, Share-Based Payment,effective January 1,
2006.

/s/
KPMG LLP

Boston,
Massachusetts
March 19, 2008

F-3

---





SYNTA PHARMACEUTICALS CORP.        Consolidated Balance Sheets        (in thousands, except share and per share amounts)

December 31,2008

2007AssetsCurrent assets:Cash and cash equivalents

$
52,045

$
115,577Marketable securities


21,518


Restricted cash


151


83Collaboration receivable


16,000


Prepaid expenses and other current assets


1,507


1,337Total current assets


91,221


116,997Property and equipment, net


5,929


5,576Other assets


103


76Total assets

$
97,253

$
122,649Liabilities and Stockholders' (Deficit) EquityCurrent liabilities:Accounts payable

$
3,331

$
2,488Accrued contract research costs


12,393


3,517Other accrued liabilities


2,841


5,667Capital lease obligations


2,170


2,406Deferred collaboration revenue


12,588


5,351Other current liabilities





1,343Total current liabilities


33,323


20,772Deferred collaboration revenuelong-term


114,415


74,166Collaboration payablelong-term


6,294


Capital lease obligationslong-term


2,012


2,815Total long-term liabilities


122,721


76,981Total liabilities


156,044


97,753Commitments and contingencies (Note 12)Stockholders' (deficit) equity:Preferred stock, par value $0.0001 per share
Authorized: 5,000,000 shares at December 31, 2008 and 2007; no shares issued and outstanding at December 31, 2008 and,2007





Common stock, par value $0.0001 per share
Authorized: 100,000,000 shares at December 31, 2008 and 2007; 33,919,584 and 33,875,942 shares issued and outstanding at December 31, 2008 and 2007, respectively


3


3Additional paid-in-capital


333,862


324,946Accumulated other comprehensive income


15


Accumulated deficit


(392,671
)

(300,053
)Total stockholders' (deficit) equity


(58,791
)

24,896Total liabilities and stockholders' (deficit) equity

$
97,253

$
122,649


See
accompanying notes to consolidated financial statements.

F-4

---





SYNTA PHARMACEUTICALS CORP.        Consolidated Statements of Operations        (in thousands, except share and per share amounts)

Years Ended December 31,2008

2007

2006Collaboration revenues:License and milestone revenue

$
8,513

$
743

$
Cost sharing reimbursements, net


(5,898
)




Total collaboration revenues


2,615


743


Operating expenses:Research and development


81,581


52,025


50,503General and administrative


14,742


14,934


8,648Total operating expenses


96,323


66,959


59,151Loss from operations


(93,708
)

(66,216
)

(59,151
)Other income (expense):Interest income


1,579


3,257


2,455Interest expense


(489
)

(536
)

(574
)Other income, net


1,090


2,721


1,881Net loss


(92,618
)

(63,495
)

(57,270
)Convertible preferred stock dividends








1,859Convertible preferred stock beneficial conversion feature





58,585


Net loss attributable to common stockholders

$
(92,618
)
$
(122,080
)
$
(59,129
)Basic and diluted weighted average common shares outstanding


33,735,579


32,466,006


22,265,242Basic and diluted net loss attributable to common stockholders per share

$
(2.75
)
$
(3.76
)
$
(2.66
)


See
accompanying notes to consolidated financial statements.

F-5

---





SYNTA PHARMACEUTICALS CORP.        Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Loss        (in thousands, except share amounts)

Common stock





Accumulated
other
comprehensive
income (loss)Additional
paid-in
capital

Deferred
compensation

Accumulated
deficit

Total
stockholders'
equity (deficit)

Comprehensive
lossShares

AmountBalance at December 31, 2005


22,674,420

$
2

$
239,029

$
(7,225
)
$
(41
)
$
(179,288
)
$
52,477

$
(68,788
)Eliminate deferred stock compensation








(7,225
)

7,225








Convertible preferred stock dividends








(1,859
)










(1,859
)Forfeitures of restricted common shares


(127,500
)
















Issuance of common shares for services


4,875





69











69Issuance of restricted common shares


12,142

















Exercise of stock options


125





2











2Compensation expense related to stock options for services








4,791











4,791Unrealized gains on marketable securities














43





43


43Net loss

















(57,270
)

(57,270
)

(57,270
)Balance at December 31, 2006


22,564,062


2


234,807





2


(236,558
)

(1,747
)

(57,227
)Issuance of common shares in IPO, net


5,000,000





44,660











44,660Conversion of convertible preferred stock


6,278,765


1


41,819











41,820Issuance of restricted common shares


15,661

















Repurchase of previously restricted common shares


(29,046
)




(290
)










(290
)Exercise stock options


51,500





136











136Forfeitures of restricted common shares


(5,000
)
















Issuance of common stock purchase obligation








(260
)










(260
)Compensation expense related to stock options for services








5,924











5,924Reclassification of vested stock options granted to non-employee consultants to liabilities








(1,850
)










(1,850
)Unrealized losses on marketable securities














(2
)




(2
)

(2
)Net loss

















(63,495
)

(63,495
)

(63,495
)Balance at December 31, 2007


33,875,942


3

$
324,946








(300,053
)

24,896


(63,497
)Issuance of restricted common shares


45,242

















Exercise stock options


625





1











1Forfeitures of restricted common shares


(2,225
)
















Compensation expense related to stock options for services








7,572











7,065Reclassification of vested stock options granted to non-employee consultants








1,343











1,850Unrealized gain on marketable securities














15





15


15Net loss

















(92,618
)

(92,618
)

(92,618
)Balance at December 31, 2008


33,919,584

$
3

$
333,862

$


$
15

$
(392,671
)
$
(58,791
)
$
(92,603
)


See
accompanying notes to consolidated financial statements.

F-6

---





SYNTA PHARMACEUTICALS CORP.        Consolidated Statements of Cash Flows        (in thousands)

Years Ended December 31,2008

2007

2006Cash flows from operating activities:Net loss

$
(92,618
)
$
(63,495
)
$
(57,270
)Adjustments to reconcile net loss to net cash (used in) provided by operating activities:Stock-based compensation expense


7,572


5,417


4,791Depreciation and amortization


2,717


3,351


3,655Changes in operating assets and liabilities:Restricted cash


(68
)

457


(83
)Prepaid expenses and other current assets


(170
)

(1,074
)

173Other assets


(27
)

56


1Accounts payable


840


(144
)

(729
)Accrued contract research costs


8,876


465


(2,489
)Other accrued liabilities


(2,841
)

3,389


(1,034
)Deferred collaboration revenue


31,486


78,800


Collaboration payable


6,294





Net cash (used in) provided by operating activities


(37,939
)

27,222


(52,985
)Cash flows from investing activities:Purchases of marketable securities


(21,503
)

(15,014
)

(118,204
)Sales and maturities of marketable securities





28,149


143,358Purchases of property and equipment


(2,184
)

(2,350
)

(1,580
)Net cash (used in) provided by investing activities


(23,687
)

10,785


23,574Cash flows from financing activities:Proceeds from issuances of common stock and exercise of common stock warrants, net of transaction costs





44,660


Proceeds from issuance of convertible preferred stock, net








39,961Proceeds from exercise of stock options


1


136


2Repurchase of restricted common stock





(290
)

Proceeds from saleleaseback of property and equipment


880


1,994


1,412Payment of capital lease obligations


(2,787
)

(2,617
)

(2,086
)Net cash (used in) provided by financing activities


(1,906
)

43,883


39,289Net (decrease) increase in cash and cash equivalents


(63,532
)

81,890


9,878Cash and cash equivalents at beginning of period


115,577


33,687


23,809Cash and cash equivalents at end of period

$
52,045

$
115,577

$
33,687Supplemental disclosure of noncash operating, investing and financing activities:Collaboration receivable for upfront license payment

$
16,000





Acquisition of equipment under capital leases

$
1,748

$
2,338

$
1,412Convertible preferred stock beneficial conversion charge




$
58,585


Convertible preferred stock dividends







$
1,859Conversion of preferred stock




$
41,820


Issuance of common stock purchase obligation




$
260


Supplemental disclosure of cash flow information:Cash paid for interest

$
489

$
536

$
574


See
accompanying notes to consolidated financial statements.

