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As filed with the Securities and Exchange Commission on September 1, 2005

Registration No. 333-121646

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

SUNESIS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

Delaware	2834	94-3295878
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

341 Oyster Point Boulevard
South San Francisco, California 94080
(650) 266-3500
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Daniel N. Swisher, Jr.
President and Chief Executive Officer
Sunesis Pharmaceuticals, Inc.
341 Oyster Point Boulevard
South San Francisco, California 94080
(650) 266-3500
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Alan C. Mendelson
William C. Davisson
Latham & Watkins LLP
135 Commonwealth Drive
Menlo Park, California 94025
(650) 328-4600 Laura A. Berezin
John T. McKenna
Cooley Godward LLP
3000 El Camino Real
Palo Alto, California 94306
(650) 843-5000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

        If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

        If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 2005

6,000,000 Shares

Common Stock

        Prior to this offering, there has been no public market for Sunesis Pharmaceuticals, Inc.'s common stock. The initial public offering price of our common stock is expected to be between $9.00 and $11.00 per share. We have applied to have our stock approved for quotation on the Nasdaq National Market under the symbol "SNSS."

        We have granted the underwriters an option to purchase, on the same terms and conditions set forth below, a maximum of 900,000 additional shares if the underwriters sell more than 6,000,000 shares in this offering.

Investing in our common stock involves risks. See "Risk Factors" beginning on page 8.

	Price to Public	Underwriting Discounts and Commissions	Proceeds to Sunesis Pharmaceuticals, Inc.
Per Share	$	$	$
Total	$	$	$

        Delivery of the shares of common stock will be made on or about                              , 2005.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Lehman Brothers SG Cowen & Co.

Needham & Company, LLC

The date of this prospectus is                              , 2005

TABLE OF CONTENTS

	PAGE
PROSPECTUS SUMMARY	1
RISK FACTORS	8
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	25
USE OF PROCEEDS	26
DIVIDEND POLICY	26
CAPITALIZATION	27
DILUTION	28
SELECTED FINANCIAL DATA	30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31
CONVERSION OF PREFERRED STOCK AND REVERSE STOCK SPLIT	43
BUSINESS	45
MANAGEMENT	70
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	85
PRINCIPAL STOCKHOLDERS	87
DESCRIPTION OF CAPITAL STOCK	91
U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS	95
SHARES ELIGIBLE FOR FUTURE SALE	98
UNDERWRITING	100
LEGAL MATTERS	105
EXPERTS	105
WHERE YOU CAN FIND MORE INFORMATION	105
INDEX TO FINANCIAL STATEMENTS	F-1

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus is only accurate as of the date of this prospectus, but the information may have changed since that date.

Until                        , 2005, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PROSPECTUS SUMMARY

This summary highlights key aspects of the information contained elsewhere in this prospectus. This summary does not constitute all the information you should consider before investing in our common stock. You should read the entire prospectus carefully, especially the risks of investing in our common stock that we discuss in "Risk Factors" and our financial statements and related notes included elsewhere in this prospectus.

Sunesis Pharmaceuticals, Inc.

Overview

        We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel small molecule therapeutics for oncology and other unmet medical needs. We have built our product candidate portfolio through internal discovery and the in-licensing of novel cancer therapeutics. We are advancing our product candidates through in-house research and development efforts and strategic collaborations with leading pharmaceutical and biopharmaceutical companies. We believe the quality and breadth of our product candidate pipeline, platform technology, strategic collaborations and scientific team will enable us to become a fully integrated biopharmaceutical company with a diversified portfolio of novel therapeutics for major diseases.

        We are advancing three proprietary oncology product candidates, SNS-595, SNS-032 and SNS-314, through in-house research and development efforts. All three are inhibitors of the cell division process, known as cell-cycle inhibitors, intended for the treatment of cancer. Our lead product candidate, SNS-595, is a novel cytotoxic. We are currently conducting two Phase I clinical trials with SNS-595, and we expect to commence an additional Phase I clinical trial in certain leukemias in September 2005 and two Phase II clinical trials in small cell and non-small cell lung cancers in the fourth quarter of 2005. Our second most advanced product candidate, SNS-032, is a CDK inhibitor. We are currently designing and planning to conduct a Phase I/II dose ranging clinical trial with SNS-032 in patients with advanced solid tumors. We intend to commence this trial in the fourth quarter of 2005. We in-licensed this compound from Bristol-Myers Squibb Company, or BMS, in April 2005. We are also developing SNS-314, an Aurora kinase inhibitor, for the treatment of cancer, which we expect to enter Phase I clinical trials in 2006. We have worldwide development and commercialization rights to SNS-595, SNS-032 (for diagnostic and therapeutic applications) and SNS-314.

        We have developed a proprietary method of discovering drugs in pieces, or fragments. We call this fragment-based discovery approach "Tethering." Tethering is a process whereby a target protein known to be involved in a disease process is engineered to facilitate the binding of small drug fragments. Once a small fragment is identified, the fragment is built out using the target protein's surface as a template to make a new full-size therapeutic compound. We combine Tethering with other drug discovery tools, such as structure-based design and medicinal chemistry, to discover and develop novel therapeutics for major diseases. In addition to its use in our internal drug discovery efforts, Tethering is the basis of our five strategic collaborations with Biogen Idec, Johnson & Johnson PRD and Merck. Since June 2004, each of our current collaboration partners has either extended its existing collaboration or entered into a new collaboration with our company. We believe that our strategic collaborations will enable us to leverage and expand our internal development capabilities, manage our cash expenditures and diversify risk across our pipeline.

Our Programs

SNS-595 Program

        SNS-595 is a novel cell-cycle inhibitor that we believe represents a new class of anti-tumor drugs. We believe that SNS-595 induces cell death by inhibiting the cell-cycle in a different way than any other cell-cycle inhibitor. In preclinical studies, SNS-595 demonstrated broad anti-tumor activity. In

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June 2004, we began the first of two Phase I clinical trials to evaluate doses and schedules of administration in patients with advanced solid tumors. We plan to commence an additional Phase I clinical trial in certain leukemias in September 2005 and two Phase II clinical trials in small cell and non-small cell lung cancers in the fourth quarter of 2005. In addition, in 2006 we intend to commence a Phase II clinical trial to evaluate SNS-595 as a stand-alone therapy in ovarian cancer and Phase Ib clinical trials to evaluate SNS-595 in combination with standard treatments in additional tumor types. We obtained worldwide development and commercialization rights to SNS-595 from Dainippon Pharmaceutical through a license agreement in 2003.

SNS-032 Program

        SNS-032 is a targeted inhibitor of certain cyclin-dependent kinases, including CDK2, CDK7 and CDK9. Kinases are enzymes critical in the communication and relay of signals to promote cell growth and function, and cyclin-dependent kinases relay signals in the cell cycle. In preclinical studies, SNS-032 has demonstrated broad anti-tumor activity in multiple mouse and human tumor models, including breast, ovarian, colorectal and skin cell cancers. We believe that the observed cell death caused by this inhibitor is the result of cell cycle arrest. BMS has conducted three Phase I dose-escalation clinical trials evaluating the safety and tolerability of SNS-032 at three different dosing regimens in approximately 135 patients with refractory solid tumors. We plan to commence a Phase I/II clinical trial with SNS-032 in the fourth quarter of 2005. We are designing this trial to evaluate the safety and tolerability of frequent, repeated exposures to SNS-032 as a stand-alone therapy in patients with advanced solid tumors, and to administer SNS-032 at the recommended dose identified in the Phase I portion of the trial to a limited number of subjects in the Phase II portion of the trial with advanced breast cancer, non-small cell lung cancer or melanoma. We plan to commence additional Phase I/II and Phase Ib clinical trials with SNS-032 in 2006. We obtained worldwide rights to develop and commercialize SNS-032 for diagnostic and therapeutic applications from BMS through a license agreement in April 2005.

SNS-314 Program

        SNS-314 is a targeted inhibitor of the Aurora A and B kinases. Aurora kinases are key enzymes involved in cell growth and division and play an essential role in the abnormal growth and proliferation of tumor cells. The goal of this program is to develop novel Aurora kinase inhibitors that exhibit broad activity in tumors and do not cause significant peripheral nerve cell death, known as peripheral neuropathy. In July 2005, we selected SNS-314 from our internal drug discovery program as a development candidate with the goal of filing an investigational new drug application, or IND, and commencing Phase I clinical trials in 2006. We have worldwide rights to commercialize SNS-314.

Other Oncology Kinase Programs

        We are applying Tethering in several programs to discover and develop novel cancer therapeutics that inhibit other kinases.

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Raf Kinase Inhibitors Program.    We are developing our Raf kinase inhibitors program in collaboration with Biogen Idec. We provided Raf kinase inhibitors derived from Tethering to the collaboration and have jointly with Biogen Idec optimized these molecules to show in vivo efficacy in animal models. Raf kinase is an enzyme in the Ras pathway, a signaling pathway important to cell proliferation. The goal of this program is to develop Raf kinase inhibitors with improved pharmaceutical properties as compared to other Raf kinase inhibitors in development. We expect Biogen Idec to file an IND and commence Phase I clinical trials in 2007. We have an option to co-develop and co-promote up to two drugs developed through this program on a worldwide basis.

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Other Kinase Inhibitors Programs.    As part of our collaboration with Biogen Idec, we are applying Tethering to discover novel small molecule leads that inhibit up to five additional oncology kinase targets. We and Biogen Idec are working together on the identification, optimization and development of inhibitor drugs for these kinases. We are also working on the identification and optimization of kinase inhibitor drugs outside of our collaboration with Biogen Idec.

Other Programs

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Cathepsin S Inhibitors Program for Inflammatory Diseases.    In collaboration with Johnson & Johnson PRD, we are applying Tethering to discover small molecule inhibitors of Cathepsin S, an enzyme involved in the activation of T-cells. Inappropriate activation of T-cells may lead to some inflammatory diseases, such as asthma, rheumatoid arthritis, multiple sclerosis, psoriasis and Crohn's disease. Johnson & Johnson PRD holds worldwide rights to commercialize any drugs resulting from this program.



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BACE Inhibitors for Alzheimer's Disease.    In collaboration with Merck, we are applying Tethering to identify and optimize inhibitors of BACE, an important enzyme target in Alzheimer's disease. Merck holds worldwide rights to commercialize any drugs resulting from this collaboration and is responsible for advancing these compounds into lead optimization, preclinical studies and clinical trials.



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Anti-Viral Inhibitors Program.    We are collaborating with Merck to identify small molecule inhibitors of an anti-viral target by a novel mechanism. We provided Merck with a series of small molecule compounds we derived from Tethering that target a specific viral protein. Merck holds worldwide rights to commercialize any drugs resulting from this collaboration and is responsible for advancing these compounds into lead optimization, preclinical studies and clinical trials.



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Anti-Cancer Program.    We are collaborating with Biogen Idec to identify small molecule inhibitors of a non-kinase cancer target by a novel mechanism. We provided Biogen Idec with a series of small molecule compounds we derived from Tethering that target a specific protein overexpressed in certain cancers, including breast and colorectal cancers. Biogen Idec holds worldwide rights to commercialize any drugs resulting from this collaboration and is responsible for advancing these compounds into lead optimization, preclinical studies and clinical trials.

Our Fragment-Based Drug Discovery Approach

        We are applying Tethering to discover and develop novel therapeutics for major diseases. Tethering allows us to screen drug fragments based on binding properties, which enables us to potentially identify compounds that may not be discovered through conventional methods of drug discovery. We believe that this capability allows us to efficiently design product candidates that bind to sites or regions on a specific protein not readily accessed by other discovery methods. Tethering is applicable to most proteins, and we have used Tethering on over 15 different protein targets to date.

Our Strategy

        We are focused on discovering, developing and commercializing novel small molecule therapeutics for oncology and other unmet medical needs. The key elements of our strategy are as follows:

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focus on small molecules with differentiated therapeutic benefits;



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maximize the value of our pipeline of product candidates through internal development and strategic collaborations; and

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expand our portfolio of product candidates through our internal drug discovery engine and in-licensing.

Risks Related to Our Business

        We are a clinical-stage biopharmaceutical company subject to a number of risks that you should be aware of before you decide to buy our common stock. In particular, all of our product candidates are in Phase I clinical trials or earlier, and we have not received regulatory approval for any product candidate. It is possible that we may never successfully commercialize any of our product candidates. While we have received revenue from our research collaborations and grants and fellowships, we have not generated any revenue to date from product sales. As of June 30, 2005, we had an accumulated deficit of $110.0 million, and we expect to continue to incur substantial losses for the foreseeable future. These risks are discussed more fully in "Risk Factors."

Corporate Information

        We were incorporated in Delaware in February 1998 as Mosaic Pharmaceuticals, Inc., and we subsequently changed our name to Sunesis Pharmaceuticals, Inc. Our principal executive offices are located at 341 Oyster Point Boulevard, South San Francisco, California 94080, and our telephone number is (650) 266-3500. Our website address is www.sunesis.com. Information contained in, or accessible through, our website is not a part of this prospectus. References in this prospectus to "we," "us," "our," "our company" or "Sunesis" refer to Sunesis Pharmaceuticals, Inc.

        Sunesis, Tethering and  , our logo, are registered trademarks of our company. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.

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The Offering

Common stock offered by Sunesis:	6,000,000 shares
Common stock to be outstanding after the offering:	21,235,620 shares
Proposed Nasdaq National Market symbol:	SNSS
Use of proceeds:	We intend to use our net proceeds to fund clinical and preclinical development of our product candidates, to discover additional product candidates, to repay outstanding indebtedness and for general corporate purposes, including capital expenditures and working capital. We may use a portion of our net proceeds to in-license product candidates or to invest in businesses or technologies that we believe are complementary to our own. See "Use of Proceeds."

        The number of shares of common stock to be outstanding after this offering is based on 15,235,620 shares of common stock outstanding as of June 30, 2005. The number of shares of common stock to be outstanding after this offering excludes, as of June 30, 2005:

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1,915,661 shares of common stock issuable upon exercise of outstanding stock options with a weighted average exercise price of $2.52 per share;



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348,719 shares of common stock issuable upon exercise of outstanding warrants with a weighted average exercise price of $9.81 per share; and



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2,039,373 shares of common stock reserved for future issuance under our 1998 Stock Option Plan, 2001 Stock Option Plan, 2005 Equity Incentive Award Plan and Employee Stock Purchase Plan.

Unless specifically stated, all information contained in this prospectus:

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gives effect to our amended and restated certificate of incorporation that we will file in connection with the closing of this offering;



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gives effect to an approximately 1-for-3.76 reverse split of our preferred and common stock to be effected prior to the closing of this offering, based on an assumed initial public offering price of $10.00 per share;



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gives effect to the conversion of our outstanding preferred stock into 13,622,785 shares of common stock in connection with this offering, based on an assumed initial public offering price of $10.00 per share; and



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assumes no exercise by the underwriters of their option to purchase up to 900,000 additional shares of common stock.

        Biogen Idec has indicated an interest in purchasing up to an aggregate of approximately $4.0 million of common stock in this offering. However, because indications of interest are not binding agreements or commitments to purchase, this stockholder may elect not to purchase any shares in this offering.

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Summary Financial Data

        The following summary financial data should be read in conjunction with "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus. We derived the statements of operations data for the years ended December 31, 2002, 2003 and 2004 from our audited financial statements included elsewhere in this prospectus. We derived the statements of operations data for the six months ended June 30, 2004 and 2005, as well as the balance sheet data as of June 30, 2005, from our unaudited financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of results to be expected in any future period.

				Year Ended December 31,									Six Months Ended June 30,
				2002			2003			2004			2004			2005
													(unaudited)
				(in thousands, except share and per share data)
Statements of Operations Data:
Revenue:
	Collaboration revenue			$	3,170		$	6,842		$	5,938		$	2,728		$	3,343
	Collaboration revenue from related party				32			857			4,201			786			5,244
	Grant and fellowship revenue				1,474			561			166			97			67
		Total revenue			4,676			8,260			10,305			3,611			8,654
Operating expenses:
	Research and development				18,441			21,326			23,616			11,899			21,393
	General and administrative				6,179			6,136			7,352			3,698			3,989
			Total operating expenses		24,620			27,462			30,968			15,597			25,382
Loss from operations					(19,944	)		(19,202	)		(20,663	)		(11,986	)		(16,728	)
Interest income					1,360			713			518			205			396
Interest expense					(594	)		(521	)		(387	)		(211	)		(216	)
Other income (expense), net					(4	)		5			2			—			6
Net loss				$	(19,182	)	$	(19,005	)	$	(20,530	)	$	(11,992	)	$	(16,542	)
Basic and diluted net loss per share				$	(16.59	)	$	(14.32	)	$	(13.97	)	$	(8.41	)	$	(10.53	)
Shares used in computing basic and diluted net loss per share					1,156,056			1,327,368			1,469,979			1,425,902			1,571,514
Pro forma basic and diluted net loss per share (unaudited)										$	(2.00	)				$	(1.51	)
Shares used in computing pro forma basic and diluted net loss per share (unaudited)											10,263,683						10,981,467

	As of June 30, 2005
	Actual			Pro Forma As Adjusted
	(unaudited)
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	25,050		$	78,129
Working capital		18,327			71,266
Total assets		31,909			83,704
Long-term debt		5,111			4,000
Convertible preferred stock		116,813			—
Common stock and additional paid-in capital		7,126			194,294
Accumulated deficit		(109,959	)		(126,265	)
Total stockholders' equity (deficit)		(105,761	)		65,101

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        See Note 2 to our financial statements for a description of the method used to compute shares used in computing basic and diluted net loss per share and shares used in computing pro forma basic and diluted net loss per share.

        The pro forma as adjusted data reflect, based on an assumed initial public offering price of $10.00 per share, (i) the conversion of our outstanding preferred stock into shares of common stock in connection with this offering and (ii) the application of net proceeds from the sale of 6,000,000 shares of common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses. See "Use of Proceeds," "Capitalization" and "Conversion of Preferred Stock and Reverse Stock Split."

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below and all information contained in this prospectus before you decide to purchase our common stock. If any of the possible adverse events described below actually occurs, we may be unable to conduct our business as currently planned and our financial condition and operating results could be harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of these risks, and you may lose all or part of your investment. Please see "Special Note Regarding Forward-Looking Statements."

Risks Related to Our Business

We have incurred losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We may not ever achieve or sustain profitability.

        We are a clinical-stage biopharmaceutical company with a limited operating history. We are not profitable and have incurred losses in each year since our inception in 1998. We do not currently have any products that have been approved for marketing, and we continue to incur research and development and general and administrative expenses related to our operations. Our net loss for the six months ended June 30, 2005 and the years ended December 31, 2004, 2003 and 2002 was $16.5 million, $20.5 million, $19.0 million and $19.2 million, respectively. As of June 30, 2005, we had an accumulated deficit of $110.0 million. We expect to continue to incur losses for the forseeable future, and we expect these losses to increase as we continue our research activities and conduct development of, and seek regulatory approvals for, our product candidates, and commercialize any approved drugs. Our losses, among other things, have caused and will continue to cause our stockholders' equity and working capital to decrease. To date, we have derived all of our revenue from collaboration agreements and, to a lesser extent, grants and fellowships. We do not anticipate that we will generate revenue from the sale of products for the forseeable future. If our product candidates fail in clinical trials or do not gain regulatory approval, or if our future products do not achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

There is a high risk that our drug discovery and development activities will not result in commercial products.

        Our product candidates are in the early stages of drug discovery or development and are prone to the risks of failure inherent in drug development. As of the date of this prospectus, only two of our product candidates, SNS-595 and SNS-032, have been tested in humans. We and our collaboration partners will need to conduct significant additional preclinical studies and clinical trials before we or our collaboration partners can demonstrate that our product candidates are safe and effective to the satisfaction of the U.S. Food and Drug Administration, or FDA, and other regulatory authorities. In our industry, it is unlikely that the limited number of compounds that we have identified as potential product candidates will actually lead to successful product development efforts. Preclinical studies and clinical trials are expensive and uncertain processes that take years to complete. Failure can occur at any stage of the process, and successful preclinical studies and early clinical trials do not ensure that later clinical trials will be successful. Product candidates in later stage trials may fail to show desired efficacy and safety traits despite having progressed through initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier trials.

        We do not know whether our ongoing Phase I clinical trial with SNS-595, our planned Phase I/II clinical trial with SNS-032, our planned Phase I clinical trial SNS-314, or any other future clinical trials with any of our product candidates will be completed on schedule, or at all, or whether our planned

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Phase I, Phase I/II and Phase II clinical trials will begin on time. The commencement of our planned clinical trials could be substantially delayed or prevented by several factors, including:

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limited number of, and competition for, suitable patients with particular types of cancer for enrollment in clinical trials;



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delays or failures in obtaining regulatory approval to commence a clinical trial;



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delays or failures in obtaining sufficient clinical materials;



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delays or failures in reaching agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites; and



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delays or failures in obtaining institutional review board approval to conduct a clinical trial at a prospective site.

        The completion of our clinical trials could also be substantially delayed or prevented by several factors, including:

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slower than expected rates of patient recruitment and enrollment;



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failure of patients to complete the clinical trial;



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unforeseen safety issues;



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lack of efficacy during clinical trials;



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inability or unwillingness of patients or medical investigators to follow our clinical trial protocols; and



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inability to monitor patients adequately during or after treatment.

        For example, due to toxicities observed in previous Phase I clinical trials of SNS-032, our planned Phase I/II clinical trial for the use of SNS-032 to treat human malignancies will be complex and require stringent eligibility criteria, and there will be a limited patient population that will be able to participate in this trial. In addition, our planned dosing regimen for this trial is time-consuming and patients may choose to participate in alternative clinical trials. As a result, we believe that our planned Phase I/II clinical trial for SNS-032 may be lengthier and more expensive than similar clinical trials. In addition, our clinical trials may be suspended or terminated at any time by FDA, other regulatory authorities, our company or, in some cases, our collaboration partners. Any failure or significant delay in completing clinical trials for our product candidates could harm our financial results and the commercial prospects for our product candidates.

We will require substantial additional funding, which may not be available to us on acceptable terms, or at all.

        We are advancing multiple product candidates through discovery and development. We will need to raise substantial additional capital to continue our discovery, development and commercialization activities. We plan to retain the development and commercialization rights to some of our novel cancer therapeutics at least until we have completed a Phase II clinical trial to maximize our economic upside, which will require substantial expenditures by our company.

        We will need to raise substantial additional capital to:

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fund clinical trials and seek regulatory approvals;



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pursue the development of additional product candidates;



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expand our research and development activities;



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build or access manufacturing and commercialization capabilities;



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implement additional internal systems and infrastructure;

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maintain, defend and expand the scope of our intellectual property portfolio; and



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hire additional management and scientific personnel.

        Our future funding requirements will depend on many factors, including but not limited to:

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the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities;



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the costs associated with establishing manufacturing and commercialization capabilities;



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the costs of acquiring or investing in businesses, product candidates and technologies;



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the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;



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the costs and timing of seeking and obtaining FDA and other regulatory approvals;



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the effect of competing technological and market developments; and



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the economic and other terms and timing of any collaboration, licensing or other arrangements into which we may enter.

        Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, debt financings or strategic collaborations. We do not know whether additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research and development programs. In addition, we may have to partner one or more of our product candidate programs at an earlier stage of development, which would lower the economic value of those programs to our company.

Our Phase I and subsequent clinical trials for our lead product candidates, SNS-595, SNS-032 and SNS-314, may not demonstrate safety or efficacy or lead to regulatory approval.

        Our lead product candidates, SNS-595, SNS-032 and SNS-314, are cytotoxic drugs being developed for the treatment of certain types of cancer. SNS-595 is currently being tested in two Phase I clinical trials, which is an early stage of clinical testing that is used, in part, to determine proper dosing levels based on the toxicity of a product candidate at various doses. We expect to commence a Phase I/II clinical trial with SNS-032 in the fourth quarter of 2005 and a Phase I clinical trial with SNS-314 in 2006. Cytotoxic cancer drugs promote cancer cell death by inhibiting cell proliferation, and commonly have a narrow dose range between efficacy and toxicity, commonly known as a "therapeutic window." Based on the results of our Phase I clinical trials, we may select a dose for use in future clinical trials that may prove to be ineffective in treating cancer. If our clinical trials result in unacceptable toxicity or lack of efficacy, we may have to terminate further clinical trials for SNS-595, SNS-032 and/or SNS-314. Even if we are able to find a proper dose that balances the toxicity and efficacy of one or more of our product candidates, we will be required to conduct extensive additional clinical trials before we are able to seek the regulatory approvals needed to market them. If clinical trials of SNS-595, SNS-032 and/or SNS-314 are halted, or if they do not show that these product candidates are safe and effective, our future growth would be limited and we may not have any other product candidates to develop.

        In addition to the risks described above, we are aware of risks that are specific to SNS-032. In previous Phase I clinical trials of SNS-032, significant safety risks were observed in patients who were administered SNS-032 on either a one-hour or a 24-hour infusion once every three weeks. For example, statistically significant increases in certain phases of the cardiac cycle, known as the QT interval, or the corrected QT interval, or QTc, on the electrocardiograms of patients were observed in patients receiving the 24-hour infusion regimen. Increased QT intervals may be associated with increased risk for severe cardiac events. In addition, pronounced, rapidly reversible decreases in white blood cells

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were observed between 24 and 48 hours following infusion under the one-hour infusion regimen, most likely associated with higher peak drug levels in this regimen. Further, some patients also experienced liver toxicity, which limited the amount of drug that could be administered to those patients. Two of these planned clinical trials were discontinued prior to completion. We will not receive regulatory approval for SNS-032 unless we are able to deliver therapeutically active doses of SNS-032 while keeping toxicities at acceptable levels. In our planned Phase I/II clinical trial, we intend to deliver the drug on a daily basis in a three-hour infusion for five consecutive days. There is a significant risk that this dose and regimen may not allow us to achieve efficacious exposure in the absence of dose-limiting toxicity, and thus SNS-032 may not advance as a single agent therapeutic. Furthermore, due to the extensive safety monitoring required to pursue our planned Phase I/II clinical trial for SNS-032, the number of eligible patients will likely be more limited than in some other clinical trials, which may delay the timelines for enrollment and completion of this trial.

        In addition, in clinical trials to date SNS-032 has demonstrated variable pharmacokinetics, or PK, which is the measure of the concentration of drug in the bloodstream over time. The PK variability results in differences in drug exposure between patients, and in some cases in the same patient, who are administered the same dose of SNS-032. Dose levels in future Phase II clinical trials will be selected primarily based on safety criteria. Because of the observed PK variability between and among patients, we believe that there is a risk that some patients may receive sub-therapeutic exposure, limiting the opportunity to show activity and efficacy for SNS-032. As with other product candidates in the biotechnology industry at this stage of development, even if we are able to find adequate doses and schedules from our Phase I clinical trials, we will be required to conduct extensive additional clinical trials before we are able to seek regulatory approval to market SNS-032.

Because the mechanism of action of SNS-595 is not fully known, we may not choose appropriate cancer types and dosing regimen in the design of our clinical trials relating to SNS-595.

        Our preclinical studies indicate that SNS-595 causes arrest at a stage of the cell cycle known as the "S phase," leading to cell death through apoptosis, or self-destruction of the cell. We do not fully understand the mechanism by which SNS-595 causes cell cycle arrest, known as the "mechanism of action," or if the cell cycle arrest is the cause of cell death. Because we do not fully understand the mechanism of action of SNS-595, we may not choose the optimal cancer types and dosing regimen in the design of our clinical trials, which could impact the outcome of these trials or require us to conduct additional clinical trials.

Our approach to developing cancer therapeutics by inhibiting cyclin-dependent kinases, Aurora kinases and Raf kinases has not been clinically validated and may not be successful.

        We have programs to develop small molecule inhibitors of CDK, Aurora and Raf kinases for the treatment of cancer. SNS-032 is a CDK inhibitor, and SNS-314 is an Aurora kinase inhibitor. The therapeutic benefit of inhibiting CDK, Aurora or Raf kinases in the treatment of human cancer has not been established definitively. Although a competitive kinase inhibitor, Sorafenib, is currently in Phase III clinical trials, this compound inhibits Raf and other kinases and its non-Raf kinase activities may be responsible for its efficacy. In addition, there are conflicting scientific reports regarding the reliance or necessity of CDK2 in the cell-cycle. Although several other companies have CDK and Aurora kinase programs, we are not aware of any candidates that have demonstrated therapeutic benefit in clinical testing. If CDK, Aurora or Raf kinase inhibition is not an effective treatment of human cancer, SNS-032, SNS-314 and any other drug candidates from these programs may have little or no commercial value.

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If our competitors develop and market products that are more effective, safer or less expensive than our future products, our commercial opportunities will be negatively impacted.

        The life sciences industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching and marketing products designed to address cancer and other unmet medical needs. We are developing small molecule therapeutics that will compete with other drugs and therapies that currently exist or are being developed. Many of our competitors have significantly greater financial, manufacturing, marketing and drug development resources than we do. Large pharmaceutical companies in particular have extensive experience in clinical testing and in obtaining regulatory approvals for drugs. These companies also have significantly greater research capabilities than we do. In addition, many universities and private and public research institutes are active in cancer and inflammation research, some of which are in direct competition with us.

        Our product candidates will compete with a number of cytotoxic drugs that are currently marketed or in development that also target proliferating cells. These drugs include marketed products, such as irinotecan, doxorubicin and taxanes, which are generic and widely available, and many other cell-cycle inhibitors that have been shown to be effective anti-cancer agents. To compete effectively with these agents, our product candidates will need to demonstrate advantages that lead to improved clinical efficacy compared to these competitive products. We also compete with other companies that may be pursuing drug discovery using other technologies, including fragment-based technologies.

        We believe that our ability to successfully compete will depend on, among other things:

•

our ability to develop novel compounds with attractive pharmaceutical properties and to secure and protect intellectual property rights based on our innovations;



•

the efficacy, safety and reliability of our product candidates;



•

the speed at which we develop our product candidates;



•

our ability to design and successfully execute appropriate clinical trials;



•

our ability to maintain a good relationship with regulatory authorities;



•

the timing and scope of regulatory approvals;



•

our ability to manufacture and sell commercial quantities of future products to the market; and



•

acceptance of future products by physicians and other healthcare providers.

        If our competitors market products that are more effective, safer or less expensive than our future products, if any, or that reach the market sooner than our future products, if any, we may not achieve commercial success. In addition, the biopharmaceutical industry is characterized by rapid technological change. Because our research approach integrates many technologies, it may be difficult for us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete.

Our proprietary Tethering drug discovery approach is experimental and may not discover any therapeutic compounds of commercial value.

        We have developed a proprietary drug discovery approach called "Tethering." Tethering is a process whereby a target protein known to be involved in a disease process is engineered to facilitate the binding of small drug fragments. Once a small fragment is identified, the fragment is built out using the target protein's surface as a template to make a new full-size therapeutic compound. Tethering is unproven as a drug discovery approach. We have only recently begun preclinical studies of product candidates discovered through Tethering. Our Tethering drug discovery approach may not identify any therapeutic compounds of commercial value.

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If we fail to maintain our existing, or enter into new, strategic collaborations, we may have to reduce or delay our product candidate development or increase our expenditures.

        Our business model is based in part upon entering into strategic collaborations for discovery and/or development of some of our product candidates. In particular, we are substantially dependent on our strategic collaboration with Biogen Idec to discover, develop and commercialize small molecule inhibitors of Raf kinase and up to five additional targets. The agreement may be terminated by Biogen Idec without cause at any time before August 2006 upon six months' written notice or immediately upon written notice and payment of a termination fee. After August 2006, Biogen Idec may terminate the agreement without cause upon 90 days' written notice. If we are not able to maintain this collaboration with Biogen Idec or our other existing collaborations, or establish and maintain additional strategic collaborations of similar scope:

•

the development of our current or future product candidates may be terminated or delayed;



•

our cash expenditures related to development of our current or future product candidates would increase significantly;



•

we may be required to hire additional employees or otherwise develop expertise, such as sales and marketing expertise, for which we have not budgeted;



•

we will bear all of the risk related to the development of each of our current and future product candidates; and



•

we may be unable to meet demand for any future products that we may develop.

In that event, we would likely be required to limit the size or scope of one or more of our programs.

The commercial success of our collaborations depends in part on the development and marketing efforts of our collaboration partners, over which we have limited control. If our collaborations are unsuccessful, our potential to develop and commercialize products through our collaborations, and to generate future revenue from the sale of these products, would be significantly reduced.

        Our dependence on collaboration arrangements subjects our company to a number of risks. Our ability to develop and commercialize drugs that we develop with our collaboration partners depends on our collaboration partners' ability to establish the safety and efficacy of our product candidates, obtain and maintain regulatory approvals and achieve market acceptance of a product once commercialized. Our collaboration partners may elect to delay or terminate development of one or more product candidates, independently develop products that compete with ours, or fail to commit sufficient resources to the marketing and distribution of products developed through their collaborations with us. In the event that one or more of our collaboration partners fails to diligently develop or commercialize a product candidate covered by one of our collaboration agreements, we may have the right to terminate our partner's rights to such product candidate but we will not receive any future revenue from that product candidate unless we are able to find another partner or commercialize the product candidate on our own, which is likely to result in significant additional expense. Business combinations, significant changes in business strategy, litigation and/or financial difficulties may also adversely affect the willingness or ability of one or more of our collaboration partners to complete their obligations under our collaboration agreements. If our collaboration partners fail to perform in the manner we expect, our potential to develop and commercialize products through our collaborations, and to generate future revenue from the sale of these products, would be significantly reduced.

If conflicts of interest arise between our collaboration partners and us, any of them may act in their self-interest, which may be adverse to our interests.

        If a conflict of interest arises between us and one or more of our collaboration partners, they may act in their own self-interest and not in the interest of our company or our stockholders. Some of our

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collaboration partners are conducting, and any of our future collaboration partners may conduct, multiple product development efforts within the disease area that is the subject of collaboration with our company. For example, we are collaborating with Johnson & Johnson PRD to discover small molecule inhibitors of Cathepsin S. In addition to our collaboration, Johnson & Johnson PRD also has an independent effort focused on developing a small molecule Cathepsin S inhibitor. In some of our collaborations, we have agreed not to conduct, independently or with any third party, any research that is competitive with the research conducted under our collaborations. Our collaboration partners, however, may develop, either alone or with others, products in related fields that are competitive with the product candidates that are the subject of these collaborations. Competing products, either developed by our collaboration partners or to which our collaboration partners have rights, may result in their withdrawal of support for our product candidates.

        If one or more of our collaboration partners were to breach or terminate their collaboration agreements with us or otherwise fail to perform their obligations thereunder in a timely manner, the preclinical or clinical development or commercialization of the affected product candidates or research programs could be delayed or terminated. We do not know whether our current or any future collaboration partners will pursue alternative technologies or develop alternative product candidates, either on their own or in collaboration with others, including our competitors, as a means for developing treatments for the diseases targeted by collaboration agreements with our company.

The results of preclinical studies and clinical trials may not satisfy the requirements of FDA or other regulatory agencies.

        Prior to receiving approval to commercialize any of our product candidates in the United States or abroad, we and our collaboration partners must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of FDA and other regulatory authorities abroad, that such product candidates are safe and effective for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we and our collaboration partners believe the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by FDA and other regulatory authorities. Administering any of our product candidates to humans may produce undesirable side effects, which could interrupt, delay or halt clinical trials of our product candidates and result in FDA or other regulatory authorities denying approval of our product candidates for any or all targeted indications.

We rely on third parties to conduct our clinical trials for SNS-595 and plan to rely on third parties to conduct our clinical trials for SNS-032 and SNS-314. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize SNS-595, SNS-032, SNS-314 or any of our other product candidates.

        We currently do not have the ability to independently conduct clinical trials for SNS-595, SNS-032, SNS-314 or any other product candidate. We rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to conduct clinical trials of our product candidates for which we do not have a collaboration. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, do not meet expected deadlines or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or for any other reason, we may need to enter into new arrangements with alternative third parties and our clinical trials may be extended, delayed or terminated or may need to be repeated, and we may not be able to obtain regulatory approval for or commercialize the product candidate being tested in such trials.

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We rely on a third party to manufacture our product candidates, including SNS-595, SNS-032 and SNS-314, and depend on a single supplier for SNS-595. There is a limited number of manufacturers that are capable of manufacturing the active ingredient of SNS-595.

        We do not currently own or operate manufacturing facilities for clinical or commercial production of our product candidates. We have no experience in drug formulation or manufacturing, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. As a result, we rely on a third party to manufacture the active pharmaceutical ingredient of SNS-595, which is classified as a toxic substance, thereby limiting the number of suppliers qualified to manufacture it. This manufacturer is our single supplier. If our third-party manufacturer is unable to produce the active pharmaceutical ingredient, we will need to establish a contract with another supplier. We believe there are at least three contract manufacturers in North America with the capability to manufacture the active ingredient of SNS-595. However, establishing a relationship with an alternative supplier would likely delay our ability to produce the active pharmaceutical ingredient for three to six months. We will also rely on a third party to manufacture SNS-032 and SNS-314. We expect to continue to depend on third-party contract manufacturers for the foreseeable future.

        Our product candidates require precise, high quality manufacturing. A contract manufacturer is subject to ongoing periodic unannounced inspection by FDA and corresponding state agencies to ensure strict compliance with current Good Manufacturing Practice, or cGMP, and other applicable government regulations and corresponding foreign standards. Our contract manufacturer's failure to achieve and maintain high manufacturing standards in compliance with cGMP regulations could result in manufacturing errors resulting in patient injury or death, product recalls or withdrawals, delays or interruptions of production or failures in product testing or delivery, delay or prevention of filing or approval of marketing applications for our products, cost overruns or other problems that could seriously harm our business.

        To date, our product candidates have been manufactured in small quantities for preclinical studies and clinical trials. If in the future one of our product candidates is approved for commercial sale, we will need to manufacture that product in larger quantities. Significant scale-up of manufacturing may require additional validation studies, which FDA must review and approve. If we are unable to successfully increase the manufacturing capacity for a product candidate, the regulatory approval or commercial launch of any related products may be delayed or there may be a shortage in supply.

        Any performance failure on the part of a contract manufacturer could delay clinical development or regulatory approval of our product candidates or commercialization of our future products, depriving us of potential product revenue and resulting in additional losses. In addition, our dependence on a third party for manufacturing may adversely affect our future profit margins. Our ability to replace an existing manufacturer may be difficult because the number of potential manufacturers is limited and FDA must approve any replacement manufacturer before it can begin manufacturing our product candidates. Such approval would require new testing and compliance inspections. It may be difficult or impossible for us to identify and engage a replacement manufacturer on acceptable terms in a timely manner, or at all.

We currently have no sales and marketing staff or distribution organization. If we are unable to develop a sales and marketing and distribution capability on our own or through collaborations with marketing partners, we will not be successful in commercializing our future products.

        We currently have no sales, marketing or distribution capabilities. We intend to establish our own sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize some future products, which will be expensive and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. With respect to other future products, we plan to collaborate with third parties that have direct sales forces and established distribution systems. To the extent that

15

we enter into co-promotion or other licensing arrangements, our product revenue is likely to be lower than if we directly marketed or sold our products. In addition, any revenue we receive will depend upon the efforts of third parties, which may not be successful and are only partially within our control. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize these future products. If we are not successful in commercializing our future products, either on our own or through collaborations with one or more third-parties, our future product revenue will suffer and we may incur significant additional losses.

Our proprietary rights may not adequately protect our technologies and product candidates.

        Our commercial success will depend on our ability to obtain patents and maintain adequate protection for our technologies and product candidates in the United States and other countries. As of July 31, 2005, we owned or had exclusive rights to 64 issued U.S. and foreign patents and 108 pending U.S. and foreign patent applications. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies and future products are covered by valid and enforceable patents or are effectively maintained as trade secrets.

        We apply for patents covering both our technologies and product candidates, as we deem appropriate. However, we may fail to apply for patents on important technologies or product candidates in a timely fashion, or at all. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products and technologies. In addition, we generally do not control the patent prosecution of subject matter that we license to and from others. Accordingly, we are unable to exercise the same degree of control over this intellectual property as we would over our own. Moreover, the patent positions of biopharmaceutical companies are highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. As a result, the validity and enforceability of patents cannot be predicted with certainty. In addition, we do not know whether:

•

we or our licensors were the first to make the inventions covered by each of our issued patents and pending patent applications;



•

we or our licensors were the first to file patent applications for these inventions;



•

others will independently develop similar or alternative technologies or duplicate any of our technologies;



•

any of our or our licensors' pending patent applications will result in issued patents;



•

any of our or our licensors' patents will be valid or enforceable;



•

any patents issued to us or our licensors and collaboration partners will provide us with any competitive advantages, or will be challenged by third parties;



•

we will develop additional proprietary technologies that are patentable; or



•

the patents of others will have an adverse effect on our business.

        We also rely on trade secrets to protect some of our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to maintain. While we use reasonable efforts to protect our trade secrets, our or our collaboration partners' employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose our proprietary information to competitors. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, foreign courts are sometimes less willing than U.S. courts to protect trade secrets. If our competitors independently develop equivalent knowledge, methods and know-how, we would not be able to assert our trade secrets against them and our business could be harmed.

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The composition of matter patents covering SNS-595 are due to expire in 2015. Even if SNS-595 is approved by FDA, we may not be able to recover our development costs prior to the expiration of these patents.

        The composition of our lead product candidate, SNS-595, is covered by U.S. patent 5,817,669 and its counterpart patents and patent applications in 45 foreign jurisdictions. U.S. patent 5,817,669 is due to expire on October 6, 2015, and most of its foreign counterparts are due to expire on June 6, 2015. We do not know whether patent term extensions will be available in the future. SNS-595 must undergo extensive clinical trials before it can be approved by FDA. We do not know when, if ever, SNS-595 will be approved by FDA. Even if SNS-595 is approved by FDA in the future, we may not have sufficient time to commercialize SNS-595 to enable us to recover our development costs prior to the expiration of the U.S. and foreign patents covering SNS-595. Our obligation to pay royalties to Dainippon Pharmaceutical, the company from which we licensed SNS-595, may extend beyond the patent expiration, which will further erode the profitability of this product.

If we are sued for infringing intellectual property rights of third parties, litigation will be costly and time consuming and could prevent us from developing or commercializing our future products.

        Our commercial success depends on not infringing the patents and proprietary rights of other parties and not breaching any collaboration or other agreements we have entered into with regard to our technologies and product candidates. Numerous third-party U.S. and foreign issued patents and pending applications exist in the area of kinases, including CDK, Aurora and Raf kinases for which we have research programs. Because patent applications can take several years to issue, there may currently be pending applications, unknown to us, that may result in issued patents that cover our technologies or product candidates. If we wish to use the technology or compound claimed in issued and unexpired patents owned by others, we will need to obtain a license from the owner, enter into litigation to challenge the validity of the patents or incur the risk of litigation in the event that the owner asserts that we infringe its patents.

        If a third party asserts that we infringe its patents or other proprietary rights, we could face a number of issues that could seriously harm our competitive position, including:

•

infringement and other intellectual property claims, which would be costly and time consuming to litigate, whether or not the claims have merit, and which could delay the regulatory approval process and divert management's attention from our business;



•

substantial damages for past infringement, which we may have to pay if a court determines that our product candidates or technologies infringe a competitor's patent or other proprietary rights;



•

a court prohibiting us from selling or licensing our technologies or future drugs unless the holder licenses the patent or other proprietary rights to us, which it is not required to do; and



•

if a license is available from a third party, we may have to pay substantial royalties or grant cross licenses to our patents or other proprietary rights.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees' former employers.

        Many of our employees were previously employed at universities or biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize our product candidates, which could

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severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

We expect to significantly expand our clinical research and development and marketing capabilities, and any difficulties managing this growth could disrupt our operations.

        We expect to significantly expand our clinical research and development and marketing capabilities by increasing expenditures in these areas, hiring additional employees and expanding the scope of our current operations. Future growth will require us to continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel, which may impose a strain on our administrative and operational infrastructure. The competition for qualified personnel in the biopharmaceutical field is intense. We are highly dependent on our continued ability to attract, retain and motivate highly-qualified management, clinical and scientific personnel. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. If we are unable to manage our growth effectively, we may not be able to implement our business plan.

Risks Related to Our Industry

The regulatory approval process is expensive, time consuming and uncertain and may prevent us or our collaboration partners from obtaining approvals for the commercialization of some or all of our product candidates.

        The research, testing, manufacturing, selling and marketing of drug candidates are subject to extensive regulation by FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country. Neither we nor our collaboration partners are permitted to market our product candidates in the United States until we receive approval of a New Drug Application, or NDA, from FDA. Neither we nor our collaboration partners have received marketing approval for any of our product candidates. Obtaining approval of an NDA can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and other applicable U.S. and foreign regulatory requirements may subject our company to administrative or judicially imposed sanctions, including warning letters, civil and criminal penalties, injunctions, product seizure or detention, product recalls, total or partial suspension of production, and refusal to approve pending NDAs or supplements to approved NDAs.

        Regulatory approval of an NDA or NDA supplement is not guaranteed, and the approval process is expensive and may take several years. FDA also has substantial discretion in the drug approval process. Despite the time and expense exerted, failure can occur at any stage, and we could encounter problems that cause us to abandon clinical trials or to repeat or perform additional preclinical studies and clinical trials. The number of preclinical studies and clinical trials that will be required for FDA approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address, and the regulations applicable to any particular drug candidate. FDA can delay, limit or deny approval of a drug candidate for many reasons, including:

•

a drug candidate may not be deemed safe or effective;



•

FDA officials may not find the data from preclinical studies and clinical trials sufficient;



•

FDA might not approve our or our third-party manufacturer's processes or facilities; or



•

FDA may change its approval policies or adopt new regulations.

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Even if we receive regulatory approval for a product candidate, we will be subject to ongoing FDA obligations and continued regulatory review, which may result in significant additional expense and limit our ability to commercialize our future products.

        Any regulatory approvals that we or our collaboration partners receive for our product candidates may also be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for potentially costly post-marketing follow-up studies. In addition, if FDA approves any of our product candidates, the labeling, packaging, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. The subsequent discovery of previously unknown problems with the drug, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the drug, and could include withdrawal of the drug from the market.

        FDA's policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to maintain regulatory compliance, we might not be permitted to market our future products and we may not achieve or sustain profitability.

Even if we receive regulatory approval to market our product candidates, the market may not be receptive to our products.

        Even if our product candidates obtain regulatory approval, resulting products, if any, may not gain market acceptance among physicians, patients, healthcare payors and/or the medical community. We believe that the degree of market acceptance will depend on a number of factors, including:

•

timing of market introduction of competitive products;



•

efficacy of our product;



•

prevalence and severity of any side effects;



•

potential advantages or disadvantages over alternative treatments;



•

strength of marketing and distribution support;



•

price of our future products, both in absolute terms and relative to alternative treatments; and



•

availability of reimbursement from health maintenance organizations and other third-party payors.

The potential toxicity of single and repeated doses of SNS-595 has been explored in a number of animal studies that suggest the mechanism-based dose-limiting toxicities in humans receiving SNS-595 may be similar to some of those observed in approved cytotoxic agents, including temporary toxicity to bone marrow cells, the gastrointestinal system and other systems with rapidly dividing cells. However, we do not know what side effects SNS-595 may have in humans as our clinical trials have only recently commenced.

        In previous clinical trials conducted by BMS, SNS-032 has been administered by IV infusion on a once-a-week and once-every-three-weeks basis. We believe that SNS-032 will need to be administered on a more frequent basis to show efficacy. Our current Phase I/II clinical trial design for SNS-032 includes administration of SNS-032 by a three hour IV infusion once a day for five consecutive days, followed by 16 days without the drug. We believe that this IV regimen may be inconvenient for patients, and commercial success may depend on developing an effective oral formulation of SNS-032. The development of an oral formulation could be costly and result in delays for the advancement of the program, and we cannot be certain that we will be able to develop an effective oral formulation for SNS-032.

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        If our future products fail to achieve market acceptance, we may not be able to generate significant revenue to achieve or sustain profitability.

The coverage and reimbursement status of newly approved drugs is uncertain, and failure to obtain adequate coverage and reimbursement could limit our ability to market any future products we may develop and decrease our ability to generate revenue.

        There is significant uncertainty related to the third-party coverage and reimbursement of newly approved drugs. The commercial success of our future products in both domestic and international markets depends on whether third-party coverage and reimbursement is available for the ordering of our future products by the medical profession for use by their patients. Medicare, Medicaid, health maintenance organizations and other third-party payors are increasingly attempting to manage healthcare costs by limiting both coverage and the level of reimbursement of new drugs and, as a result, they may not cover or provide adequate payment for our future products. These payors may not view our future products as cost-effective, and reimbursement may not be available to consumers or may not be sufficient to allow our future products to be marketed on a competitive basis. Likewise, legislative or regulatory efforts to control or reduce healthcare costs or reform government healthcare programs could result in lower prices or rejection of our future products. Changes in coverage and reimbursement policies or healthcare cost containment initiatives that limit or restrict reimbursement for our future products may reduce any future product revenue.

Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products abroad.

        We intend to market our future products in international markets. In order to market our future products in the European Union and many other foreign jurisdictions, we must obtain separate regulatory approvals. We have had limited interactions with foreign regulatory authorities, and the approval procedures vary among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Approval by FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market.

Foreign governments often impose strict price controls, which may adversely affect our future profitability.

        We intend to seek approval to market our future products in both the United States and in foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product. In some foreign countries, particularly in the European Union, prescription drug pricing is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our future product to other available therapies. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.

20

We may be subject to costly claims related to our clinical trials and may not be able to obtain adequate insurance.

        Because we conduct clinical trials in humans, we face the risk that the use of our product candidates will result in adverse side effects. We cannot predict the possible harms or side effects that may result from our clinical trials. Although we have clinical trial liability insurance for up to $10.0 million, our insurance may be insufficient to cover any such events. We do not know whether we will be able to continue to obtain clinical trial coverage on acceptable terms, or at all. We may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limit of, our insurance coverage. There is also a risk that third parties that we have agreed to indemnify could incur liability. Any litigation arising from our clinical trials, even if we were ultimately successful, would consume substantial amounts of our financial and managerial resources and may create adverse publicity.

We may incur significant costs complying with environmental laws and regulations, and failure to comply with these laws and regulations could expose us to significant liabilities.

        We use hazardous chemicals and radioactive and biological materials in our business and are subject to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials. Although we believe our safety procedures for handling and disposing of these materials and waste products comply with these laws and regulations, we cannot eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of hazardous materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could significantly exceed our insurance coverage, which is limited to $100,000 for pollution cleanup, and we are uninsured for third-party contamination injury.

Risks Related To This Offering

The price of our common stock may be volatile, and you may not be able to resell your shares at or above the initial public offering price.

        Prior to this offering, there has been no public market for our common stock. An active and liquid trading market for our common stock may not develop or be sustained after this offering. You may be unable to sell your shares of common stock at or above the initial public offering price due to fluctuations in the market price of our common stock resulting from changes in our operating performance or prospects. Factors that could cause volatility in the market price of our common stock include, but are not limited to:

•

results from, and any delays in, our clinical trial programs, including our ongoing and planned clinical trials for SNS-595, SNS-032 and SNS-314;



•

announcements of FDA non-approval of our product candidates, including SNS-595, SNS-032 or SNS-314, or delays in FDA or other foreign regulatory agency review processes;



•

failure or discontinuation of any of our research programs;



•

announcements relating to future collaborations or our existing collaborations with Biogen Idec, Johnson & Johnson PRD and Merck;



•

delays in the commercialization of our future products;



•

market conditions in the pharmaceutical, biopharmaceutical and biotechnology sectors and issuance of new or changed securities analysts' reports or recommendations;



•

actual and anticipated fluctuations in our quarterly operating results;

21

•

developments or disputes concerning our intellectual property or other proprietary rights;



•

introduction of technological innovations or new products by us or our competitors;



•

issues in manufacturing our product candidates or future products;



•

market acceptance of our future products;



•

deviations in our operating results from the estimates of analysts;



•

third-party healthcare reimbursement policies;



•

FDA or other U.S. or foreign regulatory actions affecting us or our industry;



•

litigation or public concern about the safety of our product candidates or future drugs;



•

sales of our common stock by our officers, directors or significant stockholders; and



•

additions or departures of key personnel.

        In addition, the stock markets in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that have been often unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business.

The ownership of our common stock will continue to be highly concentrated, and your interests may conflict with the interests of our existing stockholders.

        Our executive officers and directors and their affiliates, together with our current significant stockholders, will beneficially own approximately 58.4% of our outstanding common stock upon completion of this offering, based on an assumed initial public offering price of $10.00 per share. The relative ownership of our common stock among our current stockholders, including our officers and directors and their affiliates, may change as a result of the final price per share of our common stock in this offering, as described in "Conversion of Preferred Stock and Reverse Stock Split." Accordingly, these stockholders, acting as a group, will continue to have significant influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. These stockholders could delay or prevent a change of control of our company, even if such a change of control would benefit our other stockholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors' perception that conflicts of interest may exist or arise.

A significant portion of our outstanding common stock may be sold into the market in the near future. Substantial sales of this stock, or the perception such sales are likely to occur, could cause the price of our common stock to decline.

        If our existing stockholders sell a large number of shares of our common stock or the public market perceives that existing stockholders might sell shares of common stock, the market price of our common stock could decline significantly. All of the shares offered under this prospectus will be freely tradable without restriction or further registration under the federal securities laws, unless purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act of 1933. An aggregate of 14,435,693 of the remaining 15,235,620 shares outstanding upon the closing of this offering may be sold pursuant to Rule 144, 144(k) and 701 upon the expiration of 180-day lock-up agreements.

22

        Existing stockholders holding an aggregate of 14,074,023 shares of common stock, including shares of common stock underlying warrants, have rights with respect to the registration of these shares of common stock with the Securities and Exchange Commission. If we register their shares of common stock following the expiration of the lock-up agreements, they can sell those shares in the public market.

        Promptly following this offering, we intend to register 3,955,034 shares of common stock that are authorized for issuance under our stock option and employee stock purchase plans. As of June 30, 2005, 1,915,661 shares were subject to outstanding options, of which 1,033,423 shares were vested. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements referred to above and the restrictions imposed on our affiliates under Rule 144.

Investors in this offering will suffer immediate and substantial dilution of their investment

        If you purchase common stock in this offering, you will pay more for your shares than our pro forma as adjusted net tangible book value per share. Based upon an assumed initial public offering price of $10.00 per share, you will incur immediate and substantial dilution of $6.93 per share, representing the difference between our assumed initial public offering price and our pro forma as adjusted net tangible book value per share. Based upon an assumed initial public offering price of $10.00 per share, purchasers of common stock in this offering will have contributed approximately 32.8% of the aggregate purchase price paid by all purchasers of our stock but will own only approximately 28.3% of our common stock outstanding after this offering. In the past, we issued options and warrants to acquire common stock at prices significantly below the assumed initial public offering price. To the extent these outstanding options or warrants are exercised, you will incur further dilution.

If we sell shares of our common stock in future financings, common stockholders may experience immediate dilution and, as a result, our stock price may go down.

        We may from time to time issue additional shares of common stock at a discount from the current trading price of our common stock. As a result, our common stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, our common stockholders could experience dilution.

Provisions of our charter documents or Delaware law could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for you to change management.

        Provisions of our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempt by our stockholders to replace or remove our current management by making it more difficult to replace or remove our board of directors. These provisions include:

•

a classified board of directors so that not all directors are elected at one time;



•

a prohibition on stockholder action through written consent;



•

limitation of our stockholders entitled to call special meetings of stockholders;



•

an advance notice requirement for stockholder proposals and nominations; and

23

•

the authority of our board of directors to issue preferred stock with such terms as our board of directors may determine.

        In addition, Delaware law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person who, together with its affiliates, owns or within the last three years has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Accordingly, Delaware law may discourage, delay or prevent a change in control of our company.

        Provisions in our charter and other provisions of Delaware law could limit the price that investors are willing to pay in the future for shares of our common stock.

We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.

        We have never declared or paid cash dividends on our capital stock. We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

24

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus, including particularly the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, included in this prospectus regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management are forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "hope," "intend," "may," "plan," "project," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the "Risk Factors" section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, in-licensing transactions, joint ventures or investments we may make. We do not assume any obligation to update any forward-looking statements.

25

USE OF PROCEEDS

        We estimate that the net proceeds from the sale of 6,000,000 shares of common stock in this offering will be approximately $54.1 million, or approximately $62.4 million if the underwriters exercise their option to purchase additional shares in full, based on an assumed initial public offering price of $10.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses.

        We currently expect to use the net proceeds from this offering as follows:

•

approximately $10.0 million to fund clinical and preclinical development of SNS-595;



•

approximately $5.0 million to fund clinical and preclinical development of SNS-032;



•

approximately $3.0 million to fund clinical and preclinical development of SNS-314;



•

approximately $5.0 million for other programs and to discover additional product candidates; and



•

approximately $2.3 million to repay outstanding indebtedness owed to General Electric Capital as of June 30, 2005, with interest at annual rates ranging from 7.4% to 9.9% and which is payable over 36 to 48 months.

        In addition, we may use approximately $4.0 million to repay indebtedness owed to Biogen Idec as of June 30, 2005, with interest at a 3.0% premium to LIBOR. We intend to use the remainder of the net proceeds from this offering for general corporate purposes, including capital expenditures and working capital. We may also use a portion of our net proceeds to in-license product candidates or to invest in businesses or technologies that we believe are complementary to our own.

        We expect that the net proceeds from this offering, together with our current cash and cash equivalents, will be sufficient to advance our SNS-595 program to completion of Phase II clinical trials in small cell and non-small cell lung cancers and a Phase I clinical trial in certain leukemias, to complete a Phase I/II clinical trial for SNS-032, and to file an investigational new drug application with FDA and complete Phase I clinical trials for SNS-314.

        The amount and timing of our actual expenditures depend on several factors, including the progress of our research and development efforts and the amount of cash used by our operations. Accordingly, we will retain broad discretion in the allocation of the net proceeds from this offering. Pending such use, we intend to invest our net proceeds from this offering in short-term, investment-grade, interest-bearing instruments.

DIVIDEND POLICY

        We have never declared or paid cash dividends on our capital stock. We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including revenue, capital requirements, financial condition, prospects and other factors that our board of directors may deem relevant.

26

CAPITALIZATION

        The following table presents our capitalization as of June 30, 2005:

•

on an actual basis; and



•

on a pro forma as adjusted basis to reflect, based on an assumed initial public offering price of $10.00 per share, (i) the conversion of our outstanding preferred stock into 13,622,785 shares of common stock in connection with this offering and (ii) the application of the net proceeds from the sale of 6,000,000 shares of common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses. See "Use of Proceeds" and "Conversion of Preferred Stock and Reverse Stock Split."

        You should read this capitalization table in conjunction with "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus.

			As of June 30, 2005
			Actual			Pro Forma As Adjusted
			(in thousands, except share data)
Current portion of long-term debt			$	1,145		$	—
Non-current portion of long-term debt				5,111			4,000
Convertible preferred stock, $0.0001 par value; 10,248,996 shares authorized, 9,693,694 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma as adjusted				116,813			—
Stockholders' equity (deficit):
Preferred stock, $0.0001 par value, no shares authorized, issued and outstanding, actual; 5,000,000 shares authorized, no shares issued and outstanding, pro forma as adjusted				—			—
Common stock, $0.0001 par value; 29,220,610 shares authorized; 1,612,835 shares issued and outstanding, actual; 100,000,000 shares authorized, 21,235,620 shares issued and outstanding, pro forma as adjusted				1			2
Additional paid-in capital				7,125			194,292
Deferred stock compensation				(2,876	)		(2,876	)
Accumulated other comprehensive income (loss)				(52	)		(52	)
Accumulated deficit				(109,959	)		(126,265	)
	Total stockholders' equity (deficit)			(105,761	)		65,101
		Total capitalization	$	17,308		$	69,101

        The pro forma as adjusted accumulated deficit and additional paid-in capital amounts in the table above include the effects of a $16.3 million deemed dividend for the fair value of additional shares of common stock issued upon the conversion of preferred stock. See "Conversion of Preferred Stock and Reverse Stock Split." The deemed dividend will increase the net loss allocable to common stockholders in the calculation of basic and diluted net loss per share.

        The information in the table excludes, as of June 30, 2005:

•

1,915,661 shares of common stock issuable upon exercise of outstanding stock options with a weighted average exercise price of $2.52 per share;



•

348,719 shares of common stock issuable upon exercise of outstanding warrants with a weighted average exercise price of $9.81 per share; and



•

2,039,373 shares of common stock reserved for future issuance under our 1998 Stock Option Plan, 2001 Stock Option Plan, 2005 Equity Incentive Award Plan and Employee Stock Purchase Plan.

27

DILUTION

        The historical net tangible book value of our common stock as of June 30, 2005 was a deficit of $105.8 million, or $(65.57) per share. Historical net tangible book value per share is determined by dividing the net tangible book value by the number of outstanding shares of common stock. If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock.

        After giving effect, based on an assumed initial public offering price of $10.00 per share, to (i) the automatic conversion of our outstanding preferred stock into common stock in connection with this offering and (ii) receipt of the net proceeds from the sale of 6,000,000 shares of common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of June 30, 2005 would have been approximately $65.1 million, or $3.07 per share. See "Conversion of Preferred Stock and Reverse Stock Split." This represents an immediate increase in pro forma as adjusted net tangible book value of $68.64 per share to existing stockholders and an immediate dilution of $6.93 per share to new investors purchasing shares of common stock in this offering at an assumed initial offering price of $10.00 per share.

        The following table illustrates this dilution on a per share basis to new investors:

Assumed initial public offering price per share				$	10.00
	Historical net tangible book value per share as of June 30, 2005	(65.57	)
	Increase per share attributable to conversion of preferred stock	66.55
	Pro forma net tangible book value per share before the offering	0.98
	Increase per share attributable to this offering	2.09
Pro forma as adjusted net tangible book value per share after the offering					3.07
Dilution per share to new investors				$	6.93

        The table below summarizes as of June 30, 2005, on a pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration and the average price per share (i) paid to us by existing stockholders and (ii) to be paid by new investors purchasing shares of our common stock in this offering. The table assumes an initial public offering price of $10.00 per share before underwriting discounts and commissions and estimated offering expenses.

		Shares Purchased			Total Consideration
									Average Price Per Share
		Number	Percent		Amount		Percent
Existing stockholders		15,235,620	71.7	%	$	122,728,881	67.2	%	$	8.06
New investors		6,000,000	28.3			60,000,000	32.8		$	10.00
	Total	21,235,620	100.0	%	$	182,728,881	100.0	%

        The above discussion and tables are based on 15,235,620 shares of common stock issued and outstanding as of June 30, 2005 and exclude:

•

1,915,661 shares of common stock issuable upon exercise of outstanding stock options with a weighted average exercise price of $2.52 per share;



•

348,719 shares of common stock issuable upon exercise of outstanding warrants with a weighted average exercise price of $9.81 per share; and



•

2,039,373 shares of common stock reserved for future issuance under our 1998 Stock Option Plan, 2001 Stock Option Plan, 2005 Equity Incentive Award Plan and Employee Stock Purchase Plan.

28

        Assuming the exercise in full of all outstanding stock options and warrants, our pro forma as adjusted net tangible book value as of June 30, 2005 would be $3.12 per share, representing an immediate increase in pro forma as adjusted net tangible book value of $68.69 per share to existing stockholders and an immediate dilution of $6.88 per share to new investors purchasing shares of common stock in this offering at an assumed initial public offering price of $10.00 per share.

29

SELECTED FINANCIAL DATA

        The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus. We derived the statements of operations data for the years ended December 31, 2000 and 2001, as well as the balance sheet data as of December 31, 2000, 2001 and 2002, from our audited financial statements not included in this prospectus. We derived the statements of operations data for the years ended December 31, 2002, 2003 and 2004, as well the balance sheet data as of December 31, 2003 and 2004, from our audited financial statements included elsewhere in this prospectus. We derived the statements of operations data for the six months ended June 30, 2004 and 2005, as well as the balance sheet data as of June 30, 2005, from our unaudited financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of results to be expected in any future period.

			Year Ended December 31,															Six Months Ended June 30,
			2000			2001			2002			2003			2004			2004			2005
																		(unaudited)
			(in thousands, except share and per share data)
Statements of Operations Data:
Revenue:
	Collaboration revenue		$	—		$	407		$	3,170		$	6,842		$	5,938		$	2,728		$	3,343
	Collaboration revenue from related party			—			—			32			857			4,201			786			5,244
	Grant and fellowship revenue			327			701			1,474			561			166			97			67
		Total revenue		327			1,108			4,676			8,260			10,305			3,611			8,654
Operating expenses:
	Research and development			9,208			14,790			18,441			21,326			23,616			11,899			21,393
	General and administrative			2,825			5,273			6,179			6,136			7,352			3,698			3,989
		Total operating expenses		12,033			20,063			24,620			27,462			30,968			15,597			25,382
Loss from operations				(11,706	)		(18,955	)		(19,944	)		(19,202	)		(20,663	)		(11,986	)		(16,728	)
Interest income				2,817			3,525			1,360			713			518			205			396
Interest expense				(269	)		(497	)		(594	)		(521	)		(387	)		(211	)		(216	)
Other income (expense), net				254			(104	)		(4	)		5			2			—			6
Net loss			$	(8,904	)	$	(16,031	)	$	(19,182	)	$	(19,005	)	$	(20,530	)	$	(11,992	)	$	(16,542	)
Basic and diluted net loss per share			$	(19.25	)	$	(19.02	)	$	(16.59	)	$	(14.32	)	$	(13.97	)	$	(8.41	)	$	(10.53	)
Shares used in computing basic and diluted net loss per share				462,524			843,006			1,156,056			1,327,368			1,469,979			1,425,902			1,571,514
Pro forma basic and diluted net loss per share (unaudited)															$	(2.00	)				$	(1.51	)
Shares used in computing pro forma basic and diluted net loss per share (unaudited)																10,263,683						10,981,467

	As of December 31,
																As of June 30, 2005
	2000			2001			2002			2003			2004
																(unaudited)
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	53,668		$	56,768		$	47,155		$	33,843		$	36,812		$	25,050
Working capital		52,706			53,220			42,219			27,208			27,707			18,327
Total assets		76,559			64,896			54,346			40,306			43,026			31,909
Long-term debt		1,870			3,727			2,593			3,249			4,438			5,111
Convertible preferred stock		88,836			88,836			94,821			94,821			108,813			116,813
Common stock and additional paid-in capital		2,435			2,546			2,637			2,723			6,494			7,126
Accumulated deficit		(18,668	)		(34,699	)		(53,881	)		(72,886	)		(93,417	)		(109,959	)
Total stockholders' deficit		(16,415	)		(32,115	)		(51,428	)		(70,376	)		(90,044	)		(105,761	)

        See Note 2 to our financial statements for a description of the method used to compute shares used in computing basic and diluted net loss per share and shares used in computing pro forma basic and diluted net loss per share.

30

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under "Risk Factors" and elsewhere in this prospectus. All forward-looking statements included in this prospectus are based on information available to us on the date of this prospectus, and we assume no obligation to update any forward-looking statements contained in this prospectus. See "Special Note Regarding Forward-Looking Statements."

Business Overview

        We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel small molecule therapeutics for oncology and other unmet medical needs. We have developed a proprietary fragment-based drug discovery approach, called "Tethering," that we combine with other drug discovery tools, such as structure-based design and medicinal chemistry, to discover and develop novel therapeutics. We have built our product candidate portfolio through internal discovery and the in-licensing of novel cancer therapeutics. We are advancing our product candidates through in-house research and development efforts and strategic collaborations with leading pharmaceutical and biopharmaceutical companies.

        From our incorporation in 1998 through 2001, our operations consisted primarily of developing and refining our drug discovery technologies. Since 2002, we have focused on developing novel small molecule drugs mainly to treat cancer and other unmet medical needs.

        We are advancing three proprietary oncology product candidates, SNS-595, SNS-032 and SNS-314, through in-house research and development efforts. Our lead product candidate, SNS-595, is a novel cytotoxic. We are currently conducting two Phase I clinical trials with SNS-595, and we expect to commence an additional Phase I clinical trial in certain leukemias in September 2005 and two Phase II clinical trials in small cell and non-small cell lung cancers in the fourth quarter of 2005. Our second most advanced product candidate, SNS-032, is a CDK inhibitor. We expect to commence a Phase I/II clinical trial with SNS-032 in the fourth quarter of 2005. We in-licensed this compound from BMS in April 2005. We are also developing SNS-314, an Aurora kinase inhibitor, for the treatment of cancer, which we expect to enter Phase I clinical trials in 2006. We have worldwide development and commercialization rights to SNS-595, SNS-032 (for diagnostic and therapeutic applications) and SNS-314. We may in the future enter into collaborations to maximize the commercial potential of these programs.

        We currently have five strategic collaborations with Biogen Idec, Johnson & Johnson PRD and Merck focused on the discovery and development of new product candidates. As of June 30, 2005, we had received an aggregate of approximately $63.5 million in cash in the form of stock purchase proceeds, fees and loans from our collaboration partners.

        Since our inception, we have generated significant losses. As of June 30, 2005, we had an accumulated deficit of $110.0 million. We expect our net losses to increase primarily due to our anticipated clinical trial activities.

31

Financial Operations Overview

Revenue

        We have not generated any revenue from sales of commercial products and do not expect to generate any product revenue for the foreseeable future. To date, our revenue has consisted of collaboration revenue and grant and fellowship revenue.

        Collaboration Revenue.    We generate revenue primarily through our collaborations. We currently have five ongoing research-based collaborations. Each of these collaborations includes a technology access fee, research funding, milestone payments and royalties upon sales of future products that may result from the collaborations. The table below sets forth our revenue since January 1, 2002 from each of our collaborators.

		Year Ended December 31,						Six Months Ended June 30, 2005
		2002		2003		2004
		(in thousands)
Biogen Idec		$	32	$	857	$	4,201	$	5,244
Chiesi Farmaceutici			2,003		841		—		—
Johnson & Johnson PRD			1,167		2,350		1,334		702
Merck			—		3,651		4,604		2,641
	Total	$	3,202	$	7,699	$	10,139	$	8,587

        In May 2002, we entered into our collaboration with Johnson & Johnson PRD. In December 2002, we entered into our initial collaboration with Biogen Idec, the research phase of which was completed in June 2005. In February 2003, we entered into our initial collaboration with Merck. Our collaboration with Chiesi Farmaceutici was terminated on December 31, 2002, and we completed our remaining performance obligations in 2003. In July 2004, we entered into a second collaboration with Merck. In August 2004, we entered into a second collaboration with Biogen Idec.

        In 2005, 2006 and 2007, we expect to receive additional research funding from our collaborators totaling at least $17.0 million. This funding is discretionary, but is not dependent upon the achievement of milestones. In addition, we may receive milestone payments if one or more of our research collaboration programs reach a milestone for which a payment is due.

        Grant and Fellowship Revenue.    Grant and fellowship revenue is recognized as we perform services under the applicable grant. As of June 30, 2005, we had been awarded $5.4 million, and had recognized as revenue $2.5 million, in federal grants under the Small Business Innovation Research, or SBIR, program. In addition, we have recognized revenue from other grants and fellowships. We do not plan to perform any additional work under our SBIR grants in the foreseeable future.

Research and Development Expense

        Most of our operating expenses to date have been for research and development activities. Research and development expense represents costs incurred to discover and develop novel small molecule therapeutics, including Phase I clinical trial costs for SNS-595, to develop our proprietary fragment-based Tethering drug discovery approach, to develop in-house research and preclinical study capabilities, to discover and advance product candidates toward clinical trials and in connection with in-licensing activities. We expense all research and development costs as they are incurred. The table

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below sets forth our research and development expense since January 1, 2002 for our product candidate programs.

		Year Ended December 31,						Six Months Ended June 30, 2005
		2002		2003		2004				Total
		(in thousands)
SNS-595		$	—	$	420	$	4,587	$	3,012	$	8,019
SNS-032			—		—		—		8,173		8,173
SNS-314			—		175		3,688		3,405		7,268
Raf kinase inhibitors			31		2,411		2,967		804		6,213
Other kinase inhibitors			—		—		879		1,488		2,367
Cathepsin S inhibitors			1,635		2,319		967		321		5,242
BACE inhibitors for Alzheimer's disease			2,749		3,072		2,266		891		8,978
Anti-viral inhibitors			165		98		32		37		332
TNF family and oncology research			23		2,565		2,526		936		6,050
Other			13,838		10,266		5,704		2,326		32,134
	Total	$	18,441	$	21,326	$	23,616	$	21,393	$	84,776

        We in-licensed SNS-032 from BMS in April 2005 and issued BMS 442,737 shares of our Series C-2 preferred stock, with a value of $8.0 million. These shares are convertible into 799,927 shares of common stock. The $8.0 million up-front payment was included in research and development expense for the six months ended June 30, 2005 due to uncertainties surrounding the remaining efforts for completion of the research and development activities.

        We incur research and development expense associated with both partnered and unpartnered research activities, as well as the development and expansion of our drug discovery technologies. Research and development expense relating to our collaborations with Biogen Idec, Merck and Johnson & Johnson PRD consist primarily of costs related to Tethering, lead optimization, preclinical studies and other activities related to the identification and optimization of compounds for development of kinase inhibitors for the treatment of cancer, cytokine and enzyme inhibitors for the treatment of inflammatory diseases, antiviral inhibitors for the treatment of viral disease as well as protease inhibitors for the treatment of Alzheimer's disease. Under our Biogen Idec agreement, we have an option on a target-by-target basis to co-fund post-Phase I development costs for up to two oncology kinase targets, which may include Raf kinase. If we exercise one or both of our options, our research and development expenses will increase significantly. Research and development expense related to co-development activities that we elect to co-fund would consist primarily of manufacturing costs for the product candidate, clinical trial-related costs, costs for consultants and contract research employee compensation and facilities costs and depreciation of equipment.

        We expect to incur research and development expense to conduct clinical trials on SNS-595, SNS-032 and SNS-314. Clinical trials are costly, and as we continue to advance our product candidates through preclinical and clinical development, we expect our research and development expenses to increase. For example, we expect to spend at least $31 million to advance our SNS-595 program to completion of Phase II clinical trials in small cell and non-small cell lung cancers and a Phase I clinical trial in acute leukemias, to advance our SNS-032 program to completion of our planned Phase I/II clinical trial, and to file an investigational new drug application with FDA and complete Phase I clinical trials for SNS-314. As of the date of this prospectus, due to the risks inherent in the clinical trial process and given the early state of development of our programs, we are unable to estimate the costs we will incur in the continued development of our product candidates for potential commercialization.

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Due to these same factors, we are unable to determine the anticipated completion dates for our current research and development programs. Clinical development timelines, probability of success and development costs vary widely. While we are currently focused on advancing SNS-595 through clinical development, we anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate, as well as an ongoing assessment as to the product candidate's commercial potential. In addition, we cannot forecast which product candidates will be subject to future collaborative or licensing arrangements, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. As a result, we do not know when and to what extent we will receive cash inflows from our product candidates. See "Business—Strategic Collaborations."

General and Administrative Expense

        Our general and administrative expense consists primarily of salaries and other related costs for personnel in finance, human resources, facilities management, legal, including intellectual property management, and general administration and non-cash stock compensation. Other significant costs include facilities costs and fees paid to outside legal advisors and auditors.

Critical Accounting Policies and Significant Judgments and Estimates

        This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenue and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from those estimates under different assumptions or conditions.

        Our significant accounting policies are more fully described in Note 1 to our financial statements included elsewhere in this prospectus. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements.

Revenue Recognition

        In accordance with Emerging Issues Task Force, or EITF, 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, which we adopted effective July 1, 2003, revenue arrangements with multiple deliverable items are divided into separate units of accounting based on whether certain criteria are met, including whether the delivered item has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. We allocate the consideration we receive among the separate units of accounting based on their respective fair value, and we apply the applicable revenue recognition criteria to each of the separate units. Where an item in a revenue arrangement with multiple deliverables does not constitute a separate unit of accounting and for which delivery has not occurred, we defer revenue until the delivery of the item is completed.

        We record upfront, non-refundable license fees and other fees received in connection with research and development collaborations as deferred revenue and recognize these amounts ratably over the relevant period specified in the agreements, generally the research term.

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        We recognize research funding related to collaborative research with our collaboration partners as the related research services are performed. This funding is normally based on a specified amount per full-time equivalent employee per year.

        We recognize revenue from milestone payments, which are substantially at risk at the time the collaboration agreement is entered into, upon completion of the applicable milestone events. We intend to recognize any future royalty revenue based on reported product sales by third-party licensees.

        We recognize grant revenue from government agencies and private research foundations as the related qualified research and development costs are incurred, up to the limit of the prior approval funding amounts.

Clinical Trial Accounting

        We record accruals for estimated clinical trial costs, comprising payments for work performed by contract research organizations and participating clinical trial sites. These costs may be a significant component of future research and development expenses. We accrue costs for clinical trials performed by contract research organizations based on estimates of work performed under the contracts. Costs of setting up clinical trial sites for participation in trials are expensed immediately. Costs related to patient enrollment are accrued as patients are entered in the trial reduced by an initial payment made to the hospital when the first patient is enrolled. These cost estimates may or may not match the actual costs incurred for services performed by the organizations as determined by patient enrollment levels and related activities. If we have incomplete or inaccurate information, we may underestimate costs associated with various trials at a given point in time. Although our experience in estimating these costs is limited, the difference between accrued expenses based on our estimates and actual expenses have not been material to date.

Stock-Based Compensation

        We account for employee stock options using the intrinsic-value method in accordance with Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees, and Financial Accounting Standards Board Interpretation, or FIN, No. 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB No. 25, and have adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation.

        In December 2002, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to employee stock compensation on reported net loss. We have elected to continue to follow the intrinsic-value method of accounting as prescribed by APB Opinion No. 25.

        The information regarding net loss as required by SFAS No. 123, presented in Note 1 to our financial statements, has been determined as if we had accounted for our employee stock options under the fair value method of SFAS No. 123. The resulting effect on net loss to date pursuant to SFAS No. 123 is not likely to be representative of the effects on net loss pursuant to SFAS No. 123 in future years, since future years are likely to include additional grants and the irregular impact of future years' vesting.

        We account for stock compensation arrangements to non-employees in accordance with SFAS No. 123, as amended by SFAS No. 148, and EITF No. 96-18, Accounting for Equity Instruments That Are

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Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, using a fair value approach. The compensation costs of these arrangements are subject to remeasurement over the vesting terms as earned.

        Stock compensation expense, which is a non-cash charge, results from stock option grants at exercise prices that, for financial reporting purposes, are deemed to be below the estimated fair value of the underlying common stock on the date of grant. Given the absence of an active market for our common stock, our board of directors determined the estimated fair value of our common stock on the date of grant based on several factors, including progress and milestones achieved in our business and sales of preferred stock. In connection with the preparation of our financial statements necessary for our initial public offering, we have reassessed the estimated fair value of our common stock. Stock compensation expense per share equals the difference between the reassessed fair value per share of our common stock on the date of grant and the exercise price per share, and is amortized on a straight line basis over the vesting period of the underlying option, generally four years. From inception through June 30, 2005, we recorded deferred stock compensation of $3.8 million which is amortized over the vesting period of the options. At June 30, 2005, we had a total of $2.9 million remaining to be amortized.

        The total unamortized deferred stock compensation recorded for all option grants through June 30, 2005 is expected to be amortized as follows: $519,000 for the remainder of 2005, $971,000 in 2006, $904,000 in 2007, $463,000 in 2008 and $19,000 in 2009.

Results of Operations

Six Months Ended June 30, 2004 and 2005

        Revenue.    Revenue increased from $3.6 million for the six months ended June 30, 2004 to $8.7 million for the six months ended June 30, 2005. Collaboration revenue increased from $3.5 million for the six months ended June 30, 2004 to $8.6 million for the six months ended June 30, 2005, primarily due to a $4.5 million increase in collaboration revenue from Biogen Idec, including the recognition of $825,000 of deferred revenue upon completion of the research phase of our initial collaboration with Biogen Idec. We expect our 2005 revenue to continue to exceed 2004 revenue due to our August 2004 collaboration with Biogen Idec.

        Research and development expense.    Research and development expense increased from $11.9 million for the six months ended June 30, 2004 to $21.4 million for the six months ended June 30, 2005, primarily due to an $8.0 million expense related to the in-license of SNS-032 in April 2005, a $2.0 million increase in expense related to our kinase program and an $840,000 increase in expense related to the initiation of Phase I clinical trials for SNS-595, partially offset by a $235,000 reduction in expense related to our Cathepsin S program and a $1.5 million reduction in expense for other programs. We expect to incur significant research and development expenses over the next several years, only a portion of which we expect to be funded by our collaboration partners. If SNS-595 progresses through the clinic and we bring additional product candidates, such as SNS-032, into clinical trials, our spending will further increase. In addition, under our August 2004 collaboration with Biogen Idec, we have an option to co-fund a portion of the development costs of product candidates for up to two targets that may result from this collaboration. Our decision to exercise this option would materially increase our research and development expenses.

        Research and development expense associated with SNS-595 increased from $2.2 million for the six months ended June 30, 2004 to $3.0 million for the six months ended June 30, 2005. Research and development expense associated with SNS-032 increased from $0 for the six months ended June 30, 2004 to $8.2 million for the six months ended June 30, 2005, including an $8.0 million licensing fee that was recorded as a research and development expense. Research and development expense associated with SNS-314 increased from $1.4 million for the six months ended June 30, 2004 to $3.4 million for

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the six months ended June 30, 2005. In the future, we may seek development partners to help offset the cost of clinical and preclinical development and commercialization of these and other product candidates. Research and development expense for all other programs decreased from $8.4 million for the six months ended June 30, 2004 to $6.8 million for the six months ended June 30, 2005.

        General and administrative expense.    General and administrative expense increased from $3.7 million for the six months ended June 30, 2004 to $4.0 million for the six months ended June 30, 2005, primarily due to a $470,000 increase in salary and related expense due to a $209,000 increase in non-cash stock compensation expense and a $261,000 increase in other salary and related expense. As a public company, we will operate in an increasingly demanding regulatory environment that requires us to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the Securities and Exchange Commission, or SEC, and the Nasdaq National Market, including those related to expanded disclosures, accelerated reporting requirements and more complex accounting rules. We expect that our general and administrative expenses will continue to increase in subsequent periods due to these requirements and to increasing personnel and infrastructure expenses as we advance our product candidates.

        Interest income and expense.    Interest income increased from $205,000 for the six months ended June 30, 2004 to $396,000 for the six months ended June 30, 2005, primarily due to higher interest rates and higher average balances of cash, cash equivalents and marketable securities. Interest expense increased from $211,000 for the six months ended June 30, 2004 to $216,000 for the six months ended June 30, 2005 due to slightly higher outstanding debt obligations.

Years Ended December 31, 2003 and 2004

        Revenue.    Revenue increased from $8.3 million in 2003 to $10.3 million in 2004. Collaboration revenue increased from $7.7 million in 2003 to $10.1 million in 2004, primarily due to a $3.3 million increase in collaboration revenue from Biogen Idec and a $953,000 increase in collaboration revenue from Merck, partially offset by a $1.0 million decrease in collaboration revenue from Johnson & Johnson PRD and an $841,000 decrease in collaboration revenue from Chiesi Farmaceutici. The increase in collaboration revenue from Biogen Idec and Merck resulted from new collaborations in 2004. The decrease in collaboration revenue from Johnson & Johnson PRD resulted from a decrease in personnel working on the collaboration. Our collaboration with Chiesi Farmaceutici terminated on December 31, 2002, and we completed our remaining performance obligations in 2003. Grant and fellowship revenue decreased from $561,000 in 2003 to $166,000 in 2004, primarily due to our decision in 2003 to only perform limited additional work under SBIR grants for the foreseeable future.

        Research and development expense.    Research and development expense increased from $21.3 million in 2003 to $23.6 million in 2004, primarily due to $4.2 million increase in expenses related to the initiation of clinical trials of SNS-595 and a $4.9 million increase in expenses associated with our kinase programs, partially offset by a $1.4 million reduction in expenses related to our Cathepsin S inhibitors program, an $806,000 reduction in expenses related to our BACE inhibitors program and a $4.6 million reduction in expenses related to other programs.

        Research and development expense associated with SNS-595 increased from $420,000 in 2003 to $4.6 million in 2004. Research and development expense associated with our Aurora kinase inhibitors program increased from $175,000 in 2003 to $3.7 million in 2004. Research and development expense for all other programs decreased from $20.7 million in 2003 to $15.3 million in 2004. The expense associated with these programs is partially offset by research fees and milestone payments associated therewith.

        General and administrative expense.    General and administrative expense increased from $6.1 million in 2003 to $7.4 million in 2004, primarily due to a $1.0 million increase in salary and

37

related expenses resulting from the expansion of our executive team and a $216,000 increase in legal expenses primarily resulting from increased collaboration activities.

        Interest income and expense.    Interest income decreased from $713,000 in 2003 to $518,000 in 2004, primarily due to lower interest rates and lower average balances of cash, cash equivalents and marketable securities. Interest expense decreased from $521,000 in 2003 to $387,000 in 2004, primarily due to a lower average interest rate on outstanding debt obligations.

Years Ended December 31, 2002 and 2003

        Revenue.    Revenue increased from $4.7 million in 2002 to $8.3 million in 2003. Collaboration revenue increased from $3.2 million in 2002 to $7.7 million in 2003. The increase in collaboration revenue in 2003 compared to 2002 was primarily due to our May 2002 collaboration with Johnson & Johnson PRD, our December 2002 collaboration with Biogen Idec and our February 2003 collaboration with Merck. Grant and fellowship revenue decreased from $1.5 million in 2002 to $561,000 in 2003. The decrease in grant and fellowship revenue in 2003 compared to 2002 was primarily due to our decision in 2003 to only perform limited additional work under SBIR grants for the foreseeable future.

        Research and development expense.    Research and development expense increased from $18.4 million in 2002 to $21.3 million in 2003, primarily due to a $1.2 million increase in personnel expenses, a $1.1 million increase in office related expenses and a $575,000 increase in allocated facility expenses of increased research activity in connection with our collaborations. Research and development expense in 2003 includes a one-time licensing fee to Dainippon Pharmaceutical to acquire exclusive worldwide development and marketing rights for SNS-595.

        General and administrative expense.    General and administrative expense decreased from $6.2 million in 2002 to $6.1 million in 2003. The decrease in 2003 compared to 2002 was primarily due to a $200,000 decrease in facilities-related expense, partially offset by a $83,000 increase in office related expenses.

        Interest income and expense.    Interest income decreased from $1.4 million in 2002 to $713,000 in 2003, primarily due to lower interest rates and lower average balances of cash, cash equivalents and marketable securities. Interest expense decreased from $594,000 in 2002 to $521,000 in 2003. The decrease in interest expense in 2003 compared to 2002 was primarily due to a decrease in our average cost of borrowing, partially offset by a $222,000 increase in borrowings.

Income Taxes

        Since inception, we have incurred operating losses and, accordingly, have not recorded a provision for income taxes for any of the periods presented. As of December 31, 2004, we had net operating loss carryforwards for federal and state income tax purposes of $76.3 million and $36.9 million, respectively. We also had federal research and development tax credit carryforwards of $1.1 million. If not utilized, the federal net operating loss and tax credit carryforwards will expire beginning in 2018. Utilization of net operating loss and credit carryforwards may be subject to a substantial annual limitation due to limitations provided by the Internal Revenue Code of 1986, as amended, that are applicable if we experience an "ownership change" that may occur, for example, as a result of this offering aggregated with certain other sales of our stock before or after this offering. If not utilized, the state net operating loss carryforward will expire beginning in 2008. The annual limitation may result in the expiration of our net operating loss and tax credit carryforwards before they can be used.

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Liquidity and Capital Resources

Sources of Liquidity

        As of June 30, 2005, we had cash, cash equivalents and marketable securities of $25.1 million and outstanding equipment financing and debt obligations of $6.3 million. Since our inception, we have funded our operations primarily through the issuance of preferred stock, research funding and technology access fees from our collaboration partners, research grants, loans from Biogen Idec and other debt financings. Through June 30, 2005, we had received net proceeds of $108.8 million from the issuance of preferred stock, including $20.0 million from Biogen Idec, and common stock and $2.5 million in SBIR grants.

Cash Flow

        Net cash used in operating activities decreased from $13.9 million in 2002 to $11.9 million in 2003 and $10.4 million in 2004. Net cash used in operating activities was $11.5 million for the six months ended June 30, 2005. Net cash used in operating activities for these periods consisted primarily of our net loss, partially offset by depreciation and amortization and deferred revenue and for the six months ended June 30, 2005 $8.0 million related to the in-license of SNS-032 in April 2005.

        Net cash provided by investing activities decreased from $14.7 million in 2002 to $5.7 million in 2003. Net cash used in investing activities was $7.1 million in 2004. Net cash provided by investing activities was $9.3 million for the six months ended June 30, 2005. Our investing activities for these periods consisted primarily of the investment of the proceeds of our sales of preferred stock.

        Net cash provided by financing activities decreased from $5.6 million in 2002 to $288,000 in 2003 and increased to $14.6 million in 2004. Net cash provided by financing activities was $0.8 million for the six months ended June 30, 2005. Our financing activities for these periods consisted primarily of the issuance of preferred stock and indebtedness incurred under our collaboration with Biogen Idec.

Credit and Loan Arrangements

        In June 2000, we entered into an equipment financing agreement with General Electric Capital Corporation, which has been amended from time to time. The credit facility was available through May 2005. As of June 30, 2005, we had outstanding $2.3 million to finance equipment purchases and leasehold improvements. In August 2005 we entered into a new $2.5 million credit facility with General Electric Capital Corporation. The equipment loans are secured by the equipment financed. Outstanding borrowings bear interest at annual rates ranging from 7.4% to 9.9%, and are payable over 36 to 48 months. In connection with the original credit facility, we issued in May 2003 a warrant to purchase 797 shares of Series C-1 preferred stock at $18.07 per share, which are convertible into 1,440 shares of common stock, and in June 2004, a warrant to purchase 381 shares of Series C preferred stock at $18.07 per share, which are convertible into 689 shares of common stock. The warrants expire in June 2013 and June 2014, respectively. In connection with the new credit facility in August 2005, we may issue warrants to purchase up to 405 shares of Series C preferred stock at $18.07 per share, which would be convertible into 732 shares of common stock. The actual number of warrants to be issued, if any, will be dependent upon the nature of the items financed. We expect to use a portion of our net proceeds from this offering to repay our outstanding indebtedness owed to General Electric Capital Corporation.

        In December 2002, we executed a promissory note in favor of Biogen Idec for an aggregate principal amount of up to $4.0 million. Under the promissory note, we have a drawdown period of ten calendar quarters beginning on April 1, 2003 and ending on June 30, 2005. The principal and accrued interest of each draw are due five years from the date of advance of each draw and bear interest at 3.0% above LIBOR to be paid quarterly. As of June 30, 2005, we had drawn $4.0 million and the

39

facility was fully drawn. We may use a portion of our net proceeds from this offering to repay all or a portion of our outstanding indebtedness to Biogen Idec.

        In August 2005, we entered into a Venture Loan and Security Agreement with Oxford Finance Corporation and Horizon Technology Funding Company LLC, pursuant to which we may borrow up to $15.0 million. The full $15.0 million loan commitment is available until October 15, 2005, $10.0 million is available until January 31, 2006, and the remaining $5.0 million is available until May 31, 2006. The loan facility has a 12-month interest-only period ending August 1, 2006 followed by a 30-month repayment period during which outstanding principal amounts amortize, provided that any outstanding loan amounts become due upon an event of default. Outstanding principal accrues interest at a rate equal to the higher of 11.5% or the three-year Treasury rate plus 7.73%. Our obligations under the loan agreement are secured by a first priority security interest in substantially all of our assets, other than our intellectual property. In conjunction with this transaction, we issued warrants to the lenders, half of which are currently exercisable, to purchase an aggregate of up to 83,013 shares of our Series C preferred stock at $18.07 per share, which are convertible into 150,000 shares of common stock. We also granted the lenders registration rights under our Eighth Amended and Restated Investor Rights Agreement.

Operating Capital and Capital Expenditure Requirements

        We expect to continue to incur substantial operating losses in the future. We will not receive any product revenue until a product candidate has been approved by FDA or similar regulatory agencies in other countries and successfully commercialized. We currently anticipate that our cash, cash equivalents, marketable securities and available credit facilities, together with the proceeds from this offering and revenue generated from our collaborations, will be sufficient to fund our operations at least through December 31, 2006. However, we will need to raise substantial additional funds to continue our operations and bring future products to market. We cannot be certain that any of our programs will be successful or that we will be able to raise sufficient funds to complete the development and commercialize any of our product candidates currently in development, should they succeed. Additionally, we plan to continue to evaluate in-licensing and acquisition opportunities to gain access to new drugs or drug targets that would fit with our strategy. Any such transaction would likely increase our funding needs in the future.

        Our future funding requirements will depend on many factors, including but not limited to:

•

the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities;



•

the costs associated with establishing manufacturing and commercialization capabilities;



•

the costs of acquiring or investing in businesses, product candidates and technologies;



•

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;



•

the costs and timing of seeking and obtaining FDA and other regulatory approvals;



•

the effect of competing technological and market developments; and



•

the economic and other terms and timing of any collaboration, licensing or other arrangements into which we may enter.

        Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, debt financings or strategic collaborations. We do not know whether additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding when

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needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research and development programs. In addition, we may have to partner one or more of our product candidate programs at an earlier stage of development, which would lower the economic value of those programs to our company.

Contractual Obligations

        The following table discloses aggregate information about our contractual obligations and the periods in which payments are due as of December 31, 2004 (in thousands):

		Payment due by period
Contractual Obligations		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Equipment financing		$	2,529	$	1,291	$	1,113	$	125	$	—
Indebtedness under collaboration agreement			3,200		—		—		3,200		—
Operating lease obligations			25,104		2,638		5,516		5,852		11,098
	Total	$	30,833	$	3,929	$	6,629	$	9,177	$	11,098

        The contractual summary above reflects only payment obligations that are fixed and determinable. We have additional contractual payments obligations that are contingent on future events. Our operating lease obligations relate to the lease for our headquarters in South San Francisco, California. As of June 30, 2005, there had been no material change to our contractual obligations as set forth in the table above.

        We also have agreements with clinical sites, and contract research organizations for the conduct of our clinical trials. We make payments to these sites and organizations based upon the number of patients enrolled and the period of follow-up in the trials.

Recent Accounting Pronouncements

        In December 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123R, which is a revision of SFAS No. 123, and supersedes APB Opinion 25. SFAS 123R requires all share-based payments to employees and directors, including grants of stock options, to be recognized in the statement of operations based on their fair values, beginning with the first annual period after June 15, 2005, with early adoption encouraged. On April 14, 2005, the SEC adopted a new rule that amended the compliance dates for SFAS No. 123R such that we are now allowed to adopt the new standard effective January 1, 2006. The pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. As permitted by SFAS No. 123, we currently account for share-based payments to employees using APB Opinion 25's intrinsic value method and, as such, recognize no compensation cost for employee stock options.

        Under SFAS 123R, we must determine the appropriate fair value model and related assumptions to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition methods include modified prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The modified prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive method would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. We are currently evaluating the requirements of SFAS 123R as well as option valuation methodologies related to our stock option plans. Although we have not yet determined the method of adoption or the effect of adopting SFAS 123R, we expect that the adoption

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of SFAS 123R will have a material impact on our consolidated results of operations. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on, among other things, the levels of share-based payments granted in the future, the method of adoption and the option valuation method used. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.

Related Party Transactions

        For a description of our related party transactions, see "Certain Relationships and Related Party Transactions."

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements, including structured finance, special purpose or variable interest entities.

Qualitative and Quantitative Disclosures About Market Risk

        The primary objective of our investment activities is to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds and corporate debt securities. Our cash and cash equivalents as of June 30, 2005 included liquid money market accounts. Our marketable securities as of June 30, 2005 included readily marketable debt securities. Due to the short-term nature of these instruments, a 1% movement in market interest rates would not have a significant impact on the total value of our portfolio as of June 30, 2005.

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CONVERSION OF PREFERRED STOCK AND REVERSE STOCK SPLIT

        Due to the antidilution provisions of our certificate of incorporation, the conversion ratios of our Series B, C, C-1 and C-2 preferred stock may be adjusted in connection with the conversion of our outstanding preferred stock into common stock. We will effect a reverse stock split to ensure that we have 17,500,000 shares of common stock outstanding immediately prior to this offering, after giving effect to such antidilution adjustments, if any, as described below and assuming the exercise of all outstanding options and warrants.

        In connection with this offering, all of our outstanding preferred stock will be converted into common stock. If the valuation of our company is greater than or equal to $242.0 million (equivalent to a per share price in this offering of $13.83), each share of Series B, C, C-1 and C-2 preferred stock will convert into one share of common stock in connection with this offering. If our valuation is less than $242.0 million, the conversion ratios of our Series C, C-1 and C-2 preferred stock will be increased. If our valuation is less than $171.0 million (equivalent to a per share price in this offering of $9.77), the conversion ratio of our Series B preferred stock will also be increased. Therefore, based on the valuation of our company in connection with this offering, the holders of the Series B, C, C-1 and C-2 preferred stock may hold a greater percentage of the 17,500,000 shares, options and warrants to be outstanding prior to the issuance of the shares offered by this prospectus. For purposes of the foregoing, our valuation will be the product of our initial public offering price multiplied by the sum of (i) the number of outstanding shares of common stock on an as-converted basis and (ii) the number of outstanding stock options and warrants. We will not know the conversion ratios of our Series B, C, C-1 and C-2 preferred stock until immediately prior to the effectiveness of our registration statement, of which this prospectus forms a part.

