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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

of $9,339,000. The Company has historically suffered recurring operating losses and negative cash flows from operations. As of September 30, 2010, the Company had net working capital of $11,933,000, an accumulated deficit of $433,728,000 and total shareholders' equity of $12,134,000. The Company'sCompany’s total cash and cash equivalents and investment securities balances, net of restricted cash of $158,000, was $23,345,000$5,472,000 at September 30, 2010.March 31, 2011. The Company has financed its operations to date primarily through the sale of equity securities, borrowings under debt instruments, and through 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 ninethree months ended September 30,March 31, 2011 totaled $2,021,000.

In February 2011, the Company sold an aggregate of 9,444,116 shares of its common stock to Small Cap Biotech Value, Ltd. (“Small Cap Biotech”), pursuant to two draw downs under an equity line of credit facility dated December 20, 2010, totaled $19,230,000.described further in Note 6 below. Net proceeds of approximately $3,184,000 were received after deducting offering costs of approximately $274,000.

During the first half of 2010, the Company implemented two restructurings that reduced its workforce from 50 employees to 12 employees. On March 24, 2010, the Company announced that it was suspending its effort to seek regulatory approval for picoplatin in small cell lung cancer. The Company made this decision following a detailed analysis of primary and updated data from its Phase 3 trial and evaluation of the New Drug Application (“NDA”) process with the U.S. Food and Drug Administration (“FDA”). The Company is now focusing its resourcesefforts on the continued development of its primary product candidate, picoplatin. Based on the Company's activities to date for the development ofdeveloping registration strategies for advancing picoplatin into pivotal clinical trials in colorectal, prostate, ovarian and its evaluationsmall cell lung cancers and is continuing to explore partnering and other transactions to enable execution of strategic alternatives, the Company does not anticipate that its picoplatin product will be commercially available before 2014, if at all. As a result, the Company does not have a predictable source of revenue or other cash flows and does not expect to generate cash from operations for the foreseeable future. Thus, the Company is dependent upon its ability to sell equity instruments, borrow, or enter into licensing agreements or other strategic relationships to provide capital to sustain its operations.these strategies. In March 2010, in connection with the adoption of an initiative to develop registration strategies for picoplatin in multiple indications, the Company engaged anthe investment bankerbanking firm of Leerink Swann LLC to conduct a comprehensive review of strategic alternatives including raisingaimed at supporting and optimizing the value of its picoplatin program to its shareholders. These alternatives could include a recapitalization, financing, merger, asset sale, partnership and/or licensing arrangement. The Company has no assurance that any particular alternative will be pursued or that any transaction will occur, or on what terms. The Company has completed internal preparation of potential registration strategies. However, the Company is not undertaking further significant picoplatin development activities while it explores its strategic alternatives.

The Company will require substantial additional capital a merger or saleto support its future operations and the continued development of the Company or partnering with another company.picoplatin. The Company may not be able to obtain required additional capital and/or enter into relationships with corporate partners or other third partiesstrategic transactions on a timely basis, on terms that ultimately prove favorable to the Company,it, or at all. Conditions in the capital markets in general, and in the life science capital markets specifically, may affect the Company'sCompany’s potential financing sources and opportunities for partneringstrategic transactions. Uncertainty about current global conditions and the current financial uncertainties affecting capital and credit markets may make it particularly difficult for the Company to obtain capital market financing or credit on favorable terms, if at all, or to attract potential partners or enter into other strategic relationships. In addition, the Company has no assurance that any strategic transaction or financing would, once identified, be approved by its shareholders, if approval is required. The Company anticipates that any such transaction would be time-consuming and may require it to incur significant additional costs, even if not completed. Further, the Company may be required to raise additional capital as a condition to closing any proposed transaction. The Company’s current financial condition may make securing additional capital extremely difficult. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

The Company is seeking to address its liquidity needs by exploring strategic alternatives potentially available to it, including a merger with or acquisition by another company, the sale or licensing of the Company’s assets, a partnership, or recapitalization of the Company. In addition, the Company is continuously evaluating measures to reduce its costs and preserve additional capital. If the Company is unable to secure additional capital to fund its working capital and capital expenditure requirements and/or complete a strategic transaction in a timely manner, it may be forced to explore liquidation alternatives, including seeking protection from creditors through the application of bankruptcy laws.

