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

TAPESTRY PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

As of November 1, 2007, the registrant had 16,629,861 shares of common stock, $0.0075 par value, outstanding.

Tapestry Pharmaceuticals, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

Tapestry Pharmaceuticals, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Tapestry Pharmaceuticals, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Tapestry Pharmaceuticals, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 26, 2007

(Unaudited)

Note 1. Basis of Presentation and Summary of Significant Accounting Policies

In the opinion of management, the accompanying unaudited consolidated balance sheets, statements of operations and statements of cash flows contain all adjustments, consisting of only normal, recurring adjustments, necessary to present fairly the financial position of Tapestry Pharmaceuticals, Inc. and its wholly owned subsidiaries ("we," "us" or the "Company") at September 26, 2007 and December 27, 2006, the results of its operations for the three and nine-months ended September 26, 2007 and September 27, 2006, and cash flows for the nine-months ended September 26, 2007 and September 27, 2006.

The unaudited consolidated financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 27, 2006, filed with the Securities and Exchange Commission (the "SEC") on March 7, 2007 as well as an amendment thereto on Form 10-K/A filed with the SEC on April 26, 2007.

LIQUIDITY—The Company has no revenue and has incurred losses of approximately $6.1 million and $16.7 million for the three and nine-months ended September 26, 2007, respectively and a loss of approximately $16.7 million for the year ended December 27, 2006. The Company has an accumulated deficit of $140.6 million as of September 26, 2007. As of September 26, 2007, the Company had a working capital balance of $6.1 million compared to a working capital balance of $20.2 million at December 27, 2006. As of September 26, 2007, the Company had cash and cash equivalents and short-term investments totaling $9.4 million. Through September 26, 2007, the Company has funded its capital requirements primarily with the net proceeds of public offerings of common stock and private placements of equity securities, with proceeds from the exercise of warrants and options and with debt. The Company has also funded its capital requirements with the gross proceeds of approximately $71.7 million related to the sale of its paclitaxel business to Mayne Pharma (USA) Inc. (acquired by Hospira on February 1, 2007) on December 12, 2003.

The Company's capital requirements have been and will continue to be significant. The Company expects research and development expenses to increase in connection with its ongoing activities, particularly as it continues the development of TPI 287. If the Company in-licenses or acquires additional product candidates, its research and clinical development expenses will increase further. In addition, subject to obtaining regulatory approval of TPI 287 or any other product candidate, the Company expects to incur significant commercialization expenses for product sales, marketing, securing commercial quantities of product from third-party manufacturers and distribution. The Company will need substantial additional funding and may be unable to raise capital when needed or on attractive terms, which would force the Company to delay, reduce or eliminate research and development programs or commercialization efforts.

The Company believes that the existing cash and cash equivalents and short-term investments are not sufficient to enable the Company to fund its operating expenses and capital expenditures for the next twelve months. On October 23, 2007, our Board of Directors authorized a reduction in the Company's operations. As a result, the Company has eliminated 14 positions (28% of its work force),

including executive and non-executive positions in all areas of operations. In conjunction with this reduction in operations, the Company incurred one time severance costs of $470,000. The Company took such action to preserve cash and to focus all of its resources on advancing the Company's leading drug candidate in on-going and future clinical trials (See Note 15). In addition, the Company will be required to raise additional capital through public or private equity offerings and debt financings, corporate collaborations, licensing arrangements or other means. Should the Company be unable to raise the needed capital, it may be required to slowdown, further curtail or cease operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

ESTIMATES AND ASSUMPTIONS—The preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates are used when determining useful lives for depreciation and amortization, assessing the need for impairment charges, accounting for income taxes, estimating the value of employee stock options, and various others items. The Company evaluates these estimates and assumptions on an ongoing basis and bases its estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ materially from these estimates.

SHARE BASED COMPENSATION—As of September 26, 2007, the Company had five equity incentive plans (the "Plans"): the 1994 Long-Term Performance Incentive Plan, the 1998 Stock Incentive Plan, the 2004 Equity Incentive Plan, the 2004 Non-Employee Director's Stock Option Plan and the 2006 Equity Incentive Plan, which was approved by the Company's stockholders on April 4, 2006. As a result of the approval of the 2006 Equity Incentive Plan, all prior plans were suspended and no additional grants shall be made under these plans.

The Company follows the fair value method of accounting for share-based compensation arrangements in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004), Share-Based Payment ("SFAS 123(R)"). The Company adopted SFAS 123(R) using the modified prospective transition method, which required the application of the accounting standard as of December 29, 2005, the first day of the Company's 2006 fiscal year. Under the modified prospective method of transition, compensation expense is recognized beginning with the effective date of adoption of SFAS 123(R) for all share-based payments (i) granted after the effective date of adoption and (ii) granted prior to the effective date of adoption and that remain unvested on the date of adoption.

Under SFAS 123(R), the estimated fair value of share-based-compensation, including stock options granted under the Plans, is recognized as compensation expense on a straight-line basis over the expected term of the grant.

The Company recorded share-based compensation expense of $869,000 ($0.05 per share) and $615,000 ($0.04 per share) for the three-months ended September 26, 2007 and September 27, 2006, respectively. The Company recorded share-based compensation expense of $2.6 million ($0.16 per share) and $2.5 million ($0.22 per share) for the nine-months ended September 26, 2007 and September 27, 2006, respectively. These non-cash charges had no impact on the Company's reported cash flows.

Amounts recognized in the financial statements related to share-based compensation, by category, were as follows (in thousands):

	Three-Months Ended,				Nine-Months Ended,
	September 26, 2007		September 27, 2006		September 26, 2007		September 27, 2006
Research and development	$	332	$	259	$	1,029	$	1,084
General and administrative		537		356		1,561		1,369
Discontinued operations		—		—		—		86

	$	869	$	615	$	2,590	$	2,539

For purposes of the disclosure in the foregoing table and for purposes of determining estimated fair value under SFAS 123(R), the Company has computed the estimated fair values of all share-based compensation using the Black-Scholes option pricing model and has applied the assumptions set forth in the following table. The Company calculated the estimated life of each stock option granted in fiscal 2007 and 2006 based on the average life of the option estimated by reference to the historical average lives of options issued by the Company since its initial public offering in 1994. The risk free rate of return and the historical volatility were also based on the average life of the option estimated by reference to the historical average lives of options issued by the Company since inception. As SFAS 123(R) requires that share-based compensation expense be based on awards that are ultimately expected to vest, share-based compensation has been reduced for estimated forfeitures. When estimating forfeitures, the Company takes into consideration both voluntary and involuntary terminations, as well as trends of actual forfeitures.

		Risk-Free Interest Rate		Dividend Yield		Volatility Factor		Weighted- Average Option Life (Years)
Fiscal Year 2007		4.48%-5.04%		0	%	92.33%-113.64%		3.35-5.78
Fiscal Year 2006		4.66%-5.18%		0	%	108.82%-121.86%		3.35-5.78

The Black-Scholes option-pricing model requires the input of subjective assumptions. Stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, thereby resulting in

changes to these assumptions and methodologies. These changes could materially impact the Company's fair value determination.

A summary of option activity under the Plans as of September 26, 2007 and changes during the nine-months then ended is presented below:

A summary of the status of the Company's unvested shares as of September 26, 2007, and changes during the three and nine-months then ended is presented below:

	Three-Months Ended, September 26, 2007				Nine-Months Ended, September 26, 2007
	Unvested Shares		Weighted- Average Grant-Date Fair Value		Unvested Shares		Weighted- Average Grant-Date Fair Value
Beginning unvested balance	5,912,977		$	2.58	5,207,628		$	2.79
Granted	63,000		$	0.84	968,456		$	1.45
Vested	(9,702	)	$	12.22	(99,047	)	$	4.25
Forfeited	(49,269	)	$	5.40	(160,031	)	$	3.95

Ending unvested balance	5,917,006		$	2.51	5,917,006		$	2.51

As of September 26, 2007, there was $10.8 million of total unrecognized compensation expense related to unvested share-based compensation arrangements granted under the Plans. Total

unrecognized compensation expense will be recognized over a weighted-average period of approximately 3.5 years.

DERIVATIVE INSTRUMENTS—Companies are required to recognize all of their derivative instruments as either assets or liabilities on the balance sheet at fair value. The accounting for changes in the fair value (i.e. gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. As described in "Note 6. Stockholders' Equity," the Company currently has one derivative instrument that is assessed on a quarterly basis, and any changes in fair value will be recognized in current earnings in the period of change.

RECENT ACCOUNTING PRONOUNCEMENTS—On December 28, 2006, the Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109"("FIN 48"). FIN 48 clarifies the accounting for uncertainty of income taxes by prescribing a minimum recognition threshold for a tax position taken or expected to be taken in a tax return that is required to be met before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of the date of adoption, the Company did not identify any unrecognized tax benefits and there was no cumulative effect on retained earnings of adopting FIN 48. The Company recognizes interest and penalties related to its tax contingencies as income tax expense.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This standard defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosure about fair value measurements. This pronouncement applies to other accounting standards that require or permit fair value measurements. Accordingly, this statement does not require any new fair value measurement. This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company will be required to adopt SFAS No. 157 in the first quarter of fiscal year 2008. Management has not yet determined the impact of adopting this statement.

In June, 2007 the FASB issued EITF 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities," EITF 07-3 clarifies the accounting for non-refundable advance payments made for future research and development activities. This issue is effective for fiscal years beginning after December 15, 2007, including interim periods within those fiscal years. The cumulative effect of applying EITF 07-3 will be reported as a change in accounting principle through an adjustment to retained earnings as of the beginning of the period in which it is adopted. Management has not yet determined the impact of adopting this statement.

On February 25, 2005, the Company received notice from The NASDAQ Stock Market, Inc. that its common stock had not met the $1.00 per share minimum bid price requirement for 30 consecutive business days and that, if the Company was unable to demonstrate compliance with this requirement

during the applicable grace periods, its common stock would be delisted after that time. On February 6, 2006, the Company effected a one for ten reverse stock split to regain compliance with this listing requirement. Since the reverse stock split was effected, the closing bid price of its common stock has remained above $1.00 in compliance with the minimum bid price requirement. Unless otherwise noted, all information in these unaudited consolidated financial statements reflects this reverse stock split.

In 2004 and prior years, the Company discontinued research on its various genomics programs, other than the Huntington's Disease program. It ceased the Huntington's Disease program in 2006.

The Company had a loss of $0 and $88,000 related to the Genomics division for the three and nine-months ended September 27, 2006. No material revenue has been recognized in this division. There were no assets held for sale at September 26, 2007 and December 27, 2006 that relate to the discontinued operations of the genomics business.

Short-term investments consist of investment grade government agency, auction rate securities, commercial paper and corporate debt securities due within one year. The Company's investments in auction rate securities are recorded at cost, which approximates fair market value. In accordance with ARB 43, "Restatement and Revision of Accounting Research Bulletins," despite the long-term nature of their stated contractual maturities, the Company has the ability and intent to liquidate investments in auction rate securities within six months and therefore has classified these investments as short-term. All investments are classified as available-for-sale and are recorded at market value. Unrealized gains and losses are treated as a separate component of stockholders' equity until the security is sold or until a decline in fair value is determined to be other than temporary.

Included within our investment portfolio are AA and AAA rated investments in auction rate securities. As a result of the uncertainty in the credit markets in the second half of 2007, auctions for $3.8 million of our investments in auction rate securities failed. The failure resulted in the interest rate on these investments resetting at Libor plus 100 basis points. While we now earn a premium interest rate on the investments, the investments are not as liquid. In the event we need to access these funds, we may not be able to access them until a future auction on these investments is successful. If the issuers are unable to successfully close future auctions and their credit ratings deteriorate, we may be required to adjust the carrying value of these investments through an impairment charge. Based on our ability to access our cash and cash equivalents, we do not currently anticipate the lack of liquidity on these investments will affect our ability to operate our business as usual.