        In this prospectus, we have estimated the conversion ratios of our preferred stock and the ratio of the reverse stock split using an assumed initial public offering price of $10.00 per share. We will not know the precise ratio of the reverse stock split until the initial public offering price is established.

        Upon completion of this offering, our existing stockholders will continue to have significant influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. Changes in our valuation in connection with this offering will result in changes in the conversion ratios of our preferred stock and the reverse stock split ratio as described above. As a result, changes in our valuation in connection with this offering will impact the relative ownership of our common stock among our existing stockholders upon completion of this offering. Biogen Idec has indicated an interest in purchasing up to an aggregate of approximately $4.0 million of common stock in this offering. However, because indications of interest are not binding agreements or commitments to purchase, this stockholder may elect not to purchase any shares in this offering. The following table shows the beneficial ownership of our common stock upon completion of this offering at different assumed initial public offering prices by each person, or group of affiliated persons, known by us to beneficially own more than 5% of our voting securities, all of our executive officers and

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directors as a group and all of other our existing stockholders as a group. The following table assumes that none of such persons purchases common stock in this offering.

	$8		$9		$10		$11		$12		$13		$14 and greater
Abingworth BioVentures II SICAV	4.1	%	4.2	%	4.2	%	4.7	%	5.0	%	5.3	%	5.5	%
Biogen Idec	9.6		9.5		9.4		8.6		8.0		7.4		7.0
Entities affiliated with Credit Suisse First Boston	14.8		14.7		14.6		13.4		12.4		11.5		10.8
Entities affiliated with Mayfield Associates	6.6		6.7		6.7		7.2		7.6		7.9		8.1
Entities affiliated with Venrock Associates	5.4		5.5		5.5		5.9		6.2		6.5		6.7
Entities affiliated with Warburg Pincus	10.4		10.3		10.2		10.5		10.8		11.0		11.2
All executive officers and directors as a group (12 persons)	23.2		23.4		23.5		25.0		26.3		27.4		28.3
All other existing stockholders as a group	16.1		16.0		16.0		15.6		15.3		15.0		14.8

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BUSINESS

Overview

        We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel small molecule therapeutics for oncology and other unmet medical needs. We have built our product candidate portfolio through internal discovery and the in-licensing of novel cancer therapeutics. We are advancing our product candidates through in-house research and development efforts and strategic collaborations with leading pharmaceutical and biopharmaceutical companies. We believe the quality and breadth of our product candidate pipeline, platform technology, strategic collaborations and scientific team will enable us to become a fully integrated biopharmaceutical company with a diversified portfolio of novel therapeutics for major diseases.

        We are advancing three proprietary oncology product candidates, SNS-595, SNS-032 and SNS-314, through in-house research and development efforts. All three are inhibitors of the cell division process, known as cell-cycle inhibitors, intended for the treatment of cancer. Our lead product candidate, SNS-595, is a novel cytotoxic. We are currently conducting two Phase I clinical trials with SNS-595, and we expect to commence an additional Phase I clinical trial in certain leukemias in September 2005 and two Phase II clinical trials in small cell and non-small cell lung cancers in the fourth quarter of 2005. In addition, in 2006 we intend to commence a Phase II clinical trial to evaluate SNS-595 as a stand-alone therapy in ovarian cancer and Phase Ib clinical trials to evaluate SNS-595 in combination with standard treatments in additional tumor types. In preclinical studies, SNS-595 has demonstrated broad anti-tumor activity. Our second most advanced product candidate, SNS-032, is a CDK inhibitor. We plan to commence a Phase I/II clinical trial with SNS-032 in the fourth quarter of 2005. We plan to commence additional Phase I/II and Phase Ib clinical trials with SNS-032 in 2006. We in-licensed this compound from BMS in April 2005. We are also developing SNS-314, an Aurora kinase inhibitor, for the treatment of cancer, which we expect to enter Phase I clinical trials in 2006. We believe that SNS-314 has the potential to limit the growth of multiple tumor types without causing significant peripheral neuropathy. We have worldwide development and commercialization rights to SNS-595, SNS-032 (for diagnostic and therapeutic applications) and SNS-314. We may in the future enter into collaborations to maximize the commercial potential of these programs.

        We currently have five strategic collaborations with three leading pharmaceutical and biopharmaceutical companies from which, as of June 30, 2005, we had received an aggregate of approximately $63.5 million in cash in the form of stock purchase proceeds, fees and loans. We have two separate collaborations with Biogen Idec in oncology. The oncology kinase program with Biogen Idec is focused on developing multiple kinase inhibitors, including our Raf kinase inhibitor, for which we have an option to co-develop and co-promote on a worldwide basis. We also work with Biogen Idec on the development of small molecule inhibitors of a protein target involved in certain cancers, including breast and colorectal cancers, although our involvement in the research phase ended in June 2005. We are collaborating with Johnson & Johnson PRD on the development of product candidates for the treatment of inflammatory diseases from our Cathepsin S inhibitors program. We have two separate collaborations with Merck to develop therapeutics for Alzheimer's disease and for viral diseases. Since June 2004, each of our current collaboration partners has either extended its existing collaboration or entered into a new collaboration with our company. We believe that our strategic collaborations will enable us to leverage and expand our internal development capabilities, manage our cash expenditures and diversify risk across our pipeline.

        We have developed a proprietary method of discovering drugs in pieces, or fragments. We call this fragment-based discovery approach "Tethering." We combine Tethering with other drug discovery tools, such as structure-based design and medicinal chemistry, to discover and develop novel therapeutics for major diseases. Tethering allows us to screen drug fragments based on binding properties rather than function, which we believe enables us to identify compounds that may not be discovered through

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conventional methods of drug discovery. We believe that this capability allows us to efficiently design product candidates that bind to sites or regions on a specific protein not readily accessed by other discovery methods. Tethering is applicable to most proteins, and we have used Tethering on over 15 different protein targets to date.

Strategy

        We are focused on discovering, developing and commercializing novel small molecule therapeutics for oncology and other unmet medical needs. The key elements of our strategy are as follows:

•

Focus on small molecules with differentiated therapeutic benefits.    We discover and develop novel small molecule drugs, such as SNS-314, designed to inhibit a specific molecular target, such as Aurora or Raf kinase. We also develop small molecule drugs, such as SNS-595 and SNS-032, that we believe have desirable properties or that target disease pathways not fully exploited by existing therapeutics. We believe either approach may result in drugs with improved therapeutic benefits as compared to existing drugs.



•

Maximize the value of our pipeline of product candidates through internal development and strategic collaborations.    We are advancing a diversified portfolio of novel therapeutics through internal development and strategic collaborations. We plan to retain all or a portion of the U.S. commercial rights to some of our novel cancer therapeutics. We may enter into future collaborations for late-stage development and commercialization of these cancer therapeutics. We intend to continue to collaborate with leading pharmaceutical and biopharmaceutical companies on other programs at the discovery or early research stage to leverage and expand our internal development capabilities, manage our cash expenditures and diversify risk across our pipeline. We have retained the economic rights to our three most advanced programs, SNS-595, SNS-032 and SNS-314, while also entering into multiple strategic collaborations for other programs.



•

Expand our portfolio of product candidates through our internal drug discovery engine and in-licensing.    We intend to leverage our proprietary fragment-based Tethering drug discovery approach, in combination with other drug discovery tools, such as structure-based design and medicinal chemistry, to expand our portfolio of product candidates for oncology and other unmet medical needs. We may further augment our internal discovery efforts by in-licensing novel therapeutics. We in-licensed SNS-595 and SNS-032 and discovered SNS-314 through internal drug discovery efforts. We believe that this combination approach will enable us to accelerate the expansion of our portfolio of product candidates.

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Product Candidate Pipeline

        As of August 15, 2005, we have the following programs in various stages of research and development:

Program		Status	Planned Activities	Commercial Rights
Oncology Programs
	SNS-595	Two Phase I clinical trials ongoing	Commencement of an additional Phase I clinical trial in leukemias planned in September 2005 and two Phase II single-agent clinical trials in small cell and non-small cell lung cancers in the fourth quarter of 2005; Commencement of a Phase II single-agent clinical trial in ovarian cancer and Phase Ib combination clinical trials in additional tumor types planned for 2006	Sunesis
	SNS-032	Planning Phase I/II clinical trial	Commencement of a Phase I/II clinical trial in the fourth quarter of 2005; Commencement of additional Phase I/II and Phase Ib clinical trials in 2006	Sunesis
	SNS-314	Preclinical	Filing of IND and commencement of Phase I clinical trials in 2006	Sunesis
	Raf kinase inhibitors	Preclinical	Continuation of preclinical studies and selection of a development candidate planned for 2006; Filing of IND and commencement of Phase I clinical trials in 2007	Biogen Idec/Sunesis
	Other kinase and protein inhibitors	Discovery		Biogen Idec/Sunesis
	Other kinase inhibitors	Discovery		Sunesis
Other Programs
	Cathepsin S inhibitors	Discovery		Johnson & Johnson PRD
	BACE inhibitors for Alzheimer's disease	Discovery		Merck
	Anti-viral inhibitors	Discovery		Merck

Overview of Cancer Market and Therapeutics

Market

        Cancer is the second leading cause of death in the United States, with 570,000 deaths and 1.4 million new cases estimated in 2005, according to the American Cancer Society. Cancers can be divided broadly into two groups: solid tumor cancers that affect organs in the body, such as the lungs and colon; and hematological, or blood-borne, cancers, such as leukemia. The American Cancer Society estimates that solid tumor cancers accounted for approximately 509,000 cancer-related deaths in 2004 and will account for approximately 1.3 million, or 92%, of new cases diagnosed in 2005.

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Existing Drug Treatments

        Cancer is characterized by uncontrolled cell growth. Cell growth and function are controlled by proteins that communicate and relay signals within cells. In normal cell proliferation, when a cellular signaling pathway is activated, or "on," it sends a signal telling the cell to grow and divide. When a component of a signaling pathway is mutated, the signal may not turn "off" or it may be constantly "on," causing the cell to continuously reproduce itself, resulting in a tumor.

        The goals of cancer therapy are to cure the patient and, in the absence of cure, to improve the quality of life and extend the life expectancy of the patient. The most common form of pharmaceutical treatment for cancer is cytotoxic therapeutics, which are designed to target and kill rapidly proliferating cells. Cytotoxic drugs include irinotecan, doxorubicin, taxanes and other inhibitors of cellular proliferation. In addition, newer therapies designed to hit a specific molecular target, such as Gleevec and Tarceva, may be used in combination with or as alternatives to cytotoxic therapies.

        Due to the genetic diversity among tumors, a combination of drug therapies is generally used to treat any given tumor type, and many patients progress rapidly through all available therapies. Despite the introduction of a number of new therapeutics over the last few years, there is significant demand for new drugs that, by themselves or in combination with existing therapies, can significantly improve the quality of life and extend the life expectancy of cancer patients.

        Although cytotoxic therapies are widely used, their mechanism of action targets all proliferating cell populations, not just cancer cells, and therefore may result in significant side effects, including immune system compromise known as myelosuppression, nausea, vomiting, diarrhea, sores in the mouth and the digestive tract known as mucositis, hair loss, peripheral nerve cell death known as peripheral neuropathy and damage to the heart known as cardiotoxicity. Cytotoxic drugs may have a narrow "therapeutic window" between efficacy and toxicity, which means there is only a small variance between a therapeutic dose and a toxic dose. Proper dosing is a challenge with drugs that have a narrow therapeutic window because dosing below the therapeutic window results in the patient receiving a sub-therapeutic exposure to the drug, whereas dosing above the therapeutic window results in exposing the patient to a toxic level of the drug. Dosing can be particularly challenging with cytotoxic drugs because a number of them have demonstrated highly variable PK. PK variability results in differences in drug exposure among patients and, in some cases, in the same patient even at the same dose. As a result, it is difficult for physicians to determine the proper therapeutic dose for a patient at any particular time, and patients are frequently under-dosed or over-dosed.

        Notwithstanding their limitations, it is widely believed that cytotoxic therapeutics will continue to be a mainstay of cancer therapy. We believe significant commercial opportunities exist for new cytotoxic drugs that act by different mechanisms to existing drugs and that have a more manageable side effect profile, both as single-agent therapies in patients with resistant, or refractory, disease and in combination with current established therapies. We believe that our SNS-595, SNS-032 and SNS-314 programs are well positioned to take advantage of these opportunities.

        We also believe there is a need for novel molecularly-targeted therapeutics that can be used in combination with, or as alternatives to, cytotoxic therapeutics to improve the outcome of cancer treatment. Molecularly-targeted therapeutics may have fewer unwanted side effects because they are less likely to affect cell activity unrelated to cancer. We believe that these targeted therapeutics, such as Gleevec, Tarceva and Velcade, are likely to capture an increasing share of the cancer market and even contribute to its growth. For example, Novartis reported 2004 sales of Gleevec at $1.6 billion, a 45% increase from 2003. While these targeted therapeutics have demonstrated clinical benefit in some patients, there remains a significant unmet medical need in cancer patients with other tumor types or resistant tumors. We believe that our Raf kinase inhibitors program that also targets specific molecules is well positioned to benefit from these trends in cancer therapy.

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SNS-595 Program

        SNS-595 is a novel cytotoxic drug that we believe represents a new class of anti-tumor drugs. SNS-595 is in a chemical class known as naphthyridine analogues. Although naphthyridine analogues have been used as antibiotics and have been demonstrated to be safe in human treatment, no members of this chemical class have been approved for the treatment of cancer. SNS-595 is a broadly active cell-cycle inhibitor that we believe works in a different way than any other cancer therapy, known as a novel mechanism of action, and induces the arrest of proliferating cancer cells immediately before the cell divides into two new cells, leading to cell death. We obtained worldwide development and commercialization rights to SNS-595 from Dainippon Pharmaceutical through a license agreement in 2003.

Opportunity

        We believe SNS-595 has the following characteristics:

•

broad anti-tumor activity as demonstrated in multiple animal models;



•

favorable PK profile that may enable more predictable dosing within the therapeutic window;



•

ability for physicians to combine with other cancer therapies with minimal drug-drug interactions;



•

novel mechanism of action, which may result in activity in multi-drug-resistant cancers;



•

convenient intravenous dosing that can be completed in a matter of minutes in an outpatient setting and on a schedule consistent with existing chemotherapy schedules;



•

anti-tumor activity through oral administration in animal models;



•

absence of cardiotoxicity or peripheral neuropathy observed in animals and humans to date; and



•

relative ease and availability of manufacturing.

Clinical Trials

        In June 2004, we began the first of two Phase I clinical trials evaluating SNS-595 in groups of patients with advanced solid tumors. In these clinical trials, we are exploring doses and schedules of administration in preparation for Phase II clinical trials designed to evaluate initial clinical efficacy. As of August 26, 2005, we had administered 182 cycles of treatment to a total of 54 patients in our Phase I clinical trials. As of the date of this prospectus, we have observed stable disease lasting more than four cycles in 10 patients. Based on the preliminary results of our Phase I clinical trials to date, the dose limiting toxicity appears to be a reduction of the white blood cells circulating in the blood, a process known as myelosuppression, in the absence of any other dose limiting toxicities. We are conducting these clinical trials at three leading medical centers and expect to treat 30 to 50 patients in each trial.

        The first Phase I clinical trial of SNS-595 is a single-dose administration followed by a 21-day observation period constituting one cycle. Patients participating in this trial may receive up to six cycles of treatment. We plan to complete this trial in the third quarter of 2005.

        The second Phase I clinical trial, which began in October 2004, is evaluating the administration of three weekly doses of SNS-595 followed by a 14-day observation period in each 28-day cycle. Patients participating in this trial may receive up to six cycles of treatment. We plan to complete this trial by the end of the fourth quarter of 2005.

        Patients from both Phase I clinical trials whose disease stabilizes while on treatment or who exhibit a partial or complete response after six cycles of treatment may participate in a continuation trial following the completion of the initial trial.

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Preclinical Studies

        SNS-595 has been the subject of numerous preclinical studies conducted by us and Dainippon Pharmaceutical. In 2000, Dainippon Pharmaceutical reported data from studies of SNS-595 in various mouse models. In these models, SNS-595 demonstrated superior therapeutic activity compared to several widely used cytotoxic drugs. Specifically, SNS-595 showed 98.9% to 99.3% inhibition of the growth of established tumors in three different solid tumor mouse models when compared to control animals. Statistical analysis showed that the chance that these differences in tumor size following treatment with SNS-595 were not due to the effect of the drug was less than 5%, known as a probability, or p-value, of less than 0.05. In some cases, complete tumor regressions were observed. In these models, a number of marketed cytotoxic drugs, including paclitaxel and irinotecan, had significantly less activity than SNS-595. In other mouse models involving the study of human tumors in mice with compromised immune systems, SNS-595 has shown broad activity in all models tested and inhibited the growth of established tumors by more than 80% in 14 of 17 tumor lines evaluated, including several drug-resistant tumor lines. This data is statistically significant with p-values of less than 0.05. While we do not know whether SNS-595 will demonstrate comparable activity in humans, we believe that these data are encouraging and support further development.

        SNS-595 has also demonstrated excellent PK properties in animals and humans to date. SNS-595 demonstrated, in all species tested, precise and reproducible PK results and low inter-individual PK variability. We believe this is because levels of SNS-595 in the blood are less affected by the metabolic processes than many other cytotoxic drugs. As a result, we expect to see similar drug exposures across all patients treated with SNS-595, a consistent adverse event profile and fewer unexpected toxicities.

        The potential toxicity of single and repeated doses of SNS-595 has been explored in a number of animal studies that suggest the mechanism-based dose-limiting toxicities in humans receiving SNS-595 may be similar to some of those observed in approved cytotoxic agents, including temporary toxicity to bone marrow cells, the gastrointestinal system and other systems with rapidly dividing cells. These toxicities are usually reversible and can be adequately managed by experienced medical oncology practitioners.

Development Plan

        We plan to commence an additional Phase I clinical trial in certain leukemias in September 2005 and two Phase II clinical trials in small cell and non-small cell lung cancers in the fourth quarter of 2005. In addition, in 2006 we intend to commence a Phase II clinical trial to evaluate SNS-595 as a stand-alone therapy in ovarian cancer and Phase Ib clinical trials to evaluate SNS-595 in combination with standard treatments in additional tumor types. We may modify the tumor types selected for these Phase II and Phase I clinical trials based on the anti-tumor activity observed in animal models, tumor types showing responses in our Phase I clinical trials and strategic regulatory and market considerations.

SNS-032 Program

        SNS-032 is a targeted inhibitor of certain cyclin-dependent kinases, including CDK2, CDK7 and CDK9. Kinases are proteins found in cells that are critical in the communication and relay of signals to promote cell growth or function. Alterations in several proteins that control CDK2 have been shown to be associated with poor prognosis and survival in several cancer types, including breast, ovarian and lung cancers. We believe that prolonged or repeated exposure to SNS-032 will inhibit CDK2, as well as CDK7 and CDK9, and that this inhibition can be a beneficial cancer treatment. We also believe that SNS-032 may be beneficial in addition to or in combination with other cytotoxic chemotherapeutic agents that act by other mechanisms in the cell cycle. We obtained worldwide rights to develop and

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commercialize SNS-032 for diagnostic and therapeutic applications from BMS under a license agreement executed in April 2005.

Opportunity

        We believe that SNS-032 has the following characteristics:

•

differentiated target and mechanism of action as compared to existing anticancer therapies;



•

opportunity to be first-in-class inhibitor of CDK2, CDK7 and CDK9;



•

broad anti-tumor activity as demonstrated in preclinical models of mouse and human tumors;



•

toxicology consistent with its proposed activity as a cytotoxic anticancer drug;



•

potential for both oral and IV formulations;



•

potential for additive or synergistic activity when SNS-032 is administered in combination with cytotoxic chemotherapeutic agents that act by other mechanisms;



•

relative ease and availability of manufacturing; and



•

complementary to our existing programs.

Clinical Trials

        BMS has conducted three Phase I dose-escalation clinical trials evaluating the safety and tolerability of SNS-032 at three different dosing regimens in approximately 135 patients with refractory solid tumors. The first Phase I clinical trial was initiated in August 2001 and evaluated the administration of a one-hour IV infusion every three weeks. The second Phase I clinical trial was initiated in March 2002 and evaluated the administration of a 24-hour IV infusion every three weeks. The third Phase I clinical trial was initiated in July 2002 and evaluated the administration of a one-hour IV infusion every week, with the third dose given orally to measure the availability of the drug in the body when given orally, known as oral bioavailability. BMS did not complete the second and third clinical trials.

        In these clinical trials, SNS-032 was generally well tolerated and demonstrated toxicity consistent with a cytotoxic anticancer agent. Observed toxicities included QTc prolongation, decreased white blood cell count and liver toxicity. While no objective tumor responses were observed, a number of patients experienced stable disease. We believe that patient exposure to the drug may have been suboptimal or inadequate to obtain tumor responses and that more frequent or more dose-intensive regimens will improve the likelihood of achieving responses with SNS-032 as a stand-alone agent.

Preclinical Studies

        In previous preclinical studies conducted by BMS, SNS-032 was shown to be a broadly active inhibitor of the proliferation of tumor cell lines. We believe that the observed cell death caused by this inhibitor is the result of cell cycle arrest. In addition, SNS-032 demonstrated broad anti-tumor activity in multiple mouse and human tumor models, including breast, ovarian, colorectal and skin cell cancers. SNS-032 has also shown synergistic activity in preclinical models when combined with currently approved anti-tumor drugs, including Gemcitabine and Cisplatin.

        BMS also conducted a series of PK and metabolism studies with SNS-032. SNS-032 demonstrated predictable drug exposure between species and was shown to be orally bioavailable in mice, rats, dogs and humans. SNS-032 was found to be a weak inhibitor of major human drug metabolizing enzymes, suggesting that the potential for negative side effects resulting from drug-drug interactions when combined with other therapeutics could possibly be low.

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        The preclinical data indicate that the toxicities of SNS-032 are primarily myelosuppression and gastrointestinal toxicity, which are similar to the toxicities of other cytotoxic drugs. The dose-limiting toxicities in pre-clinical studies were myelosuppression and gastrointestinal toxicity.

Development Plan

        We are currently designing and planning to commence a new Phase I/II clinical trial in the fourth quarter of 2005. In the Phase I portion of this trial, we plan to evaluate the safety and tolerability of frequent, repeated exposures to SNS-032 in patients with advanced solid tumors, such as lung, breast and ovarian tumors, and in chronic lymphocytic leukemia. Patients will receive an escalating dose of SNS-032 as an IV infusion to identify the dose and schedule that we will use in the Phase II portion of the trial, during which we will administer SNS-032 to a limited number of subjects with advanced breast cancer, non-small cell lung cancer or melanoma to assess objective tumor responses. We intend to use the results of this Phase I/II clinical trial to design additional Phase II trials of SNS-032 in a variety of tumors. We plan to commence additional Phase I/II and Phase Ib clinical trials with SNS-032 in 2006.

        Concurrently, we intend to develop an oral formulation of SNS-032, which may prove to be more convenient for patients, and to discover additional CDK inhibitors as alternative drug candidates.

SNS-314 Program

        SNS-314 is a targeted inhibitor of the Aurora A and B kinases. We believe that Aurora kinase inhibitors represent an area of interest in the pharmaceutical industry and within the cancer treatment community. Aurora kinases are key enzymes involved in cell growth and division and play an essential role in the abnormal growth and proliferation of tumor cells. Aurora kinases are known to be overexpressed in a number of tumor types, including colon cancer, breast cancer and leukemia. Aurora kinase inhibition retards cell proliferation and limits tumor growth by initiating programmed cell death. Because Aurora kinase is more highly expressed in active cells rather than resting cells, we believe that Aurora kinase therapies may selectively target cancer cells, which are actively dividing, over cells in a normal or resting state, which may lead to reduced toxicities.

        The goal of this program is to develop novel Aurora kinase inhibitors with superior drug-like properties that exhibit broad activity in tumors and do not cause significant peripheral neuropathy. SNS-314 has demonstrated the ability to block the activity of Aurora kinase in vitro and inhibit tumor growth in vivo. SNS-314 does not cause any unacceptable toxicity when administered to mice or rats at biologically active doses. We are currently conducting animal studies to optimize the dose and schedule for SNS-314 as a single agent. Following three weeks of administration, SNS-314 causes 90% or greater inhibition of tumor growth in a solid tumor mouse model with minimal observed toxicity and in a manner that is consistent with Aurora inhibition. These results are statistically significant, with a p-value of less than 0.001. We expect to file an IND and commence Phase I clinical studies with SNS-314 in 2006. We have worldwide rights to commercialize SNS-314 and any other drugs resulting from our Aurora kinase inhibitors program.

Other Oncology Kinase Programs

        We are applying Tethering in several programs to discover and develop additional novel kinase inhibitors for the treatment of cancer. Kinases are proteins found in cells that are critical in the communication and relay of signals to promote cell growth or function. In normal cell proliferation, when a cellular signaling pathway is activated, or "on," it sends a signal telling the cell to grow and divide. When a component of a signaling pathway involving a kinase is mutated, the signal may not turn "off" and thus may be constantly "on," causing the cell to continuously reproduce itself. This unregulated growth is a principal characteristic of cancer cells. It is widely believed that the signaling

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pathway plays an integral role in the growth of some tumor types. We believe that by inhibiting a kinase in a specific overactive pathway, the pathway can be turned "off," restoring normal signaling.

Technology/Scientific Overview

        There is significant pharmaceutical industry interest in kinases as key points of intervention for treating disease. Many strategies are used in the pharmaceutical industry to discover kinase inhibitors for drug development, including high-throughput functional screening of kinase-regulated pathways.

        There are 518 known human kinases, many of which are known to be involved in cancer and other diseases. Most small molecule kinase inhibitors bind to a main site common among many kinases, thereby affecting multiple kinases rather than only those involved in the targeted disease. As a result, it has been difficult to discover small molecule kinase inhibitors that bind only to the kinase involved in the targeted disease process and not to other kinases. The ability to target a single kinase is referred to as specificity. Binding without specificity may lead to unwanted toxicity problems.

        A small but growing number of compounds, including Gleevec, inhibit the targeted kinase with greater specificity by binding not only the main site but also a nearby region called the variable binding region. Each kinase has a different variable binding region. As a result, we believe inhibitors that also bind to the variable binding region will bind with greater specificity to the kinase of interest, and we use Tethering to identify these kinase inhibitors. We believe that these specific inhibitors may be associated with reduced toxicity.

Raf Kinase Inhibitors Program

        We are developing our Raf kinase inhibitors program in collaboration with Biogen Idec. We provided Raf kinase inhibitors derived from Tethering to the collaboration and have jointly with Biogen Idec optimized these molecules to show in vivo efficacy in animal models. We believe that Raf kinase inhibitors represent an area of interest in the pharmaceutical industry and within the cancer treatment community.

        Raf kinase is an enzyme in the Ras pathway, a signaling pathway important to cell proliferation. The Ras pathway is believed to be abnormally activated in many human cancers by various mechanisms. In approximately 15% of human cancers, a Ras gene is activated by mutation. We believe that several inhibitors of kinases in the Ras pathway have shown evidence of clinical activity in clinical trials.

        The goal of this program is to develop Raf kinase inhibitors with improved pharmaceutical properties as compared to other Raf kinase inhibitors in development. We applied Tethering to discover highly specific and potent Raf kinase inhibitors. We and Biogen Idec are conducting preclinical studies and anticipate selecting a development candidate in 2006. We expect Biogen Idec to file an IND and commence Phase I clinical trials in 2007. We have an option to co-develop and co-promote up to two drugs developed through this program on a worldwide basis.

Other Kinase Inhibitors Programs

        As part of our collaboration with Biogen Idec, we are applying Tethering to discover novel small molecule leads that inhibit up to five additional oncology or human immune system kinase targets. We and Biogen Idec are working together on the identification, optimization and development of inhibitor drugs for these kinases. We are also working on the identification and optimization of kinase inhibitor drugs outside of our collaboration with Biogen Idec.

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Other Programs

Cathepsin S Inhibitors Program

        Cathepsin S is an enzyme involved in the activation of T-cells. Inappropriate activation of T-cells may lead to some inflammatory diseases, such as asthma, rheumatoid arthritis, multiple sclerosis, psoriasis and Crohn's disease. In collaboration with Johnson & Johnson PRD, we are applying Tethering to discover small molecule inhibitors of Cathepsin S. We intend to develop these inhibitors into drugs for the treatment of major inflammatory diseases. We believe that small molecule Cathepsin S inhibitors would have the advantages of a novel mechanism of action, ease of oral administration and ease of manufacturing. Johnson & Johnson PRD holds worldwide rights to commercialize any drugs resulting from this program.

BACE Inhibitors for Alzheimer's Disease

        In collaboration with Merck, we are applying Tethering to identify and optimize inhibitors of BACE, an important enzyme target in Alzheimer's disease. BACE, or beta-secretase, is involved in the formation of A-beta peptide, which is the predominant substance in the plaques found in the brains of Alzheimer's patients and believed to contribute to their disease. Merck holds worldwide rights to commercialize any drugs resulting from this collaboration and is responsible for advancing these compounds into lead optimization, preclinical studies and clinical trials.

Anti-Viral Inhibitors Program

        We are collaborating with Merck to identify small molecule inhibitors of an anti-viral target by a novel mechanism. We are providing Merck with a series of small molecule compounds that we derived from Tethering that target a specific viral protein. Merck holds worldwide rights to commercialize any drugs resulting from this collaboration and is responsible for advancing these compounds into lead optimization, preclinical studies and clinical trials.

Anti-Cancer Program

        We are collaborating with Biogen Idec to identify small molecule inhibitors of a non-kinase cancer target by a novel mechanism. We provided Biogen Idec with a series of small molecule compounds we derived from Tethering that target a specific protein overexpressed in certain cancers, including breast and colorectal cancers. Biogen Idec holds worldwide rights to commercialize any drugs resulting from this collaboration and is responsible for advancing these compounds into lead optimization, preclinical studies and clinical trials.

Rationale For Fragment-Based Drug Discovery

        We have developed a proprietary fragment-based drug discovery approach, called Tethering, that we use in combination with other drug discovery tools, such as structure-based design and medicinal chemistry, to discover and develop novel therapeutics for major diseases.

Limitations of Existing Drug Discovery Approaches

        Pharmaceutical discovery often begins with the hypothesis that a target protein in the body is involved in a certain disease and that compounds that block or inhibit the action of that target will provide therapeutic benefit. The search for these compounds typically starts by screening a collection of molecules to find "hits" that inhibit the target function. These hits are then improved through medicinal chemistry to create more advanced molecules that are tested in animal models of the disease to determine whether they provide therapeutic benefit. Molecules that test positively in animal models are optimized to have the necessary properties to become drugs and are ultimately tested in human clinical trials.

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        Combinatorial chemistry has expanded the size of compound collections, and advances in automated high-throughput screening, or HTS, have enabled the screening of million-compound libraries. Despite these advances, HTS is limited by the number of complex, fully formed compounds that can practically be made and stored in a collection. Even very large collections represent only a small fraction of the compounds that could be made. Thus, new approaches to searching the vast potential diversity of chemical compounds are highly desired. Another challenge with HTS is that it typically identifies compounds that bind to the main binding site of kinases. It can be difficult to find molecules that bind to the variable binding region of kinases using HTS. We believe that kinase inhibitors that bind to the variable binding region have significant potential therapeutic benefit.

        We believe fragment-based drug discovery offers an alternative strategy for identifying drug-like compounds that bind to proteins. In contrast with HTS where compounds are identified by measuring activity, fragment-based discovery involves the identification of multiple drug fragments by measuring binding. Individual fragments that bind to nearby sites on the protein are identified and combined to form a drug-like compound. By first determining which fragments interact with the protein in the area of interest and then combining them, we believe there is a higher likelihood of identifying novel compounds that will bind to the target. A key challenge of fragment-based drug discovery is how to identify which fragments bind to the protein. Fragments typically bind weakly and can be difficult to detect using conventional methods.

Our Drug Discovery Platform

        Tethering is our proprietary fragment-based drug discovery approach that we believe overcomes the limitations of existing conventional and fragment-based discovery methods. Tethering enables us to identify weak-binding fragments that would otherwise be difficult to detect. In Tethering, we first expose a target protein having a sulfur-containing amino acid named cysteine to a collection of specially designed fragments that also contain sulfur. Those fragments capable of binding to the target near the cysteine form a reversible chemical link known as a disulfide bond that stabilizes the binding of the fragment to the target protein. The formation of the disulfide bond results in an increase in the weight of the protein that allows us to identify the fragment using mass spectrometry. Although the disulfide bond helps to stabilize the weakly binding fragment to the protein, fragments that do not naturally bind to the protein are not detected.

        We create drug-like compounds by combining multiple fragments through a process called "Tethering with extenders." Once we have identified an initial fragment that binds to the target protein, we use this initial fragment as the basis for an extender to search for a companion fragment by the same process used to discover the initial fragment. Subsequently, the initial and companion fragments are combined into a single molecule and the attachment to the protein is removed. This ultimately generates a soluble drug-like compound that can be optimized through medicinal chemistry. In Tethering with extenders, the surface of the target protein is used as a mold to construct its own inhibitor. This approach can be applied to most protein targets.

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1

A pool of fragments is screened against a protein target.

2

A fragment binds to the protein target.

3

Following a second screening, a new fragment binds to the protein target and the initial fragment, forming a drug-like compound.

4

The drug-like compound is released from the protein target for further optimization.

        By screening and identifying individual fragments that bind to the target and only combining the fragments that bind, we are able to significantly expand the number of drug-like compounds that can be evaluated.

        Our Tethering approach has formed the basis of all of our collaborations to date. We believe our collaboration partners have been attracted to our company and our Tethering approach because of its potential to identify novel drug-like compounds that are difficult to detect through other means. We have applied Tethering to over 15 different protein targets, including various kinases, to produce drug-like compounds. We optimize the drug-like compound to produce drug candidates by integrating Tethering with medicinal chemistry and structure-based drug design and by introducing pharmacology, including absorption, distribution, metabolism and excretion tests, early in the drug discovery process.

Strategic Collaborations

        We currently have five strategic collaborations with three leading pharmaceutical and biopharmaceutical companies. Each collaboration is target specific and involves personnel from both our company and our collaboration partner working together. These alliances are designed to enable us to leverage and expand our internal development capabilities, manage our cash expenditures and diversify risk across our pipeline. Through our strategic collaborations, we are able to pursue more programs than we could fund on our own. As of June 30, 2005, we had received an aggregate of approximately $63.5 million in cash in the form of stock purchase proceeds, fees and loans from our collaboration partners. We believe that approximately 175 scientists currently work on our programs and programs partnered with our company. Approximately one-half of these scientists are our employees and of those, approximately one-third are funded through our collaborations.

        In forming each of our strategic collaborations, we have agreed not to conduct certain research, independently or with any commercial third party, that is on the same target as that covered by the collaboration agreement. Some of our collaborations also significantly restrict our ability to utilize intellectual property derived from a collaboration for a purpose outside of the collaboration.

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Biogen Idec (formerly Biogen, Inc)—TNF Family and Oncology Research Collaboration

        In December 2002, we entered into a collaboration with Biogen Idec to apply Tethering to discover and develop small molecule modulators of up to four members of the TNF trimeric cytokine super-family plus up to two additional targets. The research phase of this collaboration ended in June 2005, and Biogen Idec is continuing the development of small molecule inhibitors of one of the additional targets, which is a cancer target. The primary focus of the program is to discover small molecule inhibitors of the additional target. Biogen Idec holds worldwide rights to commercialize any drugs resulting from this program.

        Pursuant to this agreement, we received a $3.0 million upfront technology access fee. In addition, Biogen Idec made a $6.0 million equity investment in our company. The agreement also provides for a maintenance fee payable to us of $357,500 per quarter, starting in April 2004 and continuing until the end of the initial research phase, and a $4.0 million credit facility from which we may make 10 quarterly draws of $400,000 each, of which as of June 30, 2005 we had drawn an aggregate of $4.0 million. Both parties agreed to dedicate resources as provided in the research plan. To date, we have received payments totaling $8.4 million under this collaboration, including $4.0 million in loan proceeds.

        We granted Biogen Idec a worldwide non-exclusive license to our intellectual property relating to Tethering with respect to specific collaboration targets and an exclusive license to our portion of the collaboration intellectual property for the commercialization of a small molecule product arising from the collaboration. Biogen Idec is required to pay up to $60.5 million in pre-commercialization milestones per compound, assuming the compound is approved for multiple indications, as well as royalty payments based on product sales. Royalty rates payable to us may be reduced if Biogen Idec is required to license additional intellectual property related to Tethering from one or more third parties in order to commercialize a collaboration product. Rights to collaboration products revert to us with a reverse royalty to Biogen Idec if Biogen Idec fails to use commercially reasonable and diligent efforts during development and commercialization of such products. Royalty obligations under the agreement continue on a country-by-country and product-by-product basis until the later of the date on which no valid patent claim relating to a product exists or 10 years from the date of first sale of the product.

        Our agreement with Biogen Idec will continue for so long as a product arising from the collaboration is the subject of an active development project or for so long as there is an obligation to pay royalties under the agreement. The agreement may be terminated earlier by Biogen Idec without cause upon 30 days' written notice, in which case each party will have exclusive rights to the compounds it solely invented during the collaboration and non-exclusive rights to jointly invented compounds, Biogen Idec will remain obligated to pay milestones and royalties to us, and we will owe a modest royalty to Biogen Idec. The agreement may also be terminated by either party for uncured breach or bankruptcy of the other party. If Biogen Idec terminates the agreement in connection with our breach or bankruptcy, it retains its licenses from us but receives a reduction in its milestones and royalty obligations. If we terminate the agreement for Biogen Idec's breach or bankruptcy, we will receive exclusive licenses from Biogen Idec and be obligated to make modest royalty payments to Biogen Idec.

Biogen Idec—Kinase Research, Development and Commercialization Collaboration

        In August 2004, we entered into a collaboration agreement with Biogen Idec to discover, develop and commercialize small molecule inhibitors of Raf kinase and up to five additional targets. The primary focus of the program is to discover small molecule inhibitors of kinases that play a role in oncology indications or in the regulation of the human immune system. During the research term, we and Biogen Idec agreed to work together exclusively to develop pharmaceutical compounds against collaboration targets with the exception that either party may collaborate with a third party on a

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Phase II clinical trial or later stage compound against a collaboration target. Our exclusivity obligation continues for an additional year after the end of the research term. We also agreed not to develop or commercialize any compound active against a collaboration target that is the subject of the agreement.

        Pursuant to this agreement, we received a $7.0 million upfront technology access fee. In addition, Biogen Idec made a $14.0 million equity investment in our company. To date, we have received payments totaling $25.1 million under this collaboration, including the $14.0 million equity investment. The initial research term is four years, and both parties agreed to dedicate the research personnel provided in the research plan. Biogen Idec has the option to extend the research term for up to two additional one-year periods upon payment of an additional technology access fee and a commitment to provide research funding. Biogen Idec will bear all costs related to this program for all targets through at least the completion of Phase I clinical trials, after which we have the right to participate in the co-development and co-promotion of product candidates for up to two targets.

        We granted Biogen Idec a worldwide non-exclusive license to our intellectual property relating to Tethering with respect to specific collaboration targets and an exclusive license to our portion of the collaboration intellectual property for the commercialization of small molecule compounds that have a specified activity against collaboration kinases arising from the collaboration. Biogen Idec is required to pay up to $60.5 million in pre-commercialization milestones per target as well as royalty payments depending on product sales. Royalty payments may be increased if we exercise our option on co-development and co-promotion rights. Royalty rates payable to us will be reduced if Biogen Idec is required to license additional intellectual property related to Tethering from one or more third parties in order to commercialize a collaboration product. Rights to collaboration products revert to us with a reverse royalty to Biogen Idec if Biogen Idec fails to use commercially reasonable and diligent efforts during development and commercialization of co-funded products. If we do not exercise our co-funding option for a product directed at a target selected for further collaborative work, then Biogen Idec may pursue such target on its own. We also have a non-exclusive license, with the right to obtain an exclusive license, from Biogen Idec under joint collaboration intellectual property to develop and commercialize products against other kinase targets. We will owe royalty payments to Biogen Idec for sales of any such products. Royalty obligations under the agreement continue on a country-by-country and product-by-product basis until the later of the date on which no valid patent claim relating to a product exists or 10 years from the date of first sale of the product.

        Our agreement with Biogen Idec will continue for so long as a product arising from the collaboration is the subject of an active development project or for so long as there is an obligation to pay royalties under the agreement. The agreement may be terminated earlier by Biogen Idec without cause at any time before the second anniversary of the agreement upon six months' written notice or immediately upon written notice and payment of a termination fee. After the second anniversary of the agreement, Biogen Idec may terminate the agreement without cause upon 90 days' written notice. Either party may also terminate the agreement for the other party's uncured breach or bankruptcy. If Biogen Idec terminates the agreement early without cause or we terminate due to Biogen Idec's breach or bankruptcy, all co-funded products not approved for sale prior to termination will revert to us, and we will receive a reduction in the royalties we owe to Biogen Idec. If Biogen Idec terminates the agreement early due to our breach or bankruptcy, Biogen Idec will receive a reduction in the royalties it owes to us. Many of the parties' other product rights are not substantially affected by early termination.

Johnson & Johnson PRD—Research, Development and Commercialization Collaboration

        In May 2002, we entered into a collaboration agreement with Johnson & Johnson PRD to discover, develop and commercialize small molecule inhibitors of Cathepsin S, an enzyme that is important in regulating an inflammatory response. During the period of the research term plus two years, we and Johnson & Johnson PRD agreed to work together exclusively to develop pharmaceutical

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compounds against Cathepsin S. Johnson & Johnson PRD retains the sole right to determine whether a product candidate enters development. Johnson & Johnson PRD holds worldwide rights to commercialize any drugs resulting from this program.

        The agreement provides for payment by Johnson & Johnson PRD to us of a technology access fee and research funding. To date, we have received payments totaling $6.0 million under this collaboration. The initial research term was two years, and Johnson & Johnson PRD had the option to extend the research term for up to two additional one-year periods with the same level of research funding. Johnson & Johnson PRD exercised its first option to extend the research term through May 2005, and in December 2004, Johnson & Johnson PRD extended the research term further to December 31, 2005. We do not expect that this collaboration will be extended beyond 2005.

        We granted Johnson & Johnson PRD a worldwide non-exclusive license to our intellectual property relating to Tethering on Cathepsin S and an exclusive license under the collaboration intellectual property for the commercialization of small molecule products arising from the collaboration. Patents and patent applications arising from the collaboration are owned by our company. Johnson & Johnson PRD is required to pay research and development milestones of up to $24.5 million well as royalty payments depending on product sales. Royalty rates payable to us may be reduced if Johnson & Johnson PRD is required to license additional intellectual property related to Tethering from one or more third parties in order to commercialize a collaboration product. Royalty obligations under the agreement continue on a country-by-country and product-by-product basis until the later of the date on which no valid patent claim relating to a product exists or 10 years from the date of first sale of the product.

        Our agreement with Johnson & Johnson PRD will continue for so long as a product arising from the collaboration is the subject of an active development project or for so long as there is an obligation to pay royalties under the agreement. Johnson & Johnson PRD may terminate the agreement earlier without cause after the end of the research term and upon six months' written notice, and either party may terminate the agreement earlier for the other party's uncured breach or bankruptcy. All early terminations extinguish Johnson & Johnson PRD's licenses from us. If Johnson & Johnson PRD terminates the agreement early without cause or if we terminate due to Johnson & Johnson PRD's breach or bankruptcy, Johnson & Johnson PRD will grant us certain exclusive licenses and transfer its regulatory filings to us, and we will be obligated to pay modest royalties to Johnson & Johnson PRD in return.

Merck—BACE Research, Development and Commercialization Collaboration

        In February 2003, we entered into a license and collaboration agreement with Merck to discover, develop and commercialize small molecule inhibitors of BACE, or beta secretase, an enzyme that is believed to be important for the progression of Alzheimer's disease. During the period of the research term plus one year, we and Merck agreed to work together exclusively to develop a pharmaceutical compound against the collaboration target, with the exception that Merck may acquire from a third party a compound that satisfies development candidate criteria specified in the agreement. Merck holds worldwide rights to commercialize any drugs resulting from this collaboration.

        The agreement provides for payment by Merck to us of a technology access fee and research funding. To date, we have received payments totaling $12.7 million under this collaboration. The initial research term is three years and both parties agreed to dedicate the resource funding provided in the research plan. Merck has the option to extend the research term for an additional one-year period with the same level of research funding.

        We granted Merck a worldwide, non-exclusive license to our intellectual property relating to Tethering on BACE and an exclusive license to a composition of matter patent and future intellectual property relating to BACE. Merck is required to pay research and development milestones of up to

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$90.3 million as well as royalty payments depending on product sales. Royalty rates payable to us may be reduced if Merck is required to license additional intellectual property from one or more third parties in order to commercialize a collaboration product or if a third party markets a version of the collaboration product. Royalty obligations under the agreement continue on a country-by-country and product-by-product basis until the later of the date on which no valid patent claim relating to a product exists or 12 years from the date of first sale of the product. We retain the right to develop and commercialize non-pharmaceutical products containing compounds arising from the collaboration. We would owe Merck a royalty based on sales of any such products.

        Our agreement with Merck will continue for so long as a product arising from the collaboration is the subject of an active development project or for so long as there is an obligation to pay royalties under the agreement. The agreement may be terminated earlier by Merck at any time after the third anniversary of the agreement upon three months' written notice, or may be terminated by either party for the other party's uncured breach or bankruptcy.

Merck—Anti-viral License and Research Collaboration

        In July 2004, we entered into a license and collaborative research agreement with Merck that allows Merck to discover and develop small molecule drugs against an enzyme target for treating viral infections. During the period from the beginning of the research term until the time that Merck ceases activities against the enzyme target, we agreed not to work with any third party on compounds that inhibit the enzyme target. Merck holds worldwide rights to commercialize any drugs resulting from this collaboration.

        The agreement provides for a payment by Merck to us of an upfront technology access fee and annual license fees. To date, we have received $2.6 million under this collaboration. The initial research term is three years and may be extended for one year upon mutual agreement of the parties. Merck may end the research term in January 2006 upon 90 days' written notice.

        We assigned to Merck small molecule compounds related to the viral target and our interest in research program patents and to compounds that act on the target through our inhibition mode. Merck owns all intellectual property generated in the course of performing the research except for improvements related to Tethering, which we own. Merck is required to pay pre-commercialization milestones of up to $22.1 million as well as royalty payments based on product sales. Royalty rates payable to us may be reduced if Merck is required to license additional intellectual property from one or more third parties in order to commercialize a collaboration product. Merck may also reduce its royalty payments to us if the product is not covered by a patent or if a third party markets a competitive product. Royalty obligations under the agreement continue on a country-by-country and product-by-product basis until the later of the date on which no valid patent claim relating to a product exists or 12 years from the date of first sale of the product.

        Our agreement with Merck will continue for so long as a product arising from the collaboration is the subject of an active development project or for so long as there is an obligation to pay royalties under the agreement. The agreement may be terminated earlier by Merck on the 18-month anniversary of the agreement upon 90 days' written notice, or may be terminated by either party for the other party's uncured breach or bankruptcy.

Dainippon Pharmaceutical

        In October 2003, we entered into a licensing agreement with Dainippon Pharmaceutical in which we obtained a worldwide exclusive license, including the right to sublicense, to SNS-595 and related compounds.

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        The agreement provides to Dainippon Pharmaceutical an upfront payment and milestone payments of up to $10.7 million for starting Phase II clinical testing, Phase III clinical testing, and for filing NDAs and receiving regulatory approval in the United States, Europe and Japan for cancer treatment. If SNS-595 is approved for a cancer indication in the United States, Europe or Japan, milestone payments become payable to Dainippon Pharmaceutical. If SNS-595 is approved for a non-cancer indication, additional milestone payments become payable to Dainippon Pharmaceutical.

        The agreement also provides for royalty payments to Dainippon Pharmaceutical at rates that are based on total annual net sales. We may reduce our royalty payments to Dainippon Pharmaceutical if a third party markets a competitive product or we must pay royalties for third party intellectual property rights necessary to commercialize SNS-595. Royalty obligations under the agreement continue on a country-by-country and product-by-product basis until the later of the date on which no valid patent claims relating to a product exist or 10 years from the date of the first sale of the product.

        If we discontinue seeking regulatory approval and/or sale of the product in a region, we are required to return to Dainippon Pharmaceutical its rights to the product in that region. The agreement may be terminated by either party for the other party's uncured breach or bankruptcy.

Bristol-Myers Squibb Company

        In April 2005, we entered into a license agreement with BMS in which we obtained worldwide exclusive and non-exclusive diagnostic and therapeutic licenses, including rights to sublicense, to SNS-032 and any related compounds that are active against CDK-1, -2, -4, -7 and -9 and are covered by licensed intellectual property.

        The agreement provides to BMS an $8.0 million upfront payment, which we paid in April 2005 through the issuance of 442,737 shares of our Series C-2 preferred stock, which are convertible into 799,927 shares of common stock, and milestone payments totaling up to $78.0 million for beginning Phase I, Phase II and Phase III clinical testing, and for filing NDAs and receiving regulatory approval in the United States, Europe and Japan as well as for achieving certain commercial milestones. Our Series C-2 preferred stock will be converted into common stock in connection with this offering, and we granted registration rights to BMS on a pro rata basis with our other preferred stockholders. For additional information, please see "Conversion of Preferred Stock and Reverse Stock Split" and "Description of Capital Stock—Registration Rights." Milestone payments are distributed among IV and oral formulations and various cancer indications. We may, at our election, pay some of these milestone payments in equity or a mixture of cash and equity, rather than entirely in cash. Shares of our stock issued in connection with milestone payments will be valued at the per share price for our last round of private financing prior to our initial public offering and thereafter will be valued at the average closing price of our common stock for a specified five-day period prior to issuance.

        The agreement also provides for royalty payments to BMS at rates that are based on total annual net sales. Royalty obligations under the agreement continue on a country-by-country basis until the later of (1) expiration of all patents that are owned by us or exclusively licensed to us (whether by BMS or a third party) that cover a licensed product, (2) 10 years following the first commercial sale of a licensed product or (3) expiration of all applicable data exclusivity with respect to a licensed product. The U.S. composition of matter patent covering SNS-032 is due to expire on October 21, 2018, and most of its foreign counterparts are due to expire on December 7, 2020.

        After completion of any Phase II clinical trial with SNS-032 or other licensed product under a U.S. IND, should we desire to sublicense our rights under the agreement, BMS will have the first right to negotiate with us for such sublicense. If we and BMS do not reach agreement within a designated period of time, then we are free to sublicense to any third party provided the financial terms are not less favorable than those offered to BMS. We cannot grant a sublicense to any third party before the completion of such Phase II clinical trial unless we receive BMS's consent.

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        The agreement may be terminated by BMS for our uncured breach (other than a diligence breach) or bankruptcy. BMS may terminate this agreement on a country-by-country basis for our uncured failure to use commercially reasonable efforts to develop and/or commercialize at least one licensed compound or licensed product in a particular country or territory. Further, if such uncured failure occurs in certain countries, BMS may terminate the agreement as to entire designated territories. BMS may also terminate the agreement if we develop or market a competitive product within certain designated time periods. We may terminate this agreement with respect to a specific licensed product in a particular country without cause but with a specified notice period. We may also terminate the agreement for BMS's uncured breach.

Intellectual Property

        We patent the technology, inventions and improvements that we consider important to the development of our business. As of July 31, 2005, we owned or had exclusive rights to 64 issued U.S. and foreign patents and 108 pending U.S. and foreign patent applications. Forty-three issued patents and seven pending applications relate to SNS-595, which cover compositions of matter and method of use in oncology and formulations. The issued patents are generally due to expire in 2015. The U.S. composition of matter patent is due to expire on October 6, 2015, and most of its foreign counterparts are due to expire on June 6, 2015. Two pending U.S. and one pending foreign applications in our SNS-314 program and two pending U.S. applications in our Raf kinase program relate to composition of matter, methods of use in oncology and other kinase-mediated diseases and formulations. We intend to seek patent term extension that may be available, including under the Hatch-Waxman Act, which provides up to five years of patent extension. Five issued patents, which will expire between 2018 and 2021, and 56 pending applications relate to Tethering. The remaining patents and applications relate to other aspects of our technology or other drug discovery programs that we are no longer actively pursuing.

        In addition, we have obtained from BMS exclusive rights for SNS-032 and certain other related compounds active against CDK-1, -2, -4, -7 and -9. These exclusive rights primarily derive from four issued U.S. patents, their foreign counterparts, and other patents and applications that claim priority to these four issued U.S. patents. The U.S. composition of matter patent covering SNS-032 is due to expire on October 21, 2018 and most of its foreign counterparts are due to expire on December 7, 2020.

        Our ability to build and maintain our proprietary position for our technology and drug candidates will depend on our success in obtaining effective claims and enforcing those claims once granted. The patent positions of biopharmaceutical companies like ours are generally uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of patent claims has emerged to date in the United States. The patent situation outside the United States is even more uncertain. We do not know whether any of our patent applications or those patent applications that we license will result in the issuance of any patents. The patents we own or license and those that may issue in the future may be challenged, invalidated or circumvented, and the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages.

        We may not be able to develop patentable products or be able to obtain patents from pending patent applications. Even if patents are issued, they may not be sufficient to protect the technology and drug candidates owned by or licensed to us. These current patents and patents that may issue in the future may be challenged, invalidated, infringed or circumvented, and the rights granted in those patents may not provide proprietary protection or competitive advantage to us. Patent applications filed before November 29, 2000 in the United States are maintained in secrecy until patents issue. Later filed U.S. applications and patent applications in most foreign countries generally are not published until at least 18 months after they are filed. Scientific and patent publication often occurs long after the

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date of the scientific discoveries disclosed in those publications. Accordingly, we cannot be certain that we were the first to invent the subject matter covered by any patent application or that we were the first to file a patent application for any inventions.

        Our commercial success depends on our ability to operate without infringing patents and proprietary rights of third parties. We cannot determine with certainty whether patents or patent applications of other parties may materially affect our ability to conduct our business. The existence of third party patent applications and patents could significantly reduce the coverage of patents owned by or licensed to us and limit our ability to obtain meaningful patent protection. If patents containing competitive or conflicting claims are issued to third parties and these claims are ultimately determined to be valid, we may be enjoined from pursuing research, development or commercialization of products, or be required to obtain licenses to these patents or to develop or obtain alternative technology.

        We may need to commence litigation to enforce any patents issued to us or to determine the scope and validity of third party proprietary rights. Litigation would result in substantial costs, even if the eventual outcome is favorable to us. An adverse outcome in litigation could subject us to significant liabilities to third parties and require us to seek licenses of the disputed rights from third parties or to cease using the technology if such licenses are unavailable.

        We also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect.

        We seek to protect our proprietary information by requiring our employees, consultants, contractors and other advisers to execute nondisclosure and assignment of invention agreements upon commencement of their employment or engagement. Agreements with our employees also prevent them from bringing the proprietary rights of third parties to us. We also require confidentiality or material transfer agreements from third parties that receive our confidential data or materials. There can be no assurance that these agreements will provide meaningful protection, that these agreements will not be breached, that we will have an adequate remedy for any such breach, or that our trade secrets will not otherwise become known or independently developed by a third party.

Government Regulation

        FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture, marketing and distribution of drugs. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our drug candidates and drugs.

U.S. Government Regulation

        In the United States, FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FFDCA, and implementing regulations. The process required by FDA before our drug candidates may be marketed in the United States generally involves the following:

•

completion of extensive preclinical laboratory tests, preclinical animal studies and formulation studies, all performed in accordance with FDA's good laboratory practice, or GLP, regulations;



•

submission to FDA of an investigational new drug, or IND, application which must become effective before clinical trials may begin;



•

performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product candidate for each proposed indication;



•

submission of a new drug application, or NDA, to FDA;

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•

satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities at which the product candidate is produced to assess compliance with current good manufacturing practice, or cGMP, regulations; and



•

FDA review and approval of the NDA prior to any commercial marketing, sale or shipment of the drug.

        The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our drug candidates will be granted on a timely basis, if at all.

        Preclinical tests include laboratory evaluation of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animals. The results of preclinical tests, together with manufacturing information and analytical data, are submitted as part of an IND application to FDA. The IND automatically becomes effective 30 days after receipt by FDA, unless FDA, within the 30-day time period, raises concerns or questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and FDA must resolve any outstanding concerns before the clinical trial can begin. Our submission of an IND, or those of our collaboration partners, may not result in FDA authorization to commence a clinical trial. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development, and FDA must grant permission before each clinical trial can begin. Further, an independent institutional review board, or IRB, for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center and it must monitor the study until completed. FDA, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive Good Clinical Practice, or GCP, requirements and regulations for informed consent.

Clinical Trials

        For purposes of NDA submission and approval, clinical trials are typically conducted in the following three sequential phases, which may overlap:

•

Phase I clinical trials are initially conducted in a limited population to test the drug candidate for safety, dose tolerance, absorption, metabolism, distribution and excretion in healthy humans or, on occasion, in patients, such as cancer patients. In some cases, particularly in cancer trials, a sponsor may decide to conduct what is referred to as a "Phase Ib" evaluation, which is a second safety-focused Phase I clinical trial typically designed to evaluate the impact of the drug candidate in combination with currently approved drugs.



•

Phase II clinical trials are generally conducted in a limited patient population to identify possible adverse effects and safety risks, to determine the efficacy of the drug candidate for specific targeted indications and to determine dose tolerance and optimal dosage. Multiple Phase II clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase III clinical trials. In some cases, a sponsor may decide to conduct what is referred to as a "Phase IIb" evaluation, which is a second, confirmatory Phase II clinical trial that could, if positive and accepted by FDA, serve as a pivotal clinical trial in the approval of a drug candidate.



•

Phase III clinical trials are commonly referred to as pivotal trials. When Phase II clinical trials demonstrate that a dose range of the drug candidate is effective and has an acceptable safety profile, Phase III clinical trials are undertaken in large patient populations to further evaluate dosage, to provide substantial evidence of clinical efficacy and to further test for safety in an expanded and diverse patient population at multiple, geographically dispersed clinical trial sites.

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        In some cases, FDA may condition approval of an NDA for a drug candidate on the sponsor's agreement to conduct additional clinical trials to further assess the drug's safety and efficacy after NDA approval. Such post-approval trials are typically referred to as Phase IV clinical trials.

New Drug Application

        The results of drug candidate development, preclinical testing and clinical trials are submitted to FDA as part of an NDA. The NDA also must contain extensive manufacturing information. Once the submission has been accepted for filing, by law FDA has 180 days to review the application and respond to the applicant. The review process is often significantly extended by FDA requests for additional information or clarification. FDA may refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. FDA may deny approval of an NDA if the applicable regulatory criteria are not satisfied, or it may require additional clinical data or an additional pivotal Phase III clinical trial. Even if such data are submitted, FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials are not always conclusive and FDA may interpret data differently than we or our collaboration partners interpret data. Once issued, FDA may withdraw drug approval if ongoing regulatory requirements are not met or if safety problems occur after the drug reaches the market. In addition, FDA may require testing, including Phase IV clinical trials, and surveillance programs to monitor the effect of approved products that have been commercialized, and FDA has the power to prevent or limit further marketing of a drug based on the results of these post-marketing programs. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved label. Further, if there are any modifications to the drug, including changes in indications, other labeling changes, or manufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require us to develop additional data or conduct additional preclinical studies and clinical trials.

Fast Track Designation

        FDA's fast track program is intended to facilitate the development and to expedite the review of drugs that are intended for the treatment of a serious or life-threatening condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under the fast track program, the sponsor of a new drug candidate may request FDA to designate the drug candidate for a specific indication as a fast track drug concurrent with or after the filing of the IND for the drug candidate. FDA must determine if the drug candidate qualifies for fast track designation within 60 days of receipt of the sponsor's request.

        If fast track designation is obtained, FDA may initiate review of sections of an NDA before the application is complete. This rolling review is available if the applicant provides and FDA approves a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the time period specified in the Prescription Drug User Fees Act, which governs the time period goals FDA has committed to reviewing an application, does not begin until the complete application is submitted. Additionally, the fast track designation may be withdrawn by FDA if FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

        In some cases, a fast track designated drug candidate may also qualify for one or more of the following programs:

•

Priority Review.    Under FDA policies, a drug candidate is eligible for priority review, or review within a six-month time frame from the time a complete NDA is accepted for filing, if the drug candidate provides a significant improvement compared to marketed drugs in the treatment, diagnosis or prevention of a disease. A fast track designated drug candidate would ordinarily

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meet FDA's criteria for priority review. We do not know whether any of our drug candidates will receive a priority review designation or, if a priority designation is received, whether that review or approval will be faster than conventional FDA procedures, or that FDA will ultimately grant drug approval.

•

Accelerated Approval.    Under FDA's accelerated approval regulations, FDA is authorized to approve drug candidates that have been studied for their safety and efficacy in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit to patients over existing treatments based upon either a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of an effect on a clinical endpoint other than patient survival. In clinical trials, surrogate endpoints are alternative measurements of the symptoms of a disease or condition that are substituted for measurements of observable clinical symptoms. A drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase IV or post-approval clinical trials to validate the surrogate endpoint or confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or to validate a surrogate endpoint or confirm a clinical benefit during post-marketing studies, will allow FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by FDA.

        When appropriate, we and our collaboration partners intend to seek fast track designation, accelerated approval or priority review for our drug candidates. We cannot predict whether any of our drug candidates will obtain a fast track or accelerated approval designation, or the ultimate impact, if any, of the fast track or the accelerated approval process on the timing or likelihood of FDA approval of any of our drug candidates.

        Satisfaction of FDA regulations and approval requirements or similar requirements of foreign regulatory agencies typically takes several years, and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease. Typically, if a drug candidate is intended to treat a chronic disease, as is the case with some of the drug candidates we are developing, safety and efficacy data must be gathered over an extended period of time. Government regulation may delay or prevent marketing of drug candidates for a considerable period of time and impose costly procedures upon our activities. FDA or any other regulatory agency may not grant approvals for new indications for our drug candidates on a timely basis, or at all. Even if a drug candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations and dosages. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a drug may result in restrictions on the drug or even complete withdrawal of the drug from the market. Delays in obtaining, or failures to obtain, regulatory approvals for any of our drug candidates would harm our business. In addition, we cannot predict what adverse governmental regulations may arise from future United States or foreign governmental action.

Other Regulatory Requirements

        Any drugs manufactured or distributed by us or our collaboration partners pursuant to FDA approvals are subject to continuing regulation by FDA, including recordkeeping requirements and reporting of adverse experiences associated with the drug. Drug manufacturers and their subcontractors are required to register with FDA and certain state agencies, and are subject to periodic unannounced inspections by FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMPs, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, seizure of product, injunctive action or possible civil penalties. We cannot be certain that we or our present or future third-party manufacturers or suppliers will be able to comply with the

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cGMP regulations and other ongoing FDA regulatory requirements. If our present or future third-party manufacturers or suppliers are not able to comply with these requirements, FDA may halt our clinical trials, require us to recall a drug from distribution, or withdraw approval of the NDA for that drug.

        FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet. A company can make only those claims relating to safety and efficacy that are approved by FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the drug's labeling and that differ from those tested by us and approved by FDA. Such off-label uses are common across medical specialties, including cancer therapy. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. FDA does not regulate the behavior of physicians in their choice of treatments. FDA does, however, impose stringent restrictions on manufacturers' communications regarding off-label use.

Foreign Regulation

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

        Under European Union regulatory systems, marketing authorizations may be submitted either under a centralized or mutual recognition procedure. The centralized procedure provides for the grant of a single marking authorization that is valid for all European Union member states. The mutual recognition procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marking authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval.

        In addition to regulations in Europe and the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial distribution of our future products.

Manufacturing

        We outsource the manufacture of SNS-595 to third-party contract manufacturers. The active pharmaceutical ingredient of SNS-595 is manufactured by a single-source supplier through a 13-step convergent synthesis in which two intermediates are manufactured in a parallel process and then combined and deprotected in the final two steps. The active pharmaceutical ingredient is then formulated and vials are filled and finished by a different third party manufacturer. The active pharmaceutical ingredient is classified as a toxic substance, which limits the number of suppliers qualified to manufacture it. We have a sufficient supply of both the active pharmaceutical ingredient for SNS-595 and finished product to conduct our current and planned clinical trials of SNS-595 through the fourth quarter of 2005. We expect that additional active pharmaceutical ingredient and finished product will be manufactured, tested and released by the third quarter of 2005.

        We will outsource the manufacture of SNS-032 to third-party contract manufacturers. As part of our agreement with BMS, we acquired enough of the active pharmaceutical ingredient of SNS-032 for at least our planned Phase I/II clinical trial for SNS-032. However, before we are able to commence

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this trial, we must convert the active pharmaceutical ingredient into finished product. We expect that a sufficient supply of finished product to conduct our planned clinical trial of SNS-032 will be manufactured, tested and released by the third quarter of 2005.

        We will outsource the manufacture of SNS-314 to third-party contract manufacturers.

Competition

        We compete primarily in the segments of the biopharmaceutical markets that address cancer and other unmet medical needs, which are highly competitive. We face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching and selling products designed to address cancer and other unmet medical needs. Many of our competitors have significantly greater financial, manufacturing, marketing and drug development resources than we do. Large pharmaceutical companies in particular have extensive experience in clinical testing and in obtaining regulatory approvals for drugs. These companies also have significantly greater research capabilities than we do. In addition, many universities and private and public research institutes are active in cancer research, some of which are in direct competition with us.

        Our product candidates will compete with a number of cytotoxic drugs that are currently marketed or in development that also target proliferating cells but at different points of the cell cycle or with a different mechanism of action. These drugs include irinotecan, doxorubicin, taxanes and other cell-cycle inhibitors. To compete effectively with these agents, our product candidates will need to demonstrate advantages that lead to improved clinical efficacy compared to these competitors. We believe there are currently over 40 cell-cycle inhibitors undergoing clinical trials.

        SNS-032 is a CDK inhibitor. We believe that several companies, including Cyclacel, AstraZeneca, Schering AG and Pfizer, are conducting Phase I or Phase II clinical trials with similar compounds and others are developing CDK inhibitors that may compete with SNS-032. We are not aware of any CDK inhibitors that are currently being marketed.

        We are not aware of any marketed Aurora kinase inhibitors to treat cancer. We believe, however, that Vertex and Merck are co-developing an Aurora kinase inhibitor and that Millennium Pharmaceuticals, Rigel Pharmaceuticals, Pfizer, AstraZeneca, Schering AG and others also may be developing Aurora kinase inhibitors. Other molecules that may compete with SNS-314 may include other naturally occurring cytotoxics.

        We believe that our Raf kinase inhibitor would compete with Sorafenib developed jointly by Bayer AG and Onyx Pharmaceuticals and several compounds developed by Pfizer. Onyx and Bayer recently announced their intention to file an NDA and to seek accelerated approval basis on interim results from their Phase III clinical trials.

        We also compete with other companies that may be pursuing drug discovery using other technologies, including fragment-based technologies.

        We believe that our ability to successfully compete will depend on, among other things:

•

our ability to develop novel compounds with attractive pharmaceutical properties and to secure and protect intellectual property rights based on our innovations;



•

the efficacy, safety and reliability of our drug candidates;



•

the speed at which we develop our drug candidates;



•

our ability to design and successfully complete appropriate clinical trials;



•

our ability to maintain a good relationship with regulatory authorities;



•

the timing and scope of regulatory approvals;

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•

the success of our collaborations;



•

our ability to manufacture and sell commercial quantities of future products to the market; and



•

acceptance of future products by physicians and other healthcare providers.

Facilities

        As of June 30, 2005, we leased approximately 54,000 square feet of office and laboratory space in South San Francisco, California. Our lease expires in June 2013, subject to our option to extend the lease through June 2018. We believe that our current facilities will be sufficient to meet our needs through 2005. We may lease or sublease additional space that we believe will be available on commercially reasonable terms.

Employees

        As of August 15, 2005, our workforce consisted of 115 full-time employees, 43 of whom hold Ph.D. or M.D. degrees, or both, and 25 of whom hold other advanced degrees. Of our total workforce, 91 are engaged in research and development and 24 are engaged in business development, finance, legal, human resources, facilities and information technology administration and general management. We have no collective bargaining agreements with our employees, and we have not experienced any work stoppages. We believe that our relations with our employees are good.

Legal Proceedings

        From time to time, we may be involved in litigation relating to claims arising out of our operations. We are not currently involved in any material legal proceedings.

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MANAGEMENT

Executive Officers and Directors

        The following table lists our executive officers and directors and their respective ages and positions as of August 1, 2005:

Name	Age	Position
James W. Young, Ph.D.	61	Executive Chairman
Daniel N. Swisher, Jr.	42	President, Chief Executive Officer and Director
Eric H. Bjerkholt	46	Senior Vice President and Chief Financial Officer
Daniel C. Adelman, M.D.	47	Senior Vice President of Drug Discovery and Development
Daryl B. Winter, Ph.D., J.D.	61	Senior Vice President, General Counsel and Corporate Secretary
Anthony B. Evnin, Ph.D.(1)(2)	64	Director
Stephen P.A. Fodor, Ph.D.(3)	52	Director
Matthew K. Fust(1)	41	Director
Steven D. Goldby(2)(3)	65	Director
Russell C. Hirsch, M.D., Ph.D.(2)(3)	42	Director
Jonathan S. Leff(1)(2)	36	Director
James A. Wells, Ph.D.	55	Director

⁽¹⁾

Member of the audit committee.

⁽²⁾

Member of the compensation committee.

⁽³⁾

Member of the nominating and corporate governance committee.

James W. Young, Ph.D. has served as our Executive Chairman since December 2003. From May 2000 to November 2003, Dr. Young served as our Chief Executive Officer. From September 1995 to March 2000, Dr. Young served as Vice President for Research, as Senior Vice President, Research and Development, and as Group Vice President at ALZA Corporation, a provider of drug delivery solutions. From September 1992 to August 1995, Dr. Young served as Senior Vice President for Business Development and as President of the Pharmaceuticals Division of Affymax, N.V., a drug discovery and product development company. From September 1987 to August 1992, he served as Senior Vice President for Business Development and as Senior Vice President and General Manager of the Pharmaceuticals Division at Sepracor Inc. Dr. Young is also a member of the Board of Directors of a privately held company. Dr. Young holds a B.S. in Chemistry from Fordham University and a Ph.D. in Organic Chemistry from Cornell University.

Daniel N. Swisher, Jr. has served as our Chief Executive Officer and a member of our board of directors since December 2003 and as our President since August 2005. From December 2001 to December 2003, he served as our Chief Business Officer and Chief Financial Officer. From June 1992 to September 2001, Mr. Swisher served in various management roles, including Senior Vice President of Sales and Marketing for ALZA Corporation. Mr. Swisher holds a B.A. in History from Yale University and an M.B.A. from the Stanford Graduate School of Business.

Eric H. Bjerkholt has served as our Senior Vice President and Chief Financial Officer since January 2004. From January 2002 to January 2004, Mr. Bjerkholt served as Senior Vice President and Chief Financial Officer at IntraBiotics Pharmaceuticals, Inc., a biopharmaceutical company. Mr. Bjerkholt was a co-founder of LifeSpring Nutrition, Inc., a privately held nutraceutical company, and from May 1999 to March 2002 served at various times as its Chief Executive Officer, President and Chief Financial Officer. From 1990 to 1997, Mr. Bjerkholt was an investment banker at J.P. Morgan & Co. Mr. Bjerkholt is a member of the Board of Directors of StemCells, Inc., a publicly held

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biotechnology company, and a privately held company. Mr. Bjerkholt holds a Cand. Oecon degree in Economics from the University of Oslo and an M.B.A. from Harvard Business School.

Daniel C. Adelman, M.D. has served as our Senior Vice President of Drug Discovery and Development since September 2004. From May 2003 to August 2003, he served as our Senior Vice President of Clinical Development. From May 1998 to May 2003, Dr. Adelman served in various roles, including Vice President of Clinical Operations and Biometrics at Pharmacyclics, Inc., a pharmaceutical company. From December 1994 to May 1998, Dr. Adelman served as Clinical Scientist at Genentech, Inc. Dr. Adelman began his career at University of California, San Francisco, School of Medicine, where he was Director of Clinical Allergy/Immunology in the Division of Allergy and Immunology, and Director of the Outpatient Center for Clinical Research. He continues to serve as Adjunct Professor of Medicine at University of California, San Francisco, is a fellow of both the American Academy of Allergy and Immunology and the American College of Physicians and is on the editorial board of Clinical Immunology. Dr. Adelman is board-certified in allergy and immunology and completed a National Institutes of Health/Public Health Service Tumor Immunology Fellowship at University of California, Los Angeles, School of Medicine. He holds a B.A. in Biology from University of California, Berkeley and an M.D. from the University of California, Davis.

Daryl B. Winter, Ph.D., J.D. has served as our Senior Vice President, General Counsel and Corporate Secretary since April 2000. From July 1989 to January 1999, Dr. Winter served as patent and licensing counsel at Genentech, Inc. Dr. Winter holds a B.S. in Chemistry from the University of Washington and a Ph.D. in Biochemistry from the State University of New York and was a National Institutes of Health Post-doctoral Fellow. He also holds a J.D. from Northwestern University School of Law.

Anthony B. Evnin, Ph.D. has served as a member of our board of directors since 1998. Dr. Evnin has been with Venrock Associates, a venture capital firm, since 1974 and is currently a Managing General Partner. He is currently a member of the Board of Directors of Icagen, Inc., Memory Pharmaceuticals Corp. and Renovis, Inc., each a biopharmaceutical company, as well as being on the board of directors of a number of private companies. He holds an A.B. in Chemistry from Princeton University and a Ph.D. in Chemistry from Massachusetts Institute of Technology.

Stephen P.A. Fodor, Ph.D. has served as a member of our board of directors since 2001. Dr. Fodor is a co-founder of Perlegen Sciences, Inc., a biotechnology company, and has served as Chairman of Perlegen's Board of Directors since the company's inception. He is also founder, Chairman, and Chief Executive Officer of Affymetrix, Inc., a biotechnology company. Dr. Fodor previously held various positions at the Affymax Research Institute from 1989 to 1992, where he led the development of the GeneChip Technology. Dr. Fodor holds an M.S. in Biochemistry from Washington State University and an M.A. and a Ph.D. in Chemistry from Princeton University.

Matthew K. Fust has served as a member of our board of directors since May 2005. Since May 2003, Mr. Fust has been Chief Financial Officer at Jazz Pharmaceuticals, Inc., a pharmaceutical company. From May 2002 to May 2003, Mr. Fust was Chief Financial Officer at Perlegen Sciences, Inc., a biotechnology company. From June 1996 to January 2002, Mr. Fust was with ALZA Corporation, a pharmaceutical company, first as Controller and then as Chief Financial Officer. Mr. Fust holds a B.A. in Accounting from the University of Minnesota and an M.B.A. from Stanford Graduate School of Business.

Steven D. Goldby has served as a member of our board of directors since 2001. Since July 1998, Mr. Goldby has served as Chairman and Chief Executive Officer of Symyx Technologies, Inc., a material sciences company. From 1982 to 1997, Mr. Goldby served as Chief Executive Officer of MDL Information Systems, Inc. From 1968 to 1973, Mr. Goldby held various management positions at ALZA Corporation, including President of ALZA Pharmaceuticals. Mr. Goldby holds a B.S. in Chemistry from the University of North Carolina and a J.D. from Georgetown University Law Center.

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Russell C. Hirsch, M.D., Ph.D. has served as a member of our board of directors since 1998. Since February 2001, Dr. Hirsch has served as a Managing Director of Prospect Management Co. II, LLC. Prior to joining Prospect Management Co. II, LLC, he was a member of the Health Care Technology Group at Mayfield Fund. He joined Mayfield Fund in 1992 and served as a Venture Partner from 1993 to 1994 and as a General Partner from 1995 to 2000. Dr. Hirsch holds a B.A. in Chemistry from the University of Chicago and an M.D. and a Ph.D. in Biochemistry from the University of California, San Francisco.

Jonathan S. Leff has served as a member of our board of directors since 2000. Since January 2000, Mr. Leff has served as a General Partner of Warburg, Pincus & Co., which is the Managing Partner of Warburg Pincus LLC, and as a Managing Director and Member of Warburg Pincus LLC. Mr. Leff served as a Vice President of Warburg Pincus LLC from January 1999 to December 1999 and as an Associate from July 1996 to December 1998. Mr. Leff serves on the Board of Directors of Allos Therapeutics, Inc., a biopharmaceutical company, Intermune, Inc., a biopharmaceutical company, Neurogen Corporation, a small molecule drug discovery and development company, ZymoGenetics Inc., a biotherapeutic company, and several private companies. Mr. Leff holds a B.A. in Government from Harvard University and an M.B.A. from the Stanford Graduate School of Business.

James A. Wells, Ph.D. is a co-founder of our company and has served as a member of our board of directors since our inception in 1998. From April 1998 to August 2005, he served as our President and Chief Scientific Officer. Since August 2005, Dr. Wells has served as chairman of our Scientific Advisory Board and as a consultant to our company. He is a Professor of Pharmaceutical Chemistry and Cellular and Molecular Pharmocology and Director of the Small Molecule Discovery Center at the University of California, San Francisco. He has published more than 100 peer-reviewed scientific papers and has been named inventor on more than 50 issued or filed patents. He has won a number of research awards including the Pfizer Award in Enzyme Chemistry given by the American Chemical Society in 1990, the DuVignead award given by the American Peptide Society in 1998, the Aviv Award given by the Protein Society in 1998 and the Hans Neurath Award given by the Protein Society in 2003. In 1999, he was elected Member to the U.S. National Academy of Sciences. Dr. Wells is a member of the Board of Directors and of the Scientific Advisory Board of a privately held company. Dr. Wells holds a B.A. in Biochemistry from the University of California at Berkeley and a Ph.D. in Biochemistry from Washington State University and was a Damon Runyon-Walter Winchell Post-doctoral Fellow in the Biochemistry Department at Stanford University.

        Our executive officers are appointed by, and serve at the discretion of, our board of directors. There are no family relationships between our directors and executive officers.

Board Composition

        Our amended and restated bylaws permit our board of directors to establish by resolution the authorized number of directors, and nine directors are currently authorized. In accordance with our amended and restated certificate of incorporation, immediately after this offering, our board of directors will be divided into three classes with staggered three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our directors have been divided among the three classes as follows:

•

the Class I directors will be Drs. Fodor, Hirsch and Young, and their terms will expire at the annual meeting of stockholders to be held in 2006;



•

the Class II directors will be Drs. Evnin and Wells and Mr. Goldby, and their terms will expire at the annual meeting of stockholders to be held in 2007; and

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•

the Class III directors will be Messrs. Leff, Fust and Swisher, and their terms will expire at the annual meeting of stockholders to be held in 2008.

        Our amended and restated certificate of incorporation provides that the authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.

        The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control.

Voting Arrangement

        Pursuant to our Investor Rights Agreement that we entered into with certain warrant holders and certain holders of our preferred stock, Credit Suisse First Boston Equity Partners, L.P. and its affiliates have the right to nominate a director to our board of directors and holders of Series C preferred stock are obligated to vote for such nominee. Mr. Goldby was elected to our board of directors pursuant to this agreement. This right terminates upon the completion of this offering.

Board Committees

        Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee.

Audit Committee

        The audit committee is chaired by Mr. Fust, and also includes Dr. Evnin and Mr. Leff, all of whom will be independent, within the meaning of applicable SEC and Nasdaq rules, upon completion of this offering. The board has designated Mr. Fust as the audit committee financial expert, as such term is currently defined under the SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002. We believe that the composition and functioning of our audit committee complies with all applicable requirements of the Sarbanes-Oxley Act of 2002 and the Nasdaq National Market and SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

        Our audit committee is responsible for, among other things:

•

overseeing the accounting and financial reporting processes and audits of our financial statements;



•

appointing independent auditors to audit our financial statements;



•

overseeing and monitoring (a) the integrity of our financial statements, (b) our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters, (c) our independent auditor's qualifications, independence and performance and (d) our internal accounting and financial controls;



•

preparing the report that SEC rules require be included in our annual proxy statement;



•

providing our board of directors with the results of its monitoring and recommendations; and



•

providing to our board of directors additional information and materials as it deems necessary to make our board of directors aware of significant financial matters that require the attention of our board of directors.

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Compensation Committee

        The compensation committee is chaired by Dr. Evnin, and also includes Dr. Hirsch and Messrs. Goldby and Leff, all of whom will be independent, within the meaning of applicable Nasdaq rules, upon completion of this offering. Each member of the compensation committee is an "outside" director as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, and a "non-employee" director within the meaning of Rule 16b-3 of the rules promulgated under the Securities Exchange Act of 1934, as amended. We believe that the composition and functioning of our compensation committee complies with all applicable requirements of the Nasdaq National Market. We intend to comply with future requirements to the extent they become applicable to us.

        Our compensation committee is responsible for, among other things:

•

reviewing and approving for our chief executive officer and other executive officers (a) the annual base salary, (b) the annual incentive bonus, including the specific goals and amount, (c) equity compensation, (d) employment agreements, severance arrangements, and change in control agreements/provisions and (e) any other benefits, compensations, compensation policies or arrangements;



•

reviewing, approving and/or making recommendations to our board of directors regarding the compensation of our senior management and other employees;



•

making recommendations to our board of directors regarding the compensation of members of our board;



•

reviewing and approving general compensation goals and guidelines for employees and the criteria by which bonuses to employees are determined;



•

preparing a report to be included in our annual proxy statement; and



•

acting as administrator of our benefit plans, including making amendments to the plans, and changes in the number of shares reserved for issuance thereunder.

        Our compensation committee has the authority to delegate to one or more subcommittees to the extent allowed by applicable law.

Nominating and Corporate Governance Committee

        The nominating and corporate governance committee is chaired by Mr. Goldby, and also includes Drs. Fodor and Hirsch, all of whom will be independent, within the meaning of applicable SEC and Nasdaq rules, upon completion of this offering. We believe that the composition and functioning of our nominating and corporate governance committee complies with all applicable requirements of the Nasdaq National Market and SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

        Our nominating and corporate governance committee is responsible for, among other things:

•

reviewing board structure, composition and practices, and making recommendations on these matters to our board of directors;



•

reviewing, soliciting and making recommendations to our board of directors and stockholders with respect to candidates for election to our board of directors; and



•

overseeing compliance by employees with our Code of Conduct.

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Compensation Committee Interlocks and Insider Participation

        As noted above, the compensation committee of our board of directors consists of Drs. Evnin and Hirsch and Messrs. Goldby and Leff.

        None of the members of our compensation committee has, at any time, been one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Director Compensation

        In 2005, the non-employee members of our board of directors who are not affiliated with any person, or group of affiliated persons, who beneficially own more than 5% of our voting securities, received $20,000 in connection with their services as directors.

        In August 2005, in connection with Dr. Well's resignation as our President and Chief Scientific Officer, we entered into a consulting agreement with Dr. Wells. Under the consulting agreement, Dr. Wells acts as chairman of our Scientific Advisory Board, or SAB, and provides consulting services to our company. Under the consulting agreement, Dr. Wells is entitled to receive $1,500 per day for each SAB meeting he attends and $5,000 for two days of consulting per month, with each additional consulting day paid at a rate of $3,000 per day. Stock options currently held by Dr. Wells will continue to vest during the 12-month period beginning on the date of the consulting agreement. In addition, we intend to enter into a research and license agreement with the University of California, San Francisco, or UCSF, to enable UCSF, through Dr. Wells, to conduct academic research related to Tethering in exchange for UCSF providing new compounds to our company.

        In connection with their services as directors, Mr. Goldby was granted options to acquire 13,282 shares of common stock in January 2001 and January 2003 and 7,969 shares of common stock in April 2005, Dr. Fodor was granted options to acquire 13,282 shares of common stock in March 2001 and January 2003 and 7,969 shares of common stock in April 2005 and Mr. Fust was granted options to acquire 23,908 shares of common stock in May 2005. The options granted to Mr. Goldby and Dr. Fodor in 2001 and 2003 each have an exercise price of $2.26 per share, the options granted to Mr. Goldby and Dr. Fodor in 2005 each have an exercise price of $8.47 per share and the option granted to Mr. Fust has an exercise price of $8.47 per share. Each option vests at a rate of 1/24th per month over a period of two years, except for the options granted to Mr. Goldby and Dr. Fodor in April 2005, which vest in full on the first anniversary of the date of grant, and for the the option granted to Mr. Fust in May 2005, which vests in two annual installments from the date of grant. Our non-employee directors are reimbursed for reasonable out-of-pocket expenses incurred in connection with attending board and committee meetings.

        Upon the completion of this offering, the non-employee members of our board of directors, or an Eligible Director, shall receive annual cash compensation of $20,000 in connection with their services as directors. An Eligible Director will also receive an additional $3,000 per year for serving as a member of a committee of our board of directors or $5,000 per year for serving as chairman of a committee of our board of directors.

Executive Compensation

        The following table sets forth the compensation awarded to, earned by or paid to our Chief Executive Officer and our other four most highly compensated executive officers whose total salary and bonus exceeded $100,000 for services rendered to us during 2003 and 2004. We refer to these persons as our "named executive officers" elsewhere in this prospectus.

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Summary Compensation Table

						Long Term Compensation
		Annual Compensation
Name and Principal Position						Securities Underlying Options	All Other Compensation(1)
	Year	Salary		Bonus
Daniel N. Swisher, Jr. President and Chief Executive Officer	2004 2003	$	305,000 268,992	$	74,000 55,000	103,601 53,128	$	768 768
James A. Wells, Ph.D.(2) Former President and Chief Scientific Officer	2004 2003		265,000 260,000		55,000 50,000	21,251 53,128		768 768
Daniel C. Adelman, M.D.(3) Senior Vice President of Drug Discovery and Development	2004 2003		249,000 138,000		60,000 25,000	34,533 53,128		768 448
Daryl B. Winter, Ph.D., J.D. Senior Vice President and General Counsel	2004 2003		255,500 251,000		60,000 45,000	21,251 13,282		768 768
Eric H. Bjerkholt(4) Senior Vice President and Chief Financial Officer	2004		240,682		55,000	86,333		768

⁽¹⁾

Represents term life insurance and accidental death and dismemberment insurance premiums.

⁽²⁾

Dr. Wells resigned from his position as our President and Chief Scientific Officer in August 2005.

⁽³⁾

Dr. Adelman joined our company in May 2003.

⁽⁴⁾

Mr. Bjerkholt joined our company in January 2004.

Stock Option Grants in 2004

        The following table sets forth information with respect to stock options granted to our named executive officers during 2004.

2004 Option Grants

	Individual Grants
							Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term
	Number of Securities Underlying Options Granted	Percent of Total Options Granted in 2004
				Exercise Price Per Share		Expiration Date
							5%		10%
Daniel N. Swisher, Jr.	79,693 23,908	14.8 4.4	%	$	2.26 2.26	1/21/2014 6/24/2014	$	1,018,062 312,894	$	1,587,266 497,934
James A. Wells, Ph.D.	21,251	3.9			2.26	6/24/2014		278,128		442,608
Daniel C. Adelman, M.D.	13,282 21,251	2.5 3.9			2.26 2.26	1/21/2014 6/24/2014		169,677 278,128		264,544 442,608
Daryl B. Winter, Ph.D., J.D.	21,251	3.9			2.26	6/24/2014		278,128		442,608
Eric H. Bjerkholt	66,410 19,923	12.3 3.7			2.26 2.26	1/21/2014 6/9/2014		848,385 260,133		1,322,722 413,147

        In 2004, we granted options to purchase an aggregate of 538,217 shares of our common stock to our employees, directors and consultants under our 1998 Stock Option Plan and our 2001 Stock Option Plan. These options vest over a four-year period with 25% vesting on the first anniversary of the date of grant and the remaining 75% vesting 1/48th per month over the subsequent 36 months, provided that 19,923 of such options granted to Mr. Bjerkholt vest upon our achievement of specified milestones.

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Each option has a 10-year term, subject to early termination if the optionee's service with us ceases. Upon termination of employment, vesting will typically cease and the employee will typically have one to six months to exercise any vested options. Under certain circumstances in connection with a change in control, the vesting of certain option grants may accelerate and become immediately exercisable. Each stock option was granted with an exercise price equal to the estimated fair value of our common stock on the grant date, as determined by our board of directors. Given the absence of an active market for our common stock, our board of directors determined the estimated fair value of our common stock on the date of grant based on several factors, including progress and milestones achieved in our business and sale of preferred stock. See "—Employee Benefit Plans" for more details regarding our stock option plans.

        With respect to the amounts disclosed in the column captioned "Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term," the 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the SEC, and do not represent our estimate or projection of our stock price performance. The potential realizable values at 5% and 10% appreciation are calculated by:

•

multiplying the number of shares of common stock subject to a given stock option by an assumed initial public offering price of $10.00 per share;



•

assuming that the aggregate stock value derived from that calculation compounds at the annual 5% or 10% rate shown in the table from September 15, 2005 until the expiration of the option; and



•

subtracting from that result the aggregate option exercise price.

2004 Stock Option Values

        The following table provides information concerning the number and value of unexercised options held by our named executive officers as of December 31, 2004. Options to purchase 13,282 shares were exercised by our named executive officers in 2004. Amounts presented under the caption "Value of Unexercised In-the-Money Options at December 31, 2004" are based on an assumed initial public offering price of $10.00 minus the exercise price, multiplied by the number of shares subject to the stock option, without taking into account any taxes that may be payable in connection therewith. Our 1998 Stock Option Plan and our 2001 Stock Option Plan allow for the early exercise of options granted. All options exercised early are subject to repurchase by us at the original exercise price. The repurchase right lapses over time.

	Number of Securities Underlying Unexercised Options at December 31, 2004
			Value of Unexercised In-The-Money Options at December 31, 2004
Name
	Exercisable	Unexercisable	Exercisable		Unexercisable
Daniel N. Swisher, Jr.	302,832	—	$	2,344,318	—
James A. Wells, Ph.D.	138,134	—		1,069,338	—
Daniel C. Adelman, M.D.	87,662	—		678,618	—
Daryl B. Winter, Ph.D., J.D.	71,723	—		555,233	—
Eric H. Bjerkholt	86,334	—		668,336	—

Executive Severance Benefits Agreements

        In August 2005, we entered into executive severance benefits agreements with each of our executive officers, which agreements supersede all prior agreements related to severance benefits.

        Under the executive severance benefits agreements with Dr. Young and Mr. Swisher, if the executive's employment with our company is terminated without cause or he is constructively terminated within 12 months following a change of control of our company, he is entitled to receive the

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following severance benefits subject to the terms of the agreement: a lump sum payment equal to 18 months of his base salary at the time of termination; a lump sum payment equal to 150% of his target bonus for the fiscal year during which the termination occurs, with such bonus determined assuming that all of the performance objectives for such fiscal year have been obtained; and continued health benefits for 18 months following termination. In addition, if the executive's employment with our company is terminated without cause or he is constructively terminated prior to, or more than 12 months following, a change of control of our company, he is entitled to receive the following severance benefits subject to the terms of the agreement: a payment equal to 12 months of his base salary at the time of termination; and continued health benefits for 12 months following termination. Dr. Young's agreement also provides that he will devote 60% of his business time and attention to the business of our company.

        Under the executive severance benefits agreements with Mr. Bjerkholt and Drs. Adelman and Winter, if the executive's employment with our company is terminated without cause or he is constructively terminated within 12 months following a change of control of our company, he is entitled to receive the following severance benefits subject to the terms of the agreement: a lump sum payment equal to 14 months of his base salary at the time of termination; a lump sum payment equal to 117% of his target bonus for the fiscal year during which the termination occurs, with such bonus determined assuming that all of the performance objectives for such fiscal year have been obtained; and continued health benefits for 14 months following termination. In addition, if the executive's employment with our company is terminated without cause or he is constructively terminated prior to, or more than 12 months following, a change of control of our company, he is entitled to receive the following severance benefits subject to the terms of the agreement: a payment equal to 9 months of his base salary at the time of termination; and continued health benefits for 9 months following termination. Dr. Winter's agreement also provides that we pay the costs of his state bar association dues, his required continuing legal education courses and those professional education programs reasonably necessary for the performance of his duties as our chief legal officer.

        Under each of the executive severance benefits agreements, in connection with a change of control of our company, 50% of the executive's then-outstanding stock awards will become immediately and fully vested and exercisable. In addition, if the executive's employment with our company is terminated without cause or he is constructively terminated within 12 months following a change of control of our company, all of the executive's then-outstanding stock awards will become immediately and fully vested and exercisable. If the executive's employment with our company is terminated without cause or he is constructively terminated prior to, or more than 12 months following, a change of control of our company, the vesting and/or exercisability of each of his then-outstanding stock awards will be accelerated on the date of termination as to the number of stock awards that would vest over the 12-month period following the date of termination had the executive remained continuously employed by our company during such period.

        Each of the executive severance benefits agreements provides that, in the event that any benefits would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, as amended, the executive will receive the greater, on an after-tax basis (taking account of all federal, state and local taxes and excise taxes), of such benefits or such lesser amount of benefits as would result in no portion of the benefits being subject to the excise tax. An executive's receipt of any severance benefits is subject to his execution of a release in favor of our company.

Bonus Program

        In January 2005, our compensation committee amended our bonus program, or Bonus Program. Our Bonus Program is administered by our compensation committee and management. The purpose of our Bonus Program is to reward employees for successful achievement of corporate, group and individual objectives. Under our Bonus Program, all of our regular employees in good standing,

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including our executive officers, are eligible to receive cash bonuses. The target bonus for each of our executive officers is 25% of base salary. Cash bonuses, if any, for eligible employees hired mid-year are prorated. For each Performance Period, the size of the potential bonus pool is initially the sum of target bonuses for all eligible employees. The proposed bonus target amounts are based on benchmark data from similarly situated biotechnology companies obtained from an independent source.

        Our compensation committee historically sets a one-year performance period running from January 1 through December 31, or a Performance Period, and establishes a list of corporate goals, in consultation with management, for each Performance Period. Our compensation committee has approved specific goals and targets in five equally weighted categories: (i) corporate financial goals, (ii) business development goals, (iii) clinical development goals, (iv) research and partnered program goals and (v) employee development goals.

        At the end of each Performance Period, our compensation committee and management determine the degree to which we have met our overall objectives for such Performance Period and may adjust the bonus pool upward or downward accordingly. After such adjustment, target bonus amounts for eligible employees are adjusted on a pro rata basis. Actual bonus awards, if any, to individual employees may be adjusted based upon the achievement of group and individual objectives, as well as individual effort and teamwork. No such adjustments may cause the aggregate bonus payouts to exceed the size of the bonus pool.

Employee Benefit Plans

2005 Equity Incentive Award Plan

        Our 2005 Equity Incentive Award Plan, which we refer to as the 2005 Plan, is intended to serve as the successor equity incentive program to our 1998 Stock Option Plan and 2001 Stock Option Plan, which we refer to sometimes as the predecessor plans. Our 2005 Plan was adopted by our board of directors in February 2005. We expect that our stockholders will approve our 2005 Plan prior to the completion of this offering and that our 2005 Plan will become effective upon completion of this offering. Upon completion of this offering, all shares of stock remaining available for issuance and not subject to outstanding options under the predecessor plans will become part of the available pool of shares under our 2005 Plan, and no further option grants will be made under those predecessor plans. The options granted under the predecessor plans will continue to be governed by their existing terms, unless our compensation committee elects to extend one or more features of our 2005 Plan to those options. The 2005 Plan will terminate on the earlier of (i) 10 years after its adoption by our board of directors or (ii) when our compensation committee, with the approval of our board of directors, terminates the 2005 Plan.

        Share Reserve.    1,746,870 shares of common stock have been authorized for issuance under our 2005 Plan plus any options granted under our predecessor plans that expire unexercised or are repurchased by us pursuant to the terms of such options. The number of shares of common stock reserved for issuance under our 2005 Plan will automatically increase on the first trading day of each year, beginning in 2006, by an amount equal to the least of (i) 4.0% of our outstanding shares of common stock on such date, (ii) 1,062,568 shares or (iii) a lesser amount determined by our board of directors. The maximum aggregate number of shares that may be issued or transferred under the 2005 Plan during the term of the 2005 Plan will be 11,156,960 shares. In addition, no participant in our 2005 Plan may be issued or transferred more than 265,642 shares of common stock pursuant to awards under the 2005 Plan per calendar year.

        Equity Awards.    Our 2005 Plan will provide for the following types of awards:

•

Stock Options.    The 2005 Plan provides for the grant of incentive stock options, or ISOs, and non-qualified stock options to employees, directors and consultants. Incentive stock options may

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only be granted to employees. Options may be granted with terms determined by the plan administrator, provided that ISOs are subject to statutory ISO limitations. Stock options may be granted as "early exercise" stock options.

•

Restricted Stock.    With respect to restricted stock, participants generally have all of the rights of a stockholder with respect to such stock. Restricted stock may generally be subject to a repurchase right by us in the event the recipient ceases to be employed. Restricted stock may be issued for nominal or no cost and may be subject to vesting over time or upon achievement of milestones.



•

Performance Share Awards.    Performance awards include stock bonuses or other performance or incentive awards paid in cash or common stock. They may provide for payments based upon increases in the market value, book value, net profits or other measure of value of our common stock or other specific performance criteria determined appropriate by the plan administrator, in each case over a period or periods determined by the plan administrator.