The Company believes that its current cash and cash equivalents will be adequate to fund operations into the fourth quarter of 2011. The Company’s 2011 operating budget, however, reflects use of available cash only to fund its current operations and does not include additional costs associated with the implementation of a strategic

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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transaction or, if the Company is unable to complete a strategic transaction, the costs of a liquidation and winding up of the Company. These costs may be substantial and would include severance and accrued vacation expense, accelerated payments due under existing contracts, and legal, accounting and/or financial advisory fees. The Company can provide no assurance that it will have sufficient cash to cover these additional costs.

On July 20, 2010, the Company received a letter from The Nasdaq Stock Market (“Nasdaq”) 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 iswas not in compliance with the minimum bid price requirements of The Nasdaq Global Market. The Company haswas provided 180 calendar days, or until January 18, 2011 (the “initial compliance period”), 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 thecompliance. 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 transfertransferred the listing of its common stock from The Nasdaq Global Market to The Nasdaq Capital Market and thereby receiveon December 17, 2010, at which time it was afforded the remainder of the initial compliance period. On January 19, 2011, the Company received a letter from Nasdaq notifying it that it had been granted an additional 180 calendar daysday period (the “additional compliance period”), to regain compliance with the minimum bid price requirement. The notification of noncompliance has no immediate effectadditional time period was granted based on the Company meeting the continued listing or tradingrequirement for market value of the Company's common stockpublicly held shares and all other applicable requirements for initial listing on The Nasdaq Global Market.Capital Market, with the exception of the bid price requirement, and the Company’s written notice to Nasdaq of its intention to cure the deficiency during the additional compliance period by effecting a reverse stock split, if necessary. To regain compliance, the Company’s closing bid price of its common stock must meet or exceed $1.00 per share for at least ten consecutive trading days, but generally no more than 20 consecutive business days, before determining that it has demonstrated an ability to maintain long-term compliance. If the Company does not demonstrate compliance by July 18, 2011, it will receive written notification from the Nasdaq Listing Qualifications Staff that its common stock will be delisted. At that time, the Company would have the right to appeal the determination to a Nasdaq Hearings Panel and provide a plan to regain compliance. 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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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 loan agreement and the Company's projected operating results, the Company believes that its current cash, cash equivalents and investment securities balances will provide adequate resources to fund operations at least 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 lightpresented to its shareholders, for approval at its 2011 annual meeting of shareholders to be held on June 9, 2011, a proposal to authorize the board of directors to implement a reverse stock split of the current distressed economic environment,Company’s outstanding common stock at an exchange ratio between 1-for-15 and 1-for-25, with 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 would not have sufficient funds to repay the loan and to fund its continuing operations beyond December 31, 2010. Provisions of the loan agreement 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.

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 requiredexact ratio to be adoptedset by the board in the first quarter of 2011; however, early adoption is permitted.its discretion. The Company believes that these new standards would have an impact onthe reverse stock split may help facilitate its consolidated financial statements inefforts to regain compliance with the future were$1.00 minimum bid price requirement, although it to enter into an arrangement with multiple deliverables.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Fair Value Measurements

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

(Unaudited)

The determination of a financial instrument'sinstrument’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'sCompany’s assets that are measured at fair value on a recurring basis (in thousands):

As of September 30, 2010March 31, 2011 and December 31, 2009,2010, the Company'sCompany’s cash equivalents and investment securities are recorded at fair value as determined through market prices and other observable and corroborated sources. At September 30, 2010,March 31, 2011, the cash equivalents balance consists of $9,503,000$5,261,000 in

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Note 2. Fair Value Measurements (Continued)

money market funds. Investment securities are comprised of corporate debt securities and federal government and agency securitiesfunds (see Note 3 below for further details on investment securities). The Company did not have any investment securities as of March 31, 2011.

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 September 30, 2010.March 31, 2011.