F-7

---





SYNTA PHARMACEUTICALS CORP.        Notes to Consolidated Financial Statements

(1) Nature of Business

Synta Pharmaceuticals Corp. (the Company) was incorporated in March 2000 and commenced operations in July 2001. The Company is a biopharmaceutical company focusing on discovering,
developing and commercializing small molecule drugs to extend and enhance the lives of patients with severe medical conditions, including cancer and chronic inflammatory diseases.

The
Company is subject to risks common to emerging companies in the drug development and pharmaceutical industry including, but not limited to, uncertainty of product development and
commercialization, lack of marketing and sales history, dependence on key personnel, uncertainty of market acceptance of products, product liability, uncertain protection of proprietary technology,
potential inability to raise additional financing and compliance with the Food and Drug Administration (FDA) and other government regulations.

In
October 2007, the Company and GlaxoSmithKline (GSK) entered into a collaborative development, commercialization and license agreement for elesclomol (the GSK Agreement). Under the
terms of the GSK Agreement, the Company has received a total of $130 million in non-refundable payments, including the $80 million upfront payment in November 2007,
$40 million in operational milestones in 2008 and $10 million in an operational milestone in March 2009 (see Note 9).

In
December 2008, the Company and Hoffman-La Roche (Roche) entered into a collaborative license agreement for the CRACM inhibitor program (the Roche Agreement). Under the
terms of the Roche Agreement, the Company received a non-refundable upfront license payment of $16 million in January 2009 (see Note 10).

On
February 26, 2009, the Company announced that it was suspending all clinical development of its lead drug candidate, elesclomol. On March 12, 2009, the Company committed
to a restructuring that consisted primarily of a workforce reduction of approximately 90 positions, to a total of approximately
130 positions to better align its workforce to its revised operating plans following the suspension of the SYMMETRY clinical trial (see Note 15).

The
Company has incurred significant operating losses since its inception and, as a result, at December 31, 2008 had an accumulated deficit of $392.7 million. Operations
have been funded principally through the sale of common stock and convertible preferred stock, the upfront payment and operational milestone payments from GSK, and capital leases. At
December 31, 2008, the Company had approximately $89.6 million in cash, cash equivalents, marketable securities and collaboration payments receivable. In January 2009, the Company
achieved a $10 million operational milestone under the GSK Agreement that was paid by GSK in March 2009.

Based
on the Company's current operating plans, the Company expects its existing funds, including the $16 million upfront license payment under the Roche Agreement that was
received in January 2009 and the $10 million operational milestone payment under the GSK Agreement that was received in March 2009, together with research and development reimbursements and
approximately $5 million of milestone payments anticipated in connection with certain preclinical and clinical achievements anticipated under the Roche agreement, will be sufficient to fund
operations for approximately two years. While the Company believes that the milestone payments from Roche will be received as forecasted, it has contingency plans in place should the receipt of the
milestone payments be delayed or not achieved at all or if clinical progress in its various programs does not progress as expected, which plans focus on the reduction of spending on less critical
research and development activities.

F-8

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(1) Nature of Business (Continued)

However,
the Company may require significant additional funds earlier than it currently expects in order to conduct additional clinical trials and continue to fund its operations. There
can be no assurances, however, that additional funding will be available on favorable terms, or at all.

(2) Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in consolidation.

Reclassification in the Preparation of Financial Statements

Certain amounts in prior years' financial statements have been reclassified to conform to the current presentation. The
reclassifications had no effect on the reported net loss.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions
include long-term contract accruals, recoverability of long-lived and deferred tax assets, measurement of stock-based compensation, and the period of performance under the GSK
Agreement and the Roche Agreement. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in
estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company's cash is deposited in a highly rated financial institution in the United States. Cash equivalents include a
short-term U.S. Treasury money market fund. The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash
equivalents. Changes in cash and cash equivalents may be affected by shifts in investment portfolio maturities, as well as actual cash disbursements to fund operations. The primary objective of the
Company's investment activities is to preserve its capital for the purpose of funding operations and the Company does not enter into investments for trading or speculative purposes. Declines in
interest rates, however, would reduce future investment income.

Marketable Securities

The Company considers its marketable securities available-for-sale in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Marketable securities consist of investments in high-grade corporate
obligations that are guaranteed by the United States government, and government and government agency obligations that are classified as available-for-sale. Since these
securities are available to fund current operations they are classified as current assets on

F-9

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(2) Summary of Significant Accounting Policies (Continued)

the
consolidated balance sheets. Marketable securities are stated at fair value, including accrued interest, with their unrealized gains and losses included as a component of accumulated other
comprehensive income (loss), which is a separate component of stockholders' equity (deficit), until such gains and losses are realized. The fair value of these securities is based on quoted market
prices. If a decline in value is considered other-than-temporary, based on available evidence, the unrealized loss is transferred from accumulated other comprehensive income
(loss) to the consolidated statement of operations. Realized gains and losses are determined on the specific identification method.

During
the years ended December 31, 2008, 2007 and 2006, the Company recorded no realized gains and losses on marketable securities and there were no charges to write down
marketable securities in 2008, 2007 and 2006.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, which include cash equivalents, marketable securities, and capital lease
obligations, approximate their fair values.

Property and Equipment

Property, equipment and software is carried at cost and depreciated using the straight-line method over the estimated
useful lives of the related assets, which range from three to five years. Leasehold improvements are amortized over the lesser of the lease term or estimated useful life. Repairs and maintenance costs
are expensed as incurred.

Research and Development Costs

Research and development costs are expensed as incurred in accordance with SFAS No. 2,Accounting for
Research and Development Costs.Research and development costs are comprised of costs incurred in performing research and development activities, including internal costs for
salaries, benefits, facilities, research-related overhead and stock compensation, and external costs for payments to third party contract research organizations, investigative sites and consultants in
connection with the Company's preclinical and clinical programs, costs associated with drug formulation and supply of drugs for clinical trials, and other external costs.

Patents

Costs to secure and defend patents are expensed as incurred and are classified as general and administrative expense in the Company's
consolidated statements of operations. Patent expenses were approximately $1.9 million, $2.5 million, and $1.6 million for the years ended December 31, 2008, 2007 and 2006,
respectively.

Income Taxes

The Company uses the liability method to account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, and
in accordance with the Financial Accounting Standards Board (FASB) Interpretation No. 48,Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109(FIN 48), which became effective
January 1, 2007. Deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences

F-10

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(2) Summary of Significant Accounting Policies (Continued)

between
the Company's consolidated financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect in the years in which the
differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax assets to the amount that will more likely than not be realized.

The
Company adopted the provisions of FIN 48 on January 1, 2007. FIN 48 clarifies the recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on recognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. As of December 31, 2008, the Company had no items that were considered to be uncertain tax items or accrued interest or penalties related to
uncertain tax positions.

The
tax years 2006 through 2008 remain open to examination by the major taxing jurisdictions to which the Company is subject.

Impairment of Long-Lived Assets

The Company accounts for the impairment and disposition of long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, or SFAS No. 144. In accordance with SFAS No. 144, management
assesses the potential impairments of its long-lived assets whenever events or changes in circumstances indicate that an asset's carrying value may not be recoverable. If the carrying
value exceeds the undiscounted future cash flows estimated to result from the use and eventual disposition of the asset, the Company writes down the asset to its estimated fair value. Management
believes that no long-lived assets were impaired as of December 31, 2008 and 2007.

Revenue Recognition

Collaboration and License Agreements

The Company's principal sources of revenue may include up front license payments, development milestones, reimbursement of research and
development costs, profit sharing payments, sales milestones and royalties from its collaborations. The Company recognizes revenue from these sources in accordance with Staff Accounting Bulletin (SAB)
104,Revenue Recognition, or SAB 104, Emerging Issues Task Force (EITF) No. 99-19,Reporting Revenue
Gross as a Principal Versus Net as an Agent, or EITF No. 99-19, EITF No. 00-21,Revenue Arrangements with Multiple
Deliverables, or EITF No. 00-21, and EITF No. 01-09,Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products), or EITF No. 01-09. The application of EITF No. 00-21 requires subjective analysis and
requires management to make estimates and assumptions about whether deliverables within multiple-element arrangements are separable from the other aspects of the contractual arrangement into separate
units of accounting and to determine the fair value to be allocated to each unit of accounting.