•

Dividend Equivalents.    Dividend equivalents are rights to receive the equivalent value of dividends paid on our common stock. They represent the value of the dividends per share paid by us, calculated with reference to the number of shares covered by stock options, stock appreciation rights, deferred stock or performance awards held by the participant.



•

Restricted Stock Units.    The 2005 Plan provides for grants of our common stock to participants. Restricted stock units are typically awarded to participants without payment of consideration, but are subject to vesting conditions based upon a vesting schedule or performance criteria established by the plan administrator. Unlike restricted stock, the stock underlying restricted stock units will not be issued until the restricted stock units have vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time the vesting conditions are satisfied.



•

Stock Payments.    Stock payments include payments in the form of common stock made in lieu of all or any portion of compensation that would otherwise be paid to the participant. Stock payments may also be based upon specific performance criteria determined appropriate by the plan administrator.



•

Performance-based Awards.    Performance-based awards include awards other than options or stock appreciation rights which comply with the IRS requirements under Section 162(m) of the Internal Revenue Code for performance-based compensation. They may provide for payments based upon increases in the market value, book value, net profits or other measure of value of our common stock or other specific performance criteria determined appropriate by the plan administrator, in each case over a period or periods determined by the plan administrator.



•

Stock Appreciation Rights.    Stock appreciation rights may be granted in connection with a stock option, or independently. Stock appreciation rights typically will provide for payments to the holder based upon increases in the price of our common stock over the exercise price of the related option. The plan administrator may elect to pay stock appreciation rights in cash or in common stock or in a combination of cash and common stock.

        Eligibility.    The individuals eligible to participate in our 2005 Plan include our officers and other employees, our non-employee board members and any consultants we hire.

        Administration.    The 2005 Plan will be administered by our compensation committee. This committee will act as the plan administrator and will determine which eligible individuals are to receive awards under the 2005 Plan, the time or times when such awards are to be made, the number of shares subject to each such award, the status of any granted option as either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for the award

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and the maximum term for which any award is to remain outstanding. The committee will also determine the exercise price of options granted, the purchase price for rights to purchase restricted stock and, if applicable, restricted units and the strike price for stock appreciation rights. The committee may also amend the terms of the 2005 Plan and outstanding equity awards. Amendments to the 2005 Plan are subject to stockholder approval to the extent required by law, rule or regulation.

        Plan Features.    Our 2005 Plan will include the following features:

•

The exercise price for the shares of common stock subject to option grants made under our 2005 Plan may be paid in cash or in shares of common stock held by the optionee for longer than six months valued at fair market value on the exercise date. The option may be exercised through a same-day sale program without any cash outlay by the optionee. In addition, the committee may provide financial assistance to one or more optionees, provided such optionee is not an executive officer or board member in the exercise of their outstanding options or the purchase of their unvested shares by allowing such individuals to deliver a full-recourse, interest-bearing promissory note in payment of the exercise price and any associated withholding taxes incurred in connection with such exercise or purchase.



•

The 2005 Plan will include change in control provisions, which may result in the accelerated vesting of outstanding awards. In the event of a change in control of our company, for example, if we are acquired by merger or asset sale, each outstanding award under the 2005 Plan will accelerate and immediately vest with regard to 50% of the award, and if the remainder of the award is not to be assumed by the successor corporation, the full amount of the award will automatically accelerate and become immediately vested. Additionally, in the event the remainder of the award is assumed by the successor corporation, then any remaining unvested shares would accelerate and immediately vest in the event the optionee is terminated without cause or resigns for good reason within 12 months following such change in control.

        Non-Employee Director Stock Options.    Under the 2005 Plan, our non-employee directors will receive annual, automatic, non-discretionary grants of nonqualified stock options.

        Each new non-employee director will receive an option to purchase 23,908 shares as of the date he or she first becomes a non-employee director. This option grant vests in equal annual installments over two years. In addition, on the date of each annual meeting, each individual who continues to serve as a non-employee director on such date will receive an automatic option grant to purchase an additional 7,969 shares of our common stock, commencing with our 2006 annual meeting of stockholders. This option grant vests in equal monthly installments over 12 months following the date of grant.

        The exercise price of each option granted to a non-employee director will be equal to 100% of the fair market value on the date of grant of the shares covered by the option. Options will have a maximum term of 10 years measured from the grant date, subject to termination in the event of the optionee's cessation of board service. The 2005 Plan provides that the optionee will have a 12-month period following a cessation of board service in which to exercise any outstanding vested options.

Employee Stock Purchase Plan

        Our Employee Stock Purchase Plan, which we refer to as our ESPP, was adopted by our board of directors in February 2005. We expect that our stockholders will approve our ESPP prior to the completion of this offering and that the ESPP will become effective immediately upon the signing of the underwriting agreement for this offering. The ESPP is designed to allow our eligible employees and the eligible employees of our participating subsidiaries to purchase shares of common stock, at semi-annual intervals, with their accumulated payroll deductions.

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        Share Reserve.    199,231 shares of our common stock will initially be reserved for issuance. The number of shares of common stock reserved under our ESPP will automatically increase on the first trading day each year, beginning in 2006, by an amount equal to the least of: (i) 0.5% of our outstanding shares of common stock outstanding on such date, (ii) 132,821 shares or (iii) a lesser amount determined by our board of directors. The maximum aggregate number of shares which may be issued over the term of the ESPP is 1,328,210 shares. In addition, no participant in our ESPP may be issued or transferred more than $25,000 of shares of common stock pursuant to awards under the ESPP per calendar year.

        Offering Periods.    The ESPP will have a series of successive overlapping offering periods, with a new offering period beginning on the first business day of December 1 and June 1 each year. Each offering period will have a duration of 12 months, unless otherwise determined by the compensation committee. However, the initial offering period will start on the date the underwriting agreement for this offering is signed and will end on the last business day in May 2006.

        Eligible Employees.    Individuals scheduled to work more than 20 hours per week for more than five calendar months per year may join an offering period on the start date of that period. However, employees may participate in only one offering period at a time.

        Payroll Deductions.    A participant may contribute up to 20% of his or her compensation through payroll deductions, and the accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date. The purchase price per share will be equal to 85% of the fair market value per share on the start date of the offering period in which the participant is enrolled or, if lower, 85% of the fair market value per share on the semi-annual purchase date. Semi-annual purchase dates will occur on the last business day of May and November each year. However, a participant may not purchase more than 1,328 shares on any purchase date, and not more than 2,656 shares may be purchased in total by any participant during any offering period. Our compensation committee will have the authority to change these limitations for any subsequent offering period.

        Reset Feature.    If the fair market value per share of our common stock on any purchase date is less than the fair market value per share on the start date of the one-year offering period, then that offering period will automatically terminate, and a new one-year offering period will begin on the next business day. All participants in the terminated offering will be transferred to the new offering period.

        Change in Control.    Should we be acquired by merger or sale of substantially all of our assets or more than 50% of our voting securities, then all outstanding purchase rights may either be assumed by the acquirer and all outstanding purchase rights will be exercised at an early purchase date prior to the effective date of the acquisition. The purchase price in effect for each participant will be equal to 85% of the market value per share on the start date of the offering period in which the participant is enrolled at the time the acquisition occurs or, if lower, 85% of the fair market value per share on the purchase date prior to the acquisition.

        Plan Provisions.    The plan will terminate no later than 10 years after the date of its effectiveness. The board may at any time amend, suspend or discontinue the plan. However, certain amendments may require stockholder approval.

1998 Stock Option Plan and 2001 Stock Option Plan

        In 1998, we adopted the 1998 Stock Option Plan, or 1998 Plan, which authorizes the issuance of up to 2,747,096 shares of our common stock. In 2001, we adopted the 2001 Stock Option Plan, or 2001 Plan, which authorizes the issuance of up to 383,494 shares of our common stock. Under both the 1998 Plan and 2001 Plan, our board of directors is authorized to grant incentive stock options or non-statutory stock options to eligible employees, members of our board of directors and consultants,

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although incentive stock options may be granted only to employees. Under both plans, incentive stock options may be granted at an exercise price of not less than 100% of the fair market value of common stock on the date of grant. Under the 1998 Plan, non-statutory stock options may be granted at a price not less than 85% of the fair market value of the common stock on the date of grant. Under the 2001 Plan, non-statutory stock options may be granted at a price determined by our board of directors. Options generally become exercisable 25% on the first anniversary of the vesting commencement date and then 1/48th for each month thereafter so that all options are fully vested and exercisable after four years, and expire no later than ten years from the date of grant.

        The options currently outstanding under our 1998 Plan and 2001 Plan will terminate in the event we are acquired by merger or sale of substantially all our assets, unless those options are assumed by the acquiring entity or our repurchase rights with respect to any unvested shares subject to those options are assigned to such entity. However, a number of those options also contain a special acceleration provision pursuant to which the shares subject to those options will immediately vest upon an involuntary termination of the optionee's employment within 12 months following an acquisition in which the repurchase rights with respect to those shares are assigned to the acquiring entity. We do not intend to issue any future stock options under the 1998 Plan or 2001 Plan.

401(k) Plan

        We sponsor a 401(k) Plan that is a defined contribution plan intended to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended. All employees who are 18 years of age or older and have been employed by our company for at least 3 months are eligible to participate. Our 401(k) Plan is a discretionary contribution plan, whereby participants may voluntarily make pre-tax contributions to the 401(k) plan of up to 60% of their eligible earnings, up to the maximum statutory limit. Under the 401(k) Plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the 401(k) Plan's trustee. Each participant's contributions, and the corresponding investment earnings, are generally not taxable until withdrawn. Individual participants may direct the trustee to invest their accounts in authorized investment alternatives.

Limitations of Liability and Indemnification

        Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, and may indemnify our employees and other agents, to the fullest extent permitted by the Delaware General Corporation Law, which prohibits our amended and restated certificate of incorporation from limiting the liability of our directors for the following:

•

any breach of the director's duty of loyalty to us or to our stockholders;



•

acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;



•

unlawful payment of dividends or unlawful stock repurchases or redemptions; and



•

any transaction from which the director derived an improper personal benefit.

        If Delaware law is amended to authorize corporate action further eliminating or limiting the personal liability of a director, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law, as so amended. Our amended and restated certificate of incorporation does not eliminate a director's duty of care and, in appropriate circumstances, equitable remedies, such as injunctive or other forms of non-monetary relief, remain available under Delaware law. This provision also does not affect a director's responsibilities under any other laws, such as the federal securities laws or other state or federal laws.

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        Under our amended and restated bylaws, we are also empowered to enter into indemnification agreements with our directors and officers and to purchase insurance on behalf of any person whom we are required or permitted to indemnify. We have entered into indemnification agreements with our directors, executive officers and others. Under these agreements, we are required to indemnify them against expenses, judgments, fines and amounts paid in settlement (if such settlement is approved in advance by us), and in each case, to the extent actually and reasonably incurred in connection with any actual or threatened proceeding, if any of them may be made a party to such proceeding because he or she is or was one of our directors or officers. We are obligated to pay these amounts only if the officer or director acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, our best interests. With respect to any criminal proceeding, we are obligated to pay these amounts only if the officer or director had no reasonable cause to believe that his or her conduct was unlawful. The indemnification agreements also set forth procedures that will apply in the event of a claim for indemnification thereunder. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors' and officers' liability insurance.

        The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder's investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

        Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.

        There is no pending litigation or proceeding naming any of our directors or officers as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

        From January 1, 2002 to the date of this prospectus, we have entered into the following transactions with our executive officers, directors and holders of more than 5% of our securities.

Sale of Series C-1 and C-2 Preferred Stock

        On December 18, 2002, we sold 332,052 shares of Series C-1 preferred stock to Biogen Idec at a price of $18.07 per share, which are convertible into 599,945 shares of common stock, for gross proceeds of $6.0 million in connection with the collaboration we entered into with Biogen Idec on that same date. On August 30, 2004, we sold 774,789 shares of Series C-2 preferred stock to Biogen Idec at a price of $18.07 per share, which are convertible into 1,399,872 shares of common stock, for gross proceeds of $14.0 million in connection with the collaboration we entered into with Biogen Idec on August 25, 2004. See "Business—Strategic Collaborations."

Investor Rights Agreement

        We and the holders of our preferred stock and certain warrant holders have entered into an agreement, pursuant to which these stockholders and warrant holders will have registration rights with respect to their shares of common stock following this offering. See "Description of Capital Stock—Registration Rights" for a further description of the terms of this agreement.

Executive Severance Benefits Agreements

        We have entered into executive severance benefits agreements with our executive officers. See "Management—Executive Severance Benefits Agreements."

Consulting Agreement

        We have entered into a consulting agreement with Dr. Wells, one of our directors. See "Management—Director Compensation."

Indemnification of Directors and Officers

        Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify each of our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. Furthermore, we have entered into indemnification agreements with each of our directors and officers. For further information, see "Management—Limitations of Liability and Indemnification."

Loans to Officers

        Our officers had the following loans outstanding with us as of December 31, 2004:

Officer	Date of Loan	Principal Amount		Interest Rate		Largest Outstanding Balance During 2004		Outstanding Balance as of December 31, 2004		Outstanding Balance as of Date of this Prospectus
James W. Young, Ph.D.	May 17, 2000	$	135,000(1)	6.6	%	$	135,000	$	135,000	$	—
Daryl B. Winter, Ph.D., J.D.	April 13, 2000		90,000(2)	6.6			90,000		—		—
	April 13, 2000		100,000(3)	6.6			100,000		100,000		—

(1)

This loan was evidenced by a full recourse promissory note and was used to purchase 450,000 shares of our common stock pursuant to an option grant. This loan was repaid in full in May 2005.

(2)

This loan was evidenced by full recourse promissory note and was used to purchase 300,000 shares of our common stock pursuant to an option grant. This note was forgiven in full in April 2004.

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(3)

This loan was evidenced by a full recourse promissory note and was used, in part, to purchase a home. The loan was secured by shares of our common stock and had a five-year term expiring in April 2005. Principal and accrued interest were forgiven under the loan upon the five-year anniversary of Dr. Winter's employment in April 2005.

        Under applicable law, we cannot extend the term or otherwise modify these notes.

Voting Arrangement

        We have entered into an Investor Rights Agreement with certain warrant holders and certain holders of our preferred stock. See "Management—Voting Arrangement."

Biogen Idec

        In December 2002, we issued a promissory note to Biogen Idec for up to $4.0 million in connection with a research collaboration agreement with Biogen Idec. Under the promissory note, we may drawdown up to $4.0 million, from time to time, over a period of ten calendar quarters beginning on April 1, 2003 and ending on June 30, 2005. The principal and accrued interest of each draw will be due five years from the date of advance of each draw and bear interest at 3% above LIBOR to be paid quarterly. As of June 30, 2005, we had drawn $4.0 million and no monies remained available for future draws. We may use a portion of our net proceeds from this offering to repay all or a portion of our outstanding indebtedness to Biogen Idec.

Participation in Initial Public Offering

        Biogen Idec has indicated an interest in purchasing up to an aggregate of approximately $4.0 million of common stock in this offering. However, because indications of interest are not binding agreements or commitments to purchase, this stockholder may elect not to purchase any shares in this offering.

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PRINCIPAL STOCKHOLDERS

        The following table sets forth, as of June 30, 2005, information regarding beneficial ownership of our capital stock by:

•

each person, or group of affiliated persons, known by us to beneficially own more than 5% of our voting securities;



•

each of our executive officers;



•

each of our directors; and



•

all of our executive officers and directors as a group.

        Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, and includes options and warrants that are currently exercisable or exercisable within 60 days. Except as indicated by footnote, and subject to community property laws where applicable, we believe the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

        This table lists applicable percentage ownership based on 15,235,620 shares of common stock outstanding as of June 30, 2005, after giving effect to the conversion of our outstanding preferred stock into common stock in connection with this offering, and based on 21,235,620 shares of common stock outstanding upon completion of this offering.

        Shares of common stock subject to stock options and warrants currently exercisable or exercisable within 60 days of June 30, 2005 are deemed to be outstanding for computing the percentage ownership of the person holding these options and warrants and the percentage ownership of any group of which the holder is a member, but are not deemed outstanding for computing the percentage of any other person.

        Unless otherwise indicated, the address for each of the stockholders in the table below is c/o Sunesis Pharmaceuticals, Inc., 341 Oyster Point Boulevard, South San Francisco, California 94080.

		Beneficial Ownership
					Percentage of Shares Outstanding
			Shares Subject to Right of Repurchase Within 60 Days of June 30, 2005(3)	Options and Warrants Exercisable Within 60 Days
Name of Beneficial Owner		Shares Beneficially Owned(1)(2)			Before the Offering		After the Offering(2)
5% Stockholders:
	Abingworth BioVentures II SICAV(4)	902,094	—	—	5.9	%	4.2	%
	Biogen Idec(5)	1,999,817	—	—	13.1		9.4
	Entities affiliated with Credit Suisse First Boston(6)	3,099,714	—	—	20.3		14.6
	Entities affiliated with Mayfield Associates(7)	1,429,972	—	—	9.4		6.7
	Entities affiliated with Venrock Associates(8)	1,172,570	—	—	7.7		5.5
	Entities affiliated with Warburg Pincus(9)	2,167,995	—	—	14.2		10.2

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Executive Officers and Directors:
	James W. Young, Ph.D.(10)	371,898	40,400	106,257	2.4	%	1.7	%
	Daniel N. Swisher, Jr.	316,112	96,074	302,832	2.0		1.5
	Eric H. Bjerkholt(11)	86,333	60,046	86,333	*		*
	Daniel C. Adelman, M.D.	87,661	46,045	87,661	*		*
	Daryl B. Winter, Ph.D.	151,415	37,633	71,723	1.0		*
	Anthony B. Evnin, Ph.D.(8)	1,172,570	—	—	7.7		5.5
	Stephen P.A. Fodor, Ph.D.	34,533	7,969	34,533	*		*
	Matthew K. Fust(12)	23,908	23,908	23,908	*		*
	Steven D. Goldby	34,533	7,969	34,533	*		*
	Russell C. Hirsch, M.D., Ph.D.(7)	—	—	—	*		*
	Jonathan S. Leff(9)	2,168,001	—	—	14.2		10.2
	James A. Wells, Ph.D.	529,955	35,419	164,698	3.4		2.5
	All executive officers and directors as a group (12 persons)	4,976,919	355,463	912,478	32.6	%	23.4	%

*

Represents beneficial ownership of less than one percent (1%) of the outstanding shares of our common stock.

⁽¹⁾

Includes shares of common stock subject to a right of repurchase within 60 days of June 30, 2005 and shares issuable pursuant to stock options and warrants exercisable within 60 days of June 30, 2005.

⁽²⁾

Upon completion of this offering, our existing stockholders will own 15,235,620 shares, representing 71.7%, of our outstanding common stock. Changes in our valuation in connection with this offering will impact the relative ownership of our common stock upon completion of this offering among our existing stockholders. For purposes of this table, we have assumed an initial public offering price of $10.00 per share, but the relative number of shares of common stock owned and the percentage ownership among our existing stockholders will change if our initial public offering price is other than $10.00 per share. See "Conversion of Preferred Stock and Reverse Stock Split."

⁽³⁾

Represents shares of common stock subject to a right of repurchase, at the original option exercise price, in the event the holder ceases to provide services to us. The option exercise prices range from $1.13 to $2.26.

⁽⁴⁾

Abingworth Bioventures II SICAV (in liquidation) is a Luxembourg registered investment company. William Knight, Paul Meyers, Karl U. Sanne, Jean Welter and Genevieve Blauen are the members of the Board of Liquidators, which has powers equivalent to a company's board of directors. These individuals may be deemed to share dispositive and voting power over the shares which are, or may be, deemed to be beneficially owned by Abingworth Bioventures II SICAV (in liquidation). Each of these individuals disclaims beneficial ownership of such shares, except to the extent of his or her pecuniary interest therein.

⁽⁵⁾

Biogen Idec MA, Inc., a Massachusetts corporation, is a wholly-owned subsidiary of Biogen Idec Inc., a Delaware corporation that is publicly traded on the Nasdaq National Market. James C. Mullen, William H. Rastetter, Peter N. Kellogg, Michael F. Phelps and Thomas J. Bucknum are the directors and executive officers of Biogen Idec MA, Inc. These individuals may be deemed to share dispositive and voting power over the shares which are, or may be, deemed to be beneficially

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owned by Biogen Idec MA, Inc. Each of these individuals disclaims beneficial ownership of these shares, except to the extent of his or her pecuniary interest therein. Biogen Idec has indicated an interest in purchasing up to an aggregate of approximately $4.0 million of common stock in this offering. However, because indications of interest are not binding agreements or commitments to purchase, this stockholder may elect not to purchase any shares in this offering and "Percentage of Shares Outstanding" assumes no such purchase.

⁽⁶⁾

Includes (i) 159,945 shares held by EMA Partners Fund 2000, L.P., (ii) 212,021 shares held by EMA Private Equity Fund 2000, L.P., (iii) 595,455 shares held by Credit Suisse First Boston Equity Partners (Bermuda), L.P., (iv) 2,130,234 shares held by Credit Suisse First Boston Equity Partners, L.P. and (v) 2,059 shares held by Credit Suisse First Boston U.S. Executive Advisors, L.P. An affiliate of Credit Suisse Group, of which Credit Suisse First Boston (USA) Inc. is an indirect wholly-owned subsidiary, manages each of those entities. Credit Suisse Group disclaims beneficial ownership of the shares owned by such investment partnerships. The address of Credit Suisse First Boston and its affiliates is Eleven Madison Avenue, New York, New York 10010.

⁽⁷⁾

Includes (i) 71,499 shares held by Mayfield Associates Fund III, L.P. and (ii) 1,358,473 shares held by Mayfield IX, L.P. A. Grant Heidrick, III, William D. Unger, Wendell G. Van Auken, III, Kevin A. Fong, Yogen K. Dalal and F. Gibson Myers, Jr. are the Managing Directors of Mayfield VIII Management L.L.C., which is the General Partner of Mayfield Associates Fund III, L.P., and also are the Managing Directors of Mayfield IX Management L.L.C., which is the General Partner of Mayfield IX, L.P. These individuals may be deemed to share dispositive and voting power over the shares, which are, or may be, deemed to be beneficially owned by Mayfield Associates Fund III, L.P. and Mayfield IX, L.P. Each of these individuals disclaim beneficial ownership of such shares, except to the extent of his or her pecuniary interest therein. Dr. Hirsch, one of our directors, served as a Venture Partner from 1993 to 1994 and a General Partner from 1995 to 2000 of Mayfield Fund and is now a Managing Partner of Prospect Management Co. II, LLC. Dr. Hirsch does not have dispositive or voting power over these shares and disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein. The address of Mayfield Fund and its affiliates is 2800 Sand Hill Road, Menlo Park, California 94025.

⁽⁸⁾

Includes (i) 485,175 shares held by Venrock Associates, (ii) 665,136 shares held by Venrock Associates II, L.P. and (iii) 22,259 shares held by Venrock Entrepreneur's Fund, L.P. Anthony B. Evnin, Michael C. Brooks, Eric S. Copeland, Bryan E. Roberts, Ray A. Rothrock, Michael F. Tyrrell and Anthony Sun are the general partners of Venrock Associates and Venrock Associates II, L.P. These individuals may be deemed to share dispositive and voting power over the shares which are, or may be, deemed to be beneficially owned by Venrock Associates and Venrock Associates II, L.P. Each of these individuals disclaims beneficial ownership of these shares, except to the extent of his or her pecuniary interest therein. The general partner of Venrock Entrepreneurs Fund, L.P. is Venrock Management LLC. Anthony B. Evnin, Michael C. Brooks, Eric S. Copeland, Bryan E. Roberts, Ray A. Rothrock, Michael F. Tyrrell and Anthony Sun are the members of Venrock Management LLC. These individuals may be deemed to share dispositive and voting power over the shares which are, or may be, deemed to be beneficially owned by Venrock Entrepreneurs Fund, L.P. Each of these individuals disclaims beneficial ownership of these shares, except to the extent of his or her pecuniary interest therein. The address of Venrock Associates and its affiliates is 30 Rockefeller Plaza, Room 5508, New York, New York 10112.

⁽⁹⁾

Includes (i) 2,121,245 shares held by Warburg, Pincus Equity Partners, L.P., (ii) 25,500 shares held by Warburg, Pincus Netherlands Equity Partners I, C.V., (iii) 17,000 shares held by Warburg, Pincus Netherlands Equity Partners II, C.V., (iv) 4,250 shares held by Warburg, Pincus Netherlands Equity Partners III, C.V. and (v) 6 shares held by family members. Mr. Leff, one of our directors, is a General Partner of Warburg, Pincus & Co. and a Managing Director and Member of Warburg Pincus LLC. Mr. Leff may be deemed to have an indirect pecuniary interest in an indeterminate

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portion of the shares held by the Warburg Pincus entities. Mr. Leff disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address of Warburg Pincus and its affiliates is 466 Lexington Avenue, New York, New York 10017.

⁽¹⁰⁾

Includes 13,282 shares held by family members. Dr. Young disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein.

⁽¹¹⁾

A total of 19,923 shares underlying Mr. Bjerkholt's option is subject to accelerated vesting upon the occurrence of a financing event in which we raise at least $20.0 million that is completed on or prior to March 31, 2006. The beneficial ownership calculation assumes vesting and exercisability of these shares.

⁽¹²⁾

Mr. Fust joined our board of directors in May 2005, and was granted an option to purchase 23,908 shares of common stock at an exercise price of $8.47 per share. The option is exercisable in full, and vests annually over two years.

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DESCRIPTION OF CAPITAL STOCK

        The following information describes our common stock and preferred stock, as well as options to purchase our common stock and provisions of our amended and restated certificate of incorporation and amended and restated bylaws to be effective upon completion of this offering. This description is only a summary and does not purport to be complete. You should also refer to our amended and restated certificate of incorporation and amended and restated bylaws which have been filed with the SEC as exhibits to our registration statement, of which this prospectus forms a part.

        Upon the completion of this offering, we will be authorized to issue up to 105,000,000 shares of capital stock, $0.0001 par value, divided into two classes designated common stock and preferred stock. Of our authorized shares, 100,000,000 shares will be designated as common stock and 5,000,000 shares will be designated as preferred stock.

Common Stock

        As of June 30, 2005, there were 1,612,835 shares of common stock outstanding that were held of record by 206 stockholders. After giving effect to the sale of common stock in this offering and the conversion of all outstanding preferred stock into common stock, there will be 21,235,620 shares of common stock outstanding. As of June 30, 2005, there were outstanding options to purchase a total of 1,915,661 shares of our common stock under our 1998 Plan and 2001 Plan.

        The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Our stockholders do not have cumulative voting rights in the election of directors. Accordingly, holders of a majority of the shares voting are able to elect all of our directors. Subject to preferences that may be granted to any then outstanding preferred stock, holders of common stock are entitled to receive ratably only those dividends as may be declared by the board of directors out of funds legally available therefore. In the event of our liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in all of our assets remaining after we pay our liabilities and distribute the liquidation preference of any then outstanding preferred stock. Holders of common stock have no preemptive or other subscription or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock. The shares of our common stock to be issued in this offering will be fully paid and non-assessable.

Preferred Stock

        Upon the completion of this offering, our board of directors will have the authority, without further action by our stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock. The issuance of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in our control or other corporate action. Upon completion of this offering, no shares of preferred stock will be outstanding, and we have no present plan to issue any shares of preferred stock.

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Warrants

        As of June 30, 2005, we had outstanding warrants to purchase the following amounts of common stock and preferred stock (on an as-if converted to common stock basis):

	Shares of Common Stock	Exercise Price		Expiration
Series A Preferred Stock	12,948	$	3.76	August 2005
Common Stock	34,533	$	3.76	April 2008
Series B Preferred Stock	19,003	$	9.79	December 2009
Common Stock	46,487	$	15.06	May 2010
Series C Preferred Stock	233,619	$	10.00	July 2010
Series C-1 Preferred Stock	1,440	$	10.00	June 2013	(1)
Series C Preferred Stock	689	$	10.00	June 2014	(2)

⁽¹⁾

The expiration date of the warrant is the earlier of 36 months after our initial public offering or June 2013.

⁽²⁾

The expiration date of the warrant is the earlier of 36 months after our initial public offering or June 2014.

        In August 2005, we issued warrants to purchase an aggregate of up to 150,000 additional shares of common stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Credit and Loan Arrangements."

Registration Rights

        After the closing of this offering, the holders of 14,074,023 shares of our common stock, including 451,238 shares issuable upon exercise of outstanding warrants, will be entitled to certain rights with respect to the registration of such shares under the Securities Act. In the event that we propose to register any of our securities under the Securities Act, either for our own account or for the account of other securityholders, other than for our initial public offering, these holders are entitled to notice of such registration and are entitled to include their common stock in such registration, subject to certain marketing and other limitations. Beginning six months after the closing of this offering, the holders of at least 50% of these securities have the right to require us, on not more than two occasions, to file a registration statement on Form S-1 under the Securities Act in order to register the resale of their shares of common stock. We may, in certain circumstances, defer such registrations and the underwriters have the right, subject to certain limitations, to limit the number of shares included in such registrations. Further, these holders may require us to register the resale of all or a portion of their shares on Form S-3, subject to certain conditions and limitations. In addition, these holders have certain "piggyback" registration rights.

Anti-Takeover Effects of Provisions of the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws

        Our amended and restated certificate of incorporation will provide for our board of directors to be divided into three classes, with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Because our stockholders do not have cumulative voting rights, our stockholders holding a majority of the shares of common stock outstanding will be able to elect all of our directors. Our amended and restated certificate of incorporation and amended and restated bylaws will provide that all stockholder action must be effected at a duly called meeting of stockholders and not by a consent in writing, and that only our board of directors, chairman of the board, chief executive

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officer, or president (in the absence of a chief executive officer) or holder of greater than 10% of our common stock may call a special meeting of stockholders. Our amended and restated certificate of incorporation will require a 66²/3% stockholder vote for the amendment, repeal or modification of certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws relating to the absence of cumulative voting, the classification of our board of directors, the requirement that stockholder actions be effected at a duly called meeting, and the designated parties entitled to call a special meeting of the stockholders.

        The combination of the classification of our board of directors, the lack of cumulative voting and the 66²/3% stockholder voting requirements will make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of us by replacing our board of directors. Since our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control.

        These provisions may have the effect of deterring hostile takeovers or delaying changes in our control or management. These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage certain types of transactions that may involve an actual or threatened change in control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. Such provisions may also have the effect of preventing changes in our management.

Section 203 of the Delaware General Corporation Law

        We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:

•

before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested holder;



•

upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or



•

on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66²/3% of the outstanding voting stock that is not owned by the interested stockholder.

        In general, Section 203 defines business combination to include the following:

•

any merger or consolidation involving the corporation and the interested stockholder;



•

any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;

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•

subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;



•

any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or



•

the receipt by the interested stockholder of the benefit of any loss, advances, guarantees, pledges or other financial benefits by or through the corporation.

        In general, Section 203 defines an "interested stockholder" as an entity or person who, together with the person's affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation.

Transfer Agent and Registrar

        The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company.

Nasdaq National Market Listing

        We have applied to have our stock approved for quotation on the Nasdaq National Market under the symbol "SNSS."

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U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS

        The following is a general discussion of certain material U.S. federal income and estate tax consequences of the ownership and disposition of our common stock by a beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder" is a person or entity that, for U.S. federal income tax purposes, is a non-resident alien individual, a foreign corporation or a foreign estate or trust. The test for whether an individual is a resident of the U.S. for federal estate tax purposes differs from the test used for federal income tax purposes.

        This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, judicial decisions and administrative regulations and interpretations in effect as of the date of this prospectus, all of which are subject to change, including changes with retroactive effect. This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant to Non-U.S. Holders in light of their particular circumstances (including, without limitation, Non-U.S. Holders who are "controlled foreign corporations," "passive foreign investment companies," U.S. expatriates, pass-through entities or who hold their common stock through pass-through entities) and does not address any tax consequences arising under the laws of any state, local or non-U.S. jurisdiction. Prospective holders should consult their tax advisors with respect to the federal income and estate tax consequences of holding and disposing of our common stock in light of their particular situations and any consequences to them arising under the laws of any state, local or non-U.S. jurisdiction.

Dividends

        Subject to the discussion below, distributions, if any, made to a Non-U.S. Holder of our common stock out of our current or accumulated earnings and profits generally will constitute dividends for U.S. tax purposes and will be subject to withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. To obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder generally will be required to provide us with a properly-executed IRS Form W-8BEN certifying the Non-U.S. Holder's entitlement to benefits under that treaty. Treasury Regulations and the applicable treaty provide rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends paid to a Non-U.S. Holder that is an entity should be treated as paid to the entity or to those holding an interest in that entity. To the extent distributions exceed our current and accumulated earnings and profits, they will constitute a return of capital and will first reduce the Non-U.S. Holder's basis in our common stock, but not below zero, and then will be treated as gain from the sale of stock.

        There will be no withholding tax on dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States if a properly-executed IRS Form W-8ECI, stating that the dividends are so connected, is provided to us. Instead, the effectively connected dividends will be subject to regular U.S. income tax, generally in the same manner as if the Non-U.S. Holder were a U.S. citizen or resident alien or a domestic corporation, as the case may be, unless a specific treaty exemption applies. A corporate Non-U.S. Holder receiving effectively connected dividends may also be subject to an additional "branch profits tax," which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable treaty) on the corporate Non-U.S. Holder's effectively connected earnings and profits, subject to certain adjustments. If you are eligible for a reduced rate of withholding tax pursuant to a tax treaty, you may obtain a refund of any excess amounts currently withheld if you file an appropriate claim for refund with the U.S. Internal Revenue Service.

Gain on Disposition of Common Stock

        A Non-U.S. Holder generally will not be subject to U.S. federal income tax with respect to gain realized on a sale or other disposition of our common stock unless (i) the gain is effectively connected

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with a trade or business of such holder in the United States or, if a treaty applies, is attributable to a permanent establishment of the Non-U.S. Holder in the U.S., (ii) in the case of Non-U.S. Holders who are nonresident alien individuals and hold our common stock as a capital asset, such individuals are present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met, or (iii) our common stock constitutes a U.S. real property interest by reason of our status as a "United States real property holding corporation," or USRPHC, for U.S. federal income tax purposes at any time during the shorter of the period during which you hold our common stock or the five-year period ending on the date on which you dispose of shares of our common stock and, if our common stock is treated as regularly traded on an established securities market (within the meaning of applicable Treasury regulations), you held, directly or indirectly, at any time within the five-year period preceding the disposition, more than 5% of our common stock.

        If you are a Non-U.S. Holder described in (i) above, you will be required to pay tax on the net gain derived from the sale at regular graduated U.S. federal income tax rates, and corporate Non-U.S. Holders described in (i) above may be subject to the branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. If you are an individual Non-U.S. Holder described in (ii) above, you will be required to pay a flat 30% tax on the gain derived from the sale, which tax may be offset by U.S. source capital losses (even though you are not considered a resident of the United States).

        The determination of whether we are a USRPHC depends on the fair market value of our U.S. real property interests relative to the fair market value of our interests in real property located outside the U.S. and the fair market value of our other business assets. While we believe that we are not a USRPHC, there can be no assurances that we are not a USRPHC. Even if we are not a USRPHC at the present time, since the determination of USRPHC status in the future will be based upon the composition of our assets from time to time, there can be no assurances that we will not become a USRPHC in the future. However, as indicated above, so long as our common stock is treated as "regularly traded" on an established securities market (within the meaning of applicable Treasury regulations), our common stock will not be treated as a U.S. real property interest unless you hold, directly or indirectly, at any time within the five-year period preceding your disposition, more than 5% of our common stock. If any gain on your disposition is taxable because we are a USRPHC and your ownership of our common stock exceeds 5%, you will be taxed on such disposition generally in the manner applicable to U.S. persons and in addition, the purchaser of your common stock may be required to withhold a tax equal to 10% of the amount realized on the sale. You should consult your tax advisor regarding the application of the USRPHC rules discussed above to a disposition by you of our common stock.

Information Reporting Requirements and Backup Withholding

        Generally, we must report to the U.S. Internal Revenue Service the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax treaties or certain other agreements, the U.S. Internal Revenue Service may make its reports available to tax authorities in the recipient's country of residence.

        Backup withholding will generally not apply to payments of dividends made by us or our paying agents to a Non-U.S. Holder if the holder has provided its federal taxpayer identification number, if any, or the required certification that it is not a U.S. person (which is generally provided by furnishing a properly-executed IRS Form W-8BEN), unless the payer otherwise has knowledge or reason to know that the payee is a U.S. person.

        Under current U.S. federal income tax law, information reporting and backup withholding will apply to the proceeds of a disposition of our common stock effected by or through a U.S. office of a broker unless the disposing holder certifies as to its non-U.S. status or otherwise establishes an

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exemption. Generally, U.S. information reporting and backup withholding will not apply to a payment of disposition proceeds where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker. However, unless the Non-U.S. Holder is entitled to an exemption, U.S. information reporting requirements (but not backup withholding) will apply to a payment of disposition proceeds where the transaction is effected outside the United States by or through an office outside the United States of a broker that fails to maintain documentary evidence that the holder is a Non-U.S. Holder and that certain conditions are met and the broker is (i) a U.S. person, (ii) a foreign person which derived 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States, (iii) a "controlled foreign corporation" for U.S. federal income tax purposes, or (iv) a foreign partnership (a) at least 50% of the capital or profits interest in which is owned by U.S. persons, or (b) that is engaged in a U.S. trade or business. Backup withholding may apply to a payment of disposition proceeds if the broker has actual knowledge that the holder is a U.S. person.

        Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the U.S. Internal Revenue Service.

Federal Estate Tax

        An individual who at the time of death is not a citizen or resident of the United States and who is treated as the owner of, or has made certain lifetime transfers of, an interest in our common stock will be required to include the value thereof in his gross estate for U.S. federal estate tax purposes, and may be subject to U.S. federal estate tax unless an applicable estate tax treaty provides otherwise.

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SHARES ELIGIBLE FOR FUTURE SALE

        Prior to this offering, no public market existed for our common stock. Market sales of shares of our common stock after this offering and from time to time, and the availability of shares for future sale, may reduce the market price of our common stock. Sales of substantial amounts of our common stock, or the perception that these sales could occur, could harm prevailing market prices for our common stock and could impair our future ability to obtain capital, especially through an offering of equity securities.

        Based on 15,235,620 shares outstanding on June 30, 2005, we will have 21,235,620 shares of common stock outstanding upon completion of this offering, assuming no outstanding options or warrants are exercised prior to the closing of this offering. Of those shares, the 6,000,000 shares of common stock sold in this offering will be freely transferable without restriction, unless purchased by persons deemed to be our "affiliates" as that term is defined in Rule 144 under the Securities Act. Any shares purchased by an affiliate may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including an exemption under Rule 144 promulgated under the Securities Act. The remaining 15,235,620 shares of common stock to be outstanding immediately following the completion of this offering are "restricted," which means they were originally sold in offerings that were not registered under the Securities Act. These restricted shares may only be sold through registration under the Securities Act or under an available exemption from registration, such as provided through Rule 144, 144(k) or Rule 701.

        Taking into account the lock-up agreements described below, the number of shares that will be available for sale in the public market under the provisions of Rule 144, 144(k) and 701 will be as follows:

Days After the Effective Date	Number of Shares Eligible for Sale in the U.S. Public Market/Percent of Outstanding Stock	Comment
Upon completion of offering	6,000,000	Shares sold by us in this offering
At various times after 180 days	15,235,620	Shares eligible for sale under Rules 144, 144(k) and 701

        Additionally, of the 1,915,661 shares issuable upon exercise of options to purchase our common stock outstanding as of June 30, 2005, approximately 1,033,423 shares were vested and will be eligible for sale pursuant to Rule 701 180 days after the completion of this offering.

Rule 144

        In general, under Rule 144, a person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned shares of our common stock for one year or more, including the holding period of any prior owner other than one of our affiliates, is entitled to sell within any three-month period a number of shares that does not exceed the greater of:

•

one percent of the number of shares of our common stock then outstanding, which will equal 212,356 shares; or



•

the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

        Sales of restricted shares under Rule 144 are also subject to requirements on the manner of sale, notice and the availability of our current public information. Rule 144 also provides that affiliates that sell shares of our common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares, other than the holding period requirement.

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Rule 144(k)

        Under Rule 144(k), a person (or persons whose shares are aggregated) who is deemed not to have been our affiliate at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than one of our affiliates, is entitled to sell restricted shares under Rule 144(k) without complying with the volume limitations, manner of sale provisions, notice requirements or the provisions relating to the availability of current public information.

Rule 701

        Under Rule 701, shares of our common stock acquired upon the exercise of currently outstanding options or pursuant to other rights granted under our stock plans may be resold, beginning 90 days after the date of this prospectus, to the extent not subject to lock-up agreements, by:

•

persons other than affiliates, subject only to the manner-of-sale provisions of Rule 144; and



•

our affiliates, subject to the manner-of-sale, current public information and filing requirements of Rule 144, in each case, without compliance with the one-year holding period requirement of Rule 144.

        As of June 30, 2005, options to purchase a total of 1,915,661 shares of common stock were outstanding, of which approximately 1,033,423 were vested. All shares of our common stock issuable under these options are subject to contractual lock-up agreements with us or the underwriters.

Form S-8 Registration Statements

        Upon completion of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of common stock reserved for issuance under our 1998 Plan, 2001 Plan, 2005 Plan and ESPP, thus permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act. Such registration statements will become effective immediately upon filing.

Lock-up Agreements

        Each of our executive officers and directors and substantially all of our stockholders entered into lock-up agreements pursuant to which they have agreed, subject to limited exceptions, not to offer, sell, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or securities convertible into or exchangeable or exercisable for shares of common stock for a period of 180 days from the date of this prospectus without the prior written consent of Lehman Brothers Inc. and SG Cowen & Co., LLC. The lock-up agreements permit transfers of shares of our common stock subject to certain restrictions, transfers of shares as a gift to trusts or immediate family members or to certain entities or persons affiliated with the stockholder. Lehman Brothers Inc. and SG Cowen & Co., LLC may, in their joint discretion, at any time and without notice, release for sale in the public market all or any portion of the shares subject to the lock-up agreements. All of the shares that are not subject to the underwriters' lock-up agreements are subject to similar contractual lock-up restrictions with us. After the 180-day lock-up period, these shares may be sold, subject to applicable securities laws. Notwithstanding the foregoing, for the purpose of allowing the underwriters to comply with NASD Rule 2711(f)(4), if, under certain circumstances, we release earnings results or material news or make certain announcements that we will release earnings results, or a material event relating to us occurs, then the 180-day lock-up period will be extended until 18 days following the date of release of the earnings results or the occurrence of the material news or material event, as applicable.

Registration Rights

        After the offering, the holders of 14,074,023 shares of our common stock, including 451,238 shares issuable upon exercise of outstanding warrants, will be entitled to registration rights. For more information on these registration rights, see "Description of Capital Stock—Registration Rights."

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UNDERWRITING

        We are offering shares of our common stock described in this prospectus through the underwriters named below. Lehman Brothers Inc. and SG Cowen & Co., LLC are acting as joint book-running managers for this offering. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, each of the underwriters has severally agreed to purchase the following respective number of shares of our common stock:

Underwriters		Number of Shares
Lehman Brothers Inc.
SG Cowen & Co., LLC
Needham & Company, LLC
	Total	6,000,000

        The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the underwriters' option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.

Option to Purchase Additional Shares

        We have granted to the underwriters a 30-day option to purchase from time to time, in whole or in part, on a pro rata basis up to 900,000 additional shares at the initial public offering price less underwriting discounts and commissions. The option may be exercised if the underwriters sell more than 6,000,000 shares in the offering.

Commission and Discount

        The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $            per share. The underwriters and selling group members may allow a discount of $            per share on sales to other broker dealers. After the initial public offering, the underwriters may change the public offering price and concession and discount to broker dealers.

        The following table summarizes the compensation and estimated expenses we will pay:

	Per Share		Total
	Without Exercise of Option	With Exercise of Option	Without Exercise of Option	With Exercise of Option
Underwriting discounts and commissions paid by us	$	$	$	$
Estimated expenses payable by us	$	$	$	$

Discretionary Sales

        The representatives have informed us that the underwriters do not expect discretionary sales to exceed 5% of the shares of common stock being offered.

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No Sales of Similar Securities

        We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Lehman Brothers Inc. and SG Cowen & Co., LLC for a period of 180 days after the date of this prospectus, subject to specified exceptions.

        Our officers, directors and substantially all of our stockholders have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Lehman Brothers Inc. and SG Cowen & Co., LLC for a period of 180 days after the date of this prospectus, subject to specified exceptions.

        Biogen Idec has indicated an interest in purchasing up to an aggregate of approximately $4.0 million of common stock in this offering. However, because indications of interest are not binding agreements or commitments to purchase, this stockholder may elect not to purchase any shares in this offering.

Indemnification and Contribution

        We have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect.

Nasdaq National Market Quotation

        We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol "SNSS."

Offering Price Determination

        Prior to the offering, there has been no public market for the common stock. The initial public offering price for the common stock will be determined by negotiation between us and the underwriters, and does not reflect the market price for the common stock following the offering. The principal factors considered in determining the initial public offering price will include:

•

the history of and prospects for our industry and for biopharmaceutical companies generally;



•

an assessment of our management;



•

our present operations;



•

our historical results of operations;



•

our earnings prospects;



•

the general condition of the securities markets at the time of the offering; and



•

the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies.

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        We cannot be sure that the initial public offering price will correspond to the price at which the common stock will trade in the public market following this offering or that an active trading market for the common stock will develop and continue after this offering.

Price Stabilization, Short Positions and Penalty Bids

        In connection with the offering, the underwriters may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934.

•

Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.



•

A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters is not greater than the number of shares that they may purchase in their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any covered short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. If the underwriters sell more shares than could be covered by their option to purchase additional shares (i.e., a naked short position), the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.



•

Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions.



•

Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

        These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.

Electronic Distribution

        A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations.

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        Other than the prospectus in electronic format, the information on any underwriter's or selling group member's website and any information contained in any other website maintained by an underwriter or selling group member is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.

Non-U.S. Jurisdictions

European Economic Area

        In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member State"), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the "Relevant Implementation Date") it has not made and will not make an offer of shares of common stock being offered hereby to the public in that Relevant Member State prior to the publication of a prospectus in relation to such shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive. However, with effect from and including the Relevant Implementation Date, it may make an offer of shares of our common stock to the public in that Relevant Member State at any time:

•

to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;



•

to any legal entity which has two or more of (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more than €43,000,000 and (iii) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or



•

in any other circumstances which do not require the publication by the issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

        For the purposes of this provision, the expression an "offer of shares of our common stock to the public" in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe such shares, as may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

Germany

        The shares have not been and will not be offered to the public within the meaning of the German Sales Prospectus Act (Verkaufsprospektgesetz) or the German Investment Act (Investmentgesetz). The shares have not been and will not be listed on a German exchange. No sales prospectus pursuant to the German Sales Prospectus Act has been or will be published or circulated in Germany or filed with the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) or any other governmental or regulatory authority in Germany. This prospectus does not constitute an offer to the public in Germany and it does not serve for public distribution of the shares in Germany. Neither this prospectus, nor any other document issued in connection with this offering, may be issued or distributed to any person in Germany except under circumstances which do not constitute an offer to the public within the meaning of the German Sales Prospectus Act or the German Investment Act.

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United Kingdom

        Each underwriter has represented, warranted and agreed that: (i) it has not offered or sold and, prior to the expiry of a period of six months from the closing date, will not offer or sell any shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000, or FSMA) received by it in connection with the issue or sale of any shares in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and (iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.

Stamp Taxes

        If you purchase shares of common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.

Relationships

        The underwriters may in the future perform investment banking and advisory services for us from time to time for which they may in the future receive customary fees and expenses. The underwriters may, from time to time, engage in transactions with or perform services for us in the ordinary course of their business.

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LEGAL MATTERS

        The validity of the shares of common stock offered hereby has been passed upon for Sunesis Pharmaceuticals, Inc. by Latham & Watkins LLP, Menlo Park, California. Cooley Godward LLP, Palo Alto, California, is counsel for the underwriters in connection with this offering.

EXPERTS

        Ernst & Young LLP, independent registered public accounting firm, have audited our financial statements at December 31, 2003 and 2004 and for the each of the three years in the period ended December 31, 2004, as set forth in their report. We have included our financial statements in this prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

        We have filed with the SEC a registration statement on Form S-1 under the Securities Act that registers the shares of our common stock to be sold in this offering. The registration statement, including the attached exhibits and schedules, contains additional relevant information about us and our capital stock. The rules and regulations of the SEC allow us to omit from this prospectus certain information included in the registration statement. For further information about us and our common stock, you should refer to the registration statement and the exhibits and schedules filed with the registration statement. With respect to the statements contained in this prospectus regarding the contents of any agreement or any other document, in each instance, the statement is qualified in all respects by the complete text of the agreement or document, a copy of which has been filed as an exhibit to the registration statement. In addition, upon completion of this offering, we will file reports, proxy statements and other information with the SEC under the Securities Exchange Act of 1934. You may obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.

        We intend to provide our stockholders with annual reports containing audited financial statements, with an opinion expressed by an independent accounting firm and to file with the SEC quarterly reports containing unaudited combined financial data for the first three quarters of each year.

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INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets	F-3
Statements of Operations	F-4
Statements of Convertible Preferred Stock and Stockholders' Deficit	F-5
Statements of Cash Flows	F-6
Notes to Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Sunesis Pharmaceuticals, Inc.

        We have audited the accompanying balance sheets of Sunesis Pharmaceuticals, Inc. as of December 31, 2003 and 2004, and the related statements of operations, convertible preferred stock and stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sunesis Pharmaceuticals, Inc. at December 31, 2003 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

Ernst & Young LLP

San Jose, California
January 21, 2005, except as to Note 13, as to which the date is September     , 2005

The foregoing report is in the form that will be signed upon the completion of the reverse stock split described in Note 13 to the financial statements.

/s/ Ernst & Young LLP

San Jose, California
August 31, 2005

F-2

Sunesis Pharmaceuticals, Inc.
Balance Sheets

												Pro forma stockholders' equity at June 30, 2005
			December 31,
									June 30, 2005
			2003			2004
									(unaudited)			(unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	10,477,503		$	7,587,512		$	6,188,475
	Marketable securities			23,365,382			29,224,509			18,861,833
	Notes and interest receivable from officers and employees			11,700			163,720			—
	Prepaids and other current assets			924,539			1,675,539			2,372,357
Total current assets				34,779,124			38,651,280			27,422,665
Notes and interest receivable from officers and employees				236,488			85,350			—
Property and equipment, net				4,990,588			3,989,357			4,186,444
Deposits and other assets				300,000			300,000			300,000
Total assets			$	40,306,200		$	43,025,987		$	31,909,109
Liabilities and stockholders' equity (deficit)
Current liabilities:
	Accounts payable		$	980,661		$	1,662,535		$	1,144,332
	Accrued compensation			1,256,679			1,599,217			1,249,084
	Other accrued liabilities			89,582			359,404			618,267
	Current portion of deferred revenue			3,074,549			6,031,895			4,939,785
	Current portion of equipment financing			2,169,630			1,291,363			1,144,576
Total current liabilities				7,571,101			10,944,414			9,096,044
Deferred revenue				4,098,528			7,677,805			5,348,173
Borrowings under debt facility with related party				1,600,000			3,200,000			4,000,000
Non current portion of equipment financing				1,648,610			1,238,430			1,110,977
Deferred rent and other non-current liabilities				942,394			1,196,288			1,302,425
Commitments
Convertible preferred stock, $0.0001 par value; 10,248,996 shares authorized, issuable in series, actual; no shares authorized, no shares issued and outstanding, pro forma (unaudited):
		Series A, 2,306,303 shares designated, 2,249,320 shares issued and outstanding at December 31, 2003 and 2004 and June 30, 2005 (unaudited) (aggregate liquidation preference of $8,467,500 at December 31, 2003 and 2004 and June 30, 2005 (unaudited)); no shares outstanding pro forma (unaudited)		8,445,567			8,445,567			8,445,567		$	—
		Series B, 2,815,804 shares designated, 2,574,272 shares issued and outstanding at December 31, 2003 and 2004 and June 30, 2005 (unaudited) (aggregate liquidation preference of $25,196,005 at December 31, 2003 and 2004 and June 30, 2005 (unaudited)); no shares outstanding pro forma (unaudited)		24,388,838			24,388,838			24,388,838			—
		Series C, 3,519,755 shares designated, 3,320,526 shares issued and outstanding at December 31, 2003 and 2004 and June 30, 2005 (unaudited) (aggregate liquidation preference of $60,000,000 at December 31, 2003 and 2004 and June 30, 2005 (unaudited)); no shares outstanding pro forma (unaudited)		56,001,692			56,001,692			56,001,692			—
		Series C-1, 332,052 shares designated, issued and outstanding at December 31, 2003 and 2004 and June 30, 2005 (unaudited) (aggregate liquidation preference of $6,000,000 at December 31, 2003 and 2004 and June 30, 2005 (unaudited)); no shares outstanding pro forma (unaudited)		5,985,372			5,985,372			5,985,372			—
		Series C-2, 1,275,081 shares designated, 774,789 and 1,217,526 shares issued and outstanding at December 31, 2004 and June 30, 2005 (unaudited) (aggregate liquidation preference of $14,000,000 at December 31, 2004 and $22,000,000 at June 30, 2005 (unaudited)); no shares outstanding pro forma (unaudited)		—			13,991,150			21,991,150			—
Stockholders' equity (deficit):
	Preferred stock, $0.0001 par value, no shares authorized, issued and outstanding at December 31, 2003, 2004 or June 30, 2005; 5,000,000 shares authorized, no shares issued and outstanding pro forma (unaudited)			—			—			—			—
	Common stock, $.0001 par value: 29,220,610 shares authorized; 1,445,774, 1,569,470 and 1,610,736 shares issued and outstanding at December 31, 2003 and 2004 and June 30, 2005 (unaudited), respectively; 100,000,000 shares authorized, 11,304,432 shares outstanding pro forma (unaudited)			145			157			161			1,130
	Additional paid-in capital			2,722,740			6,493,360			7,125,369			123,937,019
	Notes receivable from stockholders			(225,000	)		(135,000	)		—			—
	Deferred stock compensation			—			(2,915,673	)		(2,875,648	)		(2,875,648	)
	Accumulated other comprehensive income (loss)			12,656			(69,770	)		(52,135	)		(52,135	)
	Accumulated deficit			(72,886,443	)		(93,416,643	)		(109,958,876	)		(109,958,876	)
Total stockholders' equity (deficit)				(70,375,902	)		(90,043,569	)		(105,761,129	)	$	11,051,490
Total liabilities, convertible preferred stock and stockholders' (deficit)			$	40,306,200		$	43,025,987		$	31,909,109

See accompanying notes.

F-3

Sunesis Pharmaceuticals, Inc.
Statements of Operations

		Year ended December 31,									Six months ended June 30,
		2002			2003			2004			2004			2005
											(unaudited)
Revenue:
	Collaboration revenue	$	3,170,006		$	6,842,290		$	5,937,641		$	2,728,273		$	3,343,386
	Collaboration revenue from related party		32,258			857,148			4,201,017			786,074			5,243,444
	Grant and fellowship revenue		1,474,143			560,646			166,331			96,591			67,405
Total revenue			4,676,407			8,260,084			10,304,989			3,610,938			8,654,235
Operating expenses:
	Research and development		18,440,797			21,325,731			23,615,551			11,899,375			21,392,908
	General and administrative		6,179,094			6,136,518			7,352,220			3,697,990			3,988,930
Total operating expenses			24,619,891			27,462,249			30,967,771			15,597,365			25,381,838
Loss from operations			(19,943,484	)		(19,202,165	)		(20,662,782	)		(11,986,427	)		(16,727,603	)
Interest income			1,359,861			712,931			517,645			204,702			395,689
Interest expense			(594,047	)		(520,586	)		(386,749	)		(210,739	)		(216,525	)
Other income (expense), net			(4,590	)		4,662			1,686			7			6,206
Net loss		$	(19,182,260	)	$	(19,005,158	)	$	(20,530,200	)	$	(11,992,457	)	$	(16,542,233	)
Basic and diluted net loss per share		$	(16.59	)	$	(14.32	)	$	(13.97	)	$	(8.41	)	$	(10.53	)
Shares used in computing basic and diluted net loss per share			1,156,056			1,327,368			1,469,979			1,425,902			1,571,514
Pro forma basic and diluted net loss per share (unaudited)								$	(2.00	)				$	(1.51	)
Shares used in computing pro forma basic and diluted net loss per share (unaudited)									10,263,683						10,981,467

See accompanying notes.

F-4

Sunesis Pharmaceuticals, Inc.
Statements of Convertible Preferred Stock and Stockholders' Deficit

			Convertible Preferred Stock														Accumulated Other Comprehensive Income (Loss)
						Common Stock					Notes Receivable from Stockholders
									Additional Paid-In Capital					Deferred Stock Compensation						Accumulated Deficit			Total Stockholders' Deficit
			Shares	Amount		Shares	Amount
Balance at December 31, 2001			8,144,118	$	88,836,097	1,409,852	$	141	$	2,546,160	$	(265,807	)	$	—		$	303,081		$	(34,699,025	)	$	(32,115,450	)
	Issuance of common stock pursuant to stock option exercises at $0.38 to $2.26 per share, net of repurchases		—		—	18,985		2		34,644		—			—			—			—			34,646
	Issuance of common stock in exchange for services		—		—	716		—		1,562		—			—			—			—			1,562
	Expense related to fair value of options granted to nonemployees		—		—	—		—		54,286		—			—			—			—			54,286
	Issuance of Series C-1 convertible preferred stock to investors at $18.07 per share for cash in December 2002, net of issuance costs of $14,628		332,052		5,985,372	—		—		—		—			—			—			—			—
	Repayment of stockholder note in June 2002		—		—	—		—		—		7,081			—			—			—			7,081
	Reclassification of interest on notes to interest receivable		—		—	—		—		—		8,340			—			—			—			8,340
	Components of comprehensive loss:
		Net loss	—		—	—		—		—		—			—						(19,182,260	)		(19,182,260	)
		Unrealized loss on investments	—		—	—		—		—		—			—			(235,991	)		—			(235,991	)
		Comprehensive loss																						(19,418,251	)
Balance at December 31, 2002			8,476,170		94,821,469	1,429,553		143		2,636,652		(250,386	)		—			67,090			(53,881,285	)		(51,427,786	)
	Issuance of common stock pursuant to stock options exercises at $0.38 to $2.26 per share, net of repurchases		—		—	16,219		2		41,166		—			—			—			—			41,168
	Repayment of stockholder note in June 2003		—		—	—		—		—		25,386			—			—			—			25,386
	Expenses related to fair value of options granted to nonemployees		—		—	—		—		36,098		—			—			—			—			36,098
	Issuance of warrant to purchase preferred stock in connection with financing arrangement		—		—	—		—		8,824		—			—			—			—			8,824
	Components of comprehensive loss:
		Net loss	—		—	—		—		—		—			—						(19,005,158	)		(19,005,158	)
		Unrealized loss on investments	—		—	—		—		—		—			—			(54,434	)		—			(54,434	)
		Comprehensive loss																						(19,059,592	)
Balance at December 31, 2003			8,476,170		94,821,469	1,445,772		145		2,722,740		(225,000	)		—			12,656			(72,886,443	)		(70,375,902	)
Issuance of common stock pursuant to stock options exercises at $0.38 to $2.26 per share for cash, net of unvested stock options exercised early			—		—	123,698		12		233,151		—			—			—			—			233,163
Deferred stock compensation related to employee stock option grants, net of cancellations			—		—	—		—		3,339,691		—			(3,339,691	)		—			—			—
Amortization deferred stock compensation			—		—	—		—		—		—			424,018			—			—			424,018
Expenses related to fair value of options granted to nonemployees			—		—	—		—		194,474		—			—			—						194,474
Issuance of warrant to purchase preferred stock in connection with financing arrangement			—		—	—		—		3,304		—			—			—			—			3,304
Issuance of Series C-2 convertible preferred stock to investors at $18.07 per share for cash in Sept, 2004, net of issuance costs of $8,850			774,789		13,991,150	—		—		—		—			—			—			—			—
Repayment of stockholder note in April, 2004			—		—	—		—		—		90,000			—			—			—			90,000
Components of comprehensive loss:
		Net loss	—		—	—		—		—		—			—			—			(20,530,200	)		(20,530,200	)
		Unrealized loss on investments	—		—	—		—		—		—			—			(82,426	)		—			(82,426	)
		Comprehensive loss																						(20,612,626	)
Balance at December 31, 2004			9,250,959		108,812,619	1,569,470		157		6,493,360		(135,000	)		(2,915,673	)		(69,770	)		(93,416,643	)		(90,043,569	)
Issuance of common stock pursuant to stock options exercises at $1.13 to $2.26 per share, including vesting of stock options exercised early (unaudited)			—		—	41,266		4		93,233		—			—			—			—			93,237
Deferred stock compensation related to employee stock option grants (unaudited)			—		—	—		—		418,232		—			(418,232	)		—			—			—
Amortization deferred stock compensation (unaudited)			—		—	—		—		—		—			458,257			—			—			458,257
Expenses related to fair value of options granted to nonemployees (unaudited)			—		—	—		—		120,544		—			—			—			—			120,544
Issuance of Series C-2 convertible preferred stock to BMS at $18.07 per share in connection with in-licensing arrangement in April, 2005 (unaudited)			442,737		8,000,000	—		—		—		—			—			—			—			—
Repayment of stockholder note in April, 2005 (unaudited)			—		—	—		—		—		135,000			—			—			—			135,000
Components of comprehensive loss:
		Net loss (unaudited)	—		—	—		—		—		—			—			—			(16,542,233	)		(16,542,233	)
		Unrealized gain on investments (unaudited)	—		—	—		—		—		—			—			17,635			—			17,635
		Comprehensive loss (unaudited)	—		—	—		—		—		—			—			—			—			(16,524,598	)
Balance at June 30, 2005 (unaudited)			9,693,696	$	116,812,619	1,610,736	$	161	$	7,125,369	$	—		$	(2,875,648	)	$	(52,135	)	$	(109,958,876	)	$	(105,761,129	)

See accompanying notes.

F-5

Sunesis Pharmaceuticals, Inc.
Statements of Cash Flows

			Year ended December 31,									Six months ended June 30,
			2002			2003			2004			2004			2005
												(unaudited)
Cash flows from operating activities
Net loss			$	(19,182,260	)	$	(19,005,158	)	$	(20,530,200	)	$	(11,992,457	)	$	(16,542,233	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization			2,177,427			2,630,042			2,170,808			1,336,771			859,108
	Stock compensation expense			55,848			36,098			618,492			120,204			578,801
	Non-cash research and development expense			—			—			—			—			8,000,000
	Changes in operating assets and liabilities:
		Prepaids and other current assets		(208,124	)		(197,063	)		(747,696	)		25,213			(696,818	)
		Notes and interest receivable from officers and employees		(11,107	)		(29,549	)		(882	)		7,486			249,070
		Deposits and other assets		39,533			—			—			—			—
		Accounts payable		(699,763	)		488,804			681,874			29,553			(518,203	)
		Accrued compensation		543,443			179,057			342,538			(108,592	)		(350,133	)
		Other accrued liabilities		58,762			(60,307	)		264,333			55,962			250,583
		Deferred rent		377,249			280,407			253,894			144,811			106,137
		Deferred revenue		2,936,486			3,799,090			6,536,623			(629,911	)		(3,421,742	)
Net cash used in operating activities				(13,912,506	)		(11,878,579	)		(10,410,216	)		(11,010,960	)		(11,485,430	)
Cash flows from investing activities
Purchases of property and equipment, net				(1,060,223	)		(1,666,959	)		(1,169,577	)		(333,929	)		(1,056,195	)
Purchases of marketable securities				(23,492,855	)		(36,893,824	)		(35,264,682	)		(4,613,462	)		(9,980,838	)
Maturities of marketable securities				39,224,825			44,310,576			29,323,129			14,603,225			20,361,149
Net cash provided by (used in) investing activities				14,671,747			5,749,793			(7,111,130	)		9,655,834			9,324,116
Cash flows from financing activities
Proceeds from borrowings under debt facility with related party				—			1,600,000			1,600,000			800,000			800,000
Proceeds from borrowings under note payable and equipment loans				1,688,293			1,415,385			935,036			370,272			461,258
Payments on note payable and equipment loans				(2,128,148	)		(2,793,770	)		(2,223,483	)		(1,727,102	)		(735,498	)
Proceeds from issuance of common stock and exercise of options, net of repurchases				41,727			66,554			328,652			153,386			236,517
Proceeds from issuance of convertible preferred stock, net of issuance costs				5,985,372			—			13,991,150			—			—
Net cash provided by (used in) financing activities				5,587,244			288,169			14,631,355			(403,444	)		762,277
Net increase (decrease) in cash and cash equivalents				6,346,485			(5,840,617	)		(2,889,991	)		(1,758,570	)		(1,399,037	)
Cash and cash equivalents at beginning of period				9,971,635			16,318,120			10,477,503			10,477,503			7,587,512
Cash and cash equivalents at end of period			$	16,318,120		$	10,477,503		$	7,587,512		$	8,718,933		$	6,188,475
Supplemental disclosure of cash flow information
Interest paid			$	594,047		$	520,586		$	386,749		$	210,739		$	216,525
Non-cash activities:
	Deferred stock based compensation		$	—		$	—		$	3,339,691		$	1,901,353		$	418,232
	Issuance of warrants for financing arrangement		$	—		$	8,824		$	3,304		$	3,304		$	—

See accompanying notes.

F-6

Sunesis Pharmaceuticals, Inc.

Notes to Financial Statements

(Information as of June 30, 2005 and for the
six months ended June 30, 2004 and 2005 is unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization

        Sunesis Pharmaceuticals, Inc. (the "Company") was incorporated in the state of Delaware on February 10, 1998, and its facilities are located in South San Francisco, California. Sunesis is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing novel small molecule therapeutics for oncology and other unmet medical needs. The Company's primary activities since incorporation have been conducting research and development internally and through corporate collaborators, in-licensing pharmaceutical compounds, performing business and financial planning, and raising capital.

Need to Raise Additional Capital

        The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant net losses and negative cash flows from operations since its inception. At June 30, 2005, the Company had an accumulated deficit of $109,958,876. At June 30, 2005, management believes that currently available cash, cash equivalents and marketable securities together with amounts available to be borrowed under existing financing agreements (see Note 13) will provide sufficient funds to enable the Company to meet its obligations at least through December 31, 2006. Management plans to continue to finance the Company's operations with a combination of equity issuances, debt arrangements, and revenues from collaborations with pharmaceutical companies, technology licenses, and in the longer term, product sales and royalties. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its development programs or obtain funds through collaborative arrangements with others that may require the Company to relinquish rights to certain of its technologies, product candidates, or products that the Company would otherwise seek to develop or commercialize itself. The Company intends to raise additional funds through the issuance of equity securities, if available on terms acceptable to the Company.

Use of Estimates

        The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that materially affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Unaudited Interim Results

        The accompanying balance sheet as of June 30, 2005, the statements of operations and cash flows for the six months ended June 30, 2004 and 2005 and the statement of convertible preferred stock and stockholders' deficit for the six months ended June 30, 2005 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to present fairly the Company's financial position as of June 30, 2005, and results of operations and cash flows for the six months ended June 30, 2004 and 2005. The financial data and other information disclosed in these notes to financial statements related to the six-month periods are

F-7

unaudited. The results of operations for the six months ended June 30, 2005 are not necessarily indicative of the results to be expected for the year ending December 31, 2005 or for any other interim period or for any other future year.

Unaudited Pro Forma Stockholders' Equity

        The Company has filed a registration statement with the Securities and Exchange Commission for the Company to sell shares of its common stock to the public. If the initial public offering is completed under the terms presently anticipated, all of the Series A, Series B, Series C, Series C-1, and Series C-2 convertible preferred stock outstanding at the time of the offering will convert into 9,693,696 shares of common stock, assuming a one-for-one conversion ratio. Unaudited pro forma stockholders' equity, as adjusted for the assumed conversion of the preferred stock, is set forth on the accompanying balance sheets.

Clinical Trials Accounting

        All of the Company's clinical trials are performed by contract research organizations ("CROs") and participating clinical trial sites. Some CROs bill monthly for services performed, and others bill based upon milestones achieved. For the latter, the Company accrues clinical trial expenses based on the services performed each period. Costs of setting up clinical trial sites for participation in the trials are expensed immediately as research and development expenses. Clinical trial site costs related to patient enrollment are accrued as patients are entered into the trial reduced by any initial payment made to the clinical trial site when the first patient is enrolled.

Cash Equivalents and Marketable Securities

        The Company considers all highly liquid securities with original maturities of three months or less from the original date of purchase to be cash equivalents, which consist of money market funds and corporate debt securities. Marketable securities consist of securities with original maturities greater than three months, and consist of money market funds, corporate debt securities and U.S. government obligations.

        Management determines the appropriate classification of securities at the time of purchase. The Company has classified its entire investment portfolio as available-for-sale. The Company views its available-for-sale portfolio as available for use in current operations. Accordingly, the Company has classified all investments as short-term, even though the stated maturity may be one year or more beyond the current balance sheet date. Available-for-sale securities are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) as a separate component of stockholders' deficit. The estimated fair values have been determined by the Company using available market information.

        The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities, if any, are recorded

F-8

in other income (expense), net. The cost of securities sold is based on the specific-identification method. Interest and dividends are included in interest income.

Concentrations of Credit Risk and Financial Instruments

        The Company invests cash that is not currently being used for operational purposes in accordance with its investment policy. The policy allows for the purchase of low risk debt securities issued by U.S. government agencies and very highly rated banks and corporations, subject to certain concentration limits. The maturities of these securities are maintained at no longer than 18 months. The Company believes its established guidelines for investment of its excess cash maintain safety and liquidity through its policies on diversification and investment maturity.

        Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, available-for-sale investment securities, and employee receivables. The carrying amounts of cash equivalents and available-for-sale investment securities approximate fair value due to their short term nature. The carrying amounts of borrowings under the Company's debt facilities approximate fair value based on the current interest rates for similar borrowing arrangements.

        The Company is exposed to credit risk in the event of default by the institutions holding the cash, cash equivalents, and available-for-sale securities to the extent of the amounts recorded on the balance sheets.

Property and Equipment

        Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the lease.

Stock-Based Compensation

        The Company accounts for employee stock options using the intrinsic-value method in accordance with Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, Financial Accounting Standards Board Interpretation ("FIN") No. 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB No. 25, a related interpretation and has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation.

        The Company has elected to continue to follow the intrinsic-value method of accounting as prescribed by APB Opinion No. 25. The information regarding net loss as required by SFAS No. 123 has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The resulting effect on net losses to date pursuant to SFAS No. 123 is not likely to be representative of the effects on net loss pursuant to SFAS No. 123 in future years, since future years are likely to include additional grants and the impact of future years' vesting.

F-9

        Stock compensation arrangements to non-employees are accounted for in accordance with SFAS No. 123, as amended, and EITF No. 96-18, Accounting for Equity Instruments That Are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, using a fair value approach. The compensation costs of these arrangements are subject to remeasurement over the vesting terms as earned.

        During the year ended December 31, 2004 and the six months ended June 30, 2005, certain stock options were granted with exercise prices that were below the reassessed fair value of the common stock at the date of grant. In accordance with APB Opinion No. 25, deferred stock compensation of $3,339,691 and $418,232 was recorded during the year ended December 31, 2004 and the six months ended June 30, 2005, respectively. The deferred stock compensation will be amortized over the related vesting terms of the options. The Company recorded employee stock compensation expense of $424,018 and $458,257 for the year ended December 31, 2004 and the six months ended June 30, 2005, respectively.

        As of June 30, 2005, the expected future amortization expense for deferred stock compensation during each of the following periods is as follows:

Year ending December 31,
2005	$	519,350
2006		971,200
2007		903,700
2008		462,594
2009		18,804
	$	2,875,648

        The following table illustrates the weighted-average assumptions for the minimum value model used in determining the fair value of options granted to employees:

	Year ended December 31,						Six months ended June 30,
	2002		2003		2004		2004		2005
Risk-free interest rate	4.6	%	4.0	%	4.2	%	4.1	%	3.8	%
Dividend yield	0	%	0	%	0	%	0	%	0	%
Weighted-average expected life	5 years		5 years		5 years		5 years		5 years

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        The following table illustrates the effect on net loss per share had the Company applied the fair value provisions of SFAS No. 123 to employee stock compensation:

		Year ended December 31,									Six months ended June 30,
		2002			2003			2004			2004			2005
Net loss, as reported		$	(19,182,260	)	$	(19,005,158	)	$	(20,530,200	)	$	(11,992,457	)	$	(16,542,233	)
Add: employee stock compensation expense based on the intrinsic value method			—			—			424,018			83,813			458,257
Deduct: total employee stock-based compensation expense determined under the fair value method for all awards			(122,482	)		(151,952	)		(649,089	)		(188,503	)		(568,999	)
Pro forma net loss		$	(19,304,742	)	$	(19,157,110	)	$	(20,755,271	)	$	(12,097,147	)	$	(16,652,975	)
Net loss per share:
	Basic and diluted, as reported	$	(16.59	)	$	(14.32	)	$	(13.97	)	$	(8.41	)	$	(10.53	)
	Basic and diluted, pro forma	$	(16.70	)	$	(14.43	)	$	(14.12	)	$	(8.48	)	$	(10.60	)

Comprehensive Loss

        The Company displays comprehensive loss and its components as part of the statement of convertible preferred stock and stockholders' deficit. Comprehensive loss is comprised of net loss and unrealized gains (losses) on available for sale securities.

Revenue Recognition

        In accordance with Emerging Issues Task Force, or EITF, 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, which the Company adopted effective July 1, 2003, revenue arrangements with multiple deliverable items are divided into separate units of accounting if certain criteria are met, including whether the delivered item has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. The Company allocates the consideration it receives among the separate units of accounting based on their respective fair value, and applies the applicable revenue recognition criteria to each of the separate units. Where an item in a revenue arrangement with multiple deliverables does not constitute a separate unit of accounting and for which delivery has not occurred, the Company defers revenue until the delivery of the item is completed.

        Upfront, non-refundable license fees and other fees received in connection with research and development collaboration are recorded as deferred revenue and recognized ratably over the relevant period specified in the agreements, generally the research term.

F-11

        Research funding related to collaborative research with the Company's collaboration partners is recognized as the related research services are performed. This funding is normally based on a specified amount per full-time equivalent employee per year.

        Revenue from milestone payments, which are substantially at risk at the time the collaboration agreement is entered into and performance-based at the date of the collaboration agreement, is recognized upon completion of the applicable milestone events. Royalty revenue is recognized based on reported product sales by third-party licensees.

        Grant revenues from government agencies and private research foundations are recognized as the related qualified research and development costs are incurred, up to the limit of the prior approval funding amounts.

Research and Development

        All research and development costs, including those funded by third parties, are expensed as incurred. Research and development costs consist of salaries, employee benefits, laboratory supplies, costs associated with clinical trials, including amounts paid to clinical research organizations, other professional services and facility costs.

Income Taxes

        The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes ("SFAS 109"). Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Long-Lived Assets

        The Company periodically assesses the impairment of long-lived assets in accordance with the provisions of SFAS No. 144 ("SFAS 144"), Accounting for the Impairment or Disposal of Long-Lived Assets. A review for impairment is performed whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, such as a significant industry or economic downturn, significant changes in the manner of use of the acquired assets or the strategy for the Company's overall business. If indicators of impairment exist, recoverability is assessed by comparing the estimated undiscounted cash flows resulting from the use of the asset and its eventual disposition against its carrying amount. If the aggregate undiscounted cash flows are less than the carrying amount of the asset, the resulting impairment charge to be recorded is calculated based on the excess of the carrying value of the asset over the fair value of such asset, with fair value determined based on an estimate of discounted future cash flows or other appropriate measure of fair value. For the years ended December 31, 2002, 2003 and 2004 and the six months ended June 30, 2005, no impairment charges were recorded.

F-12

Recent Accounting Pronouncements

        In December 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123R, which is a revision of SFAS No. 123, and supersedes APB Opinion 25. SFAS 123R requires all share-based payments to employees and directors, including grants of stock options, to be recognized in the statement of operations based on their fair values, beginning with the first annual period after June 15, 2005, with early adoption encouraged. On April 14, 2005, the SEC adopted a new rule that amended the compliance dates for SFAS No. 123R such that we are now allowed to adopt the new standard effective January 1, 2006. The pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB Opinion 25's intrinsic value method and, as such, recognizes no compensation cost for employee stock options.

        Under SFAS 123R, the Company must determine the appropriate fair value model and related assumptions to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition methods include modified prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The modified prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive method would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The Company is currently evaluating the requirements of SFAS 123R as well as option valuation methodologies related to its stock option plans. Although the Company has not yet determined the method of adoption or the effect of adopting SFAS 123R, we expect that the adoption of SFAS 123R will have a material impact on the Company's consolidated results of operations. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on, among other things, the levels of share-based payments granted in the future, the method of adoption and the option valuation method used. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.

2. Net Loss per Share

        Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, less the weighted average unvested common shares subject to repurchase. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding, less the weighted average unvested common shares subject to repurchase, and dilutive potential common shares for the period determined using the treasury stock method. For purposes of this calculation, preferred stock, options to purchase stock, and warrants to purchase stock are considered to be potential common shares and are only included in the calculation of diluted net loss per common share when their effect is dilutive.

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        The unaudited pro forma basic and diluted net loss per common share calculations assume the conversion of all outstanding shares of preferred stock into shares of common stock using the as-if-converted method as of January 1, 2003 or the date of issuance, if later.

		Year ended December 31,									Six months ended June 30,
		2002			2003			2004			2004			2005
Historical
Numerator:
	Net loss	$	(19,182,260	)	$	(19,005,158	)	$	(20,530,200	)	$	(11,992,457	)	$	(16,542,233	)
Denominator:
	Weighted-average common shares outstanding		1,417,077			1,435,993			1,504,804			1,465,704			1,592,072
	Less: Weighted-average unvested common shares subject to repurchase		(261,021	)		(108,625	)		(34,825	)		(39,802	)		(20,558	)
Denominator for basic and diluted net loss per share			1,156,056			1,327,368			1,469,979			1,425,902			1,571,514
Basic and diluted net loss per share		$	(16.59	)	$	(14.32	)	$	(13.97	)	$	(8.41	)	$	(10.53	)
Pro forma
Net loss								$	(20,530,200	)				$	(16,542,233	)
Pro forma basic and diluted net loss per share (unaudited)								$	(2.00	)				$	(1.51	)
Denominator for pro forma basic and diluted net loss per share:
	Shares used above								1,469,979						1,571,514
	Pro forma adjustments to reflect assumed weighted-average effect of conversion of preferred stock (unaudited)								8,793,704						9,409,953
	Shares used to compute pro forma basic and diluted net loss per common share (unaudited)								10,263,683						10,981,467
Outstanding securities not included in diluted net loss per share calculation
Preferred stock			8,476,170			8,476,170			9,250,959			8,476,170			9,693,696
Options to purchase common stock			1,288,039			1,547,229			1,896,839			1,822,475			1,915,661
Warrants			242,272			243,069			243,450			243,450			243,450
			10,006,481			10,266,468			11,391,248			10,542,095			11,852,807

F-14

3. Short-Term Investments

        The following is a summary of available-for-sale securities:

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2003
Money market funds	$	10,447,156		$	—	$	—		$	10,447,156
Corporate debt obligations		23,352,726			17,644		(4,988	)		23,365,382
Total		33,799,882			17,644		(4,988	)		33,812,538
Less amounts classified as cash equivalents		(10,447,156	)		—		—			(10,447,156	)
Total marketable securities	$	23,352,726		$	17,644	$	(4,988	)	$	23,365,382

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2004
Money market funds	$	7,512,583		$	—	$	—		$	7,512,583
U.S government and related agency issues		1,946,735			—		(1,555	)		1,945,180
Corporate debt obligations		20,388,712			—		(70,087	)		20,318,625
Commercial paper		6,265,926			2,535		(670	)		6,267,791
Certificate of deposit		692,906			7		—			692,913
Total		36,806,862			2,542		(72,312	)		36,737,092
Less amounts classified as cash equivalents		(7,512,583	)		—		—			(7,512,583	)
Total marketable securities	$	29,294,279		$	2,542	$	(72,312	)	$	29,224,509

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
June 30, 2005
Money market funds	$	5,608,829		$	—	$	—		$	5,608,829
U.S. government and related agency issues		248,063			—		(88	)		247,975
Corporate debt obligations		12,946,769			—		(52,934	)		12,893,835
Commercial paper		5,719,136			896		(9	)		5,720,023
Total		24,522,797			896		(53,031	)		24,470,662
Less amounts classified as cash equivalents		(5,608,829	)		—		—			(5,608,829	)
Total marketable securities	$	18,913,968		$	896	$	(53,031	)	$	18,861,833

        There were no realized gains or losses on the sale of available-for-sale securities for the years ended December 31, 2002, 2003 and 2004 and the six months ended June 30, 2005.

F-15

        At December 31, 2003 and 2004 and June 30, 2005, the contractual maturities of marketable securities were as follows:

	December 31, 2003				December 31, 2004				June 30, 2005
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	21,195,898	$	21,208,175	$	25,604,553	$	25,556,472	$	18,913,968	$	18,861,833
Due in more than one year		2,156,828		2,157,207		3,689,726		3,668,037		—		—
Total	$	23,352,726	$	23,365,382	$	29,294,279	$	29,224,509	$	18,913,968	$	18,861,833

4. License Agreements

The Regents of the University of California

        In December 1998, the Company entered into an exclusive license agreement with The Regents of the University of California (the "Regents") for rights to certain technology to identify small molecule drug leads. The agreement provides the Company with an exclusive license to develop, make, use, and sell products derived from the licensed technology, and will continue for the life of the last-to-expire patent. To date, the licensed technology has produced two issued patents, U.S. Patent Nos. 6,344,330 and 6,344,334 which are both due to expire on March 27, 2018. The agreement provides for the Company to pay the Regents noncreditable, nonrefundable fees of up to $75,000 according to a payment schedule of which $55,000 has been paid, as well as to issue to the Regents 50,000 shares of common stock, which were issued in December 1998. The Company has agreed to achieve certain development milestones of compounds derived from the licensed technology, including initiation of preclinical testing due June 30, 2002 and initiation of clinical testing due June 30, 2004. If such milestones are not met, the Regents, upon providing written notice to the Company, may seek to either terminate the agreement or amend the exclusive license to be a nonexclusive license. Because the Company no longer uses the licensed technology and none of the Company's preclinical or clinical compound originates from the licensed technology, the preclinical and clinical milestones have not been met. The Company has not received written notice from the Regents and continues to provide the Regents of status reports of the state of the licensed technology. The Company also continues to maintain patents and patent applications that cover the licensed technology because of its belief that some aspects of the licensed technology may provide some value in the future.

Dainippon Pharmaceutical Co., Ltd.

        In October 2003, the Company entered into an agreement with Dainippon Pharmaceutical Co., Ltd. ("Dainippon") to acquire exclusive worldwide development and marketing rights for Dainippon's anti-cancer compound, referred to as SNS-595.

        Under the terms of this agreement, the Company made a non-refundable payment of $700,000 which was included in research and development expense. The Company may in the future make a series of milestone payments of up to $10.7 million to Dainippon based on successful development and

F-16

regulatory approval of SNS-595, including a $500,000 payment upon commencement of Phase II clinical trials, as well as royalty payments based on any future total annual product sales. In return, the Company has received an exclusive, worldwide license to develop and market SNS-595.

Bristol-Myers Squibb Company

        In April 2005, the Company entered into an agreement with Bristol-Myers Squibb Company ("BMS") to acquire worldwide development and commercialization rights for BMS's anti-cancer compound, referred to as SNS-032.

        Under the terms of this agreement, the Company made an up-front $8,000,000 equity payment through the issuance of 442,737 shares of the Company's Series C-2 preferred stock at a price of $18.07 per share. This amount was included in research and development expense for the six months ended June 30, 2005 due to uncertainties surrounding the remaining efforts for completion of the research and development activities. The Company may in the future make a series of milestone payments of up to $29.0 million in cash, equity or any combination thereof to BMS based on the successful development and approval for the first indication and formation of SNS-032. In addition, the Company may make a series of development and commercialization milestone payments totaling up to $49.0 million in cash, equity or any combination thereof, as well as royalty payments based on any future product net sales. In return, the Company received worldwide exclusive and non-exclusive diagnostic and therapeutic licenses to SNS-032 and future CDK inhibitors derived from related intellectual property.

5. Collaborative Research Agreements

Chiesi Farmaceutici S.p.A.

        In October 2001, the Company entered into a research collaboration to discover and develop small molecules that inhibit a well-validated protein target involved in immunological diseases with Chiesi Farmaceutici S.p.A ("Chiesi"). Using its proprietary discovery technology, the Company was to generate development candidates and Chiesi was to have an exclusive option to enter into an exclusive license to develop and market resulting products in certain territories.

        Under the terms of the agreement with Chiesi, the Company received an upfront, nonrefundable payment of $500,000 and research funding and was to receive research and development milestones and royalty payments based on future events and sales. The upfront fee was recognized as revenue over the three-year term of the agreement. Costs associated with research and development activities attributable to this agreement approximated the research funding revenue recognized. This agreement was terminated on December 31, 2002, and the Company completed its remaining performance obligations in 2003.

Johnson & Johnson Pharmaceutical Research and Development, L.L.C.

        In May 2002, the Company entered into a research collaboration to discover small molecule inhibitors of Cathepsin S with Johnson & Johnson Pharmaceutical Research & Development, L.L.C ("JJPRD"). The Company applies its proprietary Tethering technology to discover novel inhibitors of Cathepsin S in this collaboration.

F-17

        Under the terms of the agreement, the Company received a non-refundable and non-creditable technology access fee of $500,000 in February 2003, and certain research funding to be paid in advance quarterly. The Company may in the future receive research and development milestones of up to $24.5 million as well as royalty payments from JJPRD based on future product sales. On December 15, 2002, the Company and JJPRD amended their collaboration to increase the number of JJPRD funded full-time equivalents for 2003. In December 2002, JJPRD also made the first milestone payment of $250,000 to the Company for the delivery of a novel lead series of compounds. On December 15, 2003, the Company and JJPRD again amended their collaboration to extend the research funding for one additional year from May 3, 2004 through May 2, 2005. On December 22, 2004, the Company and JJPRD amended their collaboration to extend the research funding from May 3, 2005 until December 31, 2005. Unamortized upfront fees are being recognized as revenue ratably over the remaining research term. Costs associated with research and development activities attributable to this agreement approximate the research funding recognized.

Biogen Idec, Inc.

        In December 2002, the Company entered into research collaboration with Biogen Idec, Inc. ("Biogen Idec") to discover oral therapeutics. The collaboration applies the Company's proprietary Tethering technology to generate small molecule leads to selected TNF family cytokines involved in immune and inflammatory disease and two additional un-named targets.

        During the initial phase of the collaboration, both companies contribute scientists and discovery resources to the collaboration at their own cost. Under an exclusive worldwide license to compounds resulting from these efforts, Biogen Idec has the right to develop, manufacture, and commercialize compounds discovered under the collaboration.

        Under the terms of the agreement, the Company received an upfront, nonrefundable and noncreditable technology access fee of $3,000,000 which is being recognized as revenue over the 30-month term of the agreement and the one-year option period. In addition, the Company started receiving quarterly maintenance fees of $357,500 commencing April 1, 2004, and the Company may in the future receive research and development milestones of up to $60.5 million and royalty payments based on total annual future product sales. In certain circumstances, such as the cessation of the development of particular compounds, milestone payments received may be credited against future milestone payments with respect to compounds directed to the same target as the discontinued compound. As such, the Company recognizes the milestones received as revenue ratably over the remaining term of the agreement. On June 18, 2005, the one year option was not exercised by Biogen Idec and the agreement was terminated. Accordingly, the remaining deferred revenue of $824,872 was recognized in the six months ended June 30, 2005.

        Concurrent with the signing of the agreement, Biogen Idec made a $6,000,000 equity investment and purchased 332,052 shares of the Company's Series C-1 preferred stock at a price of $18.07 per share. Biogen Idec has also agreed to loan the Company up to $4,000,000 with a drawdown period of ten calendar quarters beginning on January 1, 2003 and ending on June 30, 2005. The principal and accrued interest of each draw will be due five years from the date of advance of each draw and bear interest at three percent above LIBOR (LIBOR was 1.46% at December 31, 2003, 3.10% at

F-18

December 31, 2004 and 3.86% at June 30, 2005) to be paid quarterly. As of December 31, 2003 and 2004 and June 30, 2005, the Company had drawn $1,600,000, $3,200,000 and $4,000,000, respectively, with $2,400,000, $800,000 and none, respectively, available for future draws.

        On August 27, 2004, the Company entered into the second research collaboration with Biogen Idec to discover and develop small molecules targeting kinases, a family of cell signaling enzymes that play a role in the progression of cancer. The Company applies its proprietary Tethering technology to generate novel small molecule leads that inhibit the oncology kinase targets that are covered by this collaboration.

        One of the kinase targets in the collaboration is Raf, and the Company's Raf program was folded into the collaboration. Under the terms of the agreement, the Company received a $7,000,000 upfront nonrefundable and noncreditable technology access fee, which is being recognized as revenue over an initial four-year research term. In the event that Biogen Idec decides to exercise its option to extend the initial four-year research term for one additional year, Biogen Idec will pay to the Company an additional technology access fee specified in the agreement. In addition, the Company will receive quarterly research funding of $1.2 million to be paid in advance to support some of its scientific personnel, and the Company may in the future receive pre-commercialization milestone payments of up to $60.5 million and royalty payments based on any product sales. The Company retains an option to participate in the co-development and co-promotion of product candidates for up to two targets that may emerge from this collaboration.

        Concurrent with the signing of the agreement, Biogen Idec made a $14,000,000 equity investment and purchased 774,789 shares of the Company's Series C-2 preferred stock at a price of $18.07 per share.

Merck & Co., Inc.

        In February 2003, the Company and Merck & Co., Inc. ("Merck") entered into a four-year research collaboration to discover novel oral therapeutics to BACE, an Alzheimer's disease target. The Company contributed an initial series of small-molecule inhibitors and use of Tethering to discover additional novel series of small molecules. Under the terms of the agreement, the Company received a nonrefundable and noncreditable technology access fee of $5,000,000 which is being recognized as revenue ratably over the research term of four years. In addition, the Company receives research and development funding, paid in advance quarterly, and may in the future receive a series of milestone payments of up to $90.3 million based on the successful development and approval of a compound identified through the program. Merck will also make royalty payments based on future sales, and will receive an exclusive, worldwide license to products resulting from the collaboration. Merck and the Company will also have the option to expand the collaboration to additional therapeutic targets.

        On July 22, 2004, the Company and Merck entered into a second multi-year research collaboration to discover novel oral drugs for the treatment of viral infections. The Company provided Merck with a series of small molecule compounds targeting viral infections. These compounds were derived from Tethering. Merck will be responsible for advancing these compounds into lead optimization, preclinical development, and clinical studies. Merck will pay annual license fees for the Company's consulting

F-19

services and ongoing access to Tethering as a means of identifying additional compounds for the treatment of viral infections.

        Under the terms of the agreement, the Company received an upfront, nonrefundable and noncreditable technology access fee of $2.3 million which is being recognized as revenue over an initial three-year research term, annual license fees aggregating $950,000 and payments based on the achievement of development milestones of up to $22.1 million. In addition, the Company will receive royalty payments based on net sales for any products resulting from the collaboration. Merck receives an exclusive worldwide license to any products resulting from the collaboration.

        In connection with the above collaboration agreements, the Company recognized the following revenues, which include the amortization of upfront fees received, research funding, and milestones earned:

	Year ended December 31,						Six months ended June 30,
	2002		2003		2004		2004		2005
Chiesi	$	2,003,340	$	841,661	$	—	$	—	$	—
J&J PRD		1,166,666		2,350,001		1,334,333		663,271		702,422
Merck		—		3,650,628		4,603,308		2,065,002		2,640,964
		3,170,006		6,842,290		5,937,641		2,728,273		3,343,386
Biogen Idec-related party		32,258		857,148		4,201,017		786,074		5,243,444
	$	3,202,264	$	7,699,438	$	10,138,658	$	3,514,347	$	8,586,830

6. Notes Receivable from Officers and Employees

        In July 1999, the Company issued a full recourse note receivable of $150,000 to an employee to finance the purchase of personal assets. The note is secured by shares of the Company's common stock held by the employee and is non-interest bearing with a four-year term. The principal is to be forgiven at the rate of 25% annually upon the anniversary of the employment date. As of December 31, 2003, the Company had forgiven the total amount of the note. The Company has recorded the forgiveness and the tax portion of the imputed interest as a charge to general and administrative expense.

        In April 2000, the Company issued a full recourse note receivable of $100,000 to an officer to finance the purchase of a home. The note is secured by shares of the Company's common stock held by the employee, and bears an interest rate of 6.6% per annum, with a five-year term. Under the terms of the loan, the principal and accrued interest were forgiven in April 2005.

        In July 2001, the Company issued a full recourse note receivable of $85,350 to an employee to finance the purchase of personal assets. The note is secured by a second deed of trust on the employee's residence, and is non-interest bearing with a five-year term. The note is not forgivable, and in the event the employee ceases employment with the Company, the note shall become due immediately. This loan was repaid in full in May 2005.

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7. Property and Equipment

        Property and equipment consist of the following:

	December 31,
							June 30, 2005
	2003			2004
Computer equipment and software	$	1,992,114		$	2,242,659		$	2,528,875
Furniture and office equipment		551,710			576,188			580,278
Laboratory equipment		6,845,518			7,446,076			8,080,647
Leasehold improvements		4,881,839			4,930,832			5,008,017
		14,271,181			15,195,755			16,197,817
Less accumulated depreciation and amortization		(9,280,593	)		(11,206,398	)		(12,011,373	)
	$	4,990,588		$	3,989,357		$	4,186,444

        Equipment purchased under equipment financing agreements (see Note 8) is included in property and equipment. At December 31, 2003 and 2004 and June 30, 2005, financed equipment had a cost basis of $8,674,231, $5,886,831 and $5,328,665, respectively, with accumulated depreciation of $5,477,326, $3,474,704 and $3,188,712, respectively.

8. Equipment Financing and Debt Facility

        In June 2000, the Company entered into an equipment financing agreement with a financing company, which has been amended from time to time. The credit facility was available through May 2005. The equipment loans are secured by the equipment financed.

        In conjunction with an amendment to the agreement in May 2003, the Company issued warrants to the financing company to purchase 797 shares of the Company's Series C-1 convertible preferred stock at $18.07 per share and in conjunction with another amendment to the agreement in June 2004, the Company issued warrants to the financing company to purchase 381 shares of the Company's Series C convertible preferred stock at $18.07 per share.

        The fair values of the warrants issued in May 2003 and June 2004 are $8,824 and $3,304, respectively, as determined using the Black-Scholes options pricing model, and are being accounted for as prepaid interest and expensed on a straight-line basis over the term of the agreement (12 months). The warrants shall be exercisable until the earlier of ten years after the date of issuance or three years after the Company completes an initial public offering. Under the terms of the amended agreement, the Company is required to meet certain equipment holding ratios in respect of categories of equipment financed by the end of the equipment financing line in April 2005 as specified in the agreement.

        As of December 31, 2003 and 2004 and June 30, 2005, the Company had drawn $6,464,245, $7,399,281 and $7,860,540, respectively, to finance equipment purchases and leasehold improvements and had $1,951,347, $1,117,234 and none, respectively, available under the facility. Outstanding borrowings bear interest at rates ranging from 7.4% to 9.89% as of December 31, 2003 and 2004 and June 30, 2005, and are to be paid over 36 to 48 months.

        As of December 31, 2003 and 2004 and June 30, 2005, the Company was in compliance with all the covenants in these loan agreements.

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        Pursuant to the collaboration agreement with Biogen Idec, the Company had drawn $1,600,000, $3,200,000 and $4,000,000 under a facility loan agreement as of December 31, 2003 and 2004 and June 30, 2005, respectively. Refer to Note 5 with regard to the terms and conditions of the facility.

        Aggregate future minimum payments under all debt arrangements at December 31, 2004 are as follows:

Year ending December 31,
	2005	$	1,449,873
	2006		809,075
	2007		399,041
	2008		1,731,131
	2009		1,600,000
Total minimum payments			5,989,120
Less amount representing interest			(259,327	)
Present value of minimum payments			5,729,793
Less current portion			(1,291,363	)
Long-term portion		$	4,438,430

9. Commitments and Contingencies

        In May 2000, the Company entered into a noncancelable operating lease for its facilities in South San Francisco, California, which expires in June 2013.

        Following is a schedule of the Company's noncancelable lease commitments:

Year ending December 31,
	2005	$	2,637,976
	2006		2,717,115
	2007		2,798,629
	2008		2,882,588
	2009		2,969,065
	2010 and thereafter		11,098,559
		$	25,103,932

        The operating lease agreement provides for increasing monthly rent payments over the lease term. The Company recognizes rent expense on a straight-line basis. For the years ended December 31, 2002, 2003 and 2004 and the six months ended June 30, 2005, the Company recorded rent expense, net of sublease rental, of $2,794,711, $2,812,932, $2,817,186 and $1,408,647, respectively. The deferred rent balance of $942,394, $1,194,166 and $1,301,127 at December 31, 2003 and 2004 and June 30, 2005, respectively, represents the difference between actual rent payments and the straight-line expense.