Note 3. Investment Securities

The Company'sCompany’s investment securities, consisting of debt securities, are classified as available-for-sale. Unrealized holding gains or losses on these securities are included in other comprehensive gain/(loss)income 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. The Company did not have any investment securities as of March 31, 2011.

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

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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):

Accrued expenses above consist of general operating expenses such as legal and accounting fees, consulting, benefits and preferred dividends.

Note 5. Note Payable

On September 2, 2008, the Company entered into an Amended and Restated Loan and Security Agreement ("(“loan agreement"agreement”), with GE Business Financial Services Inc. (formerly known as Merrill Lynch Capital) and Silicon Valley Bank. The loan agreement amendsamended and restatesrestated in its entirety the earlier Loanloan and Security Agreementsecurity 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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5. Note Payable (Continued)

The loan agreement providesprovided for a $27,600,000 senior secured term loan facility ("(“loan facility"facility”) to be made available as follows: (i)that consisted of 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 arewere repayable over 42 months, commencing on October 1, 2008. Interest on the advances iswas fixed at 7.80%7.8% per annum. Final loan payments in the amounts of $1,070,000 and $900,000 arewere due upon maturity or earlier repayment of the initial term loan advance and the second term loan advance, respectively. Additionally, as a condition to the amendment and restatement of the original loan, the Company agreed to modification of the final payment obligations under the original loan, pursuant to which the Company paid $600,000 to Silicon Valley Bank on September 2, 2008, the effective date of the loan facility, and $675,000 to GE Business Financial Services on March 31, 2010.advances. All final payment amounts are beingwere 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 iswas secured by a first lien on all of the non-intellectual property assets of the Company. At September 30,

On December 20, 2010, the Company voluntarily prepaid $12,353,000 of aggregate principal, interest and fees due under the loan facility. The payoff amount reflects approximately $9,857,000 of aggregate outstanding principal balanceand accrued but unpaid interest as of December 20, 2010, approximately $480,000 remaining interest due to be paid in the future, and the aggregate final payment of $1,970,000. The Company recorded a loss on extinguishment of debt of $1,217,000 in the fourth quarter of 2010 in connection with the prepayment of the loan facility. The prepayment discharged the Company’s material liabilities and obligations under the loan facility was $12,920,000, net of discount of $879,000.which

        In connection with the loan agreement, the Company issued the lenders ten-year warrants to purchase an aggregate of 219,920 shares of the Company's common stock at an exercise price of $4.297 per share. The fair value of the warrants using the Black-Scholes option-pricing model was approximately $928,000 based upon assumptions of expected volatility of 90%, a contractual term of ten years, an expected dividend rate of zero and a risk-free interest rate of 3.74%. The portion of the loan proceeds allocable to the warrants is approximately $806,000 based on the relative fair value of the warrants, which the Company recorded as discount to notes payable. The total of the final loan payments and the proceeds allocated to the warrants of approximately $4,051,000 is being amortized to interest expense using an effective interest rate of 13.8%. The warrants became exercisable upon issuance and are exercisable anytime during their term. In October 2009, Silicon Valley Bank exercised its warrants held in connection with the 2006 and 2008 loan agreements to purchase an aggregate of 197,169 common shares, net of equivalent shares at market to cover the total exercise price. In November 2009, the Company amended the warrants held by GE Business Financial Services in connection with the 2006 and 2008 loan agreements to purchase an aggregate of 197,169 common shares to change the exercise price to $2.00 per share resulting in an increase in shareholders' equity and a charge to interest expense of $33,000 in 2009.

        The loan agreement contains restrictions on the Company's ability to, among other things, dispose of certain assets, engage in certain mergers and acquisition transactions, incur indebtedness, create liens on assets, make investments, pay dividends and repurchase stock. The loan agreement also contains covenants requiring the Company to maintain unrestricted cash in an amount equal to the lesser of (i) $17,940,000 or (ii) the outstanding aggregate principal balance of the term loans plus $4,000,000. 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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(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 increaseterminated, along with the applicable rate of interest by 5% and could result in the accelerationsecurity interests of the Company's payment obligations underlenders, on the loan agreement. The Company was in compliance with all loan covenants as of September 30, 2010.prepayment date.