The
Company evaluates the multiple deliverables within its respective collaborations in accordance with the provisions of EITF No. 00-21 to determine whether the
delivered elements that are the obligation of the Company have value to its collaborators on a stand-alone basis and whether objective reliable evidence of fair value of the undelivered items exists.
Deliverables that meet these criteria are considered a separate unit of accounting. Deliverables that do not meet these criteria are combined

F-11

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(2) Summary of Significant Accounting Policies (Continued)

and
accounted for as a single unit of accounting. The appropriate recognition of revenue is then applied to each separate unit of accounting.

The
Company's deliverables under its collaboration agreements, including the related rights and obligations, contractual cash flows and performance periods, are more fully described in
Notes 9 and 10. Certain of the deliverables have been combined as a single unit of accounting.

The
cash flows associated with the single unit of accounting from the research and development portions of the Company's collaborations are recognized as revenue using a
time-based model. Under this model, cash flow streams are recognized as revenue over the estimated performance period. Upon achievement of milestones, as defined in the collaboration
agreements, revenue is recognized to the extent the accumulated service time, if any, has occurred. The remainder is deferred and recognized as revenue ratably over the remaining estimated performance
period. A change in the period of time expected to complete the deliverable is accounted for as a change in estimate on a prospective basis. Revenue is limited to amounts that are nonrefundable and
that the Company's collaborators are contractually obligated to pay to the Company.

Collaborative Development, Commercialization and License Agreement with GSK

In October 2007, the Company and GSK entered into the GSK Agreement, as amended in June 2008, for elesclomol, a novel injectable, small
molecule compound that triggers apoptosis, or programmed cell death, in cancer cells, which the Company believes has potential for the treatment of a broad range of cancer types. The GSK Agreement
consists of the following key funding streams: an upfront license payment, product development milestones, reimbursements of certain development costs, sales milestones, profit sharing payments and
product royalty payments.

The
$80 million non-refundable upfront license payment the Company received from GSK in November 2007, together with the $260,000 fair value of an option to require
GSK to purchase $25 million of the Company's common stock, is being recognized ratably using the time-based model over the estimated performance period which has been defined as the
15-year period through the earliest expiration date of the related patents, which the Company estimates to be the effective life of the GSK Agreement. There has been no change to this
estimate to date. The Company is also recognizing product development milestones as collaboration revenue using the time-based model over the same performance period through November 2022.
The Company recognizes as revenue on the date the milestone is achieved the portion of the milestone payment equal to the applicable amount of the performance period that has elapsed as of the date
the milestone is achieved, with the balance being deferred and recognized on a straight-line basis over the remaining development period. In the year ended December 31, 2008, the
Company achieved $35 million in non-refundable operational milestones related to the development of elesclomol for the treatment of metastatic melanoma and $5 million in
non-refundable operational milestones related to the development of elesclomol in other cancer indications. The corresponding milestone payments were received from GSK in the fourth
quarter of 2008. In the years ended December 31, 2008 and 2007, the Company recognized $8.4 million and $0.7 million, respectively, of license and milestone revenue under the GSK
Agreement. In January 2009, the Company achieved a $10 million non-refundable operational milestone under the GSK Agreement, related to the development of elesclomol for the
treatment of metastatic melanoma, which was paid by GSK in March 2009.

F-12

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(2) Summary of Significant Accounting Policies (Continued)

Reimbursements
of development costs to the Company by GSK are recorded as cost sharing revenue in the period in which the related development costs are incurred. Reimbursements by the
Company to GSK for costs GSK incurs under the development program are recorded as a reduction of cost sharing revenue in the period in which the costs are incurred by GSK in accordance with EITF
No. 01-09. Reimbursement of GSK's costs in an amount in excess of collaboration revenues otherwise recognized by the Company in a reporting period may result in negative revenue.
Based on the guidance of EITF No. 99-19, the Company has determined that it is acting as a principal under the GSK Agreement and, as such, records these amounts as collaboration
revenue. In the year ended December 31, 2008, the Company recognized, as a reduction to revenue, $5.9 million of net cost sharing reimbursements to GSK under the GSK Agreement as the
Company is solely responsible for funding 100% of the development costs of elesclomol for the treatment of metastatic melanoma until a specified limit of expenses has been incurred, after which
continuing development costs are shared by GSK with the Company responsible for a modest share of the costs.

Profit
sharing payments are based upon a formula that provides for a range of 40-50% of net profits earned on U.S. sales of products included in the GSK Agreement. Royalty
revenues are based upon a percentage of net sales in non-U.S. territories. Profit sharing payments and royalties from the sales of products included in the GSK Agreement will be recorded
on the accrual basis when results are reliably measurable, collectibility is reasonably assured and all other revenue recognition criteria are met. Sales milestones, which are based upon the
achievement of certain agreed-upon sales thresholds, will be recognized in the period in which the respective sales threshold is achieved and collectability is reasonably assured.

Collaborative License Agreement with Roche

In December 2008, the Company and Roche entered into the Roche Agreement to discover, develop, and commercialize small-molecule drugs
targeting CRACM channels. The Roche Agreement consists of the following key funding streams: an upfront license payment, product development milestones, reimbursements of certain research and
development costs, sales milestones and product royalty payments.

The
$16 million non-refundable upfront license payment the Company received from Roche in January 2009 is being recognized ratably using the time-based
model over the estimated performance period which has been defined as the 3.5-year period through the estimated date of completion of a phase 2a clinical trial for the first
licensed compound. In the year ended December 31, 2008, the Company recognized $0.1 million of license revenue under the Roche Agreement. Reimbursements of research and development costs
to the Company by Roche will be recorded as cost sharing revenue in the period in which the related research and development costs are incurred. Development milestones will be recognized as
collaboration revenue using the time-based model over the same performance period through mid-2012.

Royalty
revenues are based upon a percentage of net sales. Royalties from the sales of products included in the Roche Agreement will be recorded on the accrual basis when results are
reliably measurable, collectibility is reasonably assured and all other revenue recognition criteria are met. Sales milestones, which are based upon the achievement of certain agreed-upon
sales thresholds, will be recognized in the period in which the respective sales threshold is achieved and collectability is reasonably assured.

F-13

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(2) Summary of Significant Accounting Policies (Continued)

Deferred Collaboration Revenue

Consistent with the Company's policy on revenue recognition, deferred collaboration revenue represents cash received and amounts earned
and invoiced for licensing and option fees and milestones, as well as cash received and amounts invoiced for research and development services to be performed by the Company. Such amounts are
reflected as deferred
collaboration revenue until revenue can be recognized under the Company's revenue recognition policy. Deferred collaboration revenue is classified as current if management believes the Company will
complete the earnings process and be able to recognize the deferred amount as revenue within 12 months of the balance sheet date. At December 31, 2008, total deferred collaboration
revenue was approximately $127.0 million, of which $12.6 million is current and will be recognized as revenue during the next 12 months.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123(R),Share-Based
Payment, or SFAS No. 123(R), using the modified prospective method of transition for employee stock option awards granted after January 17, 2005 (valued using the
fair value method), and using the prospective method for awards granted prior to January 17, 2005 (valued using the minimum value method). Therefore, compensation cost recognized in the years
ended December 31, 2008, 2007 and 2006 includes: (a) compensation costs related to the vesting of employee stock options granted after January 17, 2005 but prior to
January 1, 2006, based on the grant date fair value method estimated in accordance with the provisions of SFAS No. 123 adjusted for estimated forfeitures (b) compensation costs
related to the continued vesting of nonvested restricted stock awards granted prior to January 1, 2006, and (c) compensation costs for all share-based payments granted or modified
subsequent to January 1, 2006, based on the provisions of SFAS No. 123(R).

