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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

Significant Risks and Uncertainties

        The Company has historically suffered recurring operating losses and negative cash flows from operations. As of March 31,September 30, 2010, the Company had net working capital of $24,007,000,$11,933,000, an accumulated deficit of $420,637,000$433,728,000 and total shareholders' equity of $21,544,000.$12,134,000. The Company's total cash, cash equivalentequivalents and investment securities balances, net of restricted cash of $281,000,$158,000, was $38,348,000$23,345,000 at March 31,September 30, 2010. The Company has financed its operations to date primarily through the sale of equity securities, borrowings under debt instruments, technology licensing and collaborative agreements. The Company invests excess cash in investment securities that will be used to fund future operating costs. Cash used for operating activities for the threenine months ended March 31,September 30, 2010 totaled $8,344,000.$19,230,000. The Company is focusing its resources on the continued development of its primary product candidate, picoplatin. TheBased on the Company's activities to date for the development of registration strategies for picoplatin and its evaluation of strategic alternatives, the Company does not anticipate that its picoplatin product will be commercially available before 2011.2014, if at all. As a result, the Company does not have a predictable source of revenue or other cash flows and does not expect to generate cash from operations for the foreseeable future. Thus, the Company is dependent upon its ability to sell equity instruments, borrow, or enter into licensing agreements or other strategic relationships to provide capital to sustain its operations. In March 2010, in connection with the adoption of an initiative to develop registration strategies for picoplatin in multiple indications, the Company engaged an investment banker to conduct a comprehensive review of strategic alternatives, including raising additional capital, a merger or sale of the Company or partnering with another company. The Company may not be able to obtain required additional capital or enter into relationships with corporate partners or other third parties on a timely basis, on terms ultimately favorable to the Company, or at all. Conditions in the capital markets in general, and in the life science capital markets specifically, may affect the Company's potential financing sources and opportunities for partnering or other strategic relationships. If the Company is unable to secure additional capital to fund its working capital and capital expenditure requirements, it may be forced to explore liquidation alternatives, including seeking protection from creditors through the application of bankruptcy laws.

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

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

        The Company's loan facility with GE Business Financial Services and Silicon Valley Bank, described in Note 5 below, requires that the Company maintain a minimum amount of cash, cash equivalents and investments ("unrestricted cash") during the term of the loan equal to the lesser of (i) $17,940,000 or (ii) the outstanding aggregate principal balance of the term loans plus $4,000,000. At September 30, 2010, the outstanding aggregate principal balance of the term loans plus $4,000,000 was $15,829,000. Taking into account the minimum unrestricted cash requirement under the Company's loan agreement and itsthe Company's projected operating results, the Company believes that its current cash, cash equivalentequivalents and investment securities balances will provide adequate resources to fund operations at least through the end of 2010. Thereafter, unless the Company raises additional funds, or enters into a partnering or other strategic relationship, it will be in default of the minimum unrestricted cash requirement and potentially other provisions of the loan agreements. The Company has no assurance that, especially in light of the current distressed economic environment, the lenders will be willing to waive or renegotiate the terms of the loan agreement to address or avoid financial or other defaults. The occurrence of an event of default would increase the applicable rate of interest by 5% and could result in the acceleration of the Company's payment obligations under the loan agreement. If an event of default were to occur, the Company mightwould not have sufficient funds to repay the loan orand to fund its continuing operations.operations beyond December 31, 2010. Provisions of the loan agreement would limit the Company's ability to dispose of certain assets, engage in certain mergers, incur certain indebtedness, make certain distributions, and engage in certain investment activities without the prior consent of the lenders.