Note 6. Common Stock Purchase AgreementAgreements

On December 20, 2010, the Company entered into an equity line of credit facility with Small Cap Biotech, pursuant to which Small Cap Biotech committed to purchase from the Company up to $10,000,000 worth of shares of the Company’s registered common stock, subject to a maximum aggregate limit of 9,444,116 common shares, which is equal to one share less than 20% of the Company’s outstanding common shares on the closing date of the facility, the trading market limit, less 221,218 shares issued to Small Cap Biotech as a commitment fee. The facility provided that the Company could, from time to time, at its sole discretion, present Small Cap Biotech with draw down notices to purchase Company common stock at a price equal to the daily volume weighted average price of the Company common shares on each day during the draw down period on which shares were purchased, less a discount ranging from 6.0% to 7.0%, based on the trading price of the Company’s common stock. On February 9, 2011, the Company completed a draw down and sale of 4,914,632 shares of common stock, at a price of approximately $0.39 per share, for net proceeds of approximately $1,702,000. On February 25, 2011, the Company completed a second draw down and sale of 4,529,484 shares of common stock, at a price of approximately $0.34 per share, for net proceeds of approximately $1,482,000. With the closing of the second draw, the Company had sold all of the 9,444,116 common shares available for issuance under the equity line and the facility, by its terms, automatically terminated on that date.

On February 23, 2010, the Company entered into an equity line of credit facility with Commerce Court Small Cap Value Fund, Ltd. ("(“Commerce Court"Court”). The facility providesprovided that, upon the terms and subject to the price and share amount parameters and other conditions thereof,therein, Commerce Court iswas committed to purchase up to $20,000,000 worth of shares of the Company'sCompany’s registered common stock over approximately 18 months; provided, however, that in no event maycould 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'sCompany’s outstanding common shares on the closing date of the facility, the trading market limit, less 121,183 shares issued to Commerce Court as a commitment fee. The facility provided that the Company could, from time to time, at its sole discretion, present Commerce Court with draw down notices to purchase Company common stock at a price of the shares will be equal to the daily volume weighted average price over eight consecutive trading days or such otherof the Company’s common shares on each date during the draw down period mutually agreed upon by the parties,on which shares were purchased, less a discount ranging from 3.125% to 5.0%, based on the trading price of the Company'sCompany’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 a price that is less than $1.00 per 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. On December 20, 2010, immediately preceding the Company’s entry into the Small Cap Biotech agreement discussed above, the Company and Commerce Court mutually agreed to terminate this equity line of credit facility. The Company did not incur any penalties in connection with such early termination.

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 Applicationan NDA for its drug candidate, picoplatin in small cell lung cancer. This restructuring plan resulted in a decrease inreduction of the number ofCompany’s workforce from 22 employees by approximately 45%, to a total of 12 employees, effective April 30, 2010. In connection with this plan, the Company recorded a restructuring charge of approximately $543,000 for the period ended March 31, 2010, consisting of one-time employee termination benefits, which will bewere paid in their entirety by January 31, 2011. As a consequence of the restructuring, approximately 965,000 restricted stock units ("RSUs"(“RSUs”), which were awarded in February 2010 pursuant to the Amended and Restated 2004 Incentive Compensation Plan (the "2004 Plan"“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 $1,486,000$962,000 in share-based compensation expense duringfor the first two quartersterminated employees for the period ended March 31, 2010 related to the accelerated vesting of these RSUs as a

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(Unaudited)

Note 7. Restructuring and Asset Impairment (Continued)

of 2010 for terminated employees 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 statementstatements of operations for the ninethree months ended September 30,March 31, 2011 and 2010 and in accrued liabilities in the condensed consolidated balance sheetsheets as of September 30,March 31, 2011 and December 31, 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'sCompany’s workforce by approximately 57%,from 50 employees 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 in the first quarter of 2010 related to the accelerated vesting of these RSUs as a result of the restructuring.