Prior
to the adoption of SFAS No. 123(R), the Company presented its unamortized portion of deferred compensation cost for nonvested stock options in the consolidated statement of
stockholders' equity (deficit) and comprehensive loss with a corresponding credit to additional paid-in capital. Upon the adoption of SFAS No. 123(R), these amounts were offset
against each other. Under SFAS No. 123(R), an equity instrument is not considered to be issued until the instrument vests. As a result, compensation costs are recognized over the requisite
service period with an offsetting credit to additional paid-in capital, and the deferred compensation balance of $7.2 million at January 1, 2006 was netted against additional
paid-in capital during the first quarter of 2006.

For
the years ended December 31, 2008, 2007 and 2006, the fair value of each employee stock option award was estimated on the date of grant based on the fair value method using
the Black-Scholes option pricing valuation model with the following weighted average assumptions:

Years ended December 31,2008

2007

2006Risk-free interest rate


3.21
%

4.6
%

4.63
%Expected life in years


6.25 years


6.25 years


6.25 yearsVolatility


70
%

75
%

75
%Expected dividend yield











F-14

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(2) Summary of Significant Accounting Policies (Continued)

The
Company uses the Black-Scholes option pricing model as the most appropriate valuation method for its option grants. The Black-Scholes model requires inputs for risk-free
interest rate, dividend yield, volatility and expected lives of the options. Since the Company has a limited history of stock activity, expected volatility is based on historical data from several
public biotechnology companies similar in size and value to the Company that also have stock compensation plans with similar terms. The Company will continue using historical volatility and other
similar public entity volatility information until historical volatility of the Company alone is relevant to measure expected volatility for future option grants. The Company estimates the forfeiture
rate based on historical data. Based on an analysis of historical forfeitures, the Company has applied a forfeiture rate of 10% to all options that vest upon completion of the first year of service
following the date of grant. The analysis will be re-evaluated at least annually and the forfeiture rate will be adjusted as necessary. The risk-free rate for periods within
the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected lives for options granted represents the period of time that options granted
are expected to be outstanding. Since January 1, 2006 the Company has used the simplified method for determining the expected lives of options.

For
awards with graded vesting, the Company allocates compensation costs under SFAS No. 123(R) on a straight-line basis over the requisite service period. The Company
amortizes the fair value of each option over each option's service period, which is generally the vesting period.

The
Company accounts for stock options issued to non-employees in accordance with the provisions of SFAS No. 123,Accounting for Stock-Based
Compensation, or SFAS No. 123, and EITF No. 96-18,Accounting for Equity Instruments that are Issued to Other than Employees,
or in Conjunction with Selling Goods or Services, which requires valuing and remeasuring such stock options to the current fair value until the performance date has been
reached.

As
part of its preparation of its quarterly financial statements for the three months ended March 31, 2008, the Company discovered that it had erroneously accounted for certain of
its non-employee stock options during the last three quarters of 2007 under EITF Issue No. 00-19,Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock,which may require stock options held by certain non-employee consultants to be accounted for as
liabilities. Under this accounting it had reclassified approximately $1.9 million from additional-paid-in capital to liabilities in the second quarter of 2007 and
subsequently during the year adjusted the fair value of the liability for changes in the market price of its common stock, resulting in a $553,000 credit to stock-based compensation expense for the
year. In accordance with SAB No. 99,Materiality, and SAB No. 108, the Company assessed the materiality of this error on its financial
statements for the year ended December 31, 2007, using both the roll-over method and iron-curtain method as defined in SAB No. 108. The Company concluded the
effect of this error was not material to its financial statements for the year ended December 31, 2007 and, as such, these financial statements are not materially misstated. The Company also
concluded that providing for the correction of the error in 2008 would not have a material effect on its financial statements for the year ended December 31, 2008. Accordingly, the Company
recorded a charge to stock-based compensation of $553,000 and a reclassification of approximately $1.9 million from liabilities to additional-paid-in-capital
in the three months ended March 31, 2008 to correct this error.

F-15

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(2) Summary of Significant Accounting Policies (Continued)

The
following table outlines the details of recognized and unrecognized expense for these stock-based compensation arrangements (in thousands):

Stock compensation for the
years ended December 31,Unrecognized stock
compensation
expense as of
December 31, 20082008

2007

2006Employee stock options

$
5,279

$
4,045

$
2,752

$
9,475Repriced employee stock options


169


139


407


Employee options issued below fair value


8


10


60


17Non-employee stock options


588


(444
)

272


Restricted stock


1,528


1,667


1,300


312$
7,572

$
5,417

$
4,791

$
9,804


Stock-based
compensation expense is allocated as follows (in thousands):

Years ended December 31,2008

2007

2006Research and development

$
5,779

$
3,902

$
3,372General and administrative


1,793


1,515


1,419Total

$
7,572

$
5,417

$
4,791


Certain
of the employee stock options granted by the Company are structured to qualify as incentive stock options (ISOs). Under current tax regulations, the Company does not receive a
tax deduction for the issuance, exercise or disposition of ISOs if the employee meets certain holding requirements. If the employee does not meet the holding requirements, a disqualifying disposition
occurs, at which time the Company will receive a tax deduction. The Company does not record tax benefits related to ISOs unless and until a qualifying disposition occurs. In the event of a
disqualifying disposition, the entire tax benefit is recorded as a reduction of income tax expense. The Company has not recognized any income tax benefit for the share-based compensation arrangement
due to the fact that the Company does not believe it is more likely than not it will recognize any deferred tax assets from such compensation cost recognized in the current period.

Comprehensive Income (Loss)

SFAS No. 130,Reporting Comprehensive Income, requires that all components of
comprehensive income (loss) be disclosed in the consolidated financial statements. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from
transactions, and other events and circumstances from non-owner sources. Changes in unrealized gains and losses on marketable securities represents the only difference between the
Company's net loss and comprehensive loss.

Segment Reporting

The Company has adopted SFAS No. 131,Disclosure About Segments of an Enterprise and Related
Information,which requires companies to report selected information about operating segments, as well

F-16

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(2) Summary of Significant Accounting Policies (Continued)

as
enterprise-wide disclosures about products, services, geographical area, and major customers. Operating segments are determined based on the way management organizes its business for
making operating decisions and assessing performance. The Company has only one operating segment, the discovery, development and commercialization of drug products.

Basic and Diluted Net Loss Per Common Share

Net loss per share is computed based on the guidance of SFAS No. 128,Earnings Per
Share, requiring companies to report both basic net loss per common share, which is computed using the weighted average number of common shares outstanding during the period,
and diluted net loss per common share, which is computed using the weighted average number of common shares outstanding and the weighted average dilutive potential common shares outstanding using the
treasury stock method. However, for all periods presented, diluted net loss per share is the same as basic net loss per share as the inclusion of weighted average shares of unvested restricted common
stock and common stock issuable upon the exercise of stock options would be anti-dilutive.

The
following table summarizes securities outstanding, prior to the application of the treasury stock method, as of each of the periods presented which were not included in the
calculation of diluted net loss per share as their inclusion would be anti-dilutive.

December 312008

2007

2006Common stock options


4,691,246


3,844,027


3,044,343Nonvested restricted common stock


172,620


157,832


291,073Convertible preferred stock








2,092,931


Recent Accounting Pronouncements

In December 2007, the EITF issued EITF Issue No. 07-1,Accounting for Collaborative
Arrangements,or EITF No. 07-1, which requires collaborators to present the results of activities for which they act as the principal on a gross basis and
report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a
reasonable, rational, and consistently applied accounting policy election. Further, EITF No. 07-1 clarified that the determination of whether transactions within a collaborative
arrangement are part of a vendor-customer (or analogous) relationship subject to EITF No. 01-9,Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products). EITF No. 07-1 is effective for fiscal years beginning on or after December 15, 2008. The Company does
not believe the adoption of EITF No. 07-1 will have a material impact on its overall financial position or results of operations.