As of September 26, 2007 and December 27, 2006, the amortized cost basis, unrealized loss and fair value by major security type classified as available-for-sale are as follows (in thousands):

Security Type		Amortized Cost		Unrealized Loss			Fair Value
September 26, 2007
Auction rate securities		$	3,800	$	(19	)	$	3,781

	Total investments	$	3,800	$	(19	)	$	3,781

December 27, 2006
Auction rate securities		$	9,000	$	—		$	9,000
Commercial Paper			1,977		—			1,977
Corporate debt securities			5,100		—			5,100
Government agencies			6,200		—			6,200

	Total investments	$	22,277	$	—		$	22,277

Comprehensive loss for the Company consists of net loss and unrealized holding gains and losses on available-for-sale investments as presented below (in thousands):

	Three-Months Ended,		Nine-Months Ended,
	September 26, 2007		September 27, 2006		September 26, 2007		September 27, 2006
Net loss, as reported	$	(6,100	)	$	(3,558	)	$	(16,681	)	$	(12,113	)
Unrealized gain (loss) on available-for-sale securities		(19	)		8			(19	)		42

Comprehensive net loss	$	(6,119	)	$	(3,550	)	$	(16,700	)	$	(12,071	)

On November 17, 2006, the Company repurchased two non-interest bearing promissory notes issued by it to TL Ventures V L.P. and TL Ventures V Interfund L.P. in February 2005. These promissory notes had an outstanding principal amount of $3.0 million, and the Company repurchased the notes for an aggregate payment of $2.7 million in cash. The repurchase of these notes did not have a material impact on the Company's financial results.

The Company leases equipment under a capital lease. The capital lease does not bear interest and is payable in monthly installments of $11,000 in 2007 and 2008. The Company recorded a discount on the capital lease attributable to the fair value of interest in the amount of $23,000 and the discount is allocated between the current and long-term portions of the lease. An interest rate of 11.5% was used to impute the discount.

In September 2005, the Company initiated a retention incentive program for non-executive employees that consisted of a grant of approximately 43,814 restricted shares of the Company's common stock under its equity incentive plans to vest at future dates, as well as a cash component related to the individual tax effects of the program. The stock component of the program included 18,463 shares that vested on September 6, 2006 and 19,143 additional shares that vested on September 6, 2007, contingent upon participants being employed by the Company on that date. Under the program, 6,208 shares were surrendered due to termination of employment with the Company. The total value of the Company's common stock subject to the program, net of shares surrendered due to terminations, is $132,000 based on the value of the underlying common stock at the date of grant. During the three-months ended September 26, 2007 and September 27, 2006 and nine-months ended September 26, 2007 and September 27, 2006, $6,000, $20,000, $24,000 and $69,000, respectively, of expense related to the program was recognized.

In June 2007, the Company granted 44,700 restricted shares of the Company's common stock to non-executive employees under its equity incentive plans to vest at future dates, as well as a cash component related to the individual tax effects of the program. The stock component of the grant includes 21,850 shares that vest on June 26, 2008 and 21,850 shares that vest on June 26, 2009, contingent upon participants being employed with the Company on those dates. Under the program, 1,000 shares were surrendered due to termination of employment with the Company. The total value of the Company's common stock subject to this program is $83,000 based on the value of the underlying common stock at the date of grant. During the three and nine-months ended September 26, 2007, $9,000, respectively, of expense related to the program was recognized.

On April 6, 2006, the Company sold an aggregate of 12,750,000 shares of common stock and warrants to purchase up to 12,750,000 shares of common stock in a private placement (the "Private Placement") for a total of $25.5 million (excluding any proceeds that might be received upon exercise of the warrants). The Company received approximately $23.8 million net of the placement agent fees and other expenses in the Private Placement. The purchase price was $2.00 per share of common stock, and each warrant to purchase common stock has an exercise price of $2.40 per share. The Company may call up to 20% of the outstanding warrants at a redemption price of $.0075 per share of common stock underlying the warrants during any three month period if certain conditions are satisfied, including the trading price of its common stock exceeding $4.80 for 20 consecutive trading days, upon 30 days prior notice. During the notice period, the holders of the warrant would be entitled to exercise the warrants or any portion of them. Up to half of the warrants may be exercised on a cashless or net exercise basis. There can be no assurance, however, that the Company will receive funds from the exercise of warrants.

In addition, the Company issued warrants to purchase 50,000 shares of common stock to a financial advisor and issued warrants to purchase 100,000 shares of common stock to an outside consultant as a finders' fee on substantially similar terms as the warrants issued in the Private

Placement. The value of these warrants of $472,000 was determined using the Black-Scholes model and is considered a non-cash private placement expense.

Pursuant to the terms of a registration rights agreement entered into by the Company at the closing of the Private Placement, the Company filed with the SEC a registration statement on Form S-3 covering the resale of the common stock sold to investors in the Private Placement. The registration rights agreement provides, among other things, that the Company will use commercially reasonable efforts to effect the registration of the securities within 90 days of closing, and to continuously maintain effectiveness. If sales cannot be made under the registration statement (other than for certain periods when the Company is permitted under the agreement to suspend use of the registration statement when it has delayed disclosure of material nonpublic information) then the Company is obligated to pay each investor liquidated damages, in cash, equal to 1.5% per 30 day period (or pro rata for a portion thereof) of the amount invested by such investor. The SEC declared the Company's Form S-3 effective on May 18, 2006, which was within 90 days of closing.

The Company views the registration rights agreement containing the liquidated damages provision as a separate freestanding contract as discussed in Emerging Issues Task Force ("EITF") Issue No. 05-4, "The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock," and that the registration rights agreement has nominal value. Under this approach, the registration rights agreement is accounted for separately from the financial instrument in accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." Accordingly, the classification of the warrants has been determined under EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock," and the warrants have been accounted for as permanent equity.

The Company has valued the liquidated damages provision of the registration rights agreement at nominal value. In determining this as the fair value, the Company considered the following factors. The agreement provides that there was a 90-day period to have the registration statement declared effective before liquidated damages apply. The Company believed at the closing of the Private Placement it was probable the registration statement would be declared effective within the 90-day period. The registration statement was declared effective in less than 90 days and in the same fiscal quarter as the closing of the Private Placement, and therefore the Company was aware that there was no value to the liquidated damages provision for the initial 90 day period. The liquidated damages provision would only have value in the future if sales may not be made thereunder for periods other than as permitted thereunder. The Company believes the events that would lead to sales being unable to be made under the registration statement for periods other than as permitted are unlikely to occur. In future periods, should the Company conclude that it is probable, as defined in SFAS No. 5, "Accounting for Contingencies," that a liability for liquidated damages will occur, the Company will record the estimated cash value of the liquidated damages liability at that time.

As of September 26, 2007, the Company had five equity incentive plans; the 1994 Long-Term Performance Incentive Plan, the 1998 Stock Incentive Plan, the 2004 Equity Incentive Plan, the 2004 Non-Employee Director's Stock Option Plan and the 2006 Equity Incentive Plan, which was approved by shareholders on April 4, 2006. As a result of the approval of the 2006 Equity Incentive Plan, all prior plans were suspended and no additional grants shall be made under these plans.

As of September 26, 2007, the total number of shares of the Company's common stock authorized for issuance related to grants under all of the Plans was 7,551,160, of which 6,543,777 remain outstanding and 783,988 shares remain reserved for future grants.

During 2006, the Company's Board of Directors adopted and its stockholders approved the Company's 2006 Equity Incentive Plan, which initially reserved 6,577,106 shares of common stock for issuance thereunder. Immediately following any issuance of common stock by the Company during the three year period ending April 4, 2009, other than issuances of common stock upon exercise of the warrants issued to the investors in the Private Placement, the number of shares available for issuance under the 2006 Equity Incentive Plan will be increased to 20% of the number of fully diluted shares of the Company's common stock immediately after such issuance, including all shares of common stock issuable upon exercise of then outstanding options or warrants, and options forfeited in other plans, less the number of shares of common stock subject to existing options under the Plans, up to a maximum of 8,177,106 shares. As a result of common stock issuances during 2006 and 2007, the number of shares available under the 2006 Equity Incentive Plan increased to 6,774,428.

On February 8, 2006, the Board of Directors of the Company approved, subject to stockholder approval, the modification of certain outstanding options to purchase shares of common stock under the Company's existing equity incentive plans, including certain stock options granted to the Company's directors and executive officers. The Company received stockholder approval of these modifications on April 4, 2006 and the exercise price of each such modified option was reduced to $4.02 per share as of such date. As of the date of the action by the Company's Board of Directors, stock options for approximately 696,253 shares were outstanding under all of the Plans, of which options to purchase approximately 626,568 shares of common stock, having exercise prices ranging from $4.20 to $112.50, were modified. As a result of the modification of vested stock options, in accordance with SFAS 123(R), the Company recorded a $381,000 one-time non-cash fixed period charge in the second quarter of 2006.

As of December 27, 2006, the Company had available net operating loss ("NOLs") and research and development credit carryforwards of $113.7 million and $4.2 million, respectively, to offset future taxable income. The Internal Revenue Code contains provisions that may limit the use of NOLs and tax credits available for use in any given year upon the occurrence of certain events, including

significant changes in ownership interest. A change in ownership of a company within a three-year period results in an annual limitation on the company's ability to utilize its NOLs and tax credit carryforwards from tax periods prior to the ownership change. As a result of the Private Placement, which is considered to be a change in ownership for tax purposes, the Company's NOL and tax credit carryforwards as of December 27, 2006 are subject to significant limitations. The Company believes that it will not be able to use a significant portion of its NOL and tax credits to offset its income or taxes due in the future.

Basic earnings (loss) per share is measured as net income or loss divided by the weighted average outstanding common shares for the period. Diluted earnings per share is similar to basic earnings per share but presents the dilutive effect on a per share basis of potential common shares (e.g. stock options, warrants and convertible securities) as if they had been converted at the beginning of the periods presented. Potential common shares that could potentially dilute basic earnings per share that were not included in the computation of diluted earnings per share because to do so would be antidilutive, amounted to 19,443,777 shares and 17,137,518 shares at September 26, 2007 and September 27, 2006, respectively.

On March 22, 2006 the Company and Dr. Patricia Pilia entered into a Settlement Agreement (the "Settlement Agreement") in connection with Dr. Pilia's termination of employment by the Company without cause on February 23, 2006. Dr. Pilia was a member of the Company's Board of Directors and previously served as Executive Vice President and Secretary of the Company and was party to an employment agreement with the Company. In connection with the Settlement Agreement, the Company recorded an obligation of $646,000 for termination benefits at March 29, 2006 that was paid in the third quarter of 2006.

On March 28, 2007, the Company entered into an amended employment agreement with its Chief Operating Officer ("COO") that amended certain provisions of the employment agreement, including the definition for termination for good reason, which allows for the COO to terminate his employment at any time on or after December 31, 2008. This termination would entitle the COO to the receipt of the full severance benefits under the employment agreement, including accelerating the vesting of certain outstanding stock options.

As a result, the Company will recognize the termination benefit of the COO as an expense in the amount of $270,000, ratably over the period March 28, 2007 through December 31, 2008. The acceleration of vesting of certain outstanding stock options, which modified the vesting terms of certain outstanding stock options, did not have a material impact on the Company's financial statements as of September 26, 2007.

The Company agreed to employ Donald H. Picker, Ph.D., as our president in December 2006. Prior to joining our company, Dr. Picker had served as Executive Vice President of Research and Development of Callisto Pharmaceuticals, Inc. In December 2006, Callisto filed a complaint in the Supreme Court of New York, County of New York, relating to its employment of Dr. Picker. The suit originally named Tapestry and two of our officers, Leonard Shaykin and Kai Larson, as defendants. Leonard Shaykin and Kai Larson have subsequently been dismissed from this suit. In its complaint, Callisto alleges breaches of a confidentiality agreement between Callisto and Tapestry and interference with Dr. Picker's contractual relationship with Callisto. Callisto seeks unspecified actual and punitive damages. The Company believes these claims are without merit and the Company is vigorously defending against them. The Company has incurred legal fees of $436,000 and $1.3 million for the three and nine-months ended September 26, 2007, respectively.