        The following table summarizes the impact of the restructuring charges reported in the condensed consolidated statement of operations for the nine months ended September 30, 2010 and in accrued liabilities in the condensed consolidated balance sheet as of 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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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 periodsthree months ended September 30, 2009March 31, 2011 and 2010 and in accrued liabilities in the condensed consolidated balance sheets as of March 31, 2011 and December 31, 2009 and September 30, 2010 related to the March 2009February 2010 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 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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(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'sCompany’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

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(Unaudited)

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'sCompany’s capitalization of the total $12,000,000 of picoplatin license payments is based on the Company'sCompany’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"&D”) projects and, therefore, had alternative future uses in the treatment of different cancer indications. At the time of acquisition, the Company planned to use intravenous picoplatin in a Phase 2 clinical trial in patients with small cell lung cancer and reasonably expected that the intravenous formulation could be used in additional, currently identifiable R&D projects in the form of clinical trials for other solid tumor cancer indications, such as prostate and colorectal cancers.

The Company, at the time of acquisition of the picoplatin license, reasonably anticipated using intravenous picoplatin in clinical trials that could be conducted during the remaining term of the primary patent, which is active through 2016. The Company concluded that the 12 years remaining for the primary patent term was the appropriate useful life for the picoplatin intangible asset, in accordance with the FASB'sFASB’s guidance for intangibles, and is amortizing the initial $2,000,000 aggregate 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 aggregate 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.

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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. The Company continues to believe that the picoplatin intangible is recoverable as of March 31, 2011.

        LicensedThe licensed products balance consists of the picoplatin amortizable intangible asset with a gross amount of $12,000,000, net of accumulated amortization of $5,319,000$5,927,000 and $4,408,000$5,623,000 at September 30, 2010March 31, 2011 and December 31, 2009,2010, 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. The following table presents the weighted-average number of shares that were excluded from

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

the number of shares used to calculate diluted net loss per share (in thousands):

In addition, 14,966 and 39,015 shares of common stock that would be issuable upon conversion of the Company'sCompany’s $2.4375 convertible exchangeable preferred stock, Series 1 preferred stock(“Series 1 shares”) are not included in the calculation of diluted loss per share for the periods ended September 30,March 31, 2011 and 2010, and 2009, respectively, because the effect of including such shares would not be dilutive.

Note 10. Share-based Compensation

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

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PONIARD PHARMACEUTICALS, INC.

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(Unaudited)

Note 10. Share-based Compensation (Continued)

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

There were no options granted during the three month period ended March 31, 2011. The share-based compensation expense for the ninethree months ended 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 nine months ended September 30,March 31, 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:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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'sCompany’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'sCompany’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 September 30, 2010,March 31, 2011, the cumulative accelerated vesting for options subject to the seven year vesting schedule equals 85% of the shares granted in 2006 and 65% of the shares granted in 2007.

The Company’s share-based compensation expense also includes RSUs awarded to employees and non-employee consultants. All RSUs awarded are subject to acceleration or forfeiture based upon the terms of their specific agreement. The table below summarizes RSU awards outstanding as of March 31, 2011 (RSUs in thousands):

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PONIARD PHARMACEUTICALS, INC.

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(Unaudited)

Note 10. Share-based Compensation (Continued)

 The Company's share-based compensation expense also includes RSUs awarded to employees and non-employee consultants. The table below summarizes RSU awards outstanding as of 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'sCompany’s net deferred tax assets will not be realized. As of September 30, 2010,March 31, 2011, total unrecognized costs related to employee share-based compensation is approximately $5,131,000.$4,144,000. Unrecognized share-based compensation expense from outstanding stock options is approximately $2,802,000 and is

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PONIARD PHARMACEUTICALS, INC.

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(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$2,035,000 and is expected to be recognized over a weighted average period of approximately 1.2 years2.0 years. Unrecognized share-based compensation expense from outstanding RSUs is approximately $2,109,000 and is expected to be recognized over a weighted average period of approximately 1.0 year subject to acceleration with the occurrence of certain qualifying events.

Note 11. Comprehensive Loss

The Company'sCompany’s comprehensive loss for the three and nine months ended September 30,March 31, 2011 and 2010 and 2009 is summarized as follows (in thousands):