F-22

Contingencies

        From time to time, the Company may become involved in claims and other legal matters arising in the ordinary course of business. As of June 30, 2005, management is not aware of any matters that could have a material adverse effect on the financial position, results of operations or cash flows of the Company.

10. Stockholders' Deficit

        In December 2004 the Board of Directors and stockholders of the Company approved an amendment to the Certificate of Incorporation filed with the State of Delaware. Under the terms of the amended articles of incorporation, the authorized common stock increased to 29,220,610 shares and the authorized preferred stock increased to 10,248,996 shares with 2,306,303 shares designated as Series A, 2,815,804 shares designated as Series B, 3,519,755 shares designated as Series C, 332,052 shares designated as Series C-1, and 1,275,081 shares designated as Series C-2.

Common Stock

        Holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders of the Company. Subject to the preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors. No dividends have been declared to date.

Convertible Preferred Stock

        The Company initially recorded the Series A, B, C, C-1, and C-2 convertible preferred stock ("preferred stock") at their fair values on the date of issuance, net of issuance costs. A redemption event will only occur upon the liquidation, winding up, change in control or sale of substantially all of the assets of the Company. As the redemption event is outside of the control of the Company, all shares of preferred stock have been presented outside of permanent equity in accordance with EITF topic D-98, Classification and Measurement of Redeemable Securities. Further, the Company has also elected not to adjust the carrying values of the preferred stock to the redemption value of such shares, since it is uncertain whether or when a redemption event will occur. Subsequent adjustments to increase the carrying values to the redemption values will be made if it becomes probable that such redemption will occur.

        Preferred stockholders are entitled to receive noncumulative dividends at the rate of 8% of the respective liquidation preference per share (as converted) per annum, when and if declared by the Board of Directors, payable in preference to common stock dividends. As of December 31, 2004 and June 30, 2005, no dividends have been declared or paid by the Company.

        In the event of any liquidation, dissolution, or winding up of the Company, the holders of Series A, B, C, C-1, and C-2 preferred stock would be entitled to receive, prior to and in preference to any distribution of any of the assets or surplus funds of the Company to the common stockholders, $3.76, $9.79, $18.07, $18.07 and $18.07 per share, respectively, and all declared but unpaid dividends on the preferred stock. Following the payment of this liquidation preference, any remaining assets or

F-23

surplus funds would be distributed to the holders of preferred stock and common stock on a pro rata basis until the holders of Series A, B, C, C-1, and C-2 preferred stock have received a total of $11.29, $17.32, $31.96, $31.96, and $31.96 per share, respectively. Any remaining assets would be distributed to the common stockholders.

        Series A, B, C, C-1 and C-2 preferred stock is convertible into common stock at the option of the holder at the then-effective conversion price. The initial conversion price per share of Series A, B, C, C-1 and C-2 preferred stock is $3.76, $9.79, $18.07, $18.07, and $18.07, respectively, and is subject to adjustment as specified in the Certificate of Incorporation. Each share of preferred stock will convert upon the closing of an initial public offering with an implied pre-money valuation of at least $150.0 million and aggregate cash proceeds in excess of $40 million or upon the vote by holders of at least 85% of the then outstanding preferred stock.

        Under the terms of the amended Certificate of Incorporation, the conversion rights of the preferred stock are amended to include a provision that adjusts the conversion ratio of Series B, C, C-1 and C-2 preferred stock based on the Pre-Money Valuation of the Company immediately prior to an initial public offering ("IPO").

        "Pre-Money Valuation" means the product of the IPO price per share multiplied by the number of shares of common stock outstanding immediately prior to the issuance of IPO stock and assuming the exercise of all outstanding options and warrants and the conversion of all outstanding preferred stock into common stock after giving effect to antidilution adjustments, if any, as specified in the Certificate of Incorporation.

        As of June 30, 2005, (i) an IPO with a Pre-Money Valuation of greater than or equal to $242.0 million would not have caused any adjustments to the conversion ratios of the Series B, C, C-1 or C-2 preferred stock, (ii) an IPO with a Pre-Money Valuation of less than $242.0 million would have caused an adjustment to the conversion ratios of the Series C, C-1 and C-2 preferred stock and (iii) an IPO with a Pre-Money Valuation of less than $171.0 million would have caused an adjustment to the conversion ratios of the Series B, C, C-1 and C-2 preferred stock.

        If the conversion ratios are adjusted in accordance with the above terms, the Company will record a deemed dividend associated with the conversion of the preferred stock to reflect the fair value of the additional shares issued upon such conversion. The deemed dividend will be recorded in the period in which the additional shares are issued and will increase the net loss allocable to common stockholders in the calculation of basic and diluted net loss per common share allocable to common stockholders.

        The holders of each share of preferred stock are entitled to the number of votes equal to the number of shares of common stock into which such shares of preferred stock could be converted.

Incentive Stock Plans

        The Company's 1998 Stock Plan (the "1998 Plan") was adopted by the Board of Directors in February 1998 and provides for the issuance of common stock, purchase rights, and granting of options to employees, officers, directors, and consultants of the Company. The Company grants shares of common stock for issuance under the 1998 Plan at no less than the estimated fair value of the

F-24

underlying stock on the grant date, as determined by the Board of Directors. Options granted and shares underlying stock purchase rights issued under the 1998 Plan vest over periods determined by the Board of Directors, generally four years, and expire no more than 10 years after the date of grant. Stock that is purchased prior to vesting is subject to the Company's right of repurchase, which lapses over the vesting period.

        The Board of Directors and stockholders initially authorized 819,505 shares of common stock for issuance under the 1998 Plan. From that date through June 30, 2004, the board of directors and stockholders approved increases in the number of shares of common stock authorized for issuance pursuant to the 1998 Plan aggregating 1,927,591 shares which is net of 125,556 shares allocated to the 2001 Stock Plan (the "2001 Plan").

        In October 2001, the Company's Board of Directors adopted the 2001 Plan under which shares may be allocated for grant as either incentive stock options or nonstatutory stock option grants directly from available shares authorized and reserved for issuance under the 1998 Plan. The options vest as determined by the Board of Directors and expire no more than 10 years after the date of grant. All 117,586 options granted under the 2001 Plan during 2001 were allocated from the shares reserved under the 1998 Plan. The terms of the 2001 Plan are substantially consistent to the 1998 Plan. In April 2002, the Board of Directors approved 125,117 shares of common stock to be reserved for issuance under the 2001 Plan. In April 2003, the management allocated 7,969 shares to the 2001 plan from shares reserved under the 1998 plan. In June 2003, the Board of Directors approved an additional 132,821 shares of common stock to be reserved for issuance under the 2001 Plan.

        Effective in October 2001, any unvested shares repurchased by the Company after that date at their original issue prices will become available for future grant in both plans. As of December 31, 2003 and 2004 and June 30, 2005, 62,011, 30,522 and 2,099 shares, respectively, of common stock purchased upon option exercises are subject to repurchase.

        In accordance with Emerging Issues Task Force ("EITF") 00-23, Issues Related to the Accounting for Stock Compensation Under APB Opinion No. 25, and FIN No. 44, shares purchased after March 2002 under an early exercise of stock options are not deemed to be issued until those shares vest. Since March 2002, the Company has issued an aggregate of 7,544 shares of common stock pursuant to the early exercise of stock options. At December 31, 2003 and 2004 and June 30, 2005, there were zero, 2,430 and 2,099, respectively, of these shares issued subject to the Company's right to repurchase at the original purchase price of $2.26 per share. The amounts received in exchange for these shares have been recorded as a liability for early exercise of stock options in the accompanying consolidated balance sheets and will be transferred into common stock and additional paid-in capital as the shares vest.

F-25

        Activity under the Company's stock option plans is summarized as follows:

				Options Outstanding
		Shares Available for Grant		Number of Shares		Weighted- Average Exercise Price
Balance at December 31, 2001		97,464		705,806		$	2.03
	Options authorized	730,515		—			—
	Options granted	(679,857	)	679,857		$	2.26
	Options exercised	—		(23,410	)	$	1.52
	Options canceled	74,214		(74,214	)	$	2.24
	Shares repurchased	4,427		—		$	0.38
Balance at December 31, 2002		226,763		1,288,039		$	2.15
	Options authorized	478,155		—			—
	Options granted	(391,662	)	391,662		$	2.26
	Options exercised	—		(25,475	)	$	1.76
	Options canceled	106,997		(106,997	)	$	2.24
	Shares repurchased	9,259		—		$	0.38
Balance at December 31, 2003		429,512		1,547,229		$	2.18
	Options authorized	199,231		—		$	—
	Options granted	(538,217	)	538,217		$	2.35
	Options exercised	—		(126,115	)	$	2.35
	Options canceled	62,492		(62,492	)	$	1.76
Balance at December 31, 2004		153,018		1,896,839		$	2.26
	Options granted	(81,419	)	81,419		$	8.47
	Options exercised	—		(40,924	)	$	2.22
	Options canceled	21,673		(21,673	)	$	2.30
Balance at June 30, 2005		93,272		1,915,661		$	2.52

        The following table summarizes information about stock options outstanding and exercisable at December 31, 2003:

	Options Outstanding and Exercisable
Range of Exercise Prices	Number of Shares	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life
				(In years)
$0.38	39,581	$	0.38	4.93
$1.13	49,852	$	1.13	6.25
$2.26	1,457,796	$	2.26	8.37
	1,547,229	$	2.18	8.21

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        The following table summarizes information about stock options outstanding and exercisable at December 31, 2004:

	Options Outstanding and Exercisable
Range of Exercise Prices	Number of Shares	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life
				(In years)
$0.38	15,938	$	0.38	4.26
$1.13	20,012	$	1.13	5.29
$2.26	1,796,739	$	2.26	7.91
$2.82	38,649	$	2.82	9.77
$3.20	25,501	$	3.20	9.94
	1,896,839	$	2.26	7.91

        The weighted-average fair value of options granted during the years ended December 31, 2002, 2003, and 2004 was $7.85, $8.17, and $8.15, respectively.

        The following table summarizes information about stock options outstanding and excercisable at June 30, 2005:

	Options Outstanding and Exercisable
Range of Exercise Prices	Number of Shares	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life
				(In years)
$0.38	15,938	$	0.38	3.76
$1.13	19,127	$	1.13	4.78
$2.26	1,736,356	$	2.26	7.43
$2.82	37,321	$	2.82	9.28
$3.20	25,501	$	3.20	9.44
$8.47	81,418	$	8.47	9.87
	1,915,661	$	2.52	7.54

        The weighted average fair value of options granted during the six months ended June 30, 2005 was $3.22.

        The Company has granted common stock options to non-employees in exchange for services. These options have vesting periods ranging from immediate vesting to 48 months. The Company granted options to non-employees to purchase 30,283, 23,576, 16,868 and 3,321 shares in 2002, 2003, 2004 and the six months ended June 30, 2005, respectively. The Black-Scholes option pricing model is used to calculate the fair value of the options as they vest. The Company has recognized $54,286, $36,098, $194,474 and $137,413 of expense for the estimated fair value of these options for the years ended December 31, 2002, 2003 and 2004 and the six months ended June 30, 2005, respectively.

F-27

        The Company has also reserved 19,923 shares of its common stock related to a performance stock option for another executive as a part of an employment agreement. Under the terms of the agreement, the shares will vest at the end of the vesting period. In addition, when certain milestones have been fully achieved within the time period specified in the agreement, vesting of the options will accelerate. As of June 30, 2005, no milestones have been achieved.

Warrants

        The Company has outstanding warrants to purchase preferred stock which is convertible into common stock and common stock at December 31, 2004 as follows:

	Shares	Exercise Price		Expiration
Preferred Series A	12,948	$	3.76	August 2005
Common Stock	34,533	$	3.76	April 2008
Preferred Series B	19,003	$	9.79	December 2009
Common Stock	46,487	$	15.06	May 2010
Preferred Series C	129,301	$	18.07	July 2010
Preferred Series C-1	797	$	18.07	June 2013
Preferred Series C	381	$	18.07	June 2014

Notes Receivable from Officers

        In June 1999, the Company issued notes receivable to an officer to finance the purchase of shares of the Company's common stock. The principal amount of the notes totaled $32,468, the notes bore interest at 5.3% per annum, were full recourse, were secured by shares of the Company's common stock held by the officer and had maturity dates of June 2003 and June 2005. The officer repaid the outstanding balance on the loan during 2003.

        In April 2000, the Company issued a note receivable to an officer to finance the purchase of shares of the Company's common stock. The principal amount of the note was $90,000 and the note bore interest at 6.6% per annum, was full recourse, was secured by shares of the Company's common stock held by the employee, and had a maturity date of April 2004. In 2004 the Company forgave the total outstanding balance of the note. The Company has recorded the forgiveness and the tax portion of the imputed interest as a charge to general and administrative expense.

        In May 2000, the Company issued a note receivable to an officer to finance the purchase of shares of the Company's common stock. The principal amount of the note is $135,000 and the note bears interest at 6.6% per annum, is full recourse, is secured by shares of the Company's common stock held by the employee, and has a maturity date of May 2005. This loan was repaid in full with interest in May 2005.

F-28

Reserved Shares

        The Company had reserved shares of common stock for future issuances as follows:

		December 31, 2003	December 31, 2004	June 30, 2005
Common stock issuable under warrants		81,020	81,020	81,020
Conversion of preferred stock issuable under warrants		162,049	162,430	162,430
Conversion of Series A preferred stock		2,249,320	2,249,320	2,249,320
Conversion of Series B preferred stock		2,574,272	2,574,272	2,574,272
Conversion of Series C preferred stock		3,320,526	3,320,526	3,320,526
Conversion of Series C-1 preferred stock		332,052	332,052	332,052
Conversion of Series C-2 preferred stock		—	774,789	1,217,526
Stock option plans
	—outstanding	1,547,229	1,896,839	1,915,661
	—available for grant	429,512	153,018	93,272
		10,695,980	11,544,266	11,946,079

11. Income Taxes

        As of December 31, 2004, the Company had federal net operating loss carryforwards of approximately $76.3 million. The Company also had federal research and development tax credit carryforwards of approximately $1.1 million. The net operating loss and tax credit carryforwards will expire at various dates beginning in 2018, if not utilized. As of December 31, 2004, the Company had a state net operating loss carryforward of approximately $36.9 million, which expires beginning in 2008.

        Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, that are applicable if the Company experiences an "ownership change," which may occur, for example, as a result of the Company's initial public offering and other sales of the Company's stock, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

        As of December 31, 2004 and 2003, the Company had deferred tax assets of approximately $38,547,000 and $31,818,000, respectively. Realization of the deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The net valuation allowance increased by approximately $9,891,000 and $6,729,000 during the years ended December 31, 2003 and 2004, respectively.

F-29

        The income tax benefit recognized differs from the amount computed by applying the statutory income tax rate of 34% to pretax loss as follows:

	Year ended December 31,
	2002			2003			2004
Statutory rate	$	(6,521,968	)	$	(6,461,754	)	$	(6,980,268	)
Current year net operating losses and temporary differences, no tax benefit recognized		6,493,187			6,426,884			6,737,902
Other permanent differences		28,781			34,870			242,366
	$	—		$	—		$	—

        Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets for federal and state income taxes are as follows:

		December 31,
		2003			2004
Deferred tax assets:
	Net operating loss carryforwards	$	23,130,000		$	28,139,000
	Deferred revenue		2,542,000			4,981,000
	Capitalized research costs		1,682,000			1,962,000
	Property and equipment		263,000			263,000
	Book/tax difference in depreciation		760,000			960,000
	Accrued liabilities		151,000			177,000
	Federal and state research credit carryforwards		3,290,000			2,065,000
Gross deferred tax assets			31,818,000			38,547,000
Valuation allowance			(31,818,000	)		(38,547,000	)
Net deferred tax assets		$	—		$	—

12. Guarantees and Indemnifications

        In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligations it assumes under that guarantee.

        As permitted under Delaware law and in accordance with the Company's Bylaws, the Company indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company's request in such capacity. The Company terminates its indemnification agreements with its officers and directors upon the termination of their employment, but the termination will not affect claims for indemnification relating to events occurring

F-30

prior to the effective date of termination. The maximum amount of potential future indemnification is unlimited; however, the Company's director and officer insurance policy limits the Company's exposure and may enable the Company to recover a portion of any future amounts paid. Accordingly, the Company believes that the fair value of these indemnification agreements is minimal. Therefore, the Company has not recorded any liabilities for these agreements as of December 31, 2003 or 2004 or June 30, 2005.

13. Subsequent Events

Reverse Stock Split

        In February 2005 the Board of Directors approved a reverse stock split range of the Company's outstanding shares of common stock and preferred stock and on September     , 2005, subsequent to stockholder approval, the Company filed an amendment to its eighth amended and restated certificate of incorporation effecting a                         reverse stock split and an amended and restated certificate of incorporation increasing the number of authorized shares of common stock and preferred stock to 100,000,000 and 5,000,000, respectively. All issued and outstanding common stock, preferred stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split.

Financing Arrangement

        In August 2005, the Company entered into a Venture Loan and Security Agreement with Oxford Finance Corporation and Horizon Technology Funding Company LLC, pursuant to which the Company may borrow up to $15.0 million. The full $15.0 million loan commitment is available until October 15, 2005, $10.0 million is available until January 31, 2006, and the remaining $5.0 million is available until May 31, 2006. The loan facility has a 12-month interest-only period ending August 1, 2006 followed by a 30-month principal repayment period, provided that any outstanding loan amounts become due upon an event of default. Outstanding principal accrues interest at a rate equal to the higher of 11.5% or the three-year Treasury rate plus 7.73%. The Company's obligations under the loan agreement are secured by a first priority security interest in substantially all of the Company's assets, other than the Company's intellectual property. In conjunction with this transaction, the Company issued warrants to the lenders to purchase an aggregate of up to 83,013 shares of Series C preferred stock at an exercise price of the lower of $18.07 per share or the price per share in a Qualified Financing (as defined in the warrants). The warrants expire ten years from the date of issuance. The Company also granted the lenders registration rights under the Company's Eighth Amended and Restated Investor Rights Agreement.

        In August 2005, the Company entered into a new $2.5 million equipment financing facility with the same financing company as described in Note 8. The credit facility expires December 31, 2006 and outstanding borrowings will be repaid over 36 to 48 months. In connection with this new facility, the Company may issue the financing company warrants to purchase up to 405 shares of Series C preferred stock at an exercise price of $18.07 per share. The actual number of warrants to be issued, if any, will be dependent upon the nature of the items financed.

F-31

2005 Equity Incentive Award Plan

        In February 2005, the Board of Directors adopted the 2005 Equity Incentive Award Plan (the "2005 Plan"), subject to stockholder approval. The Company has reserved a total of 1,746,870 shares of common stock for issuance under the 2005 Plan plus any options granted under the Company's predecessor plans that expire unexercised or are repurchased by the Company pursuant to the terms of such options. No shares have been issued under this plan.

        The number of shares of common stock served under the 2005 Plan will automatically increase on the first trading day each year, beginning in 2006, by an amount equal to the least of: (i) 4% of the Company's outstanding shares of common stock outstanding on such date, (ii) 1,062,568 shares or (iii) a lesser amount determined by the Board of Directors. The maximum aggregate number of shares which may be issued or transferred over the term of the 2005 Plan is 11,156,960 shares. In addition, no participant in the 2005 Plan may be issued or transferred more than 265,642 shares of common stock pursuant to awards under the 2005 Plan per calendar year.

2005 Employee Stock Purchase Plan

        In February 2005, the Board of Directors adopted the 2005 Employee Stock Purchase Plan (the "ESPP"), subject to stockholder approval. The Company has reserved a total of 199,231 shares of common stock for issuance under the ESPP. The ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or after a purchase period end. No shares have been issued under this plan.

        The number of shares of common stock reserved under the ESPP will automatically increase on the first trading day each year, beginning in 2006, by an amount equal to the least of: (i) 0.5% of the Company's outstanding shares of common stock outstanding on such date, (ii) 132,821 shares or (iii) a lesser amount determined by the Board of Directors. The maximum aggregate number of shares which may be issued over the term of the ESPP is 1,328,210 shares. In addition, no participant in the Company's ESPP may be issued or transferred more than $25,000 of shares of common stock pursuant to awards under the ESPP per calendar year.

F-32

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution.

        The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by Sunesis Pharmaceuticals, Inc. in connection with the sale of the common stock being registered hereby. All amounts are estimates except the Securities and Exchange Commission Registration Fee and the NASD filing fee.

	Amount to be Paid
Securities and Exchange Commission registration fee	$	10,152
NASD filing fee		9,125
Nasdaq National Market initial listing fee		100,000
Blue sky qualification fees and expenses		10,000
Printing and engraving expenses		250,000
Legal fees and expenses		800,000
Accounting fees and expenses		550,000
Transfer agent and registrar fees		5,000
Miscellaneous		15,723
Total	$	1,750,000

ITEM 14. Indemnification of Directors and Officers.

        As permitted by Section 145 of the Delaware General Corporation Law, the amended and restated bylaws of the registrant provide that (i) the registrant is required to indemnify its directors and officers to the fullest extent not prohibited by the Delaware General Corporation Law, (ii) the registrant may, in its discretion, indemnify its other employees and agents as set forth in the Delaware General Corporation Law, (iii) the registrant is required to advance all expenses incurred by its directors and officers in connection with certain legal proceedings, and (iv) the rights conferred in the bylaws are not exclusive.

        Article VI of the amended and restated certificate of incorporation of the registrant provides for the indemnification of directors to the fullest extent permissible under Delaware law.

        The registrant has entered into agreements with its directors and officers that require the registrant to indemnify such persons against expenses, judgments, fines and settlement amounts that any such person becomes legally obligated to pay in connection with any proceeding, whether actual or threatened, to which such person may be made a party by reason of the fact that such person is or was a director or officer of the registrant or any of its subsidiaries. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder. At present, no litigation or proceeding is pending that involves a director or officer of the registrant regarding which indemnification is sought, nor is the registrant aware of any threatened litigation that may result in claims for indemnification.

        The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification under certain circumstances by the underwriters of the registrant, its directors, and certain of its officers for liabilities arising under the Securities Act of 1933, as amended, or otherwise.

        The registrant maintains a directors' and officers' insurance and registrant reimbursement policy. The policy insures directors and officers against unindemnified losses arising from certain wrongful acts in their capacities as directors and officers and reimburses the registrant for those losses for which the registrant has lawfully indemnified the directors and officers. The policy contains various exclusions, none of which apply to this offering.

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        The Eighth Amended and Restated Investor Rights Agreement, as amended, among the registrant and certain investors provides for cross-indemnification in connection with registration of the registrant's common stock on behalf of such investors.

        See also the undertakings set out in response to Item 17.

ITEM 15. Recent Sales of Unregistered Securities.

        From January 1, 2002 through the date hereof, the registrant has issued and sold the following unregistered securities. The following share numbers have been adjusted to reflect an approximately 1-for-3.76 reverse stock split.

        1.     The registrant sold an aggregate of 216,504 shares of common stock to employees, directors and consultants for cash consideration in the aggregate amount of $412,466 upon the exercise of stock options and stock awards, 37,262 shares of which have been repurchased.

        2.     The registrant granted stock options and stock awards to employees, directors and consultants under its 1998 Stock Option Plan and 2001 Stock Option Plan covering an aggregate of 1,691,156 shares of common stock, with exercise prices ranging from $2.26 to $8.47 per share. Of these, options covering an aggregate of 265,876 were cancelled without being exercised.

        3.     In December 2002, the registrant issued and sold an aggregate of 332,052 shares of Series C-1 convertible preferred stock at a purchase price per share of $18.07 to Biogen, Inc., which represented that it was an accredited investor, for an aggregate purchase price of $6,000,000.

        4.     In June 2003, the registrant issued a warrant to purchase 797 shares of Series C-1 preferred stock at an exercise price per share of $18.07 to General Electric Capital Corporation, which represented that it was an accredited investor, for an aggregate exercise price of $14,400.

        5.     In June 2004, the registrant issued a warrant to purchase 381 shares of Series C preferred stock at an exercise price per share of $18.07 to General Electric Capital Corporation, which represented that it was an accredited investor, for an aggregate exercise price of $6,888.

        6.     In August 2004, the registrant issued and sold an aggregate of 774,789 shares of Series C-2 convertible preferred stock at a purchase price per share of $18.07 to Biogen Idec, which represented that it was an accredited investor, for an aggregate purchase price of $14,000,000.

        7.     In April 2005, the registrant issued and sold an aggregate of 442,737 shares of Series C-2 convertible preferred stock at a purchase price per share of $18.07 to Bristol-Myers Squibb Company, which represented that it was an accredited investor for an aggregate purchase price of $8,000,000.

        8.     In August 2005, the registrant issued warrants to purchase up to 83,013 shares of Series C preferred stock at an exercise price of $18.07 to three lenders, each of which represented that it was an accredited investor, for an aggregate exercise price of $1,500,000.

        The registrant claimed exemption from registration under the Securities Act for the sales and issuances of securities in the transactions described in paragraphs (1) and (2) above under Section 4(2) of the Securities Act in that such sales and issuances did not involve a public offering or under Rule 701 promulgated under the Securities Act, in that they were offered and sold either pursuant to written compensatory plans or pursuant to a written contract relating to compensation, as provided by Rule 701.

        The registrant claimed exemption from registration under the Securities Act for the sale and issuance of securities in the transactions described in paragraphs (3) through (8) by virtue of Section 4(2) and/or Regulation D promulgated thereunder as transactions not involving any public offering. All of the purchasers of unregistered securities for which the registrant relied on Section 4(2) and/or Regulation D represented that they were accredited investors as defined under the Securities Act. The registrant claimed such exemption on the basis that (a) the purchasers in each case represented that they intended to acquire the securities for investment only and not with a view to the

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distribution thereof and that they either received adequate information about the registrant or had access, through employment or other relationships, to such information and (b) appropriate legends were affixed to the stock certificates issued in such transactions.

ITEM 16. Exhibits and Financial Statement Schedules.

(a)

Exhibits.

EXHIBIT INDEX

Exhibit Number	Description
1.1*	Form of Underwriting Agreement.
3.1**	Eighth Amended and Restated Certificate of Incorporation of the Registrant (Delaware).
3.2**	Form of Amendment to Eighth Amended and Restated Certificate of Incorporation.
3.3	Amendment to Eighth Amended and Restated Certificate of Incorporation.
3.4**	Amended and Restated Certificate of Incorporation of the Registrant (Delaware) to be effective prior to the closing of the offering.
3.5**	Amended Bylaws of the Registrant as currently in effect.
3.6**	Amended and Restated Bylaws of the Registrant to be effective upon the closing of the offering.
4.1**	Specimen Common Stock certificate of the Registrant.
5.1	Opinion of Latham & Watkins LLP.
10.1**	1998 Stock Option Plan and Form of Stock Option Agreement.
10.2**	2001 Stock Option Plan and Form of Stock Option Agreement.
10.3**	2005 Equity Incentive Award Plan and Form of Stock Option Agreement.
10.4**	Employee Stock Purchase Plan and Enrollment Form.
10.5**	Form of Indemnification Agreement for directors and executive officers.
10.6	Executive Severance Benefits Agreement, dated August 4, 2005, by and between the Registrant and Daniel N. Swisher, Jr.
10.7	Executive Severance Benefits Agreement, dated August 4, 2005, by and between the Registrant and Daryl B. Winter, Ph.D.
10.8	Executive Severance Benefits Agreement, dated August 5, 2005, by and between the Registrant and James W. Young, Ph.D.
10.9	Executive Severance Benefits Agreement, dated August 8, 2005, by and between the Registrant and Daniel C. Adelman, M.D.
10.10	Executive Severance Benefits Agreement, dated August 12, 2005, by and between the Registrant and Eric H. Bjerkholt.
10.11	Bonus Program.
10.12	Consulting Agreement, dated August 8, 2005, by and between the Registrant and James A. Wells.
10.13**	Promissory Note, dated December 18, 2002, by and between the Registrant and Biogen, Inc., for principal amount of up to $4,000,000.
10.14**	Eighth Amended and Restated Investor Rights Agreement, dated August 30, 2004, by and among the Registrant and certain stockholders and warrant holders.
10.15**	Warrant, dated April 9, 1998, issued to James A. Wells.
10.16**	Warrant, dated December 1, 1999, issued to Three Crowns Capital (Bermuda) Limited.

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10.17**	Warrant, dated July 7, 2000, issued to Broadview Ltd. Limited and Amendment No. 1 thereto, dated December 2004.
10.18**	Warrant, dated June 11, 2003, issued to General Electric Capital Corporation.
10.19**	Warrant, dated June 21, 2004, issued to General Electric Capital Corporation and Amendment No. 1 thereto, dated December 16, 2004.
10.20**	Lease, dated May 12, 2000, by and between the Registrant and ARE-Technology Centers SSF, LLC, for office space located at 341 Oyster Point Boulevard, South San Francisco, California.
10.21**	First Amendment to Lease Agreement, dated December 20, 2000, by and between the Registrant and ARE-Technology Centers SSF, LLC for office space located at 341 Oyster Point Boulevard, South San Francisco, California.
10.22**	Master Security Agreement, dated June 15, 2000 and amendments thereto, by and between the Registrant and General Electric Capital Corporation, Negative Pledge Agreement, dated May 17, 2002, and Form of Promissory Note.
10.23	Loan Term Sheet, dated July 8, 2005, by and between the Registrant and General Electric Capital Corporation.
10.24**†	Collaboration Agreement, dated December 18, 2002, by and between the Registrant and Biogen, Inc. (now Biogen Idec MA Inc.).
10.25**†	Amendment No. 1 to Collaboration Agreement, dated June 17, 2003, between the Registrant and Biogen Idec MA Inc.
10.26**†	Amendment No. 2 to Collaboration Agreement, dated September 17, 2003, between the Registrant and Biogen Idec MA Inc.
10.27**†	Collaboration Agreement, dated August 25, 2004, between the Registrant and Biogen Idec MA Inc.
10.28**†	Collaboration Agreement, dated May 3, 2002, by and between the Registrant and Johnson & Johnson Pharmaceutical Research & Development, LLC.
10.29**†	Amendment to Collaboration Agreement, dated December 15, 2002, between the Registrant and Johnson & Johnson Pharmaceutical Research & Development, LLC.
10.30**†	Notice of Extension and Second Amendment to Collaboration Agreement, dated December 15, 2003, between the Registrant and Johnson & Johnson Pharmaceutical Research & Development, LLC.
10.31**†	Third Amendment to Collaboration Agreement, dated December 22, 2004, between the Registrant and Johnson & Johnson Pharmaceutical Research & Development, LLC.
10.32**†	License and Collaboration Agreement, dated February 12, 2003, by and between the Registrant and Merck & Co., Inc.
10.33**†	License and Research Collaboration Agreement, dated July 22, 2004, by and between the Registrant and Merck & Co., Inc.
10.34**†	License Agreement, dated October 14, 2003, by and between the Registrant and Dainippon Pharmaceutical Co., Ltd.
10.35†	License Agreement, dated as of April 27, 2005, between the Registrant and Bristol-Meyers Squibb Company.
10.36**	Stock Purchase Agreement, dated as of April 27, 2005, between the Registrant and Bristol-Meyers Squibb Company.
10.37**	Amendment to Eighth Amended and Restated Investor Rights Agreement, dated as of April 27, 2005, among the Registrant and Investors listed on the signature pages thereto.

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10.38	Venture Loan and Security Agreement, dated as of August 25, 2005, among the Registrant, Horizon Technology Funding Company LLC and Oxford Finance Corporation.
10.39	Amendment to Eighth Amended and Restated Investor Rights Agreement, dated as of August 25, 2005, among the Registrant and the Investors listed on the signature pages thereto.
10.40	Warrant, dated August 25, 2005, issued to Horizon Technology Funding Company II LLC.
10.41	Warrant, dated August 25, 2005, issued to Horizon Technology Funding Company III LLC.
10.42	Warrant, dated August 25, 2005, issued to Oxford Finance Corporation.
23.1	Consent of Independent Registered Public Accounting Firm.
23.2	Consent of Latham & Watkins LLP (See Exhibit 5.1).
24.1	Power of Attorney (see page II-6 of registration statement on Form S-1 filed on December 23, 2004 and pages II-6 and II-7 hereto).

*

To be filed by amendment.

**

Previously filed.

†

Portions of the exhibit have been omitted pursuant to a request for confidential treatment. The omitted information has been filed separately with the Securities and Exchange Commission.

(b)

Schedules

        All schedules have been omitted because they are inapplicable or the requested information is shown in the financial statements of the Registrant or the notes thereto.

ITEM 17. Undertakings.

        The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

        Insofar as indemnification by the registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 14 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

        The undersigned registrant hereby undertakes that:

        (1)   For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

        (2)   For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-5

SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in South San Francisco, State of California, on the 1st day of September, 2005.

SUNESIS PHARMACEUTICALS, INC.
By:	/s/  DANIEL N. SWISHER, JR. Daniel N. Swisher, Jr. President and Chief Executive Officer

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Daniel N. Swisher, Jr., Daryl B. Winter, Ph.D., Eric H. Bjerkholt and each of them acting individually, as his true and lawful attorneys-in-fact and agents, with full power of each to act alone, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement on Form S-1 (including post-effective amendments and any related registration statements thereto filed pursuant to Rule 462 under the Securities Act of 1933 and otherwise), and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitutes, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:

Signature	Title	Date
* James W. Young, Ph.D.	Executive Chairman of the Board	September 1, 2005
/s/  DANIEL N. SWISHER, JR. Daniel N. Swisher, Jr.	President, Chief Executive Officer and Director (Principal Executive Officer)	September 1, 2005
/s/  ERIC H. BJERKHOLT Eric H. Bjerkholt	Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	September 1, 2005
* Anthony B. Evnin, Ph.D.	Director	September 1, 2005

II-6

* Stephen P.A. Fodor, Ph.D.	Director	September 1, 2005
/s/  MATTHEW K. FUST Matthew K. Fust	Director	September 1, 2005
* Steven D. Goldby	Director	September 1, 2005
* Russell C. Hirsch, M.D., Ph.D.	Director	September 1, 2005
* Jonathan S. Leff	Director	September 1, 2005
* James A. Wells, Ph.D.	Director	September 1, 2005

*By:
/s/  DANIEL N. SWISHER, JR. Daniel N. Swisher, Jr.
Attorney-in-Fact

II-7

EXHIBIT INDEX

Exhibit Number	Description
1.1*	Form of Underwriting Agreement.
3.1**	Eighth Amended and Restated Certificate of Incorporation of the Registrant (Delaware).
3.2**	Form of Amendment to Eighth Amended and Restated Certificate of Incorporation.
3.3	Amendment to Eighth Amended and Restated Certificate of Incorporation.
3.4**	Amended and Restated Certificate of Incorporation of the Registrant (Delaware) to be effective prior to the closing of the offering.
3.5**	Amended Bylaws of the Registrant as currently in effect.
3.6**	Amended and Restated Bylaws of the Registrant to be effective upon the closing of the offering.
4.1**	Specimen Common Stock certificate of the Registrant.
5.1	Opinion of Latham & Watkins LLP.
10.1**	1998 Stock Option Plan and Form of Stock Option Agreement.
10.2**	2001 Stock Option Plan and Form of Stock Option Agreement.
10.3**	2005 Equity Incentive Award Plan and Form of Stock Option Agreement.
10.4**	Employee Stock Purchase Plan and Enrollment Form.
10.5**	Form of Indemnification Agreement for directors and executive officers.
10.6	Executive Severance Benefits Agreement, dated August 4, 2005, by and between the Registrant and Daniel N. Swisher, Jr.
10.7	Executive Severance Benefits Agreement, dated August 4, 2005, by and between the Registrant and Daryl B. Winter, Ph.D.
10.8	Executive Severance Benefits Agreement, dated August 5, 2005, by and between the Registrant and James W. Young, Ph.D.
10.9	Executive Severance Benefits Agreement, dated August 8, 2005, by and between the Registrant and Daniel C. Adelman, M.D.
10.10	Executive Severance Benefits Agreement, dated August 12, 2005, by and between the Registrant and Eric H. Bjerkholt.
10.11	Bonus Program.
10.12	Consulting Agreement, dated August 8, 2005, by and between the Registrant and James A. Wells.
10.13**	Promissory Note, dated December 18, 2002, by and between the Registrant and Biogen, Inc., for principal amount of up to $4,000,000.
10.14**	Eighth Amended and Restated Investor Rights Agreement, dated August 30, 2004, by and among the Registrant and certain stockholders and warrant holders.
10.15**	Warrant, dated April 9, 1998, issued to James A. Wells.
10.16**	Warrant, dated December 1, 1999, issued to Three Crowns Capital (Bermuda) Limited.
10.17**	Warrant, dated July 7, 2000, issued to Broadview Ltd. Limited and Amendment No. 1 thereto, dated December 2004.
10.18**	Warrant, dated June 11, 2003, issued to General Electric Capital Corporation.
10.19**	Warrant, dated June 21, 2004, issued to General Electric Capital Corporation and Amendment No. 1 thereto, dated December 16, 2004.
10.20**	Lease, dated May 12, 2000, by and between Registrant and ARE-Technology Centers SSF, LLC, for office space located at 341 Oyster Point Boulevard, South San Francisco, California.
10.21**	First Amendment to Lease Agreement, dated December 20, 2000, by and between the Registrant and ARE-Technology Centers SSF, LLC for office space located at 341 Oyster Point Boulevard, South San Francisco, California.

10.22**	Master Security Agreement, dated June 15, 2000 and amendments thereto, by and between the Registrant and General Electric Capital Corporation, Negative Pledge Agreement, dated May 17, 2002, and Form of Promissory Note.
10.23	Loan Term Sheet, dated July 8, 2005, by and between the Registrant and General Electric Capital Corporation.
10.24**†	Collaboration Agreement, dated December 18, 2002, by and between the Registrant and Biogen, Inc. (now Biogen Idec MA Inc.).
10.25**†	Amendment No. 1 to Collaboration Agreement, dated June 17, 2003, between the Registrant and Biogen Idec MA Inc.
10.26**†	Amendment No. 2 to Collaboration Agreement, dated September 17, 2003, between the Registrant and Biogen Idec MA Inc.
10.27**†	Collaboration Agreement, dated August 25, 2004, between the Registrant and Biogen Idec MA Inc.
10.28**†	Collaboration Agreement, dated May 3, 2002, by and between the Registrant and Johnson & Johnson Pharmaceutical Research & Development, LLC.
10.29**†	Amendment to Collaboration Agreement, dated December 15, 2002, between the Registrant and Johnson & Johnson Pharmaceutical Research & Development, LLC.
10.30**†	Notice of Extension and Second Amendment to Collaboration Agreement, dated December 15, 2003, between the Registrant and Johnson & Johnson Pharmaceutical Research & Development, LLC.
10.31**†	Third Amendment to Collaboration Agreement, dated December 22, 2004, between the Registrant and Johnson & Johnson Pharmaceutical Research & Development, LLC.
10.32**†	License and Collaboration Agreement, dated February 12, 2003, by and between the Registrant and Merck & Co., Inc.
10.33**†	License and Research Collaboration Agreement, dated July 22, 2004, by and between the Registrant and Merck & Co., Inc.
10.34**†	License Agreement, dated October 14, 2003, by and between the Registrant and Dainippon Pharmaceutical Co., Ltd.
10.35†	License Agreement, dated as of April 27, 2005, between the Registrant and Bristol-Meyers Squibb Company.
10.36**	Stock Purchase Agreement, dated as of April 27, 2005, between the Registrant and Bristol-Meyers Squibb Company.
10.37**	Amendment to Eighth Amended and Restated Investor Rights Agreement, dated as of April 27, 2005, among the Registrant and Investors listed on the signature pages thereto.
10.38	Venture Loan and Security Agreement, dated as of August 25, 2005, among the Registrant, Horizon Technology Funding Company LLC and Oxford Finance Corporation.
10.39	Amendment to Eighth Amended and Restated Investor Rights Agreement, dated as of August 25, 2005, among the Registrant and the Investors listed on the signature pages thereto.
10.40	Warrant, dated August 25, 2005, issued to Horizon Technology Funding Company II LLC.
10.41	Warrant, dated August 25, 2005, issued to Horizon Technology Funding Company III LLC.
10.42	Warrant, dated August 25, 2005, issued to Oxford Finance Corporation.
23.1	Consent of Independent Registered Public Accounting Firm.
23.2	Consent of Latham & Watkins LLP (See Exhibit 5.1).
24.1	Power of Attorney (see page II-6 of registration statement on Form S-1 filed on December 23, 2004 and pages II-6 and II-7 hereto).

*

To be filed by amendment.

**

Previously filed.

†

Portions of the exhibit have been omitted pursuant to a request for confidential treatment. The omitted information has been filed separately with the Securities and Exchange Commission.

QuickLinks

TABLE OF CONTENTS
PROSPECTUS SUMMARY
Corporate Information
RISK FACTORS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
DILUTION
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONVERSION OF PREFERRED STOCK AND REVERSE STOCK SPLIT
BUSINESS
MANAGEMENT
Summary Compensation Table
2004 Option Grants
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
PRINCIPAL STOCKHOLDERS
DESCRIPTION OF CAPITAL STOCK
U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
SHARES ELIGIBLE FOR FUTURE SALE
UNDERWRITING
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Sunesis Pharmaceuticals, Inc. Balance Sheets
Sunesis Pharmaceuticals, Inc. Statements of Operations
Sunesis Pharmaceuticals, Inc. Statements of Convertible Preferred Stock and Stockholders' Deficit
Sunesis Pharmaceuticals, Inc. Statements of Cash Flows
Sunesis Pharmaceuticals, Inc. Notes to Financial Statements (Information as of June 30, 2005 and for the six months ended June 30, 2004 and 2005 is unaudited)
PART II INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution.
ITEM 14. Indemnification of Directors and Officers.
ITEM 15. Recent Sales of Unregistered Securities.
ITEM 16. Exhibits and Financial Statement Schedules.

EXHIBIT INDEX

ITEM 17. Undertakings.

SIGNATURES
POWER OF ATTORNEY
EXHIBIT INDEX

EX-3.3

Exhibit 3.3

AMENDMENT TO

EIGHTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

SUNESIS PHARMACEUTICALS, INC.

a Delaware Corporation

Pursuant to Section 242 of the
General Corporation Law of the State of Delaware

August 25, 2005

Daniel N. Swisher, Jr., hereby certifies that:

1.             The following amendment to the Eighth Amended and Restated Certificate of Incorporation of Sunesis Pharmaceuticals, Inc. (the “Corporation”) has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

2.             The first paragraph of Section A of Article IV of the Eighth Amended and Restated Certificate of Incorporation of the Corporation is hereby amended and restated to read in its entirety as follows:

“A.          Classes of Stock.  The Corporation is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.”  The total number of shares that the Corporation is authorized to issue is 148,894,500 each with a par value of $0.0001 per share.  110,000,000 shall be Common Stock and 38,894,500 are designated shares of Preferred Stock (“Preferred Stock”), which collectively refers to all existing series of Preferred Stock as well as any series of Preferred Stock authorized subsequent to this amendment, of which 8,682,000 shares are designated Series A Preferred Stock (“Series A Preferred Stock”) 10,600,000 shares are designated Series B Preferred Stock (“Series B Preferred Stock”), 13,562,500 shares are designated Series C Preferred Stock (“Series C Preferred Stock”), 1,250,000 shares are designated Series C-1 Preferred Stock (“Series C-1 Preferred Stock”) and 4,800,000 shares are designated Series C-2 Preferred Stock (“Series C-2 Preferred Stock”).”

3.             The remainder of Section A of Article IV shall remain unchanged.

All other provisions of the Certificate of Incorporation shall remain in full force and effect.

* * * * *

IN WITNESS WHEREOF, this amendment to the Eighth Amended and Restated Certificate of Incorporation of the Corporation is hereby executed by the undersigned as of the date first set forth above.

By:	/s/ Daniel N. Swisher, Jr.
Name:	Daniel N. Swisher, Jr.
Title:	Chief Executive Officer

EX-5.1

Exhibit 5.1

	135 Commonwealth Drive
	Menlo Park, California 94025
	Tel: (650) 328-4600 Fax: (650) 463-2600
	www.lw.com
	FIRM / AFFILIATE OFFICES
	Boston	New York
	Brussels	Northern Virginia
	Chicago	Orange County
	Frankfurt	Paris
	Hamburg	San Diego
September 1, 2005	Hong Kong	San Francisco
	London	Shanghai
	Los Angeles	Silicon Valley
	Milan	Singapore
	Moscow	Tokyo
Sunesis Pharmaceuticals, Inc.	New Jersey	Washington, D.C.
341 Oyster Point Boulevard
South San Francisco, CA 94080	File No. 034753-0007

Re:Registration Statement No. 333-121646; up to 6,900,000 shares of common stock, par value $0.0001 per share

Ladies and Gentlemen:

We have acted as special counsel to Sunesis Pharmaceuticals, Inc., a Delaware corporation (the “Company”), in connection with the proposed issuance of up to 6,900,000 shares of common stock, $0.0001 par value per share (the “Shares”), pursuant to a registration statement on Form S–1 under the Securities Act of 1933, as amended (the “Act”), filed with the Securities and Exchange Commission (the “Commission”) on December 23, 2004 (File No. 333–121646), as amended by Amendment No. 1 filed with the Commission on January 27, 2005, Amendment No. 2 filed with the Commission on April 29, 2005, Amendment No. 3 filed with the Commission on June 1, 2005 and Amendment No. 4 filed with the Commission on September 1, 2005 (collectively, the “Registration Statement”).  This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Act, and no opinion is expressed herein as to any matter pertaining to the contents of the Registration Statement or Prospectus, other than as to the validity of the Shares.

As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this letter.  With your consent, we have relied upon the foregoing and upon certificates and other assurances of officers of the Company and others as to factual matters without having independently verified such factual matters.

We are opining herein only as to the General Corporation Law of the State of Delaware, and we express no opinion with respect to any other laws.

Subject to the foregoing, it is our opinion that, as of the date hereof, when certificates representing the Shares in the form of the specimen certificate filed as an exhibit to the Registration Statement have been manually signed by an authorized officer of the transfer agent and registrar therefor, and have been delivered to and paid for by the underwriters in the circumstances contemplated by the form of underwriting agreement filed as an exhibit to the Registration Statement, the issuance and sale of the Shares will have been duly authorized by all

necessary corporate action of the Company, and the Shares will be validly issued, fully paid and nonassessable.

This opinion is for your benefit in connection with the Registration Statement and may be relied upon by you and by persons entitled to rely upon it pursuant to the applicable provisions of federal securities laws.  We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm in the Prospectus under the heading “Legal Matters.”  In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder.

Very truly yours,

/s/ Latham & Watkins LLP

EX-10.6

Exhibit 10.6

EXECUTIVE SEVERANCE BENEFITS AGREEMENT

This EXECUTIVE SEVERANCE BENEFITS AGREEMENT (the “Agreement”) is entered into this 4th day of August, 2005 (the “Effective Date”), between DANIEL N. SWISHER, JR. (“Executive”) and SUNESIS PHARMACEUTICALS, INC. (the “Company”). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events.  Certain capitalized terms used in this Agreement are defined in Article 6.

The Company and Executive hereby agree as follows:

ARTICLE 1

SCOPE OF AND CONSIDERATION FOR THIS AGREEMENT

1.1Position and Duties.  Executive is currently employed by the Company as Chief Executive Officer.  Executive reports directly to the Board.

1.2Restrictions.  During his employment by the Company, Executive agrees to the best of his ability and experience that he will at all times loyally and conscientiously perform all of the duties and obligations required of and from him as Chief Executive Officer.  During the term of his employment, Executive further agrees that he will devote all of his business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work, services and advice, Executive will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Board, and Executive will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company.  Nothing in this Agreement will prevent Executive from accepting speaking or presentation engagements in exchange for honoraria or from service on boards of charitable organizations or otherwise participating in civic, charitable or fraternal organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange.  It is contemplated that you may serve on a board of directors of other, non-competitive companies, and the Sunesis Board of Directors will not unreasonably withhold its consent from such participation.  Such participation shall not exceed the greater of six (6) days per year or such number of days as is required for you to serve on the board of directors of one such company.

1.3Confidential Information and Invention Assignment Agreement.  Executive acknowledges that he has previously executed and delivered to an officer of the Company the Company’s Confidential Information and Invention Assignment Agreement (the “Confidentiality Agreement”) and that the Confidentiality Agreement remains in full force and effect.

1.4Confidentiality of Terms.  Executive agrees to follow the Company’s strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this Agreement, regarding salary, bonuses, or stock purchase or option

allocations to any person, including other employees of the Company; provided, however, that Executive may discuss such terms with members of his immediate family and any legal, tax or accounting specialists who provide Executive with individual legal, tax or accounting advice, and Executive may discuss such terms with other employees of the Company on a need to know basis if required to carry out Executive’s duties as the Chief Executive Officer or at the request of the Board.

1.5Benefits Upon Change of Control.  The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event of a Change of Control or if Executive’s employment with the Company is terminated under the circumstances described herein.

1.6Consideration.  The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive’s past services to the Company, Executive’s continued employment with the Company, and Executive’s execution of a release in accordance with Section 4.1.

1.7Prior Agreement.  This Agreement shall supersede any other agreement relating to severance benefits in the event of Executive’s severance from employment, including, without limitation the Employment Agreements between Executive and the Company dated as of December 1, 2003 and December 3, 2001.

ARTICLE 2

OPTION ACCELERATION

2.1Change of Control Option Acceleration.  In the event of a Change of Control, the vesting and/or exercisability of fifty percent (50%) of Executive’s outstanding Stock Awards shall be automatically accelerated immediately prior to the effective date of such Change of Control.

2.2Constructive Termination Option Acceleration.

(a)In the event of a Covered Termination of Executive’s employment prior to or more than twelve (12) months following the effective date of a Change of Control, the vesting and/or exercisability of each of Executive’s outstanding Stock Awards shall be automatically accelerated on the date of termination as to the number of Stock Awards that would vest over the twelve (12) month period following the date of termination had Executive remained continuously employed by the Company during such period.

(b)In the event of a Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control, the vesting and/or exercisability of one hundred percent (100%) of Executive’s outstanding Stock Awards shall be automatically accelerated on the date of termination.

2.3Outstanding Stock Awards.  For the avoidance of doubt, the fifty percent (50%), twelve (12) month and one hundred percent (100%) accelerated vesting described in Sections 2.1

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and 2.2 shall apply toward that portion of Executive’s outstanding Stock Awards that are unvested as of the date of accelerated vesting.

ARTICLE 3

SEVERANCE BENEFITS

3.1Severance Benefits.  A Covered Termination of Executive’s employment prior to or more than twelve (12) months following the effective date of a Change of Control entitles Executive to receive the benefits set forth in this Section 3.1.

(a)Base Salary.  The Company shall pay to Executive an amount equal to twelve (12) months’ Base Salary.  Such severance amount shall be paidover the twelve (12) month period commencing on the date of termination in equal monthly installments and shall be subject to all required tax withholding.

(b)Health Benefits.  Provided that Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company shall pay the premiums of Executive’s group health insurance coverage, including coverage for Executive’s eligible dependents, for a maximum period of twelve (12) months following such Covered Termination; provided, however, that the Company shall pay premiums for Executive’s eligible dependents only for coverage for which those eligible dependents were enrolled immediately prior to the Covered Termination.  It being understood that it shall be Executive’s sole responsibility to elect continuation of coverage pursuant to COBRA in the first instance.  No premium payments will be made following the effective date of Executive’s coverage by a health insurance plan of a subsequent employer.  For the balance of the period that Executive is entitled to coverage under federal COBRA law, if any, Executive shall be entitled to maintain such coverage at Executive’s own expense.

3.2Change of Control Severance Benefits.  A Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control entitles Executive to receive the benefits set forth in this Section 3.2.

(a)Base Salary.  The Company shall pay to Executive an amount equal to eighteen (18) months’ Base Salary.  Such severance amount shall be paid in cash in a lump sum within thirty (30) days following the Covered Termination and shall be subject to all required tax withholding.

(b)Bonus.  The Company shall pay to Executive an amount equal to eighteen twelfths (18/12ths) of Executive’s target annual bonus for the fiscal year during which the Covered Termination occurs, with such bonus determined assuming that all of the performance objectives for such fiscal year have been attained.  Such severance amount shall be paid in cash in a lump sum within thirty (30) days following the Covered Termination and shall be subject to all required tax withholding.

(c)Health Benefits.  Provided that Executive elects continued coverage under federal COBRA law, the Company shall pay the premiums of Executive’s group health insurance coverage, including coverage for Executive’s eligible dependents, for a maximum

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period of eighteen (18) months following such Covered Termination; provided, however, that the Company shall pay premiums for Executive’s eligible dependents only for coverage for which those eligible dependents were enrolled immediately prior to the Covered Termination.  It being understood that it shall be Executive’s sole responsibility to elect continuation of coverage pursuant to COBRA in the first instance.  No premium payments will be made following the effective date of Executive’s coverage by a health insurance plan of a subsequent employer.  For the balance of the period that Executive is entitled to coverage under federal COBRA law, if any, Executive shall be entitled to maintain such coverage at Executive’s own expense.

(d)No Duplication of Benefits.  The payments and benefits provided for in this Section 3.2 shall only be payable in the event of a Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control.  In the event of a Covered Termination of Executive’s employment prior to or more than twelve (12) months following a Change Control, then Executive shall receive the payments and benefits described in Section 3.1 and shall not be eligible to receive any of the payments and benefits described in this Section 3.2.

3.3Other Terminations.  If Executive’s employment is terminated by the Company for Cause, by Executive other than pursuant to a Constructive Termination or as a result of Executive’s death or disability, the Company shall not have any other or further obligations to Executive under this Agreement (including any financial obligations) except that Executive shall be entitled to receive (a) Executive’s fully earned but unpaid base salary, through the date of termination at the rate then in effect, and (b) all other amounts or benefits to which Executive is entitled under any compensation, retirement or benefit plan or practice of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by federal COBRA law or applicable law.  In addition, subject to the provisions of the Company’s equity compensation plans and the terms of Executive’s Stock Awards, if Executive’s employment is terminated by the Company for Cause, by Executive other than pursuant to a Constructive Termination or as a result of Executive’s death or disability, all vesting of Executive’s unvested Stock Awards previously granted to him by the Company shall cease and none of such unvested Stock Awards shall be exercisable following the date of such termination.  The foregoing shall be in addition to, and not in lieu of, any and all other rights and remedies which may be available to the Company under the circumstances, whether at law or in equity.

3.4Mitigation.  Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by any retirement benefits received by Executive after the date of the Covered Termination.

3.5Exclusive Remedy.  Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive’s rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing after the termination of Executive’s employment shall cease upon such termination.  In the event of a termination of

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Executive’s employment with the Company, Executive’s sole remedy shall be to receive the payments and benefits described in this Agreement.

ARTICLE 4

LIMITATIONS AND CONDITIONS ON BENEFITS

4.1Release Prior to Payment of Benefits.  Upon the occurrence of a Covered Termination of Executive’s employment, and prior to the payment of any benefits under this Agreement on account of such Covered Termination, Executive shall execute a release (the “Release”) in the form attached hereto and incorporated herein as Exhibit A or Exhibit B, as applicable.  Such Release shall specifically relate to all of Executive’s rights and claims in existence at the time of such execution and shall confirm Executive’s obligations under the Confidentiality Agreement.  It is understood that, as specified in the applicable Release, Executive has a certain number of calendar days to consider whether to execute such Release, and Executive may revoke such Release within seven (7) calendar days after execution.  In the event Executive does not execute such Release within the applicable period, or if Executive revokes such Release within the subsequent seven (7) day period, no benefits shall be payable under this Agreement.

4.2Termination of Benefits.  Benefits under this Agreement shall terminate immediately if the Executive, at any time, violates any proprietary information or confidentiality obligation to the Company, including, without limitation, the Confidentiality Agreement.

ARTICLE 5

PARACHUTE PAYMENTS

5.1Best Pay Provision.  Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any Payment under this Agreement would, when combined with all other Payments Executive receives from the Company or any successor or parent or subsidiary thereof, but for this Article 5, be subject to the Excise Tax, then such Payments shall be either (a) the full amount of such Payments or (b) such lesser amount (with cash payments being reduced before stock option compensation) as would result in no portion of the Payments being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local employment taxes, income taxes and the Excise Tax, results in Executive’s receipt, on an after-tax basis, of the greater amount of the Payments notwithstanding that all or some portion of the Payments may be subject to the Excise Tax.

5.2Determinations.  All determinations required to be made under this Article 5, including whether and to what extent the Payments shall be reduced and the assumptions to be utilized in arriving at such determination, shall be made by the nationally recognized certified public accounting firm used by the Company immediately prior to the Change of Control or, if such firm declines to serve, such other nationally recognized certified public accounting firm as may be designated by the Executive (the “Accounting Firm”).  The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive at such time as is requested by the Company.  All fees and expenses of the Accounting Firm shall be borne

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solely by the Company.  Any determination by the Accounting Firm shall be binding upon the Company and the Executive.  For purposes of making the calculations required by this Article 5, the Accounting Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good-faith interpretations concerning the application of Sections 280G and 4999 of the Code.

ARTICLE 6

DEFINITIONS

For purposes of the Agreement, the following terms are defined as follows:

6.1“Base Salary” means Executive’s annual base salary as in effect during the last regularly scheduled payroll period immediately preceding the Covered Termination.

6.2“Board” means the Board of Directors of the Company.

6.3“Cause” means that, in the reasonable determination of the Company, Executive:

(a)has committed an act of fraud or embezzlement or has intentionally committed some other illegal act that has a material adverse impact on the Company or any successor or parent or subsidiary thereof;

(b)has been convicted of, or entered a plea of “guilty” or “no contest” to, a felony which causes or may reasonably be expected to cause substantial economic injury to or substantial injury to the reputation of the Company or any subsidiary or affiliate of the Company;

(c)has made any unauthorized use or disclosure of confidential information or trade secrets of the Company or any successor or parent or subsidiary thereof that has a material adverse impact on any such entity;

(d)has committed any other intentional misconduct that has a material adverse impact on the Company or any successor or parent or subsidiary thereof, or

(e)has intentionally refused or intentionally failed to act in accordance with any lawful and proper direction or order of the Board; provided such direction is not materially inconsistent with the Executive’s customary duties and responsibilities.

6.4“Change of Control” means and includes each of the following:

(a)the acquisition, directly or indirectly, by any “person” or “group” (as those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) of “beneficial ownership” (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities entitled to vote generally in the election of directors (“voting securities”) of the Company that represent fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities, other than:

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(i)an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company, or

(ii)an acquisition of voting securities by the Company or a corporation owned, directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company;

Notwithstanding the foregoing, the following event shall not constitute an “acquisition” by any person or group for purposes of this Section: an acquisition of the Company’s securities by the Company that causes the Company’s voting securities beneficially owned by a person or group to represent fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities; provided, however, that if a person or group shall become the beneficial owner of fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities by reason of share acquisitions by the Company as described above and shall, after such share acquisitions by the Company, become the beneficial owner of any additional voting securities of the Company, then such acquisition shall constitute a Change of Control; or

(b)the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

(i)which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

(ii)after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning fifty percent (50%) or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

(c)the Company’s stockholders approve a liquidation or dissolution of the Company.

Notwithstanding the foregoing, a transaction shall not constitute a Change of Control if: (i) it constitutes the Company’s initial public offering of its securities; or (ii) it is a transaction

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effected primarily for the purpose of financing the Company with cash (as determined by the Board in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise).  The Board shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto.

6.5“Code” means the Internal Revenue Code of 1986, as amended from time to time and the Treasury Regulations thereunder.

6.6“Company” means Sunesis Pharmaceuticals, Inc. or, following a Change of Control, the surviving entity resulting from such transaction.

6.7“Constructive Termination” means that Executive voluntarily terminates employment after any of the following are undertaken without Executive’s express written consent:

(a)the removal of or a material reduction in the nature or scope of Executive’s responsibilities, or the assignment to Executive of duties that are materially inconsistent with Executive’s position other than a change in reporting relationship;

(b)a change in the Executive’s direct reporting relationship so that Executive no longer reports directly to the Board;

(c)a reduction in Executive’s base salary, unless the base salaries of all other executives are similarly reduced;

(d)a reduction in Executive’s target bonus within twelve (12) months following the effective date of a Change of Control, unless the target bonuses of all other executives are similarly reduced; or

(e)a relocation of Executive’s place of employment by more than thirty (30) miles from such Executive’s place of employment on the Effective Date.

The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be a Constructive Termination.

6.8“Covered Termination” means an Involuntary Termination Without Cause or a Constructive Termination.

6.9“Excise Tax” means the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.

6.10“Involuntary Termination Without Cause” means Executive’s dismissal or discharge other than for Cause.  The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be an Involuntary Termination Without Cause.

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6.11A “Payment” shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise.

6.12“Stock Awards” means all stock options, restricted stock and such other awards granted pursuant to the Company’s stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof.

ARTICLE 7

GENERAL PROVISIONS

7.1Employment Status.  This Agreement does not constitute a contract of employment or impose upon Executive any obligation to remain as an employee, or impose on the Company any obligation (a) to retain Executive as an employee, (b) to change the status of Executive as an at-will employee, or (c) to change the Company’s policies regarding termination of employment.

7.2Notices.  Any notices provided hereunder must be in writing, and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by facsimile) or the third day after mailing by first class mail to the Company at its primary office location and to Executive at Executive’s address as listed in the Company’s payroll records.  Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at the address as listed in the Company’s payroll records.

7.3Severability.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.

7.4Waiver.  If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

7.5Arbitration.  Any dispute, claim or controversy based on, arising out of or relating to Executive’s employment or this Agreement shall be settled by final and binding arbitration in San Mateo County, California, before a single neutral arbitrator in accordance with the National Rules for the Resolution of Employment Disputes (the “Rules”) of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction.  Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.).  If the parties are unable to agree upon an arbitrator, one shall be appointed by the AAA in accordance with its Rules.  Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected

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with presenting its case; however, Executive and the Company agree that, to the extent permitted by law, the arbitrator may, in his discretion, award reasonable attorneys’ fees to the prevailing party.  Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, AAA’s administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company.  This Section 7.5 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement or relating to Executive’s employment; provided, however, that neither this Agreement nor the submission to arbitration shall limit the parties’ right to seek provisional relief, including, without limitation, injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction.  Seeking any such relief shall not be deemed to be a waiver of such party’s right to compel arbitration.  Both Executive and the Company expressly waive their right to a jury trial. Pursuant to California Civil Code Section 1717, each party warrants that it was represented by counsel in the negotiation and execution of this Agreement, including the attorneys’ fees provision herein.

7.6Complete Agreement.  This Agreement, including Exhibit A and Exhibit B, constitutes the entire agreement between Executive and the Company and is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter, wholly superseding all written and oral agreements with respect to severance benefits to Executive in the event of employment termination.  It is entered into without reliance on any promise or representation other than those expressly contained herein.  Notwithstanding anything herein to the contrary, this Agreement shall not supersede any indemnification agreement between Executive and the Company.

7.7Amendment or Termination of Agreement.  This Agreement may be changed or terminated only upon the mutual written consent of the Company and Executive.  The written consent of the Company to a change or termination of this Agreement must be signed by an executive officer of the Company after such change or termination has been approved by the Board.

7.8Counterparts.  This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.

7.9Headings.  The headings of the Articles and Sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.

7.10Successors and Assigns.  This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, and the Company, and any surviving entity resulting from a Change of Control and upon any other person who is a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company, and their respective successors, assigns, heirs, executors and administrators, without regard to whether or not such person actively assumes any rights or duties hereunder; provided, however, that Executive may not assign any duties hereunder and may not assign any rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably.

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7.11Choice of Law.  All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of California, without regard to such state’s conflict of laws rules.

7.12Non-Publication.  The parties mutually agree not to disclose publicly the terms of this Agreement except to the extent that disclosure is mandated by applicable law or regulation or to their respective advisors (e.g., attorneys, accountants).

7.13Construction of Agreement.  In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control.

7.14Code Section 409A.  This Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A of the Code, and any payment scheduled to be made hereunder that would otherwise violate Section 409A of the Code shall be delayed to the extent necessary for this Agreement and such payment to comply with Section 409A of the Code.

(Signature Page Follows)

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IN WITNESS WHEREOF, the parties have executed this Agreement on the Effective Date written above.

SUNESIS PHARMACEUTICALS, INC.				DANIEL N. SWISHER, JR.
By:	/s/ Anthony B. Evnin			/s/ Daniel N. Swisher, Jr.
Name:			Anthony B. Evnin
Title:		Chairman of the Compensation
Committee of the Board of Directors

Exhibit A:  Release (Individual Termination)

Exhibit B:  Release (Group Termination)

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EXHIBIT A

RELEASE

(INDIVIDUAL TERMINATION)

Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the “Agreement”) which I have executed and of which this Release is a part.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”  I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.

Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to:  all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of disputed compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; statutory law; common law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company’s indemnification obligation pursuant to agreement or applicable law.

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I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA.  I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled.  I further acknowledge that I have been advised by this writing, as required by the ADEA, that:  (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the parties to revoke the Release; and (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release is executed by me.

DANIEL N. SWISHER, JR.

Date:

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EXHIBIT B

RELEASE
(GROUP TERMINATION)

Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the “Agreement”) which I have executed and of which this Release is a part.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”  I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.

Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to:  all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of disputed compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; statutory law; common law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company’s indemnification obligation pursuant to agreement or applicable law.

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I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA.  I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled.  I further acknowledge that I have been advised by this writing, as required by the ADEA, that:  (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have forty-five (45) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the parties to revoke the Release; (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release is executed by me; and (F) I have received with this Release a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated.

DANIEL N. SWISHER, JR.

Date:

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EX-10.7

Exhibit 10.7

EXECUTIVE SEVERANCE BENEFITS AGREEMENT

This EXECUTIVE SEVERANCE BENEFITS AGREEMENT (the “Agreement”) is entered into this 4th day of August, 2005 (the “Effective Date”), between DARYL B. WINTER, PH.D.(“Executive”) and SUNESIS PHARMACEUTICALS, INC. (the “Company”). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events.  Certain capitalized terms used in this Agreement are defined in Article 6.

The Company and Executive hereby agree as follows:

ARTICLE 1

SCOPE OF AND CONSIDERATION FOR THIS AGREEMENT

1.1Position and Duties.  Executive is currently employed by the Company as Senior Vice President and General Counsel.  As the Companies Chief Legal Officer (CLO), Executive has overall responsibility for the Company’s corporate legal functions, including but not limited to, service as Secretary of the Board and Corporate Secretary.  Executive reports directly to the Chief Executive Officer.

1.2Restrictions.  During his employment by the Company, Executive agrees to the best of his ability and experience that he will at all times loyally and conscientiously perform all of the duties and obligations required of and from him as Senior Vice President and General Counsel.  During the term of his employment, Executive further agrees that he will devote all of his business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work, services and advice, Executive will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Board, and Executive will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company.  Nothing in this Agreement will prevent Executive from accepting speaking or presentation engagements in exchange for honoraria or from service on boards of charitable organizations or otherwise participating in civic, charitable or fraternal organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange.  It is contemplated that Executive may serve on boards of directors of other, non-competitive companies and the Board will not unreasonably withhold its consent from such participation.  Such participation shall not exceed the greater of six (6) days per year or such number of days as is required for Executive to serve on the board of directors of one (1) such company.

1.3Professional Requirements.  The Company shall pay the costs of Executive’s State Bar dues, his required Continuing Legal Education courses and those professional education programs reasonably necessary for the performance of Executive’s duties as the Company’s chief legal officer.  Executive’s participation in such programs will be considered

work time and the travel expenses associated with attendance at such conferences will be paid according to the Company’s expense reimbursement policies.

1.4Confidential Information and Invention Assignment Agreement.  Executive acknowledges that he has previously executed and delivered to an officer of the Company the Company’s Confidential Information and Invention Assignment Agreement (the “Confidentiality Agreement”) and that the Confidentiality Agreement remains in full force and effect.

1.5Confidentiality of Terms.  Executive agrees to follow the Company’s strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this Agreement, regarding salary, bonuses, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that Executive may discuss such terms with members of his immediate family and any legal, tax or accounting specialists who provide Executive with individual legal, tax or accounting advice, and Executive may discuss such terms with other employees of the Company on a need to know basis if required to carry out Executive’s duties as the Company’s chief legal officer or at the request of the Board or any other superior officer of the Company.

1.6Benefits Upon Change of Control.  The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event of a Change of Control or if Executive’s employment with the Company is terminated under the circumstances described herein.

1.7Consideration.  The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive’s past services to the Company, Executive’s continued employment with the Company, and Executive’s execution of a release in accordance with Section 4.1.

1.8Prior Agreement.  This Agreement shall supersede any other agreement relating to severance benefits in the event of Executive’s severance from employment, including, without limitation the Employment Agreement between Executive and the Company dated as of April 5, 2000 and the Modified Employment Agreement between Executive and the Company dated as of April 15, 2003.

ARTICLE 2

OPTION ACCELERATION

2.1Change of Control Option Acceleration.  In the event of a Change of Control, the vesting and/or exercisability of fifty percent (50%) of Executive’s outstanding Stock Awards shall be automatically accelerated immediately prior to the effective date of such Change of Control.

2.2Constructive Termination Option Acceleration.

(a)In the event of a Covered Termination of Executive’s employment prior to or more than twelve (12) months following the effective date of a Change of Control, the vesting

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and/or exercisability of each of Executive’s outstanding Stock Awards shall be automatically accelerated on the date of termination as to the number of Stock Awards that would vest over the twelve (12) month period following the date of termination had Executive remained continuously employed by the Company during such period.

(b)In the event of a Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control, the vesting and/or exercisability of one hundred percent (100%) of Executive’s outstanding Stock Awards shall be automatically accelerated on the date of termination.

2.3Outstanding Stock Awards.  For the avoidance of doubt, the fifty percent (50%), twelve (12) month and one hundred percent (100%) accelerated vesting described in Sections 2.1 and 2.2 shall apply toward that portion of Executive’s outstanding Stock Awards that are unvested as of the date of accelerated vesting.

ARTICLE 3

SEVERANCE BENEFITS

3.1Severance Benefits.  A Covered Termination of Executive’s employment prior to or more than twelve (12) months following the effective date of a Change of Control entitles Executive to receive the benefits set forth in this Section 3.1.

(a)Base Salary.  The Company shall pay to Executive an amount equal to nine (9) months’ Base Salary.  Such severance amount shall be paidover the nine (9) month period commencing on the date of termination in equal monthly installments and shall be subject to all required tax withholding.

(b)Health Benefits.  Provided that Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company shall pay the premiums of Executive’s group health insurance coverage, including coverage for Executive’s eligible dependents, for a maximum period of nine (9) months following such Covered Termination; provided, however, that the Company shall pay premiums for Executive’s eligible dependents only for coverage for which those eligible dependents were enrolled immediately prior to the Covered Termination.  It being understood that it shall be Executive’s sole responsibility to elect continuation of coverage pursuant to COBRA in the first instance.  No premium payments will be made following the effective date of Executive’s coverage by a health insurance plan of a subsequent employer.  For the balance of the period that Executive is entitled to coverage under federal COBRA law, if any, Executive shall be entitled to maintain such coverage at Executive’s own expense.

3.2Change of Control Severance Benefits.  A Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control entitles Executive to receive the benefits set forth in this Section 3.2.

(a)Base Salary.  The Company shall pay to Executive an amount equal to fourteen (14) months’ Base Salary.  Such severance amount shall be paid in cash in a lump sum

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within thirty (30) days following the Covered Termination and shall be subject to all required tax withholding.

(b)Bonus.  The Company shall pay to Executive an amount equal to fourteen twelfths (14/12ths) of Executive’s target annual bonus for the fiscal year during which the Covered Termination occurs, with such bonus determined assuming that all of the performance objectives for such fiscal year have been attained.  Such severance amount shall be paid in cash in a lump sum within thirty (30) days following the Covered Termination and shall be subject to all required tax withholding.

(c)Health Benefits.  Provided that Executive elects continued coverage under federal COBRA law, the Company shall pay the premiums of Executive’s group health insurance coverage, including coverage for Executive’s eligible dependents, for a maximum period of fourteen (14) months following such Covered Termination; provided, however, that the Company shall pay premiums for Executive’s eligible dependents only for coverage for which those eligible dependents were enrolled immediately prior to the Covered Termination.  It being understood that it shall be Executive’s sole responsibility to elect continuation of coverage pursuant to COBRA in the first instance.  No premium payments will be made following the effective date of Executive’s coverage by a health insurance plan of a subsequent employer.  For the balance of the period that Executive is entitled to coverage under federal COBRA law, if any, Executive shall be entitled to maintain such coverage at Executive’s own expense.

(d)No Duplication of Benefits.  The payments and benefits provided for in this Section 3.2 shall only be payable in the event of a Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control.  In the event of a Covered Termination of Executive’s employment prior to or more than twelve (12) months following a Change Control, then Executive shall receive the payments and benefits described in Section 3.1 and shall not be eligible to receive any of the payments and benefits described in this Section 3.2.

3.3Other Terminations.  If Executive’s employment is terminated by the Company for Cause, by Executive other than pursuant to a Constructive Termination or as a result of Executive’s death or disability, the Company shall not have any other or further obligations to Executive under this Agreement (including any financial obligations) except that Executive shall be entitled to receive (a) Executive’s fully earned but unpaid base salary, through the date of termination at the rate then in effect, and (b) all other amounts or benefits to which Executive is entitled under any compensation, retirement or benefit plan or practice of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by federal COBRA law or applicable law.  In addition, subject to the provisions of the Company’s equity compensation plans and the terms of Executive’s Stock Awards, if Executive’s employment is terminated by the Company for Cause, by Executive other than pursuant to a Constructive Termination or as a result of Executive’s death or disability, all vesting of Executive’s unvested Stock Awards previously granted to him by the Company shall cease and none of such unvested Stock Awards shall be exercisable following the date of such termination.  The foregoing shall be in addition to, and not in lieu of, any and all other rights and remedies which may be available to the Company under the circumstances, whether at law or in equity.

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3.4Mitigation.  Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by any retirement benefits received by Executive after the date of the Covered Termination.

3.5Exclusive Remedy.  Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive’s rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing after the termination of Executive’s employment shall cease upon such termination.  In the event of a termination of Executive’s employment with the Company, Executive’s sole remedy shall be to receive the payments and benefits described in this Agreement.

ARTICLE 4

LIMITATIONS AND CONDITIONS ON BENEFITS

4.1Release Prior to Payment of Benefits.  Upon the occurrence of a Covered Termination of Executive’s employment, and prior to the payment of any benefits under this Agreement on account of such Covered Termination, Executive shall execute a release (the “Release”) in the form attached hereto and incorporated herein as Exhibit A or Exhibit B, as applicable.  Such Release shall specifically relate to all of Executive’s rights and claims in existence at the time of such execution and shall confirm Executive’s obligations under the Confidentiality Agreement.  It is understood that, as specified in the applicable Release, Executive has a certain number of calendar days to consider whether to execute such Release, and Executive may revoke such Release within seven (7) calendar days after execution.  In the event Executive does not execute such Release within the applicable period, or if Executive revokes such Release within the subsequent seven (7) day period, no benefits shall be payable under this Agreement.

4.2Termination of Benefits.  Benefits under this Agreement shall terminate immediately if the Executive, at any time, violates any proprietary information or confidentiality obligation to the Company, including, without limitation, the Confidentiality Agreement.

ARTICLE 5

PARACHUTE PAYMENTS

5.1Best Pay Provision.  Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any Payment under this Agreement would, when combined with all other Payments Executive receives from the Company or any successor or parent or subsidiary thereof, but for this Article 5, be subject to the Excise Tax, then such Payments shall be either (a) the full amount of such Payments or (b) such lesser amount (with cash payments being reduced before stock option compensation) as would result in no portion of the Payments being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local employment taxes, income taxes and the Excise

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Tax, results in Executive’s receipt, on an after-tax basis, of the greater amount of the Payments notwithstanding that all or some portion of the Payments may be subject to the Excise Tax.

5.2Determinations.  All determinations required to be made under this Article 5, including whether and to what extent the Payments shall be reduced and the assumptions to be utilized in arriving at such determination, shall be made by the nationally recognized certified public accounting firm used by the Company immediately prior to the Change of Control or, if such firm declines to serve, such other nationally recognized certified public accounting firm as may be designated by the Executive (the “Accounting Firm”).  The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive at such time as is requested by the Company.  All fees and expenses of the Accounting Firm shall be borne solely by the Company.  Any determination by the Accounting Firm shall be binding upon the Company and the Executive.  For purposes of making the calculations required by this Article 5, the Accounting Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good-faith interpretations concerning the application of Sections 280G and 4999 of the Code.

ARTICLE 6

DEFINITIONS

For purposes of the Agreement, the following terms are defined as follows:

6.1“Base Salary” means Executive’s annual base salary as in effect during the last regularly scheduled payroll period immediately preceding the Covered Termination.

6.2“Board” means the Board of Directors of the Company.

6.3“Cause” means that, in the reasonable determination of the Company, Executive:

(a)has committed an act of fraud or embezzlement or has intentionally committed some other illegal act that has a material adverse impact on the Company or any successor or parent or subsidiary thereof;

(b)has been convicted of, or entered a plea of “guilty” or “no contest” to, a felony which causes or may reasonably be expected to cause substantial economic injury to or substantial injury to the reputation of the Company or any subsidiary or affiliate of the Company;

(c)has made any unauthorized use or disclosure of confidential information or trade secrets of the Company or any successor or parent or subsidiary thereof that has a material adverse impact on any such entity;

(d)has committed any other intentional misconduct that has a material adverse impact on the Company or any successor or parent or subsidiary thereof, or

(e)has intentionally refused or intentionally failed to act in accordance with any lawful and proper direction or order of the Board or the appropriate individual to whom

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Executive reports; provided such direction is not materially inconsistent with the Executive’s customary duties and responsibilities.

6.4“Change of Control” means and includes each of the following:

(a)the acquisition, directly or indirectly, by any “person” or “group” (as those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) of “beneficial ownership” (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities entitled to vote generally in the election of directors (“voting securities”) of the Company that represent fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities, other than:

(i)an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company, or

(ii)an acquisition of voting securities by the Company or a corporation owned, directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company;

Notwithstanding the foregoing, the following event shall not constitute an “acquisition” by any person or group for purposes of this Section: an acquisition of the Company’s securities by the Company that causes the Company’s voting securities beneficially owned by a person or group to represent fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities; provided, however, that if a person or group shall become the beneficial owner of fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities by reason of share acquisitions by the Company as described above and shall, after such share acquisitions by the Company, become the beneficial owner of any additional voting securities of the Company, then such acquisition shall constitute a Change of Control; or

(b)the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

(i)which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

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(ii)after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning fifty percent (50%) or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

(c)the Company’s stockholders approve a liquidation or dissolution of the Company.

Notwithstanding the foregoing, a transaction shall not constitute a Change of Control if: (i) it constitutes the Company’s initial public offering of its securities; or (ii) it is a transaction effected primarily for the purpose of financing the Company with cash (as determined by the Board in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise).  The Board shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto.

6.5“Code” means the Internal Revenue Code of 1986, as amended from time to time and the Treasury Regulations thereunder.

6.6“Company” means Sunesis Pharmaceuticals, Inc. or, following a Change of Control, the surviving entity resulting from such transaction.

6.7“Constructive Termination” means that Executive voluntarily terminates employment after any of the following are undertaken without Executive’s express written consent:

(a)the removal of or a material reduction in the nature or scope of Executive’s responsibilities, or the assignment to Executive of duties that are materially inconsistent with Executive’s position other than a change in reporting relationship;

(b)a change in the Executive’s direct reporting relationship so that Executive no longer reports directly to the Company’s (or its successor’s) most senior executive officer;

(c)a reduction in Executive’s base salary, unless the base salaries of all other executives are similarly reduced;

(d)a reduction in Executive’s target bonus within twelve (12) months following the effective date of a Change of Control, unless the target bonuses of all other executives are similarly reduced; or

(e)a relocation of Executive’s place of employment by more than thirty (30) miles from such Executive’s place of employment on the Effective Date.

The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be a Constructive Termination.

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6.8“Covered Termination” means an Involuntary Termination Without Cause or a Constructive Termination.

6.9“Excise Tax” means the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.

6.10“Involuntary Termination Without Cause” means Executive’s dismissal or discharge other than for Cause.  The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be an Involuntary Termination Without Cause.

6.11A “Payment” shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise.

6.12“Stock Awards” means all stock options, restricted stock and such other awards granted pursuant to the Company’s stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof.

ARTICLE 7

GENERAL PROVISIONS

7.1Employment Status.  This Agreement does not constitute a contract of employment or impose upon Executive any obligation to remain as an employee, or impose on the Company any obligation (a) to retain Executive as an employee, (b) to change the status of Executive as an at-will employee, or (c) to change the Company’s policies regarding termination of employment.

7.2Notices.  Any notices provided hereunder must be in writing, and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by facsimile) or the third day after mailing by first class mail to the Company at its primary office location and to Executive at Executive’s address as listed in the Company’s payroll records.  Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at the address as listed in the Company’s payroll records.

7.3Severability.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.

7.4Waiver.  If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

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7.5Arbitration.  Any dispute, claim or controversy based on, arising out of or relating to Executive’s employment or this Agreement shall be settled by final and binding arbitration in San Mateo County, California, before a single neutral arbitrator in accordance with the National Rules for the Resolution of Employment Disputes (the “Rules”) of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction.  Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.).  If the parties are unable to agree upon an arbitrator, one shall be appointed by the AAA in accordance with its Rules.  Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected with presenting its case; however, Executive and the Company agree that, to the extent permitted by law, the arbitrator may, in his discretion, award reasonable attorneys’ fees to the prevailing party.  Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, AAA’s administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company.  This Section 7.5 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement or relating to Executive’s employment; provided, however, that neither this Agreement nor the submission to arbitration shall limit the parties’ right to seek provisional relief, including, without limitation, injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction.  Seeking any such relief shall not be deemed to be a waiver of such party’s right to compel arbitration.  Both Executive and the Company expressly waive their right to a jury trial. Pursuant to California Civil Code Section 1717, each party warrants that it was represented by counsel in the negotiation and execution of this Agreement, including the attorneys’ fees provision herein.

7.6Complete Agreement.  This Agreement, including Exhibit A and Exhibit B, constitutes the entire agreement between Executive and the Company and is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter, wholly superseding all written and oral agreements with respect to severance benefits to Executive in the event of employment termination.  It is entered into without reliance on any promise or representation other than those expressly contained herein.  Notwithstanding anything herein to the contrary, this Agreement shall not supersede any indemnification agreement between Executive and the Company.

7.7Amendment or Termination of Agreement.  This Agreement may be changed or terminated only upon the mutual written consent of the Company and Executive.  The written consent of the Company to a change or termination of this Agreement must be signed by an executive officer of the Company after such change or termination has been approved by the Board.

7.8Counterparts.  This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.

7.9Headings.  The headings of the Articles and Sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.

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7.10Successors and Assigns.  This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, and the Company, and any surviving entity resulting from a Change of Control and upon any other person who is a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company, and their respective successors, assigns, heirs, executors and administrators, without regard to whether or not such person actively assumes any rights or duties hereunder; provided, however, that Executive may not assign any duties hereunder and may not assign any rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably.

7.11Choice of Law.  All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of California, without regard to such state’s conflict of laws rules.

7.12Non-Publication.  The parties mutually agree not to disclose publicly the terms of this Agreement except to the extent that disclosure is mandated by applicable law or regulation or to their respective advisors (e.g., attorneys, accountants).

7.13Construction of Agreement.  In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control.

7.14Code Section 409A.  This Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A of the Code, and any payment scheduled to be made hereunder that would otherwise violate Section 409A of the Code shall be delayed to the extent necessary for this Agreement and such payment to comply with Section 409A of the Code.

(Signature Page Follows)

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IN WITNESS WHEREOF, the parties have executed this Agreement on the Effective Date written above.

SUNESIS PHARMACEUTICALS, INC.				DARYL B. WINTER, PH.D.
By:	/s/ Anthony B. Evnin			/s/ Daryl B. Winter, Ph.D.
Name:			Anthony B. Evnin
Title:		Chairman of the Compensation
Committee of the Board of Directors

Exhibit A:  Release (Individual Termination)

Exhibit B:  Release (Group Termination)

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EXHIBIT A

RELEASE
(INDIVIDUAL TERMINATION)

Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the “Agreement”) which I have executed and of which this Release is a part.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”  I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.

Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to:  all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of disputed compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; statutory law; common law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company’s indemnification obligation pursuant to agreement or applicable law.

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I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA.  I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled.  I further acknowledge that I have been advised by this writing, as required by the ADEA, that:  (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the parties to revoke the Release; and (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release is executed by me.

DARYL WINTER

Date:

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EXHIBIT B

RELEASE
(GROUP TERMINATION)

Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the “Agreement”) which I have executed and of which this Release is a part.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”  I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.

Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to:  all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of disputed compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; statutory law; common law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company’s indemnification obligation pursuant to agreement or applicable law.

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I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA.  I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled.  I further acknowledge that I have been advised by this writing, as required by the ADEA, that:  (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have forty-five (45) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the parties to revoke the Release; (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release is executed by me; and (F) I have received with this Release a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated.

DARYL WINTER

Date:

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EX-10.8

Exhibit 10.8

EXECUTIVE SEVERANCE BENEFITS AGREEMENT

This EXECUTIVE SEVERANCE BENEFITS AGREEMENT (the “Agreement”) is entered into this 5th day of August, 2005 (the “Effective Date”), between JAMES W. YOUNG, PH.D.(“Executive”) and SUNESIS PHARMACEUTICALS, INC. (the “Company”). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events.  Certain capitalized terms used in this Agreement are defined in Article 6.

The Company and Executive hereby agree as follows:

ARTICLE 1

SCOPE OF AND CONSIDERATION FOR THIS AGREEMENT

1.1Position and Duties.  Executive is currently employed by the Company as Executive Chairman of the Board.  Executive reports directly to the Board.

1.2Restrictions.  During his employment by the Company, Executive agrees to the best of his ability and experience that he will at all times loyally and conscientiously perform all of the duties and obligations required of and from him as Executive Chairman of the Board.  During the term of his employment, Executive further agrees that he will devote sixty percent (60%) of his business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work, services and advice, Executive will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Board, and Executive will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company.  Nothing in this Agreement will prevent Executive from accepting speaking or presentation engagements in exchange for honoraria or from service on boards of charitable organizations or otherwise participating in civic, charitable or fraternal organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange.  It is contemplated that Executive may serve as an advisor to or an affiliate of certain life science venture organizations and/or on boards of directors of other, non-competitive companies and the Board will not unreasonably withhold its consent from such participation.  Such participation shall be limited only by approval of the Board.

1.3Confidential Information and Invention Assignment Agreement.  Executive acknowledges that he has previously executed and delivered to an officer of the Company the Company’s Confidential Information and Invention Assignment Agreement (the “Confidentiality Agreement”) and that the Confidentiality Agreement remains in full force and effect.

1.4Confidentiality of Terms.  Executive agrees to follow the Company’s strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this Agreement, regarding salary, bonuses, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that

Executive may discuss such terms with members of his immediate family and any legal, tax or accounting specialists who provide Executive with individual legal, tax or accounting advice, and Executive may discuss such terms with other employees of the Company on a need to know basis if required to carry out Executive’s duties as the Executive Chairman of the Board or at the request of the Board.

1.5Benefits Upon Change of Control.  The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event of a Change of Control or if Executive’s employment with the Company is terminated under the circumstances described herein.

1.6Consideration.  The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive’s past services to the Company, Executive’s continued employment with the Company, and Executive’s execution of a release in accordance with Section 4.1.

1.7Prior Agreement.  This Agreement shall supersede any other agreement relating to severance benefits in the event of Executive’s severance from employment, including, without limitation the Employment Agreements between Executive and the Company dated as of December 1, 2003 and April 9, 2000.

ARTICLE 2

OPTION ACCELERATION

2.1Change of Control Option Acceleration.  In the event of a Change of Control, the vesting and/or exercisability of fifty percent (50%) of Executive’s outstanding Stock Awards shall be automatically accelerated immediately prior to the effective date of such Change of Control.

2.2Constructive Termination Option Acceleration.

(a)In the event of a Covered Termination of Executive’s employment prior to or more than twelve (12) months following the effective date of a Change of Control, the vesting and/or exercisability of each of Executive’s outstanding Stock Awards shall be automatically accelerated on the date of termination as to the number of Stock Awards that would vest over the twelve (12) month period following the date of termination had Executive remained continuously employed by the Company during such period.

(b)In the event of a Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control, the vesting and/or exercisability of one hundred percent (100%) of Executive’s outstanding Stock Awards shall be automatically accelerated on the date of termination.

2.3Outstanding Stock Awards.  For the avoidance of doubt, the fifty percent (50%), twelve (12) month and one hundred percent (100%) accelerated vesting described in Sections 2.1 and 2.2 shall apply toward that portion of Executive’s outstanding Stock Awards that are unvested as of the date of accelerated vesting.

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ARTICLE 3

SEVERANCE BENEFITS

3.1Severance Benefits.  A Covered Termination of Executive’s employment prior to or more than twelve (12) months following the effective date of a Change of Control entitles Executive to receive the benefits set forth in this Section 3.1.

(a)Base Salary.  The Company shall pay to Executive an amount equal to twelve (12) months’ Base Salary.  Such severance amount shall be paidover the twelve (12) month period commencing on the date of termination in equal monthly installments and shall be subject to all required tax withholding.

(b)Health Benefits.  Provided that Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company shall pay the premiums of Executive’s group health insurance coverage, including coverage for Executive’s eligible dependents, for a maximum period of twelve (12) months following such Covered Termination; provided, however, that the Company shall pay premiums for Executive’s eligible dependents only for coverage for which those eligible dependents were enrolled immediately prior to the Covered Termination; provided, further, that Executive shall be solely responsible for all matters relating to his continuation of coverage pursuant to COBRA, including, without limitation, the election of such coverage and the timely payment of premiums.  No premium payments will be made following the effective date of Executive’s coverage by a health insurance plan of a subsequent employer.  For the balance of the period that Executive is entitled to coverage under federal COBRA law, if any, Executive shall be entitled to maintain such coverage at Executive’s own expense.

3.2Change of Control Severance Benefits.  A Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control entitles Executive to receive the benefits set forth in this Section 3.2.

(a)Base Salary.  The Company shall pay to Executive an amount equal to eighteen (18) months’ Base Salary.  Such severance amount shall be paid in cash in a lump sum within thirty (30) days following the Covered Termination and shall be subject to all required tax withholding.

(b)Bonus.  The Company shall pay to Executive an amount equal to eighteen twelfths (18/12ths) of Executive’s target annual bonus for the fiscal year during which the Covered Termination occurs, with such bonus determined assuming that all of the performance objectives for such fiscal year have been attained.  Such severance amount shall be paid in cash in a lump sum within thirty (30) days following the Covered Termination and shall be subject to all required tax withholding.

(c)Health Benefits.  Provided that Executive elects continued coverage under federal COBRA law, the Company shall pay the premiums of Executive’s group health insurance coverage, including coverage for Executive’s eligible dependents, for a maximum period of eighteen (18) months following such Covered Termination; provided, however, that the

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Company shall pay premiums for Executive’s eligible dependents only for coverage for which those eligible dependents were enrolled immediately prior to the Covered Termination.  It being understood that it shall be Executive’s sole responsibility to elect continuation of coverage pursuant to COBRA in the first instance.  No premium payments will be made following the effective date of Executive’s coverage by a health insurance plan of a subsequent employer.  For the balance of the period that Executive is entitled to coverage under federal COBRA law, if any, Executive shall be entitled to maintain such coverage at Executive’s own expense.

(d)No Duplication of Benefits.  The payments and benefits provided for in this Section 3.2 shall only be payable in the event of a Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control.  In the event of a Covered Termination of Executive’s employment prior to or more than twelve (12) months following a Change Control, then Executive shall receive the payments and benefits described in Section 3.1 and shall not be eligible to receive any of the payments and benefits described in this Section 3.2.

3.3Other Terminations.  If Executive’s employment is terminated by the Company for Cause, by Executive other than pursuant to a Constructive Termination or as a result of Executive’s death or disability, the Company shall not have any other or further obligations to Executive under this Agreement (including any financial obligations) except that Executive shall be entitled to receive (a) Executive’s fully earned but unpaid base salary, through the date of termination at the rate then in effect, and (b) all other amounts or benefits to which Executive is entitled under any compensation, retirement or benefit plan or practice of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by federal COBRA law or applicable law.  In addition, subject to the provisions of the Company’s equity compensation plans and the terms of Executive’s Stock Awards, if Executive’s employment is terminated by the Company for Cause, by Executive other than pursuant to a Constructive Termination or as a result of Executive’s death or disability, all vesting of Executive’s unvested Stock Awards previously granted to him by the Company shall cease and none of such unvested Stock Awards shall be exercisable following the date of such termination.  The foregoing shall be in addition to, and not in lieu of, any and all other rights and remedies which may be available to the Company under the circumstances, whether at law or in equity.

3.4Mitigation.  Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by any retirement benefits received by Executive after the date of the Covered Termination.

3.5Exclusive Remedy.  Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive’s rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing after the termination of Executive’s employment shall cease upon such termination.  In the event of a termination of Executive’s employment with the Company, Executive’s sole remedy shall be to receive the payments and benefits described in this Agreement.

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ARTICLE 4

LIMITATIONS AND CONDITIONS ON BENEFITS

4.1Release Prior to Payment of Benefits.  Upon the occurrence of a Covered Termination of Executive’s employment, and prior to the payment of any benefits under this Agreement on account of such Covered Termination, Executive shall execute a release (the “Release”) in the form attached hereto and incorporated herein as Exhibit A or Exhibit B, as applicable.  Such Release shall specifically relate to all of Executive’s rights and claims in existence at the time of such execution and shall confirm Executive’s obligations under the Confidentiality Agreement.  It is understood that, as specified in the applicable Release, Executive has a certain number of calendar days to consider whether to execute such Release, and Executive may revoke such Release within seven (7) calendar days after execution.  In the event Executive does not execute such Release within the applicable period, or if Executive revokes such Release within the subsequent seven (7) day period, no benefits shall be payable under this Agreement.

4.2Termination of Benefits.  Benefits under this Agreement shall terminate immediately if the Executive, at any time, violates any proprietary information or confidentiality obligation to the Company, including, without limitation, the Confidentiality Agreement.

ARTICLE 5

PARACHUTE PAYMENTS

5.1Best Pay Provision.  Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any Payment under this Agreement would, when combined with all other Payments Executive receives from the Company or any successor or parent or subsidiary thereof, but for this Article 5, be subject to the Excise Tax, then such Payments shall be either (a) the full amount of such Payments or (b) such lesser amount (with cash payments being reduced before stock option compensation) as would result in no portion of the Payments being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local employment taxes, income taxes and the Excise Tax, results in Executive’s receipt, on an after-tax basis, of the greater amount of the Payments notwithstanding that all or some portion of the Payments may be subject to the Excise Tax.

5.2Determinations.  All determinations required to be made under this Article 5, including whether and to what extent the Payments shall be reduced and the assumptions to be utilized in arriving at such determination, shall be made by the nationally recognized certified public accounting firm used by the Company immediately prior to the Change of Control or, if such firm declines to serve, such other nationally recognized certified public accounting firm as may be designated by the Executive (the “Accounting Firm”).  The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive at such time as is requested by the Company.  All fees and expenses of the Accounting Firm shall be borne solely by the Company.  Any determination by the Accounting Firm shall be binding upon the Company and the Executive.  For purposes of making the calculations required by this Article 5, the Accounting Firm may make reasonable assumptions and approximations concerning

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applicable taxes and may rely on reasonable, good-faith interpretations concerning the application of Sections 280G and 4999 of the Code.

ARTICLE 6

DEFINITIONS

For purposes of the Agreement, the following terms are defined as follows:

6.1“Base Salary” means Executive’s annual base salary as in effect during the last regularly scheduled payroll period immediately preceding the Covered Termination.

6.2“Board” means the Board of Directors of the Company.

6.3“Cause” means that, in the reasonable determination of the Company, Executive:

(a)has committed an act of fraud or embezzlement or has intentionally committed some other illegal act that has a material adverse impact on the Company or any successor or parent or subsidiary thereof;

(b)has been convicted of, or entered a plea of “guilty” or “no contest” to, a felony which causes or may reasonably be expected to cause substantial economic injury to or substantial injury to the reputation of the Company or any subsidiary or affiliate of the Company;

(c)has made any unauthorized use or disclosure of confidential information or trade secrets of the Company or any successor or parent or subsidiary thereof that has a material adverse impact on any such entity;

(d)has committed any other intentional misconduct that has a material adverse impact on the Company or any successor or parent or subsidiary thereof, or

(e)has intentionally refused or intentionally failed to act in accordance with any lawful and proper direction or order of the Board; provided such direction is not materially inconsistent with the Executive’s customary duties and responsibilities.

6.4“Change of Control” means and includes each of the following:

(a)the acquisition, directly or indirectly, by any “person” or “group” (as those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) of “beneficial ownership” (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities entitled to vote generally in the election of directors (“voting securities”) of the Company that represent fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities, other than:

(i)an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or

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any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company, or

(ii)an acquisition of voting securities by the Company or a corporation owned, directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company;

Notwithstanding the foregoing, the following event shall not constitute an “acquisition” by any person or group for purposes of this Section: an acquisition of the Company’s securities by the Company that causes the Company’s voting securities beneficially owned by a person or group to represent fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities; provided, however, that if a person or group shall become the beneficial owner of fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities by reason of share acquisitions by the Company as described above and shall, after such share acquisitions by the Company, become the beneficial owner of any additional voting securities of the Company, then such acquisition shall constitute a Change of Control; or

(b)the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

(i)which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

(ii)after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning fifty percent (50%) or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

(c)the Company’s stockholders approve a liquidation or dissolution of the Company.