In February 2007, the Company leased 2,300 square feet of office space in Roseland, New Jersey to support its clinical development activities. The lease was amended in October 2007 and increased the amount of square feet leased to 4,000. The lease has been extended to July 31, 2009 and requires monthly rental payments of $7,800.

In March 2007, the Company entered into a five year lease covering approximately 29,000 square feet of office and laboratory space in Boulder, Colorado. The Company plans to consolidate much of its Colorado-based administrative and research and development facilities into this space. The Company plans to take possession of this space in November 2007 to make the necessary renovations. The Company made a $375,000 deposit related to this facility and is included in other assets. This deposit will decrease by $60,000 per year, capped after four years to a minimum balance of $135,000 until termination.

As of September 26, 2007, future minimum lease payments under noncancelable operating lease agreements are as follows (in thousands):

On April 23, 2007, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission for a proposed public offering of up to $40.0 million of its common stock.

On June 12, 2007, the Company withdrew the registration statement on Form S-1 due to market conditions. As a result of this withdrawal, the Company expensed the costs incurred in the amount of $452,000 and $20,000 in the second quarter and third quarters of 2007, respectively.

On October 23, 2007, our Board of Directors authorized a reduction in the Company's operations. As a result, the Company has eliminated 14 positions (28% of its work force), including executive and non-executive positions in all areas of operations. In conjunction with this reduction in operations, the Company incurred one time severance costs of $470,000, $170,000 of which will be paid in the fourth quarter. Approximately $300,000 of the total severance costs will be paid to its terminated President in the second quarter of 2008 in accordance with the terms of his employment agreement. The Company took such action to preserve cash and to focus all of its resources on advancing the Company's leading drug candidate in on-going and future clinical trials.

Item 2. 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 contains information that management believes is relevant to an assessment and understanding of our results of operations. You should read this discussion in conjunction with the Financial Statements and Notes included elsewhere in this report and with Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 27, 2006 contained in our 2006 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the "SEC") on March 7, 2007 as well as an amendment thereto on Form 10-K/A filed with the SEC on April 26, 2007. Certain statements set forth below constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. See "Special Note Regarding Forward-Looking Statements" and "Risk Factors" appearing elsewhere in this Report. References to "Tapestry," the "Company," "we," "us" and "our" refer to Tapestry Pharmaceuticals, Inc. and its subsidiaries.

We are a biopharmaceutical company focused on the development of proprietary therapies for the treatment of cancer. Our core capabilities are deriving and developing drug candidates from natural products. We are currently devoting substantially all of our efforts to the development of TPI 287, a proprietary next generation taxane for the treatment of multiple cancer indications. We hold all worldwide commercial rights for TPI 287. Taxanes comprise a class of drugs derived from natural products that are used in the treatment of various forms of cancer.

We completed dosing in a Phase 1 clinical trial of TPI 287 and expect to complete dosing in another Phase 1 clinical trial during the fourth quarter of 2007. In addition, in May, 2007 we commenced enrollment in a Phase 2 clinical trial of TPI 287 in patients with an advanced form of prostate cancer called hormone refractory prostate cancer, or HRPC. On October 3, 2007, we commenced enrollment in a Phase 2 open-label, multi-center study of TPI 287 in patients with advanced pancreatic cancer.

These two Phase 2 clinical trials are the first of three planned Phase 2 clinical trials of TPI 287 in different cancer indications. In our clinical trials to date, we have evaluated intravenous, or IV, formulations of TPI 287. We plan to use an IV formulation in our currently planned Phase 2 clinical trials. We also are developing an oral formulation of TPI 287 and plan to initiate a Phase 1b/2 pharmacokinetic clinical trial of TPI 287. In this study, we plan to orally administer TPI 287 to evaluate the drug's activity and oral bioavailability in humans. Assuming feasibility of oral dosing from this study, we may initiate a Phase 1b/2 study of the combination of escalating doses of TPI 287 and temozolomide, both orally administered, in tumors of the central nervous system.

We may expand our product pipeline through strategically in-licensing or acquiring product candidates that complement our business. This could involve the examination of individual molecules, classes of compounds or technologies in cancer as well as other therapeutic areas. Our acquisitions of new product candidates or technologies may also involve the acquisition of, or merger with, other companies.

We have incurred significant operating losses since our inception in 1991. Our net loss was $6.1 million and $16.7 million for the three and nine-months ended September 26, 2007, respectively and $16.7 million for the year ended December 27, 2006. We had an accumulated deficit of $140.6 million as of September 26, 2007. We expect to incur significant and increasing operating losses for at least the next several years, until such time, if ever, as we are able to generate sufficient sales to support our development operations, including the research and development activity discussed above.

To become profitable, we must succeed in developing and eventually commercializing drugs with significant market potential. This will require us to be successful in a range of challenging activities, including discovering, in-licensing or acquiring product candidates, successfully completing preclinical testing and clinical trials of our product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling those products for which we obtain regulatory approval. We are only in the preliminary stages of development of TPI 287, our only current product candidate. We may never succeed in these activities and may never generate revenues that are significant enough to achieve profitability.

On April 23, 2007, we filed a registration statement on Form S-1 with the Securities and Exchange Commission (the "SEC") for a proposed public offering of up to $40.0 million of our common stock. On June 12, 2007, we withdrew the registration statement on Form S-1 with the SEC. As a result of the withdrawal, we expensed costs incurred in the amount of $452,000 and $20,000 in the second and third quarters of 2007, respectively.

On April 5, 2006 we sold an aggregate of 12,750,000 shares of our common stock and warrants to purchase up to 12,750,000 shares of our common stock in a private placement for a total of $25.5 million, not including any proceeds that might be received upon exercise of the warrants. We received approximately $23.8 million net of the placement agent fees and other expenses in this private placement. The warrants currently have an exercise price of $2.40 per share. Under the terms of these warrants, the exercise price may be reduced if we issue shares of common stock or certain options or rights to acquire common stock for no consideration or for consideration per share less than the exercise price of the warrants in effect immediately prior to the time of such issue or sale. The warrants specify a formula for a weighted average adjustment in the exercise price that takes into account the number of shares of common stock outstanding, the number of shares issued below the exercise price and the aggregate consideration received upon such issuance.

We may call up to 20% of the outstanding warrants at a redemption price of $0.0075 per share of common stock underlying the warrants during any three month period if certain conditions are satisfied, including the trading price of our common stock exceeding $4.80 for 20 consecutive trading days, upon 30 days prior notice. During the notice period, the holders would be entitled to exercise the warrant or any portion of it. Up to half of these warrants may be exercised on a cashless or net exercise basis. There can be no assurance, however, that we will receive any funds from the exercise of warrants.

In addition, we issued warrants to purchase 50,000 shares of common stock to a financial advisor and issued warrants to purchase 100,000 shares of common stock to an outside consultant as a finders' fee on substantially similar terms as the warrants issued in this private placement.

In connection with this private placement, we entered into a registration rights agreement in which we agreed to make the requisite filings with the Securities and Exchange Commission to achieve and substantially maintain the effectiveness of a registration statement covering shares sold in the private placement, as well as shares underlying warrants issued in this private placement. If we fail to maintain effectiveness of that registration statement through as late as April 6, 2013, subject to our right to suspend use of the registration statement in certain circumstances, we will have to pay liquidated damages to investors in an amount equal to 1.5% of the amount invested by them for each 30 day period during which the registration statement should have been effective.

We are required to use the net proceeds from this private placement to fund the development of TPI 287 in accordance with a budget for calendar years 2006 and 2007 that was adopted by our Board

of Directors before the closing of the private placement. Any change to this budget will require the approval of a majority of the independent members of our Board of Directors.

In connection with this private placement we granted preemptive rights to investors who continue to hold at least 50% of the shares of common stock held by such investors in the private placement. The preemptive rights apply to certain issuances for cash of common stock or securities convertible or exchangeable for common stock.

Our current business is focused on research and development of proprietary therapies for the treatment of cancer. We were previously engaged in development activities related to our paclitaxel business, which we sold to Mayne Pharma (USA) Inc. in 2003 (acquired by Hospira on February 1, 2007), genomic technologies, which we discontinued in 2004, and Huntington's Disease, which we ceased in 2006. Costs relating to genomic technologies, excluding our Huntington's Disease program, and the paclitaxel business are aggregated in discontinued operations. We have incurred the following expenses related to research and development projects:

	Three-Months Ended,				Nine-Months Ended,
	September 26, 2007		September 27, 2006		September 26, 2007		September 27, 2006
Oncology	$	4,526	$	2,259	$	11,414	$	7,554
Huntington's Disease		—		—		—		(90	)
Discontinued operations		—		—		—		88

	$	4,526	$	2,259	$	11,414	$	7,552

We expect research and development, which includes the cost of our clinical development of TPI 287, to continue to be the most significant expense of our business for the foreseeable future. Our research and development activity is subject to change as we develop a better understanding of our projects and their prospects.

We completed dosing in a Phase 1 clinical trial of TPI 287 and expect to complete dosing in another Phase 1 clinical trial during the fourth quarter of 2007. In addition, we recently commenced enrollment in a Phase 2 clinical trial of TPI 287 in patients with an advanced form of prostate cancer called hormone refractory prostate cancer, or HRPC. On October 3, 2007, we commenced enrollment in a Phase 2 open-label, multi-center study of TPI 287 in patients with advanced pancreatic cancer.

The following table summarizes key information about our additional ongoing and planned clinical development efforts relating to TPI 287:

We cannot be sure that we will be able to achieve our goals relating to these programs. We also cannot estimate the cost necessary to complete these programs, the timing of material net cash inflows from these programs, or whether we will ever recognize revenues from these programs. Continued development of these programs is dependent upon raising additional capital. We cannot be certain that we will be able to obtain capital on acceptable terms, or at all.

Three-Months Ended September 26, 2007 Compared to the Three-Months Ended September 27, 2006

Research and Development Expense. Research and development expense for the third quarter of 2007 was $4.5 million, as compared to $2.3 million in the third quarter of 2006, an increase of $2.2 million.

The increase was primarily due to an increase in compensation related expenses of $711,000, an increase in outside consulting fees of $922,000, an increase in legal fees of $397,000, an increase in clinical outside service expenses of $148,000 and an increase in manufacturing expenses of $340,000 offset by a decrease in supplies expense of $307,000.

The increase in compensation expense in the third quarter of 2007 was primarily related to an increase in headcount during the first and second quarters of 2007, including two officers as well as an increase in non-cash equity compensation of $150,000. The increase in legal expense is primarily the result of outside legal fees incurred as a result of litigation with another pharmaceutical company. We expect our oncology related expenses to increase in future quarters in connection with our ongoing and planned Phase 1 and Phase 2 clinical trials of TPI 287.

General and Administrative Expense. General and administrative expense for the third quarter of 2007 was $1.7 million, an increase of $162,000 from the third quarter of 2006. This increase was primarily due to an increase in consulting services of $52,000 and an increase in legal expense of $66,000.

Interest and Other Income. Interest and other income of $169,000 for the third quarter of 2007 decreased by $231,000 from $400,000 for the third quarter of 2006. This decrease was primarily attributable to lower investment balances in the third quarter of 2007 compared to the third quarter of 2006.

Interest and Other Expense. Interest and other expense of $6,000 for the third quarter of 2007 decreased by $118,000 from $124,000 for the third quarter of 2006. This decrease was attributable to

our repurchase of two non-interest bearing promissory notes payable to TL Ventures V L.P. and TL Ventures V Interfund L.P. in November 2006.