F-17

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(3) Cash, Cash Equivalents and Marketable Securities

A summary of cash and cash equivalents and available-for-sale marketable securities held by the Company as of December 31, 2008 and 2007 is as follows:

December 31, 2008Cost

Unrealized
gains

Unrealized
losses

Fair
value(in thousands)Cash and cash equivalents:Cash and money market funds

$
52,045







$
52,045Marketable securities:Corporate debt securities:Due within 1 year


8,490


9





8,499U.S. sponsored entities:Due within 1 year


13,013


6





13,019Total marketable securities


21,503


15





21,518Total cash, cash equivalents and marketable securities

$
73,548

$
15

$


$
73,563




December 31, 2007Cost

Unrealized
gains

Unrealized
losses

Fair
value(in thousands)Cash and cash equivalents:Cash and money market funds

$
115,577

$


$


$
115,577


(4) Fair Value Measurements

The Company adopted SFAS No. 157,Fair Value Measurements,or SFAS No. 157, on January 1, 2008. SFAS No. 157
defines and establishes a framework for measuring fair value and expands disclosure about fair value measurements. The standard creates a fair value hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2
inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable
inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability.

Financial
assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of December 31, 2008,
all of the Company's financial assets that were subject to fair value measurements were valued using observable inputs and the Company had no financial liabilities that were subject to fair value
measurement. The Company's financial assets valued based on Level 1 inputs consisted of cash and cash equivalents in a U.S. treasury money market fund. The Company's financial assets valued
based on Level 2 inputs consisted of high-grade commercial paper and government-agency bonds that are guaranteed by the U.S. government.

F-18

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(5) Property and Equipment

Property and equipment consist of the following at December 31:

2008

2007(in thousands)Laboratory equipment

$
12,093

$
10,110Leasehold improvements


4,667


4,238Computers and software


2,192


1,961Furniture and fixtures


1,105


79120,057


17,100Less accumulated depreciation and amortization


(14,128
)

(11,524
)$
5,929

$
5,576


Depreciation
and amortization expenses of property and equipment, including equipment purchased under capital leases, were approximately $2.7 million, $3.4 million and
$3.7 million for the years ended December 31, 2008, 2007 and 2006, respectively. The net book value and accumulated depreciation of equipment under capital lease was $3.8 million
and $7.4 million, respectively, at December 31, 2008, and $4.2 million and $5.3 million, respectively, at December 31, 2007.

(6) Stockholders' Equity

Reverse Stock Split and Capital StockAuthorized Shares

In January 2007, the board of directors and the stockholders of the Company approved (i) a 1-for-4
reverse stock split, which was effected on February 2, 2007, subject to a reduction for fractional shares that were paid for in cash, (ii) an adjustment of the authorized common shares
to 100,000,000 and the authorized preferred shares to 5,000,000, which became effective upon the completion of the IPO, and (iii) an adjustment in the number of common shares reserved under the
2006 Stock Plan to 2,500,000.The reverse stock split did not alter the par value of the common stock and the preferred stock, which is $0.0001 per share, or modify any voting rights or other terms of
the common stock

Each
common stockholder is entitled to one vote for each share of stock held. The common stock will vote together with all other classes and series of stock of the Company as a single
class on all actions to be taken by the Company's stockholders. Each share of common stock is entitled to receive dividends, as and when declared by the Company's board of directors.

The
Company has never declared cash dividends on its common stock and does not expect to do so in the foreseeable future.

Initial Public Offering

In February 2007, the Company raised $50.0 million in gross proceeds from the sale of 5,000,000 shares of its common stock in
the Company's IPO at $10.00 per share. The net offering proceeds after deducting approximately $5.3 million in expenses for underwriters' discounts, fees and commissions, legal, accounting,
printing, listing and filing fees, and miscellaneous expenses were approximately $44.7 million

F-19

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(6) Stockholders' Equity (Continued)

Convertible Preferred Stock

In June 2006, the Company sold 8,000,000 shares of its Series A Convertible Preferred Stock (the Preferred Stock) at a price of
$5.00 per share resulting in gross proceeds of $40 million. The Preferred Stock accrued a cumulative annual dividend of 8% of its purchase price, and was automatically convertible into shares
of the Company's common stock upon
completion of an IPO. The number of shares of common stock into which each share of Preferred Stock was convertible was determined by dividing the Preferred Stock purchase price plus all accrued
dividends by the lesser of $20.00 or 66.6667% of the offering price to the public of the IPO.

In
February 2007, all outstanding shares of the Preferred Stock and $1.9 million in accumulated dividends on the Preferred Stock were converted into 6,278,765 shares of common
stock upon the completion of the IPO.

In
accordance with EITF No. 98-5,Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios,and EITF No. 00-27,Application of Issue No. 98-5 to Certain Convertible
Instruments,the Company recorded a non-cash beneficial conversion charge of approximately $58.6 million in February 2007 in connection with the contingent
adjustable conversion feature of the Preferred Stock.

(7) Stock Plans

In March 2006, the Company terminated its 2001 Stock Plan and adopted the 2006 Stock Plan. The 2006 Stock Plan provides for the grant of incentive stock options, nonstatutory stock
options and nonvested stock to employees, officers, directors and consultants to the Company. A total of 5,100,000 shares of common stock have been reserved for issuance under the 2006 Stock Plan. In
January 2009, the number of shares of common stock reserved for issuance under the 2006 Stock Plan was increased from 3,800,000 to 5,100,000 pursuant to an "evergreen" provision, which provides for an
annual increase based on the lesser of 1,300,000 shares, 5% of the Company's then outstanding shares of common stock, or such other amount as the board of directors may determine. The increase was
ratified by the board of directors in February 2009. The administration of the 2006 Stock Plan is under the general supervision of the compensation committee of the board of directors. The exercise
price of the stock options is determined by the compensation committee or the board of directors, provided that incentive stock options are granted at not less than fair market value of the common
stock on the date of grant and expire no later than ten years from the date the option is granted. Options generally vest over four years.

As
of December 31, 2008, under its 2001 Stock Plan, the Company had options outstanding to purchase 2,526,913 shares of its common stock and had outstanding 137,500 restricted
shares of common stock and had no shares available for future issuance.

As
of December 31, 2008, under its 2006 Stock Plan, the Company had options outstanding to purchase 2,164,333 shares of its common stock, had outstanding 35,120 restricted shares
of common stock and had available 1,564,847 shares available for future issuance.

Non-Vested ("Restricted") Stock Awards With Service Conditions

The Company's share-based compensation plan provides for awards of restricted shares of common stock to officers, other employees and
non-employee directors. Restricted stock awards are subject to

F-20

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(7) Stock Plans (Continued)

forfeiture
if employment terminates during the prescribed retention period. The remaining unrecognized compensation expense on restricted stock at December 31, 2008 was $312,000. The weighted
average period over which the balance is expected to be recognized is 1.5 years. Vesting may accelerate, with respect to restricted shares issued to certain officers and other employees, upon
the FDA's approval of the Company's first new drug application, or NDA. Restricted shares issued to non-employee directors vest over the service period.

During
2008, the Company sold and issued 25,000 restricted shares of common stock to a newly hired officer at par value. These shares vest 50% on the second anniversary of the date of
award and the remaining 50% vest on the third anniversary of the date of award.

During
2008, the Company sold and issued a total of 20,242 shares of restricted stock at par value to certain members of its board of directors in connection with their annual director
fees. These restricted shares vest over the service period.

General Option Information

The following table summarizes stock option activity during the year ended December 31, 2008:

Shares
available
for grant

Shares

Weighted
average
exercise
price

Weighted
average
remaining
contractual
life (years)

Aggregate
intrinsic
valueOutstanding at January 1


1,415,746


3,844,027

$
11.22Options granted(1)


(1,407,002
)

1,361,760


8.48Options exercised





(625
)

2.00Options cancelled(1)


256,103


(513,916
)

11.08Additional shares reserved


1,300,000





Outstanding at December 31


1,564,847


4,691,246

$
10.41


6.70

$
500,365Exercisable at December 31





2,887,376

$
11.36


5.38

$
475,533


---

The
aggregate intrinsic value of all options outstanding and exercisable at December 31, 2008 was based on a closing stock price of $6.12.

The
weighted-average grant date fair values of options granted during the years ended December 31, 2008, 2007 and 2006 were $5.47, $6.11 and $9.80, respectively.