Notwithstanding the foregoing, a transaction shall not constitute a Change of Control if: (i) it constitutes the Company’s initial public offering of its securities; or (ii) it is a transaction effected primarily for the purpose of financing the Company with cash (as determined by the Board in its discretion and without regard to whether such transaction is effectuated by a merger,

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equity financing or otherwise).  The Board shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto.

6.5“Code” means the Internal Revenue Code of 1986, as amended from time to time and the Treasury Regulations thereunder.

6.6“Company” means Sunesis Pharmaceuticals, Inc. or, following a Change of Control, the surviving entity resulting from such transaction.

6.7“Constructive Termination” means that Executive voluntarily terminates employment after any of the following are undertaken without Executive’s express written consent:

(a)the removal of or a material reduction in the nature or scope of Executive’s responsibilities, or the assignment to Executive of duties that are materially inconsistent with Executive’s position other than a change in reporting relationship;

(b)a change in the Executive’s direct reporting relationship so that Executive no longer reports directly to the Board;

(c)a reduction in Executive’s base salary, unless the base salaries of all other executives are similarly reduced;

(d)a reduction in Executive’s target bonus within twelve (12) months following the effective date of a Change of Control, unless the target bonuses of all other executives are similarly reduced; or

(e)a relocation of Executive’s place of employment by more than thirty (30) miles from such Executive’s place of employment on the Effective Date.

The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be a Constructive Termination.

6.8“Covered Termination” means an Involuntary Termination Without Cause or a Constructive Termination.

6.9“Excise Tax” means the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.

6.10“Involuntary Termination Without Cause” means Executive’s dismissal or discharge other than for Cause.  The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be an Involuntary Termination Without Cause.

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6.11A “Payment” shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise.

6.12“Stock Awards” means all stock options, restricted stock and such other awards granted pursuant to the Company’s stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof.

ARTICLE 7

GENERAL PROVISIONS

7.1Employment Status.  This Agreement does not constitute a contract of employment or impose upon Executive any obligation to remain as an employee, or impose on the Company any obligation (a) to retain Executive as an employee, (b) to change the status of Executive as an at-will employee, or (c) to change the Company’s policies regarding termination of employment.

7.2Notices.  Any notices provided hereunder must be in writing, and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by facsimile) or the third day after mailing by first class mail to the Company at its primary office location and to Executive at Executive’s address as listed in the Company’s payroll records.  Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at the address as listed in the Company’s payroll records.

7.3Severability.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.

7.4Waiver.  If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

7.5Arbitration.  Any dispute, claim or controversy based on, arising out of or relating to Executive’s employment or this Agreement shall be settled by final and binding arbitration in San Mateo County, California, before a single neutral arbitrator in accordance with the National Rules for the Resolution of Employment Disputes (the “Rules”) of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction.  Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.).  If the parties are unable to agree upon an arbitrator, one shall be appointed by the AAA in accordance with its Rules.  Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected

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with presenting its case; however, Executive and the Company agree that, to the extent permitted by law, the arbitrator may, in his discretion, award reasonable attorneys’ fees to the prevailing party.  Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, AAA’s administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company.  This Section 7.5 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement or relating to Executive’s employment; provided, however, that neither this Agreement nor the submission to arbitration shall limit the parties’ right to seek provisional relief, including, without limitation, injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction.  Seeking any such relief shall not be deemed to be a waiver of such party’s right to compel arbitration.  Both Executive and the Company expressly waive their right to a jury trial. Pursuant to California Civil Code Section 1717, each party warrants that it was represented by counsel in the negotiation and execution of this Agreement, including the attorneys’ fees provision herein.

7.6Complete Agreement.  This Agreement, including Exhibit A and Exhibit B, constitutes the entire agreement between Executive and the Company and is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter, wholly superseding all written and oral agreements with respect to severance benefits to Executive in the event of employment termination.  It is entered into without reliance on any promise or representation other than those expressly contained herein.  Notwithstanding anything herein to the contrary, this Agreement shall not supersede any indemnification agreement between Executive and the Company.

7.7Amendment or Termination of Agreement.  This Agreement may be changed or terminated only upon the mutual written consent of the Company and Executive.  The written consent of the Company to a change or termination of this Agreement must be signed by an executive officer of the Company after such change or termination has been approved by the Board.

7.8Counterparts.  This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.

7.9Headings.  The headings of the Articles and Sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.

7.10Successors and Assigns.  This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, and the Company, and any surviving entity resulting from a Change of Control and upon any other person who is a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company, and their respective successors, assigns, heirs, executors and administrators, without regard to whether or not such person actively assumes any rights or duties hereunder; provided, however, that Executive may not assign any duties hereunder and may not assign any rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably.

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7.11Choice of Law.  All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of California, without regard to such state’s conflict of laws rules.

7.12Non-Publication.  The parties mutually agree not to disclose publicly the terms of this Agreement except to the extent that disclosure is mandated by applicable law or regulation or to their respective advisors (e.g., attorneys, accountants).

7.13Construction of Agreement.  In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control.

7.14Code Section 409A.  This Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A of the Code, and any payment scheduled to be made hereunder that would otherwise violate Section 409A of the Code shall be delayed to the extent necessary for this Agreement and such payment to comply with Section 409A of the Code.

(Signature Page Follows)

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IN WITNESS WHEREOF, the parties have executed this Agreement on the Effective Date written above.

SUNESIS PHARMACEUTICALS, INC.				JAMES W. YOUNG, PH.D.
By:	/s/ Anthony B. Evnin			/s/ James W. Young, Ph.D.
Name:			Anthony B. Evnin
Title:		Chairman of the Compensation
Committee of the Board of Directors

Exhibit A:  Release (Individual Termination)

Exhibit B:  Release (Group Termination)

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EXHIBIT A

RELEASE
(INDIVIDUAL TERMINATION)

Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the “Agreement”) which I have executed and of which this Release is a part.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”  I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.

Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to:  all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of disputed compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; statutory law; common law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company’s indemnification obligation pursuant to agreement or applicable law.

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I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA.  I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled.  I further acknowledge that I have been advised by this writing, as required by the ADEA, that:  (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the parties to revoke the Release; and (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release is executed by me.

JAMES W. YOUNG, PH.D.

Date:

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EXHIBIT B

RELEASE
(GROUP TERMINATION)

Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the “Agreement”) which I have executed and of which this Release is a part.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”  I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.

Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to:  all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of disputed compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; statutory law; common law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company’s indemnification obligation pursuant to agreement or applicable law.

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I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA.  I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled.  I further acknowledge that I have been advised by this writing, as required by the ADEA, that:  (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have forty-five (45) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the parties to revoke the Release; (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release is executed by me; and (F) I have received with this Release a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated.

JAMES W. YOUNG, PH.D.

Date:

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EX-10.9

Exhibit 10.9

EXECUTIVE SEVERANCE BENEFITS AGREEMENT

This EXECUTIVE SEVERANCE BENEFITS AGREEMENT (the “Agreement”) is entered into this 8th day of August, 2005 (the “Effective Date”), between DANIEL C. ADELMAN, M.D. (“Executive”) and SUNESIS PHARMACEUTICALS, INC. (the “Company”). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events.  Certain capitalized terms used in this Agreement are defined in Article 6.

The Company and Executive hereby agree as follows:

ARTICLE 1

SCOPE OF AND CONSIDERATION FOR THIS AGREEMENT

1.1          Position and Duties.  Executive is currently employed by the Company as Senior Vice President, Drug Discovery and Development.  Executive initially reports directly to the Chief Executive Officer.

1.2          Restrictions.  During his employment by the Company, Executive agrees to the best of his ability and experience that he will at all times loyally and conscientiously perform all of the duties and obligations required of and from him as Senior Vice President, Drug Discovery and Development.  During the term of his employment, Executive further agrees that he will devote all of his business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work, services and advice, Executive will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Board, and Executive will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company.  Nothing in this Agreement will prevent Executive from accepting speaking or presentation engagements in exchange for honoraria or from service on boards of charitable organizations or otherwise participating in civic, charitable or fraternal organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange.

1.3          Clinical Medical Practice.  Executive is encouraged to continue his clinical medical practice at a rate of up to one (1) day every two (2) weeks.

1.4          Confidential Information and Invention Assignment Agreement.  Executive acknowledges that he has previously executed and delivered to an officer of the Company the Company’s Confidential Information and Invention Assignment Agreement (the “Confidentiality Agreement”) and that the Confidentiality Agreement remains in full force and effect.

1.5          Confidentiality of Terms.  Executive agrees to follow the Company’s strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this Agreement, regarding salary, bonuses, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that

Executive may discuss such terms with members of his immediate family and any legal, tax or accounting specialists who provide Executive with individual legal, tax or accounting advice, and Executive may discuss such terms with other employees of the Company on a need to know basis if required to carry out Executive’s duties as the Company’s Senior Vice President, Drug Discovery and Development, or at the request of the Board or any other superior officer of the Company.

1.6          Benefits Upon Change of Control.  The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event of a Change of Control or if Executive’s employment with the Company is terminated under the circumstances described herein.

1.7          Consideration.  The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive’s past services to the Company, Executive’s continued employment with the Company, and Executive’s execution of a release in accordance with Section 4.1.

1.8          Prior Agreement.  This Agreement shall supersede any other agreement relating to severance benefits in the event of Executive’s severance from employment, including, without limitation the Employment Agreement between Executive and the Company dated as of April 18, 2003.

ARTICLE 2

OPTION ACCELERATION

2.1          Change of Control Option Acceleration.  In the event of a Change of Control, the vesting and/or exercisability of fifty percent (50%) of Executive’s outstanding Stock Awards shall be automatically accelerated immediately prior to the effective date of such Change of Control.

2.2          Constructive Termination Option Acceleration.

(a)           In the event of a Covered Termination of Executive’s employment prior to or more than twelve (12) months following the effective date of a Change of Control, the vesting and/or exercisability of each of Executive’s outstanding Stock Awards shall be automatically accelerated on the date of termination as to the number of Stock Awards that would vest over the twelve (12) month period following the date of termination had Executive remained continuously employed by the Company during such period.

(b)           In the event of a Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control, the vesting and/or exercisability of one hundred percent (100%) of Executive’s outstanding Stock Awards shall be automatically accelerated on the date of termination.

2.3          Outstanding Stock Awards.  For the avoidance of doubt, the fifty percent (50%), twelve (12) month and one hundred percent (100%) accelerated vesting described in Sections 2.1

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and 2.2 shall apply toward that portion of Executive’s outstanding Stock Awards that are unvested as of the date of accelerated vesting.

ARTICLE 3

SEVERANCE BENEFITS

3.1          Severance Benefits.  A Covered Termination of Executive’s employment prior to or more than twelve (12) months following the effective date of a Change of Control entitles Executive to receive the benefits set forth in this Section 3.1.

(a)           Base Salary.  The Company shall pay to Executive an amount equal to nine (9) months’ Base Salary.  Such severance amount shall be paidover the nine (9) month period commencing on the date of termination in equal monthly installments and shall be subject to all required tax withholding.

(b)           Health Benefits.  Provided that Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company shall pay the premiums of Executive’s group health insurance coverage, including coverage for Executive’s eligible dependents, for a maximum period of nine (9) months following such Covered Termination; provided, however, that the Company shall pay premiums for Executive’s eligible dependents only for coverage for which those eligible dependents were enrolled immediately prior to the Covered Termination.  It being understood that it shall be Executive’s sole responsibility to elect continuation of coverage pursuant to COBRA in the first instance.  No premium payments will be made following the effective date of Executive’s coverage by a health insurance plan of a subsequent employer.  For the balance of the period that Executive is entitled to coverage under federal COBRA law, if any, Executive shall be entitled to maintain such coverage at Executive’s own expense.

3.2          Change of Control Severance Benefits.  A Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control entitles Executive to receive the benefits set forth in this Section 3.2.

(a)           Base Salary.  The Company shall pay to Executive an amount equal to fourteen (14) months’ Base Salary.  Such severance amount shall be paid in cash in a lump sum within thirty (30) days following the Covered Termination and shall be subject to all required tax withholding.

(b)           Bonus.  The Company shall pay to Executive an amount equal to fourteen twelfths (14/12^ths) of Executive’s target annual bonus for the fiscal year during which the Covered Termination occurs, with such bonus determined assuming that all of the performance objectives for such fiscal year have been attained.  Such severance amount shall be paid in cash in a lump sum within thirty (30) days following the Covered Termination and shall be subject to all required tax withholding.

(c)           Health Benefits.  Provided that Executive elects continued coverage under federal COBRA law, the Company shall pay the premiums of Executive’s group health insurance coverage, including coverage for Executive’s eligible dependents, for a maximum

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period of fourteen (14) months following such Covered Termination; provided, however, that the Company shall pay premiums for Executive’s eligible dependents only for coverage for which those eligible dependents were enrolled immediately prior to the Covered Termination.  It being understood that it shall be Executive’s sole responsibility to elect continuation of coverage pursuant to COBRA in the first instance.  No premium payments will be made following the effective date of Executive’s coverage by a health insurance plan of a subsequent employer.  For the balance of the period that Executive is entitled to coverage under federal COBRA law, if any, Executive shall be entitled to maintain such coverage at Executive’s own expense.

(d)           No Duplication of Benefits.  The payments and benefits provided for in this Section 3.2 shall only be payable in the event of a Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control.  In the event of a Covered Termination of Executive’s employment prior to or more than twelve (12) months following a Change Control, then Executive shall receive the payments and benefits described in Section 3.1 and shall not be eligible to receive any of the payments and benefits described in this Section 3.2.

3.3          Other Terminations.  If Executive’s employment is terminated by the Company for Cause, by Executive other than pursuant to a Constructive Termination or as a result of Executive’s death or disability, the Company shall not have any other or further obligations to Executive under this Agreement (including any financial obligations) except that Executive shall be entitled to receive (a) Executive’s fully earned but unpaid base salary, through the date of termination at the rate then in effect, and (b) all other amounts or benefits to which Executive is entitled under any compensation, retirement or benefit plan or practice of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by federal COBRA law or applicable law.  In addition, subject to the provisions of the Company’s equity compensation plans and the terms of Executive’s Stock Awards, if Executive’s employment is terminated by the Company for Cause, by Executive other than pursuant to a Constructive Termination or as a result of Executive’s death or disability, all vesting of Executive’s unvested Stock Awards previously granted to him by the Company shall cease and none of such unvested Stock Awards shall be exercisable following the date of such termination.  The foregoing shall be in addition to, and not in lieu of, any and all other rights and remedies which may be available to the Company under the circumstances, whether at law or in equity.

3.4          Mitigation.  Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by any retirement benefits received by Executive after the date of the Covered Termination.

3.5          Exclusive Remedy.  Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive’s rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing after the termination of Executive’s employment shall cease upon such termination.  In the event of a termination of

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Executive’s employment with the Company, Executive’s sole remedy shall be to receive the payments and benefits described in this Agreement.

ARTICLE 4

LIMITATIONS AND CONDITIONS ON BENEFITS

4.1          Release Prior to Payment of Benefits.  Upon the occurrence of a Covered Termination of Executive’s employment, and prior to the payment of any benefits under this Agreement on account of such Covered Termination, Executive shall execute a release (the “Release”) in the form attached hereto and incorporated herein as Exhibit A or Exhibit B, as applicable.  Such Release shall specifically relate to all of Executive’s rights and claims in existence at the time of such execution and shall confirm Executive’s obligations under the Confidentiality Agreement.  It is understood that, as specified in the applicable Release, Executive has a certain number of calendar days to consider whether to execute such Release, and Executive may revoke such Release within seven (7) calendar days after execution.  In the event Executive does not execute such Release within the applicable period, or if Executive revokes such Release within the subsequent seven (7) day period, no benefits shall be payable under this Agreement.

4.2          Termination of Benefits.  Benefits under this Agreement shall terminate immediately if the Executive, at any time, violates any proprietary information or confidentiality obligation to the Company, including, without limitation, the Confidentiality Agreement.

ARTICLE 5

PARACHUTE PAYMENTS

5.1          Best Pay Provision.  Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any Payment under this Agreement would, when combined with all other Payments Executive receives from the Company or any successor or parent or subsidiary thereof, but for this Article 5, be subject to the Excise Tax, then such Payments shall be either (a) the full amount of such Payments or (b) such lesser amount (with cash payments being reduced before stock option compensation) as would result in no portion of the Payments being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local employment taxes, income taxes and the Excise Tax, results in Executive’s receipt, on an after-tax basis, of the greater amount of the Payments notwithstanding that all or some portion of the Payments may be subject to the Excise Tax.

5.2          Determinations.  All determinations required to be made under this Article 5, including whether and to what extent the Payments shall be reduced and the assumptions to be utilized in arriving at such determination, shall be made by the nationally recognized certified public accounting firm used by the Company immediately prior to the Change of Control or, if such firm declines to serve, such other nationally recognized certified public accounting firm as may be designated by the Executive (the “Accounting Firm”).  The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive at such time as is requested by the Company.  All fees and expenses of the Accounting Firm shall be borne

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solely by the Company.  Any determination by the Accounting Firm shall be binding upon the Company and the Executive.  For purposes of making the calculations required by this Article 5, the Accounting Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good-faith interpretations concerning the application of Sections 280G and 4999 of the Code.

ARTICLE 6

DEFINITIONS

For purposes of the Agreement, the following terms are defined as follows:

6.1          “Base Salary” means Executive’s annual base salary as in effect during the last regularly scheduled payroll period immediately preceding the Covered Termination.

6.2          “Board” means the Board of Directors of the Company.

6.3          “Cause” means that, in the reasonable determination of the Company, Executive:

(a)           has committed an act of fraud or embezzlement or has intentionally committed some other illegal act that has a material adverse impact on the Company or any successor or parent or subsidiary thereof;

(b)           has been convicted of, or entered a plea of “guilty” or “no contest” to, a felony which causes or may reasonably be expected to cause substantial economic injury to or substantial injury to the reputation of the Company or any subsidiary or affiliate of the Company;

(c)           has made any unauthorized use or disclosure of confidential information or trade secrets of the Company or any successor or parent or subsidiary thereof that has a material adverse impact on any such entity;

(d)           has committed any other intentional misconduct that has a material adverse impact on the Company or any successor or parent or subsidiary thereof, or

(e)           has intentionally refused or intentionally failed to act in accordance with any lawful and proper direction or order of the Board or the appropriate individual to whom Executive reports; provided such direction is not materially inconsistent with the Executive’s customary duties and responsibilities.

6.4          “Change of Control” means and includes each of the following:

(a)           the acquisition, directly or indirectly, by any “person” or “group” (as those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) of “beneficial ownership” (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities entitled to vote generally in the election of directors (“voting securities”) of the Company that represent fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities, other than:

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(i)            an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company, or

(ii)           an acquisition of voting securities by the Company or a corporation owned, directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company;

Notwithstanding the foregoing, the following event shall not constitute an “acquisition” by any person or group for purposes of this Section: an acquisition of the Company’s securities by the Company that causes the Company’s voting securities beneficially owned by a person or group to represent fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities; provided, however, that if a person or group shall become the beneficial owner of fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities by reason of share acquisitions by the Company as described above and shall, after such share acquisitions by the Company, become the beneficial owner of any additional voting securities of the Company, then such acquisition shall constitute a Change of Control; or

(b)           the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

(i)            which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

(ii)           after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning fifty percent (50%) or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

(c)           the Company’s stockholders approve a liquidation or dissolution of the Company.

Notwithstanding the foregoing, a transaction shall not constitute a Change of Control if: (i) it constitutes the Company’s initial public offering of its securities; or (ii) it is a transaction

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effected primarily for the purpose of financing the Company with cash (as determined by the Board in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise).  The Board shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto.

6.5          “Code” means the Internal Revenue Code of 1986, as amended from time to time and the Treasury Regulations thereunder.

6.6          “Company” means Sunesis Pharmaceuticals, Inc. or, following a Change of Control, the surviving entity resulting from such transaction.

6.7          “Constructive Termination” means that Executive voluntarily terminates employment after any of the following are undertaken without Executive’s express written consent:

(a)           the removal of or a material reduction in the nature or scope of Executive’s responsibilities, or the assignment to Executive of duties that are materially inconsistent with Executive’s position other than a change in reporting relationship;

 (b)          a reduction in Executive’s base salary, unless the base salaries of all other executives are similarly reduced;

(c)           a reduction in Executive’s target bonus within twelve (12) months following the effective date of a Change of Control, unless the target bonuses of all other executives are similarly reduced; or

(d)           a relocation of Executive’s place of employment by more than thirty (30) miles from such Executive’s place of employment on the Effective Date.

The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be a Constructive Termination.

6.8          “Covered Termination” means an Involuntary Termination Without Cause or a Constructive Termination.

6.9          “Excise Tax” means the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.

6.10        “Involuntary Termination Without Cause” means Executive’s dismissal or discharge other than for Cause.  The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be an Involuntary Termination Without Cause.

6.11        A “Payment” shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise.

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6.12        “Stock Awards” means all stock options, restricted stock and such other awards granted pursuant to the Company’s stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof.

ARTICLE 7

GENERAL PROVISIONS

7.1          Employment Status.  This Agreement does not constitute a contract of employment or impose upon Executive any obligation to remain as an employee, or impose on the Company any obligation (a) to retain Executive as an employee, (b) to change the status of Executive as an at-will employee, or (c) to change the Company’s policies regarding termination of employment.

7.2          Notices.  Any notices provided hereunder must be in writing, and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by facsimile) or the third day after mailing by first class mail to the Company at its primary office location and to Executive at Executive’s address as listed in the Company’s payroll records.  Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at the address as listed in the Company’s payroll records.

7.3          Severability.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.

7.4          Waiver.  If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

7.5          Arbitration.  Any dispute, claim or controversy based on, arising out of or relating to Executive’s employment or this Agreement shall be settled by final and binding arbitration in San Mateo County, California, before a single neutral arbitrator in accordance with the National Rules for the Resolution of Employment Disputes (the “Rules”) of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction.  Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.).  If the parties are unable to agree upon an arbitrator, one shall be appointed by the AAA in accordance with its Rules.  Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected with presenting its case; however, Executive and the Company agree that, to the extent permitted by law, the arbitrator may, in his discretion, award reasonable attorneys’ fees to the prevailing party.  Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, AAA’s administrative fees, the fee of the arbitrator, and all other fees and costs, shall

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be borne by the Company.  This Section 7.5 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement or relating to Executive’s employment; provided, however, that neither this Agreement nor the submission to arbitration shall limit the parties’ right to seek provisional relief, including, without limitation, injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction.  Seeking any such relief shall not be deemed to be a waiver of such party’s right to compel arbitration.  Both Executive and the Company expressly waive their right to a jury trial. Pursuant to California Civil Code Section 1717, each party warrants that it was represented by counsel in the negotiation and execution of this Agreement, including the attorneys’ fees provision herein.

7.6          Complete Agreement.  This Agreement, including Exhibit A and Exhibit B, constitutes the entire agreement between Executive and the Company and is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter, wholly superseding all written and oral agreements with respect to severance benefits to Executive in the event of employment termination.  It is entered into without reliance on any promise or representation other than those expressly contained herein.  Notwithstanding anything herein to the contrary, this Agreement shall not supersede any indemnification agreement between Executive and the Company.

7.7          Amendment or Termination of Agreement.  This Agreement may be changed or terminated only upon the mutual written consent of the Company and Executive.  The written consent of the Company to a change or termination of this Agreement must be signed by an executive officer of the Company after such change or termination has been approved by the Board.

7.8          Counterparts.  This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.

7.9          Headings. The headings of the Articles and Sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.

7.10        Successors and Assigns.  This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, and the Company, and any surviving entity resulting from a Change of Control and upon any other person who is a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company, and their respective successors, assigns, heirs, executors and administrators, without regard to whether or not such person actively assumes any rights or duties hereunder; provided, however, that Executive may not assign any duties hereunder and may not assign any rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably.

7.11        Choice of Law.  All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of California, without regard to such state’s conflict of laws rules.

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7.12        Non-Publication.  The parties mutually agree not to disclose publicly the terms of this Agreement except to the extent that disclosure is mandated by applicable law or regulation or to their respective advisors (e.g., attorneys, accountants).

7.13        Construction of Agreement.  In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control.

7.14        Code Section 409A.  This Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A of the Code, and any payment scheduled to be made hereunder that would otherwise violate Section 409A of the Code shall be delayed to the extent necessary for this Agreement and such payment to comply with Section 409A of the Code.

(Signature Page Follows)

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IN WITNESS WHEREOF, the parties have executed this Agreement on the Effective Date written above.

SUNESIS PHARMACEUTICALS, INC.				DANIEL C. ADELMAN, M.D.
By:	/s/ Anthony B. Evnin			/s/ Daniel C. Adelman, M.D.
Name:			Anthony B. Evnin
Title:		Chairman of the Compensation
Committee of the Board of Directors

Exhibit A:  Release (Individual Termination)

Exhibit B:  Release (Group Termination)

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EXHIBIT A

RELEASE
(INDIVIDUAL TERMINATION)

Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the “Agreement”) which I have executed and of which this Release is a part.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”  I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.

Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to:  all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of disputed compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; statutory law; common law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company’s indemnification obligation pursuant to agreement or applicable law.

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I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA.  I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled.  I further acknowledge that I have been advised by this writing, as required by the ADEA, that:  (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the parties to revoke the Release; and (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release is executed by me.

DANIEL C. ADELMAN, M.D.

Date:

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EXHIBIT B

RELEASE
(GROUP TERMINATION)

Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the “Agreement”) which I have executed and of which this Release is a part.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”  I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.

Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to:  all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of disputed compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; statutory law; common law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company’s indemnification obligation pursuant to agreement or applicable law.

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I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA.  I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled.  I further acknowledge that I have been advised by this writing, as required by the ADEA, that:  (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have forty-five (45) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the parties to revoke the Release; (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release is executed by me; and (F) I have received with this Release a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated.

DANIEL C. ADELMAN, M.D.

Date:

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EX-10.10

Exhibit 10.10

EXECUTIVE SEVERANCE BENEFITS AGREEMENT

This EXECUTIVE SEVERANCE BENEFITS AGREEMENT (the “Agreement”) is entered into this 12th day of August, 2005 (the “Effective Date”), between ERIC H. BJERKHOLT (“Executive”) and SUNESIS PHARMACEUTICALS, INC. (the “Company”). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events.  Certain capitalized terms used in this Agreement are defined in Article 6.

The Company and Executive hereby agree as follows:

ARTICLE 1

SCOPE OF AND CONSIDERATION FOR THIS AGREEMENT

1.1          Position and Duties.  Executive is currently employed by the Company as Senior Vice President, Chief Financial Officer.  Executive reports directly to the Chief Executive Officer.

1.2          Restrictions.  During his employment by the Company, Executive agrees to the best of his ability and experience that he will at all times loyally and conscientiously perform all of the duties and obligations required of and from him as Senior Vice President, Chief Financial Officer.  During the term of his employment, Executive further agrees that he will devote all of his business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work, services and advice, Executive will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Board, and Executive will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company.  Nothing in this Agreement will prevent Executive from accepting speaking or presentation engagements in exchange for honoraria or from service on boards of charitable organizations or otherwise participating in civic, charitable or fraternal organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange. It is contemplated that Executive may serve on boards of directors of other, non-competitive companies and the Board will not unreasonably withhold its consent from such participation.  Such participation shall not exceed the greater of eight (8) days per year or such number of days as is required for Executive to serve on the board of directors of two (2) such companies.

1.3          Confidential Information and Invention Assignment Agreement.  Executive acknowledges that he has previously executed and delivered to an officer of the Company the Company’s Confidential Information and Invention Assignment Agreement (the “Confidentiality Agreement”) and that the Confidentiality Agreement remains in full force and effect.

1.4          Confidentiality of Terms.  Executive agrees to follow the Company’s strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this Agreement, regarding salary, bonuses, or stock purchase or option

allocations to any person, including other employees of the Company; provided, however, that Executive may discuss such terms with members of his immediate family and any legal, tax or accounting specialists who provide Executive with individual legal, tax or accounting advice, and Executive may discuss such terms with other employees of the Company on a need to know basis if required to carry out Executive’s duties as the Company’s Senior Vice President, Chief Financial Officer, or at the request of the Board or any other superior officer of the Company.

1.5          Benefits Upon Change of Control.  The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event of a Change of Control or if Executive’s employment with the Company is terminated under the circumstances described herein.

1.6          Consideration.  The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive’s past services to the Company, Executive’s continued employment with the Company, and Executive’s execution of a release in accordance with Section 4.1.

1.7          Prior Agreement.  This Agreement shall supersede any other agreement relating to severance benefits in the event of Executive’s severance from employment, including, without limitation the Employment Agreement between Executive and the Company dated as of December 1, 2003.

ARTICLE 2
OPTION ACCELERATION

2.1          Change of Control Option Acceleration.  In the event of a Change of Control, the vesting and/or exercisability of fifty percent (50%) of Executive’s outstanding Stock Awards shall be automatically accelerated immediately prior to the effective date of such Change of Control.

2.2          Constructive Termination Option Acceleration.

(a)           In the event of a Covered Termination of Executive’s employment prior to or more than twelve (12) months following the effective date of a Change of Control, the vesting and/or exercisability of each of Executive’s outstanding Stock Awards shall be automatically accelerated on the date of termination as to the number of Stock Awards that would vest over the twelve (12) month period following the date of termination had Executive remained continuously employed by the Company during such period.

(b)           In the event of a Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control, the vesting and/or exercisability of one hundred percent (100%) of Executive’s outstanding Stock Awards shall be automatically accelerated on the date of termination.

2.3          Outstanding Stock Awards.  For the avoidance of doubt, the fifty percent (50%), twelve (12) month and one hundred percent (100%) accelerated vesting described in Sections 2.1 and 2.2 shall apply toward that portion of Executive’s outstanding Stock Awards that are unvested as of the date of accelerated vesting.

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ARTICLE 3

SEVERANCE BENEFITS

3.1          Severance Benefits.  A Covered Termination of Executive’s employment prior to or more than twelve (12) months following the effective date of a Change of Control entitles Executive to receive the benefits set forth in this Section 3.1.

(a)           Base Salary.  The Company shall pay to Executive an amount equal to nine (9) months’ Base Salary.  Such severance amount shall be paidover the nine (9) month period commencing on the date of termination in equal monthly installments and shall be subject to all required tax withholding.

(b)           Health Benefits.  Provided that Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company shall pay the premiums of Executive’s group health insurance coverage, including coverage for Executive’s eligible dependents, for a maximum period of nine (9) months following such Covered Termination; provided, however, that the Company shall pay premiums for Executive’s eligible dependents only for coverage for which those eligible dependents were enrolled immediately prior to the Covered Termination.  It being understood that it shall be Executive’s sole responsibility to elect continuation of coverage pursuant to COBRA in the first instance.  No premium payments will be made following the effective date of Executive’s coverage by a health insurance plan of a subsequent employer.  For the balance of the period that Executive is entitled to coverage under federal COBRA law, if any, Executive shall be entitled to maintain such coverage at Executive’s own expense.

3.2          Change of Control Severance Benefits.  A Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control entitles Executive to receive the benefits set forth in this Section 3.2.

(a)           Base Salary.  The Company shall pay to Executive an amount equal to fourteen (14) months’ Base Salary.  Such severance amount shall be paid in cash in a lump sum within thirty (30) days following the Covered Termination and shall be subject to all required tax withholding.

(b)           Bonus.  The Company shall pay to Executive an amount equal to fourteen twelfths (14/12^ths) of Executive’s target annual bonus for the fiscal year during which the Covered Termination occurs, with such bonus determined assuming that all of the performance objectives for such fiscal year have been attained.  Such severance amount shall be paid in cash in a lump sum within thirty (30) days following the Covered Termination and shall be subject to all required tax withholding.

(c)           Health Benefits.  Provided that Executive elects continued coverage under federal COBRA law, the Company shall pay the premiums of Executive’s group health insurance coverage, including coverage for Executive’s eligible dependents, for a maximum period of fourteen (14) months following such Covered Termination; provided, however, that the Company shall pay premiums for Executive’s eligible dependents only for coverage for which

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those eligible dependents were enrolled immediately prior to the Covered Termination.  It being understood that it shall be Executive’s sole responsibility to elect continuation of coverage pursuant to COBRA in the first instance.  No premium payments will be made following the effective date of Executive’s coverage by a health insurance plan of a subsequent employer.  For the balance of the period that Executive is entitled to coverage under federal COBRA law, if any, Executive shall be entitled to maintain such coverage at Executive’s own expense.

(d)           No Duplication of Benefits.  The payments and benefits provided for in this Section 3.2 shall only be payable in the event of a Covered Termination of Executive’s employment within twelve (12) months following the effective date of a Change of Control.  In the event of a Covered Termination of Executive’s employment prior to or more than twelve (12) months following a Change Control, then Executive shall receive the payments and benefits described in Section 3.1 and shall not be eligible to receive any of the payments and benefits described in this Section 3.2.

3.3          Other Terminations.  If Executive’s employment is terminated by the Company for Cause, by Executive other than pursuant to a Constructive Termination or as a result of Executive’s death or disability, the Company shall not have any other or further obligations to Executive under this Agreement (including any financial obligations) except that Executive shall be entitled to receive (a) Executive’s fully earned but unpaid base salary, through the date of termination at the rate then in effect, and (b) all other amounts or benefits to which Executive is entitled under any compensation, retirement or benefit plan or practice of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by federal COBRA law or applicable law.  In addition, subject to the provisions of the Company’s equity compensation plans and the terms of Executive’s Stock Awards, if Executive’s employment is terminated by the Company for Cause, by Executive other than pursuant to a Constructive Termination or as a result of Executive’s death or disability, all vesting of Executive’s unvested Stock Awards previously granted to him by the Company shall cease and none of such unvested Stock Awards shall be exercisable following the date of such termination.  The foregoing shall be in addition to, and not in lieu of, any and all other rights and remedies which may be available to the Company under the circumstances, whether at law or in equity.

3.4          Mitigation.  Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by any retirement benefits received by Executive after the date of the Covered Termination.

3.5          Exclusive Remedy.  Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive’s rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing after the termination of Executive’s employment shall cease upon such termination.  In the event of a termination of Executive’s employment with the Company, Executive’s sole remedy shall be to receive the payments and benefits described in this Agreement.

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ARTICLE 4

LIMITATIONS AND CONDITIONS ON BENEFITS

4.1          Release Prior to Payment of Benefits.  Upon the occurrence of a Covered Termination of Executive’s employment, and prior to the payment of any benefits under this Agreement on account of such Covered Termination, Executive shall execute a release (the “Release”) in the form attached hereto and incorporated herein as Exhibit A or Exhibit B, as applicable.  Such Release shall specifically relate to all of Executive’s rights and claims in existence at the time of such execution and shall confirm Executive’s obligations under the Confidentiality Agreement.  It is understood that, as specified in the applicable Release, Executive has a certain number of calendar days to consider whether to execute such Release, and Executive may revoke such Release within seven (7) calendar days after execution.  In the event Executive does not execute such Release within the applicable period, or if Executive revokes such Release within the subsequent seven (7) day period, no benefits shall be payable under this Agreement.

4.2          Termination of Benefits.  Benefits under this Agreement shall terminate immediately if the Executive, at any time, violates any proprietary information or confidentiality obligation to the Company, including, without limitation, the Confidentiality Agreement.

ARTICLE 5

PARACHUTE PAYMENTS

5.1          Best Pay Provision.  Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any Payment under this Agreement would, when combined with all other Payments Executive receives from the Company or any successor or parent or subsidiary thereof, but for this Article 5, be subject to the Excise Tax, then such Payments shall be either (a) the full amount of such Payments or (b) such lesser amount (with cash payments being reduced before stock option compensation) as would result in no portion of the Payments being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local employment taxes, income taxes and the Excise Tax, results in Executive’s receipt, on an after-tax basis, of the greater amount of the Payments notwithstanding that all or some portion of the Payments may be subject to the Excise Tax.

5.2          Determinations.  All determinations required to be made under this Article 5, including whether and to what extent the Payments shall be reduced and the assumptions to be utilized in arriving at such determination, shall be made by the nationally recognized certified public accounting firm used by the Company immediately prior to the Change of Control or, if such firm declines to serve, such other nationally recognized certified public accounting firm as may be designated by the Executive (the “Accounting Firm”).  The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive at such time as is requested by the Company.  All fees and expenses of the Accounting Firm shall be borne solely by the Company.  Any determination by the Accounting Firm shall be binding upon the Company and the Executive.  For purposes of making the calculations required by this Article 5, the Accounting Firm may make reasonable assumptions and approximations concerning

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applicable taxes and may rely on reasonable, good-faith interpretations concerning the application of Sections 280G and 4999 of the Code.

ARTICLE 6

DEFINITIONS

For purposes of the Agreement, the following terms are defined as follows:

6.1          “Base Salary” means Executive’s annual base salary as in effect during the last regularly scheduled payroll period immediately preceding the Covered Termination.

6.2          “Board” means the Board of Directors of the Company.

6.3          “Cause” means that, in the reasonable determination of the Company, Executive:

(a)           has committed an act of fraud or embezzlement or has intentionally committed some other illegal act that has a material adverse impact on the Company or any successor or parent or subsidiary thereof;

(b)           has been convicted of, or entered a plea of “guilty” or “no contest” to, a felony which causes or may reasonably be expected to cause substantial economic injury to or substantial injury to the reputation of the Company or any subsidiary or affiliate of the Company;

(c)           has made any unauthorized use or disclosure of confidential information or trade secrets of the Company or any successor or parent or subsidiary thereof that has a material adverse impact on any such entity;

(d)           has committed any other intentional misconduct that has a material adverse impact on the Company or any successor or parent or subsidiary thereof, or

(e)           has intentionally refused or intentionally failed to act in accordance with any lawful and proper direction or order of the Board or the appropriate individual to whom Executive reports; provided such direction is not materially inconsistent with the Executive’s customary duties and responsibilities.

6.4          “Change of Control” means and includes each of the following:

(a)           the acquisition, directly or indirectly, by any “person” or “group” (as those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) of “beneficial ownership” (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities entitled to vote generally in the election of directors (“voting securities”) of the Company that represent fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities, other than:

(i)            an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or

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any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company, or

(ii)           an acquisition of voting securities by the Company or a corporation owned, directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company;

Notwithstanding the foregoing, the following event shall not constitute an “acquisition” by any person or group for purposes of this Section: an acquisition of the Company’s securities by the Company that causes the Company’s voting securities beneficially owned by a person or group to represent fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities; provided, however, that if a person or group shall become the beneficial owner of fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities by reason of share acquisitions by the Company as described above and shall, after such share acquisitions by the Company, become the beneficial owner of any additional voting securities of the Company, then such acquisition shall constitute a Change of Control; or

(b)           the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

(i)            which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

(ii)           after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning fifty percent (50%) or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

(c)           the Company’s stockholders approve a liquidation or dissolution of the Company.

Notwithstanding the foregoing, a transaction shall not constitute a Change of Control if: (i) it constitutes the Company’s initial public offering of its securities; or (ii) it is a transaction effected primarily for the purpose of financing the Company with cash (as determined by the Board in its discretion and without regard to whether such transaction is effectuated by a merger,

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equity financing or otherwise).  The Board shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto.

6.5          “Code” means the Internal Revenue Code of 1986, as amended from time to time and the Treasury Regulations thereunder.

6.6          “Company” means Sunesis Pharmaceuticals, Inc. or, following a Change of Control, the surviving entity resulting from such transaction.

6.7          “Constructive Termination” means that Executive voluntarily terminates employment after any of the following are undertaken without Executive’s express written consent:

(a)           the removal of or a material reduction in the nature or scope of Executive’s responsibilities, or the assignment to Executive of duties that are materially inconsistent with Executive’s position other than a change in reporting relationship;

(b)           a change in the Executive’s direct reporting relationship so that Executive no longer reports directly to the Company’s (or its successor’s) most senior executive officer;

(c)           a reduction in Executive’s base salary, unless the base salaries of all other executives are similarly reduced;

(d)           a reduction in Executive’s target bonus within twelve (12) months following the effective date of a Change of Control, unless the target bonuses of all other executives are similarly reduced; or

(e)           a relocation of Executive’s place of employment by more than thirty (30) miles from such Executive’s place of employment on the Effective Date.

The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be a Constructive Termination.

6.8          “Covered Termination” means an Involuntary Termination Without Cause or a Constructive Termination.

6.9          “Excise Tax” means the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.

6.10        “Involuntary Termination Without Cause” means Executive’s dismissal or discharge other than for Cause.  The termination of Executive’s employment as a result of Executive’s death or disability will not be deemed to be an Involuntary Termination Without Cause.

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6.11        A “Payment” shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise.

6.12        “Stock Awards” means all stock options, restricted stock and such other awards granted pursuant to the Company’s stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof.

ARTICLE 7

GENERAL PROVISIONS

7.1          Employment Status.  This Agreement does not constitute a contract of employment or impose upon Executive any obligation to remain as an employee, or impose on the Company any obligation (a) to retain Executive as an employee, (b) to change the status of Executive as an at-will employee, or (c) to change the Company’s policies regarding termination of employment.

7.2          Notices.  Any notices provided hereunder must be in writing, and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by facsimile) or the third day after mailing by first class mail to the Company at its primary office location and to Executive at Executive’s address as listed in the Company’s payroll records.  Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at the address as listed in the Company’s payroll records.

7.3          Severability.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.

7.4          Waiver.  If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

7.5          Arbitration.  Any dispute, claim or controversy based on, arising out of or relating to Executive’s employment or this Agreement shall be settled by final and binding arbitration in San Mateo County, California, before a single neutral arbitrator in accordance with the National Rules for the Resolution of Employment Disputes (the “Rules”) of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction.  Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.).  If the parties are unable to agree upon an arbitrator, one shall be appointed by the AAA in accordance with its Rules.  Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected

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with presenting its case; however, Executive and the Company agree that, to the extent permitted by law, the arbitrator may, in his discretion, award reasonable attorneys’ fees to the prevailing party.  Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, AAA’s administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company.  This Section 7.5 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement or relating to Executive’s employment; provided, however, that neither this Agreement nor the submission to arbitration shall limit the parties’ right to seek provisional relief, including, without limitation, injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction.  Seeking any such relief shall not be deemed to be a waiver of such party’s right to compel arbitration.  Both Executive and the Company expressly waive their right to a jury trial. Pursuant to California Civil Code Section 1717, each party warrants that it was represented by counsel in the negotiation and execution of this Agreement, including the attorneys’ fees provision herein.

7.6          Complete Agreement.  This Agreement, including Exhibit A and Exhibit B, constitutes the entire agreement between Executive and the Company and is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter, wholly superseding all written and oral agreements with respect to severance benefits to Executive in the event of employment termination.  It is entered into without reliance on any promise or representation other than those expressly contained herein.  Notwithstanding anything herein to the contrary, this Agreement shall not supersede any indemnification agreement between Executive and the Company.

7.7          Amendment or Termination of Agreement.  This Agreement may be changed or terminated only upon the mutual written consent of the Company and Executive.  The written consent of the Company to a change or termination of this Agreement must be signed by an executive officer of the Company after such change or termination has been approved by the Board.

7.8          Counterparts.  This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.

7.9          Headings.  The headings of the Articles and Sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.

7.10        Successors and Assigns.  This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, and the Company, and any surviving entity resulting from a Change of Control and upon any other person who is a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company, and their respective successors, assigns, heirs, executors and administrators, without regard to whether or not such person actively assumes any rights or duties hereunder; provided, however, that Executive may not assign any duties hereunder and may not assign any rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably.

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7.11        Choice of Law.  All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of California, without regard to such state’s conflict of laws rules.

7.12        Non-Publication.  The parties mutually agree not to disclose publicly the terms of this Agreement except to the extent that disclosure is mandated by applicable law or regulation or to their respective advisors (e.g., attorneys, accountants).

7.13        Construction of Agreement.  In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control.

7.14        Code Section 409A.  This Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A of the Code, and any payment scheduled to be made hereunder that would otherwise violate Section 409A of the Code shall be delayed to the extent necessary for this Agreement and such payment to comply with Section 409A of the Code.

(Signature Page Follows)

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IN WITNESS WHEREOF, the parties have executed this Agreement on the Effective Date written above.

SUNESIS PHARMACEUTICALS, INC.				ERIC H. BJERKHOLT
By:	/s/ Anthony B. Evnin			/s/ Eric H. Bjerkholt
Name:			Anthony B. Evnin
Title:		Chairman of the Compensation
Committee of the Board of Directors

Exhibit A:  Release (Individual Termination)

Exhibit B:  Release (Group Termination)

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EXHIBIT A

RELEASE
(INDIVIDUAL TERMINATION)

Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the “Agreement”) which I have executed and of which this Release is a part.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”  I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.

Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to:  all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of disputed compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; statutory law; common law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company’s indemnification obligation pursuant to agreement or applicable law.

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I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA.  I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled.  I further acknowledge that I have been advised by this writing, as required by the ADEA, that:  (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the parties to revoke the Release; and (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release is executed by me.

ERIC H. BJERKHOLT

Date:

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EXHIBIT B

RELEASE
(GROUP TERMINATION)

Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the “Agreement”) which I have executed and of which this Release is a part.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”  I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.

Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to:  all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of disputed compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; statutory law; common law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company’s indemnification obligation pursuant to agreement or applicable law.

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I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA.  I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled.  I further acknowledge that I have been advised by this writing, as required by the ADEA, that:  (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have forty-five (45) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the parties to revoke the Release; (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release is executed by me; and (F) I have  received with this Release a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated.

ERIC H. BJERKHOLT

Date:

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EX-10.11

Exhibit 10.11

Sunesis Pharmaceuticals Bonus Program

Proposed to the Compensation Committee February 1, 2002

Amended January 6, 2005

Sunesis Pharmaceuticals has designed a Bonus Program to provide an incentive to employees to achieve individual, group and corporate objectives.  The program is also intended to maintain the Company’s competitive position with respect to compensation, and to enhance our ability to attract and retain superior talent.  Under the proposed plan, all regular Sunesis employees in good standing are eligible to receive a bonus.  Bonuses for employees hired during the plan year are prorated according to time of service.

Program Objectives

The Bonus Program is structured to be competitive in the Northern California Biotechnology Industry Marketplace, with its bonus targets “at market” – i.e. close to the average of a group of appropriate comparators especially in the lower tiers of our salary structure. 

The Bonus Program is intended to reinforce the following values:

•       Achievement of Company Objectives

•       Achievement of Department/Group/Team objectives

•       Recognition of individual contributions and effort

2004 Bonus Pool

Six tiers of positions are proposed, with bonus targets ranging from 6% to 25% of base pay.  The bonus target for executive officers is 25% of base pay.  These bonus targets were applied to all staff and prorated for new hires, and accrued throughout the year, assuming an 85% of target payout.  The accrual amounts to 10.51% of payroll, or $1,163,101.

Administration of the Process

•A bonus pool is incorporated into the Company’s base budget and is accrued throughout the year.

•Employees are eligible for bonus amounts as a percentage of base pay (the “target amount”), depending on the position they hold.  The bonus pool is calculated by adding the target amounts for all eligible employees.

•At year-end, the Company’s Management and Compensation Committee determine the degree to which the Company has met its overall objectives for the year and the pool is adjusted accordingly.  For example, if the Company has not accomplished all of its objectives, the pool available for bonus payout may be adjusted downward by the Compensation Committee.  In the event the Company has exceeded its objectives, the Compensation Committee may elect to increase the size of the pool.

•Once the size of the bonus pool has been determined, target bonuses of employees are adjusted accordingly.  For example, if an employee’s target bonus is 10% of annualized salary, and the Compensation Committee has determined that the bonus pool should be 80% of the base amount, the employee’s target bonus is adjusted to 80% of 10% (8%).

•Bonus awards to individual employees will be adjusted upward or downward based on the accomplishment of group and individual objectives, and upon individual effort and teamwork.  Individual bonuses are intended to reflect the employee’s performance.  All such adjustments will be made within the context of not exceeding the size of the overall bonus pool.

•For non-executive employees, the bonus amount is determined by the Executive Committee with input from Department Heads and Supervisors.  For Executive Committee members, the

bonus amount is determined by the Compensation Committee of the Board of Directors with input from the Chief Executive Officer.

•Regular communication is provided throughout the year to update employees on progress toward accomplishment of Company and Group goals.

EX-10.12

Exhibit 10.12

SUNESIS PHARMACEUTICALS INC.

CONSULTING AGREEMENT

This Consulting Agreement (“Agreement”) is entered into and effective as of August 8, 2005 (the “Effective Date”), between Sunesis Pharmaceuticals Inc., a Delaware Corporation (“Sunesis”) and James A. Wells, Ph.D. (“Consultant”).

The parties agree as follows:

1.Services.  Consultant agrees to (i) act as a member of Sunesis’ Scientific Advisory Board (“SAB”), including attending and participating in each SAB Meeting and acting as its chairman (hereinafter “SAB Responsibilities”); and (ii) provide consulting services as is mutually agreed by the parties and further described in the attached Exhibit A (hereinafter “Consulting Responsibilities”) (collectively, the “Services”).

2.Compensation.  As consideration for Consultant’s performance of Services, Sunesis shall pay Consultant as set forth below.

a)For SAB Responsibilities: Consultant shall receive $1,500 per day for participation at each SAB Meeting.

b)For Consulting Responsibilities:  Consultant shall be paid $5000 for two (2) days of consulting per month (approx. ½ day per week per month).  Additional consulting days will be paid at a rate of $3,000 per day.  Sunesis will make payments for services performed under this paragraph 2b on a monthly basis based on receipt of Consultant’s invoice.

In addition to the above, any granted Sunesis Incentive Stock Options (ISOs) held by Consultant will be converted to Non-Qualified Stock Options (NQSOs), and all unvested stock options will continue to vest during the next twelve (12) months commencing on the 1^st day of each month after the Effective Date.  At the end of such 12 month period vesting will end.

3.Expenses.  Sunesis shall reimburse Consultant for reasonable travel and related expenses incurred in the course of performing the Services hereunder.  Sunesis shall make payments for such expenses within thirty (30) days after receipt of Consultant’s invoice therefor.

4.Confidentiality.  Consultant shall maintain in confidence and not publish or otherwise disclose to third parties or use for any purpose other than providing the Services hereunder any Confidential Information of Sunesis, unless otherwise approved in writing by Sunesis.  As used in this Agreement “Confidential Information” shall mean any information or other subject matter disclosed to Consultant by Sunesis in connection with Consultant’s performance of the Services.  Notwithstanding the foregoing, Confidential Information shall not include

#1483 SAB/BOD and Consulting Agreement	ver.18-Jul-2005
James A. Wells, Ph.D.
SV\471941.1

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information that: (i) was publicly known and generally available in the public domain prior to the time of disclosure to Consultant, (ii) becomes publicly known and generally available after disclosure to Consultant through no action or inaction of Consultant; or (iii) is in the possession of Consultant, without confidentiality restrictions, prior to the time of disclosure to Consultant as shown by Consultant’s files and records immediately prior to the time of disclosure.

5.Ownership of Materials.  All Confidential information, including without limitation, tangible materials received from Sunesis shall remain the property of Sunesis, and Consultant shall deliver all such Confidential Information to Sunesis upon expiration or termination of this Agreement, or earlier if so requested by Sunesis.

6.Assignment of Discoveries.  Consultant will promptly disclose and assign to Sunesis Consultant’s entire right, title and interest in all Discoveries.  “Discoveries” as used in this Agreement shall mean all technical or business innovations, whether or not patentable or copyrightable, which are made by Consultant in the course of performing the Services, and/or at the request of Sunesis, or are based upon or incorporate any Confidential Information of Sunesis.

7.Duty to Assist.  As requested by Sunesis, Consultant shall take all steps reasonably necessary to assist Sunesis in obtaining and enforcing in its own name any patent, copyright or other protection, which Sunesis elects to obtain or enforce for the Discoveries.  Consultant’s obligation to assist Sunesis in obtaining and enforcing patents, copyrights and other protections shall continue beyond the termination of Consultant’s relationship with Sunesis, but Sunesis shall compensate Consultant at a reasonable rate after the termination of such relationship for time actually spent at Sunesis’ request providing such assistance.

8.No Conflict.  Consultant represents that Consultant’s compliance with the terms of this Agreement and provision of Services hereunder will not violate any duty which Consultant may have to any other person or entity (such as a present or former employer), including obligations concerning providing services to others, confidentiality of proprietary information and assignment of inventions, ideas, patents or copyrights, and Consultant agrees that Consultant will not do anything in the performance of Services hereunder that would violate any such duty.  In addition, Consultant agrees that, during the term of this Agreement, prior to performing any services for or otherwise participating in a company developing, discovering or commercializing technology or products that are competitive with Sunesis, Consultant shall first notify Sunesis in writing.  It is understood that in such event, Sunesis will review whether Consultant’s activities are consistent with remaining a member of Sunesis’ SAB.

9.Legal Relationship.   Consultant shall not be an employee of Sunesis or any of its affiliates, or entitled to participate in any employee benefit plan of Sunesis or receive any benefit available to employees of Sunesis, including insurance, worker’s compensation, retirement and vacation benefits.  Consultant shall not have any authority to, and shall not, make any representation or promise or enter into any agreement on behalf of Sunesis.

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10.Term and Termination.  The initial term of this Agreement shall be for a period of one (1) year from the Effective Date.  Thereafter and subject to Sunesis’ re-evaluation of the terms and conditions, this Agreement shall automatically renew for subsequent one (1) year periods unless otherwise terminated by either party upon prior written notice.  Either party upon thirty (30) days prior notice may terminate this Agreement.  The provisions of Sections 4, 5, 6, 7, and 11 shall survive expiration or termination of this Agreement for any reason.

11.Miscellaneous.  This Agreement shall be governed by the laws of the State of California, without reference to its conflicts of laws provisions.  This Agreement and the agreements referred to herein, including the Indemnification Agreement dated January 12, 2005 between the parties, is the only and entire agreements between the parties and supersede all prior agreement and representations.  This Agreement may be amended or modified only by a writing signed by both parties. If any provision of this Agreement shall be found by a court to be void, invalid or unenforceable, the same shall be reformed to comply with applicable law or stricken if not so conformable, so as not to affect the validity or enforceability of the remainder of this Agreement.  This Agreement may be executed in counterparts, each of which shall be deemed as original, but both of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

Sunesis Pharmaceuticals, Inc.			Consultant
341 Oyster Point Boulevard			1341 Columbus Avenue
South San Francisco, California 94080			Burlingame, California 94010
By:	/s/ Daniel N. Swisher, Jr.		By:	/s/ James A. Wells, Ph.D.
	Daniel N. Swisher, Jr.			James A. Wells, Ph.D.
	Chief Executive Officer
Date Signed:		8/5/05	Date Signed:		8/5/05

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EXHIBIT A

CONSULTING SERVICES

Consulting services to be provided by Consultant to Sunesis shall include, but not limited to:

•Review and support of research collaborations, in particular BIIB kinase collaborations.

•Advise on portfolio management and specific program activities, and selection and prioritization of new targets for internal discovery efforts.

•Assist with outreach efforts among scientific and oncology communities.

•Participate in the review and discussion of strategic and corporate matters with Sunesis’ CEO.

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EX-10.23

Exhibit 10.23

	GE CAPITAL CORPORATION
Barbara Kaiser	Life Science Finance
SVP, Sales	2050 Martin Avenue
	Santa Clara, CA 95050
	408-986-6886 ph./ 408-980-7722

June 27, 2005

Revised:  June 29, 2005

Revised:  July 6, 2005

CONFIDENTIAL LOAN PROPOSAL FOR

Sunesis Pharmaceuticals, Inc.

Sunesis Pharmaceuticals, Inc.

Mr. Eric Bjerkholt

SVP/ Chief Financial Officer

Sunesis Pharmaceuticals, Inc.

341 Oyster Point Blvd

South San Francisco, CA 94080

Dear Eric:

General Electric Capital Corporation (“GE Capital”) is pleased to submit the following loan proposal to Sunesis Pharmaceuticals, Inc.:

Transaction:	Loan
Borrower:	Sunesis Pharmaceuticals, Inc.
Lender:	General Electric Capital Corporation, its affiliates or its assignee (“GE Capital”)
Loan Amount:	$2,500,000
Equipment:	Laboratory and scientific equipment, computer equipment, FF&E, and soft cost as detailed in the attached Addendum A. Equipment acquired 3/1/05 and after may be included in the line. All equipment is to be acceptable to GE Capital and will be free and clear of other liens, claims, and encumbrances.
Loan Term and Payment:	Computer equipment and soft cost:36 months of Principal and Interest @ 3.16067% of financed cost, paid monthly in advance for each loan schedule, full payout. (9.10% all-in rate).
	All other equipment:48 months of Principal and Interest @ 2.47675% of financed cost, paid monthly in advance for each loan schedule, full payout. (9.15% all-in rate).
Anticipated Funding Period:	Through 12/31/06.
Line Mechanics:	Minimum fundings will be $75,000, with no more than one funding per month.
	For schedules subsequent to the first, equipment with invoice dates older than 90 days will be financed at appropriate discount.
	Amortization begins on the first of the month start date. Interim interest will be charged for any period between the funding date and the start date.
Warrants:	The Company paid a warrant (dated 6/21/04, 1,435 shares of Series C-1 Pf. Stock) for an additional $302,850 soft cost on the prior line. The additional soft cost was never used. Therefore, the warrant will be carried over to cover the first

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Sunesis Pharmaceuticals, Inc.

	$302,850 soft cost financed under this new line.
	Additionally, in consideration for the remaining $322,150 soft cost to be financed under this line, the Company will provide to GE Capital a warrant for shares of Series C-1 Preferred stock equivalent to a 2.272% position at the Series C-1 price per share (i.e., $322,150 x 2.272% ¸ $4.80 per share). The terms will be the same as the warrants dated 6/11/03 and 6/21/04.
Lien:	The existing continuing lien (on all equipment financed by GE Capital) will be extended through the end of the funding period for this new line.
Covenants:	None
Deposits/
Compensating Balances:	None

GENERAL TERMS AND CONDITIONS

Our proposal contains the following provisions and the Loan Payments we propose are specifically based upon these provisions and our assumptions.

1.MAINTENANCE AND INSURANCE: All maintenance and insurance (fire and theft, extended coverage and liability) are the responsibility of the Company.  Company will be responsible for maintaining in force, all risk damage, and liability insurance in amounts and coverages satisfactory to GE Capital.

2.DOCUMENTATION: GE Capital’s current standard loan documentation for this type of collateralized loan will be used.  (Almost all of the Company’s master documents are already in place.)

3.INDEXING: The Interest Rate, Payment Factor and corresponding Loan Payment are based on the Federal Reserve 36- and imputed 48-month Treasury Constant Maturity Rates (H.15/ “Treasury Rates”) for 6/22/05 and will be adjusted effective as of the date of funding of any Financing.

4.TRANSACTION COSTS: By execution and return of this proposal letter, the Company will be responsible for all of its closing costs.

5.             PROPOSAL FEE:  $20,000.  Of this, $5,000 will be credited to schedules as financed and the remaining $15,000 will be retained by GE Capital to cover its ordinary costs and expenses associated with the line (e.g., application processing, internal legal cost, UCC  search and filing fees, documentation, etc.).   All or a portion of this fee will be forfeited if this transaction is approved by
GE Capital and not executed by Borrower as called for in this

3

Sunesis Pharmaceuticals, Inc.

proposal. If investment approval is not obtained, the fee will be promptly returned to Borrower (less the cost of credit verification and investigation and any out of pocket expenses incurred such as appraisal fees, legal fees, etc.).

6.ELECTRONIC PAYMENT SYSTEM: GE Capital’s standard payment collection method is through an electronic payment system.  An enrollment form will be provided with Loan documentation. (Optional, but recommended.)

7.CONFIDENTIALITY:  This proposal letter is being provided to the Company on a confidential basis.  Except as required by law, neither this proposal nor its contents may be disclosed, except to individuals who are the Company’s officers, employees or advisors who have a need to know of such matters and then only on the condition that such matters remain confidential.  In addition, none of such persons shall, except as required by law, use the name of, or refer to GE Capital, in any correspondence, discussions, advertisement, press release or disclosure made in connection with the Financing without the prior written consent of GE Capital.

8.             EXPIRATION:  This proposal will expire 7/8/05 if not accepted prior to that date.

This proposal expresses GE Capital’s willingness to seek internal approval for the

transaction contemplated herein.  By signing and returning this letter both parties acknowledge that:  The above proposed terms and conditions do not constitute a commitment by GE Capital, (ii) GE Capital’s senior management may seek changes to the above terms and conditions, and (iii) GE Capital may decline further consideration of this transaction at any point in the approval process.  GE Capital’s agreement to fund the proposed transaction remains subject to and would be preceded by completion of a legal and business due diligence, as well as collateral and credit review and analysis, all with results satisfactory to GE Capital, and the closing of an initial funding under such transaction would be conditioned upon the prior execution and delivery of final legal documentation and all conditions precedent acceptable to GE Capital and its counsel and no material adverse change in the business conditions or prospects of the Company (“Material Adverse Change”).  For transactions that contemplate more than one funding, GE Capital’s obligation to make each such subsequent funding would be subject to confirmation that no Material Adverse Change has occurred.

                I would appreciate the opportunity to discuss this proposal with you at your earliest convenience.  Please do not hesitate to contact me at (408) 986-6886 if you have any questions or if I may be of other assistance.

Sincerely,	PROPOSAL ACCEPTED BY:
	Sunesis Pharmaceuticals, Inc.
Barbara Kaiser	Name:	/s/ Eric Bjerkholt
SVP, Sales
		Title:	Senior Vice President and Chief Financial Officer
		Date:	7/8/05

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Sunesis Pharmaceuticals, Inc.

Addendum A

Expected Equipment Composition (by end of line):

Category		Amount		Percent
Lab and scientific equipment:	³	$1,250,000	³		50	%
Computer equipment:	£	500,000	£		20	%
FF&E:	£	125,000	£		5	%
Soft Cost (LHs, software, tax, freight, & similar):	£	625,000	£		25	%
TOTAL:		$2,500,000			100	%

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AUTHORIZATION FOR RELEASE

OF INFORMATION

The undersigned hereby authorizes past and present depositing institutions, creditors, vendors and suppliers of the undersigned to provide such information pertaining to any loans, leases, lines of credit, account balances, and payment histories of the undersigned to General Electric Capital Corporation as it may request.

Sunesis Pharmaceuticals, Inc.

By:	/s/ Eric Bjerkholt
Title:	Senior Vice President, Chief Financial Officer
Date:	7/8/05

6

EX-10.35

Exhibit 10.35

EXECUTION VERSION

LICENSE AGREEMENT

between

SUNESIS PHARMACEUTICALS, INC.

and

BRISTOL-MYERS SQUIBB COMPANY

Confidential treatment has been requested for portions of this exhibit.  The copy filed herewith omits the information subject to the confidentiality request.  Omissions are designated as [*].  A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

LICENSE AGREEMENT

THIS LICENSE AGREEMENT (this “Agreement”) is made and entered into as of April 27,  2005(the “Effective Date”), by and between Bristol-Myers Squibb Company, a Delaware corporation headquartered at 345 Park Avenue, New York, New York 10154 (“BMS”), and Sunesis Pharmaceuticals, Inc., a Delaware corporation having its principal place of business at 341 Oyster Point Boulevard, South San Francisco, California 94080 (“Sunesis”).  BMS and Sunesis are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

WHEREAS, BMS Controls (as defined below) certain patent rights and know-how rights with respect to the Licensed Compounds (as defined below); and

WHEREAS, Sunesis desires to obtain from BMS the licenses set forth herein, and BMS desires to grant such licenses to Sunesis, all on the terms and conditions set forth in this Agreement;

NOW, THEREFORE in consideration of the foregoing and the mutual agreements set forth below, the Parties agree as follows: 

ARTICLE 1

DEFINITIONS

The terms in this Agreement with initial letters capitalized, whether used in the singular or the plural, shall have the meaning set forth below or, if not listed below, the meaning designated in places throughout this Agreement.

1.1“AAA” has the meaning set forth in Section 14.2.

1.2“Acceptance Notice” has the meaning set forth in Section 3.1(e).

1.3“Act” means the United States Food, Drug and Cosmetic Act, as amended.

1.4“Active Compound” means any compound that exhibits an IC50 of <[*] in any of the CDK inhibitor assays described in Appendix 2 attached hereto, or any successor assay designated in accordance with Section 4.6.

1.5“Affiliate” of a Person means any other Person which (directly or indirectly) is controlled by, controls or is under common control with such Person.  For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as used with respect to a Person means (i) in the case of a corporate entity, direct or indirect ownership of voting securities entitled to cast at least fifty percent (50%) of the votes in the election of directors or (ii) in the case of a non-corporate entity, direct or indirect ownership of at least fifty percent (50%) of the voting securities with the power to direct the management and policies of such entity.

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

1

1.6“Agreement” means this Agreement, together with all Appendices attached hereto, as the same may be amended or supplemented from time to time.

1.7“Approval” means, with respect to any Licensed Product in any regulatory jurisdiction, approval from the applicable Regulatory Authority sufficient for the manufacture, distribution, use and sale of the Licensed Product in such jurisdiction in accordance with applicable Laws, including receipt of pricing and reimbursement approvals, where applicable.  For purposes of the U.S., Approval means NDA approval.  For purposes of Japan, Approval means JNDA approval.

1.8“Blended Rate” means (a) the total amount of royalties (stated in U.S. dollars) that would be payable in a Calendar Year with respect to a Product under Section 8.4.1, without the applicable reduction in the royalty rate (under Section 8.4.3 and/or 8.4.4) divided by (b) the total Net Sales (stated in U.S. dollars) of such Product in that Calendar Year, expressed as a percentage. 

1.9“BMS-387032” means the compound identified by BMS as “BMS-387032”.

1.10“BMS Core Patent Rights” means the patents and patent applications which are listed in Section 1 of Appendix 1 hereto, and (a) any foreign counterparts thereof, (b) all divisionals, continuations, continuations-in-part thereof or any other patent application claiming priority to (i) any of the patents identified in Section 1 of Appendix 1 or (ii) any patent or patent application from which the patents identified in Section 1 of Appendix 1 claim priority, and (c) all patents issuing on any of the foregoing, together with all registrations, reissues, re-examinations, supplemental protection certificates, or extensions thereof, and any foreign counterparts thereof.

1.11“BMS Extension Patent Rights” has the meaning set forth in Section 2.8.

1.12“BMS Know-How” means all technical information and know-how known to and Controlled by BMS as of the Effective Date (including, without limitation, all biological, chemical, pharmacological, toxicological, clinical, assay and related know-how and trade secrets, and all manufacturing data, the specifications of ingredients, the manufacturing processes, specifications, sourcing information,assays, quality control and testing procedures, and related know-how and trade secrets) that is primarily and directly related to and/or reasonably necessary for the manufacture, Development and/or Commercialization of the Licensed Compounds or a Licensed Product.  BMS Know-How shall not include information and know-how that is acquired or developed by BMS after the Effective Date.

1.13“BMS Other Patent Rights” means (a) patents and patent applications (other than the BMS Core Patent Rights) that are necessary or useful for the manufacture, Development and/or Commercialization of Licensed Compounds and/or Licensed Products that are Controlled by BMS or its Affiliates as of the Effective Date, which are listed in Section 2 of Appendix 1 hereto; (b) those claims in patents and patent applications (other than the BMS Core Patent Rights) that are Controlled by BMS or its Affiliates that are specifically directed to or specifically refer to one or more Licensed Compound and/or Licensed Product (for example, patent rights covering the use of a Licensed Compound in combination with another pharmaceutical agent); (c) all divisionals, continuations, continuations-in-part thereof or any other patent application claiming priority to (i) any of the patents identified in Section 2 of Appendix 1 or (ii) any patent or patent application from which the patents identified in Section 2 of Appendix 1 claim priority; and (d) all patents issuing on any of the foregoing, together with all registrations, reissues, re-examinations, supplemental protection certificates, or extensions thereof, and any foreign counterparts thereof.

1.14“BMS Patent Rights” means the BMS Core Patent Rights, BMS Extension Patent Rights and the BMS Other Patent Rights.

2

1.15“Business Day” or “business day” means a day other than Saturday, Sunday or any day on which commercial banks located in New York, New York are authorized or obligated by applicable Laws to close.

1.16“Calendar Quarter” means the respective periods of three consecutive calendar months ending on March 31, June 30, September 30 and December 31.

1.17“Calendar Year” means each successive period of 12 months commencing on January 1 and ending on December 31.

1.18“Caribbean and Central America” means all countries that are included in the geographic area comprising as of the Effective Date: Antigua and Barbuda, Bahamas, Barbados, Belize, Bermuda, Costa Rica, Cuba, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Haiti, Honduras, Jamaica, Nicaragua, Panama, St. Kitts & Nevis, St. Lucia, St. Vincent & the Grenadines, and Trinidad and Tobago.

1.19“CDK” means individually or collectively CDK1, CDK2, CDK4, CDK7 and/or CDK9.

1.20“Combination Product” means a Licensed Product that includes at least one additional active ingredient other than the Licensed Compound.  Drug delivery vehicles, adjuvants, and excipients shall not be deemed to be “active ingredients”, except in the case where such delivery vehicle, adjuvant, or excipient is recognized by the FDA as an active ingredient in accordance with 21 CFR 210.3(b)(7).

1.21“Commercialization” or “Commercialize” means activities directed to commercially manufacturing, obtaining pricing and reimbursement approvals, carrying out Phase 4 Trials for, marketing, promoting, distributing, importing or selling a Licensed Product.

1.22“Commercially Reasonable Efforts” means, with respect to Licensed Compounds and Licensed Products, the carrying out of Development or Commercialization activities in a sustained manner using good faith commercially reasonable and diligent efforts, using the efforts that a company within the pharmaceutical industry would reasonably devote to an oncology product of similar market potential or profit potential at a similar stage in development or product life resulting from its own research efforts, based on conditions then prevailing and taking into account, without limitation, issues of safety and efficacy, product profile, the proprietary position, the then current competitive environment for such product or compound and the likely timing of the product’s entry into the market, the regulatory environment and status of the product, and other relevant scientific, technical and commercial factors.  Commercially Reasonable Efforts requires that Sunesis: (i) promptly assign responsibility for such Development and Commercialization activities to specific employees, contractors, agents, Affiliates or Sublicensees, as applicable, who are held accountable for progress and monitor such progress on an on-going basis, (ii) set and consistently seek to achieve specific and meaningful objectives and timelines for carrying out such Development and Commercialization activities, (iii) consistently make and implement decisions and allocate resources designed to advance progress with respect to such objectives and timelines, and (iv) where applicable, employ compensation systems for its employees that reasonably incentivize such employees to achieve such objectives. 

1.23“Competitive Compound” means any compound that is not a Licensed Compound and that exhibits activity in any of the assays described in Appendix 2 applicable to CDK2, CDK7 or CDK9 (or any

3

successor assay thereto designated in accordance with Section 4.6) with: (i) an IC₅₀ < [*], or (ii) an IC₅₀ between [*] and [*] where the compound also exhibits activity against any Primary Target that is less than [*]fold greater than such compound’s activity against the applicable CDK2, CDK7 and/or CDK9.  “Primary Target” as used herein is any target specified by Sunesis other than CDK2, CDK7 or CDK9.  For clarity, if a particular compound that is not a Licensed Compound exhibits activity with an IC₅₀ < [*] against any of CDK2, CDK7 or CDK9, it is a Competitive Compound.  Further, if a particular compound that is not a Licensed Compound exhibits activity with an IC₅₀ > [*] against each of CDK2, CDK7 and CDK9, it is not a Competitive Compound.  Alternately, by way of example, if a particular compound that is not a Licensed Compound exhibits activity with an IC₅₀ > [*] against both CDK2 and CDK7, but exhibits activity with an IC₅₀ = [*] against CDK9, it is a Competitive Compound unless it also exhibits activity with an IC₅₀ < [*] against one or more Primary Target(s).  For the purposes of determining whether a particular compound is a Competitive Compound, activity against any Primary Target shall be measured in an industry standard assay for such Primary Target, or if no such industry standard exists for a particular Primary Target, then the measurement will be made in the assay then used internally by Sunesis for such Primary Target. 

1.24“Confidential Information” means all trade secrets, processes, formulae, data, know-how, improvements, inventions, chemical or biological materials, techniques, marketing plans, strategies, customer lists, or other information that has been created, discovered, or developed by a Party, or has otherwise become known to a Party, or to which rights have been assigned to a Party, as well as any other information and materials that are deemed confidential or proprietary to or by a Party (including, without limitation, all information and materials of a Party’s customers and any other Third Party and their consultants), in each case that are disclosed by such Party to the other Party, regardless of whether any of the foregoing are marked “confidential” or “proprietary” or communicated to the other by the disclosing Party in oral, written, graphic, or electronic form.  For all purposes of this Agreement, BMS Know-How shall be treated as being Confidential Information of both Parties.

1.25“Controlled” or “Controls”, when used in reference to intellectual property, means the legal authority or right of a Party hereto (or any of its Affiliates) to grant a license or sublicense of intellectual property rights to another Party, or to otherwise disclose proprietary or trade secret information to such other Party, without breaching the terms of any agreement with a Third Party, or misappropriating the proprietary or trade secret information of a Third Party. 

1.26“Development” means non-clinical and clinical drug development activities reasonably related to the development and submission of information to a Regulatory Authority, including, without limitation, toxicology, pharmacology and other discovery and pre-clinical efforts, test method development and stability testing, manufacturing process development, formulation development, delivery system development, quality assurance and quality control development, statistical analysis, clinical studies (including, without limitation, pre- and post-approval studies and specifically excluding regulatory activities directed to obtaining pricing and reimbursement approvals).  When used as a verb, “Develop” means to engage in Development.

1.27“Development Plan” means, with respect to any Licensed Product, a comprehensive, multi-year plan specifying the anticipated timing and technical details of Development activities for such Licensed Product, including without limitation the indications to be targeted, line of therapy, timelines for completing key activities, phasing of development, primary endpoints, criteria for continuing activities,

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

4

study size, comparator drugs, combination drugs, timelines for data preparation and filing of regulatory submissions, toxicology and pharmacology studies and manufacturing process development and scale up.  A summary of the initial Development Plan as of the Effective Date is attached hereto as Appendix 3.

1.28“Dollar” or “$” means the lawful currency of the United States.

1.29“Effective Date” means the date specified in the initial paragraph of this Agreement.

1.30“EMEA” means the European Agency for the Evaluation of Medicinal Products, or any successor agency thereto.

1.31“Equity Agreements” means the Series C-2 Stock Purchase Agreement, the Investor Rights Agreement and the Eighth Amended and Restated Certificate of Incorporation of Sunesis.

1.32“EU” means the European Union, as its membership may be altered from time to time, and any successor thereto, and which, as of the Effective Date, consists of Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and the United Kingdom, and that certain portion of Cyprus included in such organization.

1.33“Europe” means the countries comprising the European Union as it may be constituted from time to time, together with those additional countries included in the European Economic Area as it may be constituted from time to time (which as of the Effective Date includes Iceland, Liechtenstein and Norway), Albania, Andorra, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Holy See (Vatican), Macedonia, Moldova, Monaco, Poland, Romania, Russian Federation, San Marino, Serbia and Montenegro, Switzerland, Turkey, Ukraine, other central and eastern European markets including former Soviet block and USSR countries, and any successors to, or new countries created from, any of the foregoing.

1.34“FDA” means the U.S. Food and Drug Administration, or any successor agency thereto.

1.35“Field” means the diagnosis, prevention, treatment or control of any human or animal disease, disorder or condition.

1.36“First Commercial Sale” means, with respect to any Licensed Product, the first sale for use or consumption by the general public of such Licensed Product in any country in the Territory after Approval of such Licensed Product has been granted, or such marketing and sale is otherwise permitted, by the Regulatory Authority of such country.

1.37“GAAP” means generally accepted accounting principles in the United States.

1.38“Generic Product” means any pharmaceutical product containing as an active ingredient a Licensed Compound (or any salt, solvate, crystalline or noncrystalline form of such Licensed Compound) that is also contained in a Licensed Product, and which pharmaceutical product is sold in the same country as such Licensed Product by any Third Party that is not a Sublicensee of Sunesis or its Affiliates.

1.39“IND” means an Investigational New Drug Application, as defined in the Act, filed with the FDA or its foreign counterparts.

1.40“Indemnification Claim” has the meaning set forth in Section 12.3.

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1.41“Indemnitee” has the meaning set forth in Section 12.3.

1.42“Indemnitor” has the meaning set forth in Section 12.3.

1.43“Independent Evaluator” means an independent certified public accounting firm or investment bankof nationally recognized standing, which, at the time of the evaluation set forth in Section 3.1, is not providing financial or consulting services to either Party, and which is selected by Sunesis and reasonably acceptable to BMS, or such other qualified Person as the Parties may mutually agree to.

1.44“Investor Rights Agreement” means the Eighth Amended and Restated Investor Rights Agreement, as amended by the Amendment to Eighth Amended and Restated Investor Rights Agreement entered into by Sunesis, BMS and the other parties thereto concurrently with this Agreement in connection with the issuance of Series C-2 Preferred Stock to BMS as part of the signing payment to BMS under Section 8.1.

1.45“JNDA” means a New Drug Application filed with the Koseisho required for marketing approval for the applicable Licensed Product in Japan.

1.46“JNDA Approval” means the approval of a JNDA by the Koseisho for the applicable Licensed Product in Japan.

1.47“JNDA Filing” means the acceptance by the Koseisho of the filing of a JNDA for the applicable Licensed Product in Japan.

1.48“Koseisho” means the Japanese Ministry of Health and Welfare, or any successor agency thereto.

1.49“Large Pharma Sublicensee” means a Sublicensee that is among the top 25 largest pharmaceutical companies, based on worldwide annual sales (in Dollars) of non-generic pharmaceutical products as measured by IMS Health or its successor, or that is a collaboration partner of Sunesis as of the Effective Date, in each case at the time of entering into the applicable Sublicense agreement.

1.50“Laws” means all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of any federal, national, multinational, state, provincial, county, city or other political subdivision, agency or other body, domestic or foreign.

1.51“License” has the meaning set forth in Section 2.3(a).  “License” also refers to the corresponding arrangement for the grant by Sunesis of rights back to BMS with respect to one or more Licensed Compound(s) and Licensed Product(s) pursuant to Article 3.

1.52“Licensed Compound” means (a) BMS-387032, BMS-[*], BMS-[*] and BMS-[*] and any other Active Compound, the composition, manufacture or use of which is covered as of the Effective Date or at any time thereafter by a claim in a U.S. patent or patent application within the BMS Core Patent Rights or BMS Extension Patent Rights; (b) any Active Compound that is first synthesized by or for Sunesis or its Affiliates (or by Sublicensees pursuant to a sublicense hereunder) within [*] years following the Effective Date and that is derived from or through use of a compound covered by the foregoing clause (a) or from or through use of the BMS Know-How or practice of the BMS Patent Rights (for example, any

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

6

Active Compound which is derived through iterative rational drug design based upon the biological activity of a compound covered by the foregoing clause (a)); (c) any compound that is first synthesized by or for Sunesis or its Affiliates (or by Sublicensees pursuant to a sublicense hereunder) within [*] years following the Effective Date that is derived through iterative rational drug design based upon the biological activity of a compound covered by the foregoing clause (a)); and (d) any metabolic precursors or prodrugs, isomers, active metabolites, hydrates, anhydrides, solvates, salt forms, free acids or bases, esters, amides, complexes, conjugates or polymorphs of any compounds covered by the foregoing clause (a) or (b) or (c).

1.53“Licensed Product” means any pharmaceutical product containing a Licensed Compound (alone or with other active ingredients), in all forms, presentations, formulations and dosage forms.

1.54“List A Countries” means [*] and the U.S.

1.55“Losses and Claims” has the meaning set forth in Section 12.1.

1.56“MAA Approval” means approval by the EMEA of a marketing authorization application (“MAA”) filed with the EMEA for the applicable Licensed Product under the centralized European procedure.  If the centralized EMEA filing procedure is not used, MAA Approval shall be achieved upon the first Approval for the applicable Licensed Product in France, Germany, Italy, Spain or the United Kingdom.

1.57“MAA Filing” means filing with the EMEA of a marketing authorization application (“MAA”) for the applicable Licensed Product under the centralized European procedure.  If the centralized EMEA filing procedure is not used, MAA Filing shall be achieved upon the first filing of a marketing authorization application for the applicable Licensed Product in France, Germany, Italy, Spain or the United Kingdom.

1.58“Major Market Country” means the United States, Japan, Germany, the United Kingdom, France, Spain and Italy.

1.59“NDA” means a New Drug Application filed with the FDA required for marketing approval for the applicable Licensed Product in the U.S.

1.60“NDA Approval” means the approval of an NDA by the FDA for the applicable Licensed Product in the U.S.

1.61“NDA Filing” means the acceptance by the FDA of the filing of an NDA for the applicable Licensed Product.

1.62“Negotiation Period” has the meaning set forth in Article 3.

1.63“Net Sales” means, with respect to any Licensed Product, the amount billed by a Party, an Affiliate of such Party, or any permitted Sublicensee for sales of such Licensed Product to a Third Party less:

(a)discounts (including, without limitation, cash discounts and quantity discounts), retroactive price reductions, charge-back payments and rebates granted to managed health care

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

7

organizations or to federal, state and local governments, their agencies, and purchasers and reimbursers or to trade customers (a “Discount”); provided however, that where any such Discount is based on sales of a bundled set of products in which such Licensed Product is included, the Discount shall be allocated to such Licensed Product on a pro rata basis based on the sales value (i.e., the unit average selling price multiplied by the unit volume) of the Licensed Product relative to the sales value contributed by the other constituent products in the bundled set, with respect to such sale;

(b)credits or allowances actually granted upon claims, damaged goods, rejections or returns of such Licensed Product, including such Licensed Product returned in connection with recalls or withdrawals;

(c)freight out, postage, shipping and insurance charges for delivery of such Licensed Product;

(d)taxes or duties levied on, absorbed or otherwise imposed on the sale of such Licensed Product, including, without limitation, value-added taxes, or other governmental charges otherwise imposed upon the billed amount, as adjusted for rebates and refunds, to the extent not paid by the Third Party; and

(e)write-downs for uncollectible payments determined on a product-specific basis, provided that (i) the payment is uncollectible due to the bankruptcy of the party owing such payment, (ii) the write-down is not caused by Sunesis’ failure to maintain a commercially reasonable program to monitor customer creditworthiness, consistent with industry practice, (iii) a detailed report verifying such write-down on a product-specific basis shall be provided in the royalty report under Section 8.6 and (iv) if the uncollectible payment is ultimately collected, in the next royalty payment period Sunesis shall provide BMS with a write-up (i.e., increase in in royalty payment) corresponding to the previous write-down.

Net Sales shall be determined in accordance with GAAP.  In the case of any Combination Product sold in the Territory, Net Sales for such Combination Product shall be calculated by multiplying actual Net Sales of such Combination Product by the fraction A/(A+B) where A is the invoice price of the Licensed Product if sold separately, and B is the total invoice price of the other active ingredient or ingredients in the Combination Product, if sold separately.  If, on a country-by-country basis, the other active ingredient or ingredients in the Combination Product are not sold separately in said country, Net Sales for the purpose of determining royalties of the Combination Product shall be calculated by multiplying actual Net Sales of such Combination Product by the fraction A/D, where A is the invoice price of the Licensed Product if sold separately, and D is the invoice price of the Combination Product.  If neither the Licensed Product nor the other active ingredient(s) are sold separately in a given country, the Parties shall determine Net Sales for such Combination Product by mutual agreement based on the relative contribution of the Licensed Compound and each other active ingredient to the Combination Product, and shall take into account in good faith any applicable allocations and calculations that may have been made for the same period in other countries (giving more weight to allocations made for Major Market Countries than for other countries).

Net Sales shall not include any payments among Sunesis, its Affiliates and Sublicensees.

1.64“North America” means Canada, Mexico and the United States.

1.65“Notice” means the SAS data set of the completed studies and any correspondences with the FDA, radiographic films for responders, case report forms for responders, summary information

8

regarding any Third Party patents known to Sunesis for which a license is likely to be required, summary information regarding the manufacture, sourcing and cost of goods, in each case with respect to the applicable Licensed Compounds and Licensed Products and to the extent known to Sunesis.

1.66“Pay-to-Play Feature” means a feature that results in disproportionate dilution of ownership or diminution of material rights compared to other stockholders with respect to the same series of stock by virtue of BMS’ failure to participate in an equity financing.  The parties agree that ordinary dilution resulting from the issuance of shares of preferred stock (including, without limitation, in connection with a financing with an implied pre-money valuation less than the pre-money valuation implied by Sunesis’ Series C-2 Preferred Stock financing) shall not be deemed to be a Pay-to-Play Feature. 

1.67“Person” means any individual, firm, corporation, partnership, limited liability company, trust, business trust, joint venture company, governmental authority, association or other entity.

1.68“Phase 1 Trial” means a human clinical trial of a Licensed Product, the principal purpose of which is a preliminary determination of safety in healthy individuals or patients, as described in 21 C.F.R. 312.21(a), or a similar clinical study prescribed by the Regulatory Authorities in a foreign country.  For purposes of this Agreement, “start of Phase 1 Trial” for a Licensed Product means the first dosing of such Licensed Product in a human patient in a Phase 1 Trial. 

1.69“Phase 2 Trial” means a human clinical trial of a Licensed Product, the principal purpose of which is a determination of safety and efficacy in the target patient population, as described in 21 C.F.R. 312.21(b), or a similar clinical study prescribed by the Regulatory Authorities in a foreign country.  For purposes of this Agreement, “start of Phase 2 Trial” for a Licensed Product means the first dosing of such Licensed Product in a human patient in a Phase 2 Trial.

1.70“Phase 3 Trial” means a human clinical trial of a Licensed Product on a sufficient number of subjects that is designed to establish that a pharmaceutical product is safe and efficacious for its intended use, and to determine warnings, precautions, and adverse reactions that are associated with such pharmaceutical product in the dosage range to be prescribed, which trial is intended to support Approval of a Licensed Product, as described in 21 C.F.R. 312.21(c), or a similar clinical study prescribed by the Regulatory Authorities in a foreign country.  For purposes of this Agreement, “start of Phase 3 Trial” for a Licensed Product means the first dosing of such Licensed Product in a human patient in a Phase 3 Trial.

1.71“Phase 4 Trial” means a human clinical trial for a Licensed Product commenced after receipt of Approval in the country for which such trial is being conducted and that is conducted within the parameters of the Approval for the Licensed Product.  Phase 4 Trials may include, without limitation, epidemiological studies, modeling and pharmacoeconomic studies, investigator sponsored clinical trials of Licensed Product and post-marketing surveillance studies.

1.72“Proprietary Compound” of a Party means a specific compound being developed or sold (as of the Effective Date or in the future) by such Party or its Affiliates or their contractors or collaborators, where such compound is specifically claimed in a patent application or patent.

1.73“Public Company” means a company with a class of securities (i) registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and (ii) traded on a national securities exchange or listed on an interdealer quotation system.

1.74“Regulatory Authority” means any national or supranational governmental authority, including, without limitation, the FDA, EMEA or Koseisho (i.e., the Japanese Ministry of Health and

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Welfare, or any successor agency thereto), that has responsibility in countries in the Territory over the Development and/or Commercialization of the Licensed Compounds and Licensed Products.

1.75“Qualified Equity Financing” means, following the Effective Date, the issuance and sale to investors of Sunesis preferred stock, the gross proceeds of which are at least ten million Dollars ($10,000,000), which preferred stock has at least the following rights, preferences and privileges (by contract or otherwise): (i) a liquidation preference ranking pari passu or senior to the Series C-2 Preferred Stock; (ii) rights of first refusal on future securities issuances by Sunesis that are at least materially the same as those provided for in the Investor Rights Agreement as in effect on the Effective Date; (iii) registration rights that are at least materially the same as those registration rights afforded the Series C-2 Preferred Stock under the Investor Rights Agreement as in effect on the Effective Date; and (iv) weighted-average and/or full ratchet anti-dilution protection based on the sale price for such preferred stock.  In the event any preferred stock issued in connection with any Qualified Equity Financing (“QEF Preferred Stock”) is subject to a Pay-to-Play Feature, such Pay-to-Play Feature shall not apply to the securities issued to BMS pursuant to Section 8.2.2 (either (1) by there being a new class of preferred stock issued to BMS that is equivalent to such QEF Preferred Stock in all material respects except that such stock shall not be subject to such Pay-to-Play Feature or (2) BMS is put in materially the same position by contract with Sunesis as it would have been had such Pay-to-Play Feature not applied to the shares of QEF Preferred Stock issued to BMS).  Qualified Equity Financing shall also include, at the sole discretion of BMS, an issuance and sale to investors of Sunesis preferred stock following the Effective Date that does not meet all of the requirements set forth in this definition.

1.76“Royalty Term” has the meaning set forth in Section 8.4.2.

1.77“Series C-2 Financing” means the issuance and sale of Series C-2 Preferred Stock of Sunesis pursuant to the terms of the Series C-2 Preferred Stock Purchase Agreement datedAugust 30, 2004, between Sunesis and the Purchaser (as defined therein).

1.78“Series C-2 Preferred Stock” means the Series C-2 Preferred Stock, par value $0.0001 per share, of Sunesis.

1.79“Series C-2 Stock Purchase Agreement” means the Stock Purchase Agreement entered into by Sunesis and BMS concurrently with this Agreement in connection with the issuance of Series C-2 Preferred Stock to BMS pursuant to Section 8.1.

1.80“Sublicensee” means any Third Party expressly licensed under the BMS Patent Rights by Sunesis to make, use and sell a Licensed Product.  As used in this Agreement, “Sublicensee” shall also include a Third Party to whom Sunesis has granted the right to promote or distribute a Licensed Product, provided that such Third Party is responsible for marketing and promotion of such Licensed Product within its promotion or distribution territory.  “Sublicensee” shall also include any Third Party that is a party to a License agreement.

1.81“Territory” means any country in the world.

1.82“Third Party” means any Person other than Sunesis, BMS and their respective Affiliates.

1.83“Third Party Term Sheet” has the meaning set forth in Section 3.2.

1.84“Title 11” has the meaning set forth in Section 13.6.

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1.85“United States” or “U.S.” means the United States of America and its territories and possessions (including, without limitation, Puerto Rico).

1.86“Valid Claim” means a claim of (i) an issued and unexpired patent or a supplementary protection certificate, which claim has not been held invalid or unenforceable by a court or other government agency of competent jurisdiction from which no appeal can be or has been taken and has not been held or admitted to be invalid or unenforceable through re-examination or disclaimer, opposition procedure, nullity suit or otherwise, or (ii) a pending patent application, which claim in the case of clause (i) or (ii) covers a Licensed Product, its manufacture or use; provided, however, that if a claim of a pending patent application shall not have issued within [*] ([*]) years (or in Japan, [*] ([*]) years) after the earliest filing date from which such claim takes priority, such claim shall not constitute a Valid Claim for the purposes of this Agreement unless and until a patent issues with such claim.

ARTICLE 2

LICENSE GRANT

2.1BMS Core Patent Rights and BMS Know-How.  Subject to all the terms and conditions set forth in this Agreement (including, without limitation, the reservation of rights in Section 2.6), BMS hereby grants to Sunesis a non-transferable (except in accordance with Section 15.4), exclusive license, with the right to sublicense in accordance with Section 2.3, under the BMS Core Patent Rights and BMS Know-How to the extent reasonably necessary to, make, use (including in activities directed at the research and Development of Licensed Compounds), have made, sell, offer to sell, export, import and otherwise exploit or Commercialize Licensed Compounds and Licensed Products in the Field in the Territory; provided however, that Sunesis shall have no right to include any compound covered by a claim within the BMS Core Patent Rights in any compound library used for screening against non-CDK targets and Sunesis agrees that, except for purposes of testing in appropriate counterscreens to determine the selectivity of selected lead Active Compounds, it will not use any compound covered by a claim within the BMS Core Patent Rights for purposes of screening for activity against non-CDK targets.

2.2BMS Other Patent Rights.  Subject to all the terms and conditions set forth in this Agreement (including, without limitation, the reservation of rights in Section 2.6), BMS hereby grants to Sunesis a non-transferable (except in accordance with Section 15.4), non-exclusive (subject to conversion to exclusivity pursuant to Section 2.8 below) license, with the right to sublicense in accordance with Section 2.3, under the BMS Other Patent Rights solely to the extent reasonably necessary or useful to make, use (including in activities directed at the research and Development of Licensed Compounds), have made, sell, offer to sell, export and import and otherwise exploit or Commercialize Licensed Compounds and Licensed Products in the Field in the Territory, provided however, that no rights are granted under this Section 2.2 with respect to any Proprietary Compound of BMS, including but not limited to the use or formulation of a Licensed Compound or Licensed Product in combination with any Proprietary Compound of BMS.  For clarification, no rights are granted under this Section 2.2 to co-formulate or use in combination a Licensed Compound with any Proprietary Compound of BMS.

2.3Sublicenses.  Sunesis shall have the right to grant sublicenses with respect to the rights licensed to Sunesis under Sections 2.1, 2.2 and 2.7(a) to any Affiliate of Sunesis for so long as such Affiliate remains an Affiliate of Sunesis, provided that (i) such Affiliate shall agree in writing to be bound

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by and subject to the terms and conditions of this Agreement in the same manner and to the same extent as Sunesis and (ii) Sunesis shall remain responsible for the performance of this Agreement and shall cause such Affiliate to comply with the terms and conditions of this Agreement.  In addition, Sunesis shall have the right to grant sublicenses with respect to the rights licensed to Sunesis under Sections 2.1, 2.2 and 2.7(a) to Third Parties with the prior written consent of BMS, which consent shall not be unreasonably withheld or delayed, or without such consent solely in accordance with this Section 2.3 below.

(a)Sunesis shall have the right to grant a sublicense under the BMS Patent Rights to any Third Party sublicensee with respect to the Development or Commercialization of any Licensed Compounds or any Licensed Products containing such Licensed Compounds (including without limitation any sublicense, co-development, co-promotion or similar arrangement expressly granting such rights) (such arrangement being a “License”) upon the completion of the first Phase 2 Trial conducted under a U.S. IND for a Licensed Compound based on a preceding Phase 1 Trial, provided that such Phase 2 Trial shall have been designed to show a response rate of at least [*] percent ([*]%) in [*] ([*]) or more patients.  In addition, such Phase 2 Trial shall be designed to reasonably ensure that the dose and schedule provides optimal drug exposure levels which allow for a potentially safe and effective dose, as established in a relevant Phase 1 Trial.  As used herein, “completion” of a Phase 2 Trial means the completion of all patient dosing for such Phase 2 Trial and the preparation and submission to BMS by Sunesis of the preliminary clinical studies report plus the clinical data and tables for such trial.  For clarification, an agreement with a contractor, contract research organization, contract manufacturer or other Third Party performing contracted services related to the manufacture, Development and/or Commercialization of such Licensed Compound or Licensed Product shall not be a License thereof, provided such agreement is essentially a fee-for-service or similar purchase arrangement and does not grant the Third Party the right to sell or promote such Licensed Compound or Licensed Product.  Other than a permitted assignment of this Agreement in accordance with Section 15.4.1, Sunesis shall not have the right to enter into any License with a Third Party until after completion of the first Phase 2 Trial under a U.S. IND as set forth above, and then only in accordance with this Section 2.3 and the procedure set forth in Section 3.1.

(b)Subject to the foregoing and Section 3.1, Sunesis shall have the right to enter into a License agreement with a Third Party, provided that: 

(i) such License agreement shall refer to this Agreement and shall be subordinate to and consistent with the terms and conditions of this Agreement, and, except with respect to the disclosure of certain information to BMS as set forth in Section 2.3(c) below, shall not limit Sunesis’ ability to fully perform all of its obligations under this Agreement or BMS’ rights under this Agreement;

(ii) in such License agreement, the Sublicensee shall agree in writing to be bound to Sunesis by terms and conditions that are substantially similar to, or less favorable to the Sublicensee than, or otherwise allow Sunesis to fully perform, the corresponding terms and conditions of this Agreement, except as set forth in Section 2.3(c) below;

(iii) in such License agreement, BMS shall be made an express third party beneficiary of the Sublicensee’s obligations to Sunesis under such License that relate to compliance with the terms and conditions of this Agreement;

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(iv) promptly after the execution of such License agreement, Sunesis shall provide a copy of such License agreement to BMS, with financial terms redacted, and in addition, in the case where the License Agreement is with a Large Pharma Sublicensee, Sunesis may also redact those terms that are both (A) sensitive and confidential to the Large Pharma Sublicensee and (B) not reasonably necessary for BMS to determine Sunesis’ compliance with this Agreement;

(v) Sunesis shall remain responsible for the performance of this Agreement (including, without limitation, its obligations under Sections 5.1(a) and 6.1, the payment of all payments due, and making reports and keeping books and records, subject to availability of such information pursuant to Section 2.3(c)), and shall use commercially reasonable efforts to monitor such Sublicensee’s compliance with the terms of such License;

(vi) any sublicense rights granted by Sunesis in a License (to the extent such sublicensed rights are granted to Sunesis in this Agreement) shall terminate on a country-by-country and Licensed Product-by-Licensed Product basis effective upon the termination under Section 13.2 of the license from BMS to Sunesis with respect to such sublicensed rights, provided that such sublicensed rights shall not terminate if, as of the effective date of such termination by BMS under Section 13.2, the Sublicensee is not in material breach of its obligations to Sunesis under its License agreement, and within sixty (60) days of such terminationthe Sublicensee agrees in writing to be bound directly to BMS under a license agreement substantially similar to this Agreement with respect to the rights sublicensed hereunder, substituting such Sublicensee (a “Surviving Sublicensee”) for Sunesis, and provided further that (A) such license agreement shall not prejudice any remedy BMS may have against Sunesis for the circumstances which were the basis for such termination by BMS; (B) the scope of the rights granted to the Surviving Sublicensee under such license agreement (with respect to licensed activities, Licensed Products and territory) shall be equal to the scope of the rights that had been sublicensed by Sunesis to the Surviving Sublicensee pursuant to the License agreement; (C) such license agreement shall not include the provisions of Article 3 or Section 8.1 hereof; (D) Sunesis shall no longer be obligated under this Agreement to pay amounts set forth in Sections 8.2, 8.3 and 8.4 hereof, to the extent such amounts are payable based on the activities of such Surviving Sublicensee, its Affiliates and its sublicensees; and (E) such license agreement shall obligate the Surviving Sublicensee to pay directly to BMS amounts corresponding to those set forth in Sections 8.2, 8.3 and 8.4 hereof which are payable based on the activities of such Surviving Sublicensee, its Affiliates and its sublicensees; and

(vii) such Sublicensees shall have the right to grant further sublicenses with respect to the Development or Commercialization of Licensed Products, provided that such further sublicenses shall be in accordance with and subject to all of the terms and conditions of this Section 2.3 other than any reference to Article 3 contained therein (i.e., the Sublicensee shall be subject to this Section 2.3 in the same manner and to the same extent as Sunesis, but shall not be subject to Article 3).