Nine-Months Ended September 26, 2007 Compared to the Nine-Months Ended September 27, 2006

Research and Development Expense. Research and development expense from continuing operations for the nine-months ended September 26, 2007 was $11.4 million, as compared to $7.5 million for the nine-months ended September 27, 2006, an increase of $3.9 million. Oncology related research and development expenditures increased by $3.9 million to $11.4 million for the nine-months ended September 26, 2007. In 2006, we ceased our Huntington's Disease research. As a result, there were no expenses in the nine-months ended September 26, 2007 for Huntington's Disease, as compared to a credit of $90,000 in 2006, which was a result of a reversal of laboratory fees owed to a research university. We do not expect to incur expenses related to this program in the future.

The increase in oncology related expenses was primarily due to an increase in legal fees of $1.4 million, an increase in outside consulting fees of $1.2 million, an increase in compensation related expenses of $777,000, and an increase in outside clinical trial costs of $330,000. We expect our oncology related expenses to increase in future quarters in connection with our ongoing and planned Phase 1 and Phase 2 clinical trials of TPI 287.

The increase in legal fees is primarily the result of outside legal fees incurred as a result of litigation with another pharmaceutical company. The increase in compensation expense was primarily related to an increase in headcount during the first and second quarters of 2007, including two officers as well as an increase in non-cash equity compensation of $92,000.

General and Administrative Expense. General and administrative expense from continuing operations for the nine-months ended September 26, 2007 was $5.9 million, an increase of $841,000 from the nine-months ended September 27, 2006. This increase was primarily due an increase in legal expense of $514,000, an increase in consulting fees of $194,000 and an increase in compensation related costs of $148,000.

The increase in legal fees was primarily due to the write-off of capitalized legal fees related to a registration statement that was withdrawn from the SEC in the second quarter of 2007.

Interest and Other Income. Interest and other income of $662,000 for the nine-months ended September 26, 2007 decreased by $274,000 from $936,000 for the nine-months ended September 27, 2006. This decrease was primarily attributable to lower investment balances in the nine-months ended September 26, 2007 compared to the nine-months ended September 27, 2006.

Interest and Other Expense. Interest and other expense of $18,000 for the nine-months ended September 26, 2007 decreased by $409,000 from $427,000 for the nine-months ended September 27, 2006. This decrease was attributable to our repurchase of two non-interest bearing promissory notes payable to TL Ventures V L.P. and TL Ventures V Interfund L.P. in November 2006.

Discontinued Operations. There was no loss from discontinued operations recognized in the nine-months ended September 26, 2007 as compared to $88,000 for the nine-months ended September 27, 2006. This decrease is a result of there being no activity in the discontinued Genomics business in the nine-months ended September 26, 2007. The expense in the nine-months ended September 27, 2006 represented non-cash equity compensation expense in the amount of $86,000 as a result of the implementation of SFAS 123(R) in 2006.

Share Based Compensation. We follow the fair value method of accounting for share-based compensation arrangements in accordance with Financial Accounting Standards Board ("FASB"), Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004), Share-Based Payment ("SFAS 123(R)"). We adopted SFAS 123(R) effective December 29, 2005 using the modified

prospective method of transition. For the three-months ended September 26, 2007 and September 27, 2006, we recorded share-based compensation expense of $869,000 ($0.05 per share) and $615,000 ($0.04 per share), respectively. For the nine-months ended September 26, 2007 and September 27, 2006, we recorded share-based compensation expense of $2.6 million ($0.16 per share) and $2.5 million ($0.22 per share), respectively. Share-based compensation expense is allocated among research and development expenses and general and administrative expenses based on the function of the related employee. These non-cash charges had no impact on our cash flows for the periods presented. For more information about SFAS 123(R), see "Note 1. Basis of Presentation and Summary of Significant Accounting Policies—Share-Based Compensation" in the Unaudited Notes to Consolidated Financial Statements included in this Form 10-Q.

Callisto Litigation. We agreed to employ Donald H. Picker, Ph.D., as our president in December 2006. Prior to joining our company, Dr. Picker had served as Executive Vice President of Research and Development of Callisto Pharmaceuticals, Inc. In December 2006, Callisto filed a complaint in the Supreme Court of New York, County of New York, relating to our employment of Dr. Picker. The suit originally named Tapestry and two of our officers, Leonard Shaykin and Kai Larson, as defendants. Leonard Shaykin and Kai Larson have subsequently been dismissed from this suit. In its complaint, Callisto alleges breaches of a confidentiality agreement between Callisto and Tapestry and interference with Dr. Picker's contractual relationship with Callisto. Callisto seeks unspecified actual and punitive damages. We believe these claims are without merit and we are vigorously defending against them. We have incurred legal fees of $436,000 and $1.3 million for the three and nine-months ended September 26, 2007, respectively.

Our capital requirements for operations have been, and will continue to be, significant. As of September 26, 2007, we had a working capital balance of $6.1 million, as compared to a working capital balance of $20.2 million as of December 27, 2006. To date, we have financed our operations primarily with the net proceeds of public offerings of common stock and private placements of equity securities, with proceeds from the exercise of warrants and options and with debt. We also have funded our capital requirements with the gross proceeds of approximately $71.7 million related to the sale of our paclitaxel business to Mayne Pharma (USA) Inc. in 2003.

On October 23, 2007, our Board of Directors authorized a reduction in our operations. As a result, we have eliminated 14 positions (28% of its work force), including executive and non-executive positions in all areas of operations. In conjunction with this reduction in operations, we incurred one time severance costs of $470,000, $170,000 of which will be paid in the fourth quarter. Approximately $300,000 of the total severance costs will be paid to our terminated President in the second quarter of 2008 in accordance with the terms of his employment agreement. We took such action to preserve cash and to focus our resources on advancing TPI 287's on-going and future clinical trials.

We expect our capital needs to remain flat in 2007 as compared to 2006 due, in part, to our reduced operations as discussed above.

Going Concern. We have no revenue and we have incurred significant operating losses since our inception. Our net loss was $6.1 million for the three-months ended September 26, 2007 and $16.7 million for nine-months ended September 27, 2006, and $16.7 million for the year ended December 27, 2006. We had an accumulated deficit of $140.6 million as of September 26, 2007. As of September 26, 2007, we had cash and cash equivalents and short-term investments totaling approximately $9.4 million. Our capital requirements for research and development, including the cost of clinical trials, have been and will continue to be significant.

We expect research and development expenses to increase in connection with our ongoing activities, particularly as we continue the development of TPI 287. If we in-license or acquire additional

product candidates, our research and development expenses will increase further. In addition, subject to obtaining regulatory approval of TPI 287 or any other product candidate, we expect to incur significant commercialization expenses for product sales, marketing, securing commercial quantities of product from third-party manufacturers and distribution. We will need substantial additional funding and may be unable to raise capital when needed or on attractive terms, which would force us to delay, reduce or eliminate research and development programs or commercialization efforts.

We believe that the existing cash and cash equivalents and short-term investments are not sufficient to enable us to fund our operating expenses and capital expenditures for the next twelve months. On October 23, 2007, our Board of Directors authorized a reduction in the Company's operations. As a result, we have eliminated 14 positions (28% of its work force), including executive and non-executive positions in all areas of operations. In conjunction with this reduction in operations, we incurred one time severance costs of $470,000. We will be required to raise additional capital through public or private equity offerings and debt financings, corporate collaborations or licensing arrangements. Should we be unable to raise the needed capital, we may be required to slowdown, further curtail or cease operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. See "Risk Factors—Risks Related to Our Business."

Working Capital and Cash Flow. Cash and cash equivalents and short-term investments decreased $13.1 million to $9.4 million at September 26, 2007 from $22.5 million at December 27, 2006. This decrease was primarily due to cash used in operating activities of $12.9 million. Our cash used in operating activities was primarily used to advance our product development efforts and for general corporate purposes. The majority of our future cash expenditures are expected to continue to be used to advance our product development programs including clinical trials of TPI 287 and for working capital and other general corporate purposes.

Reverse Stock Split and NASDAQ Listing. Our common stock is listed on the NASDAQ Capital Market. In order to maintain that listing, we must satisfy minimum financial and other requirements. On February 25, 2005, we received notice from the NASDAQ Stock Market, Inc. that our common stock had not met the $1.00 per share minimum bid price requirement for 30 consecutive business days and that, if we were unable to demonstrate compliance with this requirement during the applicable grace periods, our common stock would be delisted after that time. On February 6, 2006, we effected a one for ten reverse stock split of our common stock to regain compliance with this listing requirement. Since this time, the closing bid price of our common stock has remained above $1.00 in compliance with the minimum bid price requirement.

Notes Payable. On November 17, 2006, we repurchased two non-interest bearing promissory notes issued by us to TL Ventures V L.P. and TL Ventures V Interfund L.P. in February 2005. These promissory notes had an outstanding principal balance of $3.0 million, and we repurchased them for an aggregate payment of $2.7 million in cash. The repurchase of these notes did not have a material impact on our financial results.

Private Placement. On April 5, 2006, we sold an aggregate of 12,750,000 shares of our common stock and warrants to purchase up to 12,750,000 shares of our common stock in a private placement for a total of $25.5 million, not including any proceeds that might be received upon exercise of the warrants. We received approximately $23.8 million net of the placement agent fees and other expenses in this private placement. The warrants currently have an exercise price of $2.40 per share. We may call up to 20% of the outstanding warrants at a redemption price of $0.0075 per share of common stock underlying the warrants during any three-month period if certain conditions are satisfied, including the trading price of our common stock exceeding $4.80 for 20 consecutive trading days, upon 30 days prior notice. During the notice period, the holders would be entitled to exercise the warrants or any portion

of them. Up to half of the warrants may be exercised on a cashless or net exercise basis. There can be no assurance, however, that we will receive any funds from the exercise of warrants.

The table below summarizes our future contractual obligations as of September 26, 2007 (in thousands):

	Total		Remaining in 2007		1-3 years		4-5 years		After 5 years
Operating leases	$	2,392	$	65	$	1,462	$	865	$	—
Capital lease		143		33		110		—		—

Total	$	2,535	$	98	$	1,572	$	865	$	—

In February 2007, we leased 2,300 square feet of office space in Roseland, New Jersey to support our clinical development activities. The lease was amended in October 2007 and increased the amount of square feet leased to 4,000. The lease has been extended to July 31, 2009 and requires monthly rental payments of $7,800.

In March 2007, we entered into a five year lease covering approximately 29,000 square feet of office and laboratory space in Boulder, Colorado. We plan to consolidate much of our Colorado-based administrative and research and development facilities into this space. We plan to take possession of this space in November 2007 to make the necessary renovations.

We have employment agreements with a number of key employees. These employment agreements contain provisions regarding the termination of employment including termination of employment associated with a change in control. These termination benefits range from 100% to 300% of the employee's base salary for the 12-month period immediately preceding the termination date, payment of any accrued but unpaid salary, bonus and vacation and payment of up to 100% of the prior year bonus or 75% of base salary for the 12-month period immediately preceding the termination date.

As described above, on October 23, 2007, our Board of Directors authorized a reduction in our operations. As a result, one of the positions eliminated was the President of the Company. In accordance with the terms of his employment agreement, we have recorded an obligation of $300,000 for terminated benefits in the fourth quarter of 2007 which will be paid in the second quarter of fiscal 2008.

On December 28, 2006, we adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty of income taxes by prescribing a minimum recognition threshold for a tax position taken or expected to be taken in a tax return that is required to be met before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of the date of adoption, we did not identify any unrecognized tax benefits and there was no cumulative effect on retained earnings of adopting FIN 48. We recognize interest and penalties related to our tax contingencies as income tax expense.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This standard defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States and expands disclosure about fair value measurements. This pronouncement applies to other accounting standards that require or permit fair value measurements. Accordingly, this statement does not require any new fair value measurement. This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal

years. We will be required to adopt SFAS No. 157 in the first quarter of fiscal year 2008. Management has not yet determined the impact of adopting this statement.

In June, 2007 the FASB issued EITF 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities". EITF 07-3 clarifies the accounting for non-refundable advance payments made for future research and development activities. This issue is effective for fiscal years beginning after December 15, 2007, including interim periods within those fiscal years. The cumulative effect of applying EITF 07-3 will be reported as a change in accounting principle through an adjustment to retaining earnings as of the beginning of the period in which it is adopted. Management has not yet determined the impact of adopting this statement.