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

Subsequent Events Evaluation

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

Recent Accounting Standards

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

        In JanuaryApril 2010, the FASB issued amended standards that require additional fair value disclosures. These amended standards require disclosures about inputsupdated guidance on defining milestones and valuation techniques useddetermining when it may be appropriate to measure fair value as well as disclosures about significant transfers,apply the milestone method of revenue recognition for research and development transactions involving arrangements with deliverables in which one or more payments are contingent upon achieving uncertain future events or circumstances. The updates are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning in the first quarter of 2010. Additionally, these amended standards require presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3), beginning in the first quarter of 2011.on or after June 15, 2010, with early adoption permitted. The Company does not believebelieves that thesethis new standards willguidance would have a material effectan impact on its consolidated financial statements.statements if it were to enter into any milestone-based revenue agreements in the future.

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Fair Value Measurements

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

•

Level 1—Quoted prices in active markets for identical assets or liabilities.



•

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.



•

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Fair Value Measurements (Continued)

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

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

        As of March 31,September 30, 2010 and December 31, 2009, the Company's cash equivalents and investment securities are recorded at fair value as determined through market prices and other observable and corroborated sources. At March 31,September 30, 2010, the cash equivalents balance consists of $11,154,000$9,503,000 in

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Fair Value Measurements (Continued)

money market funds. Investment securities are comprised of corporate debt securities and federal government and agency securities (see Note 3 below for further details on investment securities).

        When the estimated fair value of a security is below its carrying value, the Company evaluates whether it is more likely than not that it will be required to sell the security before its anticipated recovery in market value and whether evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. The Company also evaluates whether or not it intends to sell the investment. If the impairment is considered to be other-than-temporary, the security is written down to its estimated fair value. In addition, the Company considers whether credit losses exist for any securities. A credit loss exists if the present value of cash flows expected to be collected is less than the amortized cost basis of the security. Other-than-temporary declines in estimated fair value and credit losses are charged to investment income. The Company has not deemed it necessary to record any charges related to impairments or other-than-temporary declines in the estimated fair values of its marketable debt securities or credit losses as of March 31,September 30, 2010.

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3. Investment Securities

        The Company's investment securities, consisting of debt securities, are classified as available-for-sale. Unrealized holding gains or losses on these securities are included in other comprehensive lossgain/(loss) on the condensed consolidated balance sheets. Realized gains and losses and declines in value judged to be other-than-temporary (of which there have been none to date) on available-for-sale securities are included in interest income and other, net, in the condensed consolidated statements of operations.

        Investment securities consisted of the following at March 31,September 30, 2010 (in thousands):

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

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3. Investment Securities (Continued)

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

Note 4. Accrued Liabilities

        Accrued liabilities consist of the following (in thousands):

Note 5. Note Payable

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

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5. Note Payable (Continued)

        The loan agreement provides for a $27,600,000 senior secured term loan facility ("loan facility") to be made available as follows: (i) an initial term loan advance in the amount of $17,600,000, which is comprised of (a) the outstanding principal balance of $7,600,000 remaining on the original loan and (b) an additional cash advance in the amount of $10,000,000 ("cash portion"), which was fully funded on September 2, 2008; and (ii) a second term loan advance in the amount of $10,000,000, which was fully funded on September 30, 2008. The advances under the loan facility are repayable over 42 months, commencing on October 1, 2008. Interest on the advances is fixed at 7.80% per annum. Final loan payments in the amounts of $1,070,000 and $900,000 are due upon maturity or earlier repayment of the initial term loan advance and the second term loan advance, respectively. Additionally, as a condition to the amendment and restatement of the original loan, the Company agreed to modification of the final payment obligations under the original loan, pursuant to which the Company paid $600,000 to Silicon Valley Bank on September 2, 2008, the effective date of the loan facility, and paid $675,000 to GE Business Financial Services on March 31, 2010. All final payment amounts are being accreted to the note payable balance over the term of the loan facility using the effective interest rate method and reflected as additional interest expense. All interest payable under the loan agreement and the full amount of the final payments must be paid upon any prepayment of a term loan advance. The loan facility is secured by a first lien on all of the non-intellectual property assets of the Company. At March 31,September 30, 2010, the outstanding principal balance under the loan facility was $16,394,000,$12,920,000, net of discount of $1,347,000.$879,000.