(c)Section 2.3(b)(ii) shall not apply to Articles 3 and 4.  Without limiting and subject to Section 2.3(b)(i), it shall not be deemed a breach of Section 2.3(b)(ii) if the License agreement contains terms and conditions that differ from the following corresponding terms and conditions of this Agreement:  Sections 5.3 and 5.4, Article 8 (provided that such License agreement shall not limit Sunesis’ ability to fully perform its obligations under Article 8), Article 9, Article 10, Section 12.3 (provided that the Sublicensee provides equivalent or superior insurance protection through a commercially reasonable self-insurance program), Article 14 and Article 15.  In addition, in the case of a Large Pharma Sublicensee, it is recognized that in certain circumstances such a Large Pharma Sublicensee may not be willing to provide BMS with direct access to information and audit rights pursuant to the following Sections hereof: 5.1(b), 5.2, 5.5, 8.6(i) and 8.7.  In such case, Sunesis shall use commercially reasonable efforts to obtain the Large Pharma Sublicensee’s written agreement to provide such information and audit rights to BMS, provided that if Sunesis fails to obtain such Sublicensee’s agreement, such failure shall not

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be a breach of Section 2.3(b)(ii).  Notwithstanding the foregoing, Sunesis shall remain obligated under this Agreement to disclose information pursuant to Sections 5.1(b), 5.2, 5.5, 8.6(i) and 8.7 hereof to reasonably enable BMS to confirm that the Large Pharma Sublicensee is performing its obligations to Sunesis in a manner that protects BMS’ interests under this Agreement.

(d)For clarity, where provisions of this Agreement provide that Sunesis shall be “solely” responsible or the like with respect to a matter (for example, Sections 5.4, 5.5, or 7.1), it is understood that such responsibilities may be carried out or borne on Sunesis’ behalf by a permitted Sublicensee or contractor of Sunesis.

(e)It shall be a breach of this Agreement for Sunesis to enter into any License hereunder not in compliance with this Section 2.3.

2.4No Trademark License.  No right or license, express or implied, is granted to Sunesis to use any trademark, trade name, trade dress or service mark owned or Controlled by BMS or any of its Affiliates.  Sunesis, at its sole cost and expense, shall be responsible for the selection, registration and maintenance of all trademarks which it employs in connection with its activities conducted pursuant to this Agreement, if any, and shall own and control such trademarks. 

2.5No Implied Licenses.  No license or other right is or shall be created or granted hereunder by implication, estoppel or otherwise.  All such licenses and rights are or shall be granted only as expressly provided in this Agreement.

2.6Retained Rights.  All rights not expressly granted hereunder are reserved by BMS and may be used by BMS for any purpose.  Without limiting the foregoing, BMS retains any and all rights under the BMS Patent Rights and BMS Know-How to make, have made, use, sell, have sold, export or import any compounds which are not Licensed Compounds and products not containing any Licensed  Compounds, provided that the BMS Know-How shall be treated by BMS as being Confidential Information of Sunesis and BMS shall not publicly disclose the BMS Know-How except as permitted under Article 11.  BMS also expressly reserves and retains the right (i) to make, have made and use Licensed Compounds for any internal research purposes and (ii) to make, have made and use any Licensed Compound solely for use as an intermediate or starting material in the manufacture of any compound which is not a Licensed Compound.

2.7Unblocking License.

(a)In addition to the licenses granted by BMS to Sunesis under Section 2.1 and 2.2, subject to the terms and conditions set forth in this Agreement, BMS grants to Sunesis and its Affiliates a worldwide nonexclusive (subject to conversion to exclusivity pursuant to Section 2.8 below) license to practice under and to utilize patent rights Controlled by BMS (other than BMS Core Patent Rights and BMS Other Patent Rights), solely to the extent that such patent rights claim subject matter that is within the scope of and subgeneric to the scope of claims of the BMS Core Patent Rights (i.e., selection inventions), solely to research, Develop, Commercialize, make, have made, use, import, offer to sell, and sell Licensed Compounds and Licensed Products in the Field in the Territory.  Such nonexclusive license shall be sublicensable together with any permitted sublicense with respect to Licensed Compounds and Licensed Products.

(b)Subject to the terms and conditions set forth in this Agreement, Sunesis grants to BMS and its Affiliates a fully paid-up worldwide nonexclusive license, with right to grant sublicenses, to practice under and to utilize patent rights Controlled by Sunesis, solely to the extent that such patent rights claim subject matter that is invented in the exercise of a License granted hereunder and is within the

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scope of and subgeneric to the scope of claims of the BMS Core Patent Rights (i.e., selection inventions), solely to research, Develop, commercialize, make, have made, use, import, offer to sell, and sell compounds and pharmaceutical products other than Licensed Compounds or Licensed Products.  For clarification, this nonexclusive license to BMS shall not limit the exclusive license granted by BMS to Sunesis under Section 2.1.

2.8Conversion to Exclusive License.  BMS shall have the right at its sole discretion (including, without limitation, for purposes of extending the applicable Royalty Term under Section 8.4.2) to convert the license granted to Sunesis under Section 2.2 or 2.7(a) to be an exclusive license  upon notice to Sunesis specifying the patents to be so converted, provided that BMS has not, prior to the effective date of such conversion, granted a license to any Third Party under any patent rights specified in such notice to sell Licensed Compounds in any country in the Territory.  The BMS patent rights so exclusively licensed to Sunesis pursuant to this Section 2.8 (i) shall then be considered for purposes of determining the Royalty Term for the applicable Licensed Product, and (ii) shall thereafter be deemed “BMS Extension Patents”.

ARTICLE 3

BMS RIGHT OF FIRST NEGOTIATION

3.1BMS Right of First Negotiation.  BMS shall have a right of first negotiation with respect to Licensed Compounds and Licensed Products as follows.

(a)After completion of the first Phase 2 Trial under a U.S. IND with respect to a Licensed Product as set forth in Section 2.3, in the event that Sunesis desires at any time within [*] after the Effective Date to enter into a License arrangement with respect to one or more Licensed Compound(s) or Licensed Product(s), before entering into negotiations with any Third Party with respect to such License, Sunesis will notify BMS of its desire and provide BMS with a Notice with respect to such Licensed Compound(s) or Licensed Product(s).  If BMS notifies Sunesis in writing of its election to pursue a License for such Licensed Compound(s) or Licensed Product(s) within thirty (30) days after BMS’ receipt of such Notice, Sunesis and BMS shall enter into good faith negotiations with respect to such License for a period of [*] following Sunesis’ receipt of such election from BMS (the “Negotiation Period”). 

(b)During the Negotiation Period, Sunesis will provide BMS with an opportunity to make a Term Sheet proposal of terms and conditions with respect to such License and Sunesis will either agree to the proposal (and such Term Sheet shall be deemed as being offered by Sunesis) and the Parties will move forward to negotiate a definitive agreement based on such Term Sheet or Sunesis shall provide a counter offer Term Sheet to BMS reasonably promptly.  During the Negotiation Period, Sunesis may revise the terms and conditions of its counter proposal to BMS and in any case the last Term Sheet that Sunesis delivers to BMS shall be deemed the Term Sheet that Sunesis offers to BMS for purposes of Section 3.2 below, provided however, that Sunesis shall provide BMS with a reasonable period of time to review and consider any such Term Sheet which in no event will be less than [*] business days.  Such [*] Negotiation Period shall be extended by an additional [*] of diligent good faith negotiation if (i) Sunesis and BMS reach agreement with respect to a Term Sheet with respect to such License and (ii) BMS

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obtains internal BMS Executive Committee approval to proceed with completing a definitive agreement based on such Term Sheet. 

(c)During the Negotiation Period and any extension thereof, Sunesis shall use commercially reasonable efforts to promptly provide BMS with additional information available to Sunesis that is related to the Licensed Compound(s) and Licensed Product(s) that would be subject to the License, and access to personnel and facilities, as reasonably requested by BMS as part of its due diligence with respect to such License.  BMS shall have the right to determine the scope of Licensed Compounds and Licensed Products with respect to the License under discussion between the Parties during the Negotiation Period (i.e., whether such License will cover, for example, a single Licensed Compound or a list of several Licensed Compounds or the entire genus of Licensed Compounds) and the proposals and Term Sheets that Sunesis delivers to BMS during that Negotiation Period shall include the terms for the scope of Licensed Compounds and Licensed Products requested by BMS.

(d)If Sunesis and BMS do not conclude a binding definitive agreement with respect to such License during the Negotiation Period, Sunesis will then be free to enter into negotiations with any Third Party regarding a License for one or more Licensed Compound(s) and Licensed Product(s), and free to enter into any such License, subject to the provisions set forth in Section 3.2.  If BMS does not provide Sunesis with notice of BMS’ election to pursue a License within the [*] period after receipt of a Notice set forth above, Sunesis will then be free to enter into negotiations with any Third Party, and Sunesis shall have the right to enter into Licenses with respect to the Licensed Product(s) described in the Notice, which shall not be subject to the provisions of Section 3.2.

(e)This Section 3.1(e) shall be subject to and shall not limit Section 3.3.  At any time after a Negotiation Period in which Sunesis and BMS are unable to conclude a binding definitive License agreement, where Sunesis intends to enter into a License agreement either with BMS or with a Third Party in accordance with Section 3.2, Sunesis shall be free to offer to BMS a Term Sheet for a License agreement including rights to one or more Licensed Compound(s) and Licensed Product(s) that were the subject of the Notice provided to BMS in the preceding Negotiation Period.  Sunesis shall have the right to determine the scope of compounds to be licensed under the Term Sheet, provided that the scope of compounds shall not be narrower than the scope of compounds requested by BMS in the preceding Negotiation Period (pursuant to Section 3.1 (c) above).  If Sunesis offers a Term Sheet for such License to BMS, BMS will have [*] in which to provide Sunesis with notice that BMS desires to enter into an agreement with Sunesis on substantially the same financial, governance and decision-making terms and conditions as set out in such Term Sheet (an “Acceptance Notice”).  If an Acceptance Notice is provided by BMS, BMS shall use diligent efforts to obtain internal BMS Executive Committee approval to proceed with completing a definitive agreement based on such Term Sheet, and the Parties will work diligently to expeditiously complete such an agreement.  If (i) an Acceptance Notice is not provided by BMS within such [*] period; (ii) BMS fails to obtain internal BMS Executive Committee approval to proceed with completing a definitive agreement based on such Term Sheet within [*] after Sunesis’ receipt of the Acceptance Notice; or (iii) Sunesis and BMS do not execute a binding License agreement within [*] after Sunesis’ receipt of the Acceptance Notice, Sunesis will be free to enter into negotiations with any Third Party regarding a License for one or more Licensed Compound(s) and Licensed Product(s), and free to enter into any such License, subject to the provisions set forth in Section 3.2, provided that such Term Sheet shall be deemed the Term Sheet last offered by Sunesis to BMS for the purposes of Section 3.2.  Upon receipt of such Acceptance Notice and during the period described above, Sunesis shall use

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commercially reasonable efforts to promptly provide BMS with additional information available to Sunesis that is related to the Licensed Compound(s) and Licensed Product(s) that would be subject to the License, and access to personnel and facilities, as reasonably requested by BMS as part of its due diligence with respect to such License.

In order to facilitate BMS’ ability to evaluate the Term Sheet offered by Sunesis to BMS pursuant to this Section 3.1(e), as soon as is practicable prior to the start of the foregoing [*] period, Sunesis shall give BMS advance notice of the scope of compounds to be licensed under such Term Sheet.

3.2To the extent that this Article 3 has not terminated or expired, Sunesis shall not enter into any agreement with any Third Party with respect to a License under terms and conditions which are Less Favorable to Sunesis than the terms and conditions set forth in the Term Sheet last offered by Sunesis to BMS, except in accordance with the procedure set forth in this Section 3.2 or as otherwise expressly set forth in this Article 3.

(a)If Sunesis intends to enter into a License agreement with a Third Party, Sunesis shall notify BMS and shall notify an Independent Evaluator for the purpose of this Section 3.2.  Sunesis shall bear the costs of engaging the Independent Evaluator.  Sunesis shall provide the Independent Evaluator with the proposed Term Sheet or License agreement with such Third Party (the “Third Party Term Sheet”), from which Sunesis may redact the identity of the Third Party, and shall also provide the Independent Evaluator with a copy of the last Term Sheet offered by Sunesis to BMS.

(b)The Independent Evaluator shall promptly make a determination of whether the terms and conditions of the Third Party Term Sheet are Less Favorable to Sunesis than the terms and conditions of the last Term Sheet offered by Sunesis to BMS, in accordance with Section 3.5(a) below.  Unless the Parties agree otherwise, such determination shall be made by the Independent Evaluator within [*] of receipt of the relevant Term Sheets from Sunesis and the Independent Evaluator shall promptly notify the Parties of such determination.  The Independent Evaluator shall be required to make a definite determination based on the information provided to it as to whether or not the Third Party Term Sheet is Less Favorable to Sunesis than the last Term Sheet offered by Sunesis to BMS.  The Independent Evaluator shall not have the authority to render any other determination or to respond without a decision, and the Parties agree (i) that the Independent Evaluator shall have no liability in any way by reason of its decision, and (ii) to be bound by and not to challenge such determination, provided that either Party may dispute such determination but only if such Party holds a good faith belief that the other Party acted in bad faith or engaged in willful misconduct in the independent evaluation process.

(c)If the Independent Evaluator determines that the Third Party Term Sheet was not Less Favorable to Sunesis than the last Term Sheet offered by Sunesis to BMS, Sunesis will be free to enter into an agreement with such Third Party having the terms and conditions set forth in the Third Party Term Sheet (or other terms and conditions that are not financially Less Favorable to Sunesis than the terms and conditions set forth in the Third Party Term Sheet presented to the Independent Evaluator) and such other non-financial terms and conditions as Sunesis and the Third Party agree.

(d)If the Independent Evaluator determines that the terms and conditions set forth in the Third Party Term Sheet are Less Favorable to Sunesis than the terms and conditions last offered by Sunesis to BMS, Sunesis may at its discretion continue its negotiation with the Third Party, with the

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objective of obtaining financial terms and conditions which are more favorable to Sunesis than the financial terms and conditions last offered by Sunesis to BMS, provided that Sunesis shall not enter into an agreement with such Third Party without first following the above procedure set forth in this Section 3.2 with respect to submitting a revised Third Party Term Sheet to the Independent Evaluator. 

(e)Alternatively, Sunesis may offer the terms and conditions set out in the Third Party Term Sheet to BMS or otherwise then proposed by Sunesis to the Third Party (or Sunesis may offer BMS terms and conditions financially less favorable to Sunesis than the foregoing), including without limitation those with respect to financial terms, governance, decision-making, Development and Commercialization responsibilities and scope of compounds to be licensed.  If Sunesis offers such terms and conditions for a License to BMS in accordance with this Section 3.2(e), BMS will have an additional [*] business days to provide Sunesis with an Acceptance Notice.  If an Acceptance Notice is provided by BMS, BMS shall use diligent efforts to obtain internal BMS Executive Committee approval to proceed with completing a definitive agreement based on such Term Sheet, and the Parties will work diligently to expeditiously complete such an agreement.  If (i) an Acceptance Notice is not provided by BMS within such [*] period; (ii) BMS fails to obtain internal BMS Executive Committee approval to proceed with completing a definitive agreement based on such Term Sheet within [*] days after Sunesis’ receipt of the Acceptance Notice; or (iii) Sunesis and BMS do not execute a binding License agreement within [*] after Sunesis’ receipt of the Acceptance Notice, Sunesis will be free to enter into negotiations with any Third Party regarding a License for one or more Licensed Compound(s) and Licensed Product(s), and free to enter into any such License, subject to all of the provisions set forth in this Section 3.2, provided that the Term Sheet for which BMS provided an Acceptance Notice (or if an Acceptance Notice is not provided by BMS within the allotted period, the last Term Sheet offered by Sunesis pursuant to this Section 3.2(e)) shall be deemed the Term Sheet last offered by Sunesis to BMS for the purposes thereof.  Upon receipt of such Acceptance Notice and during the period described above, Sunesis shall use commercially reasonable efforts to promptly provide BMS with additional information available to Sunesis that is related to the Licensed Compound(s) and Licensed Product(s) that would be subject to the License, and access to personnel and facilities, as reasonably requested by BMS as part of its due diligence with respect to such License.

3.3In the event that Sunesis has not entered into an agreement with a Third Party with respect to a License within the earlier of [*] following the end of a Negotiation Period or at such time that statistically significant interim or final results from a Phase 2 Trial or Phase 3 Trial become available with respect to the applicable Licensed Product after a Negotiation Period or an Acceptance Notice provided pursuant to Section 3.1(e) or 3.2(d), then thereafter, if Sunesis desires to enter into a License arrangement for a Licensed Product, before entering into a License agreement with any Third Party, Sunesis will first notify BMS of its desire and provide a Notice with respect to such Licensed Product and the procedure described in Sections 3.1 and 3.2 above shall apply again, provided that the Negotiation Period in this case shall be [*] (rather than [*]), provided further that Sunesis shall be free to continue negotiations regarding a License with any Third Party (but not initiate any new negotiations with any other Third Party with whom Sunesis has not previously negotiated with respect to such Licensed Product) during any such Negotiation Period pursuant to this Section 3.3, but may not enter into a License agreement with a Third Party until after the end of such Negotiation Period, and then only in accordance with and following the procedure set forth Section 3.2.

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3.4License Terms and Conditions.

(a)During any Negotiation Period, Sunesis shall make an offer of terms and conditions for a License where BMS would obtain exclusive worldwide rights and joint responsibility for the further manufacture, Development or Commercialization of the Licensed Product for all indications.  The terms and conditions of the foregoing license shall include but not be limited to Sunesis and BMS co-developing and co-commercializing the Licensed Product, including equal participation in co-commercialization of the Licensed Product in the U.S.

(b)For clarity, any License agreement between Sunesis and BMS shall include a grant to BMS by Sunesis of those license rights required for BMS to carry out the manufacture, Development or Commercialization anticipated by such License agreement, including without limitation (i) a grant back to BMS of rights under the BMS Know-How and BMS Patent Rights, and (ii) a grant to BMS under other know-how and patent rights Controlled by Sunesis with respect to the Licensed Compound and Licensed Product that are subject to the License, in each case as required for BMS to fulfill its obligations under such License agreement.

3.5Certain Definitions.  For the purposes of this Article 3, the following capitalized terms shall have the following meanings:

(a)“Less Favorable to Sunesis” means, with respect to a Third Party Term Sheet compared to the most recent Term Sheet offered by Sunesis to BMS, that the Third Party Term Sheet contains financial terms which, taken as a whole, are materially less favorable to Sunesis than terms set forth in the last Term Sheet for a License offered to BMS by Sunesis.  The determination by the Independent Evaluator in accordance with Section 3.2 as to whether a Third Party Term Sheet is Less Favorable to Sunesis than the last Term Sheet offered to BMS by Sunesis shall be based upon assumptions and analysis performed in the Independent Evaluator’s independent judgment, with the same assumptions applied in the same manner to both the Third Party Term Sheet and the last Term Sheet offered to BMS by Sunesis.  Such analysis shall, at a minimum, include a comparison of the probability-adjusted discounted cash flows for all payments, including royalties, payable to Sunesis from the two respective Term Sheets.  Such analysis shall include necessary adjustments for any difference in the scope of compounds being licensed under the Term Sheets.  In such evaluation, payments in equity shall be valued taking into consideration liquidity and other relevant factors.

(b)“Term Sheet” means a non-binding term sheet summarizing the key terms and conditions on which a Party would be willing to enter into negotiations with a view to finalizing a mutually acceptable definitive License agreement that includes the terms contained in the Term Sheet.  It is understood that a Term Sheet need not specify all material terms, and as is customary, may provide a summary of only certain of the most significant terms, provided that a Term Sheet shall include, at a minimum, the financial terms and conditions, the scope and territory of licenses granted and the allocation of responsibilities and costs with respect to the Development and Commercialization of the Licensed Compound(s) and Licensed Product(s) to which such Term Sheet relates, in such detail so as to reasonably enable the Independent Evaluator to perform the determination set forth in Section 3.2.

3.6.It is acknowledged and agreed that: (i) this Article 3 shall not be deemed to apply to a transaction by which a Third Party acquires substantially all of the business or assets of Sunesis in accordance with Section 15.4.3 below; and (ii) if Sunesis enters into a License in accordance with this Article 3 that includes an option or other contingent right to acquire the sublicense rights hereunder (an “Option”), then the grant of rights by Sunesis upon a Third Party’s exercise of such Option shall not be subject to this Article 3 so long as the grant of such Option was made in compliance with this Article 3.

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3.7If BMS disputes Sunesis’ right to enter into a License agreement based on (A) Sunesis’ compliance with Article 3 or (B) whether a License agreement or proposed License agreement complies with Section 2.3, BMS will provide Sunesis with notice of such dispute and simultaneously initiate an expedited arbitration thereof in accordance with the procedure set forth in Section 14.3.  If BMS does not provide written notice to Sunesis initiating such arbitration within [*] days after BMS’ receipt of a copy of a License agreement or proposed License agreement in accordance with Section 2.3(b) above, then notwithstanding Article 14 below, BMS shall have no further right to dispute Sunesis’ right to enter into a License agreement based on (A) Sunesis’ compliance with Article 3 or (B) whether a License agreement complies with Section 2.3; provided that nothing in this Section 3.7 shall limit or prejudice BMS’ other rights including but not limited to BMS’ right to enforce Sunesis’ ongoing obligations with respect to such License, or to enforce any ongoing obligations of the Sublicensee as permitted under Section 2.3(b)(iii) and applicable Laws.

ARTICLE 4

TRANSFER OF KNOW-HOW AND MATERIALS

4.1Documentation.  During the sixty (60) day period following the Effective Date BMS shall provide Sunesis with one (1) electronic or paper copy of all documents, data or other information Controlled by BMS as of the Effective Date to the extent that such documents, data and information are (i) subject to the BMS Know-How license under Section 2.1; (ii) reasonably necessary for the manufacture, Development or Commercialization of a Licensed Compound or Licensed Product; and (iii) are reasonably available to BMS without undue searching; provided, however, that subject to the last sentence of this Section 4.1, the foregoing shall in no event require BMS to provide (A) copies of manufacturing run records and laboratory notebook records required to be maintained by BMS under applicable Laws, or (B) copies of documents, data and information to the extent that such documents, data and information do not satisfy the requirements in clauses (i), (ii) and (iii) of the foregoing.  Such documentation shall not be used by Sunesis for any purpose other than Development, manufacture or Commercialization of Licensed Compounds and Licensed Products in accordance with this Agreement and is Confidential Information of BMS.  BMS shall be responsible for the cost of providing one (1) set of copies only.  BMS shall have no obligation to reformat or otherwise alter or modify any such materials, or to create materials in electronic form, in order to provide them to Sunesis.  Any and all such materials delivered to Sunesis pursuant to this Section 4.1 are and shall remain the sole property of BMS, provided that all such material shall be treated as being Confidential Information of both Parties, and shall be subject to Sunesis’ rights in and to such material as otherwise set forth in this Agreement.  Notwithstanding the foregoing, if at any time during the term of this Agreement Sunesis identifies particular documents, data or information that are within the BMS Know-How, but were not previously delivered to Sunesis, and that are reasonably necessary for the continued manufacture, Development or Commercialization of a Licensed Compound or Licensed Product (including without limitation materials requested in connection with an audit or other inquiry by a Regulatory Authority), BMS shall promptly provide such material to Sunesis upon request to the extent that such items are in BMS’ possession and are available without undue searching.

4.2Technical Assistance.  Commencing on the Effective Date and continuing until the date that is [*] months after the Effective Date, BMS shall reasonably cooperate with Sunesis to provide technical assistance as set forth below and to transfer to Sunesis any additional BMS Know-How licensed

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under Section 2.1 to the extent such BMS Know-How is in BMS’ possession to effect the transfer of all Development efforts related to Licensed Compounds and Licensed Products.  Such cooperation shall include, without limitation, providing Sunesis with reasonable access by teleconference or in-person at BMS’ facilities (subject to BMS’ customary rules and restrictions with respect to site visits by non-BMS personnel) to BMS personnel involved in the research and development of Licensed Compounds and Licensed Products to provide Sunesis with a reasonable level of technical assistance and consultation in connection with the transfer of the BMS Know-How, provided, however, that (i) such access shall be requested and coordinated through a single contact person to be designated by BMS (a separate single contact person shall be designated by BMS with respect to manufacturing related matters), (ii) BMS makes no warranty, express or implied, that Sunesis shall be able to successfully implement and use the BMS Know-How, (iii) BMS shall not be in default hereunder for any inadvertent failure to disclose all pertinent information related to the BMS Know-How, and (iv) BMS shall not be obligated to provide more than [*] aggregate hours of technical assistance in such period, as evidenced by BMS’ reasonably itemized time records to be provided to Sunesis upon request, which shall be allocated as follows:  up to [*] aggregate hours for technical assistance related to chemical and manufacturing matters related to BMS-387032, up to [*] aggregate hours for technical assistance related to clinical Development matters and up to [*] aggregate hours for technical assistance related to all other matters.  In addition, such technical assistance shall include, without limitation, access to SAR information with respect to the Licensed Compounds and BMS personnel involved in the research and development of Licensed Compounds and Licensed Products, and providing responses to Sunesis queries related thereto.  Sunesis shall be responsible for ensuring that its personnel who receive such assistance are appropriately qualified and experienced for such purpose.  It is understood and acknowledged that BMS activities with respect to the document transfer of the INDs for the Licensed Compounds shall not be applied towards the foregoing [*] aggregate hours of technical assistance, provided that subsequent assistance and follow-up questions requested by Sunesis with respect to such INDs shall be applied towards the aggregate limit.

If Sunesis requests further technical assistance related to chemical and manufacturing matters related to BMS-387032 in excess of the [*] hour amount referenced above, BMS may at its sole discretion provide such technical assistance and, if BMS elects to provide such technical assistance, Sunesis shall reimburse BMS for its time incurred in connection therewith at an FTE rate of $[*] per hour, plus any reasonable out-of-pocket expenses incurred by BMS in providing such technical assistance requested by Sunesis.  Such reimbursement shall be made to BMS within thirty (30) days after submission of an invoice by BMS reasonably detailing BMS’ time expended, together with reasonable substantiation of any out-of-pocket expenses incurred. 

4.3IND.  As soon as reasonably practicable after the Effective Date, BMS shall effectuate the assignment of all INDs for the Licensed Compounds to Sunesis.  Such assignment and the transfer of responsibility for such INDs to Sunesis will occur promptly after such time that Sunesis reasonably determines that it is able to accept responsibility (including establishing at Sunesis adequate safety monitoring and adverse event reporting procedures to meet regulatory requirements) for the patients that are being treated as of the Effective Date pursuant to such INDs, provided that Sunesis agrees that it shall be able to accept responsibility, and shall accept responsibility, for such patients within [*] following the Effective Date.  BMS will effectuate such assignment within [*] after Sunesis provides BMS with written notice that Sunesis is able to accept responsibility for such patients.  At the time of the assignment of such INDs to Sunesis, upon reasonable request by Sunesis, BMS shall provide additional technical assistance relating to the transition of the IND to Sunesis, provided that to the extent that any such assistance

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exceeds [*] aggregate hours of additional technical assistance, as evidenced by BMS’ reasonably itemized time records, it shall be applied towards the aggregate limit on technical assistance set forth in Section 4.2 above.

Without limiting the foregoing, if such transfer of the IND and/or transfer of responsibility for such patients is delayed and does not occur within [*] months following the Effective Date, BMS may at its sole discretion continue to be responsible for such IND and patients, provided that, if BMS elects to continue such responsibility, Sunesis shall reimburse BMS for its time incurred in connection therewith at an FTE rate of $[*] per hour, plus any reasonable out-of-pocket expenses incurred by BMS in continuing such responsibility.  Such reimbursement shall be made to BMS within thirty (30) days after submission of an invoice by BMS reasonably detailing BMS’ time expended, together with reasonable substantiation of any out-of-pocket expenses incurred. 

4.4Provision of Existing BMS-387032 Compound and Other Licensed Compounds.  As soon as practicable after the Effective Date, but in any event within thirty (30) days thereafter, BMS shall transfer to Sunesis the inventory of BMS-387032, BMS-[*], BMS-[*], BMS-[*], BMS-[*], BMS-[*] and BMS-[*] compounds in BMS’ possession as of the Effective Date, provided that BMS shall have the right to retain up to [*] of each such compound for use by BMS in accordance with Section 2.6.  Such compounds shall be used by Sunesis solely in accordance with license rights and other terms and conditions of this Agreement.  BMS shall inform Sunesis in writing which, if any, of such Licensed Compounds have been manufactured in accordance with GMP.

4.5Provision of Samples of Other Existing Licensed Compounds.  Upon request by Sunesis as set forth below, BMS shall transfer to a Third Party testing service provider selected by Sunesis and reasonably acceptable to BMS (a “Testing Contractor”) samples of certain compounds (to the extent such samples are in BMS’ possession as of the Effective Date) for testing by such Testing Contractor.  Such compounds which are believed to be in BMS’ possession as of the Effective Date are listed in Appendix 5 hereto.  The testing of such compounds by the Testing Contractor shall be carried out within [*] following the Effective Date.  Such compounds will be used by the Testing Contractor solely for purposes of performing the testing of the compounds in CDK assays for Sunesis and for no other purpose.  After completion of the testing any unused samples of the compounds will be destroyed or returned to BMS by the Testing Contractor, as directed by BMS.  If any of the compounds listed in Appendix 5 are not in BMS’ possession as of the Effective Date, BMS shall not be required to prepare any new samples of such compound and such compound will not be provided by BMS for testing hereunder.  Following testing by the Testing Contractor, if Sunesis desires additional samples of any of the tested compounds which are shown to be Active Compounds, BMS shall provide samples of such Active Compounds to Sunesis, to the extent that such samples are then in BMS’ possession, for use by Sunesis solely in accordance with license rights and other terms and conditions of this Agreement, provided that BMS shall have the right to retain up to [*] of each such compound for use by BMS in accordance with Section 2.6.

4.6Alternate CDK Assays.  It is understood and acknowledged that Sunesis desires to develop assays that do not require the use of radioactive materials but are otherwise comparable to and substantially similar to one or more of the CDK inhibitor assays described in Appendix 2 (such new assay being an “Alternate Assay”).  It is further understood that as of the Effective Date BMS has performed and is capable of performing the assays described in Appendix 2 (i.e., using radioactive materials) and that as of the Effective Date Sunesis is not able to perform such assays.  Any such Alternate Assay shall

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be compared to and calibrated with the corresponding assay in Appendix 2 using appropriate reference compounds such that the IC₅₀ in the Alternate Assay can be compared to the IC₅₀ that would be obtained using the corresponding assay in Appendix 2.  It is agreed that the Parties shall cooperate to determine the appropriate calibration factor to convert the IC₅₀ obtained in the Alternate Assay to the IC₅₀ that would be obtained using the corresponding assay in Appendix 2 such that Sunesis may use such Alternate Assay for purposes of determining whether a compound is an Active Compound or a Competitive Compound.  Such calibration factor shall be determined as follows: (a) Sunesis shall provide BMS with the detailed procedure for the proposed Alternate Assay; (b) BMS shall provide Sunesis with a list of at least ten (10) reference compounds, together with the IC₅₀ values obtained by BMS using the assay described in Appendix 2; (c) Sunesis shall test such reference compounds in the corresponding Alternate Assay and provide BMS with the IC₅₀ values obtained for such compounds in the Alternate Assay; and (d) the Parties shall work together to reasonably determine and agree on the calibration factor to convert the IC₅₀ obtained in the Alternate Assay to the IC₅₀ that would be obtained using the corresponding assay in Appendix 2.  In the event the Parties are unable to reach agreement on such calibration factor through good faith discussions, such dispute will be resolved by an independent Third Party scientific expert, and the Parties shall accept the calibration factor determined by such independent expert in writing.  The independent Third Party scientific expert shall be selected by mutual agreement of the Parties, with such agreement not to be unreasonably withheld by either Party.  Upon such determination and agreement in writing with respect to such Alternate Assay and the calibration factor for such Alternate Assay, such Alternate Assay may then be used for purposes of determining whether a compound is an Active Compound or a Competitive Compound under this Agreement.  Except with respect to the CDK2 inhibitor assay, for purposes of clause (b) above, BMS shall not be required to carry out further testing of compounds after the Effective Date using any assay described in Appendix 2 and if IC₅₀ values for at least ten (10) reference compounds in such assay are not available to BMS as of the Effective Date, and if Sunesis desires to obtain such testing, such testing shall be performed by BMS, as elected by BMS at its sole discretion, or by a Testing Contractor if BMS elects not to perform such testing.  In the event of such testing of such reference compounds after the Effective Date for this purpose, Sunesis shall be responsible for the costs of any such testing by a Testing Contractor.  If BMS elects to carry out such testing, Sunesis shall reimburse BMS for BMS’ time incurred in connection therewith at an FTE rate of $[*] per hour, plus any reasonable out-of-pocket expenses incurred by BMS in carrying out such testing, provided that Sunesis shall be entitled to apply any of the unused portion of the [*] of technical assistance provided in Article 4.2 to the cost of such testing.  Such reimbursement shall be made to BMS within thirty (30) days after submission of an invoice by BMS reasonably detailing BMS’ time expended, together with reasonable substantiation of any out-of-pocket expenses incurred.

ARTICLE 5

DEVELOPMENT

5.1Development and Development Plan.

(a)Commercially Reasonable Efforts.  Sunesis (or its Sublicensee, as applicable) shall use Commercially Reasonable Efforts to Develop at least one Licensed Compound and Licensed Product.

(b)Development Plan.  A summary of the initial Development Plan as of the Effective Date is attached hereto as Appendix 3 to the Agreement.  Sunesis will provide BMS with any significant

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updates and revisions to the Development Plan for BMS’ review and comment, to the extent Sunesis has the right to do so under an agreement with a Sublicensee where applicable.  As set forth in Appendix 3, the Phase 1 Trial for BMS-387032 is scheduled to start by October, 2005.

5.2Development Reports.  Within [*] months of transfer of all INDs for the Licensed Compounds pursuant to Section 4.3, Sunesis will provide BMS (to the BMS contact person designated in writing by BMS) with a copy of the then-current Development Plan.  Thereafter, Sunesis will provide BMS with a copy of the annual IND updates for the Licensed Compounds (as required by the FDA) within thirty (30) days of submission thereof to the FDA.  In addition, during the term of this Agreement, Sunesis shall provide BMS (to the BMS contact person designated in writing by BMS) a written development report within thirty (30) days following the end of the second and fourth Calendar Quarter of each Calendar Year (i.e., every six (6) months), presenting a meaningful summary of the Development activities accomplished by Sunesis through the end of such six (6) month period, including summaries of significant results, information and data generated.  Upon reasonable request by BMS not more than twice each Calendar Year, Sunesis shall also meet in-person with BMS to review Sunesis’ development activities for Licensed Products.  In addition, upon reasonable request by BMS, Sunesis shall provide BMS with summaries of clinical protocols, investigator brochures, regulatory submissions and correspondence from Regulatory Authorities with respect to Licensed Compound and Licensed Product.  Also, upon reasonable request by BMS, but not more than once every six (6) months, Sunesis shall provide additional details with respect to such summaries.  Notwithstanding the foregoing, but subject to and without limiting Section 2.3, with respect to information controlled by a Third Party, Sunesis’ obligations under this Section 5.2 shall be limited to the extent Sunesis has the right to provide such information.

5.3Records.  Sunesis shall maintain complete and accurate records of all work conducted in furtherance of the Development and Commercialization of the Licensed Compounds and Licensed Products and all results, data and developments made in conducting such activities.  Such records shall be complete and accurate and shall fully and properly reflect all such work done and results achieved in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes.

5.4Development Responsibilities and Costs.Sunesis shall have sole responsibility for, and shall bear the cost of conducting all Development with respect to the Licensed Compounds and Licensed Products.  Sunesis shall Develop the Licensed Compounds and Licensed Products in compliance with all applicable legal and regulatory requirements, including, without limitation, all legal and regulatory requirements pertaining to the design and conduct of clinical studies.

5.5Regulatory Responsibilities and Costs.  Sunesis shall have sole responsibility for, and shall bear the cost of preparing, all regulatory filings and related submissions with respect to the Licensed Compounds and Licensed Products.  Upon reasonable request by BMS, Sunesis shall provide BMS with draft and final copies (which may be wholly or partly in electronic form) of all material correspondence with Regulatory Authorities relating to the Licensed Compounds or any Licensed Product, including any applications for Approval, to the extent Sunesis has the right to do so under an agreement with a Sublicensee where applicable.  Sunesis shall be responsible for meeting the requirements of all pre-approval inspections required by any Regulatory Authorities.  Except as set forth in Section 13.4, Sunesis or its Affiliate or Sublicensee shall own all INDs, Approvals and submissions in connection

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therewith and all Approvals shall be obtained by and in the name of Sunesis or its Affiliate or Sublicensee.

5.6Subcontracting.  Subject to and without limiting Section 2.3, Sunesis may perform any activities in support of its Development or Commercialization of Licensed Compounds and Licensed Products through subcontracting to a Third Party contractor or contract service organization, provided that: (a) none of the rights of BMS hereunder are adversely affected as a result of such subcontracting; (b) any such Third Party subcontractor to whom Sunesis discloses Confidential Information of BMS shall enter into an appropriate written agreement obligating such Third Party to be bound by obligations of confidentiality and restrictions on use of such BMS Confidential Information that are no less restrictive than the obligations in this Agreement; (c) Sunesis will, where practicable, obligate such Third Party to agree in writing to assign or license (with the right to grant sublicenses) to Sunesis any inventions (and any patent rights covering such inventions) made by such Third Party in performing such services for Sunesis that are necessary to the Development or Commercialization of Licensed Compound or Products; and (d) Sunesis shall at all times be responsible for the performance of such subcontractor.

ARTICLE 6

COMMERCIALIZATION

6.1Sunesis Obligations.  Sunesis (or its Sublicensee, as applicable) shall use Commercially Reasonable Efforts to Commercialize at least one (1) Licensed Product in countries in the Territory, including but not limited to the Major Market Countries.  Without limiting the foregoing, Sunesis shall use Commercially Reasonable Efforts to obtain Approvals in such countries with respect to at least one (1) Licensed Product and to effect the First Commercial Sale thereof in such countries as soon as reasonably practicable after receipt of such Approvals. 

6.2Continued Availability.  Following the First Commercial Sale of a Licensed Product in a Major Market Country in the Territory and until the expiration or termination of this Agreement, Sunesis shall use Commercially Reasonable Efforts to supply and keep such Licensed Product reasonably available to the public in such country.

6.3Marking.  Each Licensed Product Commercialized by Sunesis under this Agreement shall be marked (to the extent not prohibited by applicable Laws): (i) with a notice that such Licensed Product is sold under a license from BMS and (ii) with applicable patent and other intellectual property notices relating to the BMS Patent Rights in such a manner as may be required by applicable Law.

ARTICLE 7

MANUFACTURE AND SUPPLY

7.1Manufacture and Supply.  Sunesis shall be solely responsible at its expense for all of its requirements for making or having made all of its requirements of the Licensed Compounds and Licensed Products.  Sunesis shall manufacture, handle, store and ship the Licensed Compound and Licensed Products in compliance with all applicable Laws, with all regulatory filings, and with its applicable internal specifications and quality control procedures.

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ARTICLE 8

FINANCIAL TERMS

In consideration of the rights granted by BMS to Sunesis pursuant to this Agreement, Sunesis shall issue the shares of capital stock and make the payments provided for in this Article 8.

8.1Initial Payment.  Within five (5) Business Days after the Effective Date, Sunesis will issue to BMS, upon the terms and conditions set forth in the Equity Agreements, 1,666,667 shares of Sunesis Series C-2 Preferred Stock.  Such shares shall have an aggregate value of eight million Dollars ($8,000,000) based on a price of $4.80 per share, which represents the price per share of Sunesis Series C-2 Preferred Stock issued and sold in Sunesis’ Series C-2 Financing, and does not necessarily reflect the current fair market value of such stock.  In accordance with the Equity Agreements, such shares will initially be convertible into 1,666,667 shares of Sunesis common stock (subject to anti-dilution adjustments) and shall have rights, preferences and privileges (including but not limited to anti-dilution and registration rights) that are the same as or no less favorable to BMS than the rights, preferences and privileges granted to other holders of Series C-2 Preferred Stock in connection with the Series C-2 Financing.  Such shares of Sunesis Series C-2 Preferred Stock shall be issued and delivered to BMS in the form of certificated securities.

8.2Development Milestone Payments. 

8.2.1Development Milestone Payments.  Sunesis shall make milestone payments to BMS upon the first achievement with respect to a Licensed Product of each of the milestones set forth in Table 1 in the amounts set forth therein.  The milestone payments set forth in Table 1 will be payable by Sunesis to BMS within ten (10) days of the achievement of the specified milestone event with respect to a Licensed Product in the specified Formulation for the specified Indication.  As used herein, “Formulation” means either (a) any IV formulation or (b) any non-IV formulation.  If a given Formulation is an IV formulation, a “different Formulation” means any non-IV formulation (for example, an oral formulation), and vice versa.  As used herein, “Indication” means a tumor type, such as lung, breast or bladder cancer, without regard to the line of therapy.  For example, breast cancer and lung cancer would be different Indications.  Such milestone payment shall not be refundable or returnable in any event, nor shall it be creditable against royalties or other payments.

Table 1

Column:  1	2				3		4		5
	First Indication for First
Milestone Event	Formulation				Second Formulation (any Indication)		Second Indication for a Formulation		Third Indication for a Formulation
	Total Milestone		Maximum
	Payment		Equity Portion
1. Start of Phase 1 Trial	$	[*]	$	[*]	—		—		—
2. Start of Phase 2 Trial	$	[*]	$	[*]	$	[*]	$	[*]	—
3. Start of Phase 3 Trial	$	[*]	$	[*]	$	[*]	$	[*]	$	[*]
4. NDA Filing	$	[*]	$	[*]	$	[*]	$	[*]	$	[*]
5. NDA Approval	$	[*]	—		$	[*]	$	[*]	$	[*]
6. MAA Filing	$	[*]	—		$	[*]	$	[*]	$	[*]
7. MAA Approval	$	[*]	—		$	[*]	$	[*]	$	[*]
8. JNDA Filing	$	[*]	—		$	[*]	$	[*]	$	[*]
9. JNDA Approval	$	[*]	—		$	[*]	$	[*]	$	[*]
Total	$	[*]	$	[*]	$	[*]	$	[*]	$	[*]

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(a)The milestone payments set forth in column 2 in Table 1 are payable upon the first achievement of the specified milestone event for the first Indication for a Licensed Product for a first Formulation (i.e., irrespective of whether an IV or non-IV formulation).  Upon payment of a column 2 milestone, milestone payments are payable under column 3 in Table 1 for the first Indication for a Licensed Product as a Formulation different than the Formulation for which a milestone payment was previously payable under column 2.  For example, if a milestone were paid under column 2 for an IV Formulation for any milestone event, then a milestone would be payable under column 3 upon achievement of the same milestone event for any non-IV Formulation, and vice versa.  Also, for clarification, the first IV Formulation for a Licensed Product may or may not be for the same Indication as the first non-IV Formulation.  For further clarification, in the event that only one type of Formulation of Licensed Product is ever used in humans (i.e., either IV or non-IV), then no payments would become payable under column 3 of Table 1. 

(b)Milestone payments for the second Indication to be developed for a Formulation (whether IV or non-IV) are payable when the milestone event is reached for the second Indication for an IV or non-IV Formulation (column 4 in Table 1).  Milestone payments for the third Indication to be developed for any Formulation (whether IV or non-IV) are payable when the milestone event is reached for the third Indication for an IV or non-IV Formulation (column 5 in Table 1).  For example, if a milestone payment has been paid for a particular milestone event for a non-IV Formulation for a lung tumor Indication under column 2, then a milestone payment will be payable under column 4 upon the first achievement of the same milestone event for any non-IV Formulation for the Licensed Product for any non-lung tumor Indication (such as a bladder tumor indication).  It is understood that the milestones in column 4 and 5 shall be paid only once for all Formulations of a particular Licensed Compound (i.e. payment will not be duplicated for additional Formulations).  In accordance with the foregoing, for a particular Licensed Compound, if both an IV and a non-IV Formulation are Developed and Commercialized for such Licensed Compound, the total milestone payments payable under Table 1 shall not exceed $[*]. 

(c)In the event that a Phase 3 Trial is started (i.e., milestone event 3 in Table 1) such that a development milestone payment is triggered for a particular Indication, where no Phase 2 Trial supporting such Phase 3 Trial had previously been started (i.e., where milestone event 2 had not previously been

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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triggered for such Indication), then Sunesis shall pay the milestone payment for milestone event 2 along with the payment for milestone event 3 for such Indication notwithstanding the absence of a Phase 2 Trial, provided, however, that if Sunesis subsequently achieves the development milestone event 2 for such Indication for which the milestone payment was made, Sunesis shall not have to make any additional payment related thereto.  Other than as set forth in the preceding sentence and with respect to deferred milestone payments as described in Section 8.2.3(b), upon achievement of any particular milestone event for a Licensed Product, only one payment under any Table 1 column would be due based on achievement of that particular milestone event.

(d)For clarification, Appendix 6 sets forth examples illustrating how development milestone payments are intended to by paid in accordance with the foregoing.

8.2.2Payment in Equity.  All of the development milestone payments set forth in Table 1 will be payable in cash, with the exception of those milestone payments for the first Licensed Compound which are marked with one or more asterisks in Table 1, in accordance with the following.  For the payments marked by a single asterisk (*) in Table 1, at the election of Sunesis up to the maximum equity portion set forth in column 2 may be paid to BMS in shares of Sunesis stock as set forth below, with the balance, if any, of such payment to be made in cash.  For the payments marked by a double asterisk (**) in Table 1, at the election of Sunesis all or any portion of such payment may be paid to BMS in shares of Sunesis stock as set forth below, with the balance, if any, of such payment to be made in cash.  For the payments marked by a triple asterisk (***) in Table 1, at the election of Sunesis, up to 50% of such payment may be paid to BMS in shares of Sunesis stock as set forth below, with the balance of such payment to be made in cash.  Any milestone payment that Sunesis elects to make through the issuance of capital stock shall be made pursuant to a stock purchase agreement containing provisions (including, without limitation, representations, warranties and closing conditions) substantially in the form of the Series C-2 Stock Purchase Agreement (each, a “Subsequent Purchase Agreement”).  In connection with milestone payments to BMS in shares of Sunesis stock before Sunesis becomes a Public Company, Sunesis shall not be entitled to qualify its representations and warranties contained in any Subsequent Purchase Agreement by, and shall not otherwise be entitled to issue Sunesis stock in connection with the payment to BMS of any milestone payment in the event of, any of the following: (i) any claim, suit, demand, investigation, litigation or other proceeding by or before a court or other governmental authority, (ii) any violation of any law, rule, regulation, statute, order or decree, or (iii) any matter related to regulatory matters or clinical trials, in the case of (i), (ii) or (iii) that has arisen since the date of the then most recent Qualified Equity Financing (or since the Effective Date if no Qualified Equity Financing has occurred subsequent to the Effective Date) and that has had, or would reasonably be expected to have, a material adverse effect on the business, operations or financial condition of Sunesis and its subsidiaries taken as a whole.

In the event that any Sunesis stock issued to BMS as payment under Section 8.1 or payment under this Section 8.2.2 becomes subject to a Pay-to-Play Feature, then Sunesis shall no longer be entitled to issue Sunesis stock in connection with the payment to BMS of any future milestone payment and the entire amount of any future milestone payments shall be paid in cash (i.e., any future milestone payments payable under Section 8.2 that would otherwise be payable all or in part in shares of Sunesis capital stock as set forth in this Section 8.2.2, shall be paid entirely in cash). 

(a)Milestone Payments Prior to Sunesis Becoming Public Company:  If Sunesis elects to make milestone payments to BMS in shares of Sunesis stock before Sunesis becomes a Public Company, any milestone payments made to BMS in Sunesis stock shall consist of shares of the same securities issued in connection with the then most recent Qualified Equity Financing, with such securities being valued at a price per share at which such securities were sold in such Qualified Equity Financing (as appropriately adjusted for any stock split, combination, reclassification, reorganization or other similar

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event), and in connection therewith, BMS shall be granted the same rights, preferences and privileges granted to other holders of the securities issued in connection with such Qualified Equity Financing (to the extent such rights, preferences and privileges have not already been granted to BMS), provided, however, that, if no such Qualified Equity Financing has occurred prior to the applicable milestone payment, then the milestone payment made to BMS in Sunesis stock shall (subject to BMS’ right to waive one or more of the requirements for a Qualified Equity Financing, as set forth in the last sentence of the definition of a Qualified Equity Financing) consist of shares of Series C-2 Preferred Stock with such securities being valued at $4.80 per share (as appropriately adjusted for any stock-split, combination, reclassification, reorganization or other similar event), and in connection therewith BMS shall be granted the same rights, preferences and privileges granted to other holders of Series C-2 Preferred Stock (to the extent such rights, preferences and privileges have not already been granted to BMS).

(b)Milestone Payments After Sunesis Becomes a Public Company:  If Sunesis elects to make milestone payments to BMS in shares of Sunesis stock after Sunesis becomes a Public Company, such shares will be unregistered Sunesis Common Stock valued at a price per share equal to the average closing share price of Sunesis’ publicly traded Common Stock as reported on the Nasdaq National Market (or if the Common Stock is not then traded on the Nasdaq National Market, on the principal exchange or quotation system on which the Common Stock is then traded or quoted) over the [*] trading day period ending [*] trading days prior to the date the applicable milestone event is achieved.  Such shares shall be subject to, and “Registrable Securities” under, the Investor Rights Agreement.

(c)Notwithstanding the foregoing, Sunesis may not pay any milestone payments in equity to the extent the number of shares so issued, combined with shares previously issued to BMS under the Agreement and then held by BMS, would exceed 19.9% of Sunesis’ then outstanding voting equity on a fully diluted basis, in which case cash would be paid to BMS to cover the full amount payable to BMS for such milestone.

(d)BMS agrees not to knowingly exercise its voting rights as a Sunesis stockholder in a manner that would interfere with Sunesis’ efforts to proceed to an initial public offering of Sunesis stock or effect a merger, consolidation or sale of all or substantially all of its assets. 

8.2.3Reduction in Milestone Payments. 

(a)For Licensed Products containing Licensed Compounds that are included under clause (b) or clause (c) (or clause (d), where clause (d) refers to clause (b) or (c)), but not clause (a) (or clause (d), where clause (d) refers to clause (a)), of the definition of Licensed Compound, the milestone payments payable with respect to such Licensed Products under Section 8.2.1 will be [*] of the amounts listed in Table 1.

(b)Only one set of milestone payments will be paid for a given Licensed Compound (i.e., for a given chemical entity) upon the first occurrence of the milestone event for that compound.  Each such milestone payment shall be payable for the first Licensed Compound to reach the milestone event.  However, until NDA or MAA Approval is obtained by a Licensed Compound, the milestone payments for each subsequent Licensed Compound to achieve the same milestone event are deferred.  Once NDA or MAA Approval is obtained for a Licensed Compound, any deferred milestone payments for the next most advanced Licensed Compound that is still (as of the time of such Approval) in active clinical

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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development will be due, provided that for subsequent Licensed Compounds to reach a milestone event (i.e., for those Licensed Compounds which are not the first Licensed Compound to reach the milestone event) the milestone payments payable will be [*] of the amounts listed in Table 1.  As each additional Licensed Compound is approved, deferred milestone payments will be paid consistent with the foregoing.  Except as set forth above for certain milestone payments for the first Licensed Compound to reach the milestone event, all development milestone payments, including all milestone payments for subsequent Licensed Compounds, will be payable in cash.

(c)The foregoing reductions shall not reduce the amount of any given milestone payment payable to be less than [*] of the amounts listed in Table 1.

8.3Commercialization Milestone Payments.  The following milestone payments will be payable in cash by Sunesis to BMS within thirty (30) days of the end of the Calendar Year in which Sunesis (and its Sublicensees, as applicable) first achieves the following annual Net Sales of all Licensed Products in all countries in the Territory (including all indications and formulations for such Licensed Products):

Annual Net Sales	Payment to BMS
$[*]	$[*]
$[*]	$[*]
$[*]	$[*]

It is understood that more than one Commercialization milestone payment may be payable with respect to one Calendar Year, provided that the maximum total amount payable by Sunesis to BMS under this Section 8.3 shall be $[*].  For clarification, by way of example, if the total annual Net Sales of Licensed Product for the first Calendar Year in which the First Commercial Sale of the Licensed Product occurs is $[*], $[*] would be payable by Sunesis to BMS under this Section 8.3 within thirty (30) days of the end of the Calendar Year. 

8.4Royalty Payments.

8.4.1Sunesis shall pay to BMS in cash the following royalty payments on the total aggregate annual Net Sales in the Territory of all Licensed Products (including all indications and formulations for such Licensed Products) in a particular Calendar Year by Sunesis, its Affiliates, and Sublicensees in the Territory:

Table 2

Aggregate Annual Worldwide Net Sales of All Licensed Products in Calendar Year	Royalty Rate
Up to U.S. $[*]	[*]	%
Above U.S. $[*] to U.S. $[*]	[*]	%
Above U.S. $[*] to U.S. $[*]	[*]	%
Above $[*]	[*]	%

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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By way of example, in a given Calendar Year, if the aggregate annual worldwide Net Sales for all Licensed Products is $[*], the following royalty payment would be payable under this Section 8.4.1 (subject to the reductions set forth below): ([*]% x $[*]) + ([*]% x $[*]) + ([*]% x $[*]) = $[*].

8.4.2Royalty Term.  Royalties shall be payable on a product-by-product and country-by-country basis on Net Sales of Licensed Products from the First Commercial Sale of a particular Licensed Product in a country until the later of (i) ten (10) years after the First Commercial Sale of such Licensed Product in such country or (ii) the expiration of the last to expire patent in such country within the BMS Core Patent Rights or BMS Extension Patent Rights, or otherwise owned by, Controlled by or exclusively licensed to Sunesis (including extensions thereof under applicable Laws, including patent term extensions, pediatric exclusivity extensions or supplemental protection certificates or their equivalents in any country), in each case with a Valid Claim covering the sale of the Licensed Product for which Approval has been obtained in such country or (iii) the expiration of all applicable data exclusivity with respect to such Licensed Product (such as those periods listed in the FDA’s Orange Book or periods under national implementations of Article 10.1(a)(iii) of Directive 2001/EC/83, and equivalents in other countries in the Territory).  Such period during which royalties are payable with respect to a Licensed Product in a country is referred to herein as the “Royalty Term” in such country with respect to such Licensed Product.

8.4.3Reduction of Royalty for Certain Licensed Products.  For Licensed Products containing Licensed Compounds that are included under clause (b) or clause (c) (or clause (d), where clause (d) refers to clause (b) or (c)), but not clause (a) (or clause (d), where clause (d) refers to clause (a)), of the definition of Licensed Compound, the royalty payable by Sunesis under Section 8.4.1 shall be reduced such that the royalty rate shall be [*] of the royalty rate set forth above in Table 2.

8.4.4Royalty Reduction for Generic Competition.  The royalty amounts otherwise payable under Section 8.4.1 shall be reduced by [*] on a country-by-country basis at any such time that there is no patent in effect for any reason providing marketing exclusivity with respect to the applicable Licensed Product in such country and where the sale of one or more Generic Product(s) in such country exceeds [*] percent ([*]%) of the unit sales volume of pharmaceutical products containing the applicable License Compound in that country, as measured by IMS Health or its successor.  For such purposes, the reduction will be calculated assuming that the royalty rate in such country is the Blended Rate (i.e., the reduced royalty rate for such country shall be [*] percent ([*]%) of the Blended Rate).  Such reduction shall be first applied with respect to such country starting with sales in the Calendar Quarter following the first Calendar Quarter where the sales of the Generic Product(s) in such country exceed [*]% of the unit sales volume of the applicable Licensed Product.  In no event shall the royalty amounts payable in any such country be reduced below [*] percent ([*]%) of the amount otherwise payable with respect to such Licensed Product under Section 8.4.1. 

8.4.5Third Party Royalty Payments.  If Sunesis or its Sublicensee, in its reasonable judgment, is required to obtain a license from any Third Party under any patent covering the applicable

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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Licensed Compound as a composition of matter (i.e., this reduction shall not apply, for example, with respect to Third Party patents covering a formulation or method of use for the Licensed Compound or Licensed Product) in order to import, manufacture, use or sell any Licensed Product, and if Sunesis (or its Sublicensee) is required to pay to such Third Party under such license a one-time license fee, milestone payments, or a royalty calculated on sales of a Licensed Product, and the infringement of such patent cannot reasonably be avoided by Sunesis (or its Sublicensee), or if Sunesis (or its Sublicensee) is required by a court of competent jurisdiction to pay such a license fee, milestone payments or royalty to such a Third Party (and the infringement of such patent cannot reasonably be avoided by Sunesis), then the amount of Sunesis’ royalty obligations under this Section 8.4 hereof shall be reduced by [*] percent ([*]%) of the amount of such license fee, milestone payments or royalty paid to such Third Party, provided however, that the royalties payable under Section 8.4.1 hereof shall not be reduced in any such event below [*]% of the amounts set forth in Section 8.4.1.  Sunesis (or its Sublicensee) shall use its commercially reasonable efforts to minimize the amount of any of the foregoing payments owed to Third Parties.  Prior to Sunesis or its Sublicensee exercising its reasonable judgment under this Section 8.4.5, Sunesis shall provide BMS with written notice of a potential need to obtain any license from Third Parties.  The Parties shall discuss the best course of action to resolve such potential license requirement(s), provided that such discussions shall not limit or unreasonably delay Sunesis’ or its Sublicensee’s right to exercise its reasonable judgment.

Sunesis shall be responsible for paying any and all royalties or other payments that may be payable to any Third Party as a result of Sunesis’ manufacture, use or sale of any Licensed Compound or Licensed Product.

8.4.6Royalty Conditions.  The royalties under Section 8.4.1 shall be subject to the following conditions:

(a)that only one royalty shall be due with respect to the same unit of Licensed Product;

(b)that no royalties shall be due upon the sale or other transfer among Sunesis, its Affiliates, or Sublicensees, but in such cases the royalty shall be due and calculated upon Sunesis’ or its Affiliate’ or Sublicensee’s Net Sales of Licensed Product to the first independent Third Party; and

(c)no royalties shall accrue on the disposition of Licensed Product in reasonable quantities by Sunesis, its Affiliates or Sublicensees as part of an expanded access program or as part of Phase 4 Trials or as donations to non-profit institutions or government agencies for non-commercial purposes, provided, in each case, that neither Sunesis, its Affiliate or Sublicensees receives any payment for such Licensed Product.

8.4.7Limit on Royalty Reductions.  Notwithstanding the royalty reductions set forth above under Sections 8.4.3, 8.4.4 and 8.4.5, under no circumstances shall the royalty rate used to calculate the royalty payment payable under Section 8.4.1 be less than [*]% of the royalty rate set forth above in Table 2 in Section 8.4.1.

8.5Manner of Payment.  Except for those payments that are paid in Sunesis equity, all payments to be made by Sunesis hereunder shall be made in Dollars by wire transfer of immediately

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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available funds to such United States bank account as shall be designated by BMS.  Late payments shall bear interest at the rate provided in Section 8.10.

8.6Sales Reports and Royalty Payments.  After the First Commercial Sale of a Licensed Product and during the term of this Agreement, Sunesis shall furnish to BMS a written report, within thirty (30) days after the end of each Calendar Quarter (or portion thereof, if this Agreement terminates during a Calendar Quarter), showing the amount of royalty due for such Calendar Quarter (or portion thereof).  Royalty payments for each Calendar Quarter shall be due at the same time as such written report for the Calendar Quarter.  With each quarterly payment, Sunesis shall deliver to BMS a full and accurate accounting to include at least the following information:

(a)the quantity of each Licensed Product sold (by country) by Sunesis, its Affiliates, and Sublicensees;

(b)the total gross sales and total Net Sales for each Licensed Product (by country) by Sunesis, its Affiliates, and Sublicensees in local currency and in Dollars;

(c)the calculation of Net Sales from such gross sales;

(d)the exchange rates used in determining the amount of U.S. Dollars payable;

(e)the names and addresses of all Sublicensees of Sunesis;

(f)the royalties payable in Dollars which shall have accrued hereunder in respect of such Net Sales;

(g)withholding taxes, if any, required by applicable Law to be deducted in respect of such royalties;

(h)the dates of the First Commercial Sales of Licensed Products in any country during the reporting period; and

(i)significant Commercial activities and events with respect to Licensed Products.

If no royalty or payment is due for any royalty period hereunder, Sunesis shall so report.

8.7Sales Record Audit.  Sunesis shall keep, and shall cause each of its Affiliates, and Sublicensees, if any, to keep, full and accurate books of accounting in accordance with GAAPcontaining all particulars that may be necessary for the purpose of calculating all royalties payable to BMS.  Such books of accounting (including, without limitation, those of Sunesis’ Affiliates, and Sublicensees, if any) shall be kept at their principal place of business and, with all necessary supporting data, shall during all reasonable times for the three (3) years next following the end of the Calendar Year to which each shall pertain, be open for inspection at reasonable times by an independent certified accountant selected by BMS, and as to which Sunesis has no reasonable objection,at BMS’ expense, for the purpose of verifying royalty statements for compliance with this Agreement.  Such accountant must have agreed in writing to maintain all information learned in confidence, except as necessary to disclose to BMS such compliance or noncompliance by Sunesis.  The results of each inspection, if any, shall be binding on both Parties.  BMS shall pay for such inspections, except that in the event there is any upward adjustment in aggregate

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royalties payable for the Calendar Quarter period of such inspection of more than [*] percent ([*]%) of the amount paid, Sunesis shall pay for the reasonable out-of-pocket costs of such inspection.  Any underpayments shall be paid by Sunesis within ten (10) Business Days of notification of the results of such inspection.  Any overpayments shall be fully creditable against amounts payable in subsequent payment periods.

8.8Currency Exchange. With respect to Net Sales invoiced in Dollars, the Net Sales and the amounts due to BMS hereunder shall be expressed in Dollars.  With respect to Net Sales invoiced in a currency other than Dollars, the Net Sales shall be expressed in the domestic currency of the entity making the sale, together with the Dollar equivalent, calculated using the arithmetic average of the spot rates on the close of business on the last Business Day of each month of the Calendar Quarter in which the Net Sales were made.  The “closing mid-point rates” found in the “dollar spot forward against the dollar” table published by The Financial Times or any other publication as agreed to by the Parties shall be used as the source of spot rates to calculate the average as defined in the preceding sentence.  All payments shall be made in Dollars.

8.9Tax Withholding.  The withholding tax, duties, and other levies (if any) applied by a government of any country of the Territory on payments made by Sunesis to BMS hereunder shall be borne by BMS.  Sunesis, its Affiliates and Sublicensees shall cooperate with BMS to enable BMS to claim exemption therefrom under any double taxation or similar agreement in force and shall provide to BMS proper evidence of payments of withholding tax and assist BMS by obtaining or providing in as far as possible the required documentation for the purpose of BMS’ tax returns.

8.10Interest Due.Without limiting any other rights or remedies available to BMS, Sunesis shall pay BMS interest on any payments that are not paid on or before the date such payments are due under this Agreement at a rate of one and one-half percent (1.5%) per month or the maximum applicable legal rate, if less, calculated on the total number of days payment is delinquent.

ARTICLE 9

REPRESENTATIONS AND WARRANTIES; DISCLAIMER;
LIMITATION OF LIABILITY

9.1Mutual Representations and Warranties.  Each Party represents and warrants to the other Party that (i) it has all requisite corporate power and authority to enter into this Agreement and to perform its obligations under this Agreement, (ii) execution of this Agreement and the performance by such Party of its obligations hereunder have been duly authorized, (iii) this Agreement is legally binding and enforceable on each Party in accordance with its terms, and (iv) the performance of this Agreement by it does not create a breach or default under any other agreement to which it is a Party.

9.2Representations and Warranties of BMS. 

9.2.1BMS represents and warrants to Sunesis that to the best of its knowledge (i) there is no pending litigation which alleges, or any written communication alleging, that any Licensed Compound or BMS’ activities with respect to the BMS Patent Rights or the Licensed Compounds have infringed or misappropriated any of the intellectual property rights of any Third Party; (ii) all fees

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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required to be paid by BMS in order to maintain the BMS Patent Rights have been paid to date; (iii) it has not previously assigned, transferred, conveyed or otherwise encumbered its right, title and interest in the BMS Patent Rights or the BMS Know-How; (iv) Section 2 of Appendix 1 sets forth all patent rights (other than the BMS Core Patent Rights) that are necessary or useful for the manufacture, Development and/or Commercialization of Licensed Compounds and/or Licensed Products in which BMS or its Affiliates has a right or interest as of the Effective Date; (v) BMS owns all right, title and interest in and to the BMS Core Patent Rights and has not granted any right or license under the BMS Core Patent Rights authorizing any Third Party to manufacture, use or sell Licensed Compounds in any country the Territory; (vi) all data related to Licensed Compounds included within the BMS Know-How was generated in accordance with applicable Laws, the Licensed Compounds provided to Sunesis pursuant to Section 4.4 above were manufactured in accordance with applicable Laws; (vii) BMS has not withheld any information of which it is aware that would materially adversely affect the further Development or Commercialization of any Licensed Compounds; and (viii) prior to the Effective Date BMS has disclosed to Sunesis all material information related to BMS-387032 of which it is aware as of the Effective Date.

9.2.2BMS represents and warrants to Sunesis that as of the Effective Date, it has discontinued its internal CDK inhibitor drug discovery and development programs and that it has no active internal programs for the discovery or development of CDK inhibitors as of the Effective Date.  Subject to the exclusive rights granted to Sunesis under Article 2 and subject to the restrictions on use of Sunesis’ Confidential Information under Article 11, BMS will not be restricted from pursuing a CDK inhibitor drug discovery or development program at any time following the Effective Date, provided however, that BMS shall not initiate human clinical trials for any internally discovered CDK inhibitor within [*] following the Effective Date.  For clarification, the foregoing restriction on BMS shall not apply to any CDK inhibitor that is acquired from or through a Third Party, for example, through in-license, acquisition or merger.

9.3Representations and Warranties of Sunesis.  Sunesis represents, warrants and covenants that, to the best of its then-current knowledge, all of its activities related to its use of the BMS Patent Rights and BMS Know-How, and the Development and Commercialization of the Licensed Compounds and Licensed Products, pursuant to this Agreement shall comply with all applicable legal and regulatory requirements.  Sunesis further represents, warrants and covenants that (i) it shall not knowingly engage in any activities that use the BMS Patent Rights and/or BMS Know-How in a manner that is outside the scope of the license rights granted to it hereunder or that infringe the intellectual property rights of any Third Party; and (ii) that it has or will have the financial resources to carry out its obligation under this Agreement. 

9.4Disclaimer.  EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, BMS MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE BMS PATENT RIGHTS OR BMS KNOW-HOW OR ANY LICENSE GRANTED BY BMS HEREUNDER, OR WITH RESPECT TO ANY COMPOUNDS OR PRODUCTS.  FURTHERMORE, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, BMS MAKES NO REPRESENTATIONS OR WARRANTIES THAT ANY PATENT OR OTHER PROPRIETARY RIGHTS INCLUDED IN THE BMS PATENT RIGHTS ARE VALID OR ENFORCEABLE OR THAT USE OF THE BMS PATENT RIGHTS AND

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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BMS KNOW-HOW CONTEMPLATED HEREUNDER DOES NOT INFRINGE ANY PATENT RIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.

9.5Limitation of Liability.  NOTWITHSTANDING ANYTHING IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY SHALL BE LIABLE TO THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT, WHETHER UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY, FOR ANY INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY, PUNITIVE, MULTIPLE, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, CONSEQUENTIAL DAMAGES CONSISTING OF LOST PROFITS, LOSS OF USE, DAMAGE TO GOODWILL, OR LOSS OF BUSINESS) AND, IN ANY CASE, BMS SHALL NOT BE LIABLE IN AN AMOUNT GREATER THAN THE AMOUNTS PAID BY SUNESIS TO BMS UNDER SECTIONS 8.1, 8.2, 8.3 AND 8.4 OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT APPLY TO ANY BREACH BY SUNESIS OF THE LICENSES GRANTED TO IT UNDER ARTICLE 2 HEREOF THAT IS AN INFRINGEMENT OF BMS PATENT RIGHTS, OR ANY BREACH BY EITHER PARTY OF ARTICLE 11 HEREOF.

ARTICLE 10

PATENT MAINTENANCE; INFRINGEMENT; EXTENSIONS

10.1Ownership of Inventions.  Inventorship of inventions conceived or reduced to practice in the course of  activities performed under or contemplated by this Agreement shall be determined by application of United States patent Laws pertaining to inventorship.  If such inventions are jointly invented by one or more employees,  consultants or contractors of each Party, such inventions shall be jointly owned (“Joint Invention”), and if one or more claims included in an issued patent or pending patent application which is filed in a patent office in the Territory claim such Joint Invention, such claims shall be jointly owned (“Joint Patent Rights”).  If such an invention is solely invented by an employee of a Party, such invention shall be owned by such Party, and any patent filed claiming such solely owned invention shall also be owned by such Party.  Each Party shall enter into binding agreements obligating all employees performing activities under or contemplated by this Agreement, including activities related to the BMS Patent Rights, Licensed Compounds or Licensed Products to assign his/her interest in any invention conceived or reduced to practice in the course of such activities to the Party for which such employee is providing its services.  This Agreement shall be understood to be a joint research agreement in accordance with 35 U.S.C. § 103(c)(3) to develop the Licensed Compounds and Licensed Products.  The filing, prosecution, maintenance and enforcement of Joint Patent Rights which are BMS Other Patent Rights shall be handled in accordance with this Article 10.

10.2Filing, Prosecution and Maintenance of BMS Patent Rights. 

10.2.1Generally.  BMS shall be responsible, using its in-house patent counsel or outside patent counsel selected by BMS (such selection to be subject to Sunesis’ approval, such approval not to be unreasonably withheld), for the preparation, prosecution (including, without limitation, any interferences, reissue proceedings and reexaminations) and maintenance of BMS Patent Rights.  BMS shall be responsible for all costs incurred by BMS with respect to such preparation, prosecution and maintenance of BMS Patent Rights so long as BMS remains responsible for such preparation, prosecution and maintenance.  Upon request by Sunesis, BMS shall provide Sunesis with an update of the filing, prosecution and maintenance status for each of BMS Patent Rights.  BMS shall reasonably consult with and cooperate with Sunesis with respect to the preparation, prosecution and maintenance of the BMS Patent Rights.  BMS shall provide to Sunesis copies of any papers relating to the filing, prosecution or maintenance of the BMS Patent Rights promptly upon their being filed or received.  BMS shall not

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knowingly take any action during prosecution and maintenance of the BMS Patent Rights that would materially adversely affect them (including any reduction in claim scope), without Sunesis’ prior consent.  Upon request by Sunesis, BMS shall provide to Sunesis copies of any papers relating to the filing, prosecution or maintenance of the BMS Patent Rights.

10.2.2Maintenance of Core Patents.  Notwithstanding anything to the contrary under this Section 10.2 or Section 10.3, unless the Parties otherwise agree in writing, during the period commencing on the Effective Date and ending on the earlier of (i) the date of [*] for a Licensed Product or (ii) [*] years following the Effective Date, BMS shall remain responsible for all such preparation, prosecution and maintenance of the BMS Core Patent Rights and BMS Extension Patent Rights, and all costs incurred by BMS with respect thereto, in the List A Countries, and shall not permit any such patent rights to lapse or become abandoned in any of the List A Countries.

10.2.3Filing New Applications.  Sunesis shall have the right to request that BMS file and prosecute any new patent application claiming an invention invented by BMS either prior to the Effective Date or during the term of this Agreement that is specifically directed to or specifically refers to one or more Licensed Compounds (and accordingly such new patent application, if filed, would be a BMS Other Patent Right under clause (b) of the definition of a BMS Other Patent Right).  Upon such request, BMS shall either assume responsibility for the preparation and filing of such patent application and such patent application will be handled by BMS in accordance with Section 10.2.1, or BMS may elect not to assume responsibility for such preparation and filing of such patent application and such patent application shall be handled by BMS (or Sunesis, at BMS’ election) in accordance with Section 10.3.2.  Accordingly, the provisions of this Article 10 shall govern the Parties’ responsibilities with respect to prosecution, maintenance and enforcement of such patents applications, any patents issuing therefrom and any foreign equivalents thereto.  In the event that BMS elects in its sole discretion not to file and prosecute any such patent applications, BMS shall notify Sunesis in writing and Sunesis shall thereupon have the right, but not the obligation, to assume responsibility for the prosecution, maintenance and defense of such patent applications, on a patent-by-patent and country-by-country basis, at Sunesis’ expense in accordance with Section 10.3.2 below.

10.3Patent Abandonment. 

10.3.1Generally.  In no event will BMS knowingly permit any of the BMS Patent Rights to be abandoned in any country in the Territory, or elect not to file a new patent application claiming priority to a patent application within the BMS Patent Rights either before such patent application’s issuance or within the time period required for the filing of an international (i.e., Patent Cooperation Treaty), regional (including European Patent Office) or national application, without Sunesis first being given an opportunity to assume full responsibility for the continued prosecution and maintenance of such BMS Patent Rights, or the filing of such new patent application.  Accordingly, BMS shall provide Sunesis with notice of the allowance and expected issuance date of any patent within the BMS Patent Rights, or any of the aforementioned filing deadlines, and Sunesis shall provide BMS with prompt notice as to whether Sunesis desires BMS to file such new patent application.  In the event that BMS decides either (i) not to continue the prosecution or maintenance of a patent application or patent within BMS Patent Rights in any country or (ii) not to file such new patent application requested to be filed by Sunesis, BMS shall provide Sunesis withnotice of this decision at least thirty (30) days prior to any pending lapse or abandonment thereof.

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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10.3.2Sunesis Option to Assume Responsibility.  Sunesis shall thereupon have the right, but not the obligation, to assume responsibility for all reasonably documented external costs associated with the filing and/or further prosecution and maintenance of such patents and patent applications, on a patent-by-patent and country-by-country basis.  BMS shall proceed with such filing and/or further prosecution and maintenance promptly upon receipt of written notice from Sunesis of its election to assume such responsibility, with such filing to occur prior to the issuance of the patent to which the application claims priority or expiration of the applicable filing deadline, as set forth above.  In the event that Sunesis assumes such responsibility for such filing, prosecution and maintenance costs, BMS shall have the right, but not the obligation, to transfer the responsibility for such filing, prosecution and maintenance of such patent applications and patents to Sunesis’ in-house patent counsel or outside patent counsel selected by Sunesis and reasonably acceptable to BMS, provided that BMS shall (i) provide sufficient written notice to Sunesis of any such election such that the relevant transfer shall not prejudice the filing, prosecution and/or maintenance of patent rights (where possible, such notice shall be provided at least thirty (30) days prior to any pending lapse or abandonment thereof); (ii) transfer or cause to be transferred to Sunesis or its patent counsel the complete prosecution file for the relevant patents and patent applications, including all correspondence and filings with patent authorities with respect thereto; and (iii) at the reasonable request of Sunesis and without demanding any further consideration therefore, do all things necessary, proper or advisable, including without limitation the execution, acknowledgment and recordation of specific assignments, oaths, declarations and other documents on a country-by-country basis, to assist Sunesis in obtaining, perfecting, sustaining and/or enforcing such patent(s).  In such case, Section 10.2.1 shall apply to such patent applications and patents except that the role of BMS and Sunesis shall be reversed.  Such patent applications and patents shall otherwise continue to be subject to all of the terms and conditions of the Agreement in the same way as the other BMS Core Patent Rights, BMS Extension Patent Rights or BMS Other Patent Rights, as applicable. 

10.4Enforcement of BMS Patent Rights Against Infringers.

10.4.1Enforcement by Sunesis. 

(a)In the event that BMS or Sunesis becomes aware of a suspected infringement of any BMS Patent Right exclusively licensed to Sunesis under this Agreement, such Party shall notify the other Party promptly, and following such notification, the Parties shall confer.  Sunesis shall have the right, but shall not be obligated, to bring an infringement action with respect to such infringement at its own expense, in its own name and entirely under its own direction and control, subject to the following.  BMS shall reasonably assist Sunesis (at Sunesis’ expense) in any action or proceeding being prosecuted if so requested, and shall lend its name to and join as a nominal party in such actions or proceedings if reasonably requested by Sunesis or required by applicable Laws.  BMS shall have the right to participate and be represented in any such suit by its own counsel at its own expense.  No settlement of any such action or proceeding which restricts the scope, or adversely affects the enforceability, of a BMS Patent Right may be entered into by Sunesis without the prior written consent of BMS, which consent shall not be unreasonably withheld, delayed or conditioned. 

(b)BMS shall have the right at its discretion to grant to Sunesis such rights (including assignment of the applicable BMS Patent Rights) as may be necessary for Sunesis to exercise its rights under this Section 10.4 (including defending or enforcing any BMS Patent Rights) without BMS’ involvement.  In the event of such grant of rights (including assignment) with respect to any BMS Patent Rights, such BMS Patent Rights shall continue to be treated as BMS Patent Rights and shall otherwise continue to be subject to all of the terms and conditions of the Agreement in the same way as the other applicable BMS Patent Rights.  For purposes of clarity, election by BMS to grant or assign rights to Sunesis under this Section 10.4.1(b) shall not limit BMS’s obligations under Section 10.4.1(a) to reasonably assist Sunesis in any action or proceeding, or to join in such action or proceeding upon request

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by Sunesis if such joinder is necessary under applicable Laws for Sunesis to exercise its rights under this Section 10.4.

10.4.2Enforcement by BMS.  If Sunesis elects not to bring any action for infringement described in Section 10.4.1 and so notifies BMS, then BMS may bring such action at its own expense, in its own name and entirely under its own direction and control, subject to the following.  Sunesis shall reasonably assist BMS (at BMS’ expense) in any action or proceeding being prosecuted if so requested, and shall lend its name to such actions or proceedings if requested by BMS or required by applicable Laws.  Sunesis shall have the right to participate and be represented in any such suit by its own counsel at its own expense.  No settlement of any such action or proceeding which restricts the scope, or adversely affects the enforceability, of a BMS Patent Right may be entered into by BMS without the prior written consent of Sunesis, which consent shall not be unreasonably withheld, delayed or conditioned.

10.4.3Withdrawal.  If either Party brings an action or proceeding under this Section 10.4 and subsequently ceases to pursue or withdraws from such action or proceeding, it shall promptly notify the other Party and the other Party may substitute itself for the withdrawing Party under the terms of this Section 10.4

10.4.4Damages.  In the event that either Party exercises the rights conferred in this Section 10.4 and recovers any damages or other sums in such action, suit or proceeding or in settlement thereof, such damages or other sums recovered shall first be applied to all out-of-pocket costs and expenses incurred by the Parties in connection therewith, including, without limitation, attorneys fees.  If such recovery is insufficient to cover all such costs and expenses of both Parties, it shall be shared in proportion to the total of such costs and expenses incurred by each Party.  If after such reimbursement any funds shall remain from such damages or other sums recovered, such funds shall be retained by the Party that controlled the action or proceeding under this Section 10.4; provided, however, that if Sunesis is the Party that controlled such action or proceeding, BMS shall receive out of any such remaining recovery received by Sunesis an amount as follows: (i) as to ordinary damages, BMS shall receive payment equivalent to payments that would have been due to BMS under this Agreement had the infringing sales that Sunesis lost to the infringer been made by Sunesis and (ii) as to special or punitive damages, such amount shall be allocated between the Parties in the same proportion as ordinary damages under clause (i), and provided further that the amounts paid under (i) and (ii) shall not exceed [*]% of the total recovery of Sunesis from such action or proceeding.

10.4.5Other Enforcement.  BMS or any of its Affiliates or their licensees shall have the right, at their own expense and under the direction and control of BMS, to enforce or defend in any action or proceeding any BMS Other Patent Rights.  Sunesis shall have the right to participate in any such action or proceeding with its own counsel and at its own expense, which expense may be recovered from any damages or other sums recovered from such action or proceeding on a pro rata basis in proportion to all expenses incurred by the foregoing entities in connection with the applicable action or proceeding.  If Sunesis elects to so participate, the enforcing entity shall provide Sunesis with an opportunity to consult regarding such action or proceeding.  No settlement of any such action or proceeding which restricts the scope, or adversely affects the enforceability, of a BMS Other Patent Right may be entered into by BMS without the prior written consent of Sunesis, which consent shall not be unreasonably withheld, delayed or conditioned.

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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10.5Patent Term Extension.  BMS and Sunesis shall each cooperate with one another and shall use Commercially Reasonable Efforts in obtaining patent term extension (including without limitation, any pediatric exclusivity extensions as may be available) or supplemental protection certificates or their equivalents in any country with respect to patent rights covering the Licensed Products.  If elections with respect to obtaining such patent term extensions are to be made, Sunesis shall have the right to make the election to seek patent term extension or supplemental protection, provided that such election will be made so as to maximize the period of marketing exclusivity for the Licensed Product.  For such purpose, for all Approvals Sunesis shall provide BMS with written notice of any expected Approval at least thirty (30) days prior to the expected date of Approval, as well as notice within five (5) business days of receiving each Approval confirming the date of such Approval.  Notification of the receipt of an Approval shall be in accordance with Section 15.2 except that the notification shall be sent to:

Bristol-Myers Squibb Company
P.O. Box 4000

Route 206 & Province Line Road

Princeton, New Jersey 08543-4000
Attention:  Vice President and Chief Intellectual Property Counsel

Telephone:  609-252-4825
Facsimile:  609-252-7884

10.6Data Exclusivity and Orange Book Listings.  

10.6.1With respect to data exclusivity periods (such as those periods listed in the FDA’s Orange Book (including without limitation any available pediatric extensions) or periods under national implementations of Article 10.1(a)(iii) of Directive 2001/EC/83, and all international equivalents), Sunesis shall use Commercially Reasonable Efforts consistent with its obligations under applicable Law to seek, maintain and enforce all such data exclusivity periods available for the Licensed Products.  With respect to filings in the FDA Orange Book (and foreign equivalents) for issued patents for a Licensed Product, Sunesis shall, consistent with its obligations under applicable Law, list in a timely manner and maintain all applicable BMS Patent Rights and other patents Controlled by Sunesis required to be filed by it, or that it is permitted to file, under applicable Law.  At least sixty (60) days prior to an anticipated deadline for the filing of patent listing information for BMS Patent Rights, Sunesis will consult with BMS regarding the content of such filing.  In the event of a dispute between the Parties as to whether a BMS Patent Right can be filed and/or the content of such filing, the Parties will take expedited steps to resolve the dispute as promptly as possible, including seeking advice of an independent legal counsel to guide their decision.  BMS shall use Commercially Reasonable Efforts consistent with its obligations under applicable Law to provide reasonable cooperation to Sunesis in filing and maintaining such Orange Book (and foreign equivalent) listings. 

10.6.2Without limiting the foregoing, BMS shall have the right at its discretion to grant to Sunesis such rights (including assignment of the applicable BMS Patent Rights) as may be necessary for Sunesis to exercise its rights under this Section 10.6 (including seeking, maintaining and enforcing all data exclusivity periods) without BMS’ involvement.  In the event of such grant of rights (including assignment) with respect to any BMS Patent Rights, such BMS Patent Rights shall continue to be treated as BMS Patent Rights and shall otherwise continue to be subject to all of the terms and conditions of the Agreement in the same way as the other applicable BMS Patent Rights.  For purposes of clarity, election by BMS to grant or assign rights to Sunesis under this Section 10.6.2 shall not limit BMS’ obligation under Section 10.6.1 to provide reasonable cooperation to Sunesis to the extent such cooperation is reasonably necessary for Sunesis in filing and maintaining such Orange Book (and foreign equivalent) listings.

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10.7Notification of Patent Certification.  Sunesis shall notify and provide BMS with copies of any allegations of alleged patent invalidity, unenforceability or non-infringement of a BMS Patent Right pursuant to a Paragraph IV Patent Certification by a Third Party filing an Abbreviated New Drug Application, an application under §505(b)(2) or other similar patent certification by a Third Party, and any foreign equivalent thereof.  Such notification and copies shall be provided to BMS within seven (7) days after Sunesis receives such certification, and shall be sent to the address set forth in Section 10.5.  In addition, upon request by BMS, Sunesis shall provide reasonable assistance and cooperation (including, without limitation, making available to BMS documents possessed by Sunesis that are reasonably required by BMS and making available personnel for interviews and testimony) in any actions reasonably undertaken by BMS to contest any such patent certification.

ARTICLE 11

NONDISCLOSURE OF CONFIDENTIAL INFORMATION

11.1Nondisclosure.  Each Party agrees that, for so long as this Agreement is in effect and for a period of ten (10) years thereafter, a Party (the “Receiving Party”) receiving Confidential Information of the other Party (the “Disclosing Party”) (or that has received any such Confidential Information from the other Party prior to the Effective Date) shall (i) maintain in confidence such Confidential Information using not less than the efforts such Receiving Party uses to maintain in confidence its own proprietary industrial information of similar kind and value, (ii) not disclose such Confidential Information to any Third Party without the prior written consent of the Disclosing Party, except for disclosures expressly permitted below, and (iii) not use such Confidential Information for any purpose except those permitted by this Agreement (it being understood that this clause (iii) shall not create or imply any rights or licenses not expressly granted under Article 2 hereof).

11.1.1Exceptions.  The obligations in Section 11.1 shall not apply with respect to any portion of the Confidential Information that the Receiving Party can show by competent proof:

(a)is publicly disclosed by the Disclosing Party, either before or after it is disclosed to the Receiving Party hereunder; or

(b)was known to the Receiving Party or any of its Affiliates, without any obligation to keep it confidential or any restriction on its use, prior to disclosure by the Disclosing Party; or

(c)is subsequently disclosed to the Receiving Party or any of its Affiliates by a Third Party lawfully in possession thereof and without any obligation to keep it confidential or any restriction on its use; or

(d)is published by a Third Party or otherwise becomes publicly available or enters the public domain, either before or after it is disclosed to the Receiving Party; or

(e)has been independently developed by employees or contractors of the Receiving Party or any of its Affiliates without the aid, application or use of Confidential Information of the Disclosing Party.

11.2Authorized Disclosure.  The Receiving Party may disclose Confidential Information belonging to the Disclosing Party to the extent (and only to the extent) such disclosure is reasonably necessary in the following instances:

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(a)filing or prosecuting patents;

(b)regulatory filings;

(c)prosecuting or defending litigation;

(d)subject to Section 11.4, complying with applicable governmental Laws and regulations (including, without limitation, the rules and regulations of the Securities and Exchange Commission or any national securities exchange) and with judicial process, if in the reasonable opinion of the Receiving Party’s counsel, such disclosure is necessary for such compliance; and

(e)disclosure, in connection with the performance of this Agreement and solely on a “need to know basis”, to Affiliates; potential or actual collaborators (including potential Sublicensees); potential or actual investment bankers, investors, lenders, or acquirers;oremployees, contractors, or agents, each of whom prior to disclosure must be bound by written obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Article 11; provided, however, that the Receiving Party shall remain responsible for any failure by any Person who receives Confidential Information pursuant to this Article 11 to treat such Confidential Information as required under this Article 11.

If and whenever any Confidential Information is disclosed in accordance with this Section 11.2, such disclosure shall not cause any such information to cease to be Confidential Information except to the extent that such disclosure results in a public disclosure of such information (otherwise than by breach of this Agreement).  Where reasonably possible and subject to Section 11.4, the Receiving Party shall notify the Disclosing Party of the Receiving Party’s intent to make such disclosure pursuant to paragraphs (a) through (d) of this Section 11.2 sufficiently prior to making such disclosure so as to allow the Disclosing Party adequate time to take whatever action it may deem appropriate to protect the confidentiality of the information.

11.3Terms of this Agreement.  The Parties acknowledge that the terms of this Agreement shall be treated as Confidential Information of both Parties.

11.4Securities Filings.  In the event either Party proposes to file with the Securities and Exchange Commission or the securities regulators of any state or other jurisdiction a registration statement or any other disclosure document which describes or refers to this Agreement under the Securities Act of 1933, as amended, the Securities Exchange Act, of 1934, as amended, or any other applicable Laws, the Party shall notify the other Party of such intention and shall provide such other Party with a copy of relevant portions of the proposed filing not less than five (5) business days prior to such filing (and any revisions to such portions of the proposed filing a reasonable time prior to the filing thereof), including any exhibits thereto relating to this Agreement, and shall use reasonable efforts to obtain confidential treatment of any information concerning this Agreement that such other Party requests be kept confidential, and shall only disclose Confidential Information which it is advised by counsel is legally required to be disclosed.  No such notice shall be required under this Section 11.4 if the substance of the description of or reference to this Agreement contained in the proposed filing has been included in any previous filing made by the either Party hereunder or otherwise approved by the other Party.

11.5Publication.

11.5.1Publication by BMS.  BMS may publish or present data and/or results relating to a Licensed Compound or Licensed Product in scientific journals and/or at scientific conferences, subject to the prior review and comment by Sunesis as follows.  BMS shall provide Sunesis with the opportunity to review any proposed abstract, manuscript or presentation which discloses information relating to a

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Licensed Compound or Licensed Product by delivering a copy thereof to Sunesis no less than thirty (30) days before its intended submission for publication or presentation.  Sunesis shall have thirty (30) days from its receipt of any such abstract, manuscript or presentation in which to notify BMS in writing of any specific objections to the disclosure.  In the event Sunesis objects to the disclosure in writing within such thirty (30) days period, BMS agrees not to submit the publication or abstract or make the presentation containing the objected-to information until the Parties have agreed to the content of the proposed disclosure, and BMS shall delete from the proposed disclosure any Sunesis Confidential Information or BMS Know-How or the identity of any Licensed Compound or Licensed Product, upon request by Sunesis.  Once any such abstract or manuscript is accepted for publication, BMS will provide Sunesis with a copy of the final version of the manuscript or abstract.  For clarification, this Section 11.5.1 shall not limit or restrict BMS’ ability to publish or present publicly information on CDK inhibitors which are not Licensed Compounds or Licensed Products, provided such publication or presentation does not contain Sunesis Confidential Information (including BMS Know-How) or identify any Licensed Compound or Licensed Product.

11.5.2Publication by Sunesis.  Sunesis may publish or present data and/or results relating to a Licensed Compound or Licensed Product in scientific journals and/or at scientific conferences, subject to the prior review and comment by BMS as follows.  Sunesis shall provide BMS with the reasonable opportunity to review, comment on and consult with Sunesis with respect to any proposed abstract, manuscript or presentation which discloses information relating to a Licensed Compound or Licensed Product, and shall consider in good faith any comments or suggestions of BMS with respect thereto.  Once any such abstract or manuscript is accepted for publication, Sunesis will provide BMS with a copy of the final version of the manuscript or abstract.

11.6Sunesis Equity and Financial Information.

(a)As of the Effective Date, Sunesis has provided BMS with a capitalization table listing the authorized classes of capital stock and the number of outstanding shares (including shares issuable upon exercise of outstanding warrants and options) and common share equivalents.  Sunesis will provide BMS with updates to such capitalization table (in the same format and detail as the capitalization table provided to BMS as of the Effective Date) within 30 days following the end of each fiscal quarter.

(b)Sunesis will provide to BMS the financial information as provided for in Section 5 of the Investor Rights Agreement (i.e., Section 5 of the Eighth Amended and Restated Investor Rights Agreement).

(c)Sunesis shall no longer be required to provide the information to BMS as set forth in this Section 11.6 after Sunesis becomes a Public Company.  The information provided by Sunesis to BMS under this Section 11.6 shall be Confidential Information of Sunesis.

ARTICLE 12

INDEMNITY

12.1Sunesis Indemnity.  Sunesis shall indemnify, defend and hold harmless BMS and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assignsand representatives, from and against any and all claims, threatened claims, damages, losses, suits, proceedings, liabilities, costs (including, without limitation, reasonable legal expenses, costs of litigation and reasonable attorney’s fees) or judgments, whether for money or equitable relief, of any kind, arising out of any claim, action, lawsuit or other proceeding brought by a Third Party (“Losses and Claims”) arising out of or relating, directly or indirectly, (i) to the research, Development,

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Commercialization (including, without limitation, promotion, advertising, offering for sale, sale or other disposition), transfer, importation or exportation, manufacture, labeling, handling or storage, or use of, or exposure to, the Licensed Compounds or any Licensed Product by or for Sunesis or any of its Affiliates, Sublicensees, agents and contractors or (ii) to Sunesis’ (or its Affiliates’ and Sublicensees’) use and practice otherwise of the BMS Patent Rights and BMS Know-How, including, without limitation, claims and threatened claims based on (A) product liability, bodily injury, risk of bodily injury, death or property damage, (B) infringement or misappropriation of Third Party patents, copyrights, trademarks or other intellectual property rights, or (C) the failure to comply with applicable Laws related to the matters referred to in the foregoing clause (i) with respect to the Licensed Compounds and/or any Licensed Product; except in any such case for Losses and Claims to the extent reasonably attributable to any breach by BMS of Article 11, or BMS having committed an act or acts of gross negligence, recklessness or willful misconduct.

12.2BMS Indemnity.  BMS shall indemnify, defend and hold harmless Sunesis and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assignsand representatives, from and against any and all Losses and Claims arising out of or relating to a breach of the representations, warranties and covenants of BMS set forth in Article 9;except in any such case for Losses and Claims to the extent reasonably attributable to any breach by Sunesis of Article 11, or Sunesis having committed an act or acts of gross negligence, recklessness or willful misconduct.

12.3Indemnification Procedure.  A claim to which indemnification applies under Section 12.1 or Section 12.2 shall be referred to herein as an “Indemnification Claim”.  If any Person or Persons (collectively, the “Indemnitee”) intends to claim indemnification under this Article 12, the Indemnitee shall notify the other Party (the “Indemnitor”) in writing promptly upon becoming aware of any claim that may be an Indemnification Claim (it being understood and agreed, however, that the failure by an Indemnitee to give such notice shall not relieve the Indemnitor of its indemnification obligation under this Agreement except and only to the extent that the Indemnitor is actually prejudiced as a result of such failure to give notice).  The Indemnitor shall have the right to assume and control the defense of the Indemnification Claim at its own expense with counsel selected by the Indemnitor and reasonably acceptable to the Indemnitee, provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitee, if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceedings.  If the Indemnitor does not assume the defense of the Indemnification Claim as aforesaid, the Indemnitee may defend the Indemnification Claim but shall have no obligation to do so.  The Indemnitee shall not settle or compromise the Indemnification Claim without the prior written consent of the Indemnitor, and the Indemnitor shall not settle or compromise the Indemnification Claim in any manner which would have an adverse effect on the Indemnitee’s interests (including without limitation any rights under this Agreement or the scope or enforceability of the BMS Patents Rights or BMS Know-How), without the prior written consent of the Indemnitee, which consent, in each case, shall not be unreasonably withheld or delayed.  The Indemnitee shall reasonably cooperate with the Indemnitor at the Indemnitor’s expense and shall make available to the Indemnitor all pertinent information under the control of the Indemnitee, which information shall be subject to Article 11.

12.4Insurance.  Sunesis shall, beginning with the initiation of the first clinical trial for a Licensed Product, maintain at all times thereafter during the term of the Agreement, and until the later of (i) two (2) years after termination or expiration of the Agreement or (ii) the date that all statutes of limitation covering claims or suits that may be brought for personal injury based on the sale or use of a Licensed Product by Sunesis have expired in all states in the U.S., commercial general liability insurance from a recognized, creditworthy insurance company, on a claims-made basis, with endorsements for

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contractual liability and product liability, and with coverage limits of not less than $10 million per occurrence.  The minimum level of insurance set forth herein shall not be construed to create a limit on Sunesis’ liability hereunder.  Within ten (10) days following written request from BMS, Sunesis shall furnish to BMS a certificate of insurance evidencing such coverage as of the date.  Each such certificate of insurance, as well as any certificates evidencing new coverages of Sunesis, shall include a provision whereby sixty (60) days’ written notice must be received by BMS prior to coverage cancellation by either Sunesis or the insurer and of any new coverage.  In the case of a cancellation of such coverage, Sunesis shall promptly provide BMS with a new certificate of insurance evidencing that Sunesis’ coverage meets the requirements in the first sentence of this Section.