Some of the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors," and elsewhere in this report constitute forward-looking statements. In some cases, you can identify forward-looking statements by the following words: "may," "will," "could," "would," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "project," "potential," "continue," "ongoing" or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. While we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Many important factors affect our ability to achieve our objectives, including:

In addition, you should refer to the "Risk Factors" section of this report for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied

by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all.

We qualify all the forward-looking statements contained in this report by the foregoing cautionary statements. We may not update these forward-looking statements even though our situation may change in the future.

We currently invest our excess cash balances in money market accounts and short-term investments that are subject to interest rate risk. The amount of interest income we earn on these funds will change as interest rates in general change. Our investments are subject to a loss of principal if market interest rates increase and the investments are sold prior to maturity. However, due to the short-term nature of the majority of our investments, the high credit quality of our portfolio and our ability to hold our investments until maturity, an immediate 1% change in interest rates would not have a material impact on our financial position, results of operations or cash flows.

The Company maintains a system of disclosure controls and procedures. The term "disclosure controls and procedures," as defined by regulations of the SEC, means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits to the SEC under the Securities Exchange Act of 1934, as amended (the "Act"), is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits to the SEC under the Act is accumulated and communicated to the Company's management, including its Principal Executive Officer and its Principal Financial Officer, as appropriate to allow timely decisions to be made regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of September 26, 2007. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company's periodic SEC filings.

There were no changes in the Company's internal control over financial reporting during the quarter ended September 26, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material developments in legal proceedings affecting the Company during the quarter.

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this report, before deciding whether to invest in our common stock. The occurrence of any of the following risks could harm our business, financial condition or results of operations. In such case, the trading price of our common stock could decline and you may lose all or part of your investment.

We will need substantial additional funding and may be unable to raise capital when needed, which would force us to discontinue, shutdown or cease operations. The existence of preemptive rights held by certain of our stockholders may complicate any sale of common stock or securities convertible or exchangeable for common stock and could limit the possible investors in our common stock.

We expect to have significant research and development expenses as we continue the clinical development of TPI 287. If we in-license or acquire additional product candidates, our research and development expenses will increase further. In addition, subject to obtaining regulatory approval of TPI 287 or any other product candidate, we expect to incur significant commercialization expenses for product sales, marketing, securing commercial quantities of product from our manufacturers and distribution. We will need substantial additional funding and may be unable to raise capital when needed or on attractive terms, which would force us to delay, further curtail or eliminate our research and development programs or commercialization efforts.

We believe that our existing cash and cash equivalents and short-term investments are not sufficient to enable us to fund our operating expenses and capital expenditures for the next twelve months without significantly curtailing our operations in addition to that already effected. Therefore, we will be required to raise additional capital through public or private equity offerings or debt financings, corporate collaboration and licensing arrangements. If we raise additional funds by issuing equity securities, our stockholders will experience dilution.

Any financing involving our issuance for cash of common stock or securities convertible or exchangeable for common stock could be significantly complicated or delayed as a result of preemptive rights held by certain existing stockholders who acquired shares of common stock and warrants in our private placement in April 2006, the holdings of which currently represent more than 50% of our outstanding common shares. Moreover, the existence of those preemptive rights could limit the possible investors in our common stock and make more likely a funding by the holders of those preemptive rights on terms that may be less favorable than available otherwise.

Debt financing, if available, may involve agreements that include covenants restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.

Should we be unable to raise the needed capital, we may be required to discontinue, shutdown or cease operations.

We are currently devoting substantially all of our efforts to the development of one product candidate, TPI 287, which is in an early stage of clinical development. If we are unable to successfully develop and commercialize TPI 287, or experience significant delays in doing so, our business, financial condition and results of operations will be materially harmed.

We are currently devoting substantially all of our efforts to the development of TPI 287. Our ability to generate product revenues, which we do not expect for at least the next several years, if ever, depends on the successful development and eventual commercialization of TPI 287. However, TPI 287 is in an early stage of clinical development. We recently completed dosing in a Phase 1 clinical trial of TPI 287 and expect to complete dosing in another Phase 1 clinical trial during the fourth quarter of 2007. In addition, in May, 2007 we commenced enrollment in a Phase 2 clinical trial of TPI 287 in patients with an advanced form of prostate cancer called hormone refractory prostate cancer, or HRPC. On October 3, 2007, we commenced enrollment in a Phase 2 open-label, multi-center study of TPI 287 in patients with advanced pancreatic cancer.

These two Phase 2 clinical trials are the first of several planned Phase 2 clinical trials of TPI 287 in multiple cancer indications. In our clinical trials to date, we have evaluated intravenous, or IV, formulations of TPI 287. We plan to use an IV formulation in our currently planned Phase 2 clinical trials. We also are developing an oral formulation of TPI 287 and plan to initiate a Phase 1b/2 pharmacokinetic clinical trial of TPI 287. In this clinical trial, we plan to orally administer an IV formulation of TPI 287 to evaluate the drug's activity and oral bioavailability in humans. Assuming feasibility of oral dosing from this study, we may initiate a Phase 1b/2 study of the combination of escalating doses of TPI 287 and temozolomide, both orally administered, in tumors of the central nervous system. The success of TPI 287 will depend on several factors, including the following:

Because of our focus on one product candidate, if TPI 287 does not prove successful in clinical trials or is not commercialized because we have insufficient resources for continued development or for any other reason, we may be required to suspend or discontinue our operations and you could lose your entire investment.

We have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

We have incurred significant operating losses since our inception in 1991. Our net loss from continuing operations was $6.1 million and $16.7 million for the three and nine-months ended September 26, 2007, $16.6 million in 2006, $17.2 million in 2005 and $21.6 million in 2004. We have an accumulated deficit of $140.6 million as of September 26, 2007. To date, we have financed our operations primarily with the net proceeds of public offerings of common stock and private placements of equity securities, with proceeds from the exercise of warrants and options and with debt. We also have funded our capital requirements with the proceeds of the sale of our paclitaxel business to Mayne Pharma (USA) Inc. (acquired by Hospira on February 1, 2007) in December 2003.

Since we sold our paclitaxel business to Mayne Pharma, we have devoted substantially all of our efforts to research and development activities, including clinical trials. We have not completed development of any drugs. We expect to continue to incur significant and increasing operating losses for at least the next several years. We anticipate that our expenses will increase substantially as we:

To become and remain profitable, we must succeed in developing and eventually commercializing drugs with significant market potential. This will require us to be successful in a range of challenging activities, including discovering, in-licensing or acquiring product candidates, successfully completing preclinical testing and clinical trials of our product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling those products for which we may obtain regulatory approval. We are only in the preliminary stages of development of TPI 287, our only current product candidate. We may never succeed in these activities and may never generate revenues that are significant enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the market price of our common stock could also cause you to lose all or a part of your investment.

Our short history as a drug development company may make it difficult to evaluate the success of our business to date and to assess our future viability.

We are an early stage drug development company. Since we sold our paclitaxel business to Mayne Pharma in 2003, our operations have been limited to undertaking preclinical studies and limited clinical trials of our product candidates. Since we began devoting substantially all of our efforts to the development of TPI 287, we have not demonstrated our ability to successfully complete large-scale clinical trials, obtain regulatory approvals, manufacture a commercial scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer history as a drug development company.

In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from having a development focus to becoming capable of supporting commercial activities. We may not be successful in such a transition.

If we are not successful in establishing and maintaining development and commercialization collaborations for our product candidates, we may have to reduce or delay our product development and commercialization efforts and increase our expenditures.

For each of our product candidates, we plan to evaluate the merits of retaining commercialization rights for ourselves or selectively entering into strategic alliances with leading pharmaceutical and biotechnology companies to assist us in advancing our development programs. Other than arrangements with academic scientists and institutions that have provided us basic scientific research capabilities, we have not entered into any such arrangements to date.

If we enter into any of these strategic alliances, they may provide us with access to the therapeutic area expertise and the development and commercialization resources of our collaborators, as well as augment our financial resources.

We may not be able to negotiate collaboration or other alternative arrangements with these other companies for the development or commercialization of our product candidates on acceptable terms, or at all. We face, and will continue to face, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts, if any, to establish and implement collaborations or other alternative arrangements. The terms of any collaborations or other arrangements that we establish may not be favorable to us. If we are not able to establish collaboration arrangements, we may have to reduce or delay further development of some of our programs, increase our planned expenditures and undertake development and commercialization activities at our own expense.

Any collaboration that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. It is likely that our collaborators will have significant discretion in determining the efforts and resources that they will apply to these collaborations. For example, it is possible that:

We also expect to be subject to additional risks in future collaboration agreements we may enter into, including the following:

Collaborations with pharmaceutical companies and other third parties often are terminated or allowed to expire by the other party. Such terminations or expirations would adversely affect us financially and could harm our business reputation.

The results of preclinical studies and early stage clinical trials do not ensure success in later stage clinical trials, the results of clinical trials of a product candidate for particular indications are not necessarily indicative of the results of clinical trials of the product candidate in other indications and interim results from a clinical trial are not necessarily indicative of the successful outcome of that trial.

We do not currently have any products that have received regulatory approval, and our product development efforts are at an early stage. The outcome of preclinical studies and early clinical trials may not accurately predict the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. For example, the results that we observed in our preclinical studies of TPI 287 may not be indicative of successful results in our ongoing and planned Phase 1 and Phase 2 clinical trials of TPI 287 in multiple cancer indications. Many drug candidates have failed to show efficacy or safety in humans even after promising preclinical study results.

Even if our early phase clinical trials are successful, we will need to conduct additional clinical trials in a larger number of patients taking the drug for longer periods before we are able to seek approvals from the FDA and similar regulatory authorities outside the United States to market and sell a product candidate. Similarly, even if clinical trials of a product candidate are successful in one indication, clinical trials of that product candidate for other indications may be unsuccessful. For example, we plan to conduct clinical trials of TPI 287 for tumors of the central nervous system, prostate and pancreatic cancer. As such, the results from these Phase 2 clinical trials of TPI 287 may not necessarily be indicative of the results we may obtain in future clinical trials of TPI 287 in other cancer indications. Furthermore, even if clinical trials of one formulation of a drug are successful, clinical trials for other formulations may be unsuccessful. For example, the results from our planned Phase 2 clinical trials of an IV formulation of TPI 287 may not accurately predict the results we obtain in future clinical trials of an oral formulation of TPI 287. If we are not successful in commercializing TPI 287 in any of the cancers that we are investigating or as an oral formulation, or are significantly delayed in doing so, our business will be materially harmed and our stock price may decline.

If our preclinical studies do not produce positive results or if our clinical trials do not demonstrate safety and efficacy in humans, we may experience delays, incur additional costs and ultimately be unable to commercialize our product candidates.

Before obtaining regulatory approval for the sale of our product candidates, we must conduct, at our own expense, extensive preclinical tests to demonstrate the safety of our product candidates in animals and clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Preclinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, preclinical testing and the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including:

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

Our product development costs also will increase if we experience delays in testing or approvals. We do not know whether any preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, if at all. Significant preclinical or clinical trial delays also could shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to commercialize our products or product candidates.

If we observe serious adverse events or identify inappropriate side effects during the development of our product candidates, we may need to abandon or delay our development of the applicable product candidate.

Our product candidates may produce serious unforeseen adverse events, have undesirable side effects or have other characteristics that are unexpected. As a result, we might need to interrupt, delay or halt clinical trials of our product candidates. We may suspend or terminate clinical trials at any time. Regulators or institutional review boards may require that we hold, suspend or terminate clinical trials for various reasons, including a finding that participants are being exposed to unacceptable health risks. In addition, if other pharmaceutical companies announce that they have observed frequent unforeseen adverse events or safety issues in their trials involving products or product candidates similar to, or competitive with, our product candidates, we could encounter delays in the timing of our clinical trials or difficulties in obtaining the approval of our product candidates. The public perception of our product candidates might also be adversely affected, which could adversely affect our business, financial condition and results of operations, even if the concern relates to another company's product or product candidate.