The
total intrinsic value of options exercised during the years ended December 31, 2008, 2007 and 2006 was approximately $4,000, $366,000 and zero, respectively

As
of December 31, 2008, the total amount of unrecognized stock-based compensation expense was $9.8 million, which will be recognized over a weighted average period of
2.7 years.

Included
in the Company's stock options outstanding at December 31, 2008 were 279,055 options issued to non-employee consultants with a weighted average exercise price
of $8.80 of which 278,976 were vested. The compensation expense is recorded over the respective vesting periods and is subject to

F-21

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(7) Stock Plans (Continued)

remeasurement
prior to vesting, whereby the Company remeasures the fair value of the options at the end of each reporting period. Changes in the fair value may result in an expense or a credit in each
reporting period. Compensation expense related to these options was approximately $588,000, including the $553,000 correction referred to in Note 2, $(444,000), and $272,000 for the years ended
December 31, 2008, 2007 and 2006, respectively.

General Restricted Shares Information

The following table summarizes unvested restricted shares during the year ended December 31, 2008:

2008Shares

Weighted
average
grant date
fair valueOutstanding at January 1


157,832

$
20.05Granted


45,242


7.56Vested


(28,229
)

10.50Cancelled


(2,225
)

8.30Outstanding at December 31


172,620

$
18.49


(8) Other Accrued Liabilities

Other accrued liabilities consist of the following at December 31:

2008

2007(in thousands)Compensation and benefits

$
759

$
3,165Professional fees


1,311


1,721Other


771


781$
2,841

$
5,667


(9) Collaborative Development, Commercialization and License Agreement with GSK

In October 2007, as amended in June 2008, the Company and GSK entered into the GSK Agreement for elesclomol. Under the terms of the agreement, the companies will jointly develop and
commercialize elesclomol in the United States, and GSK will have exclusive responsibility for the development and commercialization of elesclomol outside the United States. Pursuant to the agreement,
the Company received a non-refundable upfront license payment of $80 million in November 2007. The Company is also eligible to receive potential operational, clinical and regulatory
milestone payments from GSK of up to $585 million, which include both payments for operational progress, such as trial initiation and enrollment, and payments for positive clinical and
regulatory outcomes, such as regulatory approval. Of the $585 million in potential payments, $145 million are related to the development in metastatic melanoma and $440 million
are related to the development in other cancer indications. In addition, the Company is eligible to receive up to $300 million in potential

F-22

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(9) Collaborative Development, Commercialization and License Agreement with GSK (Continued)

commercial
milestone payments from GSK based on achieving certain net sales thresholds. In the year ended December 31, 2008, the Company achieved $35 million in
non-refundable operational milestones related to the development of elesclomol for the treatment of metastatic melanoma and $5 million in non-refundable operational
milestones related to the development of elesclomol in other cancer indications. The corresponding milestone payments were received from GSK in the fourth quarter of 2008. In January 2009, the Company
achieved a $10 million non-refundable operational milestone under the GSK Agreement, related to the development of elesclomol for the treatment of metastatic melanoma, which was
paid by GSK in March 2009.

Under
the GSK Agreement, the total worldwide development costs for elesclomol, including development in metastatic melanoma, are shared according to an agreed targeted percentage, which
represents for the Company a modest share of total costs. This cost share is realized by the Company over time through both direct cost reimbursement payments and operational milestone payments.

The
GSK Agreement specifies an initial period during which the Company is solely responsible for all development costs, up to an agreed-upon limit, associated with specific
development activities related to seeking FDA approval of elesclomol for the treatment of metastatic melanoma, whether incurred by the Company or GSK. Also during this period, GSK is responsible for
certain operational milestone payments to the Company in the amount of up to $50 million. Costs may be incurred by GSK during this period that are related to the development of elesclomol in
metastatic melanoma. Such costs are the responsibility of the Company and have been recognized as a reduction of revenue under the GSK collaboration in the statement of operations; however, these
costs are not required to be paid to GSK until after the final completion of the SYMMETRY trial, as defined in the GSK Agreement. Following the initial period, when total melanoma development costs
have exceeded the pre-specified limit, additional costs incurred for the program will no longer be the sole responsibility of the Company and will be shared by GSK in accordance with the
agreed targeted percentage defined in the GSK Agreement. Depending upon the future direction of the elesclomol program, the Company may be eligible for cost sharing payments under the GSK Agreement.
In addition to development in metastatic melanoma, the Company also funds early clinical development of elesclomol in two other cancer indications. Satisfactory completion of these initial trials
would result in certain milestone payments from GSK.

In
the United States, the Company's share of the operating profits and losses from the commercialization and sales of elesclomol over the life of the product will range from
40-50%, with the percentage increasing as the level of annual sales increases. Prior to commercialization, the Company is responsible for funding 40% of pre-commercialization
costs in the United States. The Company may elect not to participate in co-commercialization, in which case the Company would earn royalties in lieu of profit sharing. Outside of the
United States, the Company will receive double-digit tiered royalties.

Under
the GSK Agreement, GSK may, subject to the agreement of the Company, purchase up to $45 million of the Company's common stock in two separate tranches upon the achievement
of specified development and regulatory milestones. In the first tranche, GSK would be obligated to buy $25 million of the Company's common stock at the sole discretion of the Company. The per
share purchase price would be at a specified premium. The Company attributed $260,000 of value to this option to require GSK to purchase its common stock. The second tranche of $20 million of
common stock would be subject to the agreement of both the Company and GSK. The per share purchase price would be at a specified premium.

F-23

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(9) Collaborative Development, Commercialization and License Agreement with GSK (Continued)

GSK
may terminate the GSK Agreement upon not less than three months' written notice at any time prior to the date of the first commercial sale of elesclomol and not less than six months'
written notice at any time on and after such date. The Company is currently working with GSK to evaluate the data from the SYMMETRY trial to determine if development of elesclomol should continue or
if the program should be terminated. Should GSK elect to terminate the partnership, all rights to the elesclomol program would be returned to the Company and the Company would be free to develop
elesclomol alone or with another partner. In such case, the Company would owe a small royalty to GSK on future sales of elesclomol. To date, GSK has not notified the Company of any intent to terminate
the GSK Agreement.

(10) Collaborative License Agreement with Roche

In December 2008, the Company and Roche entered into the Roche Agreement to discover, develop, and commercialize small-molecule drugs targeting CRACM channels. The goal is to develop a
novel category of oral, disease-modifying agents for the treatment of rheumatoid arthritis, asthma, chronic obstructive pulmonary disease, or COPD, allergy, transplant rejection, and other autoimmune
diseases and inflammatory conditions.

Under
the terms of the agreement, Roche will fund research to be conducted by the Company during an initial two-year research period, which may be extended for additional one
year terms by mutual agreement of the parties. Roche will receive worldwide rights to develop and commercialize certain products identified prior to the end of this research period. The Company
retains co-development rights by conducting preclinical development and early clinical trials, and co-promotion rights in the United States in indications other than rheumatoid
arthritis. All preclinical, clinical, and commercial costs will be paid by Roche.

Pursuant
to the agreement, the Company received a non-refundable upfront license payment of $16 million in January 2009. Roche will pay all of the Company's research
costs, with a minimum of $9 million in committed research support, and all of the Company's preclinical and clinical development costs for compounds nominated for clinical development. The
Company is eligible to receive additional payments, for each of three licensed products, should specified development and commercialization milestones be successfully achieved. Development milestones
across multiple indications of up to $245 million could be earned for the first product, and up to half of this amount could be earned for each of the second and third products.
Commercialization milestones of up to $170 million could be earned for each of three products. In addition, all commercial costs will be paid by Roche. The Company will receive tiered royalties
on sales of all approved, marketed products.

Roche
may terminate the agreement on a licensed compound-by-licensed compound basis upon providing advance written notice, but may not do so with respect to all
licensed compounds until after a specified date.