        In connection with the loan agreement, the Company issued the lenders ten-year warrants to purchase an aggregate of 219,920 shares of the Company's common stock at an exercise price of $4.297 per share. The fair value of the warrants using the Black-Scholes option-pricing model was approximately $928,000 based upon assumptions of expected volatility of 90%, a contractual term of ten years, an expected dividend rate of zero and a risk-free interest rate of 3.74%. The portion of the loan proceeds allocable to the warrants is approximately $806,000 based on the relative fair value of the

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5. Note Payable (Continued)

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

        The loan agreement contains restrictions on the Company's ability to, among other things, dispose of certain assets, engage in certain mergers and acquisition transactions, incur indebtedness, create liens on assets, make investments, pay dividends and repurchase stock. The loan agreement also contains covenants requiring the Company to maintain unrestricted cash in an amount equal to the lesser of (i) $17,940,000 or (ii) the outstanding aggregate principal balance of the term loans plus $4,000,000. At September 30, 2010, the outstanding aggregate principal balance of the term loans plus $4,000,000 was $15,829,000. The loan agreement contains events of default that include nonpayment of principal, interest or fees, breaches of covenants, material adverse changes, bankruptcy and insolvency events,

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5. Note Payable (Continued)

cross defaults to any other indebtedness, material judgments, inaccuracy of representations and warranties, and events constituting a change of control. The occurrence of an event of default would increase the applicable rate of interest by 5% and could result in the acceleration of the Company's payment obligations under the loan agreement. The Company was in compliance with all loan covenants as of March 31,September 30, 2010.

Note 6. Common Stock Purchase AgreementsAgreement

        On February 23, 2010, the Company entered into an equity line of credit facility with Commerce Court Small Cap Value Fund, Ltd. ("Commerce Court"). The facility provides that, upon the terms and subject to the price and share amount parameters and other conditions therein,thereof, Commerce Court is committed to purchase up to $20,000,000 worth of shares of the Company's registered common stock over approximately 18 months; provided, however, that in no event may the Company issue to Commerce Court more than 8,423,431 shares of common stock, which is equal to one share less than 20% of the Company's outstanding common shares on the closing date of the facility, less 121,183 shares issued to Commerce Court as a commitment fee. The purchase price of the shares will be equal to the daily volume weighted average price over eight consecutive trading days or such other draw down period mutually agreed upon by the parties, less a discount ranging from 3.125% to 5.0%, based on the trading price of the Company's common stock. In addition, Commerce Court may not at any time acquire shares if, after giving effect to such purchase, Commerce Court would beneficially own 9.9% or more of the Company's outstanding common stock. Unless otherwise mutually agreed between the parties, Commerce Court is not obligated to purchase shares at prices belowa price that is less than $1.00 per share.share (before taking into account the discount). Given the Company's current stock price, which was $0.54 as of November 2, 2010, it has no assurance that Commerce Court will agree to purchase additional shares under the facility. On March 15, 2010, the Company completed a draw down and sale of 4,229,000 shares of its common stock, at a price of approximately $1.49 per share, to Commerce Court under the equity line of credit facility. Net proceeds of approximately $6,092,000 were received, after deducting offering costs of approximately $228,000.

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7. Restructuring and Asset Impairment

April 2010 Restructuring

        On March 24, 2010, the Company announced a restructuring plan in connection with its decision to suspend efforts to pursue a New Drug Application for its drug candidate, picoplatin, in small cell lung cancer. This restructuring plan resulted in a decrease in the number of employees by approximately 45%, to a total of 12 employees, effective April 30, 2010. In connection with this plan, the Company recorded a restructuring charge of approximately $542,000$543,000 for the period ended March 31, 2010, consisting of one-time employee termination benefits, which will be paid in their entirety by January 31, 2011. As a consequence of the restructuring, approximately 965,000 restricted stock units ("RSUs"), which were awarded in February 2010 pursuant to the Amended and Restated 2004 Incentive Compensation Plan (the "2004 Plan"), became fully vested in accordance with the terms of the underlying RSU agreements (see Note 10 below for additional information). These RSUs converted to common stock on a one-for-one basis in the second quarter of 2010. The Company recognized approximately $962,000$1,486,000 in share-based compensation expense during the first two quarters

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7. Restructuring and Asset Impairment (Continued)

of 2010 for terminated employees for the period ended March 31, 2010 related to the accelerated vesting of these RSUs as a result of the restructuring.