The commercial success of TPI 287 or any other product candidates that we may develop will depend upon the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community.

Any products that we bring to the market, including TPI 287 if it receives marketing approval, may not gain market acceptance by physicians, patients, healthcare payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

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

We do not have a sales or marketing organization and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource these functions to third parties. We plan to retain United States marketing and sales rights or co-promotion rights for our product candidates for which we receive regulatory approval in markets in which we believe it is possible to

gain access through a focused, specialized sales force. For markets in which we believe a large sales force is required to gain access, and for markets outside the United States, we plan to commercialize products for which we obtain regulatory approval through a variety of collaboration and distribution arrangements with other pharmaceutical and biotechnology companies.

There are risks involved with establishing our own sales and marketing capabilities, as well as in entering into arrangements with third parties to perform these services. For example, developing a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or prohibited as a result of FDA requirements or other reasons, we would incur related expenses too early relative to the product launch. This may be costly, and our investment would be lost if we cannot retain our sales and marketing personnel. In addition, even if we establish our own sales force and marketing capabilities, our sales force and marketing teams may not be successful in commercializing our products.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

The development and commercialization of new drugs is highly competitive. We face competition with respect to TPI 287 and any products we may seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide.

If TPI 287 is approved for the cancer indications that we are currently investigating, it will compete principally with the following:

Potential competitors also include academic institutions, government agencies and other private and public research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, product development, manufacturing and commercialization.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer or more effective, have fewer side effects, are more convenient or are less expensive than any products that we may develop. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours. In addition, our ability to compete may be negatively affected because in some cases insurers or third party payors seek to encourage the use of generic products. This may make branded products less attractive to buyers due to higher costs.

We believe that many competitors are attempting to develop therapeutics for many of our target indications, including academic institutions, government agencies, public and private research organizations, large pharmaceutical companies and smaller more focused companies. We are aware of numerous product candidates in clinical development for each of the cancer indications that we are investigating.

Many of our competitors may have significantly greater financial resources and expertise than we do in the following:

Smaller and other early stage development companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical companies or other organizations. In addition, other companies and institutions compete with us in recruiting and retaining highly qualified scientific and management personnel and in establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to or necessary for our programs or advantageous to our business.

If we are unable to obtain adequate reimbursement from governments or third party payors for any products that we may develop or if we are unable to obtain acceptable prices for those products, our revenues and prospects for profitability will suffer.

Our revenues and profits will depend heavily upon the availability of adequate reimbursement for the use of our approved product candidates from governmental and other third party payors, both in the United States and in other markets. Reimbursement by a third party payor may depend upon a number of factors, including the third party payor's determination that use of a product is:

Obtaining reimbursement approval for a product from each government or other third party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to each payor. We may not be able to provide data sufficient to gain acceptance with respect to reimbursement. Even when a payor determines that a product is eligible for reimbursement, the payor may impose coverage limitations that preclude payment for some uses that are approved by the FDA or comparable authorities. In addition, there is a risk that full reimbursement may not be available for high priced products. Moreover, eligibility for coverage does not imply that any product will be reimbursed in all cases or at a rate that allows us to make a profit or even cover our costs. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. A primary trend in the United States healthcare industry and elsewhere is toward cost containment.

We expect recent changes in the Medicare program and increasing emphasis on managed care to continue to put pressure on pharmaceutical product pricing. In 2003, the U.S. government enacted legislation providing a partial prescription drug benefit for Medicare recipients, which became effective at the beginning of 2006. However, to obtain payments under this program, we will be required to sell products to Medicare recipients through drug procurement organizations operating pursuant to this legislation. These organizations will negotiate prices for our products, which are likely to be lower than those we might otherwise obtain. Federal, state and local governments in the United States continue to

consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs. Future legislation could limit payments for the product candidates that we are developing.

Recent proposed legislation may permit re-importation of drugs from foreign countries into the United States, including foreign countries where the drugs are sold at lower prices than in the United States, which could force us to lower the prices at which we sell our products and impair our ability to derive revenues from these products.

Legislation has been introduced in the U.S. Congress that, if enacted, would permit more widespread re-importation of drugs from foreign countries into the United States. This could include re-importation from foreign countries where the drugs are sold at lower prices than in the United States. Such legislation, or similar regulatory changes, could lead to a decrease in the price we receive for any approved products, which, in turn, could impair our ability to generate revenues. Alternatively, in response to legislation such as this, we might elect not to seek approval for or market our products in foreign jurisdictions in order to minimize the risk of re-importation, which could also reduce the revenue we generate from our product sales.

Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.

In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals 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 product.

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 product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

Use of third parties to manufacture our product candidates may increase the risk that we will not have sufficient quantities of our product candidates or be able to obtain such quantities at an acceptable cost, and clinical development and commercialization of our product candidates could be delayed, prevented or impaired.

We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates. We have limited personnel with experience in drug manufacturing and we lack the resources and the capabilities to manufacture any of our product candidates on a clinical or commercial scale.

We currently rely, and expect to continue to rely, on third parties for the manufacture of our product candidates and any products that we may develop, other than small amounts of compounds that we synthesize for preclinical testing. To date, we have obtained our supply of the bulk drug substance for TPI 287 from one third-party manufacturer. We have engaged a second manufacturer to provide the fill and finish services for an IV formulation of TPI 287 that we are using in our ongoing clinical trials. We do not have any agreements with third party manufacturers for the long term commercial supply of any of our product candidates. We obtain our supplies of TPI 287 from these third party manufacturers pursuant to short term agreements that include specific supply timelines and volume expectations. If any of these manufacturers should become unavailable to us for any reason, we may be delayed in identifying and qualifying such replacements.

Reliance on third party manufacturers entails risks to which we would not be subject if we manufactured product candidates or products ourselves, including:

Our manufacturers may not be able to comply with current good manufacturing practice, or cGMP, regulations or other regulatory requirements or similar regulatory requirements outside the United States. We and our manufacturers are subject to unannounced inspections by the FDA, state regulators and similar regulators outside the United States. Our failure, or the failure of our third party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.

Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that are both capable of manufacturing for us and willing to do so. If the third parties that we engage to manufacture product for our preclinical tests and clinical trials should cease to continue to do so for any reason, we likely would experience delays in advancing these trials while we identify and qualify replacement suppliers and we may be unable to obtain replacement supplies on terms that are favorable to us. In addition, if we are not able to obtain adequate supplies of our product candidates or the drug substances used to manufacture them, it will be more difficult for us to develop our product candidates and compete effectively.

Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop product candidates and commercialize any products that receive regulatory approval on a timely and competitive basis.

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

We do not independently conduct clinical trials for our product candidates. We rely on third parties, such as contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to perform this function. Our reliance on these third parties for clinical development activities reduces our control over these activities. We are responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as Good Clinical Practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, regulatory approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.

We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our existing or future distributors could delay clinical development or regulatory approval of our product candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue.

We may not be successful in our efforts to in-license or acquire attractive development candidates.

We may attempt to enhance our product pipeline through strategically in-licensing or acquiring product candidates that complement our business. However, we may be unable to license or acquire suitable product candidates from third parties for a number of reasons. In particular, the licensing and acquisition of pharmaceutical products is competitive. A number of more established companies are also pursuing strategies to license or acquire products in the cancer market. These established companies may have a competitive advantage over us due to their size, cash resources or greater clinical development and commercialization capabilities. Other factors that may prevent us from licensing or otherwise acquiring suitable product candidates include the following:

If we in-license product candidates in the future and fail to comply with our obligations in any such license with a third party, we could lose license rights that are important to our business.

We expect that any licenses that we enter into the future will provide us rights to third party intellectual property that is important to our business. We expect that future licenses will impose various development and commercialization, milestone payment, royalty, sublicensing, patent protection and maintenance, insurance and other obligations on us. If we fail to comply with these obligations or otherwise breach the license agreement, the licensor may have the right to terminate the license in whole, terminate the exclusive nature of the license or bring a claim against us for damages. Any such termination or claim would likely prevent or impede our ability to market any product that is covered by the licensed patents. Even if we contest any such termination or claim and are ultimately successful, our stock price could suffer. In addition, upon any termination of a license agreement, we may be required to license to the licensor any related intellectual property that we developed.

We may be unable to attract and retain the qualified employees we need to be successful.

We are highly dependent on members of our staff that lead or play critical roles in our research and development efforts. We require highly qualified and trained scientists with the necessary skills to develop our product candidates. Recruiting and retaining qualified technical and managerial personnel will also be critical to our success. We face intense competition for these professionals from other companies in our industry and the turnover rate for these professionals can be high. The loss of any of these persons, or our inability to recruit additional personnel necessary to our business, could substantially impair our research and development efforts and impede our ability to develop and commercialize any of our products. In addition, we rely on other consultants and advisors to assist us in formulating our research and development strategy. Some have consulting or other advisory arrangements with other entities that may conflict or compete with their obligations to us.

We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the inexperience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

Our use of hazardous materials exposes us to the risk of material environmental liabilities. We also incur substantial costs to comply with environmental and occupational safety laws regulating the use of hazardous materials. If we violate these laws, we would be subject to significant fines, liabilities or other adverse consequences.

We use radioactive materials and other hazardous or biohazardous substances in our research and development activities. As a result, we are potentially subject to material liabilities related to personal injuries or property damages that may be caused by the spread of radioactive contamination or by other hazardous substance releases or exposures at, or from, our facilities. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. Decontamination costs associated with radioactivity releases, other clean-up cost, and related damages or liabilities could be significant and could harm our business. The cost of this liability could exceed our resources, and we do not maintain liability insurance for these risks.

We are required to comply with increasingly stringent laws and regulations governing environmental protection and workplace safety, including requirements governing the handling, storage, use and disposal of radioactive and other hazardous substances and wastes, and laboratory operating and safety procedures. These laws and regulations can impose substantial fines and criminal sanctions for violations. Maintaining compliance with these laws and regulations with regard to our operations could require substantial additional resources. These costs could limit our ability to conduct operations in a cost-effective manner.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. Product liability claims might be brought against us by clinical trial patients, consumers or health care providers or by pharmaceutical companies or others selling our products. If we complete clinical testing for our product candidates and receive regulatory approval to market our products, the FDA will require us to include extensive warnings, precautions and other risk and safety information in the label for our products that, among other things, identify the known potential adverse effects and the patients who should not receive our product. These warnings may not be deemed adequate, and physicians and patients may not comply with these warnings.

If we cannot successfully defend ourselves against such claims, we may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

We have product liability insurance that covers our clinical trials up to a $5.0 million annual aggregate limit and subject to a per claim deductible. We cannot predict all of the possible harms or side effects that may result from the testing and use of our product candidates. As a result, the amount of insurance coverage we currently hold, or that we may obtain, may not be adequate to protect us from any liabilities. We may require increased liability coverage as our product candidates advance in clinical trials. In addition, we intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for any products. Further, insurance coverage is increasingly expensive, and we do not know whether we will be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. A successful product liability claim brought against us in excess of our insurance coverage or a product recall could adversely affect our business, results of operations and financial condition.

If our internal control over financial reporting is not considered effective, our business could be materially harmed and our stock price could decline.

Beginning in 2007, Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal control over financial reporting in our annual report on Form 10-K for that fiscal year. Beginning in 2008, Section 404 also requires our independent registered public accounting firm to attest to, and report on, management's assessment of our internal control over financial reporting.

Any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. We cannot assure you that we will not identify material weaknesses in our internal control systems in the future. If material weaknesses in our internal control systems are detected, our internal control over financial reporting may not be considered effective and we may experience a loss of public confidence, which could have an adverse effect on our business and on the market price of our common stock.

If we are not able to obtain required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.