F-24

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(11) Income Taxes

Differences between the actual tax benefit and tax benefit computed using the United States federal income tax rate is as follows:

Years ended December 312008

2007

2006(in thousands)Income tax benefit at statutory rate

$
(31,497
)
$
(21,588
)
$
(19,472
)Stock-based compensation


1,852


716


579Tax credits


(2,314
)

(1,647
)

(1,743
)Other


(141
)

42


40Increase in valuation allowance


32,100


22,477


20,596Income tax benefit

$


$


$



The
effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, are presented below:

2008

2007(in thousands)Deferred tax assets:Federal and state net operating loss carryforwards

$
106,670

$
103,359Federal and state research and experimentation credits


11,821


9,886Deferred revenue


29,867


Depreciation and amortization


2,805


2,875Deferred compensation


5,561


4,943Other


57


513Deferred tax assets


156,781


121,576Less valuation allowance


(156,781
)

(121,576
)Net deferred tax assets

$


$



The
valuation allowance for deferred tax assets was approximately $157.0 million and $121.6 million as of December 31, 2008 and 2007, respectively. The increase in
the total valuation allowance for the years ended December 31, 2008, 2007 and 2006 was approximately $35.4 million, $26.2 million and 24.3 million, respectively. The
Company has established valuation allowances against its deferred tax assets because management believes that, after considering all of the available objective evidence, both historical and
prospective, the realization of the deferred tax assets does not meet the "more likely than not" criteria under SFAS No. 109.

In
2005 and February 2007, the Company performed analyses to determine if there were changes in ownership, as defined by Section 382 of the Internal Revenue Code, that would limit
its ability to utilize certain net operating loss and tax credit carryforwards. The Company determined that it experienced an ownership change, as defined by Section 382, in connection with its
acquisition of Principia Associates, Inc. on September 20, 2002, but did not experience a change in ownership upon the effectiveness of the Company's IPO. As a result, the utilization of
the Company's federal tax net operating loss carryforwards generated prior to the ownership change is limited.

F-25

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(11) Income Taxes (Continued)

As
of December 31, 2008, the Company has net operating loss carryforwards for U.S. federal tax purposes of approximately $270.6 million, after excluding net operating
losses that have expired unused as a result of Section 382 limitations, with the remainder expiring in varying amounts through 2028 unless utilized. At December 31, 2008, the Company has
state net operating loss carryforwards of approximately $234.1 million, which will expire through 2012 unless utilized. The utilization of these net operating loss carryforwards may be further
limited if the Company experiences future ownership changes as defined in Section 382 of the Internal Revenue Code. Approximately $24 million of state net operating loss carryforwards
expired in 2008. At December 31, 2008, the Company had approximately $9.5 million and $3.5 million, respectively, in federal and state research and development credits which
expire through 2028 and 2023, respectively.

The
Company is currently open to examination under the statute of limitations by the Internal Revenue Service and state jurisdictions for the tax years ended 2005 through 2008.
Carryforward tax attributes generated in years past may still be adjusted upon future examination if they have or will be used in a future period. The Company is currently not under examination by the
Internal Revenue Service or any other jurisdictions for any tax years.

(12) Commitments and Contingencies

Leases

The Company leases its research and office facilities under non-cancelable operating leases with terms expiring through
2011. Each of these leases contains renewal options ranging from one to five years.

In
2008, the Company expanded leased space in three of its research and office facilities through the end of the existing lease terms.

In
November 2004, the Company entered into an agreement for a revolving property and equipment lease line of credit which was amended in 2005. Under the amended agreement, the Company
may periodically directly lease, or sell and lease-back, up to $6.0 million of property and equipment, with payment periods of 36 or 48 months and a $1.00 purchase option at
the end of each lease period. The lease rates are based upon a fixed base interest rate plus the respective prevailing 36- or 48-month U.S. Treasury Bill interest rates at the
time of each funding. As of December 31, 2008, the Company sold and leased back under this agreement an aggregate of approximately $10.4 million of its previously purchased property and
equipment, of which approximately $3.3 million and $7.1 million were capitalized and are being paid over 36 and 48 months, respectively. The term of this lease agreement ended in
July 2008. The Company also leases a vehicle and other equipment under various other non-cancellable operating leases.

F-26

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(12) Commitments and Contingencies (Continued)

Future
minimum payments, excluding operating costs and taxes, under the Company's capital and non-cancellable operating leases, are approximately as follows (in thousands):

Capital
leases

Operating
leasesYears ended December 31,2009

$
2,480

$
2,5142010


1,393


1,9832011


710


1,7522012


92


Total minimum lease payments


4,675

$
6,249Less: amount representing interest


(493
)Present value of minimum capital lease payments


4,182Less current portions of capital lease obligations


(2,170
)Capital lease obligationslong term

$
2,012


Rent
expense was approximately $2.5 million, $2.3 million and $1.9 million, for the years ended December 31, 2008, 2007 and 2006, respectively.

License Agreements

Queen's Medical Center

In March 2003, and amended in April 2004, the Company entered into an exclusive, royalty-bearing license agreement with Queen's Medical
Center (QMC) for certain technology related to ion channel technologies. Under the terms of the agreement, if certain milestones are met, the Company is obligated to make cash payments of up to an
aggregate of $1.0 million. If commercialization is achieved, the Company will be required to pay royalties to QMC on the net sales of any product using the licensed technologies. In the event
the Company grants a sublicense of the licensed technology, the Company is obligated to compensate QMC a percentage of all fees received from the sublicense.

Through
December 31, 2008, no milestone, royalty, or sublicense payments had been earned by or paid to QMC.

Beth Israel Deaconess Medical Center

The Company acquired an exclusive license from Beth Israel Deaconess Medical Center (Beth Israel) relating primarily to monoclonal
antibodies and ion channel technologies. Under the terms of the license, if certain milestones are met, the Company is required to make cash payments up to an aggregate of $1.0 million. If
commercialization is achieved, the Company will be required to pay royalties on the net sales of any product using the licensed technology. In the event the Company grants a sublicense of the licensed
technology, the Company is obligated to compensate Beth Israel a percentage of all fees received from the sublicense.

Through
December 31, 2008, no milestone, royalty or sublicense payments had been earned by or paid to Beth Israel.

F-27

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(12) Commitments and Contingencies (Continued)

Consulting Agreements

In October 2002, the Company entered into a consulting agreement with an SAB member for scientific advisory services which was amended
in October 2003. Under the amended consulting agreement, the term was four years from the effective date of the amendment, and in exchange for a one-time payment of $400,000, the parties
agreed to eliminate a one-time bonus payment to the SAB member based on the achievement of a certain performance milestone that was included in the original agreement. In addition to an
annual consulting fee, the consultant was entitled to a bonus payment of a portion of any upfront or milestone payments received by the Company related to certain calcium channel technology during the
four-year term of the amended agreement. In April 2007, the Company further amended this consulting agreement for a two-year term from the effective date of the amendment. In
addition to the annual consulting fee, the consultant is entitled to potential bonus payments upon the Company entering into a partnership for certain calcium channel technology and upon the filing of
an investigational new drug application (IND) with the FDA for a drug candidate developed under such a partnership. In connection with the Roche Agreement entered into in December 2008, the Company
recorded a $250,000 fee to this consultant in the year ended December 31, 2008. This corresponding payment was made in January 2009.

Guarantees

As permitted under Delaware law, the Company's Certificate of Incorporation and Bylaws provide that the Company will indemnify certain
of its officers and directors for certain claims asserted against them in connection with their service as an officer or director. The maximum potential amount of future payments that the Company
could be required to make under these indemnification provisions is unlimited. However, the Company has purchased a directors' and officers' liability insurance policy that reduces its monetary
exposure and enables it to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification arrangements is minimal.

