Commitment And Contingency

9 Months Ended

Sep. 30, 2011

Commitment And Contingency [Abstract]

Commitment And Contingency

Note 12. Commitment and Contingency

Contractual Commitment

The Company entered into a picoplatin API commercial supply agreement with Heraeus in March 2008. Under this agreement, Heraeus will produce the picoplatin API to be used for preparing picoplatin finished drug product for commercial use. Manufacturing services are provided on a purchase order, fixed-fee basis, subject to certain purchase price adjustments and minimum quantity requirements. The costs to Heraeus for the purchase and set-up of dedicated equipment as required under the commercial supply agreement, will be repaid by the Company in the form of a surcharge on an agreed upon amount of the picoplatin API ordered and delivered on or before December 31, 2013. If the Company orders and takes delivery of less than the agreed upon amount of picoplatin API through December 31, 2013, it will be obligated to pay the balance of the dedicated equipment cost as of that date. As of December 31, 2009, Heraeus had completed construction of the dedicated equipment at a total cost of approximately $1,485,000. The Company determined that the equipment should be accounted for as a capital lease and accordingly recognized an asset and long-term obligation for the equipment of $1,485,000 on its consolidated balance sheet as of December 31, 2009. The Company will reflect the surcharge payments as reductions to the capital lease balance outstanding, and will accrete a finance charge to interest expense as specified under the agreement. The balance of the obligation at September 30, 2011 was $1,640,000, including accreted interest of approximately $155,000. 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. Future minimum payments for the obligation as of September 30, 2011 are approximately $1,841,000. Because payments are determined based on the production of commercial supplies, which has been delayed, the Company is not able to identify payment totals for each of the years after September 30, 2011, but assumes that the entire amount of $1,841,000 will be paid no later than December 31, 2013. 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 for the year ended December 31, 2009.

Contingency

On June 27, 2011, a putative class action lawsuit was filed in the Superior Court of California, San Francisco County, against the Company, its board of directors and Allozyne. The action, titled Aronheim v. Poniard Pharmaceuticals, Inc., et al. (Case Number: CGC-11-512033) alleges in summary that, in connection with the proposed merger with Allozyne, the members of the Company board of directors breached their fiduciary duties by purportedly conducting an unfair sale process and agreeing to an unfair sale price, by purportedly making inadequate disclosures about the merger, and by purportedly engineering the proposed merger to provide them with improper personal benefits. The action also alleges that the Company and Allozyne aided and abetted the Company board members' purported breaches of fiduciary duty. The plaintiff seeks, among other things, a declaration that the suit can be maintained as a class action, a declaration that the Merger Agreement was entered into in breach of the Company board members' fiduciary duties, rescission of the Merger Agreement, an injunction against the proposed merger, a directive that the Company board members exercise their fiduciary duties to obtain a transaction that is in the best interests of the Company's shareholders, the imposition of a constructive trust in favor of the plaintiff and the class upon any benefits improperly received by the Company board members as a result of their purportedly wrongful conduct and fees and costs. The Company and its board of directors believe that the claims are without merit.

On August 24, 2011, a putative class action lawsuit was filed in the Superior Court of California, San Francisco County, against the Company and its board of directors, as well as against the Company's Chief Executive Officer, its President and Chief Medical Officer, its Interim Chief Financial Officer, its Senior Vice President of Corporate Development, and its Vice President, Legal and Corporate Secretary. The action, titled Wing Sze Wu v. Robert S. Basso, et al. (Case Number: CGC-11-513652), alleges in summary that the members of the Company's board of directors breached their fiduciary duties by agreeing to pay purportedly excessive compensation and benefits to the Company's senior management, that such members of the Company's senior management were allegedly unjustly enriched when they received such executive compensation and benefits, that the Company's board of directors breached its fiduciary duties by conducting a purportedly unfair sale process in connection with the proposed transaction with Allozyne and agreeing to an allegedly unfair and dilutive sale price and a transaction that included improper "deal protection measures," and by providing allegedly materially inadequate disclosures and material disclosure omissions to the Company's shareholders. The plaintiff seeks, among other things, a declaration that the suit can be maintained as a class action, an injunction against the proposed merger, rescission of the proposed merger to the extent it occurs before final judgment in the lawsuit or rescissory damages, a directive that the defendants account for all damages allegedly caused by them and account for all profits and special benefits obtained as a result of their alleged breaches of their fiduciary duties, and for costs, attorneys fees, expenses and such other relief as the court deems just and proper. The Company, its board of directors and Company management believe that the claims are without merit.

The parties to both the Aronheim case and the Wu case signed a Memorandum of Understanding dated October 19, 2011, providing for the settlement of both cases. The settlement is subject to final settlement documentation, court approval, and the closing of the merger transaction, among other things. The settlement would provide for dismissal of both the Aronheim and Wu cases, for certain additional disclosures, and for payment of plaintiffs' attorneys' fees. The Company has estimated a possible range of loss and has accrued a loss contingency equal to the minimum value of this range, or $215,000. There can be no assurance that the settlement will become effective. If the settlement does not become effective, the Aronheim and Wu cases will continue. If that should happen, the Company would vigorously defend the lawsuits. An estimate of the possible loss or range of loss in that event cannot be made at this time.