Our product candidates and the activities associated with their development and commercialization, including their testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the

FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain regulatory approval for a product candidate will prevent us from commercializing the product candidate. We have not received regulatory approval to market any of our product candidates in any jurisdiction. We have only limited experience in filing and prosecuting the applications necessary to gain regulatory approvals and expect to rely on third party contract research organizations to assist us in this process. Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each therapeutic indication to establish the product candidate's safety and efficacy. Securing FDA approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the FDA. Our future products may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use.

The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review criteria for each submitted product application, may cause delays in the approval or rejection of an application. The FDA has substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of a product candidate. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

Any product for which we obtain marketing approval could be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.

Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and comparable regulatory authorities. These requirements include submissions of safety and other post-marketing information and periodic reports, registration requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. Later discovery of previously unknown problems with our products, manufacturers or manufacturing processes, including new safety risks, or failure to comply with regulatory requirements, may result in actions such as:

Failure to obtain regulatory approval in international jurisdictions would prevent us from marketing our products abroad, and regulatory approvals in some international jurisdictions can be conditioned on broad license grants.

We intend to have our products marketed outside the United States. With respect to some of our product candidates, we expect that a future collaborator will have responsibility to obtain regulatory approval outside the United States, and we will rely on our collaborator to obtain these approvals. The approval procedure varies among countries and can involve requirements for additional testing. The time required to obtain approval may differ from that required to obtain FDA approval. The regulatory approval process outside the United States may include all of the risks associated with obtaining FDA approval, as well as risks attributable to the satisfaction of local regulation in foreign jurisdictions. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We and our collaborators may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market.

Recently, some foreign jurisdictions have required biopharmaceutical companies to grant broad licenses to domestic manufacturers as a condition to providing regulatory approval to market and sell within the applicable jurisdiction. If we were forced to grant a broad license to our products as a condition to selling within the applicable jurisdiction, our revenues and profitability would be materially impaired.

In addition, we, along with our collaborators or subcontractors, may not employ, in any capacity, persons who have been debarred under the FDA's Application Integrity Policy. Employment of such a debarred person, even if inadvertently, may result in delays in the FDA's review or approval of our product candidates or the rejection of data developed with the involvement of such person.

Our success is dependent on obtaining and defending patents and proprietary technology.

Our success in commercializing, producing and marketing products and technologies in the future depends, in large part, on our ability to obtain and maintain proprietary protection of the intellectual property related to our technologies and products, both in the United States and other countries, and to operate without infringing the proprietary rights of third parties. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents. The patent positions of biotechnology companies, including our patent positions, are generally uncertain and involve complex legal and factual questions.

We do not know whether any of our pending or future patent applications will result in the issuance of patents. In addition, we cannot predict the breadth of claims that may be allowed and issued to us for patents related to our technologies or products, if any. Before a patent is issued, its coverage can be significantly narrowed, either in the United States or abroad. To the extent patents have been issued or will be issued, some of these patents are subject to further proceedings that may

limit their scope and once patents have been issued, we cannot predict how the claims will be construed or enforced. It is not possible to determine which patents may provide significant proprietary protection or competitive advantage, or which patents may be circumvented or invalidated. Furthermore, patents already issued to us, or patents that may be issued on our pending applications, may become subject to dispute, including interference proceedings in the United States to determine priority of invention. If our currently issued patents are invalidated or if the claims of those patents are narrowed, our ability to prevent competitors from marketing products that are currently protected by those patents could be reduced or eliminated. We could then face increased competition resulting in reduced market share, prices and profit.

In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending their proprietary rights in foreign jurisdictions. For example, methods of treating humans are not patentable in many countries outside of the United States.

Our patents may not afford us protection against competitors with similar technology. Because there is a lengthy time between when a patent application is filed and when it is issued, and because publications of discoveries in the scientific literature often lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in our patent applications or that we were the first to file for protection of the inventions set forth in these patent applications. We may also incur substantial costs in asserting claims against, and defending claims asserted against us by, third parties to prevent the infringement of our patents and proprietary rights by others. Participation in such infringement proceedings may adversely affect our business and financial condition, even if the eventual outcome is favorable.

Litigation or third party claims of intellectual property infringement could require us to spend substantial time and money defending against any such claim and adversely affect our ability to develop and commercialize our products.

Our success also depends in part on our ability to avoid infringing patents and proprietary rights of third parties and breaching any licenses that we may enter into with regard to any future products. There are many pharmaceutical and chemical patents and applications being filed, published, and issued frequently throughout the world. Some of these patents and applications contain disclosures and claims that are similar to technologies and products that we are using and developing. Some of these patents and disclosures contain claims and disclosures that are difficult to interpret. It is possible that a third party may own or control issued patents, or patent applications or in the future may file, patent applications covering technologies or products we are developing.

If our technology, products or activities are deemed to infringe other companies' rights, we could be subject to damages or be prevented from using the technology or selling the product that is infringing other companies' rights, or we could be required to obtain licenses to use that technology or sell the product. If patents covering technologies required by our operations are issued to others, we may have to rely on licenses from third parties, which may not be available on commercially reasonable terms, if at all. We could be required to pay substantial license fees or royalties or both. Even if we are able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Third parties may accuse us of employing their proprietary technology without authorization. In addition, third parties may obtain patents that relate to our technologies and claim that our use of such technologies infringes their patents, even if we have received patent protection for our technology. These claims could require us to incur substantial costs

and could have a material adverse effect on us, regardless of the merit of the claims, including the following:

We may be required to obtain rights to proprietary technologies that are required to further develop our business and that may not be available or may be costly.

Our development programs may require the use of multiple products or technologies proprietary to other parties. Third party suppliers may not be able to furnish us with a supply of these products sufficient to satisfy our requirements. We may not be able to obtain additional licenses we may need in the future on terms acceptable to us. Our inability to obtain any one or more of these licenses, on commercially reasonable terms, if at all, or to circumvent the need for any such license, could cause significant delays and cost increases and materially affect our ability to develop and commercialize our product candidates. In connection with our efforts to obtain rights to these proprietary technologies, we may find it necessary to convey rights to our technology to others. Some of our products may require the use of multiple proprietary technologies. Consequently, we may be required to make cumulative royalty payments to several third parties. These cumulative royalties could become commercially prohibitive. We may not be able to successfully negotiate the amounts of these royalties on terms acceptable to us.

We may rely in part on third party licenses for access to intellectual property for our product candidates. We expect that any such future licenses will impose various development and commercialization, milestone payment, royalty, sublicensing, patent protection and maintenance, insurance and other obligations on us. If we fail to comply with these obligations or otherwise breach the license agreement, the licensor may have the right to terminate the license in whole, terminate the exclusive nature of the license or bring a claim against us for damages. Any such termination or claim would likely prevent or impede our ability to market any product that is covered by the licensed patents. Even if we contest any such termination or claim and are ultimately successful, our stock price could suffer. In addition, upon any termination of a license agreement, we may be required to license to the licensor any related intellectual property that we developed.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

In addition to patented technology, we rely upon unpatented proprietary technology, processes and know-how. We seek to protect our unpatented proprietary information in part by confidentiality agreements with our employees, consultants and third parties. These agreements may be breached and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors. If we are unable to protect the confidentiality of our proprietary information and know-how, competitors may be able to use this information to develop products that compete with our products, which could adversely impact our business.

A small number of our stockholders have the ability to control all matters submitted to stockholders for approval.

A small number of investors who acquired shares of our common stock and warrants to purchase shares of our common stock in our 2006 private placement, in the aggregate, beneficially own more than 50% of our capital stock. As a result, if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these stockholders, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire. In addition, one of these stockholders, Special Situations Fund III, L.P., has the right, which it has not exercised, to designate up to two persons for election to our Board of Directors.

The investors who acquired shares of our common stock and warrants in our 2006 private placement have contractual preemptive rights to acquire their pro rata share of any common stock issued by us. If these stockholders do not waive their preemptive rights or do not otherwise cooperate with us in effecting future offering, it will be impractical to effect a public offering and our ability to effect a private offering could be complicated or limited.

Under the terms of the purchase agreement for our 2006 private placement, we must first offer to sell to each investor that continues to hold at least 50% of the shares of common stock acquired by that investor in our 2006 private placement such investor's pro rata share of any common stock or securities exercisable or exchangeable for or convertible into common stock, such offer to remain open for a fifteen business day period, before we can sell such securities to others. An investor's pro rata share is calculated by reference to the number of shares that continue to be held that were acquired in our 2006 private placement or upon the exercise of warrants and the number of shares of our common stock then issued and outstanding. We believe it would be impractical to complete a public offering if we are required to comply with the preemptive rights granted to the investors under the purchase agreement. Procedures for compliance with these contractual rights, unless waived, could complicate or limit our ability to effect a private placement of equity securities.

The warrants issued in our 2006 private placement provide for the reduction of the exercise price of the warrants if we issue common stock for a consideration per share less than the then current exercise price of the warrants. If we issue common stock for a consideration per share less than $2.40, the exercise price of the warrants will be reduced and the number of shares issuable upon exercise of the warrants will be increased.

Under the terms of the warrants issued in our 2006 private placement, the exercise price of the warrants is to be reduced, subject to certain exceptions, if we issue shares of common stock or certain

options or rights to acquire common stock for no consideration or for consideration per share less than the exercise price of the warrants in effect immediately prior to the time of such issue or sale. The warrants specify a formula for a weighted average adjustment in the exercise price that takes into account the number of shares of common stock outstanding, the number of shares issued below the exercise price and the aggregate consideration received upon such issuance. Under the warrants, if the exercise price is decreased, the number of shares issuable upon exercise is correspondingly increased. The exercise price of the warrants is currently $2.40 per share. Accordingly, in general, if we issue common stock for a consideration per share of less than $2.40, the exercise price of the warrants will be correspondingly reduced. Any such reduction in exercise price would result in additional dilution to the holders of our common stock.

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

We expect that significant additional capital will be required in the future to continue our research, development and clinical efforts. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock in one or more transactions at prices and in a manner we determine from time to time. Stockholders who hold our common stock or purchase stock in any of these offerings may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders.

During 2006, our Board of Directors and stockholders adopted our 2006 Equity Incentive Plan, which initially reserved 6,577,106 shares of common stock for issuance thereunder. Immediately following any issuance of common stock by us during the three year period ending April 4, 2009, other than issuances of common stock upon exercise of the warrants issued to the investors in our 2006 private placement, the number of shares available for issuance under the 2006 Equity Incentive Plan will be increased to 20% of the number of fully diluted shares of our common stock immediately after such issuance, including all shares of common stock issuable upon exercise of then outstanding options or warrants, less the number of shares of common stock subject to existing options under our other stock option and equity incentive plans, up to a maximum of 8,177,106 shares. As a result of common stock issuances through September 26, 2007, the number of shares available under our 2006 increased to 6,774,428.

Sales of a substantial number of shares in the future may impact the market price of our common stock.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through public or private equity offerings and debt financings, corporate collaboration and licensing arrangements. Any future sales of a substantial number of shares of our common stock, either by us or by investors, or the perception that such sales may occur, could depress the market price of our common stock. We are unable to predict the effect that future sales may have on the then prevailing market price of our common stock. Pursuant to a registration rights agreement entered into between us and the investors in our 2006 private placement, we registered with the Securities and Exchange Commission, or SEC, the resale of shares of common stock acquired in the private placement and shares of common stock issuable upon exercise of the warrants. We must, among other things, keep this registration statement effective with the SEC for the resale of such shares of common stock. While we cannot determine precisely the total number of shares of common stock remaining for sale under the registration statement, we estimate based upon publicly available information that up to approximately 23,656,559 shares remain available for sale, including shares that may be acquired upon the exercise of outstanding warrants.

If we fail to continue to meet all applicable NASDAQ Capital Market requirements and NASDAQ determines to delist our common stock, the delisting could adversely affect the market liquidity of our common stock and the market price of our common stock could decline.