The
Company customarily agrees in the ordinary course of its business to indemnification provisions in agreements with clinical trials investigators in its drug development programs, in
sponsored research agreements with academic and not-for-profit institutions, in various comparable agreements involving parties performing services for the Company in the
ordinary course of business, and in its real estate leases. The Company has agreed to indemnify GSK and its affiliates under the GSK Agreement against losses incurred or imposed as a direct result of
claims arising out of the manufacture, use or sale by the Company of any product, except with respect to claims or losses that result from a breach of the GSK Agreement by, or the gross negligence or
willful misconduct of, GSK. The Company has also agreed to indemnify Roche and its affiliates under the Roche Agreement against losses, expenses, cost of defense, and any amounts Roche becomes legally
obligated to pay because of any claim that arises out of the breach of any representation or warranty made by the Company under the Roche Agreement, except to the extent that such losses are due to
the gross negligence or willful misconduct of Roche or the breach by Roche of any representation or warranty under the Roche Agreement.The Company also expects to agree to certain indemnification
provisions in any future drug discovery and development collaboration agreements. With respect to the Company's clinical trials and sponsored research agreements, these indemnification provisions
typically apply to any claim asserted against the investigator or the investigator's institution relating to personal injury or property damage, violations of law or certain breaches of the Company's
contractual obligations arising out of the research or clinical testing of the Company's compounds or drug candidates. With respect to

F-28

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(12) Commitments and Contingencies (Continued)

lease
agreements, the indemnification provisions typically apply to claims asserted against the landlord relating to personal injury or property damage caused by the Company, to violations of law by
the Company or to certain breaches of the Company's contractual obligations. The indemnification provisions appearing in collaboration agreements are similar, but in addition provide some limited
indemnification for its collaborator in the event of third-party claims alleging infringement of intellectual property rights. In each of the cases above, the term of these indemnification provisions
generally survives the termination of the agreement, although the provision has the most relevance during the contract term and for a short period of time thereafter. The maximum potential amount of
future payments that the Company could be required to make under these provisions is generally unlimited. The Company purchased insurance policies covering personal injury, property damage and general
liability that reduce its exposure for indemnification and would enable it in many cases to recover a portion of any future amounts paid. The Company has never paid any material amounts to defend
lawsuits or settle claims related to these indemnification provisions. Accordingly, the Company believes the estimated fair value of these indemnification arrangements is minimal.

(13) Related Party Transactions

In January 2005, the Company entered into an Agreement and Release with its scientific founder, who is a board member, whereby all outstanding matters regarding various oral
understandings and arrangements between the scientific founder and the Company were resolved, including arrangements relating to (1) the assignment by the scientific founder of the benefit of
his interests, if any, resulting from the Company's acquisition of the net assets of Cancer Genomics, Inc., Kava Pharmaceuticals, Inc. and SinglePixel Biomedical, Inc.,
(2) the scientific founder's assignment of inventions, non-competition, non-solicitation and confidentiality agreements with the Company, and (3) a release by the
scientific founder of any and all claims that the scientific founder may have had against the Company. Pursuant to this agreement, the Company is paying the scientific founder $500,000, payable in
$25,000 installments quarterly for five years. The full amount of the obligation was charged to research and development expense in 2005. Total installment payments in each of the years ended
December 31, 2008, 2007 and 2006 were approximately $100,000. The remaining amount of the obligation as of December 31, 2008 was $100,000.

The
Company paid its scientific founder and a member of the board consulting fees of approximately $25,000 per month in January and February 2007 pursuant to a consulting agreement dated
April 18, 2005. In March 2007, the Company amended the consulting agreement to reduce the fee from $25,000 to $10,000 per month. Total consulting fees paid in the years ended
December 31, 2008, 2007 and 2006 were approximately $120,000, $150,000 and $300,000, respectively.

(14) Retirement Plan

In 2003, the Company implemented a 401(k) retirement plan (the Synta 401(k) Plan) in which substantially all of its permanent employees are eligible to participate. Participants may
contribute a percentage of their annual compensation to the plan, subject to statutory limitations. The Company may declare discretionary matching contributions to the Synta 401(k) Plan.

In
April 2006, the Company began matching participants' contributions up to 50% of the first 6% of the employee's salary. The match is subject to a three-year equally graded
vesting schedule and any forfeitures will be applied to reduce the Company's contributions. Company contributions for the years

F-29

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SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(14) Retirement Plan (Continued)

ended
December 31, 2008, 2007 and 2006 were approximately $514,000, $411,000 and $236,000, respectively, subject to forfeitures.

(15) Subsequent EventRestructuring Costs

On February 26, 2009, the Company announced it had suspended its SYMMETRY trial, the Phase 3 clinical study comparing elesclomol in combination with paclitaxel to
paclitaxel alone in chemo-naïve patients with stage IV metastatic melanoma. In addition, all other trials of elesclomol were suspended as well.

On
March 12, 2009, the Company committed to a restructuring that consisted primarily of a workforce reduction of approximately 90 positions, to a total of approximately 130
positions to better align its workforce to its revised operating plans following the suspension of its SYMMETRY clinical trial. The Company estimates its costs in connection with the workforce
reduction, comprised principally of severance, unused vacation payments, benefits continuation costs and outplacement services, will range from $1.4 million to $1.5 million. As a result
of terminating these employees, the Company estimates it may incur an impairment charge for certain research laboratory equipment, computer equipment, and furniture and fixtures due to the fact that
these assets may no longer be utilized. The Company estimates it will incur additional costs in connection with the suspension of the SYMMETRY trial, including one-time contract
termination costs and fees and other related costs. At this time, the Company is unable to estimate the amount of a possible impairment or contract termination costs as it is in the process of
evaluating its facilities and equipment needs and is in contract termination negotiations with certain of its vendors. Substantially all cash payments under the restructuring are expected to be paid
during 2009. Employees directly affected by the restructuring have received notification and will be provided with severance payments. The Company expects to complete the restructuring in the second
quarter of 2009.

Related
to the restructuring, the Company's compensation committee of its board of directors determined to not approve any employee bonuses for 2008 and, accordingly, in the fourth
quarter of 2008, the Company reversed approximately $1.6 million of previously accrued bonus expense as of September 30, 2008.

F-30

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SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(16) Quarterly Financial Data (unaudited)

The following tables present a summary of quarterly results of operations for 2008 and 2007:

Three Months EndedMarch 31,
2008

June 30,
2008

September 30,
2008

December 31,
2008(in thousands, except shares and per share data)Collaboration revenues:License and milestone revenue

$
1,338

$
1,338

$
2,819

$
3,018Cost sharing reimbursements, net





(1,969
)

(1,547
)

(2,382
)Total collaboration revenues


1,338


(631
)

1,272


636Operating expenses:Research and development


16,150


18,342


24,058


23,031General and administrative


3,633


3,974


3,665


3,470Total operating expenses


19,783


22,316


27,723


26,501Loss from operations


(18,445
)

(22,947
)

(26,451
)

(25,865
)Other income (expense):Interest income


922


374


256


27Interest expense


(127
)

(121
)

(126
)

(115
)Other income, net


795


253


130


(88
)Net loss attributable to common stockholders

$
(17,650
)
$
(22,694
)
$
(26,321
)
$
(25,953
)Basic and diluted net loss attributable to common stockholders per share

$
(0.52
)
$
(0.67
)
$
(0.78
)
$
(0.77
)Basic and diluted weighted average number of common shares outstanding


33,730,230


33,733,536


33,736,510


33,741,960


F-31

---



SYNTA PHARMACEUTICALS CORP.

Notes to Consolidated Financial Statements (Continued)

(16) Quarterly Financial Data (unaudited) (Continued)



Three Months EndedMarch 31,
2007

June 30,
2007

September 30,
2007

December 31,
2007(in thousands, except shares and per share data)Collaboration revenues:License and milestone revenue

$


$


$


$
743Cost sharing reimbursements, net











Total collaboration revenues











743Operating expenses:Research and development


13,544


13,613


11,542


13,326General and administrative


3,468


3,853


3,852


3,761Total operating expenses


17,012


17,466


15,394


17,087Loss from operations


(17,012
)

(17,466
)

(15,394
)

(16,344
)Other income (expense):Interest income


788


860


657


952Interest expense


(131
)

(135
)

(138
)

(132
)Other income, net


657


725


519


820Net loss


(16,355
)

(16,741
)

(14,875
)

(15,524
)Convertible preferred stock beneficial conversion feature


58,585








Net loss attributable to common stockholders

$
(74,940
)
$
(16,741
)
$
(14,875
)
$
(15,524
)Basic and diluted net loss attributable to common stockholders per share

$
(2.61
)
$
(0.50
)
$
(0.44
)
$
(0.46
)Basic and diluted weighted average number of common shares outstanding


28,767,605


33,658,536


33,661,580


33,708,862


F-32

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