ARTICLE 13

TERM AND TERMINATION

13.1Term.  This Agreement shall commence as of the Effective Date and, unless sooner terminated in accordance with the terms hereof or by mutual written consent, shall continue on a Licensed Product-by-Licensed Product and country-by-country basis until the end of the Royalty Term with respect to such Licensed Product in such country.

13.2Termination By BMS.  BMS shall have the right to terminate this Agreement, at BMS’ sole discretion, as follows.

13.2.1Insolvency.  BMS shall have the right to terminate this Agreement, at BMS’ sole discretion, upon delivery of written notice to Sunesis upon the filing by Sunesis in any court or agency pursuant to any statute or regulation of the United States or any other jurisdiction a petition in bankruptcy or insolvency or for reorganization or similar arrangement for the benefit of creditors or for the appointment of a receiver or trustee of Sunesis or its assets, or if Sunesis is served with an involuntary petition against it in any insolvency proceeding, upon the ninety-first (91st) day after such service if such involuntary petition has not previously been stayed or dismissed, or upon the making by Sunesis of an assignment of substantially all of its assets for the benefit of its creditors.

13.2.2Breach. Subject to Section 13.2.4 below, BMS shall have the right to terminate this Agreement, at BMS’ sole discretion, upon delivery of written notice to Sunesis in the event of any materialbreach by Sunesis of any terms and conditions of this Agreement (other than failure to use Commercially Reasonable Efforts to Develop or Commercialize the Licensed Compounds or a Licensed Product, which breach is covered under Section 13.2.3), provided that such breach has not been cured within sixty (60) days after written notice thereof is given by BMS to Sunesis specifying the nature of the alleged breach, provided, however, that to the extent such material breach involves the failure to make a payment when due, such breach must be cured within thirty (30) days after written notice thereof is given by BMS to Sunesis.

13.2.3Failure to Use Commercially Reasonable Efforts.  Subject to Section 13.2.4 below, BMS shall have the right to terminate this Agreement on a country-by-country basis (except as otherwise set forth in this Section 13.2.3), at BMS’ sole discretion, in the event that Sunesis fails to use (by itself or through its Affiliates, Sublicensees, contractors or agents) Commercially Reasonable Efforts to Develop and/or Commercialize at least one Licensed Compound or Licensed Product in the Territory in breach of Section 5.1(a) or Section 6.1, provided that Sunesis has not exercised such Commercially Reasonable Efforts in the applicable country or countries within three (3) months following written notice by BMS to Sunesis specifying the nature of such failure. 

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(a)Termination under this Section 13.2.3 shall apply to all Licensed Compounds and Licensed Products, but only for the affected country or countries, provided however, that (i) if the applicable termination event relates to a breach of Section 5.1(a) or Section 6.1 in any Major Market Country in the EU, then the termination shall apply to all countries in Europe; (ii) if the applicable termination event relates to a breach of Section 5.1(a) in the United States, then the termination shall apply to all countries in the Territory; (iii) if the applicable termination event relates to a breach of Section 6.1 in the United States, then the termination shall apply to all countries in North America; and (iv) if the applicable termination event relates to a breach of Section 6.1 in all the Major Market Countries excluding Japan, then the termination shall apply to all countries in the Territory.  Notwithstanding the foregoing, if the applicable termination event relates to a breach of Section 5.1(a) or Section 6.1 in: (i) a country in the EU that is not a Major Market Country, then BMS shall not have the right to terminate this Agreement with respect to such country if Sunesis is in compliance with such provisions with respect to all Major Market Countries plus [*] additional countries in the EU; and (ii) a country within Caribbean and Central America, then BMS shall not have the right to terminate this Agreement with respect to such country if Sunesis is in compliance with such provisions with respect to all countries within North America. 

(b)For clarity, it is understood and acknowledged that to the extent Sunesis uses Commercially Reasonable Efforts (by itself or through its Affiliates, Sublicensees, contractors or agents) to Develop at least one Licensed Product through a centralized filing with the EMEA, Sunesis shall be in compliance with Section 5.1(a) with respect to all countries in the EU.  For further clarity, it is understood and acknowledged that Commercially Reasonable Efforts in the Development of a Licensed Product in a particular country may include sequential implementation of clinical trials and/or intervals between clinical trials for data interpretation and clinical program planning, to the extent such implementation is consistent with the scientific, technical and commercial factors relevant to Development of such Licensed Product in such country (including those described in Section 1.22).

13.2.4Disputed Breach.  If Sunesis disputes in good faith the existence or materiality of a breach specified in a notice provided by BMS pursuant to Section 13.2.2, or a failure to use Commercially Reasonable Efforts specified in a notice provided by BMS pursuant to Section 13.2.3, and Sunesis provides notice to BMS of such dispute within the applicable thirty (30) day, sixty (60) day or three (3) month period, BMS shall not have the right to terminate this Agreement unless and until the existence of such material breach or failure by Sunesis has been determined in accordance with Section 14.2 and Sunesis fails to cure such breach within sixty (60) days following such determination (except to the extent such breach involves the failure to make a payment when due, which breach must be cured within ten (10) days following such determination).  It is understood and acknowledged that during the pendency of such a dispute, all of the terms and conditions of this Agreement shall remain in effect and the Parties shall continue to perform all of their respective obligations hereunder.  The Parties further agree that any payments that are made by one Party to the other Party pursuant to this Agreement pending resolution of the dispute shall be promptly refunded if an arbitrator or court determines pursuant to Section 14.2 that such payments are to be refunded by one Party to the other Party.

13.2.5Termination for Competitive Compound.  Subject to the terms of this Section 13.2.5, BMS shall have the right to terminate this Agreement (on a country-by-country or worldwide basis, as BMS may elect), at BMS’ sole discretion, in the event that (a) Sunesis or its Affiliate (alone or in collaboration with a Third Party) undertakes the clinical development of a product that contains a

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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Competitive Compound prior to any Approval being obtained in a Major Market Country for a Licensed Compound; or (b) Sunesis or its Affiliate (alone or in collaboration with a Third Party) markets a product that contains a Competitive Compound within [*] years following the first U.S. NDA Approval for a Licensed Product.  In the event the Parties are unable to reach agreement regarding whether or not a compound is a Competitive Compound, and the Parties have not resolved such dispute through good faith discussions, such dispute will be resolved through performance of the relevant scientific determination by an independent Third Party testing provider or other scientific expert who shall be mutually and reasonably selected by both Parties.  The findings of such Third Party scientific expert with respect to such dispute shall be binding on the Parties, and the costs of such testing shall be born by the Party whom the independent determination does not favor.

13.2.6Scope of Termination.  Except as otherwise expressly provided herein, termination of this Agreement shall be as to all countries in the Territory and all Licensed Products.  

13.3Termination by Sunesis.  Sunesis shall have the right to terminate this Agreement, at Sunesis’ sole discretion, as follows.

13.3.1At Sunesis’ discretion, on a country-by-country and product-by-product basis (including, for example, all Licensed Compounds within specified BMS Patent Rights), effective upon three (3) months prior written notice in the case where Approval has not been obtained for the applicable Licensed Product or upon six (6) months prior written notice in the case where Approval has been obtained for the applicable Licensed Product, Sunesis may terminate this Agreement for any reason; provided, however, that (i) no such termination right may be exercised as to a Major Market Country in the EU unless all countries in Europe are so terminated and (ii) no such termination right may be exercised as to all of the Major Market Countries excluding Japan unless all countries in the Territory are so terminated.

13.3.2In addition, Sunesis may terminate this Agreement in the event of material breach by BMS, provided that such breach has not been cured within sixty (60) days after written notice thereof is given by Sunesis to BMS.  Notwithstanding the foregoing, if BMS disputes in good faith the existence or materiality of such breach and provides notice to Sunesis of such dispute within such sixty (60) day period, Sunesis shall not have the right to terminate this Agreement in accordance with this Section 13.3.2 unless and until it has been determined in accordance with Section 14.2 that this Agreement was materially breached by BMS and BMS fails to cure such breach within sixty (60) days following such determination.  It is understood and acknowledged that during the pendency of such a dispute, all of the terms and conditions of this Agreement shall remain in effect and the Parties shall continue to perform all of their respective obligations hereunder.  The Parties further agree that any payments that are made by one Party to the other Party pursuant to this Agreement pending resolution of the dispute shall be promptly refunded if an arbitrator or court determines pursuant to Section 14.2 that such payments are to be refunded by one Party to the other Party.

13.4Effect of Termination.  Upon expiration or termination of this Agreement pursuant to Sections 13.2 and/or 13.3.1, the rights and obligations of the Parties shall be as set forth in this Section 13.4.

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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13.4.1Upon termination or expiration of this Agreement, either in its entirety or with respect to one or more applicable country (each, a “Terminated Country”) pursuant to Sections 13.2 and/or 13.3.1 hereof (the rights and obligations of the Parties as to the remaining countries of the Territory in which termination under Section 13.2.3 or 13.3.1 has not occurred, being unaffected by such termination), the following shall apply.

(a)All rights and licenses granted to Sunesis in Article 2 shall terminate with respect to each Terminated Country (subject to Section 2.3(b)(vi)), and Sunesis shall cease all use of the BMS Patent Rights and BMS Know-How with respect to each Terminated Country (except as set forth in Section 13.4.1(c)).  To the extent that there remain any countries in the Territory that are not Terminated Countries (“Remaining Countries”), all such rights and licenses shall remain in place with respect to the Remaining Countries. 

(b)All regulatory filings (including, without limitation, all INDs and NDAs) and Approvals, as they exist as of the date of such termination (and all of Sunesis’ right, title and interest therein and thereto) in each Terminated Country shall be assigned to BMS, and Sunesis shall provide to BMS one (1) copy of the foregoing documents and filings and all documents and filings contained in or referenced in any such filings, together with the raw and summarized data for any preclinical and clinical studies of the Licensed Compounds and such Licensed Product conducted by or for Sunesis (and where reasonably available, electronic copies thereof).  In addition, upon request by BMS, Sunesis shall grant to BMS the right to access and reference any documents (including but not limited to regulatory filings) that are available to Sunesis and reasonably necessary for BMS to further develop, manufacture and commercialize the Licensed Compounds and Licensed Product for the Terminated Country.  To the extent that there are any Remaining Countries, each Party shall use commercially reasonable efforts not to conduct the Development and Commercialization of Licensed Products and/or Licensed Compounds in its respective territory in a manner that would materially adversely affect the other Party’s Development and Commercialization of Licensed Products and/or Licensed Compounds in its respective territory, including application or maintenance of any Approvals therein.  Without limiting the foregoing in this paragraph, to the extent applicable, Sunesis’ obligations under Section 10.6 shall continue with respect to the terminated country.

(c)Should Sunesis have, as of the effective date of termination in a particular Terminated Country (the “Termination Date” for such Terminated Country), any inventory of any Licensed Product for which Approval has been obtained in such Terminated Country, the licenses granted in Sections 2.1, 2.2 and 2.7(a) shall survive on a nonexclusive basis for a period of [*] months after the Termination Date solely for the purpose of selling such Licensed Products in such terminated Country (subject to the payment to BMS of any royalties due hereunder thereon), provided however, that (i) such right shall not limit BMS or any Third Party so authorized by BMS from selling Licensed Products in such Terminated Country, and (ii) such Licensed Product shall not be sold at a discount to any purchaser that is greater than the average discount provided to such purchaser (or purchasers of the same market segment, where “market segments” include, for example, as applicable, HMOs, wholesalers, Veterans Health Administration, Medicaid, Medicare and other applicable types of purchasers) of Licensed Product in such Terminated Country during the twenty-four (24) month period preceding the Termination Date.

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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(d)If Sunesis has the capability as of the Termination Date to commercially manufacture and supply Licensed Compound and/or Licensed Product, upon request by BMS, Sunesis shall supply to BMS Licensed Compound and/or Licensed Product for use and sale in the Terminated Countries, at a price equal to [*] percent ([*]%) of Sunesis’ documented fully-burdened manufacturing cost (determined in accordance with GAAP) for such Licensed Compound and/or Licensed Product, under terms and conditions as may be mutually agreed between the Parties.  In such event, Sunesis shall manufacture and supply such Licensed Compound and/or Licensed Product to BMS until, as BMS may elect at its sole discretion, BMS assumes responsibility for its own manufacture and supply such Licensed Compound and/or Licensed Product for the Terminated Countries.

(e)Upon request by BMS, Sunesis shall disclose to BMS the Sunesis Know-How (provided that the Sunesis Know-How remains the Confidential Information of Sunesis and subject Article 11) and shall grant BMS a non-exclusive license under the Sunesis Know-How solely for (i) using, importing, selling and offering for sale the Licensed Compound and Licensed Products in each Terminated Country and (ii) making and having made the Licensed Compound and Licensed Products anywhere in the world solely for use, importation, sale and offer for sale in each Terminated Country; with right to grant sublicenses of the foregoing solely in connection with the Development and Commercialization of Licensed Compounds and/or Licensed Products in the Terminated Countries.  For the purposes of the foregoing, “Sunesis Know-How” means all processes, techniques and know-how owned or Controlled by Sunesis as of the applicable Termination Date that are available to Sunesis as of that Termination Date that are reasonably necessary for the manufacture, Development and/or Commercialization of the Licensed Compounds or a Licensed Product.  Sunesis Know-How shall not include information and know-how that is acquired or developed by Sunesis after the applicable Termination Date.

(f)Sunesis shall assign or exclusively license (or, if applicable, cause its Affiliate to assign or exclusively license) to BMS all of Sunesis’ (and such Affiliates’) right, title and interest in and to any registered or unregistered trademark, trademark application, trade name or internet domain name in each Terminated Country that is specific to a Licensed Product (it being understood that the foregoing shall not include any trademarks or trade names that contain the name “Sunesis”).

(g)Sunesis shall grant to BMS a license, which license shall be exclusive with respect to each Terminated Country, with the right to grant sublicenses, under the Sunesis Patent Rights solely for (i) using, importing, selling and offering for sale the Licensed Compound and Licensed Products in each Terminated Country and (ii) making and having made the Licensed Compound and Licensed Products anywhere in the world solely for use, importation, sale and offer for sale in each Terminated Country; provided, however, that no rights will be granted under this Section 13.4.1(g) with respect to any Proprietary Compound of Sunesis which is not a Licensed Compound, including but not limited to the use or formulation of a Licensed Compound or Licensed Product in combination with any Proprietary Compound of Sunesis which is not a Licensed Compound.  For purposes of clarity, no rights will be granted under this Section 13.4.1(g) to co-formulate or use in combination a Licensed Compound with any Proprietary Compound of Sunesis which is not a Licensed Compound.  For the purposes of the foregoing, “Sunesis Patent Rights” means, with respect to specific Licensed Compounds and/or Licensed Products and Termination Dates: (i) those claims in patents and patent applications Controlled by Sunesis as of such Termination Date that are specifically directed to or specifically refer to such Licensed Compounds and/or Licensed Products (for example, patent rights covering the use of such Licensed

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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Compounds in combination with another pharmaceutical agent); (ii) all divisionals, continuations, continuations-in-part thereof or any other patent application claiming priority thereto; and (iii) all patents issuing on any of the foregoing, together with all registrations, reissues, re-examinations, supplemental protection certificates, or extensions thereof, and any foreign counterparts thereof.

(h)BMS will [*] to Sunesis a [*] on [*] of such [*] by BMS, its Affiliates and sublicensees in the Territory, at the following [*] (i) at a [*] to [*] of the [*] set forth in [*] if the [*] has [*] in such country at the [*] of such [*], (ii) at a [*] to [*] of the [*] set forth in [*] if an [*] for the [*] but it [*] at the [*] of such [*], or (iii) at a [*] to [*] of the [*] set forth in [*] if an [*] for the [*]at the [*] of such [*], or (iii) at a [*] to [*] of the [*] set forth in [*] if an [*] for the [*] at the [*] of such [*] .  In addition, in the [*] that [*] to Sunesis [*] are included in the [*] by [*] in [*], and Sunesis is [*] or [*] to such [*] based on the [*] or [*] by or on behalf of [*] of [*] and [*] in the [*], then [*] Sunesis for any such [*] promptly upon [*] of [*].  For clarification, no [*] shall be [*] by [*] based on any [*].

13.4.2Upon termination of this Agreement pursuant to Section 13.3.2 hereof, all rights and licenses granted in Article 2 shall terminate (subject to 2.3(b)(vi)), and Sunesis shall cease all use of the BMS Patent Rights and BMS Know-How.  For clarification, the provisions of Section 2.7(b) shall terminate and BMS shall cease all use of the patent rights licensed thereunder.

13.4.3Survival.  The following provisions shall survive termination or expiration of this Agreement, as well as any other provision which by its terms or by the context thereof, is intended to survive such termination: Article 1 (as applicable), Section 2.3(b)(vi), Article 5 (with respect to obligations arising prior to expiration or termination of this Agreement), Article 8 (with respect to obligations arising prior to expiration or termination of this Agreement), Section 9.4, Section 9.5, Section 10.1, Section 10.4.4 (with respect to an action, suit or proceeding commenced prior to termination), Section 10.7, Article 11, Article 12 (with respect to Losses and Claims arising from activities and breaches that take place prior to expiration or termination of this Agreement), this Section 13.4, Section 13.5, Article 14 and Article 15.  Termination or expiration of this Agreement shall not relieve the Parties of any liability or obligation which accrued hereunder prior to the effective date of such termination or expiration nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity, subject to Section 14.2, with respect to any breach of this Agreement nor prejudice either Party’s right to obtain performance of any obligation.  All other obligations shall terminate upon expiration of this Agreement.

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

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13.5Bankruptcy. The Parties agree that in the event a Party becomes a debtor under Title 11 of the U.S. Code (“Title 11”), this Agreement shall be deemed to be, for purposes of Section 365(n) of Title 11, a license to rights to “intellectual property” as defined therein.  Each Party as a licensee hereunder shall have the rights and elections as specified in Title 11.  Any agreements supplemental hereto shall be deemed to be “agreements supplementary to” this Agreement for purposes of Section 365(n) of Title 11.

ARTICLE 14

DISPUTE RESOLUTION; ARBITRATION

14.1Resolution by Senior Executives.  Other than (i) determinations made by Independent Evaluators, certified accountants and scientific experts as provided in Sections 3.2, 8.7 and 13.2.5, respectively; (ii) pursuit of equitable relief as provided in Section 14.2(g); and (iii) a dispute governed by expedited arbitration in accordance with Section 14.3 below, in the event of any dispute between the Parties in connection with this Agreement, the construction hereof, or the rights, duties or liabilities of either Party hereunder, the Parties shall first attempt in good faith to resolve such dispute by negotiation and consultation between themselves.  In the event that such dispute is not resolved on an informal basis within ten (10) Business Days, either Party may, by written notice to the other Party, refer the dispute to the Chief Executive Officer of Sunesis and the President, Pharmaceutical Research Institute of BMS or other designated officer of BMS for attempted resolution by good faith negotiation within thirty (30) days after such notice is received.

14.2Arbitration.  Other than (i) determinations made by Independent Evaluators, certified accountants and scientific experts as provided in Sections 3.2(b), 8.7 and 13.2.5, respectively; (ii) pursuit of equitable relief as provided in Section 14.2(g); and (iii) expedited arbitration in accordance with Section 14.3 below, if any dispute between the Parties relating to or arising out this Agreement cannot be resolved in accordance with Section 14.1, either Party may submit such dispute for resolution through binding arbitration as follows:

(a)A Party may submit such dispute to arbitration by notifying the other Party, in writing, of such dispute.  Within thirty (30) days after receipt of such notice, the Parties shall designate in writing a single arbitrator to resolve the dispute; provided, however, that if the Parties cannot agree on an arbitrator within such thirty (30) day period, the arbitrator shall be selected by the New York, NY office of the American Arbitration Association (the “AAA”) or, if such office does not exist or is unable to make a selection, by the office of the AAA nearest to New York City.  The arbitrator for any disputed breach under Section 13.2.4 related to an alleged failure to use Commercially Reasonable Efforts as described in Section 13.2.3, the arbitrator shall be an individual with experience and expertise in the worldwide Development and Commercialization of pharmaceuticals and the business, legal and scientific considerations related thereto.  Otherwise, the arbitrator shall be a lawyer knowledgeable and experienced in the applicable Laws concerning the subject matter of the dispute.  In any case the arbitrator shall not be an Affiliate, employee, consultant, officer, director or stockholder of either Party, or otherwise have any current or previous relationship with either Party or their respective Affiliates.  The governing law in Section 15.7 shall govern any such proceedings.  The language of the arbitration shall be English. 

(b)Within thirty (30) days after the designation of the arbitrator, the arbitrator and the Parties shall meet, and each Party shall provide to the arbitrator a written summary of all disputed issues, such Party’s position on such disputed issues and such Party’s proposed ruling on the merits of each such issue.

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(c)The arbitrator shall set a date for a hearing, which shall be no later than thirty (30) days after the submission of written proposals pursuant to Section 14.2(b), for the presentation of evidence and legal argument concerning each of the issues identified by the Parties.  The Parties shall have the right to be represented by counsel.  Except as provided herein, the arbitration shall be governed by the Commercial Arbitration Rules of the AAA applicable at the time of the notice of arbitration pursuant to Section 14.2(a); provided, however, that the Federal Rules of Evidence shall apply with regard to the admissibility of evidence in such hearing.

(d)The arbitrator shall use his or her best efforts to rule on each disputed issue within thirty (30) days after completion of the hearing described in Section 14.2(c).  The determination of the arbitrator as to the resolution of any dispute shall be binding and conclusive upon all Parties.  All rulings of the arbitrator shall be in writing and shall be delivered to the Parties except to the extent that the Commercial Arbitration Rules of the AAA provide otherwise.  Nothing contained herein shall be construed to permit the arbitrator to award punitive, exemplary or any similar damages. 

(e)The (i) attorneys’ fees of the Parties in any arbitration, (ii) fees of the arbitrator and (iii) costs and expenses of the arbitration shall be borne by the Parties in a proportion determined by the arbitrator.

(f)Any arbitration pursuant to this Section 14.2 shall be conducted in New York, New York.  Any arbitration award may be entered in and enforced by a court in accordance with Section 15.8.

(g)Notwithstanding anything in this Article 14, each Party shall have the right to seek injunctive or other equitable relief from a court of competent jurisdiction pursuant to Section 15.8 that may be necessary to avoid irreparable harm, maintain the status quo or preserve the subject matter of the arbitration, including any breach or threatened breach of Section 11.1 or 13.4.

14.3Expedited Arbitration.  The Parties agree that it is important to be able to clarify any disputes regarding Section 2.3 or Article 3 quickly.  Accordingly, if:

(i) if BMS disputes Sunesis’ right to enter into a License agreement based on (A) Sunesis’ compliance with Article 3 or (B) whether a License agreement complies with Section 2.3; and such dispute is not precluded by the terms of Section 3.7;

(ii) there is an alleged breach of Article 3 by either Party;

(iii) Sunesis alleges that BMS has failed to act in good faith with respect to its performance under Article 3, including without limitation by providing an Acceptance Notice without a good faith intention to enter into a binding License agreement with Sunesis on the terms and conditions of the Term Sheet for which BMS provided such Acceptance Notice;

(iv) BMS alleges that Sunesis has failed to act in good faith with respect to its performance under Article 3; or

(v) either Party disputes the finding of the Independent Evaluator pursuant to Section 3.2(b), provided that such Party holds a good faith belief that the other Party acted in bad faith or engaged in willful misconduct in the independent evaluation process;

then the Parties shall resolve such dispute in accordance with this Section 14.3.

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Arbitration under this Section 14.3 shall be conducted in the same manner and subject to the same terms and conditions as arbitration under Section 14.2, provided that:

(a)the Parties shall designate in writing a single arbitrator within fifteen (15) days of written notice of the dispute;

(b)the arbitrator and the Parties shall meet, and each Party shall provide to the arbitrator a written summary of all disputed issues, such Party’s position on such disputed issues and such Party’s proposed ruling on the merits of each such issue within fifteen (15) days after the designation of the arbitrator;

(c)the arbitrator shall use his or her best efforts to rule on each disputed issue within fifteen (15) days after completion of the hearing described in Section 14.2(c);

(d)the arbitrator shall select one of the requested positions as his decision, and shall not have the authority to render any substantive decision other than to so select the position of either BMS or Sunesis; and

(e)the Parties shall use good faith efforts to complete arbitration under this Section 14.3 within sixty (60) days following a request by any Party for such arbitration.

14.4In an arbitration procedure under Section 14.3, in the event that the arbitrator determines that BMS has failed to act in good faith with respect to its performance under Article 3, the following shall apply:  (a) the provisions of Article 3 shall terminate and (b) all other provisions of this Agreement shall remain in full force and effect.  For purposes of clarity, the foregoing shall be in addition to and shall in no way limit any ruling of the arbitrator in accordance with Section 14.3.

ARTICLE 15

MISCELLANEOUS

15.1Severability.  If any one or more of the provisions of this Agreement is held to be invalid or unenforceable, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof.  The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized.

15.2Notices.  Any notice required or permitted to be given by this Agreement shall be in writing and shall be delivered by hand or overnight courier with tracking capabilities or mailed postage prepaid by first class, registered or certified mail addressed as set forth below unless changed by notice so given:

If to Sunesis:

Sunesis Pharmaceuticals, Inc.

341 Oyster Point Boulevard

South San Francisco, California 94080

Attention:  Daryl Winter, General Counsel

Telephone:  650-266-3720

Facsimile:  650-266-3505

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With a copy to:

Wilson Sonsini Goodrich & Rosati

Professional Corporation

650 Page Mill Road

Palo Alto, California 94304-1050

Attention: Kenneth A. Clark, Esq.

Telephone:  650-320-4742

Facsimile:  650-493-6811

If to BMS:

Bristol-Myers Squibb Company
P.O. Box 4000

Route 206 & Province Line Road

Princeton, New Jersey 08543-4000
Attention:  Senior Vice President, Corporate and Business Development

Telephone:  609-252-4712
Facsimile:  609-252-7212

With a copy to:

Bristol-Myers Squibb Company

P.O. Box 4000
Route 206 & Province Line Road

Princeton, New Jersey 08543-4000
Attention:  Vice President & Senior Counsel, Corporate Development
Telephone:  609-252-4311
Facsimile:  609-252-4232

Any such notice shall be deemed given on the date received.  A Party may add, delete, or change the person or address to whom notices should be sent at any time upon written notice delivered to the Party’s notices in accordance with this Section 15.2.

15.3Force Majeure.  Neither Party shall be liable for delay or failure in the performance of any of its obligations hereunder if such delay or failure is due to causes beyond its reasonable control, including, without limitation, acts of God, fires, earthquakes, strikes and labor disputes, acts of war, terrorism, civil unrest or intervention of any governmental authority (“Force Majeure”); provided, however, that the affected Party promptly notifies the other Party and further provided that the affected Party shall use its commercially reasonable efforts to avoid or remove such causes of non-performance and to mitigate the effect of such occurrence, and shall continue performance with the utmost dispatch whenever such causes are removed.  When such circumstances arise, the Parties shall negotiate in good faith any modifications of the terms of this Agreement that may be necessary or appropriate in order to arrive at an equitable solution.

15.4Assignment.

15.4.1BMS may, without Sunesis’ consent, assign or transfer all of its rights and obligations hereunder, in connection with any transfer of all of the BMS Patent Rights and BMS Know-How, to any Affiliate of BMS or to any Third Party (including, without limitation, a successor in interest); provided, however, that such assignee or transferee agrees in a writing provided to Sunesis to be bound by the terms of this Agreement.

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15.4.2Upon thirty (30) days advance written notice to BMS and subject to BMS’ approval, such approval not to be unreasonably withheld, delayed or conditioned, Sunesis may assign or transfer all of its rights and obligations hereunder to any Third Party, provided however, that, (i) Sunesis’ rights and obligations under this Agreement shall be assumed by the Third Party assignee, (ii) such assignment includes, without limitation, all Approvals and all rights and obligations under this Agreement, (iii) such Third Party shall have agreed prior to such assignment or transfer to be bound by the terms of this Agreement in a writing provided to BMS, and (iv) Sunesis remains responsible for the performance of this Agreement.

15.4.3Notwithstanding the provisions of Section 15.4.2 above, Sunesis may assign or transfer all of its rights and obligations hereunder without such consent to an Affiliate of Sunesis or to a successor in interest by reason of merger, consolidation or sale of all or substantially all of the assets of Sunesis, provided however, that (i) Sunesis’ rights and obligations under this Agreement shall be assumed by its successor in interest and shall not be transferred separate from all or substantially all of its other business assets, (ii) such assignment includes, without limitation, all Approvals and all rights and obligations under this Agreement, (iii) such successor in interest or Affiliate shall have agreed prior to such assignment or transfer to be bound by the terms of this Agreement in a writing provided to BMS, and (iv) where this Agreement is assigned or transferred to an Affiliate, Sunesis remains responsible for the performance of this Agreement.

15.4.4Subject to the foregoing, this Agreement shall inure to the benefit of and be binding on the Parties’ successors and assigns.  Any assignment or transfer in violation of the foregoing shall be null and void and wholly invalid, the assignee or transferee in any such assignment or transfer shall acquire no rights whatsoever, and the non-assigning non-transferring Party shall not recognize, nor shall it be required to recognize, such assignment or transfer.

15.5Further Assurances.  Each Party agrees to do and perform all such further acts and things and shall execute and deliver such other agreements, certificates, instruments and documents necessary or that the other Party may deem advisable in order to carry out the intent and accomplish the purposes of this Agreement and to evidence, perfect or otherwise confirm its rights hereunder.

15.6Waivers and Modifications.  The failure of any Party to insist on the performance of any obligation hereunder shall not be deemed to be a waiver of such obligation.  Waiver of any breach of any provision hereof shall not be deemed to be a waiver of any other breach of such provision or any other provision on such occasion or any succeeding occasion.  No waiver, modification, release or amendment of any obligation under or provision of this Agreement shall be valid or effective unless in writing and signed by all Parties hereto.

15.7Choice of Law.  This Agreement shall be governed by, enforced, and shall be construed in accordance with the laws of the State of New York without regard to its conflicts of law provisions (other than section 5-1401 of the New York General Obligations Law).

15.8Jurisdiction.

15.8.1Unless the Parties otherwise agree in writing, each Party, for the purpose of enforcing an award under Section 14.2 or for seeking injunctive or other equitable relief as permitted under Section 14.2(g), hereby irrevocably submits to the exclusive jurisdiction of (i) the Supreme Court of the State of New York, New York County or the Supreme Court or Chancery Court of the State of Delaware (each a “State Court”), and (ii) the United States District Court for the Southern District of New York or the U.S. District Court for the District of Delaware (each a “District Court”), for the purposes of any suit, action or other proceeding arising out of this Agreement or out of any transaction contemplated hereby.  Each party

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agrees to commence any such action, suit or proceeding either in a District Court or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in a State Court.

Each party further agrees that service of any process, summons, notice or document by personal delivery, by registered mail, or by a recognized international express delivery service to such Party’s respective address set forth above shall be effective service of process for any action, suit or proceeding in the applicable District Court or State Court with respect to any matters to which it has submitted to jurisdiction in this Section.  Each party irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the applicable District Court or State Court, and hereby and thereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

15.8.2Each Party hereto hereby waives to the fullest extent permitted by applicable Laws, any right it may have to a trial by jury in respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement.  Each Party hereto (i) certifies that no representative, agent or attorney of the other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce that foregoing waiver and (ii) acknowledges that it and the other Party hereto have been induced to enter into this Agreement, as applicable, by, among other things, the mutual waivers and certifications in this Section 15.8.

15.9Publicity.  Upon execution of this Agreement, the Parties shall issue the press release announcing the existence of this Agreement in the form and substance as set forth in Appendix 4 hereof.  Each Party agrees not to issue any other press release or other public statement disclosing other information relating to this Agreement or the transactions contemplated hereby without the prior written consent of the other Party, provided, however, that any disclosure which is required by applicable Laws or the rules of a securities exchange, as reasonably advised by the disclosing Party’s counsel, may be made subject to the following.  The Parties agree that any such required disclosure will not contain confidential business or technical information and, if disclosure of confidential business or technical information is required by applicable Laws, the Parties will use appropriate diligent efforts to minimize such disclosure and obtain confidential treatment for any such information which is disclosed to a governmental agency.  Each Party agrees to provide to the other Party a copy of any public announcement regarding this Agreement or the subject matter thereof as soon as reasonably practicable under the circumstances prior to its scheduled release.  Except under extraordinary circumstances, each Party shall provide the other with an advance copy of any such announcement at least five (5) business days prior to its scheduled release.  Each Party shall have the right to expeditiously review and recommend changes to any such announcement and, except as otherwise required by applicable Laws, the Party whose announcement has been reviewed shall remove any Confidential Information of the reviewing Party that the reviewing Party reasonably deems to be inappropriate for disclosure.  The contents of any announcement or similar publicity which has been reviewed and approved by the reviewing Party can be re-released by either Party without a requirement for re-approval.  Nothing in this Section 15.9 shall be construed to prohibit Sunesis or its Affiliates or Sublicensees from making a public announcement or disclosure regarding the stage of development of Licensed Products in Sunesis’ (or its Affiliates’ or Sublicensees’) product pipeline or disclosing clinical trial results regarding such License Products, as may be required by applicable Laws or the rules of a securities exchange, as reasonably advised by Sunesis’ (or its Affiliates’ or Sublicensees’) counsel.

15.10Relationship of the Parties.  Each Party is an independent contractor under this Agreement.  Nothing contained herein is intended or is to be construed so as to constitute BMS and Sunesis as partners, agents or joint venturers.  Neither Party shall have any express or implied right or

56

authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any contract, agreement or undertaking with any Third Party.

15.11Headings.  Headings and captions are for convenience only and are not be used in the interpretation of this Agreement. 

15.12Entire Agreement.  This Agreement, together with the Equity Agreements, constitutes the entire agreement between the Parties as to the subject matter of this Agreement, and supersedes and merges all prior negotiations, representations, agreements and understandings regarding the same.

15.13Counterparts.  This Agreement may be executed in counter-parts with the same effect as if both Parties had signed the same document.  All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument.

15.14Nonsolicitation.  During the term of this Agreement, Sunesis agrees that neither it nor any of its Affiliates shall knowingly recruit, solicit or induce, directly or indirectly, any employee of BMS or any of its Affiliates directly involved in the research or Development activities with respect to Licensed Compounds to terminate his or her employment with BMS or such Affiliate and become employed by or consult for Sunesis or any of its Affiliates.  For purposes of the foregoing, “recruit”, “solicit” or “induce” shall not be deemed to mean (i) circumstances where an employee of BMS or any of its Affiliates initiates contact with Sunesis or any of its Affiliates with regard to possible employment, or (ii) general solicitations of employment not specifically targeted at employees of BMS or any of its Affiliates, including responses to general advertisements.

15.15Exports.  Sunesis agrees not to export or re-export, directly or indirectly, any information, technical data, the direct product of such data, samples or equipment received or generated under this Agreement in violation of any applicable export control Laws.

15.16Interpretation.

15.16.1  Each of the Parties acknowledges and agrees that this Agreement has been diligently reviewed by and negotiated by and between them, that in such negotiations each of them has been represented by competent counsel and that the final agreement contained herein, including the language whereby it has been expressed, represents the joint efforts of the Parties hereto and their counsel.  Accordingly, in interpreting this Agreement or any provision hereof, no presumption shall apply against any Party hereto as being responsible for the wording or drafting of this Agreement or any such provision, and ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision.

15.16.2  The definitions of the terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  The word “any” shall mean “any and all” unless otherwise clearly indicated by context.

15.16.3  Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (b) any reference to any Laws herein shall be construed as referring to such Laws as from time to time

57

enacted, repealed or amended, (c) any reference herein to any person shall be construed to include the person’s successors and assigns, (d) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (e) all references herein to Articles, Sections or Appendices, unless otherwise specifically provided, shall be construed to refer to Articles, Sections and Appendices of this Agreement.

* * *

[signature page follows]

58

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers.

SUNESIS PHARMACEUTICALS, INC.
By:	/s/ Daniel N. Swisher, Jr.
	(Signature)
Name:	Daniel N. Swisher, Jr.
Title:	Chief Executive Officer
Date:	April 27, 2005
BRISTOL-MYERS SQUIBB COMPANY
By:	/s/ Tamar D. Howson
	(Signature)
Name:	Tamar D. Howson
Title:	Sr. VP, Corporate and Business Development
Date:	April 27, 2005

59

Appendix 1

BMS Patent Rights

1.BMS Core -Patent Rights

U.S. patent [*] (docket number [*])

U.S. patent [*] (docket number [*])

U.S. patent [*] (docket number [*])

U.S. patent [*] (docket number [*])

The foreign counterparts to the above patents are listed in Appendix 7 hereto. 

2.BMS Other Patent Rights

U.S. patent [*] (process)

biomarker application (BMS Docket No. [*] (PCT/US[*]))

U.S. Patent Application Pub. No. [*]

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

60

Appendix 2

CDK Assays

Description of CDK2 Inhibitor Assay

[*] consist of [*] of [*]-CDK2/[*] complex, [*] (amino acids [*] of [*] protein), [*], [*] in 50 µL kinase buffer ([*], pH 8.0, [*], [*], [*]).  Reactions are incubated for [*] at [*] and stopped by the addition of [*] to a final concentration of [*]%.  [*] are collected onto [*]) using a [*]) and the filters were quantitated using a [*]).  Dose response curves are generated to determine the concentration required to inhibit [*]% of kinase activity(IC₅₀).  Compounds are dissolved at [*] in [*] and evaluated at [*] concentrations, each in [*].  The final concentration of [*] in the assay is [*]%.  IC₅₀ values are derived by non-linear regression analysis and have a coefficient of variance (SD/mean, [*]) equal to or less than [*]%.

Description of CDK9 Inhibitor Assay

[*] are treated with [*] ([*]) to stimulate CDK9 activity ([*]).  Whole-cell [*] are prepared and [*] is used in each [*].  [*] are prepared using [*] of [*]CDK9 [*] and [*] of protein [*].  The [*] are washed three times with a buffer that contains [*], [*], pH 7.7, [*], [*], [*], and [*].  The [*] are then resuspended in a total volume of [*] that contains [*], pH 7.7, [*], [*], and [*]) at [*].  Kinase reactions are allowed to proceed at [*] for [*] and are terminated by the addition of [*] of a stop buffer ([*]).  The [*] are pelleted by a brief centrifugation and the supernatants are transferred to new microfuge tubes, to which is added [*] of a mixture of [*] and [*].  The mixtures are incubated on ice for [*] and [*] are recovered on [*]) using a Packard [*] harvester.  Incorporation of [*] into the [*] is determined by liquid scintillation counting.  [*] is determined by non-linear regression analyses and data are reported as the inhibitory concentration required to achieve [*]% inhibition relative to control reactions (IC₅₀).

Description of CDK1 Inhibitor Assay

[*] consist of [*] of [*]-CDK1/[*] complex, [*] ([*]), [*], [*] in [*] ([*], [*], [*], [*]).  Reactions are incubated for [*] at [*] and stopped by the addition of [*] to a final concentration of [*]%.  The [*] are collected onto [*] and IC₅₀ values are determined as above.

Description of CDK4 Inhibitor Assay

[*] consist of [*] of [*]-CDK4/[*] complex, [*] of [*], [*] (amino acids [*] of [*]), [*], [*] in [*] ([*], [*], [*], [*]).  Reactions are incubated for [*] at [*] and stopped by the addition of [*] to a final concentration of [*]%.  The [*] are collected onto [*] and IC₅₀ values are determined as above.

Description of CDK7 Inhibitor Assay

CDK7 kinase activity is measured in [*] as described above for CDK9.   [*] are prepared using an [*]CDK7 [*] and [*].   Kinase activity is measured using [*] as the [*], as described above for CDK9.

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

61

Appendix 3

Summary of Development Plan as of Effective Date

SNS-032 FOR TREATMENT OF HUMAN MALIGNANCIES

Overview:

SNS-032 (also referred to herein as BMS-387032) is a novel inhibitor of multiple cyclin-dependent kinases, including CDK2, CDK7 and CDK9.  SNS-032 is being developed for the treatment of both solid and hematological tumors.  The therapeutic hypothesis calls for [*] of SNS-032 to achieve prolonged [*] biologic activity.  In addition, since [*] likely results in [*] following [*] therapy, [*] with [*] can be expected.

The clinical plan calls for a phase 1 escalating-dose trial of SNS-032 administered IV [*] in a [*] cycle.  A phase 1b/2 trial under consideration is a combination of SNS-032 and [*] in [*] or [*].  Concomitantly, an oral formulation will likely be developed and explored in [*] phase 1 trials of oral SNS-032 ([*]).

Phase 2 and 3 trials will likely follow in [*] and [*] with SNS-032 as a single agent.  Combination trials under consideration are SNS-032 for treatment of earlier stage [*] and [*].

SNS-032 PRELIMINARY PHASE 1 STUDY SYNOPSIS

Title:

Phase 1, dose-escalation, multi-center clinical study of the safety and tolerability of intravenously administered SNS-032, a novel cyclin-dependent kinase inhibitor, administered to patients with advanced solid malignancies and relapsed [*] malignancies

Objectives:

1.Assess the safety and tolerability of [*] given [*] in a [*] treatment cycle

2.Assess the pharmacokinetics of SNS-032

3.Assess the value of biological surrogates ([*]) as potential response monitoring pharmacodynamic markers of study drug activity in patients

4.Assess the baseline levels of [*], [*], [*] and [*] as potential responder stratification biomarkers

Study Design:

SNS-032 will be administered to cohorts of [*], starting at a dose (to be determined) given [*] as a [*] IV infusion to patients meeting entry criteria.  Dose escalation by cohort will occur in the absence of identification of dose-limiting toxicities according to protocol-specified criteria.  Doses will be escalated

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

62

until at least [*] patients experience [*], except for nausea and vomiting adequately controlled with standard anti-emetic medications.  A modified [*] will used for subsequent dose escalation.

Patients will be eligible for up to [*] cycles of treatment; tumor assessments will be conducted at the completion of the [*] cycles.  Patients will be removed from the study upon evidence of tumor progression as defined by [*] criteria.

A thorough and adequate assessment of the effects of SNS-032 on [*] will be conducted.

Inclusion/Exclusion Criteria: 

TBD

Estimated sample size: 

~[*]

Estimated number of study centers: 

[*]

Expected duration of study:

[*] enrollment; [*] follow up

Formulation:

SNS-032 Injection, [*]/vial ([*]) as the [*], is formulated as a [*] aqueous solution.  It is supplied in [*] vials.  A [*]% fill overage is included for vial-needle-syringe (VNS) withdrawal loss.  Each vial contains [*] of SNS-032 active [*], [*] (solubilizer), [*] (buffer, pH 4.0) and Water for Injection.  Vials of SNS-032 Injection contain sterile unpreserved solution.

Statistical Plan:

TBD

SNS-032 Initial Clinical Timelines:

Shown below are the initial clinical timelines for the Development of SNS-032.

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

63

2005

2006

2007

2008

2009

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

I.V.

Single Agent

[*]

Combination

[*]

[*]

Oral

Single Agent

[*]

[*]

[*]

[*]

Oral

Combination

[*]

[*]

2010

2011

2012

2013

2014

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

I.V.

Single Agent

Combination

Oral

Single Agent

Oral

Combination

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

64

Appendix 4

Press Release

Sunesis to Acquire Clinical-Stage, Anti-Cancer Compound from Bristol-Myers Squibb

SNS-032 Expands Sunesis’ Pipeline of Novel Anti-Cancer Therapeutics

SOUTH SAN FRANCISCO, California, March X, 2005 –Sunesis Pharmaceuticals, Inc. announced today that it has obtained worldwide development and commercialization rights to BMS-387032 (now SNS-032), a targeted small molecule anti-cancer compound from Bristol-Myers Squibb Company (NYSE: BMY).  SNS-032 is a novel cyclin dependent kinase (CDK) inhibitor that induces cell cycle arrest and apoptosis.  This clinical-stage compound is the third cell-cycle inhibitor in Sunesis’ proprietary oncology portfolio.

Under the terms of the agreement, Bristol-Myers Squibb will receive an up-front equity stake of $8 million in Sunesis.  Sunesis will make a series of additional milestone payments of up to $29 million in cash and equity based on the successful development and approval for the first indication and formulation of SNS-032.  Additional development and commercialization milestones could total up to $49 million in cash and equity.  Sunesis will also make royalty payments based on net sales.  In return, Sunesis will receive an exclusive, worldwide license to SNS-032 and future CDK inhibitors derived from related intellectual property. 

“We believe that CDK is an excellent therapeutic target for cancer therapy and SNS-032, in particular, fits well with our overall strategy to advance a diversified pipeline of novel anti-cancer therapeutics with potential to improve current treatment standards,” said Daniel Swisher, CEO of Sunesis.  “In preclinical studies, SNS-032 has demonstrated anti-tumor activity in multiple solid and hematological tumor models.  In 2005, we intend to commence a new Phase I clinical trial in patients with advanced solid tumors and relapsed lymphoid malignancies.”

About SNS-032

Cytotoxic agents, including many cell cycle inhibitors, remain the front-line standard of care in many cancers.  SNS-032 is a novel aminothiazole small molecule cell cycle modulator that targets the cyclin-dependent kinases CDK2, CDK7 and CDK9, thus halting the uncontrolled cell division characteristic of cancer.  Preclinical studies have shown that SNS-032 induces cell cycle arrest and apoptosis across multiple cell lines.  In Phase I trials , SNS-032 displayed promising pharmacologic properties and safety consistent with that of other cytotoxic anti-cancer

1

molecules.  Preclinical studies have shown that SNS-032 has activity in cancer models of solid tumors and hematologic malignancies.

SNS-032 is a small molecule that is currently administered by IV infusion, but also has the potential for being developed as an oral medication.  In addition, the compound has the potential to be used as either a single agent or as part of a combination drug regimen.  Sunesis intends to commence new Phase I clinical trials of SNS-032 administered by IV as a single agent and in combination with leading cancer therapies to evaluate the compound’s safety, tolerability and pharmacokinetic properties in humans to establish optimal dosing regimens for Phase II clinical testing.

About Sunesis’ Other Oncology Programs

Sunesis has built a portfolio of preclinical and development stage product candidates in oncology focused on novel pathways and targets, including inhibiting cell cycle and survival signaling. Sunesis is currently conducting Phase I clinical trials for its lead compound, SNS-595, a cell-cycle modulator that acts on proliferating cancer cells by inducing cell cycle arrest and apoptosis, or cell death.  In addition, Sunesis’ Aurora kinase inhibitor program is undergoing preclinical evaluation and, in cooperation with Biogen Idec, Sunesis is developing novel small molecule inhibitors of Raf and other oncology kinases.

About Sunesis Pharmaceuticals

Sunesis is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of small molecule therapeutics for oncology, inflammatory diseases and other unmet medical needs.  Sunesis has built a product candidate portfolio through internal discovery and acquisition of novel cancer therapeutics.  Sunesis is advancing its product candidates through in-house research and development efforts and strategic collaborations with leading pharmaceutical and biopharmaceutical companies.  For further information, visit www.sunesis.com.

Forward-Looking Statements

This press release contains forward-looking statements concerning Sunesis Pharmaceuticals’ and its product development plans, including plans to commence and conduct preclinical studies and clinical trials. Sunesis may not be successful in such plans.

Statements in this press release regarding Sunesis Pharmaceuticals’ business which are not historical facts are “forward-looking statements” that involve risks and uncertainties. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intends,” “may,” “plans,” “should,” “seeks,” “potential,” “will,” or the negative of those terms, or other variations of those terms of comparable language, or by discussions of strategy or intentions. A number of important factors could cause actual results to differ materially from those projected or suggested in the forward-looking statements including, but not limited to, the ability of Sunesis to: (i) discover product candidates, (ii) successfully conduct preclinical studies and clinical trials of product candidates, (iii) obtain regulatory approval of any product candidates and (iv) obtain and enforce intellectual property rights. These statements speak only as of the

2

date of this press release and the company assumes no obligation or responsibility to update or revise the statements.

CONTACT:
Eric Bjerkholt,	Media and Investors
CFO of Sunesis Pharmaceuticals, Inc.,	BCC Partners
+1-650-266-3717	Karen L. Bergman or Michelle Coral
	650.575.1509 or 415.794.8662

3

Appendix 5

List of BMS Compounds to be Provided Under Section 4.5

[*]

BMS-387032

[*]

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

4

Appendix 6

Illustrative Examples of Milestone Payments Under Section 8.2

In the four examples below, it is assumed that the Licensed Compound is a Licensed Compound under clause (a) of the Licensed Compound definition.

Example 1

•Licensed Compound is developed, filed and approved for IV treatment of [*] in [*] and [*] for [*].

•Licensed Compound is developed in parallel for the oral treatment of [*] but is never filed.

•No other development, filing or approval milestones are achieved.

•The following would be paid.

Column:  1	2		3		4		5
Milestone Event	First Indication for First Formulation =IV for [*]		Second Formulation (any Indication) = Oral for [*]		Second Indication for a Formulation = =IV for [*]		Third Indication for a Formulation
1. Start of Phase 1 Trial	$	[*]
2. Start of Phase 2 Trial	$	[*]	$	[*]	[*]
3. Start of Phase 3 Trial	$	[*]	$	[*]	$	[*]
4. NDA Filing	$	[*]			$	[*]
5. NDA Approval	$	[*]			$	[*]
6. MAA Filing	$	[*]			$	[*]
7. MAA Approval	$	[*]			$	[*]
8. JNDA Filing	$	[*]			$	[*]
9. JNDA Approval	$	[*]			$	[*]
Total	$	[*]	$	[*]	$	[*]

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

5

Example 2

•Licensed Compound is developed, filed and approved for IV treatment of [*] in [*].

•Licensed Compound is developed, filed and approved for the oral treatment of [*] in [*].

•Licensed Compound is developed, filed and approved for IV treatment of [*] in [*].

•Licensed Compound is developed, filed and approved for the oral treatment of [*] in [*].

•No other development, filing or approval milestones are achieved.

•The following would be paid.  Note that the oral [*] would be the second indication for a formulation which has already been paid for IV for [*] and so would not trigger payments.

Column:1	2		3		4		5
Milestone Event	First Indication for First Formulation = IV for [*]		Second Formulation (any Indication) =oral for [*]		Second Indication for a Formulation =IV for [*]		Third Indication for a Formulation
1. Start of Phase 1 Trial	$	[*]
2. Start of Phase 2 Trial	$	[*]	$	[*]	[*]
3. Start of Phase 3 Trial	$	[*]	$	[*]	$	[*]
4. NDA Filing	$	[*]	$	[*]	$	[*]
5. NDA Approval	$	[*]	$	[*]	$	[*]
6. MAA Filing	$	[*]	$	[*]	$	[*]
7. MAA Approval	$	[*]	$	[*]	$	[*]
8. JNDA Filing	$	[*]	$	[*]	$	[*]
9. JNDA Approval	$	[*]	$	[*]	$	[*]
Total	$	[*]	$	[*]	$	[*]

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

6

Example 3

•Licensed Compound is developed, filed and approved for IV treatment of [*] in [*].

•Licensed Compound is developed, filed and approved for the IV treatment of [*] in [*].

•Licensed Compound is developed, filed and approved for IV treatment of [*] in [*].

•Licensed Compound is developed, filed and approved for the IV treatment of [*] in [*].

•No other development, filing or approval milestones are achieved.

•The following would be paid.  Note that the IV for [*] would be the fourth indication for a formulation and would not trigger payments.

Column:1	2		3	4		5
Milestone Event	First Indication for First Formulation = IV for [*]		Second Formulation (any Indication)	Second Indication for a Formulation =IV for [*]		Third Indication for a Formulation =IV for [*]
1. Start of Phase 1 Trial	$	[*]
2. Start of Phase 2 Trial	$	[*]		[*]		—
3. Start of Phase 3 Trial	$	[*]		$	[*]	$	[*]
4. NDA Filing	$	[*]		$	[*]	$	[*]
5. NDA Approval	$	[*]		$	[*]	$	[*]
6. MAA Filing	$	[*]		$	[*]	$	[*]
7. MAA Approval	$	[*]		$	[*]	$	[*]
8. JNDA Filing	$	[*]		$	[*]	$	[*]
9. JNDA Approval	$	[*]		$	[*]	$	[*]
Total	$	[*]		$	[*]	$	[*]

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

7

Example 4

•Licensed Compound, A, IV form is developed through phase 1 ([*]), phase 2 ([*]) and Phase 3 ([*]) for AML but is never filed.

•Licensed Compound, A, oral form is developed through phase 1 ([*]), phase 2 ([*]) and Phase 3 ([*]) but is never filed.

•A separate Licensed Compound, B, is developed, NDA/MAA are filed ([*]) and NDA/MAA are approved ([*]) for the IV treatment of [*] in [*].

•No other development, filing or approval milestones are achieved.

•The following would be paid.  Note that the column 2 payments for start of Phase 2 and Phase 3 are only triggered once for IV [*] and are not repaid for the IV [*] start of Phase 2 and Phase 3.

Column:1	2	3	4	5
Milestone Event	First Indication for First Formulation	Second Formulation (any Indication)	Second Indication for a Formulation	Third Indication for a Formulation
1. Start of Phase 1 Trial	$[*] in [*] for IV [*]
2. Start of Phase 2 Trial	$[*] in [*] for IV [*]	$[*] in [*] for oral [*]
3. Start of Phase 3 Trial	$[*] in [*] for IV [*]	$[*] in [*] for oral [*]
4. NDA Filing	$[*] in [*] for IV [*]
5. NDA Approval	$[*] in [*] for IV [*]
6. MAA Filing	$[*] in [*] for IV [*]
7. MAA Approval	$[*] in [*]
8. JNDA Filing
9. JNDA Approval
Total	$[*]	$[*]

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

8

Appendix 7

BMS Core Patent Rights

1.BMS Core -Patent Rights

U.S. patent [*] (docket number [*])

U.S. patent [*] (docket number [*])

U.S. patent [*] (docket number [*])

U.S. patent [*] (docket number [*])

The foreign counterparts of the above patents are listed below.

Docket Number [*]

Ctry	Type	Filing Date	Filing Number	Publication	Proc	PUB ro GRT Number
[*]	[*]	[*]	[*]	[*]	[*]	[*]

Docket Number [*]

Ctry	Type	Filing Date	Filing Number	Publication	Proc	PUB or GRT Number
[*]	[*]	[*]	[*]	[*]	[*]	[*]

Docket Number [*]

Ctry	Type	Filing Date	Filing Number	Publication	Proc	PUB or GRT Number
[*]	[*]	[*]	[*]	[*]	[*]	[*]

Docket Number [*]

Ctry	Type	Filing Date	Filing Number	Publication	Proc	PUB or GRT Number
[*]	[*]	[*]	[*]	[*]	[*]	[*]

Docket Number [*]

Ctry	Type	Filing Date	Filing Number	Publication	Proc	Number
[*]	[*]	[*]	[*]	[*]	[*]	[*]

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

9

Docket Number [*]

Ctry	Type	Filing Date	Filing Number	Publication	Proc	GRT or PUB Number
[*]	[*]	[*]	[*]	[*]	[*]	[*]

[*]Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to the omitted portions.

10

EX-10.38

Exhibit 10.38

VENTURE LOAN AND SECURITY AGREEMENT

Dated as of August 25, 2005

by and among

HORIZON TECHNOLOGY FUNDING COMPANY LLC,

a Delaware limited liability company

76 Batterson Park Road

Farmington, CT 06032,

as a Lender and Agent

and

OXFORD FINANCE CORPORATION

a Delaware corporation

133 N.Fairfax Street

Alexandria, VA 22314,

as a Lender

and

SUNESIS PHARMACEUTICALS, INC.,

a Delaware corporation

341 Oyster Point Blvd.

South San Francisco, CA  94080

as Borrower

	Commitment Amount Loan A		Commitment Amount Loan B		Commitment Amount Loan C
Horizon Technology Funding Company LLC:	$	2,500,000.00	$	2,500,000	$	5,000,000
Oxford Finance Corporation	$	2,500,000.00	$	2,500,000	$	0

Commitment Termination Date Loan A:October 15, 2005

Commitment Termination Date Loan B:January 31, 2006

Commitment Termination Date Loan C:May 31, 2006

This Venture Loan and Security Agreement (this “Agreement”) is made by and among Sunesis Pharmaceuticals, Inc., a Delaware corporation (“Borrower”); Horizon Technology Funding Company LLC, a Delaware limited liability company (“Horizon”) and Oxford Finance Corporation (“Oxford” and collectively with Horizon, “Lenders”); and Horizon, as agent for Lenders hereunder (Horizon, in such capacity, together with any successor agent appointed pursuant to this Agreement, being “Agent”).  Lenders, Agent and Borrower hereby agree as follows:

AGREEMENT

1.Definitions and Construction.

1.1Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings:

“Account Control Agreement” means an agreement acceptable to Lenders which perfects via control Agent’s security interest in Borrower’s deposit accounts and/or accounts holding securities.

“Account Collateral” means accounts receivable due or to become due under all purchase orders and contracts for the sale of products or the performance of services or both (and related general intangibles in the nature of rights to payment) and the proceeds thereof.

“Affiliate” means any Person that owns or controls directly or indirectly ten percent (10%) or more of the stock of another entity, any Person that controls or is controlled by or is under common control with such Persons or any Affiliate of such Persons and each of such Person’s officers, directors, joint venturers or partners.

“Agent” has the meaning given in the preamble to this Agreement.

“Agreement” means this certain Venture Loan and Security Agreement by and among Borrower, Agent and Lenders dated as of the date on the cover page hereto (as it may from time to time be amended or supplemented in writing signed by the Borrower, Agent and Lenders).

“Borrower” has the meaning given in the preamble to this Agreement.

“Borrower’s Home State” means California.

“Business Day” means any day that is not a Saturday, Sunday, or other day on which banking institutions are authorized or required to close in Connecticut or Borrower’s Home State.

“Claim” has the meaning given such term in Section 10.3 of this Agreement

“Code” means the Uniform Commercial Code as adopted and in effect in the State of California, as amended from time to time; provided that if by reason of mandatory provisions of law, the creation and/or perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a

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jurisdiction other than California, the term “Code” shall also mean the Uniform Commercial Code as in effect from time to time in such jurisdiction for purposes of the provisions hereof relating to such creation, perfection or effect of perfection or non-perfection.

“Collateral” has the meaning given such term in Section 4.1 of this Agreement.

“Commitment Fee” has the meaning given such term in Section 2.6(b) of this Agreement.

“Commitment Termination Date” means collectively, Commitment Termination Date Loan A, Commitment Termination Date Loan B and Commitment Termination Date Loan C.

“Commitment Termination Date Loan A”, “Commitment Termination Date Loan B”, and “Commitment Termination Date Loan C” each have the respective meanings as set forth on the cover page of this Agreement.

“Commitment Amount” means collectively, Commitment Amount Loan A, Commitment Amount Loan B and Commitment Amount Loan C.

“Commitment Amount Loan A” means, with respect to each Lender, the amount specified opposite such Lender’s name on the cover page of this Agreement in the column titled “Commitment Amount Loan A.”

“Commitment Amount Loan B” means, with respect to each Lender, the amount specified opposite such Lender’s name on the cover page of this Agreement in the column titled “Commitment Amount Loan B.”

“Commitment Amount Loan C” means, with respect to each Lender, the amount specified opposite such Lender’s name on the cover page of this Agreement in the column titled “Commitment Amount Loan C.”

“Default” means any event which with the passing of time or the giving of notice or both would become an Event of Default hereunder.

“Default Rate” means the per annum rate of interest equal to five percent (5%) over the Loan Rate, but such rate shall in no event be more than the highest rate permitted by applicable law to be charged on commercial loans in a default situation.

“Disclosure Schedule” means Exhibit A attached hereto.

“Environmental Laws” means all foreign, federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act and the Emergency Planning and Community Right-to-Know Act.

“Equity Securities” of any Person means (a) all common stock, preferred stock, participations, shares, partnership interests, membership interests or other equity interests in and

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of such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing.

“ERISA” has the meaning given to such term in Section 7.12 of this Agreement.

“Event of Default” has the meaning given to such term in Section 8 of this Agreement.

“Funding Certificate” means a certificate executed by a Responsible Officer of Borrower substantially in the form of Exhibit B or such other form as Lenders may agree to accept.

“Funding Date” means any date on which a Loan is made to or on account of Borrower under this Agreement.

“GAAP” means generally accepted accounting principles as in effect in the United States of America from time to time, consistently applied.

“Good Faith Deposit” has the meaning given such term in Section 2.6(a) of this Agreement.

“Governmental Authority” means (a) any federal, state, county, municipal or foreign government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, (c) any court or administrative tribunal, or (d) with respect to any Person, any arbitration tribunal or other non-governmental authority to whose jurisdiction that Person has consented.

“Hazardous Materials” means all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste.

“Indebtedness” means, with respect to Borrower or any Subsidiary, the aggregate amount of, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade payables aged less than one hundred eighty (180) days), (d) all capital lease obligations of such Person, (e) all obligations or liabilities of others secured by a Lien on any asset of such Person, whether or not such obligation or liability is assumed, (f) all obligations or liabilities of others guaranteed by such Person, and (g) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of such Person.  Unless otherwise indicated, the term “Indebtedness” shall include all Indebtedness of Borrower and the Subsidiaries.

“Indemnified Person” has the meaning given such term in Section 10.3 of this Agreement.

“Intellectual Property” means all of Borrower’s right, title and interest in and to patents, patent rights (and applications and registrations therefor), trademarks and service marks (and applications and registrations therefor), inventions, copyrights, mask works (and applications and registrations therefor), trade names, trade styles, software and computer programs, source code, object code, trade secrets, methods, processes, know how, drawings, specifications, descriptions,

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and all memoranda, notes, and records with respect to any research and development, all whether now owned or subsequently acquired or developed by Borrower and whether in tangible or intangible form or contained on magnetic media readable by machine together with all such magnetic media (but not including embedded computer programs and supporting information included within the definition of “goods” under the Code).

“Investment” means the purchase or acquisition of any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or the extension of any advance, loan, extension of credit or capital contribution to, or any other investment in, or deposit with, any Person.

“Landlord Agreement” means an agreement substantially in the form provided by Lenders to Borrower or such other form as Lenders may agree to accept.

“Lender” means individually, each of the Lenders, and “Lenders” has the meaning given in the preamble to this Agreement.

“Lenders’ Expenses” means all reasonable costs or expenses (including reasonable attorneys’ fees and expenses) incurred by Lenders and Agent in connection with the preparation, negotiation, documentation, administration and funding of the Loan Documents; and Agent and Lenders’ reasonable attorneys’ fees, costs and expenses incurred in amending, modifying, enforcing or defending the Loan Documents (including fees and expenses of appeal or review), including the exercise of any rights or remedies afforded hereunder or under applicable law, whether or not suit is brought, whether before or after bankruptcy or insolvency, including without limitation all fees and costs incurred by Agent or Lenders in connection with Agent’s or Lenders’ enforcement of its rights in a bankruptcy or insolvency proceeding filed by or against Borrower or its Property.

“Lien” means any voluntary or involuntary security interest, pledge, bailment, lease, mortgage, hypothecation, conditional sales and title retention agreement, encumbrance or other lien with respect to any Property in favor of any Person.

“Loan” means each advance of credit to Borrower made under this Agreement.

“Loan A” means the first advance of credit to Borrower under this Agreement in the Commitment Amount Loan A.

“Loan B” means the advance of credit to Borrower under this Agreement in the Commitment Amount Loan B.

“Loan C” means the advance of credit to Borrower under this Agreement in the Commitment Amount Loan C.

“Loan Documents” means, collectively, this Agreement, the Notes, the Warrants, any Landlord Agreement, any Account Control Agreement and all other documents, instruments and agreements entered into in connection with this Agreement, all as amended or extended from time to time.

“Loan Rate” means, with respect to each Loan, the per annum rate of interest (based on a year of twelve 30-day months) equal to the higher of (a) 11.50 % or (b) 7.73% plus the average

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weekly rate for actively traded Government securities issues adjusted to a constant maturity of three (3) years (the “Treasury Rate”) as published in the Federal Reserve Statistical Release H.15 (519) (the “Fed Release”), under the heading “U.S. Government Securities Treasury Constant Maturities for three (3) Years”, as of forty-eight (48) hours before the date of funding of such Loan.  In the event that the Fed Release ceases to be published after the date of this Loan Agreement, the Lenders shall select a reasonably comparable index which shall be substituted for the Fed Release for all purposes of this Loan. The Loan Rate shall be fixed for the term of each Loan.

“Maturity Date” means, with respect to each Loan, the first day of the calendar month which is thirty (30) months from the due date of the last interest only payment due under the Loan as set forth in Section 2.2(a) below, or if earlier, the date of acceleration of such Loan following an Event of Default or the date of prepayment, whichever is applicable.

“Note” means each promissory note executed by the Borrower in substantially the form of Exhibit C attached hereto, and, collectively, “Notes” means all such promissory notes.

“Obligations” means all debt, principal, interest, fees, charges, expenses and attorneys’ fees and costs and other amounts, obligations, covenants, and duties owing by Borrower to Agent or Lenders of any kind and description (whether pursuant to or evidenced by the Loan Documents (other than the Warrant), or by any other agreement between Agent and Borrower or any Lender and Borrower, and whether or not for the payment of money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including all Lenders’ Expenses.

“Officer’s Certificate” means a certificate executed by a Responsible Officer substantially in the form of Exhibit E or such other form as Lenders may agree to accept.

“Payment Date” has the meaning given such term in Section 2.2(a) of this Agreement.

“Permitted Indebtedness” means and includes:

(a)Indebtedness of Borrower to Lenders;

(b)Indebtedness of Borrower secured by Liens permitted under clause (e) of the definition of Permitted Liens; provided the outstanding aggregate principal amount of such Indebtedness existing on the date hereof plus the original aggregate principal amount of such Indebtedness incurred after the date hereof does not exceed Five Million Dollars ($5,000,000);

(c)Indebtedness arising from the endorsement of instruments in the ordinary course of business;

(d)Indebtedness existing on the date hereof and set forth on the Disclosure Schedule;

(e)Unsecured Indebtedness consisting of loans from strategic partners of Borrower, which are subordinated to thee Obligations upon terms acceptable to Lenders in their reasonable discretion, including without limitation, that no principal repayment of such loans may be made until a date occurring after the Maturity Date; and

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(f)Indebtedness of Borrower to Biogen-IDEC, Inc. as evidenced by a certain unsecured Promissory Note dated as of December, 2002 in the aggregate principal sum of up to Four Million Dollars ($4,000,000).

“Permitted Investments” means and includes any of the following Investments as to which Lenders have a perfected security interest:

(a)Deposits and deposit accounts with commercial banks organized under the laws of the United States or a state thereof to the extent: (i) the deposit accounts of each such institution are insured by the Federal Deposit Insurance Corporation up to the legal limit; and (ii) each such institution has an aggregate capital and surplus of not less than One Hundred Million Dollars ($100,000,000).

(b)Investments in marketable obligations issued or fully guaranteed by the United States and maturing not more than one (1) year from the date of issuance.

(c)Investments in open market commercial paper rated at least “A1” or “P1” or higher by a national credit rating agency and maturing not more than one (1) year from the creation thereof.

(d)Investments pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business.

(e)Other Investments aggregating not in excess of Two Hundred Fifty Thousand Dollars ($250,000) at any time.

“Permitted Liens” means and includes:

(a)           the Lien created by this Agreement;

(b)           Liens for fees, taxes, levies, imposts, duties or other governmental charges of any kind which are not yet delinquent or which are being contested in good faith by appropriate proceedings which suspend the collection thereof (provided that such appropriate proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral which in the aggregate is material to Borrower and that Borrower has adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Borrower);

(c)           Liens identified on the Disclosure Schedule;

(d)           carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings (provided that such appropriate proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral or Collateral which in the aggregate is material to Borrower and that Borrower has adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Borrower); and

(e)           Liens upon any equipment or other personal property acquired by Borrower after the date hereof to secure (i) the purchase price of such equipment or other

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personal property, or (ii) lease obligations or indebtedness incurred solely for the purpose of financing the acquisition of such equipment or other personal property; provided that (A) such Liens are confined solely to the equipment or other personal property so acquired and the amount secured does not exceed the acquisition price thereof, plus any “soft costs” incurred in connection therewith, and (B) no such Lien shall be created, incurred, assumed or suffered to exist in favor of Borrower’s officers, directors or shareholders holding five percent (5%) or more of Borrower’s Equity Securities.

“Person” means and includes any individual, any partnership, any corporation, any business trust, any joint stock company, any limited liability company, any unincorporated association or any other entity and any domestic or foreign national, state or local government, any political subdivision thereof, and any department, agency, authority or bureau of any of the foregoing.

“Property” means any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible.

“Responsible Officer” has the meaning given such term in Section 6.3 of this Agreement.

“Scheduled Payments” has the meaning given such term in Section 2.2(a) of this Agreement.

“Solvent” has the meaning given such term in Section 5.11 of this Agreement.

“Subsidiary” means any corporation or other entity of which a majority of the outstanding Equity Securities entitled to vote for the election of directors or other governing body (otherwise than as the result of a default) is owned by Borrower directly or indirectly through Subsidiaries.

“Third Party Equipment” has the meaning given such term in Section 4.8 of this Agreement.

“Transfer” has the meaning given such term in Section 7.4 of this Agreement.

“Warrant” means the separate warrant or warrants dated on or about the date hereof in favor of the Lenders or their designees to purchase securities of Borrower.

1.2Construction.  References in this Agreement to “Articles,” “Sections,” “Exhibits,” “Schedules” and “Annexes” are to recitals, articles, sections, exhibits, schedules and annexes herein and hereto unless otherwise indicated.  References in this Agreement and each of the other Loan Documents to any document, instrument or agreement shall include (a) all exhibits, schedules, annexes and other attachments thereto, (b) all documents, instruments or agreements issued or executed in replacement thereof, and (c) such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time.  The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement or any other Loan Document shall refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be.  The words “include” and “including” and words of similar import when used

8

in this Agreement or any other Loan Document shall not be construed to be limiting or exclusive.  Unless otherwise indicated in this Agreement or any other Loan Document, all accounting terms used in this Agreement or any other Loan Document shall be construed, and all accounting and financial computations hereunder or thereunder shall be computed, in accordance with GAAP, and all terms describing Collateral shall be construed in accordance with the Code. The terms and information set forth on the cover page of this Agreement are incorporated into this Agreement.

2.Loans; Repayment.

2.1Commitment.

(a)The Commitment Amount.  Subject to the terms and conditions of this Agreement and relying upon the representations and warranties herein set forth as and when made or deemed to be made, each Lender, severally and not jointly (i) to lend to Borrower prior to the Commitment Termination Date Loan A, Loan A in the amount of Commitment Amount Loan A, and (ii) to lend to Borrower prior to the Commitment Termination Date Loan B, Loan B in the amount of Commitment Amount Loan B. Subject to the terms and conditions of this Agreement and relying upon the representations and warranties herein set forth as and when made or deemed to be made, Horizon agrees to lend to Borrower prior to the Commitment Termination Date Loan C, Loan C in the amount of Commitment Amount Loan C.

(b)The Loans and the Notes. The obligation of Borrower to repay the unpaid principal amount of and interest on each Loan made under this Agreement shall be evidenced by a single promissory note in favor of such Lender in the form of Exhibit C attached hereto, duly completed, executed and delivered to such Lender dated on or about the Funding Date for such Loan and made payable to such Lender.  Borrower hereby authorizes each Lender to record on each Note or on its internal computerized records, the principal amount of such Loan and of each payment of principal received by such Lender on account of such Loan, which recordance, in the absence of manifest error, shall be conclusive as to the outstanding principal balance of such Loan; provided that, the failure to make such recordation with respect to any Loan or payment shall not limit or otherwise affect the obligations of the Borrower under this Agreement, the Notes or the other Loan Documents.

(c)Use of Proceeds.  The proceeds of each Loan shall be used solely for working capital or general corporate purposes of Borrower.

(d)Termination of Commitment to Lend.  Notwithstanding anything in the Loan Documents, each Lender’s obligation to lend the undisbursed portion of each Commitment Amount to Borrower hereunder shall terminate on the earlier of (i) at each Lender’s sole election, the occurrence of any Event of Default hereunder, and (ii) the applicable Commitment Termination Date.  Notwithstanding the foregoing, Lender’s obligation to lend the undisbursed portion of the Commitment Amount to Borrower shall be suspended for so long as, in Lenders’ reasonable judgment, there has been a material adverse change in the general affairs, results of operations or financial condition of Borrower or there has been any material adverse deviation by Borrower from the business plan of Borrower presented to Lender on or before the date of this Agreement.

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2.2Payments.

(a)Scheduled Payments.  Borrower shall make monthly payments of accrued interest only on the outstanding principal amount of each Loan commencing on the first Business day of the second calendar month following the Funding Date of such Loan and continuing through and including July 1, 2006; provided, that if Borrower has received cash proceeds of not less than Forty Million Dollars ($40,000,000) from the sale of its Equity Securities, at Borrower’s election as made in writing to Lenders not less than thirty (30) days from the date of the receipt of such proceeds, Borrower shall make such interest only payments through and including January 1, 2007 (in either case, “Interest Only Period”). At the end of the Interest Only Period, Borrower shall make thirty (30) level (mortgage-style) monthly payments of principal plus accrued interest on the outstanding principal amount of each Loan in an amount sufficient to fully amortize the Loan by the Maturity Date (collectively with the payments made during the Interest Only Period, the “Scheduled Payments”).  Borrower shall make such Scheduled Payments commencing on the date set forth in the Note applicable to such Loan and continuing thereafter on the first Business Day of each calendar month (each a “Payment Date”) through the Maturity Date.  In any event, all unpaid principal and accrued interest shall be due and payable in full on the Maturity Date.

(b)Interim Payment.  Unless the Funding Date for a Loan is the first day of a calendar month, Borrower shall pay the per diem interest (accruing at the Loan Rate from the Funding Date through the last day of that month) payable with respect to such Loan on the first Business Day of the next calendar month.

(c)Payment of Interest.  Borrower shall pay interest on each Loan at a per annum rate of interest equal to the Loan Rate.  All computations of interest (including interest at the Default Rate, if applicable) shall be based on a year of twelve 30-day months.  Notwithstanding any other provision hereof, the amount of interest payable hereunder shall not in any event exceed the maximum amount permitted by the law applicable to interest charged on commercial loans.

(d)Application of Payments.  All payments received by Lenders prior to an Event of Default shall be applied as follows:  (1) first, to Lenders’ Expenses then due and owing; and (2) second to all Scheduled Payments then due and owing (provided, however, if such payments are not sufficient to pay the whole amount then due, such payments shall be applied first to unpaid interest at the Loan Rate, then to the remaining amount then due).  After an Event of Default, all payments and application of proceeds shall be made as set forth in Section 9.7.

(e)Late Payment Fee.  Borrower shall pay to Lenders a late payment fee equal to four percent (4%) of any Scheduled Payment not paid when due.

(f)Default Rate.  Borrower shall pay interest at a per annum rate equal to the Default Rate on any amounts required to be paid by Borrower under this Agreement or the other Loan Documents (including Scheduled Payments), payable with respect to any Loan, accrued and unpaid interest, and any fees or other amounts which remain unpaid after such amounts are due.  If an Event of Default has occurred and the Obligations have been accelerated (whether automatically or by Lender’s election), Borrower shall pay interest on the aggregate, outstanding accelerated balance hereunder from the date of the Event of Default until all Events of Default are cured, at a per annum rate equal to the Default Rate.

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2.3Prepayments.

(a)Mandatory Prepayment Upon an Acceleration.  If the Loans are accelerated following the occurrence of an Event of Default pursuant to Section 9.1(a) hereof, then Borrower, in addition to any other amounts which may be due and owing hereunder, shall immediately pay to Lenders the amount set forth in Section 2.3(b) below, as if the Borrower had opted to prepay the Loans on the date of such acceleration.

(b)Optional Prepayment.  Upon ten (10) Business Days’ prior written notice to Lenders, Borrower may, at its option, at any time, prepay all of the Loans by paying to Lenders an amount equal to (i) any accrued and unpaid interest on the outstanding principal balance of the Loans; (ii) an amount equal to (A) for each Loan prepaid within twelve (12) months from its Funding Date, five (5%) percent of the then outstanding principal balance of such Loan, or (B) for each Loan prepaid more than twelve (12) months from its Funding Date, two (2%) percent of the then outstanding principal balance of such Loan; (iii) the outstanding principal balance of the Loans and (iv) all other sums, if any, that shall have become due and payable hereunder.

2.4Other Payment Terms.

(a)Place and Manner.  Borrower shall make each payment due to Lenders in lawful money of the United States.  All payments of principal, interest, fees and other amounts payable by Borrower hereunder shall be made, in immediately available funds, not later than 1:00 p.m. Connecticut time, on the date on which such payment is due.  Borrower shall make (i) payments due to Horizon via wire transfer and (ii) payments due to Oxford by permitting Oxford to automatically debit such payments from the Borrower’s Primary Operating Account, in both cases as follows:

Payments to Horizon:
Credit:	Horizon Technology Funding Company LLC
Bank Name:	ABN Amro/LaSalle Bank NA CDO Trust Services
Bank Address:	135 South LaSalle Street, Suite 1625 Chicago, Illinois 60603 Attn: Greg Meyers, 312-904-0283
Account No.:	2090067 – Trust GL
FFCT-Reference Account Number	721771.1
ABA Routing No.:	071000505
Reference:	Sunesis Invoice #
Payments to Oxford by Debit From:	Borrower’s Primary Operating Account
	Beneficiary Bank:	State Street Bank 1200 Crown Colony Quincy, MA 02169
	ABA Number: 011000028 Depositor Acc. Title:State Street Bank Depositor Acc. Number: 17039843 For Credit to: DE0530 Sunesis Pharmaceuticals, Inc. Attention: Rachel Bovarnick

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(b)Date.  Whenever any payment is due hereunder on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest or fees, as the case may be.

2.5Procedure for Making Loans.

(a)Notice.  Whenever Borrower desires that Lenders make a Loan, Borrower shall notify Lenders of the date on which Borrower desires Lenders to make such Loan.  Borrower’s notice shall be made at least five (5) Business Days in advance of the desired Funding Date, unless Lenders elects at their sole discretion to allow the Funding Date to be within five (5) Business Days of the notice.  Borrower’s execution and delivery to each Lender of a Note shall be Borrower’s agreement to the terms and calculations thereunder with respect to such Loan.  Lenders’ obligation to make any Loans shall be expressly subject to the satisfaction of the conditions set forth in Sections 3.1 and 3.2.

(b)Loan Rate Calculation.  Prior to each Funding Date, Lenders shall establish the Loan Rate with respect to such Loan, which shall be set forth in each Note to be executed by Borrower with respect to such Loan and shall be conclusive in the absence of a manifest error.

(c)Disbursement. Each Lender shall disburse the proceeds of its Loan by wire transfer to Borrower at the account specified in the Funding Certificate for such Loan.

2.6Facility Fee; Legal, Due Diligence and Documentation Expenses.

(a)Facility Fee.  Borrower has delivered to Oxford a facility fee in the amount of Seventy Five Thousand Dollars ($75,000) (the “Facility”) which has been earned and shall be retained as earned by Lenders.

(b)Legal, Due Diligence and Documentation Expenses. Borrower shall pay to Lenders, concurrently with its execution and delivery of this Agreement, Lenders’ and Agent’s legal, due diligence and documentation expenses in connection with the negotiation and documentation of this Agreement and the Loan Documents in an amount not to exceed Fifteen Thousand Dollars ($15,000).

3.Conditions of Loan.

3.1Conditions Precedent to Closing.  At the time of the execution and delivery of this Agreement, Lenders shall have received, in form and substance reasonably satisfactory to Lenders, all of the following (unless Lenders have agreed to waive such condition or document, in which case such condition or document shall be a condition precedent to the making of any Loan and shall be deemed added to Section 3.2):

(a)Loan Agreement. This Agreement duly executed by Borrower, Agent and Lenders.

(b)Warrant. The Warrant to be issued to Lenders or their designees, duly executed by Borrower.

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(c)Secretary’s Certificate. A certificate of the secretary or assistant secretary of Borrower with copies of the following documents attached:  (i) the certificate of incorporation and bylaws of Borrower certified by Borrower as being complete and in full force and effect on the date thereof, (ii) incumbency and representative signatures, and (iii) resolutions authorizing the execution and delivery of this Agreement and each of the other Loan Documents.

(d)Good Standing Certificates.  A good standing certificate from Borrower’s state of incorporation and the state in which Borrower’s principal place of business is located, each dated as of a recent date.

(e)Certificate of Insurance.  Evidence of the insurance coverage required by Section 6.8 of this Agreement.

(f)Consents.  All necessary consents of shareholders and other third parties with respect to the execution, delivery and performance of this Agreement, the Warrant and the other Loan Documents.

(g)Legal Opinion.  A legal opinion of Borrower’s counsel covering the matters set forth in Exhibit D hereto.

(h)Account Control Agreements.  Account Control Agreements for all of Borrower’s deposit accounts and accounts holding securities duly executed by all of the parties thereto, in the forms provided by Lenders or reasonably acceptable to Lenders.

(i)Other Documents. Such other documents and completion of such other matters, as Lenders may deem necessary or appropriate.

3.2Conditions Precedent to Making a Loan. The obligation of Lender to make each Loan is further subject to the following conditions:

(a)No Default. No Default or Event of Default shall have occurred and be continuing.

(b)Landlord Agreements. Borrower shall have provided Lenders with a Landlord Agreement for each location where Borrower’s books and records and the Collateral is located (unless Borrower is the fee owner thereof).

(c)Note. Borrower shall have duly executed and delivered to each Lender a Note in the amount of such Lender’s Loan.

(d)UCC Financing Statements.  Lenders shall have received such documents, instruments and agreements, including UCC financing statements or amendments to UCC financing statements, as Lenders shall reasonably request to evidence the perfection and priority of the security interests granted to Lender pursuant to Section 4. Borrower authorizes Lenders to file any UCC financing statements, continuations of or amendments to UCC financing statements they deem necessary to perfect their security interests in the Collateral.

(e)Funding Certificate.  Borrower shall have duly executed and delivered to Lenders a Funding Certificate.

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(f)Other Documents.  Such other documents and completion of such other matters, as Lenders may deem necessary or appropriate.

3.3Covenant to Deliver.  Borrower agrees (not as a condition but as a covenant) to deliver to Lenders each item required to be delivered to Lenders as a condition to each Loan, if such Loan is advanced.  Borrower expressly agrees that the extension of such Loan prior to the receipt by Lenders of any such item shall not constitute a waiver by Lenders of Borrower’s obligation to deliver such item, and any such extension in the absence of a required item shall be in Lenders’ sole discretion.

4.Creation of Security Interest.

4.1Grant of Security Interest.  Borrower grants to Lenders and to Agent for the ratable benefit of the Lenders, a valid, first priority, continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt, full and complete payment of any and all Obligations and in order to secure prompt, full and complete performance by Borrower of each of its covenants and duties under each of the Loan Documents (other than the Warrant). The “Collateral” shall mean and include all right, title, interest, claims and demands of Borrower in and to all personal property of Borrower, including without limitation, all of the following:

(a)All goods (and embedded computer programs and supporting information included within the definition of “goods” under the Code) and equipment now owned or hereafter acquired, including, without limitation, all laboratory equipment, computer equipment, office equipment, machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located;

(b)All inventory now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower’s books relating to any of the foregoing;

(c)Except to the extent the following are included within the definition of Intellectual Property: all contract rights and general intangibles, now owned or hereafter acquired, including, without limitation, goodwill, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, software, computer programs, computer disks, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payment intangibles, commercial tort claims, payments of insurance and rights to payment of any kind;

(d)All now existing and hereafter arising accounts, contract rights, royalties, license rights, license fees and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower (subject, in each case, to the contractual rights of third parties to require funds received by Borrower to be expended in a particular manner), whether or not earned by performance, and

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any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower’s books relating to any of the foregoing;

(e)All documents, cash, deposit accounts, letters of credit (whether or not the letter of credit is evidenced by a writing), certificates of deposit, instruments, promissory notes, chattel paper (whether tangible or electronic) and investment property, including, without limitation, all securities, whether certificated or uncertificated, security entitlements, securities accounts, commodity contracts and commodity accounts, and all financial assets held in any securities account or otherwise, wherever located, now owned or hereafter acquired and Borrower’s books relating to the foregoing;

(f)Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof, including, without limitation, insurance, condemnation, requisition or similar payments and proceeds of the sale or licensing of Intellectual Property to the extent such proceeds no longer constitute Intellectual Property; but

(g)Notwithstanding the foregoing, the Collateral shall not include any Intellectual Property nor any Third Party Equipment in which Borrower has granted a Person a Lien permitted under subsection (e) of the definition of Permitted Liens; provided, however, that the Collateral shall include all accounts receivables, accounts, and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”).  Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the Closing Date, include the Intellectual Property to the extent necessary to permit perfection of Lenders’ and Agent’s security interests solely with respect to the Rights to Payment..

4.2After-Acquired Property.  If Borrower shall at any time acquire a commercial tort claim, as defined in the Code, Borrower shall immediately notify Lenders in writing signed by Borrower of the brief details thereof and grant to Lenders in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Lenders.

4.3Duration of Security Interest.  Lenders’ security interest in the Collateral shall continue until the payment in full and the satisfaction of all Obligations and termination of Lenders’ commitment to fund any Loans, whereupon such security interest shall terminate.  Lenders shall, at Borrower’s sole cost and expense, execute such further documents and take such further actions as may be reasonably necessary to make effective the release contemplated by this Section 4.3, including duly executing and delivering termination statements for filing in all relevant jurisdictions under the Code.

4.4Location and Possession of Collateral.  The Collateral is and shall remain in the possession of Borrower at its location listed on the cover page hereof or as set forth in the Disclosure Schedule.  Borrower shall remain in full possession, enjoyment and control of the Collateral (except only as may be otherwise required by Lenders for perfection of its security interest therein) and so long as no Event of Default has occurred, shall be entitled to manage, operate and use the same and each part thereof with the rights and franchises appertaining thereto, including disposing of such Collateral as provided for in Section 7.4 which disposition,

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if no Event of Default shall have occurred and be continuing, shall be made free and clear of the Lenders’ lien; provided that the possession, enjoyment, control and use of the Collateral shall at all time be subject to the observance and performance of the terms of this Agreement.

4.5Delivery of Additional Documentation Required.  Borrower shall from time to time execute and deliver to Lenders and Agent, at the request of Lenders, all financing statements and other documents Lenders may reasonably request, in form satisfactory to Lenders, to perfect and continue Lenders’ and Agent’s perfected security interests in the Collateral and in order to consummate fully all of the transactions contemplated under the Loan Documents.

4.6Right to Inspect.  Lenders (through any of their officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower’s usual business hours, to inspect Borrower’s books and records and to make copies thereof and to inspect, test, and appraise the Collateral in order to verify Borrower’s financial condition or the amount, condition of, or any other matter relating to, the Collateral.

4.7Protection of Intellectual Property.  Borrower shall (i) protect, defend and maintain the validity and enforceability of its Intellectual Property material to Borrower’s business and promptly advise Lenders in writing of material infringements, and (ii) not allow any Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public except in the ordinary course of business. Lenders acknowledge that abandonment and forfeiture of Intellectual Property is frequently effected in the ordinary course of business.

4.8Lien Subordination.  Lenders and Agent agree that the Liens granted to them hereunder in Third Party Equipment shall be subordinate to the Liens of future lenders providing equipment financing and equipment lessors for equipment and other personal property acquired by Borrower after the date hereof (“Third Party Equipment”) or, if such lenders prohibit the granting of Liens to other lenders, Lender shall waive its Lien with respect to such equipment until such time as such equipment lender no longer has a Lien; provided that such Liens are confined solely to the equipment so financed and the proceeds thereof and are Permitted Liens.  Notwithstanding the foregoing, the Obligations hereunder shall not be subordinate in right of payment to any obligations to equipment lenders or equipment lessors and Lenders’ and Agent’s rights and remedies hereunder shall not in any way be subordinate to the rights and remedies of any such lenders or equipment lessors.  So long as no Event of Default has occurred, Lenders and Agent agree to execute and deliver such agreements and documents as may be reasonably requested by Borrower from time to time which set forth the lien subordination described in this Section 4.8 and are reasonably acceptable to Lenders and Agent.  Lenders and Agent shall have no obligation to execute any agreement or document which would impose obligations, restrictions or lien priority on Lenders or Agent which are less favorable to Lenders or Agent than those described in this Section 4.8.

5.Representations and Warranties.  Except as set forth in the Disclosure Schedule, Borrower represents and warrants as follows:

5.1Organization and Qualification.  Borrower is a corporation duly organized and validly existing and in good standing under the laws of its state of incorporation and qualified and licensed to do business in, and is in good standing in, any state in which the

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conduct of its business or its ownership of Property requires that it be so qualified or in which the Collateral is located, except for such states as to which any failure to so qualify would not have a material adverse effect on Borrower.

5.2Authority.  Borrower has all necessary power and authority to execute, deliver, and perform in accordance with the terms thereof, the Loan Documents to which it is a party.  Borrower has all requisite power and authority to own and operate its Property and to carry on its businesses as now conducted.

5.3Conflict with Other Instruments, etc.  Neither the execution and delivery of any Loan Document to which Borrower is a party nor the consummation of the transactions therein contemplated nor compliance with the terms, conditions and provisions thereof will conflict with or result in a breach of any of the terms, conditions or provisions of the certificate of incorporation, the by-laws, or any other organizational documents of Borrower or any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality or any material agreement or instrument to which Borrower is a party or by which it or any of its Property is bound or to which it or any of its Property is subject, or constitute a default thereunder or result in the creation or imposition of any Lien, other than Permitted Liens.

5.4Authorization; Enforceability.  The execution and delivery of this Agreement, the granting of the security interest in the Collateral, the incurring of the Loans, the execution and delivery of the other Loan Documents to which Borrower is a party and the consummation of the transactions herein and therein contemplated have each been duly authorized by all necessary action on the part of Borrower.  No authorization, consent, approval, license or exemption of, and no registration, qualification, designation, declaration or filing with, or notice to, any Person is, was or will be necessary to (i) the valid execution and delivery of any Loan Document to which Borrower is a party, (ii) the performance of Borrower’s obligations under any Loan Document, or (iii) the granting of the security interest in the Collateral, except for filings in connection with the perfection of the security interest in any of the Collateral or the issuance of the Warrant.  The Loan Documents have been duly executed and delivered and constitute legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws of general application relating to or affecting the enforcement of creditors’ rights or by general principles of equity.

5.5No Prior Encumbrances.  Borrower has good and marketable title to the Collateral, free and clear of Liens except for Permitted Liens. Borrower has good title and ownership of, or is licensed under, all of Borrower’s current Intellectual Property.  Borrower has not received any communications alleging that Borrower has violated, or by conducting its business as proposed, would violate any proprietary rights of any other Person.  Borrower has no knowledge of any infringement or violation by it of the intellectual property rights of any third party and has no knowledge of any violation or infringement by a third party of any of its Intellectual Property.  The Collateral and the Intellectual Property constitute substantially all of the assets and property of Borrower.

5.6Name; Location of Chief Executive Office, Principal Place of Business and Collateral.  Borrower has not done business under any name other than that specified on the signature page hereof.  Borrower’s jurisdiction of incorporation, chief executive office, principal place of business, and the place where Borrower maintains its records concerning the

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Collateral are presently located in the state and at the address set forth on the cover page of this Agreement.  The Collateral is presently located at the address set forth on the cover page hereof or as set forth in the Disclosure Schedule.

5.7Litigation.  There are no actions or proceedings pending by or against Borrower before any court or administrative agency in which an adverse decision could have a material adverse effect on Borrower or the aggregate value of the Collateral.  Borrower does not have knowledge of any such pending or threatened actions or proceedings.

5.8Financial Statements. All financial statements relating to Borrower or any Affiliate that have been or may hereafter be delivered by Borrower to Lenders present fairly in all material respects Borrower’s financial condition as of the date thereof and Borrower’s results of operations for the period then ended.

5.9No Material Adverse Effect.  No event has occurred and no condition exists which could reasonably be expected to have a material adverse effect on the financial condition, business or operations of Borrower since December 31, 2004.

5.10Full Disclosure.  Taken as a whole, no representation, warranty or other statement made by Borrower in any Loan Document (including the Disclosure Schedule), certificate or written statement furnished to Lenders contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading.  There is no fact known to Borrower which materially adversely affects its ability to perform its obligations under this Agreement.

5.11Solvency, Etc. Borrower is Solvent (as defined below) and, after the execution and delivery of the Loan Documents and the consummation of the transactions contemplated thereby, Borrower will be Solvent.  “Solvent” means, with respect to any Person on any date, that on such date (a) the fair value of the property of such Person is greater than the fair value of the liabilities (including, without limitation, contingent liabilities) of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital.

5.12Subsidiaries. Borrower has no Subsidiaries.

5.13Catastrophic Events; Labor Disputes. Neither Borrower nor any of its properties is or has been affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or other casualty that could reasonably be expected to have a  material adverse effect on the financial condition, business or operations of Borrower.  There are no disputes presently subject to grievance procedure, arbitration or litigation under any of the collective bargaining agreements, employment contracts or employee welfare or incentive plans to which Borrower is a party, and there are no strikes, lockouts, work stoppages or slowdowns, or, to the knowledge of Borrower, jurisdictional disputes or organizing activity occurring or threatened which could reasonably be

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expected to have a  material adverse effect on the financial condition, business or operations of Borrower.

5.14Certain Agreements of Officers, Employees and Consultants.

(a)No Violation. To the knowledge of Borrower, no officer, employee or consultant of Borrower is, or is now expected to be, in violation of any term of any employment contract, proprietary information agreement, nondisclosure agreement, noncompetition agreement or any other material contract or agreement or any restrictive covenant relating to the right of any such officer, employee or consultant to be employed by Borrower because of the nature of the business conducted or to be conducted by Borrower or relating to the use of trade secrets or proprietary information of others, and to Borrower’s knowledge, the continued employment of Borrower’s officers, employees and consultants does not subject Borrower to any material liability for any claim or claims arising out of or in connection with any such contract, agreement, or covenant.

(b)No Present Intention to Terminate. To the knowledge of Borrower, no officer of Borrower, and no employee or consultant of Borrower whose termination, either individually or in the aggregate, could reasonably be expected to have a material adverse effect on the financial condition, business or operations of Borrower, has any present intention of terminating his or her employment or consulting relationship with Borrower.

6.Affirmative Covenants.  Borrower, until the full and complete payment of the Obligations, covenants and agrees that:

6.1Good Standing.  Borrower shall maintain its corporate existence and its good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could reasonably be expected to have a material adverse effect on the financial condition, operations or business of Borrower.  Borrower shall maintain in force all licenses, approvals and agreements, the loss of which could reasonably be expected to have a material adverse effect on its financial condition, operations or business.

6.2Government Compliance.  Borrower shall comply with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could reasonably be expected to materially adversely affect the financial condition, operations or business of Borrower.

6.3Financial Statements, Reports, Certificates.  Borrower shall deliver to each Lender: (a) as soon as available, but in any event within thirty (30) days after the end of each month, a company prepared balance sheet, income statement and cash flow statement covering Borrower’s operations during such period, certified, in accordance with Section 6.4 below, by Borrower’s president, treasurer or chief financial officer (each, a “Responsible Officer”); (b) as soon as available, but in any event within one hundred twenty (120) days after the end of Borrower’s fiscal year, audited financial statements of Borrower prepared in accordance with GAAP, together with an unqualified opinion on such financial statements of a nationally recognized or other independent public accounting firm reasonably acceptable to Lender; and (c) as soon as available, but in any event within ninety (90) days after the end of Borrower’s fiscal year or the date of Borrower’s board of directors’ adoption, Borrower’s operating budget and plan for the next fiscal year; and (d) such other financial information as Lenders may

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reasonably request from time to time.  From and after such time as Borrower becomes a publicly reporting company, promptly as they are available and in any event:  (x) at the time of filing of Borrower’s Form 10-K with the Securities and Exchange Commission after the end of each fiscal year of Borrower, the financial statements of Borrower filed with such Form 10-K; and (y) at the time of filing of Borrower’s Form 10-Q with the Securities and Exchange Commission after the end of each of the first three fiscal quarters of Borrower, the financial statements of Borrower filed with such Form 10-Q.  In addition, Borrower shall deliver to each Lender (i) promptly upon becoming available, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders; (ii) immediately upon receipt of notice thereof, a report of any material legal actions pending or threatened against Borrower or the commencement of any action, proceeding or governmental investigation involving Borrower is commenced that is reasonably expected to result in damages or costs to Borrower of One Hundred Fifty Thousand Dollars ($150,000) or more; and (iii) such other financial information as Lenders may reasonably request from time to time.

6.4Certificates of Compliance.  Each time financial statements are furnished pursuant to Section 6.3 above, Borrower shall deliver to each Lender an Officer’s Certificate signed by a Responsible Officer in the form of, and certifying to the matters set forth in Exhibit E hereto; provided, that such Officer’s Certificate shall include the second sentence in paragraph numbered 4 on a quarterly basis only.