Our common stock is listed on the NASDAQ Capital Market. In order to maintain that listing, we must satisfy minimum financial and other requirements. On February 25, 2005, we received notice from the Nasdaq Stock Market, Inc. that our common stock had not met the $1.00 per share minimum bid price requirement for 30 consecutive business days and that, if we were unable to demonstrate compliance with this requirement during the applicable grace periods, our common stock would be delisted after that time. On February 6, 2006, we effected a one-for-ten reverse stock split of our common stock to regain compliance with this listing requirement. Since this time, the closing bid price of our common stock has remained above $1.00 in compliance with the minimum bid price requirement.

It is possible that the minimum bid price of our common stock could fall below the required level or that we would otherwise fail to satisfy another NASDAQ requirement for continued listing of our common stock. For example, we could fail to maintain compliance with the NASDAQ Capital Market listing requirements if we did not maintain minimum stockholder equity of at least $2.5 million as a result of continuing losses.

If we fail to continue to meet all applicable NASDAQ Capital Market requirements in the future and NASDAQ determines to delist our common stock, the delisting could adversely affect the market liquidity of our common stock and the market price of our common stock could decline. Such delisting could also adversely affect our ability to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, suppliers and employees.

Provisions in our charter documents and under Delaware law could discourage, delay or prevent an acquisition of us, which may be beneficial to our stockholders, and may prevent or delay attempts by our stockholders to replace or remove our current management.

Our certificate of incorporation and bylaws provide that our Board of Directors is divided into three classes, each consisting, as nearly as possible, of one-third of the total number of directors, with each class having a three-year term. The number of our directors may be changed only by a resolution of our Board of Directors and directors can be removed only for cause by the vote of the holders of at least 80% of the voting power of all of our capital stock, voting together as a single class. Stockholders may take action only at a stockholders' meeting and not by written consent. Certain provisions of our certificate of incorporation and bylaws, including the provisions providing for a classified Board of Directors, may not be amended without the vote of at least 80% of the voting power of all of our capital stock entitled to vote generally in the election of directors, voting together as a single class. Our bylaws provide that stockholders wishing to nominate a director at an annual meeting or at a special meeting called for the purpose of electing directors or to bring business before any meeting of stockholders must comply with strict advance written notice provisions. Our bylaws also provide that special meetings of stockholders may be called only by the chairman of our Board of Directors, or certain of our officers, or by resolution of our directors.

These provisions of our certificate of incorporation and our bylaws could discourage potential acquisition proposals and could delay or prevent a change in control that stockholders may consider favorable, including transactions in which an investor in our stock might otherwise receive a premium for shares. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our Board of Directors and in the policies formulated by our Board of Directors. We also intended these provisions to discourage certain types of transactions that may involve an actual or threatened change of control. We designed these provisions to reduce our vulnerability to unsolicited acquisition proposals and to discourage certain tactics that may be used in proxy contests. These

provisions, however, could also have the effect of discouraging others from making a tender offer for our shares. As a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. Because our Board of Directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. We are permitted to issue shares of our preferred stock without stockholder approval upon such terms as our Board of Directors determines. Therefore, the rights of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of our preferred stock that may be issued in the future. In addition, the issuance of preferred stock could have a dilutive effect on the holdings of our current stockholders.

We are also subject to provisions of Delaware law that prohibit us from engaging in any business combination with any "interested stockholder," meaning generally that a stockholder who beneficially owns more than 15% of our outstanding voting stock cannot acquire us for a period of three years from the date of the transaction in which the person acquired more than 15% of our outstanding voting stock, unless various conditions are met, such as approval by our Board of Directors of the transaction, pursuant to which the person became an interested stockholder.

Our stockholder rights plan could prevent a change in control of our company in instances in which some stockholders may believe a change in control is in their best interests.

In December 2006, our Board of Directors adopted a stockholder rights plan to replace our stockholder rights plan that expired in November 2006 at the end of its ten-year term. Our plan may have the effect of discouraging, delaying or preventing a merger or acquisition of us that is beneficial to our stockholders by diluting the ability of a potential acquirer to acquire us. Pursuant to the terms of our plan, ten days after a person or group, except under certain circumstances, acquires 15% or more of our outstanding common stock or 10 business days after announcement of a tender or exchange offer for 15% or more of our outstanding common stock, the rights, other than rights held by the person or group who has acquired or announced an offer to acquire 15% or more of our outstanding common stock, would generally become exercisable for shares of our common stock at a discount. Because the potential acquirer's rights would not become exercisable for our shares of common stock at a discount, the potential acquirer would suffer substantial dilution and may lose its ability to acquire us. In addition, the existence of the plan itself may deter a potential acquirer from acquiring us. As a result, either by operation of the plan or by its potential deterrent effect, mergers and acquisitions of us that our stockholders may consider in their best interests may not occur, including transactions in which stockholders might otherwise receive a premium for their shares.

Because the investors in our 2006 private placement own a substantial percentage of our outstanding common stock, our stockholder rights plan provides that such investors and their respective affiliates will be exempt from the stockholder rights plan, unless an investor and its affiliates acquire, after April 4, 2006, subject to certain exceptions, more than 1% of our then issued and outstanding common stock, not including the shares of common stock issued to such investor in the private placement or shares of common stock issued upon exercise of the warrants issued to such investors.

Because we do not expect to pay dividends in the foreseeable future, you must rely on stock appreciation for any return on your investment.

We have paid no cash dividends on our common stock to date, and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future, and payment of cash dividends, if any, will also depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our Board of Directors. Furthermore, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends. Accordingly,

the success of your investment in our common stock will likely depend entirely upon any future appreciation. There can be no assurance that our common stock will appreciate in value or even maintain the price at which you purchased your shares, and you may not realize a return on your investment in our common stock.

If our stock price is volatile, purchasers of our common stock could incur substantial losses.

Our stock price is likely to be volatile. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the price at which they purchased their stock. The market price for our common stock may be influenced by many factors, including:

Exhibit Number		Description of Exhibit
31.1		Certification of Chief Executive Officer (pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended)*
31.2		Certification of Chief Financial Officer (pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended)*
32.1#		Certification of Chief Executive Officer (pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350)) *
32.2#		Certification of Chief Financial Officer (pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350)) *

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 2007
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

Delaware		84-1187753
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
4840 Pearl East Circle, Suite 300W Boulder, Colorado 80301 (Address of principal executive office, including zip code)
(303) 516-8500 (Registrant's telephone number, including area code)

Part I	Financial Information
	Item 1	Unaudited Financial Statements
	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations
	Item 3	Quantitative and Qualitative Disclosures about Market Risk
	Item 4	Controls and Procedures
Part II	Other Information
	Item 1	Legal Proceedings
	Item 1A	Risk Factors
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3	Defaults upon Senior Securities
	Item 4	Submission of Matters to a Vote of Security Holders
	Item 5	Other Information
	Item 6	Exhibits
Signatures

		September 26, 2007			December 27, 2006
		(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents	$	5,577		$	180
	Short-term investments		3,781			22,277
Prepaid expense and other current assets			351			335

Total current assets			9,709			22,792
Property, plant and equipment, net			707			681
Investment in ChromaDex, Inc.			459			459
Other assets			1,013			674

Total assets		$	11,888		$	24,606

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued liabilities	$	2,100		$	904
	Accrued payroll and payroll taxes		1,428			1,566
	Notes payable—current portion, net		121			115

Total current liabilities			3,649			2,585
Notes payable—long term, net			22			112
Commitments and contingencies
Stockholders' equity
	Preferred stock, $.001 par value; 2,000,000 shares authorized; none issued		—			—
	Common stock, $.0075 par value; 100,000,000 shares authorized; 16,629,859 and 16,374,395 shares issued and outstanding at September 26, 2007 and December 27, 2006, respectively.		125			123
	Additional paid in capital		148,706			145,700
	Accumulated deficit		(140,595	)		(123,914	)
	Accumulated other comprehensive loss		(19	)		—

Total stockholders' equity			8,217			21,909

Total liabilities and stockholders' equity		$	11,888		$	24,606

		Three-Months Ended						Nine-Months Ended
		September 26, 2007			September 27, 2006			September 26, 2007			September 27, 2006
Operating expenses:
	Research and development	$	4,526		$	2,259		$	11,414		$	7,464
	General and administrative		1,737			1,575			5,911			5,070

Operating loss			6,263			3,834			17,325			12,534
Other income (expense):
	Interest and other income		169			400			662			936
	Interest and other expense		(6	)		(124	)		(18	)		(427	)

Loss from continuing operations			(6,100	)		(3,558	)		(16,681	)		(12,025	)
Loss from discontinued operations			—			—			—			(88	)

Net loss		$	(6,100	)	$	(3,558	)	$	(16,681	)	$	(12,113	)

Basic and diluted loss per share from continuing operations		$	(0.37	)	$	(0.22	)	$	(1.01	)	$	(1.02	)

Basic and diluted loss per share from discontinued operations		$	—		$	—		$	—		$	(0.01	)

Basic and diluted loss per share		$	(0.37	)	$	(0.22	)	$	(1.01	)	$	(1.03	)

Basic and diluted weighted average shares outstanding			16,600			16,342			16,495			11,763

			Nine-Months Ended
			September 26, 2007			September 27, 2006
Operating activities:
Net loss			$	(16,681	)	$	(12,113	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization			173			168
	Amortization of debt discount			13			382
	Amortization of investment discount			(67	)		(272	)
	Compensation paid with common stock			2,590			2,539
	Retirement contributions paid with common stock			302			291
	Loss on disposal of assets			—			38
	Changes in operating assets and liabilities:
		Prepaid expense and other assets		(255	)		343
		Accounts payable and accrued liabilities		1,212			(160	)
		Accrued payroll and payroll taxes		(138	)		(83	)

Net cash used in operating activities				(12,851	)		(8,867	)
Investing activities:
	Additions to property, plant and equipment			(199	)		(25	)
	Proceeds from sale of investments			32,200			45,861
	Purchases of investments			(13,656	)		(59,404	)

Net cash provided by (used in) investing activities				18,345			(13,568	)
Financing activities:
	Proceeds from the sale of common stock, net of issuance costs			—			23,742
	Repayment of debt			(97	)		(1,002	)

Net cash (used in) provided by financing activities				(97	)		22,740

Net increase in cash and cash equivalents				5,397			305
Cash and cash equivalents at beginning of period				180			534

Cash and cash equivalents at end of period			$	5,577		$	839

Non-cash investing and financing activities:
	Issuance of common stock to prepay retirement plan contributions		$	101		$	97

	Nine-Months Ended, September 26, 2007
	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
						(In Thousands)
Outstanding balance, December 27, 2006	5,805,293		$	3.83	8.86	$	—
Granted	968,456		$	2.01	not applicable		—
Forfeited or expired	(229,972	)	$	10.95	not applicable		—

Outstanding balance, September 26, 2007	6,543,777		$	3.30	8.33	$	—

Exercisable shares as of September 26, 2007	626,771		$	4.48	4.06	$	—

Remaining in 2007	$	65
2008		532
2009		497
2010		433
2011		425
2012		440

	$	2,392

INDICATION		STATUS	TIMING
IV Administration
	Hormone refractory prostate cancer	Phase 2 clinical trial in process	Go/No Go decision by first half of 2008
	Pancreatic cancer	Phase 2 clinical trial in process	Complete enrollment in fourth quarter of 2008
	Glioblastoma multiforme	Phase 2 clinical trial planned	Expected to begin in fourth quarter of 2007
Oral Administration
	Multiple cancers	Phase 1 pharmacokinetic clinical trial of oral administration planned	Expected to begin in fourth quarter of 2007

	TAPESTRY PHARMACEUTICALS, INC.


November 5, 2007	By:	/s/ LEONARD P. SHAYKIN Leonard P. Shaykin *Chairman of the Board of Directors, Chief Executive Officer*


November 5, 2007	By:	/s/ GORDON LINK Gordon Link *Senior Vice President, Chief Financial Officer (Principal Financial Officer)*


November 5, 2007	By:	/s/ MATTHEW J. MAJOROS Matthew J. Majoros *Controller (Principal Accounting Officer)*