        The following table summarizes the impact of the restructuring charges reported in the condensed consolidated statement of operations for the threenine months ended March 31,September 30, 2010 and in accrued liabilities in the condensed consolidated balance sheet as of March 31,September 30, 2010 related to the April 2010 restructuring (in thousands):

February 2010 Restructuring

        On February 5, 2010, the Company implemented a restructuring plan to conserve its capital resources, resulting in a reduction in the Company's workforce by approximately 57%, to 22 employees. The Company incurred restructuring charges of approximately $1,083,000, primarily consisting of one-time employee termination benefits. As a consequence of the restructuring, approximately 130,000 RSUs, which were awarded in July 2009 pursuant to the 2004 Plan, became fully vested in accordance with the terms of the underlying RSU agreements (see Note 10 below for additional information). These RSUs converted to common stock on a one-for-one basis in February 2010. The Company recognized approximately $174,000 in share-based compensation expense for terminated employees forin the period ended March 31,first quarter of 2010 related to the accelerated vesting of these RSUs as a result of the restructuring.

        The following table summarizes the impact of the restructuring charges reported in the condensed consolidated statement of operations for the threenine months ended March 31,September 30, 2010 and in accrued

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7. Restructuring and Asset Impairment (Continued)

liabilities in the condensed consolidated balance sheet as of March 31,September 30, 2010 related to the February 2010 restructuring (in thousands):

March 2009 Restructuring

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

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7. Restructuring and Asset Impairment (Continued)

the reduction in staff. All severance charges related to the restructuring were paid in 2009. The Company incurred additional charges totaling approximately $172,000 related to the closure of its lab facilities in South San Francisco, California. Of this amount, $6,000 was incurred as share-based compensation expense, $12,000 was a write-off of prepaid expenses, and $154,000 was incurred for contract and other termination costs. All outstanding liabilities for contract and termination costs were paid in 2009.

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

        In conjunction with the decision to discontinue the Company's preclinical research operations during the quarter ended March 31, 2009, the Company recognized an asset impairment loss of $588,000 on certain facilities and equipment related to the lab in South San Francisco, California. The loss on the assets was determined based on estimates of potential sales values of used equipment. These impairment charges established new cost bases for the impaired assets, which are included in assets held for sale and reported in the prepaid expenses and other current assets line on the

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7. Restructuring and Asset Impairment (Continued)

accompanying condensed consolidated balance sheets. All remaining impaired assets held for sale were sold in January 2010.

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

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 8. Picoplatin License and Amendment

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

        The Company accounted for all payments made in consideration of the picoplatin license, as amended, by capitalizing them as an intangible asset. The Company's capitalization of the total $12,000,000 of picoplatin license payments is based on the Company's reasonable expectation at the time of acquisition and through the date of the amendment that the intravenous formulation of picoplatin, as it existed at the time of the acquisition of the picoplatin license and the license amendment, would be used in research and development ("R&D") projects and, therefore, had alternative future uses in the treatment of different cancer indications. At the time of acquisition, the Company planned to use intravenous picoplatin in a Phase II2 clinical trial in patients with small cell lung cancer and reasonably expected that the intravenous formulation could be used in additional,

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 8. Picoplatin License and Amendment (Continued)

currently identifiable R&D projects in the form of clinical trials for other solid tumor cancer indications, such as prostate and colorectal cancers.

        The Company, at the time of acquisition of the picoplatin license, reasonably anticipated using intravenous picoplatin in clinical trials that could be conducted during the remaining term of the primary patent, which is active through 2016. The Company concluded that the 12 years remaining for the primary patent term was the appropriate useful life for the picoplatin intangible asset, in accordance with the FASB's guidance for intangibles, and is amortizing the initial $2,000,000 license payment over this 12 year useful life beginning in April 2004. The Company concluded that no change in the 12 year useful life of the picoplatin intangible asset occurred as a result of the 2006 license amendment and is, therefore, continuing to amortize the initial $2,000,000 license payment over the 12 year useful life and is amortizing the license amendment payment of $10,000,000 over the remainder of the 12 year useful life of the picoplatin intangible asset.

        The Company reviews its long-lived assets for possible impairment whenever significant events indicate such impairment may have occurred. In November 2009, the Company announced that its pivotal Phase 3 SPEAR trial of picoplatin in the second-line treatment of patients with small cell lung cancer did not meet its primary endpoint of overall survival. The Company considers this event to be a

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 8. Picoplatin License and Amendment (Continued)

trigger for testing its picoplatin intangible asset for possible impairment; however, upon review of the expected future undiscounted net cash flows identifiable to the picoplatin license, the Company determined that the picoplatin intangible asset is recoverable and that no impairment occurred.

        Licensed products consists of the picoplatin amortizable intangible asset with a gross amount of $12,000,000, net of accumulated amortization of $4,712,000$5,319,000 and $4,408,000 at March 31,September 30, 2010 and December 31, 2009, respectively.

Note 9. Net Loss Per Common Share

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

        In addition, 14,966 and 39,015 shares of common stock that would be issuable upon conversion of the Company's Series 1 preferred stock are not included in the calculation of diluted loss per share for the periods ended March 31,September 30, 2010 and 2009, respectively, because the effect of including such shares would not be dilutive.

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10. Share-based Compensation

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

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10. Share-based Compensation (Continued)

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

        The share-based compensation expense for the threenine months ended March 31,September 30, 2009 includes a stock option granted during the first quarter of 2009 to a Company officer to purchase an aggregate of 200,000 shares of common stock that vests over a four year period. The officer's employment was terminated in August 2010, at which time unvested options were cancelled in accordance with the 2004 Plan. The share-based compensation expense for the threenine months ended March 31,September 30, 2010 includes a stock option granted during the first quarter of 2010 to a Company officer to purchase an aggregate of 500,000 shares of common stock that vests over a four year period. There were no options granted during the three month period ended September 30, 2010.

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

        Certain options that were granted to officers of the Company during 2006 and 2007 vest 50% in equal monthly installments over four years from the date of grant and vest 50% on the seven year anniversary of the date of grant, subject to accelerated vesting of up to 25% of such portion of the options, based on the Company's achievement of annual performance goals established under its management incentive plan, at the discretion of the equity awards subcommittee of the compensation committee of the Company's board of directors. Based on the overall achievement of corporate goals in 2009, the equity awards subcommittee accelerated vesting with respect to 25% of the shares subject to the seven year vesting schedule in the first quarter of 2010. As of March 31,September 30, 2010, the cumulative accelerated vesting equals 85% of the sharesfor options subject to the seven year vesting schedule.

        On April 9, 2010, the Company awarded 587,200 RSUs to officers and employees. The fair valueschedule equals 85% of the RSUs was $1.14 per unit, or approximately $669,000shares granted in total, based upon the closing market price2006 and 65% of the Company's common stock on the award date. The RSUs vest 50% on each of the first two anniversaries of April 9, 2010, subject to forfeiture or acceleration of vesting upon the occurrence of certain events.

        On February 4, 2010, the Company awarded approximately 2,354,000 RSUs under the 2004 Plan to certain employees and officers as an incentive for future performance. The fair value of the RSUs was $1.54 per unit, or approximately $3,626,000shares granted in total, based upon the closing market price of the Company's common stock on the award date. The RSUs become fully vested on December 31, 2010,

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10. Share-based Compensation (Continued)

subject to earlier acceleration upon termination of employment by the Company without cause. Due to the Company's restructuring in the first quarter of 2010 (see Note 7 for further discussion), approximately 965,000 of these RSUs became fully vested on April 30, 2010. The Company determined the expense for these awards on a straight-line basis from grant date through the accelerated vesting date. Share-based compensation expense for the period ended March 31, 2010 includes approximately $1,318,000 related to these awards.

        On October 6, 2009, the Company awarded 100,000 RSUs under the 2004 Plan to a Company officer as incentive compensation. The RSUs vest 25% on each of the first four anniversaries of the grant subject to continuous employment and further subject to accelerated vesting under specific conditions defined in the award agreement. The fair value of the award was $727,000 based upon the closing market price of the Company's common stock on the award date. As of March 31, 2010, the Company determined that it is probable that a portion of the award would be accelerated per the terms of the agreement and is recognizing share-based compensation expense for the award on a pro-rata basis through the estimated dates for vesting. Share-based compensation expense for the period ended March 31, 2010 includes approximately $65,000 for this award.

        On July 23, 2009, the Company awarded an additional 290,400 RSUs under the 2004 Plan to non-officer employees as an incentive for future performance. The fair value of the RSUs was $7.34 per unit, or approximately $2,132,000 in total, based upon the closing market price of the Company's common stock on the award date. The RSUs vest based on the achievement of certain performance milestones during 2010, subject to acceleration upon termination of employment by the Company without cause. Due to the Company's restructuring in the first quarter of 2010 (see Note 7 for further discussion), approximately 157,000 of these RSUs became fully vested on February 5, 2010. The Company determined share-based compensation expense for these awards on a straight-line basis from grant date through the accelerated vesting date. Share-based compensation expense for the period ended March 31, 2010 includes approximately $354,000 related to these awards.

        On July 11, 2009, a Company director was awarded 170,000 RSUs under the 2004 Plan as compensation for consulting services. The RSUs vest 50% on each of the first two anniversaries of the grant and are subject to 100% acceleration upon the achievement of a performance milestone defined in the agreement. The fair value of the award was approximately $196,000 at March 31, 2010, and will be re-measured at each reporting date as it is accounted for as a non-employee award. As of March 31, 2010, the Company determined that the performance milestone is probable of being achieved in 2010 and is thus recognizing stock compensation for the fair value of the award on a pro-rata basis from the grant date through the estimated date of achievement.

        In 2008, the Company awarded approximately 92,000 RSUs under the 2004 Plan to non-officer employees as an incentive for future performance. An additional 4,000 RSUs were awarded in 2009 for this incentive program. Upon vesting, each RSU is payable with one share of the Company's common stock. The average fair value of the RSUs was $3.13 per unit, or approximately $299,000 in total, based upon the closing market price of the Company's common stock on the award dates. The RSUs vest based on the achievement of certain performance milestones during 2009 and 2010. During 2009, all three milestones were achieved and the shares vested and were released. Share-based compensation for these awards was fully recognized during 2009.2007.

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10. Share-based Compensation (Continued)

        Estimated fair valuesThe Company's share-based compensation expense also includes RSUs awarded to employees and non-employee consultants. The table below summarizes RSU awards outstanding as of stock options granted have been determined using the Black-Scholes option pricing model with the following assumptions for the periods presented:September 30, 2010 (RSUs in thousands):

        No income tax benefit has been recorded for share-based compensation expense as the Company has a full valuation allowance and management has concluded that it is more likely than not that the Company's net deferred tax assets will not be realized. As of March 31,September 30, 2010, total unrecognized costs related to employee share-based compensation is approximately $8,271,000.$5,131,000. Unrecognized share-based compensation expense from outstanding stock options is approximately $5,382,000$2,802,000 and is

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10. Share-based Compensation (Continued)

expected to be recognized over a weighted average period of approximately 1.9 years. Unrecognized share-based compensation expense from outstanding RSUs is approximately $2,329,000 and is expected to be recognized over a weighted average period of approximately 2.1 years. Unrecognized share-based compensation expense from outstanding RSUs is approximately $2,889,000 and is expected to be recognized over a weighted average period of approximately 0.81.2 years subject to acceleration with the occurrence of certain qualifying events.

Note 11. Comprehensive Loss

        The Company's comprehensive loss for the three and nine months ended March 31,September 30, 2010 and 2009 is summarized as follows (in thousands):

Note 12. Commitments and Contingencies

        The Company entered into a picoplatin active pharmaceutical ingredient ("API") commercial supply agreement with W.C. Heraeus GmbH ("Heraeus") in March 2008. Under this agreement Heraeus will produce the picoplatin API to be used for preparing picoplatin finished drug product for commercial use. Manufacturing services are provided on a purchase order, fixed-fee basis, subject to certain purchase price adjustments and minimum quantity requirements. The costs to Heraeus for the purchase and set-up of dedicated equipment as required under the commercial supply agreement, will be repaid by the Company in the form of a surcharge on an agreed upon amount of the picoplatin API ordered and delivered on or before December 31, 2013. If the Company orders and takes delivery of less than the agreed upon amount of picoplatin API through December 31, 2013, it will be obligated to pay the balance of the dedicated equipment cost as of that date. As of December 31, 2009, Heraeus

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 12. Commitments and Contingencies (Continued)

had completed construction of the dedicated equipment at a total cost of approximately $1,485,000. The Company determined that the equipment should be accounted for as a capital lease and accordingly recognized an asset and long termlong-term obligation for the equipment of $1,485,000 on its consolidated balance sheet as of December 31, 2009. The Company will reflect the surcharge payments as reductions to the capital lease balance outstanding, and will accrete a finance charge to interest expense as specified under the agreement. The balance of the obligation at September 30, 2010 was $1,551,000, including accreted interest of approximately $66,000. The Company does not anticipate beginning production of commercial supplies of picoplatin API, thereby utilizing the dedicated equipment, within the next 12 months and has, therefore, classified the obligation as long-term. Due to the delay in the Company's plans for the commercialization of picoplatin, the Company determined that its capital lease asset for equipment under the Heraeus agreement was impaired as of December 31, 2009 and, therefore, recognized an asset impairment charge of $1,485,000 in the consolidated statement of operations during the quarter ended December 31, 2009.

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PONIARD PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 13. Exchange of Preferred Stock

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

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

Important Information Regarding Forward-Looking Statements

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

        You should not place undue reliance on our forward-looking statements because these statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties that are difficult to predict. Our forward-looking statements are based on the information currently available to us and speak only as of the date of this report or, in the case of forward-looking statements incorporated herein by reference, the date of the filing that includes the statement. Over time, our actual results, performance or achievements may differ from those expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our security holders. Except as required by law, we undertake no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this report, or to reflect the occurrence of unanticipated events.

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

Background and Corporate Update

        During the first quarter of 2010, we completed a management restructuring and reduced our workforce as we refocused our clinical and regulatory goals. On March 24, 2010, we announced that we were suspending our effort to file a New Drug Application, or NDA, seeking approval of picoplatin as a second-line treatment for patients with small cell lung cancer. We made this decision following a detailed analysis of primary and updated data from our Phase 3 SPEAR (Study of Picoplatin Efficacy After Relapse) study and an evaluation of the NDA process with the U.S. Food and Drug Administration.Administration, or FDA. We now are focusing our efforts on developing registration strategies for picoplatin in colorectal, prostate, ovarian and small cell lung cancers and are continuing to exploreevaluate partnering and other arrangements to enable the execution offund these strategies. We haveIn April 2010, we restructured our operations to conserve resources and support our registration and partnering strategies. This followed an earlier reduction in workforce headcount in February 2010. Through these two restructuring steps, our headcount was reduced from 50 to 12 employees. Concurrent with these events, we engaged

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Leerink Swann LLC to conduct a comprehensive review of strategic alternatives aimed at supporting and optimizing the value of our picoplatin program to our shareholders. These alternatives may include a potential cash raise, merger, sale or partnership.

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        WithSeptember 30, 2010, we had approximately $23.3 million in cash, cash equivalents and investment securities balances, net of restricted cash of $158,000, which we believe will provide adequate resources to fund our operations at least through the end of 2010. Thereafter, we will need to raise additional funds or enter into a partnering or other strategic relationship to avoid a default under our current credit facility and sustain our current operations. Our ability to continue to evaluate strategic alternatives and potentially resume development activities with respect to the review of strategic alternatives, wepicoplatin is dependent on our ability to obtain substantial additional funding. We may seek to raise necessary additional funds through public or private equity, debt financings, collaborative arrangements with corporate partners or other sources. We can provide no assurance that any particular alternative will be pursued or that any transaction will occur, or on what terms. We do not plan to release additional information about the status of the review of alternatives unless and until a definitive agreement is entered into or the process is otherwise completed. If we are unable to secure additional funds, we may be forced to explore liquidation alternatives, including seeking protection from creditors through the application of bankruptcy laws.

Critical Accounting Policies and Estimates

        Our critical accounting policies and estimates have not materially changed from those reported in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010. For a more complete description, please refer to our Annual Report on Form 10-K.

Results of Operations

Three and Nine Months Ended March 31,September 30, 2010 Compared to the Three and Nine Months Ended September 30, 2009

Research and Development

        Research and development expenses decreased 40%82% to approximately $4.9$0.9 million during the third quarter of 2010 and decreased 58% to approximately $7.9 million in the first quarternine months of 2010 compared to approximately $8.2 millionfrom the comparable periods in 2009. The significant decrease in our research and development expenses during the first quarterthree and nine months ended September 30, 2010, is primarily a result of 2009.our picoplatin trials winding down. Our research and development expenses are summarized as follows:

        Research and development expenses decreased significantly during the first quarter of 2010 from the comparable period in 2009 as a result of our picoplatin trials winding down.        We did not incur any research expenses during the firstthird quarter of 2010 or 2009 due to the discontinuation of our research operations effective March 31, 2009. Contract manufacturing costs decreased 46%77% to $0.5approximately $0.2 million in the third quarter of 2010 and decreased 59% to approximately $1.0 million in the first quarternine months of 2010 from the comparable periodperiods in 2009, reflecting no2009. These decreases reflect the absence of drug production in the current year due to the completion of our trials and reduced drug product stability testing and analysis activity. Clinical costs decreased 56%85% to $2.7approximately $0.6 million in the third quarter of 2010 and decreased 69% to approximately

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$4.3 million in the first quarternine months of 2010 from the comparable periodperiods in 2009. This decrease resulted primarily from reduced clinical activity in connection with our current picoplatin studies, all of which are either completed or in a follow-up or extended follow-up stage. Share-based compensation expense increased 406%decreased 74% to $1.7approximately $0.1 million in the firstthird quarter of 2010 from the comparable period in 2009, due primarily to expense recognized for restricted stock units, or RSUs, awarded in 2009 for which there was no expense recognized in the third quarter of 2010 and to lower expense recognized for options resulting from the reduction in our headcount during 2010. Share-based compensation expense increased 113% to approximately $2.5 million for the nine months ended September 30, 2010 from the comparable period in 2009, primarily due to the recognition of expense for accelerated vesting of stock options held by certain officers based on the overall achievement of corporate goals in 2009, accelerated vesting of RSUs held by employees terminated in connection with our February 2010 and April 2010 restructuring activities, and awards of RSUs granted in February 2010 and July 2009 as incentives for future performance.

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

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