6.5Notice of Defaults.  As soon as possible, and in any event within five (5) days after the discovery of a Default or an Event of Default, Borrower shall provide Lenders with an Officer’s Certificate setting forth the facts relating to or giving rise to such Default or Event of Default and the action which Borrower proposes to take with respect thereto.

6.6Taxes.  Borrower shall make due and timely payment or deposit of all federal, state, and local taxes, assessments, or contributions required of it by law or imposed upon any Property belonging to it, and will execute and deliver to Lenders, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Lender with proof satisfactory to Lenders indicating that Borrower has made such payments or deposits; provided that Borrower need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings which suspend the collection thereof  (provided that such proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral or Collateral which in the aggregate is material to Borrower and that Borrower has adequately bonded such amounts or reserves sufficient to discharge such amounts have been provided on the books of Borrower).

6.7Use; Maintenance. Borrower shall keep and maintain all items of equipment and other similar types of personal property that form any significant portion or portions of the Collateral in good operating condition and repair and shall make all necessary replacements thereof and renewals thereto so that the value and operating efficiency thereof shall at all times be maintained and preserved.  Borrower shall not permit any such material item of Collateral to become a fixture to real estate or an accession to other personal property, without the prior written consent of Lenders.  Borrower shall not permit any such material item of Collateral to be operated or maintained in violation of any applicable law, statute, rule or regulation.  With

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respect to items of leased equipment (to the extent Lenders have any security interest in any residual Borrower’s interest in such equipment under the lease), Borrower shall keep, maintain, repair, replace and operate such leased equipment in accordance with the terms of the applicable lease.

6.8Insurance. Borrower shall keep its business and the Collateral insured for risks and in amounts, and as Lenders may reasonably request.  Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Lenders.  All property policies shall have a lender’s loss payable endorsement showing Agent as an additional loss payee and all liability policies shall show Agent as an additional insured and all policies shall provide that the insurer must give Agent at least thirty (30) days notice before canceling its policy.  At any Lender’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments.  Proceeds payable under any policy shall, at Lenders’ option, be payable to Agent on account of the Obligations.  Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy, toward the replacement or repair of destroyed or damaged property; provided that (i) any such replaced or repaired property (a) shall be of equal or like value as the replaced or repaired Collateral and (b) shall be deemed Collateral in which Lenders have been granted a first priority security interest and (ii) after the occurrence and during the continuation of an Event of Default all proceeds payable under such casualty policy shall, at the option of Lenders, be payable to Agent, on account of the Obligations.  If Borrower fails to obtain insurance as required under Section 6.8 or to pay any amount or furnish any required proof of payment to third persons and Lenders, Lenders or Agent may make all or part of such payment or obtain such insurance policies required in Section 6.8, and take any action under the policies Lenders or Agent deem prudent. On or prior to the first Funding Date and prior to each policy renewal, Borrower shall furnish to Agent certificates of insurance or other evidence satisfactory to Lenders that insurance complying with all of the above requirements is in effect.

6.9Security Interest.  Assuming the proper filing of one or more financing statement(s) identifying the Collateral with the proper state and/or local authorities, the security interests in the Collateral granted to Lenders and Agent pursuant to this Agreement (i) constitute and will continue to constitute first priority security interests (except to the extent any Permitted Liens may have a superior priority to Lenders’ and Agent’s Lien under this Agreement) and (ii) are and will continue to be superior and prior to the rights of all other creditors of Borrower (except to the extent of such Permitted Liens).

6.10Further Assurances.  At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Lenders to make effective the purposes of this Agreement, including without limitation, the continued perfection and priority of Lenders’ and Agent’s security interest in the Collateral.

7.Negative Covenants.  Borrower, until the full and complete payment of the Obligations, covenants and agrees that Borrower shall not:

7.1Chief Executive Office.  Change its name, jurisdiction of incorporation, chief executive office, principal place of business or any of the items set forth in Section 1 of the Disclosure Schedule without thirty (30) days prior written notice to Lender.

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7.2Collateral Control.  Subject to its rights under Sections 4.4 and 7.4, remove any items of Collateral from Borrower’s facility located at the address set forth on the cover page hereof or as set forth on the Disclosure Schedule.

7.3Liens.  Create, incur, assume or suffer to exist any Lien of any kind upon any of Borrower’s Property, whether now owned or hereafter acquired, except Permitted Liens.

7.4Other Dispositions of Collateral.  Convey, sell, lease or otherwise dispose of all or any part of the Collateral to any Person (collectively, a “Transfer”), except for: (i) Transfers of inventory in the ordinary course of business or (ii) Transfers of worn-out or obsolete equipment.

7.5Distributions.  (i) Pay any dividends or make any distributions on its Equity Securities; (ii) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Securities (other than repurchases pursuant to the terms of employee stock purchase plans, employee restricted stock agreements or similar arrangements in an aggregate amount not to exceed One Hundred Thousand Dollars ($100,000)); (iii) return any capital to any holder of its Equity Securities as such; (iv) make any distribution of assets, Equity Securities, obligations or securities to any holder of its Equity Securities as such; or (v) set apart any sum for any such purpose; provided, however, Borrower may pay dividends payable solely in common stock.

7.6Mergers or Acquisitions.  Without the prior written consent of Lenders which consent shall not be unreasonably withheld or delayed, merge or consolidate with or into any other Person or acquire all or substantially all of the capital stock or assets of another Person.

7.7Change in Ownership.  Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto or have a material change in its ownership of greater than thirty-three percent (33%) (other than by the sale by Borrower of Borrower’s Equity Securities in a public offering or to venture capital investors so long as Borrower identifies to Lender the venture capital investors prior to the closing of the investment).

7.8Transactions With Affiliates. Enter into any contractual obligation with any Affiliate or engage in any other transaction with any Affiliate except upon terms at least as favorable to Borrower as an arms-length transaction with Persons who are not Affiliates of Borrower.

7.9Indebtedness Payments. (i) Prepay, redeem, purchase, defease or otherwise satisfy in any manner prior to the scheduled repayment thereof any Indebtedness for borrowed money (other than amounts due or permitted to be prepaid under this Agreement) or lease obligations, (ii) amend, modify or otherwise change the terms of any Indebtedness for borrowed money or lease obligations so as to accelerate the scheduled repayment thereof or (iii) repay any notes to officers, directors or shareholders. Notwithstanding the foregoing, Borrower may prepay the Indebtedness permitted under subsection (f) of the definition of Permitted Indebtedness, if such prepayment is in connection with an initial public offering of the Borrower’s common stock or in connection with a private placement of the Borrower’s Equity Securities wherein Biogen-IDEC, Inc. has purchased Equity Securities of Borrower for a purchase price of not less than the Indebtedness being prepaid.

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7.10Indebtedness.  Create, incur, assume or permit to exist any Indebtedness except Permitted Indebtedness.

7.11Investments.  Make any Investment except for Permitted Investments.

7.12Compliance.  Become an “investment company” or a company controlled by an “investment company” under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Loan for that purpose; fail to meet the minimum funding requirements of the Employment Retirement Income Security Act of 1974, and its regulations, as amended from time to time (“ERISA”), permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business or operations or could reasonably be expected to cause a material adverse change, or permit any of its Subsidiaries to do so.

7.13Maintenance of Accounts.  (i) Maintain any deposit account or account holding securities owned by Borrower except accounts with respect to which Lenders and Agent are able to take such actions as they deem necessary to obtain a perfected security interest in such accounts through one or more Account Control Agreements; or (ii) grant or allow any other Person (other than Lenders) to perfect a security interest in, or enter into any agreements with any Persons (other than Lenders) accomplishing perfection via control as to, any of its deposit accounts or accounts holding securities.

7.14Negative Pledge Regarding Intellectual Property.    Sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of its Intellectual Property, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Lenders) with any entity which directly or indirectly prohibits or has the effect of prohibiting Borrower from selling, transferring, assigning, mortgaging, pledging, leasing, granting a security interest in or upon, or encumbering any of Borrower’s Intellectual Property; provided, however, that Borrower may grant licenses with respect to components of Borrower’s Intellectual Property in connection with joint ventures and corporate collaborations in the ordinary course of business, provided that any such licenses or similar arrangements that are exclusive are (a) limited in scope, and (b) do not amount to a sale of assets.

8.Events of Default.  Any one or more of the following events shall constitute an “Event of Default” by Borrower under this Agreement:

8.1Failure to Pay.  If Borrower fails to pay when due and payable or when declared due and payable in accordance with the Loan Documents: (i) any Scheduled Payment on the relevant Payment Date or on the relevant Maturity Date, or (ii) any other portion of the Obligations within five (5) days after receipt of written notice from any Lender or Agent that such payment is due.

8.2Certain Covenant Defaults.  If Borrower fails to perform any obligation under Section 6.8 or violates any of the covenants contained in Section 7 of this Agreement.

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8.3Other Covenant Defaults.  If Borrower fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement (other than as set forth in Sections 8.1, 8.2 or 8.4 through 8.13), in any of the other Loan Documents and Borrower has failed to cure such default within thirty (30) days of the occurrence of such default.  During this thirty (30) day period, the failure to cure the default is not an Event of Default (but no Loan will be made during the cure period).

8.4Lack of Financial Resources.  If Lender shall have determined, in its reasonable good faith business judgment, that (i) it has become unlikely that Borrower can obtain sufficient additional equity investments to satisfy the Obligations as they become due, (ii) Borrower does not have sustainable positive cash flow and (iii) Borrower has no other source of capital sufficient to repay all outstanding Obligations.

8.5Seizure of Assets, Etc.  If any material portion of Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or Person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower receives notice thereof; provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower.

8.6Service of Process.  The delivery of a notice of foreclosure or exclusive control to any entity holding or maintaining Borrower’s deposit accounts or accounts holding securities by any Person (other than a Lender) seeking to foreclose or attach any such accounts or securities which notice, if effected, would prohibit Borrower from access to the funds or securities in such accounts with a value of greater then One Hundred Fifty Thousand Dollars ($150,000).

8.7Default on Indebtedness.  One or more defaults shall exist under any agreement with any third party or parties which consists of the failure to pay any Indebtedness at maturity or which results in a right by such third party or parties, whether or not exercised, to accelerate the maturity of Indebtedness in an aggregate amount in excess of One Hundred Fifty Thousand Dollars ($150,000) or a default shall exist under any financing agreement with Lenders or any of Lenders’ Affiliates.

8.8Judgments.  Unless covered by insurance, which is adequate in Lenders sole and good faith discretion, a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Fifty Thousand Dollars ($150,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days or more.

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8.9Misrepresentations.  If any material misrepresentation or material misstatement exists now or hereafter in any warranty, representation, statement, certification, or report made to Lenders by Borrower or any officer, employee, agent, or director of Borrower.

8.10Breach of Warrant.  If Borrower shall breach any term of the Warrant.

8.11Unenforceable Loan Document.  If any Loan Document shall in any material respect cease to be, or Borrower shall assert that any Loan Document is not, a legal, valid and binding obligation of Borrower enforceable in accordance with its terms.

8.12Involuntary Insolvency Proceeding.  If a proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of Borrower in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee (or similar official) of Borrower or for any substantial part of its Property, or for the winding-up or liquidation of its affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of thirty (30) consecutive days or such court shall enter a decree or order granting the relief sought in such proceeding.

8.13Voluntary Insolvency Proceeding.  If Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian (or other similar official) of Borrower or for any substantial part of its Property, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action in furtherance of any of the foregoing.

9.Lender’s Rights and Remedies.

9.1Rights and Remedies.  Upon the occurrence of any Default or Event of Default which has not been waived by Lenders, Lenders shall not have any further obligation to advance money or extend credit to or for the benefit of Borrower.  In addition, upon the occurrence of an Event of Default, Lenders and Agent shall have the rights, options, duties and remedies of a secured party as permitted by law and, in addition to and without limitation of the foregoing, Lenders and Agent may, at their election, without notice of election and without demand, do any one or more of the following, all of which are authorized by Borrower:

(a)Acceleration of Obligations.  Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, including (i) any accrued and unpaid interest, (ii) the amounts which would have otherwise come due under Section 2.3(b)(ii) if the Loans had been voluntarily prepaid, (iii) the unpaid principal balance of the Loans and (iv) all other sums, if any, that shall have become due and payable hereunder, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.12 or 8.13 all Obligations shall become immediately due and payable without any action by Lenders or Agent);

(b)Protection of Collateral.  Make such payments and do such acts as Lenders and Agent consider necessary or reasonable to protect Lenders’ and Agent’s security

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interest in the Collateral.  Borrower agrees to assemble the Collateral if Lenders so require and to make the Collateral available to Lenders as Lenders may designate.  Borrower authorizes Lenders and their designees and agents to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien which in Lenders’ determination appears or is claimed to be prior or superior to its security interest and to pay all expenses incurred in connection therewith.  With respect to any of Borrower’s owned premises, Borrower hereby grants Lenders a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Lenders’ rights or remedies provided herein, at law, in equity, or otherwise;

(c)Preparation of Collateral for Sale.  Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral.  Lenders and their agents and any purchasers at or after foreclosure are hereby granted a non-exclusive, irrevocable, perpetual, fully paid, royalty-free license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower’s Intellectual Property, including without limitation, labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any Property of a similar nature, now or at any time hereafter owned or acquired by Borrower or in which Borrower now or at any time hereafter has any rights; provided that such license shall only be exercisable in connection with the disposition of Collateral upon Lenders’ or Agents exercise of its remedies hereunder;

(d)Sale of Collateral.  Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower’s premises) as Lenders determine are commercially reasonable; and

(e)Purchase of Collateral.  Credit bid and purchase all or any portion of the Collateral at any public sale.

Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower.

9.2Set Off Right. Upon the occurrence of an Event of Default which has not been waived by Lenders, Lenders or Agent may set off and apply to the Obligations any and all indebtedness at any time owing to or for the credit or the account of Borrower or any other assets of Borrower in Lenders’ or Agent’s possession or control.

9.3Effect of Sale. Upon the occurrence of an Event of Default which has not been waived by Lenders, to the extent permitted by law, Borrower covenants that it will not at any time insist upon or plead, or in any manner whatsoever claim or take any benefit or advantage of, any stay or extension law now or at any time hereafter in force, nor claim, take nor insist upon any benefit or advantage of or from any law now or hereafter in force providing for the valuation or appraisement of the Collateral or any part thereof prior to any sale or sales thereof to be made pursuant to any provision herein contained, or to the decree, judgment or order of any court of competent jurisdiction; nor, after such sale or sales, claim or exercise any right under any statute now or hereafter made or enacted by any state or otherwise to redeem the property so sold or any part thereof, and, to the full extent legally permitted, except as to rights

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expressly provided herein, hereby expressly waives for itself and on behalf of each and every Person, except decree or judgment creditors of Borrower, acquiring any interest in or title to the Collateral or any part thereof subsequent to the date of this Agreement, all benefit and advantage of any such law or laws, and covenants that it will not invoke or utilize any such law or laws or otherwise hinder, delay or impede the execution of any power herein granted and delegated to Lenders or Agent, but will suffer and permit the execution of every such power as though no such power, law or laws had been made or enacted.  Any sale, whether under any power of sale hereby given or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever, either at law or in equity, of Borrower in and to the Property sold, and shall be a perpetual bar, both at law and in equity, against Borrower, its successors and assigns, and against any and all Persons claiming the Property sold or any part thereof under, by or through Borrower, its successors or assigns.

9.4Power of Attorney in Respect of the Collateral.  Borrower does hereby authorize each Lender and Agent to file any notices of security interests, financing statements and continuations and amendments thereof pursuant to the Code or federal law, as may be necessary to perfect, or to continue the perfection of Lenders’ or Agent’s security interests in the Collateral.  Borrower does hereby irrevocably appoint Agent (which appointment is coupled with an interest) on the occurrence of an Event of Default, the true and lawful attorney in fact of Borrower with full power of substitution, for it and in its name:  (a) to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all rents, issues, profits, avails, distributions, income, payment draws and other sums in which a security interest is granted under Section 4 with full power to settle, adjust or compromise any claim thereunder as fully as if Agent were Borrower itself; (b) to receive payment of and to endorse the name of Borrower to any items of Collateral (including checks, drafts and other orders for the payment of money) that come into Agent’s possession or under Agent’s control; (c) to make all demands, consents and waivers, or take any other action with respect to, the Collateral; (d) in Agent’s discretion to file any claim or take any other action or proceedings, either in its own name or in the name of Borrower or otherwise, which Agent may reasonably deem necessary or appropriate to protect and preserve the right, title and interest of Lenders and Agent in and to the Collateral; (e) endorse Borrower’s name on any checks or other forms of payment or security; (f) sign Borrower’s name on any invoice or bill of lading for any account or drafts against account debtors; (g) make, settle, and adjust all claims under Borrower’s insurance policies; (h) settle and adjust disputes and claims about the accounts directly with account debtors, for amounts and on terms Agent determines reasonable; (i) transfer the Collateral into the name of Lenders or Agent or a third party as the Code permits; and (j) to otherwise act with respect thereto as though Agent were the outright owner of the Collateral.

9.5Lender’s Expenses.  If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Lenders or Agent may do any or all of the following:  (a) make payment of the same or any part thereof; or (b) obtain and maintain insurance policies of the type discussed in Section 6.8 of this Agreement, and take any action with respect to such policies as Lenders deem prudent.  Any amounts paid or deposited by Lenders or Agent shall constitute Lenders’ Expenses, shall be immediately due and payable, shall bear interest at the Default Rate and shall be secured by the Collateral.  Any payments made by Lenders or Agent shall not constitute an agreement by Lenders or Agent to make similar payments in the future or a waiver by Lenders of any Event of Default under this Agreement.  Borrower shall pay all reasonable fees and

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expenses, including without limitation, Lenders’ Expenses, incurred by Lenders or Agent in the enforcement or attempt to enforce any of the Obligations hereunder not performed when due.

9.6Remedies Cumulative. Lenders’ and Agent’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative.  Lenders and Agent shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity.  No exercise by Lenders or Agent of one right or remedy shall be deemed an election, and no waiver by Lenders or Agent of any Event of Default on Borrower’s part shall be deemed a continuing waiver.  No delay by Lenders or Agent shall constitute a waiver, election, or acquiescence by it.

9.7Application of Collateral Proceeds.  The proceeds and/or avails of the Collateral, or any part thereof, and the proceeds and the avails of any remedy hereunder (as well as any other amounts of any kind held by any Lender or Agent, at the time of or received by Lenders or Agent after the occurrence of an Event of Default hereunder) shall be paid to and applied as follows:

(a)First, to the payment of out-of-pocket costs and expenses, including all amounts expended to preserve the value of the Collateral, of foreclosure or suit, if any, and of such sale and the exercise of any other rights or remedies, and of all proper fees, expenses, liability and advances, including reasonable legal expenses and attorneys’ fees, incurred or made hereunder by Lenders or Agent, including, without limitation, Lenders’ Expenses;

(b)Second, to the payment to Lenders of any accrued and unpaid interest, the amounts which would have otherwise come due under Section 2.3(b)(ii), if the Loans had been voluntarily prepaid, the principal balance of the Loans, and all other Obligations with respect to the Loans (provided, however, if such proceeds shall be insufficient to pay in full the whole amount so due, owing or unpaid upon the Loans, then to the unpaid interest thereon, then to the amounts which would have otherwise come due under Section 2.3(b)(ii) if the Loans had been voluntarily prepaid, then to the principal balance of the Loans, and then to the payment of other amounts then payable to Lender under any of the Loan Documents); and

(c)Third, to the payment of the surplus, if any, to Borrower, its successors and assigns, or to the Person lawfully entitled to receive the same.

9.8Reinstatement of Rights.  If Lenders or Agent shall have proceeded to enforce any right under this Agreement or any other Loan Document by foreclosure, sale, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely, then and in every such case (unless otherwise ordered by a court of competent jurisdiction), Lenders and Agent shall be restored to their former position and rights hereunder with respect to the Property subject to the security interests created under this Agreement.

10.Waivers; Indemnification.

10.1Demand; Protest.  Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts,

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documents, instruments, chattel paper, and guarantees at any time held by Lenders on which Borrower may in any way be liable.

10.2Lender’s Liability for Collateral.  So long as Lenders and Agent comply with their obligations, if any, under the Code, Lenders and Agent shall not in any way or manner be liable or responsible for:  (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause other than Lenders’ or Agent’s gross negligence or willful misconduct; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.

10.3Indemnification and Waiver.  Whether or not the transactions contemplated hereby shall be consummated:

(a)General Indemnity. Borrower agrees upon demand to pay or reimburse Lenders and Agent for all liabilities, obligations and out-of-pocket expenses, including Lenders’ Expenses and reasonable fees and expenses of counsel for Lenders from time to time arising in connection with the enforcement or collection of sums due under the Loan Documents, and in connection with any amendment or modification of the Loan Documents or any “work-out” in connection with the Loan Documents.  Borrower shall indemnify, reimburse and hold Lenders and Agent, and each of their respective successors, assigns, agents, attorneys, officers, directors, shareholders, servants, agents and employees (each an “Indemnified Person”) harmless from and against all liabilities, losses, damages, actions, suits, demands, claims of any kind and nature (including claims relating to environmental discharge, cleanup or compliance), all costs and expenses whatsoever to the extent they may be incurred or suffered by such Indemnified Person in connection therewith (including reasonable attorneys’ fees and expenses), fines, penalties (and other charges of any applicable Governmental Authority), licensing fees relating to any item of Collateral, damage to or loss of use of property (including consequential or special damages to third parties or damages to Borrower’s property), or bodily injury to or death of any person (including any agent or employee of Borrower) (each, a “Claim”), directly or indirectly relating to or arising out of the use of the proceeds of the Loans or otherwise, the falsity of any representation or warranty of Borrower or Borrower’s failure to comply with the terms of this Agreement or any other Loan Document.  The foregoing indemnity shall cover, without limitation, (i) any Claim in connection with a design or other defect (latent or patent) in any item of equipment or product included in the Collateral, (ii) any Claim for infringement of any patent, copyright, trademark or other intellectual property right, (iii) any Claim resulting from the presence on or under or the escape, seepage, leakage, spillage, discharge, emission or release of any Hazardous Materials on the premises owned, occupied or leased by Borrower, including any Claims asserted or arising under any Environmental Law, (iv) any Claim for negligence or strict or absolute liability in tort, or (v) any Claim asserted as to or arising under any Account Control Agreement or any Landlord Agreement; provided, however, Borrower shall not indemnify Lenders or Agent for any liability incurred by Lenders or Agent as a direct and sole result of Lenders’ or Agent’s gross negligence or willful misconduct.  Such indemnities shall continue in full force and effect, notwithstanding the expiration or termination of this Agreement.  Upon any Lender’s or Agent’s written demand, Borrower shall assume and diligently conduct, at its sole cost and expense, the entire defense of such Lender or Agent, as applicable, each of its partners, and each of their respective, agents, employees, directors, officers, shareholders, successors and

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assigns against any indemnified Claim described in this Section 10.3(a).  Borrower shall not settle or compromise any Claim against or involving any Lender or Agent without first obtaining such Lender’s or Agent’s, as applicable, written consent thereto, which consent shall not be unreasonably withheld.

(b)Waiver. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR ANYWHERE ELSE, BORROWER AGREES THAT IT SHALL NOT SEEK FROM LENDERS OR AGENT UNDER ANY THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.

(c)Survival; Defense.  The obligations in this Section 10.3 shall survive payment of all other Obligations pursuant to Section 12.8.  At the election of any Indemnified Person, Borrower shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Person’s reasonable discretion, at the sole cost and expense of Borrower.  All amounts owing under this Section 10.3 shall be paid within thirty (30) days after written demand.

11.Notices.  Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by certified mail, postage prepaid, return receipt requested, by prepaid nationally recognized overnight courier, or by prepaid facsimile to Borrower or to Lenders or to Agent, as the case may be, at their respective addresses set forth below:

If to Borrower:	Sunesis Pharmaceuticals, Inc.
	341 Oyster Point Boulevard
	South San Francisco, CA 94080
	Attention: Eric C. Bjerkholt
	Fax: (650) 266-3717
	Ph: (650) 266-3500
If to Horizon or Agent:	Horizon Technology Funding Company LLC
	76 Batterson Park Road
	Farmington, CT 06032
	Attention: Legal Department
	Fax: (860) 676-8655
	Ph: (860) 676-8654
If to Oxford:	Oxford Finance Corporation
	133 N.Fairfax Street
	Alexandria, VA 22314
	Attn: Mike Altenburger, Chief Financial Officer
	Fax: (703) 519-4910
	Ph: (703) 519-6017

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The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

12.General Provisions.

12.1Successors and Assigns.  This Agreement and the Loan Documents shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, neither this Agreement nor any rights hereunder may be assigned by Borrower without Lenders’ prior written consent, which consent may be granted or withheld in Lenders’ sole discretion.  Lenders shall have the right without the consent of or notice to Borrower to sell, transfer, assign, negotiate, or grant participations in all or any part of, or any interest in Lenders’ rights and benefits hereunder.  Lenders may disclose the Loan Documents and any other financial or other information relating to Borrower or any Subsidiary to any potential participant or assignee of any of the Loans, provided that such participant or assignee agrees to protect the confidentiality of such documents and information using the same measures that it uses to protect its own confidential information.

12.2Time of Essence.  Time is of the essence for the performance of all obligations set forth in this Agreement.

12.3Severability of Provisions.  Each provision of this Agreement shall be several from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

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12.4Entire Agreement; Construction; Amendments and Waivers.

(a)Entire Agreement.  This Agreement and each of the other Loan Documents dated as of the date hereof, taken together, constitute and contain the entire agreement between Borrower and Lenders and supersede any and all prior agreements, negotiations, correspondence, understandings and communications between the parties, whether written or oral, respecting the subject matter hereof.  Borrower acknowledges that it is not relying on any representation or agreement made by Lenders or any employee, attorney or agent thereof, other than the specific agreements set forth in this Agreement and the Loan Documents.

(b)Construction.  This Agreement is the result of negotiations between and has been reviewed by each of Borrower, Agent and Lenders executing this Agreement as of the date hereof and their respective counsel; accordingly, this Agreement shall be deemed to be the product of the parties hereto, and no ambiguity shall be construed in favor of or against Borrower, Agent or Lenders.  Borrower and Lender agree that they intend the literal words of this Agreement and the other Loan Documents and that no parol evidence shall be necessary or appropriate to establish Borrower’s, Agent’s or Lenders’ actual intentions.

(c)Amendments and Waivers.  Any and all amendments, modifications, discharges or waivers of, or consents to any departures from any provision of this Agreement or of any of the other Loan Documents shall not be effective without the written consent of Lenders.  Any waiver or consent with respect to any provision of the Loan Documents shall be effective only in the specific instance and for the specific purpose for which it was given.  No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances.  Any amendment, modification, waiver or consent affected in accordance with this Section 12.4 shall be binding upon Lenders and on Borrower.

12.5Reliance by Lender.  All covenants, agreements, representations and warranties made herein by Borrower shall be deemed to be material to and to have been relied upon by Lenders, notwithstanding any investigation by Lenders.

12.6No Set-Offs by Borrower.  All sums payable by Borrower pursuant to this Agreement or any of the other Loan Documents shall be payable without notice or demand and shall be payable in United States Dollars without set-off or reduction of any manner whatsoever.

12.7Counterparts.  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.

12.8Survival.  All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations or commitment to fund remain outstanding.  The obligations of Borrower to indemnify Lenders and Agent with respect to the expenses, damages, losses, costs and liabilities described in Section 10.3 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Lenders or Agent have run.

13.Relationship of Parties.  Borrower and Lenders acknowledge, understand and agree that the relationship between Borrower, on the one hand, and each Lender, on the other, is, and at all time shall remain solely that of a borrower and lender.  Lenders shall not under any

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circumstances be construed to be a partner or a joint venturer of Borrower or any of its Affiliates; nor shall Lenders under any circumstances be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Borrower or any of its Affiliates, or to owe any fiduciary duty to Borrower or any of its Affiliates.  Lenders do not undertake or assume any responsibility or duty to Borrower or any of its Affiliates to select, review, inspect, supervise, pass judgment upon or otherwise inform Borrower or any of its Affiliates of any matter in connection with its or their Property, any Collateral held by Lenders or Agent or the operations of Borrower or any of its Affiliates.  Borrower and each of its Affiliates shall rely entirely on their own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by Lender in connection with such matters is solely for the protection of Lenders and neither Borrower nor any Affiliate is entitled to rely thereon.

14.Confidentiality.  All information (other than periodic reports filed by Borrower with the Securities and Exchange Commission) disclosed by Borrower to Lenders or Agent in writing or through inspection pursuant to this Agreement that is marked confidential shall be considered confidential.  Lenders and Agent agree to use the same degree of care to safeguard and prevent disclosure of such confidential information as Lenders and Agent use with their own confidential information, but in any event no less than a reasonable degree of care. Neither Lenders nor Agent shall disclose such information to any third party (other than to Lenders’ or Agent’s partners, attorneys, governmental regulators, or auditors, or to Lenders’ subsidiaries and affiliates and prospective transferees and purchasers of the Loans, all subject to the same confidentiality obligation set forth herein or as required by law, regulation, subpoena or other order to be disclosed) and shall use such information only for purposes of evaluation of its investment in Borrower and the exercise of Lenders’ and Agent’s rights and the enforcement of their remedies under this Agreement and the other Loan Documents.  The obligations of confidentiality shall not apply to any information that (a) was known to the public prior to disclosure by Borrower under this Agreement, (b) becomes known to the public through no fault of Lenders or Agent, (c) is disclosed to Lenders or Agent by a third party having a legal right to make such disclosure, or (d) is independently developed by Lenders or Agent.  Notwithstanding the foregoing, Lenders’ and Agent’s agreement of confidentiality shall not apply if Lenders or Agent have acquired indefeasible title to any Collateral or in connection with any enforcement or exercise of Lenders’ or Agent’s rights and remedies under this Agreement following an Event of Default, including the enforcement of Lenders’ or Agent’s security interest in the Collateral.

15.CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.  EACH OF BORROWER, AGENT AND LENDERS HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN CALIFORNIA.  BORROWER, AGENT AND LENDERS HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.

[Remainder of page intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

BORROWER:
SUNESIS PHARMACEUTICALS, INC.
By:	/s/ Eric Bjerkholt
Name: Eric Bjerkholt
Title: Senior Vice President, Chief Financial Officer
LENDER:
HORIZON TECHNOLOGY FUNDING COMPANY LLC
By: Horizon Technology Finance, LLC, its sole member
By:		/s/ Robert D. Pomeroy, Jr.
Name: Robert D. Pomeroy, Jr.
Title: Managing Member
OXFORD FINANCE CORPORATION
By:		/s/ Michael J. Altenburger
Name: Michael J. Altenburger
Title: Chief Financial Officer
AGENT:
HORIZON TECHNOLOGY FUNDING COMPANY LLC
By: Horizon Technology Finance, LLC, its sole member
By:		/s/ Robert D. Pomeroy, Jr.
Name: Robert D. Pomeroy, Jr.
Title: Managing Member

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LIST OF EXHIBITS AND SCHEDULES

Exhibit ADisclosure Schedule

Exhibit BFunding Certificate

Exhibit CForm of Note

Exhibit DForm of Legal Opinion

Exhibit EForm of Officer’s Certificate

EXHIBIT A

DISCLOSURE SCHEDULE

EXHIBIT B

FUNDING CERTIFICATE

The undersigned, being the duly elected and acting                                                        of SUNESIS PHARMACEUTICALS, INC., a Delaware corporation (“Borrower”), does hereby certify to HORIZON TECHNOLOGY FUNDING COMPANY LLC (“Horizon) and OXFORD FINANCE CORPORATION ((“Oxford”) and collectively with Horizon, the “Lenders”) in connection with that certain Venture Loan and Security Agreement dated as of July    , 2005, by and among Borrower and Lenders (the “Loan Agreement”; with other capitalized terms used below having the meanings ascribed thereto in the Loan Agreement) that:

1.The representations and warranties made by Borrower in Section 5 of the Loan Agreement and in the other Loan Documents are true and correct in all material respects as of the date hereof, except:                                                                         .

2.No event or condition has occurred that would constitute a Default or an Event of Default under the Loan Agreement or any other Loan Document.

3.Borrower is in compliance with the covenants and requirements contained in Sections 4, 6 and 7 of the Loan Agreement.

4.All conditions referred to in Section 3 of the Loan Agreement to the making of the Loan to be made on or about the date hereof have been satisfied.

5.No material adverse change in the general affairs, management, results of operations, condition (financial or otherwise) or prospects of Borrower, whether or not arising from transactions in the ordinary course of business, has occurred.

6.The proceeds for the above referenced Loan due from Horizon should be disbursed as follows:

Disbursement from Horizon:

Loan Amount	$
Less:
Legal Fees	$
Net Proceeds due from Horizon:	$

7.The proceeds for the above referenced Loan due from Oxford should be disbursed as follows:

Disbursement from Oxford:

Loan Amount	$
Less:
Legal Fees	$
Net Proceeds due from Oxford:	$

8.The aggregate net proceeds of the Loan in the amount of $                                   shall be delivered to Borrower’s account as follows:

Beneficiary Bank:	State Street Bank
	1200 Crown Colony
	Quincy, MA 02169
ABA Number:	011000028
Depositor Acc. Title:	State Street Bank
Depositor Acc. Number:	17039843
For Credit to:	DE0530 Sunesis Pharmaceuticals, Inc.
Attention:	Rachel Bovarnick

Dated:                   , 200  

BORROWER:

SUNESIS PHARMACEUTICALS, INC.

By:

Name:

Title:

EXHIBIT C

SECURED PROMISSORY NOTE

$                               Dated:  [Date]

FOR VALUE RECEIVED, the undersigned, SUNESIS PHARMACEUTICALS, INC., a Delaware corporation (“Borrower”), HEREBY PROMISES TO PAY to the order of [HORIZON TECHNOLOGY FUNDING COMPANY LLC, a Delaware limited liability company/OXFORD FINANCE CORPORATION, a              corporation]  (“Lender”) the principal amount of                          Dollars ($                    ) or such lesser amount as shall equal the outstanding principal balance of the Loan made to Borrower by Lender pursuant to the Loan Agreement (as defined below), and to pay all other amounts due with respect to the Loan on the dates and in the amounts set forth in the Loan Agreement.

Interest on the principal amount of this Note from the date of this Note shall accrue at the Loan Rate or, if applicable, the Default Rate.  The Loan Rate for this Note is          % per annum based on a year of twelve 30-day months.  If the Funding Date is not the first day of the month, interim interest accruing from the Funding Date through the last day of that month shall be paid on the first calendar day of the next calendar month.  Borrower shall make payments of accrued interest only on the outstanding principal amount of the Loan on the first day of each month (“Payment Date”), commencing                     , 200  , through and including                 , 200   (“Initial Interest Only Period”); provided, that, if Borrower has elected to extend the interest only payment period pursuant to Section 2.2(a) of the Loan Agreement, Borrower shall make such interest only payments through and including January 1, 2007 (“Extended Interest Only Period” and, collectively with the Initial Interest Only Period, “Interest Only Period”).  Commencing on the first day of the first calendar month following the end of the Interest Only Period, and continuing on consecutive Payment Dates thereafter, Borrower shall make to Lender thirty (30) level (mortgage-style) payments of principal plus accrued interest on the then outstanding principal amount due hereunder of                Dollars ($                ). If not sooner paid, all outstanding amounts hereunder and under the Loan Agreement shall become due and payable on the Maturity Date.

Principal, interest and all other amounts due with respect to the Loan, are payable in lawful money of the United States of America to Lender as set forth in the Loan Agreement.  The principal amount of this Note and the interest rate applicable thereto, and all payments made with respect thereto, shall be recorded by Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note.

This Note is referred to in, and is entitled to the benefits of, the Venture Loan and Security Agreement dated as of [Date] by and between Borrower, [Oxford Finance Corporation/Horizon Technology Funding Company LLC] and Lender (the “Loan Agreement”).  The Loan Agreement, among other things, (a) provides for the making of a secured Loan to Borrower, and (b) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events.

This Note may not be prepaid, except as set forth in Section 2.3 of the Loan Agreement.

This Note and the obligation of Borrower to repay the unpaid principal amount of the Loan, interest on the Loan and all other amounts due Lender under the Loan Agreement is secured under the Loan Agreement.

Presentment for payment, demand, notice of protest and all other demands and notices of any kind in connection with the execution, delivery, performance and enforcement of this Note are hereby waived.

Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable attorneys’ fees and costs, incurred by Lender in the enforcement or attempt to enforce any of Borrower’s obligations hereunder not performed when due.  This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of California.

Note Register; Ownership of Note.  The ownership of an interest in this Note shall be registered on a record of ownership maintained by Borrower or its agent.  Notwithstanding anything else in this Note to the contrary, the right to the principal of, and stated interest on, this Note may be transferred only if the transfer is registered on such record of ownership and the transferee is identified as the owner of an interest in the obligation.  Borrower shall be entitled to treat the registered holder of this Note (as recorded on such record of ownership) as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in this Note on the part of any other person or entity.

IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers thereunto duly authorized on the date hereof.

BORROWER:

SUNESIS PHARMACEUTICALS, INC.

By:

Name:

Title:

EXHIBIT D

ITEMS TO BE COVERED BY OPINION OF BORROWER’S COUNSEL

TO BE AGREED UPON BY LENDERS AND BORROWER

EXHIBIT E

FORM OF OFFICER’S CERTIFICATE

TO:  HORIZON TECHNOLOGY FUNDING COMPANY LLC AND OXFORD FINANCIAL CORPORATION

Reference is made to the Venture Loan and Security Agreement dated as of           , 2005 (as it may be amended from time to time, the “Loan Agreement”) by and among SUNESIS PHARMACEUTICALS, INC. (“Borrower”), OXFORD FINANCIAL CORPORATION (“Oxford”) and HORIZON TECHNOLOGY FUNDING COMPANY LLC (“Horizon” and collectively with Oxford, “Lenders”).  Unless otherwise defined herein, capitalized terms have the meanings given such terms in the Loan Agreement.

                The undersigned Responsible Officer of Borrower hereby certifies to Lenders that:

1.No Event of Default or Default has occurred under the Loan Agreement. (If a Default or Event of Default has occurred, specify the nature and extent thereof and the action Borrower proposes to take with respect thereto.)

2.The information provided in Section 1 of the Disclosure Schedule is currently true and accurate, except as noted below.

3.Borrower is in compliance with the provisions of Sections 4, 6 and 7 of the Loan Agreement, except as noted below.

4.Attached herewith are the [monthly financial statements pursuant to Section 6.3(a) of the Loan Agreement/annual audited financial statements pursuant to Section 6.3(b) of the Loan Agreement].  [TO BE CERTIFIED ON A QUARTERLY BASIS: These have been prepared in accordance with GAAP and are consistent from one period to the next except as noted below.]

NOTES TO ABOVE CERTIFICATIONS:

BORROWER:

SUNESIS PHARMACEUTICALS, INC.

By:

Name:

Title:

EX-10.39

Exhibit 10.39

SUNESIS PHARMACEUTICALS, INC.

AMENDMENT TO EIGHTH AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT

This Amendment (the “Amendment”) to the Eighth Amended and Restated Investor Rights Agreement dated August 30, 2004, as amended (the “Agreement”), is entered into as of August 25, 2005 by and among Sunesis Pharmaceuticals, Inc., a Delaware corporation (the “Company”), Horizon Technology Funding Company II LLC (“Horizon II”), Horizon Technology Funding Company III LLC (“Horizon III”), Oxford Finance Corporation (“Oxford”) and the parties to the Agreement set forth on the signature pages hereto (the “Prior Investors”).  The Prior Investors, Horizon II, Horizon III and Oxford are collectively referred to hereinafter as the “Investors” and each individually as an “Investor.”  Capitalized terms used herein without definition have the meanings given to such terms in the Agreement.

RECITALS

A.The Prior Investors hold shares of the Company’s Warrant Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and/or Series C-2 Preferred Stock (“Shares”) and possess registration and other rights pursuant to the Agreement;

B.The Company proposes to issue warrants (the “Warrants”) to purchase shares of Series C Preferred Stock to Horizon II, Horizon III and Oxford in connection with a Venture Loan and Security Agreement, dated as of the date hereof (the “Loan Agreement”);

C.Horizon II, Horizon III and Oxford have requested that the Company extend to them registration rights, information rights and other rights as set forth in the Agreement.

D.Pursuant to Section 8.1 of the Agreement, with the written consent of the Company and the record holders of more than seventy percent (70%) of the Registrable Securities, including at least three Investors that are not affiliated with each other, any term of the Agreement may be amended and the obligations of the Company and the rights of the other parties to this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely).

E.The Prior Investors are the record holders of more than seventy percent (70%) of the Registrable Securities, and the Company and the Prior Investors desire to amend the Agreement to provide Horizon II, Horizon III and Oxford with the rights pursuant to the Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Status as Investor.  The Prior Investors, the Company, Horizon II, Horizon III and Oxford hereby agree that each of Horizon II, Horizon III and Oxford shall be considered an “Investor” for all purposes of the Agreement, and Exhibit A of the Agreement shall be amended to include Horizon II, Horizon III and Oxford.  The Company and the Prior Investors hereby adopt this Amendment and acknowledge and agree that each of Horizon II, Horizon III and Oxford shall be entitled to the rights and subject to the obligations of an “Investor” pursuant to the Agreement.

2.Securities Acquired by Horizon II, Horizon III and Oxford.  The Prior Investors, the Company, Horizon II, Horizon III and Oxford hereby agree that (i) all securities of the Company now or hereafter acquired by Horizon II, Horizon III and Oxford upon exercise of the Warrants shall be bound by and subject to the terms of the Agreement and (ii) all shares of Common Stock (including all shares of Common Stock issuable upon the conversion of shares of Preferred Stock or any other securities of the Company now or hereafter acquired by Horizon II, Horizon III and Oxford upon exercise of the Warrants) now or hereafter acquired by Horizon II, Horizon III and Oxford shall constitute Registrable Securities for purposes of the Agreement.  Each of Horizon II, Horizon III and Oxford hereby adopts the Agreement, including this Amendment, with the same force and effect as if it were originally a party thereto.

3.Notice.  Any notice required or permitted by the Agreement shall be given to Horizon II, Horizon III or Oxford, as the case may be, at the address listed on the signature pages hereto.

4.All other provisions of the Agreement shall remain unchanged and in full force and effect.

5.This Amendment may be executed in two or more counterparts and signatures may be delivered by facsimile, each of which shall be deemed an original and each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument.

(Signature Pages Follow)

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IN WITNESS WHEREOF, this Amendment has been executed as of the date first above written.

COMPANY:

SUNESIS PHARMACEUTICALS, INC.			HORIZON TECHNOLOGY FUNDING COMPANY II LLC
			By: Horizon Technology Finance, LLC, its member and agent
/s/ Daniel N Swisher, Jr.		/s/ Robert D. Pomeroy, Jr.
Name:	Daniel N Swisher, Jr.	Name:		Robert D. Pomeroy, Jr.
Title:	Chief Executive Officer	Title:		Managing Member
Address:	341 Oyster Point Blvd.	Address:		76 Batterson Park Road
	South San Francisco, CA 94080			Farmington, CT 06032
Fax:	(650) 266-3501
		HORIZON TECHNOLOGY FUNDING COMPANY III LLC
		By: Horizon Technology Finance, LLC, its member and agent
		/s/ Robert D. Pomeroy, Jr.
		Name:		Robert D. Pomeroy, Jr.
		Title:		Managing Member
		Address:		76 Batterson Park Road
				Farmington, CT 06032
		OXFORD FINANCE CORPORATION
		/s/ Michael J. Altenburger
		Name:		Michael J. Altenburger
		Title:		Chief Financial Officer
		Address:

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

PRIOR INVESTORS:
Biogen Idec MA, a Massachusetts corporation
By:	/s/ James Deutzer
Name:  James Deutzer
Title:  Vice President and Corporate Controller

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

PRIOR INVESTORS:
Abingworth Bioventures II SICAV
By:	/s/ Geneviève Blauen	By:	/s/ Fernand Heim
Name: Geneviève Blauen		Name: Fernand Heim
Title: Liquidator		Title: Mandatory

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

PRIOR INVESTORS:
Credit Suisse First Boston Equity Partners, L.P.
By: Hemisphere Private Equity Partners, Ltd., its General Partner
By:	/s/ George R. Hornig
Name: George R. Hornig
Title:   Attorney-in-Fact
Credit Suisse First Boston Equity Partners
(Bermuda), L.P.
By: Hemisphere Private Equity Partners, Ltd., its General Partner
By:	/s/ George R. Hornig
Name: George R. Hornig
Title:   Attorney-in-Fact
Credit Suisse First Boston U.S. Executive
Advisors, L.P.
By: Hemisphere Private Equity Partners, Ltd., its General Partner
By:		/s/ George R. Hornig
Name: George R. Hornig
Title:   Attorney-in-Fact

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

Credit Suisse First Boston Finders &
Screeners, L.P.
By: Merchant Capital, Inc., its General Partner
By:	/s/ George R. Hornig
Name: George R. Hornig
Title:   Director
EMA Partners Fund 2000, L.P.
By: Credit Suisse First Boston (Bermuda), Limited, its General Partner
By:	/s/ George R. Hornig
Name: George R. Hornig
Title:   Attorney-in-Fact

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

PRIOR INVESTORS:
Mayfield Associates Fund III
By:				Mayfield VIII Management, L.L.C.,
				its General Partner
By:		/s/
Name:
Title:
Mayfield IX
By:			Mayfield IX Management, L.L.C.,
			its General Partner
By:	/s/
Name:
Title:

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

PRIOR INVESTORS:
Venrock Associates
By:		/s/ Anthony B. Evnin
Name: Anthony B. Evnin
Title:  General Partner
Venrock Associates II, L.P.
By:		/s/ Anthony B. Evnin
Name: Anthony B. Evnin
Title:  General Partner
Venrock Entrepreneurs Fund, L.P.
By:	Venrock Management LLC
	its General Partner
By:	/s/ Anthony B. Evnin
Name: Anthony B. Evnin
Title:  General Partner

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

PRIOR INVESTORS:
Warburg, Pincus Equity Partners, L.P.
By:	Warburg Pincus Partners LLC,
	its General Partner
By:	Warburg, Pincus & Co.,
	its General Partner
By:	/s/ Scott Arenare
Name:		Scott Arenare
Title:		Partner

Warburg, Pincus Netherlands Equity Partners I, C.V.

By:		Warburg Pincus Partners LLC,
		its General Partner
By:		Warburg, Pincus & Co.,
		its General Partner
By:	/s/ Scott Arenare
Name:			Scott Arenare
Title:			Partner

Warburg, Pincus Netherlands Equity Partners II, C.V. (as predecessor to Warburg Pincus Netherlands Equity Partners I, C.V.)

By:	Warburg Pincus Partners LLC,
	its General Partner
By:	Warburg, Pincus & Co.,
	its General Partner
By:		/s/ Scott Arenare
Name:			Scott Arenare
Title:			Partner

Warburg, Pincus Netherlands Equity Partners III, C.V.

By:		Warburg Pincus Partners LLC,
		its General Partner
By:		Warburg, Pincus & Co.,
		its General Partner
By:	/s/ Scott Arenare
Name:			Scott Arenare
Title:			Partner

SIGNATURE PAGE TO AMENDMENT TO INVESTOR RIGHTS AGREEMENT

EX-10.40

Exhibit 10.40

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS.  NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, OR (iii) RECEIPT OF A NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES.

SUNESIS PHARMACEUTICALS, INC.

WARRANT TO PURCHASE SHARES

OF SERIES PREFERRED STOCK

THIS CERTIFIES THAT, for value received, HORIZON TECHNOLOGY FUNDING COMPANY II LLC and its assignees are entitled to subscribe for and purchase that number of the fully paid and nonassessable shares of Series Preferred Stock (as adjusted pursuant to Section 4 hereof, the “Shares”) of SUNESIS PHARMACEUTICALS, INC. a Delaware corporation (the “Company”), as is determined pursuant to the next paragraph hereof at the price per share as is determined pursuant to the next paragraph hereof  (such price and such other price as shall result, from time to time, from the adjustments specified in Section 4 hereof is herein referred to as the “Warrant Price”), subject to the provisions and upon the terms and conditions hereinafter set forth.  As used herein, (a) the term “Series Preferred” shall mean the Company’s Series C Preferred Stock or, if the Company completes a Qualified Financing (as defined below) with an effective price per share (on a common stock equivalent basis) less than $4.80, the type of stock sold in such Qualified Financing and any stock into or for which such Series Preferred Stock may hereafter be converted or exchanged, and after the conversion of the Series Preferred Stock to Common Stock shall mean the Company’s Common Stock, (b) the term “Date of Grant” shall mean August 25,  2005, and (c) the term “Other Warrants” shall mean any other warrants issued by the Company in connection with the transaction with respect to which this Warrant was issued, and any warrant issued upon transfer or partial exercise of or in lieu of this Warrant.  The term “Warrant” as used herein shall be deemed to include Other Warrants unless the context clearly requires otherwise.

The Warrant Price shall be the lower of (i) $4.80 and (ii) the lowest effective price per share (on a common stock equivalent basis and taking into account any securities issued together with the preferred stock) at which shares of the Company’s convertible preferred stock are sold in a Qualified Financing.  A “Qualified Financing” shall mean the sale, after the Date of Grant and prior to the earlier to occur of (A) the exercise of this Warrant or (B) a Public Offering, of the convertible preferred stock of the Company to purchasers which include venture capital investors in an aggregate cash amount not less than $10,000,000.  The number of shares for which this Warrant is exercisable shall equal the sum of (a) the nearest whole number determined by dividing $275,000 by the Warrant Price plus (b) if and only if, the Company shall have borrowed Loan A (as defined in that certain Venture Loan and Security Agreement by and among the Company, Horizon Technology Funding

Company LLC (“Horizon”) and Oxford Finance Corporation (“Oxford”) dated on or about the Date of Grant (the “Loan Agreement”)), the nearest whole number determined by dividing $75,000 by the Warrant Price plus (c) if and only if, the Company shall have borrowed Loan B (as defined in the Loan Agreement), the nearest whole number determined by dividing $75,000 by the Warrant Price  plus (d) if and only if, the Company shall have borrowed Loan C (as defined in the Loan Agreement), the nearest whole number determined by dividing $125,000 by the Warrant Price.

1.     Term.  The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time from the Date of Grant until the tenth (10th) anniversary of the Date of Grant.

2.     Method of Exercise; Payment; Issuance of New Warrant.  Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A-1 duly completed and executed) at the principal office of the Company and by the payment to the Company, by certified or bank check, or by wire transfer to an account designated by the Company (a “Wire Transfer”) of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased; (b) if in connection with a registered public offering of the Company’s securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-2 duly completed and executed) at the principal office of the Company together with notice of arrangements reasonably satisfactory to the Company for payment to the Company either by certified or bank check or by Wire Transfer from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased; or (c) exercise of the “net issuance” right provided for in Section 10.2 hereof.  The person or persons in whose name(s) any certificate(s) representing shares of Series Preferred shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised.  In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as practicable and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as practicable and in any event within such thirty-day period; provided, however, at such time as the Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, if requested by the holder of this Warrant, the Company shall use reasonable efforts to cause its transfer agent to deliver the certificate representing Shares issued upon exercise of this Warrant to a broker or other person (as directed by the holder exercising this Warrant) within the time period required to settle any trade made by the holder after exercise of this Warrant.

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3.     Stock Fully Paid; Reservation of Shares.  All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all preemptive rights and taxes, liens and charges with respect to the issue thereof.  During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series Preferred to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of its Common Stock to provide for the conversion of the Series Preferred into Common Stock.

4.     Adjustment of Warrant Price and Number of Shares.  The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a)           Reclassification or Merger.  In case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance reasonably satisfactory to the  holder of this Warrant), so that the holder of this Warrant shall have the right to receive upon exercise of this Warrant, at a total purchase price equal to that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Series Preferred theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of shares of Series Preferred then purchasable under this Warrant.  Any new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4.  The provisions of this Section 4(a) shall similarly apply to successive reclassifications, changes, mergers and sales.

(b)           Subdivision or Combination of Shares.  If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Series Preferred, the Warrant Price shall be proportionately decreased and the number of Shares issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant Price shall be proportionately increased and the number of Shares issuable hereunder shall be proportionately decreased in the case of a combination.

(c)           Stock Dividends and Other Distributions.  If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Series Preferred payable in Series Preferred, then the Warrant Price shall be adjusted, from and after the date of

3

determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Series Preferred outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Series Preferred outstanding immediately after such dividend or distribution; or (ii) make any other distribution with respect to Series Preferred (except any distribution specifically provided for in Sections 4(a) and 4(b)), then, in each such case, provision shall be made by the Company such that the holder of this Warrant shall receive upon exercise of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Series Preferred (or Common Stock issuable upon conversion thereof) as of the record date fixed for the determination of the shareholders of the Company entitled to receive such dividend or distribution.

(d)           Adjustment of Number of Shares.  Upon each adjustment in the Warrant Price, the number of Shares of Series Preferred purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter.

(e)           Antidilution Rights.  The other antidilution rights applicable to the Shares of Series Preferred purchasable hereunder are set forth in the Company’s Certificate of Incorporation, as amended through the Date of Grant (the “Charter”).  Such antidilution rights shall not be restated, amended, modified or waived in any manner (i) that is adverse to the holder hereof and (ii) that results in different treatment for the Holder with respect to the Shares than for other holders of Series Preferred without such Holder’s prior written consent.  The Company shall promptly provide the holder hereof with any restatement, amendment, modification or waiver of the Charter promptly after the same has been made.

5.     Notice of Adjustments.  Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant.  In addition, whenever the conversion price or conversion ratio of the Series Preferred shall be adjusted, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the conversion price or ratio of the Series Preferred after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to the occurrence of

4

a Qualified Financing, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant.

6.     Fractional Shares.  No fractional shares of Series Preferred will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the Series Preferred on the date of exercise as reasonably determined in good faith by the Company’s Board of Directors.

7.     Compliance with Act; Disposition of Warrant or Shares of Series Preferred.

(a)           Compliance with Act.  The holder of this Warrant, by acceptance hereof, agrees that this Warrant, and the shares of Series Preferred to be issued upon exercise hereof and any Common Stock issued upon conversion thereof are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant, or any shares of Series Preferred to be issued upon exercise hereof or any Common Stock issued upon conversion thereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the “Act”) or any applicable state securities laws.  Upon exercise of this Warrant, unless the Shares being acquired are registered under the Act and any applicable state securities laws or an exemption from such registration is available, the holder hereof shall confirm in writing that the shares of Series Preferred so purchased (and any shares of Common Stock issued upon conversion thereof) are being acquired for investment and not with a view toward distribution or resale in violation of the Act and shall confirm such other matters related thereto as may be reasonably requested by the Company.  This Warrant and all shares of Series Preferred issued upon exercise of this Warrant and all shares of Common Stock issued upon conversion thereof (unless registered under the Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form:

“THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.  NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES.”

Said legend shall be removed by the Company, upon the request of a holder, at such time as the restrictions on the transfer of the applicable security shall have terminated.  In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows:

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(1)           The holder is aware of the Company’s business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Warrant.  The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof in violation of the Act.

(2)           The holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holder’s investment intent as expressed herein.

(3)           The holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available.  The holder is aware of the provisions of Rule 144, promulgated under the Act.

(4)           The holder is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Act.

(b)           Disposition of Warrant or Shares.    This Warrant and any shares of Series Preferred acquired pursuant to the exercise or conversion of this Warrant may be transferred only pursuant to a registration statement filed under the Securities Act of 1933, as amended, or an exemption from such registration.  Subject to such restrictions, the Company shall transfer this Warrant from time to time upon the books to be maintained by the Company for that purpose, upon surrender thereof for transfer properly endorsed or accompanied by appropriate instructions for transfer and such other documents as may be reasonably required by the Company, including, if required by the Company, an opinion of counsel to the effect that such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, to establish that such transfer is being made in accordance with the terms hereof, and a new Warrant shall be issued to the transferee and the surrendered Warrant shall be cancelled by the Company.  Each certificate representing this Warrant or the shares of Series Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless such legend is not required in order to ensure compliance with such laws.  The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

(c)           Applicability of Restrictions.  Neither any restrictions of any legend described in this Warrant nor the requirements of Section 7(b) above shall apply to any transfer of, or grant of a security interest in, this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of the holder if the holder is a partnership or to a member of the holder if the holder is a limited liability company, (ii) to a partnership of which the holder is a partner or to a limited liability company of which the holder is a member, or (iii) to any affiliate of the holder if the holder is a corporation; provided, however, in any such transfer, if applicable, the transferee shall on the Company’s request agree in writing to be bound by the terms of this Warrant as if an original holder hereof.

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8.     Rights as Shareholders; Information.  No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Series Preferred or any other securities of the Company which may at any time be issuable upon the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein.  Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders.

9.             Registration Rights.  The Holder shall become a party to the Eighth Amended and Restated Investor Rights Agreement, dated as of August 30, 2004 and as amended through the Date of Grant (the “Investor Rights Agreement), by and among the Company and the other parties listed on the signature pages thereto.  The Common Stock of the Company obtained upon conversion of the Series Preferred shall be “Registrable Securities” under the Investor Rights Agreement.

10.   Additional Rights.

10.1         Acquisition Transactions.  The Company shall provide the holder of this Warrant with at least twenty (20) days’ written notice prior to closing thereof of the terms and conditions of any of the following transactions (to the extent the Company has notice thereof): (i) the sale, lease, exchange, conveyance or other disposition of all or substantially all of the Company’s property or business, or (ii) its merger into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company), or any transaction (including a merger or other reorganization) or series of related transactions, in which more than 50% of the voting power of the Company is disposed of.

10.2         Right to Convert Warrant into Stock:  Net Issuance.

(a)           Right to Convert.  In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the “Conversion Right”) into shares of Series Preferred as provided in this Section 10.2 at any time or from time to time during the term of this Warrant.  Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the holder (without payment by the holder of any exercise price or any cash or other consideration) that number of shares of fully paid and nonassessable Series Preferred as is determined according to the following formula:

X =   B - A 

Y

Where:      X =the number of shares of Series Preferred that shall be issued to holder

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Y =the fair market value of one share of Series Preferred

A =the aggregate Warrant Price of the specified number of Converted Warrant Shares immediately prior to the exercise of the Conversion Right (i.e., the number of Converted Warrant Shares multiplied by the Warrant Price)

B =the aggregate fair market value of the specified number of Converted Warrant Shares (i.e., the number of Converted Warrant Shares multiplied by the fair market value of one Converted Warrant Share)

No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined).  For purposes of Section 10 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant.

(b)           Method of Exercise.  The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement (which may be in the form of Exhibit A-1 or Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right.  Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”), and, at the election of the holder hereof, may be made contingent upon the closing of the sale of the Company’s Common Stock to the public in a public offering pursuant to a Registration Statement under the Act (a “Public Offering”).  Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date.

(c)           Determination of Fair Market Value.  For purposes of this Section 10.2, “fair market value” of a share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as of a particular date (the “Determination Date”) shall mean:

(i)    If the Conversion Right is exercised in connection with and contingent upon a Public Offering, and if the Company’s Registration Statement relating to such Public Offering (“Registration Statement”) has been declared effective by the Securities and Exchange Commission, then the initial “Price to Public” specified in the final prospectus with respect to such offering.

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(ii)   If the Conversion Right is not exercised in connection with and contingent upon a Public Offering, then as follows:

(A)          If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible;

(B)           If traded on the Nasdaq Stock Market or other over-the-counter system, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; and

(C)           If there is no public market for the Common Stock, then fair market value shall be determined by the Board of Directors of the Company in good faith.

In making a determination under clauses (A) or (B) above, if on the Determination Date, five trading days had not passed since the closing of the Company’s Public Offering, then the fair market value of the Common Stock shall be the average closing prices or closing bid prices, as applicable, for the shorter period beginning on and including the date of the Public Offering and ending on the trading day prior to the Determination Date (or if such period includes only one trading day the closing price or closing bid price, as applicable, for such trading day).  If closing prices or closing bid prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day.

10.3         Exercise Prior to Expiration.  To the extent this Warrant is not previously exercised as to all of the Shares subject hereto, and if the fair market value of one share of the Series Preferred is greater than the Warrant Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 10.2 above (even if not surrendered) immediately before its expiration.  For purposes of such automatic exercise, the fair market value of one share of the Series Preferred upon such expiration shall be determined pursuant to Section 10.2(c).  To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 10.3, the Company agrees to promptly notify the holder hereof of the number of Shares, if any, the holder hereof is to receive by reason of such automatic exercise.

11.   Representations and Warranties.  The Company represents and warrants to the holder of this Warrant as follows:

(a)           This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to

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laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies.

(b)           The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free from preemptive rights.

(c)           The rights, preferences, privileges and restrictions granted to or imposed upon the Series Preferred and the holders thereof are as set forth in the Charter, and on the Date of Grant, each share of the Series Preferred represented by this Warrant is convertible into one share of Common Stock.

(d)           The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms of the Charter will be validly issued, fully paid and nonassessable.

(e)           The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company’s Charter or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby.

(f)            There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of the Company to perform its obligations under this Warrant.

(g)           The number of shares of Common Stock of the Company outstanding on the date hereof, on a fully diluted basis (assuming the conversion of all outstanding convertible securities and the exercise of all outstanding options and warrants), does not exceed 54,000,000 shares.

12.   Modification and Waiver.  This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.

13.   Notices.  Any notice, request, communication or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered, or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books

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of the Company or to the Company at the address indicated therefor on the signature page of this Warrant.

14.   Binding Effect on Successors.  This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets, and all of the obligations of the Company relating to the Series Preferred issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof.

15.   Lost Warrants or Stock Certificates.  The Company covenants to the holder hereof that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.

16.   Descriptive Headings.  The descriptive headings of the various Sections of this Warrant are inserted for convenience only and do not constitute a part of this Warrant.  The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant.

17.   Governing Law.  This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Delaware.

18.   Survival of Representations, Warranties and Agreements.  All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) or the termination or expiration of rights hereunder.  All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative.

19.   Remedies.  In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant.

20.   No Impairment of Rights.  The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.

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21.   Severability.  The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect.

22.   Recovery of Litigation Costs.  If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled.

23.   Entire Agreement; Modification.  This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter.

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The Company has caused this Warrant to be duly executed and delivered as of the Date of Grant specified above.

SUNESIS PHARMACEUTICALS, INC.
By:	/s/ Eric Bjerkholt
Name:	Eric Bjerkholt
Title:	Senior Vice President, Chief Financial Officer
Address:		341 Oyster Point Boulevard
		South San Francisco, CA 94080

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EXHIBIT A-1

NOTICE OF EXERCISE

To:          SUNESIS PHARMACEUTICALS, INC. (the “Company”)

1.             The undersigned hereby:

oelects to purchase________ shares of [Series Preferred Stock] [Common Stock] of the Company pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, or

oelects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to________Shares of [Series Preferred Stock] [Common Stock].

2.             Please issue a certificate or certificates representing ________ shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

3.             The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

(Signature)

(Date)

EXHIBIT A-2

NOTICE OF EXERCISE

To:          SUNESIS PHARMACEUTICALS, INC. (the “Company”)

1.             Contingent upon and effective immediately prior to the closing (the “Closing”) of the Company’s public offering contemplated by the Registration Statement on Form S___, filed________, 200__, the undersigned hereby:

o            elects to purchase________shares of [Series Preferred Stock] [Common Stock] of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) pursuant to the terms of the attached Warrant, or

o            elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to________Shares of [Series Preferred Stock] [Common Stock].

2.             Please deliver to the custodian for the selling shareholders a stock certificate representing such________shares.

3.             The undersigned has instructed the custodian for the selling shareholders to deliver to the Company $________or, if less, the net proceeds due the undersigned from the sale of shares in the aforesaid public offering.  If such net proceeds are less than the purchase price for such shares, the undersigned agrees to deliver the difference to the Company prior to the Closing.

(Signature)

(Date)

EX-10.41

Exhibit 10.41

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS.  NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, OR (iii) RECEIPT OF A NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES.

SUNESIS PHARMACEUTICALS, INC.

WARRANT TO PURCHASE SHARES

OF SERIES PREFERRED STOCK

THIS CERTIFIES THAT, for value received, HORIZON TECHNOLOGY FUNDING COMPANY III LLC and its assignees are entitled to subscribe for and purchase that number of the fully paid and nonassessable shares of Series Preferred Stock (as adjusted pursuant to Section 4 hereof, the “Shares”) of SUNESIS PHARMACEUTICALS, INC. a Delaware corporation (the “Company”), as is determined pursuant to the next paragraph hereof at the price per share as is determined pursuant to the next paragraph hereof  (such price and such other price as shall result, from time to time, from the adjustments specified in Section 4 hereof is herein referred to as the “Warrant Price”), subject to the provisions and upon the terms and conditions hereinafter set forth.  As used herein, (a) the term “Series Preferred” shall mean the Company’s Series C Preferred Stock or, if the Company completes a Qualified Financing (as defined below) with an effective price per share (on a common stock equivalent basis) less than $4.80, the type of stock sold in such Qualified Financing and any stock into or for which such Series Preferred Stock may hereafter be converted or exchanged, and after the conversion of the Series Preferred Stock to Common Stock shall mean the Company’s Common Stock, (b) the term “Date of Grant” shall mean August 25,  2005, and (c) the term “Other Warrants” shall mean any other warrants issued by the Company in connection with the transaction with respect to which this Warrant was issued, and any warrant issued upon transfer or partial exercise of or in lieu of this Warrant.  The term “Warrant” as used herein shall be deemed to include Other Warrants unless the context clearly requires otherwise.

                The Warrant Price shall be the lower of (i) $4.80 and (ii) the lowest effective price per share (on a common stock equivalent basis and taking into account any securities issued together with the preferred stock) at which shares of the Company’s convertible preferred stock are sold in a Qualified Financing.  A “Qualified Financing” shall mean the sale, after the Date of Grant and prior to the earlier to occur of (A) the exercise of this Warrant or (B) a Public Offering, of the convertible preferred stock of the Company to purchasers which include venture capital investors in an aggregate cash amount not less than $10,000,000.  The number of shares for which this Warrant is exercisable shall equal the sum of (a) the nearest whole number determined by dividing $275,000 by the Warrant Price plus (b) if and only if, the Company shall have borrowed Loan A (as defined in that certain Venture Loan and Security Agreement by and among the Company, Horizon Technology Funding

Company LLC (“Horizon”) and Oxford Finance Corporation (“Oxford”) dated on or about the Date of Grant (the “Loan Agreement”)), the nearest whole number determined by dividing $75,000 by the Warrant Price plus (c) if and only if, the Company shall have borrowed Loan B (as defined in the Loan Agreement), the nearest whole number determined by dividing $75,000 by the Warrant Price  plus (d) if and only if, the Company shall have borrowed Loan C (as defined in the Loan Agreement), the nearest whole number determined by dividing $125,000 by the Warrant Price.

1.     Term.  The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time from the Date of Grant until the tenth (10th) anniversary of the Date of Grant.

2.     Method of Exercise; Payment; Issuance of New Warrant.  Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A-1 duly completed and executed) at the principal office of the Company and by the payment to the Company, by certified or bank check, or by wire transfer to an account designated by the Company (a “Wire Transfer”) of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased; (b) if in connection with a registered public offering of the Company’s securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-2 duly completed and executed) at the principal office of the Company together with notice of arrangements reasonably satisfactory to the Company for payment to the Company either by certified or bank check or by Wire Transfer from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased; or (c) exercise of the “net issuance” right provided for in Section 10.2 hereof.  The person or persons in whose name(s) any certificate(s) representing shares of Series Preferred shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised.  In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as practicable and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as practicable and in any event within such thirty-day period; provided, however, at such time as the Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, if requested by the holder of this Warrant, the Company shall use reasonable efforts to cause its transfer agent to deliver the certificate representing Shares issued upon exercise of this Warrant to a broker or other person (as directed by the holder exercising this Warrant) within the time period required to settle any trade made by the holder after exercise of this Warrant.

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3.     Stock Fully Paid; Reservation of Shares.  All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all preemptive rights and taxes, liens and charges with respect to the issue thereof.  During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series Preferred to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of its Common Stock to provide for the conversion of the Series Preferred into Common Stock.

4.     Adjustment of Warrant Price and Number of Shares.  The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a)           Reclassification or Merger.  In case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance reasonably satisfactory to the  holder of this Warrant), so that the holder of this Warrant shall have the right to receive upon exercise of this Warrant, at a total purchase price equal to that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Series Preferred theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of shares of Series Preferred then purchasable under this Warrant.  Any new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4.  The provisions of this Section 4(a) shall similarly apply to successive reclassifications, changes, mergers and sales.

(b)           Subdivision or Combination of Shares.  If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Series Preferred, the Warrant Price shall be proportionately decreased and the number of Shares issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant Price shall be proportionately increased and the number of Shares issuable hereunder shall be proportionately decreased in the case of a combination.

(c)           Stock Dividends and Other Distributions.  If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Series Preferred payable in Series Preferred, then the Warrant Price shall be adjusted, from and after the date of

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determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Series Preferred outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Series Preferred outstanding immediately after such dividend or distribution; or (ii) make any other distribution with respect to Series Preferred (except any distribution specifically provided for in Sections 4(a) and 4(b)), then, in each such case, provision shall be made by the Company such that the holder of this Warrant shall receive upon exercise of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Series Preferred (or Common Stock issuable upon conversion thereof) as of the record date fixed for the determination of the shareholders of the Company entitled to receive such dividend or distribution.

(d)           Adjustment of Number of Shares.  Upon each adjustment in the Warrant Price, the number of Shares of Series Preferred purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter.

(e)           Antidilution Rights.  The other antidilution rights applicable to the Shares of Series Preferred purchasable hereunder are set forth in the Company’s Certificate of Incorporation, as amended through the Date of Grant (the “Charter”).  Such antidilution rights shall not be restated, amended, modified or waived in any manner (i) that is adverse to the holder hereof and (ii) that results in different treatment for the Holder with respect to the Shares than for other holders of Series Preferred without such Holder’s prior written consent.  The Company shall promptly provide the holder hereof with any restatement, amendment, modification or waiver of the Charter promptly after the same has been made.

5.     Notice of Adjustments.  Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant.  In addition, whenever the conversion price or conversion ratio of the Series Preferred shall be adjusted, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the conversion price or ratio of the Series Preferred after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to the occurrence of

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a Qualified Financing, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant.

6.     Fractional Shares.  No fractional shares of Series Preferred will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the Series Preferred on the date of exercise as reasonably determined in good faith by the Company’s Board of Directors.

7.     Compliance with Act; Disposition of Warrant or Shares of Series Preferred.

(a)           Compliance with Act.  The holder of this Warrant, by acceptance hereof, agrees that this Warrant, and the shares of Series Preferred to be issued upon exercise hereof and any Common Stock issued upon conversion thereof are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant, or any shares of Series Preferred to be issued upon exercise hereof or any Common Stock issued upon conversion thereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the “Act”) or any applicable state securities laws.  Upon exercise of this Warrant, unless the Shares being acquired are registered under the Act and any applicable state securities laws or an exemption from such registration is available, the holder hereof shall confirm in writing that the shares of Series Preferred so purchased (and any shares of Common Stock issued upon conversion thereof) are being acquired for investment and not with a view toward distribution or resale in violation of the Act and shall confirm such other matters related thereto as may be reasonably requested by the Company.  This Warrant and all shares of Series Preferred issued upon exercise of this Warrant and all shares of Common Stock issued upon conversion thereof (unless registered under the Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form:

“THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.  NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES.”

Said legend shall be removed by the Company, upon the request of a holder, at such time as the restrictions on the transfer of the applicable security shall have terminated.  In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows:

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(1)           The holder is aware of the Company’s business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Warrant.  The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof in violation of the Act.

(2)           The holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holder’s investment intent as expressed herein.

(3)           The holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available.  The holder is aware of the provisions of Rule 144, promulgated under the Act.

(4)           The holder is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Act.

(b)           Disposition of Warrant or Shares.    This Warrant and any shares of Series Preferred acquired pursuant to the exercise or conversion of this Warrant may be transferred only pursuant to a registration statement filed under the Securities Act of 1933, as amended, or an exemption from such registration.  Subject to such restrictions, the Company shall transfer this Warrant from time to time upon the books to be maintained by the Company for that purpose, upon surrender thereof for transfer properly endorsed or accompanied by appropriate instructions for transfer and such other documents as may be reasonably required by the Company, including, if required by the Company, an opinion of counsel to the effect that such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, to establish that such transfer is being made in accordance with the terms hereof, and a new Warrant shall be issued to the transferee and the surrendered Warrant shall be cancelled by the Company.  Each certificate representing this Warrant or the shares of Series Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless such legend is not required in order to ensure compliance with such laws.  The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

(c)           Applicability of Restrictions.  Neither any restrictions of any legend described in this Warrant nor the requirements of Section 7(b) above shall apply to any transfer of, or grant of a security interest in, this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of the holder if the holder is a partnership or to a member of the holder if the holder is a limited liability company, (ii) to a partnership of which the holder is a partner or to a limited liability company of which the holder is a member, or (iii) to any affiliate of the holder if the holder is a corporation; provided, however, in any such transfer, if applicable, the transferee shall on the Company’s request agree in writing to be bound by the terms of this Warrant as if an original holder hereof.

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8.     Rights as Shareholders; Information.  No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Series Preferred or any other securities of the Company which may at any time be issuable upon the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein.  Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders.

9.             Registration Rights.  The Holder shall become a party to the Eighth Amended and Restated Investor Rights Agreement, dated as of August 30, 2004 and as amended through the Date of Grant (the “Investor Rights Agreement), by and among the Company and the other parties listed on the signature pages thereto.  The Common Stock of the Company obtained upon conversion of the Series Preferred shall be “Registrable Securities” under the Investor Rights Agreement.

10.   Additional Rights.

10.1         Acquisition Transactions.  The Company shall provide the holder of this Warrant with at least twenty (20) days’ written notice prior to closing thereof of the terms and conditions of any of the following transactions (to the extent the Company has notice thereof): (i) the sale, lease, exchange, conveyance or other disposition of all or substantially all of the Company’s property or business, or (ii) its merger into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company), or any transaction (including a merger or other reorganization) or series of related transactions, in which more than 50% of the voting power of the Company is disposed of.

10.2         Right to Convert Warrant into Stock:  Net Issuance.

(a)           Right to Convert.  In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the “Conversion Right”) into shares of Series Preferred as provided in this Section 10.2 at any time or from time to time during the term of this Warrant.  Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the holder (without payment by the holder of any exercise price or any cash or other consideration) that number of shares of fully paid and nonassessable Series Preferred as is determined according to the following formula:

X =   B - A 

Y

Where:   X =the number of shares of Series Preferred that shall be issued to holder

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Y =the fair market value of one share of Series Preferred

A =the aggregate Warrant Price of the specified number of Converted Warrant Shares immediately prior to the exercise of the Conversion Right (i.e., the number of Converted Warrant Shares multiplied by the Warrant Price)

B =the aggregate fair market value of the specified number of Converted Warrant Shares (i.e., the number of Converted Warrant Shares multiplied by the fair market value of one Converted Warrant Share)

No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined).  For purposes of Section 10 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant.

(b)           Method of Exercise.  The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement (which may be in the form of Exhibit A-1 or Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right.  Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”), and, at the election of the holder hereof, may be made contingent upon the closing of the sale of the Company’s Common Stock to the public in a public offering pursuant to a Registration Statement under the Act (a “Public Offering”).  Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date.

(c)           Determination of Fair Market Value.  For purposes of this Section 10.2, “fair market value” of a share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as of a particular date (the “Determination Date”) shall mean:

(i)            If the Conversion Right is exercised in connection with and contingent upon a Public Offering, and if the Company’s Registration Statement relating to such Public Offering (“Registration Statement”) has been declared effective by the Securities and Exchange Commission, then the initial “Price to Public” specified in the final prospectus with respect to such offering.

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(ii)           If the Conversion Right is not exercised in connection with and contingent upon a Public Offering, then as follows:

(A)          If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible;

(B)           If traded on the Nasdaq Stock Market or other over-the-counter system, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; and

(C)           If there is no public market for the Common Stock, then fair market value shall be determined by the Board of Directors of the Company in good faith.

In making a determination under clauses (A) or (B) above, if on the Determination Date, five trading days had not passed since the closing of the Company’s Public Offering, then the fair market value of the Common Stock shall be the average closing prices or closing bid prices, as applicable, for the shorter period beginning on and including the date of the Public Offering and ending on the trading day prior to the Determination Date (or if such period includes only one trading day the closing price or closing bid price, as applicable, for such trading day).  If closing prices or closing bid prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day.

10.3         Exercise Prior to Expiration.  To the extent this Warrant is not previously exercised as to all of the Shares subject hereto, and if the fair market value of one share of the Series Preferred is greater than the Warrant Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 10.2 above (even if not surrendered) immediately before its expiration.  For purposes of such automatic exercise, the fair market value of one share of the Series Preferred upon such expiration shall be determined pursuant to Section 10.2(c).  To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 10.3, the Company agrees to promptly notify the holder hereof of the number of Shares, if any, the holder hereof is to receive by reason of such automatic exercise.

11.   Representations and Warranties.  The Company represents and warrants to the holder of this Warrant as follows:

(a)           This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to

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laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies.

(b)           The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free from preemptive rights.

(c)           The rights, preferences, privileges and restrictions granted to or imposed upon the Series Preferred and the holders thereof are as set forth in the Charter, and on the Date of Grant, each share of the Series Preferred represented by this Warrant is convertible into one share of Common Stock.

(d)           The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms of the Charter will be validly issued, fully paid and nonassessable.

(e)           The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company’s Charter or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby.

(f)            There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of the Company to perform its obligations under this Warrant.

(g)           The number of shares of Common Stock of the Company outstanding on the date hereof, on a fully diluted basis (assuming the conversion of all outstanding convertible securities and the exercise of all outstanding options and warrants), does not exceed 54,000,000 shares.

12.   Modification and Waiver.  This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.

13.   Notices.  Any notice, request, communication or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered, or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books

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of the Company or to the Company at the address indicated therefor on the signature page of this Warrant.

14.   Binding Effect on Successors.  This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets, and all of the obligations of the Company relating to the Series Preferred issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof.

15.   Lost Warrants or Stock Certificates.  The Company covenants to the holder hereof that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.

16.   Descriptive Headings.  The descriptive headings of the various Sections of this Warrant are inserted for convenience only and do not constitute a part of this Warrant.  The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant.

17.   Governing Law.  This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Delaware.

18.   Survival of Representations, Warranties and Agreements.  All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) or the termination or expiration of rights hereunder.  All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative.

19.   Remedies.  In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant.

20.   No Impairment of Rights.  The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.

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21.   Severability.  The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect.

22.   Recovery of Litigation Costs.  If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled.

23.   Entire Agreement; Modification.  This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter.

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The Company has caused this Warrant to be duly executed and delivered as of the Date of Grant specified above.

	SUNESIS PHARMACEUTICALS, INC.
By:	/s/ Eric Bjerkholt
Name:	Eric Bjerkholt
Title:	Senior Vice President, Chief Financial Officer
Address:		341 Oyster Point Boulevard
		South San Francisco, CA 94080

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EXHIBIT A-1

NOTICE OF EXERCISE

To:          SUNESIS PHARMACEUTICALS, INC. (the “Company”)

1.             The undersigned hereby:

oelects to purchase________ shares of [Series Preferred Stock] [Common Stock] of the Company pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, or

oelects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to________Shares of [Series Preferred Stock] [Common Stock].

2.             Please issue a certificate or certificates representing ________ shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

3.             The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

	(Signature)
(Date)

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EXHIBIT A-2

NOTICE OF EXERCISE

To:          SUNESIS PHARMACEUTICALS, INC. (the “Company”)

1.             Contingent upon and effective immediately prior to the closing (the “Closing”) of the Company’s public offering contemplated by the Registration Statement on Form S___, filed________, 200__, the undersigned hereby:

o            elects to purchase________shares of [Series Preferred Stock] [Common Stock] of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) pursuant to the terms of the attached Warrant, or

o            elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to________Shares of [Series Preferred Stock] [Common Stock].

2.             Please deliver to the custodian for the selling shareholders a stock certificate representing such________shares.

3.             The undersigned has instructed the custodian for the selling shareholders to deliver to the Company $________or, if less, the net proceeds due the undersigned from the sale of shares in the aforesaid public offering.  If such net proceeds are less than the purchase price for such shares, the undersigned agrees to deliver the difference to the Company prior to the Closing.

	(Signature)
(Date)

EX-10.42

Exhibit 10.42

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS.  NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, OR (iii) RECEIPT OF A NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES.

SUNESIS PHARMACEUTICALS, INC.

WARRANT TO PURCHASE SHARES

OF SERIES PREFERRED STOCK

THIS CERTIFIES THAT, for value received, OXFORD FINANCE CORPORATION and its assignees are entitled to subscribe for and purchase that number of the fully paid and nonassessable shares of Series Preferred Stock (as adjusted pursuant to Section 4 hereof, the “Shares”) of SUNESIS PHARMACEUTICALS, INC. a Delaware corporation (the “Company”), as is determined pursuant to the next paragraph hereof at the price per share as is determined pursuant to the next paragraph hereof  (such price and such other price as shall result, from time to time, from the adjustments specified in Section 4 hereof is herein referred to as the “Warrant Price”), subject to the provisions and upon the terms and conditions hereinafter set forth.  As used herein, (a) the term “Series Preferred” shall mean the Company’s Series C Preferred Stock or, if the Company completes a Qualified Financing (as defined below) with an effective price per share (on a common stock equivalent basis) less than $4.80, the type of stock sold in such Qualified Financing and any stock into or for which such Series Preferred Stock may hereafter be converted or exchanged, and after the conversion of the Series Preferred Stock to Common Stock shall mean the Company’s Common Stock, (b) the term “Date of Grant” shall mean August 25,  2005, and (c) the term “Other Warrants” shall mean any other warrants issued by the Company in connection with the transaction with respect to which this Warrant was issued, and any warrant issued upon transfer or partial exercise of or in lieu of this Warrant.  The term “Warrant” as used herein shall be deemed to include Other Warrants unless the context clearly requires otherwise.

                The Warrant Price shall be the lower of (i) $4.80 and (ii) the lowest effective price per share (on a common stock equivalent basis and taking into account any securities issued together with the preferred stock) at which shares of the Company’s convertible preferred stock are sold in a Qualified Financing.  A “Qualified Financing” shall mean the sale, after the Date of Grant and prior to the earlier to occur of (A) the exercise of this Warrant or (B) a Public Offering, of the convertible preferred stock of the Company to purchasers which include venture capital investors in an aggregate cash amount not less than $10,000,000.  The number of shares for which this Warrant is exercisable shall equal the sum of (a) the nearest whole number determined by dividing $200,000 by the Warrant Price plus (b) if and only if, the Company shall have borrowed Loan A (as defined in that certain Venture Loan and Security Agreement by and among the Company, Horizon Technology Funding Company LLC (“Horizon”) and Oxford Finance Corporation (“Oxford”) dated on or about the Date of Grant (the “Loan Agreement”)), the nearest whole number determined by dividing $100,000 by

the Warrant Price plus (c) if and only if, the Company shall have borrowed Loan B (as defined in the Loan Agreement), the nearest whole number determined by dividing $100,000 by the Warrant Price.

1.     Term.  The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time from the Date of Grant until the tenth (10th) anniversary of the Date of Grant.

2.     Method of Exercise; Payment; Issuance of New Warrant.  Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A-1 duly completed and executed) at the principal office of the Company and by the payment to the Company, by certified or bank check, or by wire transfer to an account designated by the Company (a “Wire Transfer”) of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased; (b) if in connection with a registered public offering of the Company’s securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-2 duly completed and executed) at the principal office of the Company together with notice of arrangements reasonably satisfactory to the Company for payment to the Company either by certified or bank check or by Wire Transfer from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased; or (c) exercise of the “net issuance” right provided for in Section 10.2 hereof.  The person or persons in whose name(s) any certificate(s) representing shares of Series Preferred shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised.  In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as practicable and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as practicable and in any event within such thirty-day period; provided, however, at such time as the Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, if requested by the holder of this Warrant, the Company shall use reasonable efforts to cause its transfer agent to deliver the certificate representing Shares issued upon exercise of this Warrant to a broker or other person (as directed by the holder exercising this Warrant) within the time period required to settle any trade made by the holder after exercise of this Warrant.

3.     Stock Fully Paid; Reservation of Shares.  All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all preemptive rights and taxes, liens and charges with respect to the issue thereof.  During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the

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purpose of the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series Preferred to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of its Common Stock to provide for the conversion of the Series Preferred into Common Stock.

4.     Adjustment of Warrant Price and Number of Shares.  The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a)           Reclassification or Merger.  In case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance reasonably satisfactory to the  holder of this Warrant), so that the holder of this Warrant shall have the right to receive upon exercise of this Warrant, at a total purchase price equal to that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Series Preferred theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of shares of Series Preferred then purchasable under this Warrant.  Any new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4.  The provisions of this Section 4(a) shall similarly apply to successive reclassifications, changes, mergers and sales.

(b)           Subdivision or Combination of Shares.  If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Series Preferred, the Warrant Price shall be proportionately decreased and the number of Shares issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant Price shall be proportionately increased and the number of Shares issuable hereunder shall be proportionately decreased in the case of a combination.

(c)           Stock Dividends and Other Distributions.  If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Series Preferred payable in Series Preferred, then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Series Preferred outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Series Preferred outstanding immediately after such

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dividend or distribution; or (ii) make any other distribution with respect to Series Preferred (except any distribution specifically provided for in Sections 4(a) and 4(b)), then, in each such case, provision shall be made by the Company such that the holder of this Warrant shall receive upon exercise of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Series Preferred (or Common Stock issuable upon conversion thereof) as of the record date fixed for the determination of the shareholders of the Company entitled to receive such dividend or distribution.

(d)           Adjustment of Number of Shares.  Upon each adjustment in the Warrant Price, the number of Shares of Series Preferred purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter.

(e)           Antidilution Rights.  The other antidilution rights applicable to the Shares of Series Preferred purchasable hereunder are set forth in the Company’s Certificate of Incorporation, as amended through the Date of Grant (the “Charter”).  Such antidilution rights shall not be restated, amended, modified or waived in any manner (i) that is adverse to the holder hereof and (ii) that results in different treatment for the Holder with respect to the Shares than for other holders of Series Preferred without such Holder’s prior written consent.  The Company shall promptly provide the holder hereof with any restatement, amendment, modification or waiver of the Charter promptly after the same has been made.

5.     Notice of Adjustments.  Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant.  In addition, whenever the conversion price or conversion ratio of the Series Preferred shall be adjusted, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the conversion price or ratio of the Series Preferred after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to the occurrence of a Qualified Financing, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such

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certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant.

6.     Fractional Shares.  No fractional shares of Series Preferred will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the Series Preferred on the date of exercise as reasonably determined in good faith by the Company’s Board of Directors.

7.     Compliance with Act; Disposition of Warrant or Shares of Series Preferred.

(a)           Compliance with Act.  The holder of this Warrant, by acceptance hereof, agrees that this Warrant, and the shares of Series Preferred to be issued upon exercise hereof and any Common Stock issued upon conversion thereof are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant, or any shares of Series Preferred to be issued upon exercise hereof or any Common Stock issued upon conversion thereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the “Act”) or any applicable state securities laws.  Upon exercise of this Warrant, unless the Shares being acquired are registered under the Act and any applicable state securities laws or an exemption from such registration is available, the holder hereof shall confirm in writing that the shares of Series Preferred so purchased (and any shares of Common Stock issued upon conversion thereof) are being acquired for investment and not with a view toward distribution or resale in violation of the Act and shall confirm such other matters related thereto as may be reasonably requested by the Company.  This Warrant and all shares of Series Preferred issued upon exercise of this Warrant and all shares of Common Stock issued upon conversion thereof (unless registered under the Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form:

“THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.  NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES.”

Said legend shall be removed by the Company, upon the request of a holder, at such time as the restrictions on the transfer of the applicable security shall have terminated.  In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows:

(1)           The holder is aware of the Company’s business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Warrant.  The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof in violation of the Act.

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(2)           The holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holder’s investment intent as expressed herein.

(3)           The holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available.  The holder is aware of the provisions of Rule 144, promulgated under the Act.

(4)           The holder is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Act.

(b)           Disposition of Warrant or Shares.    This Warrant and any shares of Series Preferred acquired pursuant to the exercise or conversion of this Warrant may be transferred only pursuant to a registration statement filed under the Securities Act of 1933, as amended, or an exemption from such registration.  Subject to such restrictions, the Company shall transfer this Warrant from time to time upon the books to be maintained by the Company for that purpose, upon surrender thereof for transfer properly endorsed or accompanied by appropriate instructions for transfer and such other documents as may be reasonably required by the Company, including, if required by the Company, an opinion of counsel to the effect that such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, to establish that such transfer is being made in accordance with the terms hereof, and a new Warrant shall be issued to the transferee and the surrendered Warrant shall be cancelled by the Company.  Each certificate representing this Warrant or the shares of Series Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless such legend is not required in order to ensure compliance with such laws.  The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

(c)           Applicability of Restrictions.  Neither any restrictions of any legend described in this Warrant nor the requirements of Section 7(b) above shall apply to any transfer of, or grant of a security interest in, this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of the holder if the holder is a partnership or to a member of the holder if the holder is a limited liability company, (ii) to a partnership of which the holder is a partner or to a limited liability company of which the holder is a member, or (iii) to any affiliate of the holder if the holder is a corporation; provided, however, in any such transfer, if applicable, the transferee shall on the Company’s request agree in writing to be bound by the terms of this Warrant as if an original holder hereof.

8.     Rights as Shareholders; Information.  No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Series Preferred or any other securities of the Company which may at any time be issuable upon the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any

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matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein.  Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders.

9.             Registration Rights.  The Holder shall become a party to the Eighth Amended and Restated Investor Rights Agreement, dated as of August 30, 2004 and as amended through the Date of Grant (the “Investor Rights Agreement), by and among the Company and the other parties listed on the signature pages thereto.  The Common Stock of the Company obtained upon conversion of the Series Preferred shall be “Registrable Securities” under the Investor Rights Agreement.

10.   Additional Rights.

10.1         Acquisition Transactions.  The Company shall provide the holder of this Warrant with at least twenty (20) days’ written notice prior to closing thereof of the terms and conditions of any of the following transactions (to the extent the Company has notice thereof): (i) the sale, lease, exchange, conveyance or other disposition of all or substantially all of the Company’s property or business, or (ii) its merger into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company), or any transaction (including a merger or other reorganization) or series of related transactions, in which more than 50% of the voting power of the Company is disposed of.

10.2         Right to Convert Warrant into Stock:  Net Issuance.

(a)           Right to Convert.  In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the “Conversion Right”) into shares of Series Preferred as provided in this Section 10.2 at any time or from time to time during the term of this Warrant.  Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the holder (without payment by the holder of any exercise price or any cash or other consideration) that number of shares of fully paid and nonassessable Series Preferred as is determined according to the following formula:

X =   B - A 

Y

Where:   X =the number of shares of Series Preferred that shall be issued to holder

Y =the fair market value of one share of Series Preferred

A =the aggregate Warrant Price of the specified number of Converted Warrant Shares immediately prior to the exercise of the Conversion

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Right (i.e., the number of Converted Warrant Shares multiplied by the Warrant Price)

B =the aggregate fair market value of the specified number of Converted Warrant Shares (i.e., the number of Converted Warrant Shares multiplied by the fair market value of one Converted Warrant Share)

No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined).  For purposes of Section 10 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant.

(b)           Method of Exercise.  The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement (which may be in the form of Exhibit A-1 or Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right.  Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”), and, at the election of the holder hereof, may be made contingent upon the closing of the sale of the Company’s Common Stock to the public in a public offering pursuant to a Registration Statement under the Act (a “Public Offering”).  Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date.

(c)           Determination of Fair Market Value.  For purposes of this Section 10.2, “fair market value” of a share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as of a particular date (the “Determination Date”) shall mean:

(i)    If the Conversion Right is exercised in connection with and contingent upon a Public Offering, and if the Company’s Registration Statement relating to such Public Offering (“Registration Statement”) has been declared effective by the Securities and Exchange Commission, then the initial “Price to Public” specified in the final prospectus with respect to such offering.

(ii)   If the Conversion Right is not exercised in connection with and contingent upon a Public Offering, then as follows:

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(A)          If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible;

(B)           If traded on the Nasdaq Stock Market or other over-the-counter system, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; and

(C)           If there is no public market for the Common Stock, then fair market value shall be determined by the Board of Directors of the Company in good faith.

In making a determination under clauses (A) or (B) above, if on the Determination Date, five trading days had not passed since the closing of the Company’s Public Offering, then the fair market value of the Common Stock shall be the average closing prices or closing bid prices, as applicable, for the shorter period beginning on and including the date of the Public Offering and ending on the trading day prior to the Determination Date (or if such period includes only one trading day the closing price or closing bid price, as applicable, for such trading day).  If closing prices or closing bid prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day.

10.3         Exercise Prior to Expiration.  To the extent this Warrant is not previously exercised as to all of the Shares subject hereto, and if the fair market value of one share of the Series Preferred is greater than the Warrant Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 10.2 above (even if not surrendered) immediately before its expiration.  For purposes of such automatic exercise, the fair market value of one share of the Series Preferred upon such expiration shall be determined pursuant to Section 10.2(c).  To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 10.3, the Company agrees to promptly notify the holder hereof of the number of Shares, if any, the holder hereof is to receive by reason of such automatic exercise.

11.   Representations and Warranties.  The Company represents and warrants to the holder of this Warrant as follows:

(a)           This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies.

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(b)           The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free from preemptive rights.

(c)           The rights, preferences, privileges and restrictions granted to or imposed upon the Series Preferred and the holders thereof are as set forth in the Charter, and on the Date of Grant, each share of the Series Preferred represented by this Warrant is convertible into one share of Common Stock.

(d)           The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms of the Charter will be validly issued, fully paid and nonassessable.

(e)           The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company’s Charter or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby.

(f)            There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of the Company to perform its obligations under this Warrant.

(g)           The number of shares of Common Stock of the Company outstanding on the date hereof, on a fully diluted basis (assuming the conversion of all outstanding convertible securities and the exercise of all outstanding options and warrants), does not exceed 54,000,000 shares.

12.   Modification and Waiver.  This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.

13.   Notices.  Any notice, request, communication or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered, or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor on the signature page of this Warrant.

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14.   Binding Effect on Successors.  This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets, and all of the obligations of the Company relating to the Series Preferred issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof.

15.   Lost Warrants or Stock Certificates.  The Company covenants to the holder hereof that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.

16.   Descriptive Headings.  The descriptive headings of the various Sections of this Warrant are inserted for convenience only and do not constitute a part of this Warrant.  The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant.

17.   Governing Law.  This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Delaware.

18.   Survival of Representations, Warranties and Agreements.  All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) or the termination or expiration of rights hereunder.  All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative.

19.   Remedies.  In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant.

20.   No Impairment of Rights.  The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.

21.   Severability.  The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect.

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22.   Recovery of Litigation Costs.  If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled.

23.   Entire Agreement; Modification.  This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter.

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The Company has caused this Warrant to be duly executed and delivered as of the Date of Grant specified above.

SUNESIS PHARMACEUTICALS, INC.
By:	/s/ Eric Bjerkholt
Name:	Eric Bjerkholt
Title:	Senior Vice President, Chief Financial Officer
Address:		341 Oyster Point Boulevard
		South San Francisco, CA 94080

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EXHIBIT A-1

NOTICE OF EXERCISE

To:          SUNESIS PHARMACEUTICALS, INC. (the “Company”)

1.             The undersigned hereby:

oelects to purchase________ shares of [Series Preferred Stock] [Common Stock] of the Company pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, or

oelects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to________Shares of [Series Preferred Stock] [Common Stock].

2.             Please issue a certificate or certificates representing ________ shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

3.             The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

(Signature)

(Date)

EXHIBIT A-2

NOTICE OF EXERCISE

To:          SUNESIS PHARMACEUTICALS, INC. (the “Company”)

1.             Contingent upon and effective immediately prior to the closing (the “Closing”) of the Company’s public offering contemplated by the Registration Statement on Form S___, filed________, 200__, the undersigned hereby:

o            elects to purchase________shares of [Series Preferred Stock] [Common Stock] of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) pursuant to the terms of the attached Warrant, or

o            elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to________Shares of [Series Preferred Stock] [Common Stock].

2.             Please deliver to the custodian for the selling shareholders a stock certificate representing such________shares.

3.             The undersigned has instructed the custodian for the selling shareholders to deliver to the Company $________or, if less, the net proceeds due the undersigned from the sale of shares in the aforesaid public offering.  If such net proceeds are less than the purchase price for such shares, the undersigned agrees to deliver the difference to the Company prior to the Closing.

(Signature)

(Date)

EX-23.1

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

        We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 21, 2005, except as to Note 13 as to which the date is September     , 2005, in the Registration Statement (Amendment No. 4 to Form S-1 No. 333-121646) and related Prospectus of Sunesis Pharmaceuticals, Inc. for the registration of 6,900,000 shares of its common stock.

Ernst & Young LLP

San Jose, California

The foregoing consent is in the form that will be signed upon the completion of the reverse stock split described in Note 13 to the financial statements.

/s/ Ernst & Young LLP

San Jose, California
August 31, 2005

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm