Cascadian Therapeutics 10Q 2008 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-33882

ONCOTHYREON INC.

(Exact name of registrant as specified in its charter)


Delaware		26-0868560
*(State or other jurisdiction of*		*(I.R.S. Employer*
*incorporation or organization)*		*Identification Number)*

2601 Fourth Ave, Suite 500
Seattle, Washington		98121
*(Address of principal executive offices)*		*(Zip Code)*

(206) 801-2100
(Registrant’s telephone number, including area code)

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, as amended, 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. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filero	Accelerated filerþ	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yeso Noþ

As of November 6, 2008, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 19,492,432.

ONCOTHYREON INC.
FORM 10-Q FOR THE QUARTER ENDED September 30, 2008

INDEX


	Page
Part I — Financial Information		3
Item 1. Financial Statements (unaudited)		3
Notes to the Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3. Qualitative and Quantitative Disclosures about Market Risks		33
Item 4. Controls and Procedures		33
Part II — Other Information		34
Item 1. Legal Proceedings		34
Item 1A. Risk Factors		34
Item 6. Exhibits		48
Signatures		49
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-12.1
EX-31.1
EX-31.2
EX-32.1

In this Form 10-Q, unless otherwise specified, all monetary amounts are in United States dollars, all references to “$” and “U.S. dollars” mean U.S. dollars and all references to “Cdn. $” mean Canadian dollars.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ONCOTHYREON INC.
Condensed Consolidated Balance Sheets
(expressed in thousands of U.S. dollars, except stock amounts)
(Unaudited)


	September 30,			December 31,
	2008			2007
ASSETS
Current
Cash and cash equivalents	$	11,378		$	12,035
Short-term investments		—			12,151
Accounts receivable		1,590			2,024
Government grant receivable		154			552
Notes receivable		—			364
Prepaid expenses		471			528
Inventory (See Note 5)		10,228			5,069

		23,821			32,723
Plant and equipment, net		1,460			1,378
Notes receivable		214			—
Long term deposit		354			—
Goodwill		2,117			2,117

	$	27,966		$	36,218

LIABILITIES
Current
Accounts payable and accrued liabilities	$	5,015		$	5,768
Current portion of capital lease obligations		70			104
Current portion of deferred revenue		9,202			5,801

		14,287			11,673
Capital lease obligations		22			66
Notes payable		199			199
Warrant liability (See Note 6)		—			64
Deferred revenue		13,804			12,167
Class UA preferred stock, 12,500 shares authorized, 12,500 and 12,500 shares issued and outstanding		30			30

		28,342			24,199

Contingencies, commitments, and guarantees (See Note 9)

STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.0001 par value; 100,000,000 shares authorized, 19,492,432 and 19,485,889 shares issued and outstanding		325,043			324,992
Warrants (See Note 6)		64			—
Additional paid-in capital		14,725			13,636
Accumulated deficit		(335,142	)		(321,543	)
Accumulated other comprehensive loss		(5,066	)		(5,066	)

		(376	)		12,019

	$	27,966		$	36,218

(See accompanying notes to the condensed consolidated financial statements)

ONCOTHYREON INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)


	Three months						Nine months
	ended September 30,						ended September 30,
	2008			2007			2008			2007
Revenue
Contract research and development	$	—		$	30		$	—		$	602
Contract manufacturing		426			919			2,946			919
Licensing revenue from collaborative agreements		376			148			1,028			316
Licensing, royalties, and other revenue		—			2			—			23

		802			1,099			3,974			1,860


Expenses
Research and development (See Note 4)		1,883			1,406			6,917			7,733
Manufacturing		422			1,168			3,148			1,168
General and administrative		1,941			4,105			7,305			8,230
Marketing and business development		—			27			—			539
Depreciation		111			60			317			162
Investment and other (income) expense (See Note 8)		14			395			(114	)		395
Change in fair value of warrant liability (See Note 6)		—			(511	)		—			(1,179	)

		4,371			6,650			17,573			17,048

Net loss		(3,569	)		(5,551	)		(13,599	)		(15,188	)
Other comprehensive income		31			1,095			—			3,085

Comprehensive loss	$	(3,538	)	$	(4,456	)	$	(13,599	)	$	(12,103	)

Basic and diluted loss per share	$	(0.18	)	$	(0.28	)	$	(0.70	)	$	(0.78	)

Weighted average number of common shares outstanding		19,492,432			19,485,889			19,490,011			19,485,889

(See accompanying notes to the condensed consolidated financial statements)

ONCOTHYREON INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(expressed in thousands of U.S. dollars, except number of common shares issued and outstanding)
(Unaudited)


													Accumulated
							Additional						Other
	Common Stock						Paid-in			Accumulated			Comprehensive
	Number		Amount		Warrants		Capital			Deficit			Loss
Balance at December 31, 2006		19,485,889	$	324,992	$	—	$	11,955		$	(301,203	)	$	(8,309	)

Stock-based compensation		—		—		—		1,681			—			—
Net loss		—		—		—		—			(20,340	)		—
Unrealized holding loss on available-for-sale-securities		—		—		—		—			—			(48	)
Foreign currency translation adjustments		—		—		—		—			—			3,291

Other comprehensive income														3,243

Balance at December 31, 2007		19,485,889	$	324,992	$	—	$	13,636		$	(321,543	)	$	(5,066	)

Stock-based compensation		—		—		—		1,140			—			—
Net loss		—		—		—		—			(13,599	)		—
Release of restricted share units		6,543		51		—		(51	)		—			—
Warrants (See Note 6)		—		—		64		—			—			—
Unrealized holding loss on available-for-sale securities		—		—		—		—			—			—
Other comprehensive loss

Balance at September 30, 2008		19,492,432	$	325,043	$	64	$	14,725		$	(335,142	)	$	(5,066	)

(See accompanying notes to the condensed consolidated financial statements)

ONCOTHYREON INC.

Condensed Consolidated Statements of Cash Flows
(expressed in thousands of U.S. dollars)
(Unaudited)


	Nine months ended September 30,
	2008			2007
Operating
Net loss	$	(13,599	)	$	(15,188	)
Depreciation		317			162
Stock-based compensation expense		1,140			1,239
Change in fair value of warrant liability (See Note 6)		—			(1,179	)
Gain on disposal of short-term investments		—			(47	)
Unearned revenue		7,060			5,518
Recognition of unearned revenue		(2,022	)		(316	)
Net change in non-cash working capital balances from operations
Accounts receivable		432			755
Government grant receivable		398			—
Prepaid expenses		57			87
Inventory		(5,159	)		(3,185	)
Accounts payable and accrued liabilities		(466	)		1,667
Long term deposits		(354	)		—

		(12,196	)		(10,487	)

Investing
Purchase of short-term investments		(22,376	)		(26,247	)
Redemption of short-term investments		34,248			31,444
Purchase of plant and equipment		(686	)		(482	)
Payment of accrued business acquisition cost		—			(251	)
Collection of notes receivable		150			—

		11,336			4,464

Financing
Repayment of share issuance costs		—			(174	)
Repayment of capital lease obligations		(78	)		(40	)

		(78	)		(214	)

Net cash outflow		(938	)		(6,237	)
Effect of exchange rate fluctuations on cash and cash equivalents		281			1,593

Decrease in cash and cash equivalents		(657	)		(4,644	)
Cash and cash equivalents, beginning of period		12,035			13,409

Cash and cash equivalents, end of period	$	11,378		$	8,765

Supplemental disclosure of cash flow information
Amount of interest paid in the period	$	6		$	2
Amount of income taxes paid in the period	$	—		$	—

(See accompanying notes to the condensed consolidated financial statements)

ONCOTHYREON INC.

Notes to the Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)

1. DESCRIPTION OF BUSINESS

Oncothyreon Inc. (the “Company” or “Oncothyreon”) is a biotechnology company incorporated in the State of Delaware on September 7, 2007. Oncothyreon specializes in the development of innovative therapeutic products for the treatment of cancer. Oncothyreon’s goal is to develop and commercialize novel synthetic vaccines and targeted small molecules that have the potential to improve the lives and outcomes of cancer patients. Oncothyreon’s operations are not subject to any seasonality or cyclicality factors.

Change in reporting entity

On December 10, 2007, Oncothyreon became the successor corporation to Biomira Inc. (“Biomira”) by way of a plan of arrangement approved at a special meeting of the Stockholders of Biomira held in Edmonton, Alberta, Canada on December 4, 2007 and approved by the Alberta Court of Queen’s Bench under Canadian law on December 5, 2007. Biomira was incorporated under the Canada Business Corporations Act in 1985.

On December 11, 2007, Oncothyreon’s common stock began trading on the NASDAQ Global Market under the symbol ONTY and on the Toronto Stock Exchange under the symbol ONY. Holders of common shares of the former Biomira received one-sixth of a share of common stock of Oncothyreon in exchange for each common share of Biomira, which had the effect of a 6 for 1 reverse stock split of the outstanding common shares. The holder of the 12,500 outstanding Biomira Class A preference shares received one share of Class UA Preferred Stock of Oncothyreon for each Biomira Class A preference share. The condensed consolidated financial statements have been prepared giving effect to the 6 for 1 reverse share exchange, including basic and diluted loss per share, for all periods presented.

All Biomira common stock options, restricted share units and warrants that were in existence prior to the plan of arrangement were exchanged for common stock options, restricted share units and warrants in Oncothyreon on a 6 for 1 basis with no change in any of the terms and conditions.

Oncothyreon’s Board of Directors and management, immediately following the plan of arrangement, were the same as Biomira’s immediately before the plan of arrangement became effective.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141,Accounting for Business Combinations, the plan of arrangement represents a transaction among entities under common control. Assets and liabilities transferred between entities under common control are accounted for at historical cost. Accordingly, the assets and liabilities of the predecessor Biomira have been reflected at their historical cost in the accounts of Oncothyreon. In addition, these condensed consolidated financial statements reflect the historical accounts of Biomira up to December 10, 2007 with the exception of basic and diluted loss per share amounts, descriptions and amounts of all common stock, common stock options, restricted share units and warrants and their corresponding exercise prices where applicable, which have been recast to reflect the 6 for 1 common share exchange effected by the plan of arrangement.

In these condensed consolidated financial statements, the reference to “Company” means Biomira for periods prior to December 10, 2007 and Oncothyreon for periods thereafter.

2. BASIS OF PRESENTATION

Going concern

As of September 30, 2008, the Company’s principal sources of liquidity consisted of cash and cash equivalents of $11.4 million, and accounts receivable of $1.6 million. Management believes that the currently available cash, cash equivalents, and short term investments will be sufficient to finance its planned operations into the first quarter of 2009. The Company will require additional capital in order to continue the development of products in its pipeline and to expand its product portfolio.

The Company’s ability to continue as a going concern is dependent on its success at raising additional capital sufficient to meet its obligations on a timely basis, and to ultimately attain profitability. Management believes it will raise the necessary funds for the Company’s growth and development activities. However, there is no assurance that it will raise capital sufficient to enable it to continue its planned operations for the next 12 months.

The Company would expect to seek additional financing from the sale of rights related to its existing product candidates, the sale and issuance of equity or debt securities or through forming strategic partnerships for its products. The Company cannot predict that financing will be available when and if it needs financing, or, if available, that the financing terms will be commercially reasonable. Accordingly, in the event new financing is not obtained, the Company will likely continue to reduce general and administrative expenses and delay research development projects as well as further acquisition of scientific equipment and supplies until it is able to obtain sufficient financing to do so.

The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since inception, the Company has incurred, and continues to incur, significant losses from operations.

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The balance sheets do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Accounting Basis

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial statements. The accounting principles and methods of computation adopted in these condensed consolidated financial statements are the same as those of the audited consolidated financial statements for the year ended December 31, 2007, except as disclosed in Note 3 below.

Omitted from these statements are certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP. The Company believes all adjustments necessary for a fair statement of the results for the periods presented have been made. The financial results for the three and nine months ended September 30, 2008 are not necessarily indicative of financial results for the full year. The condensed consolidated financial statements and notes presented should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2007 filed on Form 10-K with the United States Securities and Exchange Commission.

These condensed consolidated financial statements have been prepared using U.S. GAAP, which except as described in Note 12, conform, in all material respects, with Canadian generally accepted accounting principles (“Canadian GAAP”).

Foreign currency translation

Effective January 1, 2008, the Company’s functional currency changed to the U.S. dollar from the Canadian dollar as a result of the Company’s redomicile into the United States effective December 10, 2007 (See Note 1) and increasing U.S. dollar denominated revenues and expenditures. As the Company’s reporting currency is also the U.S dollar, the September 30, 2008 condensed consolidated financial statements were translated under guidance provided in SFAS No. 52,Foreign Currency Translation;namely, transactions denominated in foreign currencies are recorded in the functional currency at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated into the functional currency at the rate prevailing at the balance sheet date. Gains and losses arising on the revaluation are included in the income statement. The change in functional currency was adopted prospectively with no restatement of comparative balances.

3. ACCOUNTING POLICY CHANGES

Accounting standards adopted in the current year

Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157,Fair Value Measurements,(“SFAS 157”). SFAS 157 introduces a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities.

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS 157 describes three levels of inputs that may be used to measure fair value:

	•		Level 1 — quoted prices in active markets for identical assets or liabilities;

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

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

The adoption of SFAS 157 did not have any effect on the Company’s financial condition or results of operations, however, SFAS 157 introduced new disclosures about how the Company values certain assets and liabilities. Much of the disclosure is focused on the inputs used to measure fair value, particularly in instances where the measurement uses significant unobservable, i.e., Level 3, inputs. The Company did not own any financial instruments as of September 30, 2008. For financial assets and liabilities, SFAS 157 was effective for fiscal years beginning after November 15, 2007, and the Company has adopted the standard for those assets and liabilities as of January 1, 2008. The impact of adoption was not significant.

The Fair Value Option for Financial Assets and Financial Liabilities

Effective January 1, 2008, the Company adopted SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. The Company has not elected to apply SFAS 159 to any assets or liabilities, therefore the adoption of SFAS 159 had no impact on the Company’s financial position or results of operations for the current or comparative periods presented.

Accounting for Non Refundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities

Effective January 1, 2008, the Company adopted Emerging Issues Task Force “EITF” Issue No. 07-3,Accounting for Non Refundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities(“EITF 07-3”). EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed and is to be applied prospectively for new contracts entered into on or after January 1, 2008. The adoption of EITF 07-3 did not result in a material impact on the Company’s financial position or results of operations.

Accounting standards effective in future periods

GAAP Hierarchy

In May 2008 the FASB released SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles(“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP (the “GAAP hierarchy”). FASB believes that the GAAP hierarchy should be directed to entities because it is the entity, not its auditor, that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. Accordingly, FASB concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB and issued SFAS 162 to achieve that result. SFAS 162 becomes effective 60 days following the Securities and Exchange Commission’s approval of the Public Accounting Oversight

Board amendment to Interim Auditing Standard, AU Section 411. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 162 on its consolidated financial statements.

Determination of the Useful Life of Intangible Assets

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. SFAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP SFAS 142-3”). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of FSP SFAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R (revised 2007), “Business Combinations” (“SFAS 141R”) and other applicable accounting literature. FSP SFAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and must be applied prospectively to intangible assets acquired after the effective date. The Company is currently evaluating the potential impact, if any, of FSP SFAS 142-3 on its consolidated financial statements.

Collaborative Arrangements

In September 2007, the EITF reached a consensus on EITF Issue No. 07-1,Collaborative Arrangements(“EITF 07-1”). EITF 07-1 addresses the accounting for arrangements in which two companies work together to achieve a commercial objective, without forming a separate legal entity. The nature and purpose of a company’s collaborative arrangements are required to be disclosed, along with the accounting policies applied and the classification and amounts for significant financial activities related to the arrangements. The consensus is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact EITF 07-1 will have on its consolidated financial statements.

Business Combinations

In December 2007, the FASB issued SFAS No. 141 (Revised),Business Combinations(“SFAS 141R”). SFAS 141R requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value.” SFAS 141R applies to all business combinations, including combinations among mutual entities and combinations by contract alone. Under SFAS 141R, all business combinations will be accounted for by applying the acquisition method. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier application of SFAS 141R is prohibited.

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements—an Amendment of ARB No. 51(“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the retained interest and gain or loss when a subsidiary is deconsolidated. This statement is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 with earlier adoption prohibited. The Company is currently evaluating the impact of SFAS 160 on its consolidated financial statements.

Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS No. 161,Disclosure about Derivative Investments and Hedging Activities an amendment to SFAS No. 133(“SFAS 161”), which requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and the company’s strategies and objectives for using derivative instruments. The Statement expands the current disclosure framework in SFAS 133,Accounting for Derivative Instruments and Hedging Activities(“SFAS 133”). SFAS 161 is effective prospectively for periods beginning on or after November 15, 2008. The Company currently does not utilize derivative instruments and, therefore, does not expect that there will be any impact of SFAS 161 on its consolidated financial statements.

4. RESEARCH AND DEVELOPMENT

Government grant funding of $269 (2007-$571) and $1,076 (2007-$1,449) was credited against research and development costs during the three and nine months ended September 30, 2008, respectively.

5. INVENTORY


	September 30,		December 31,
	2008		2007
Raw material supplies	$	2,761	$	1,693
Work-in-process		6,635		2,454
Finished goods		832		922

	$	10,228	$	5,069

6. SHARE CAPITAL

Warrants

Under SFAS 133, share purchase warrants with an exercise price denominated in a currency other than the Company’s functional currency are recorded as liabilities. Changes in the fair value of these warrants are recognized in the consolidated statements of operations.

As disclosed in Note 2, effective January 1, 2008 the Company’s functional currency changed to the U.S. dollar from the Canadian dollar and therefore the exercise price of the warrants is now denominated in the Company’s functional currency. Accordingly, the previously recognized liability represented by the fair value of the warrants at December 31, 2007 of $64 was credited to stockholders’ equity in the accompanying condensed consolidated balance sheet effective January 1, 2008 and there is no further requirement under SFAS 133 to adjust the warrants to fair value through earnings at each reporting date.

Stock transactions

(a) Loss per Share

For the three and nine months ended September 30, 2008 and 2007, shares potentially issuable upon the exercise or conversion of director and employee stock options and non-employee director restricted share units, shares issuable upon the occurrence of certain contingencies pursuant to the terms of the May 2, 2001 Merck KGaA agreement, shares issuable upon the occurrence of certain contingencies pursuant to the agreement governing the October 30, 2006 ProlX acquisition, and purchase warrants issued in connection with the July 13, 2004 and September 26, 2006 offerings of equity securities, respectively, have been excluded from the calculation of diluted loss per share because the effect would have been anti-dilutive.

(b) Registration Statement

On March 20, 2008, the Company filed a shelf registration statement on Form S-3 to issue up to $50 million in common stock, preferred stock, debt securities, depositary shares, warrants, units and guarantees. On July 29, 2008, the Company filed a post-effective amendment to such registration statement to give it the flexibility to offer and sell its common stock and preferred stock through the issuance of subscription rights to its stockholders on a pro rata basis. On September 2, 2008, the Company announced its intention to offer 5,100,000 shares of its common stock in a fully-underwritten, public offering pursuant to its effective shelf registration statement. As of the date of this report on Form 10-Q, the Company had not been able to consummate such offering given adverse market conditions.

7. STOCK-BASED COMPENSATION

Stock Option Plan

The Company sponsors a Stock Option Plan under which a maximum fixed reloading percentage of 10% of the issued and outstanding common stock of the Company may be granted to employees, directors, and service providers. Prior to April 1, 2008 the exercise price of each option equals the closing market value at the date immediately preceding the date of the grant in Canadian

dollars as quoted on the Toronto Stock Exchange. The exercise price of options granted subsequent to April 1, 2008 equals the closing price of the Company’s shares of common stock on the NASDAQ Global Market on the day of the option grant. In general, options issued under the plan vest in equal amounts over four years on the anniversary date of the grant, and expire eight years following the date of the initial grant.

During the three and nine month periods ended September 30, 2008, the Company granted zero and 150,600 (2007 —zero and 246,266) stock options, respectively.

The Company uses the Black-Scholes option pricing model to value the options at each grant date, using the following weighted average assumptions:


	Three months ended				Nine months ended
	September 30,				September 30,
	2008		2007		2008			2007
CDN$ — Weighted average grant-date fair value for stock options granted in CDN$	$	—	$	—	$	3.84		$	6.47
US$ — Weighted average grant-date fair value for stock options granted in US$	$	—	$	—	$	2.93		$	—
Expected dividend rate		N/A		N/A		0	%		0	%
Expected volatility		N/A		N/A		114.19	%		102.52	%
Risk-free interest rate		N/A		N/A		3.09	%		4.21	%
Expected life of options in years		N/A		N/A		6.0			6.0

8. IMPACT OF FOREIGN CURRENCY TRANSLATION

Included in investment and other expense of $(14) (2007 — expense of $(395)) and income of $114 (2007 — expense of $(395)) for the three and nine months period ended September 30, 2008, respectively, in the condensed consolidated statements of operations are net foreign exchange losses of $44 (2007 — income $630) and $201 (2007 — income $1,208) respectively.

9. CONTINGENCIES, COMMITMENTS, AND GUARANTEES

Royalties

In connection with the issuance of the Class UA preferred stock, the Company has agreed to pay a royalty in the amount of 3% of the net proceeds of sale of any products sold by the Company employing technology acquired in exchange for the shares. None of the Company’s products currently under development employ the technology acquired.

Pursuant to various license agreements, the Company is obligated to pay royalties based both on the achievement of certain milestones and a percentage of revenues derived from the licensed technology.

In addition, commencing December 31, 2005, the Company is committed to minimum annual payments of $100 during the existence of a royalty term in exchange for a non-exclusive worldwide royalty-bearing license of technology. Upon the achievement of certain milestones, additional payments will be triggered under the terms of the licensing agreement. These payments will be recognized as expense upon performance of obligations defined as milestones in the agreement.

Guarantees

The Company is contingently liable under a mutual undertaking of indemnification with Merck KGaA for any withholding tax liability that may arise from payments under the collaborative agreements.

In the normal course of operations, the Company indemnifies counterparties in transactions such as purchase and sale contracts for assets or shares, service agreements, director/officer contracts and leasing transactions. These indemnification agreements may require the Company to compensate the counterparties for costs incurred as a result of various events, including environmental liabilities, changes in (or in the interpretation of) laws and regulations, or as a result of litigation claims or statutory sanctions that may be suffered by the counterparties as a consequence of the transaction. The terms of these indemnification agreements vary based upon the contract, the nature of which prevents the Company from making a reasonable estimate of the maximum potential amount that could be required to pay to counterparties. Historically, the Company has not made any significant payments under such indemnification

agreements and no amounts have been accrued in the accompanying condensed consolidated financial statements with respect to these indemnification guarantees.

Under the Agreement and Plan of Reorganization between Oncothyreon, Biomira Acquisition Corporation, ProlX and two of the principal stockholders of ProlX, the Company has indemnified the former ProlX stockholders against certain liabilities, including with respect to certain tax liabilities that may arise as a result of actions taken by the Company through 2011. The estimated maximum potential amount of future payments that could potentially result from hypothetical future claims is $15 million. The Company believes the risk of having to make any payments under this agreement to be remote and therefore no amounts have been recorded thereon.

10. FINANCIAL INSTRUMENTS

Financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, government grant receivable and notes receivable that will result in future cash receipts, as well as accounts payable and accrued liabilities, capital lease obligations, notes payable and Class UA preferred stock that require future cash outlays.

Credit risk

The Company is exposed to credit risk on its short-term investments in the event of non-performance by counterparties, but does not anticipate such non-performance. The Company monitors the credit risk and credit standing of counterparties on a regular basis and deals with a small number of companies that management believes are reputable and stable. Restricting its portfolio to investment grade securities, and diversifying its investments across industries, geographic regions, and types of securities mitigates the Company’s exposure to concentration of credit risk.

Interest rate risk

The Company’s short-term investments are primarily comprised of fixed interest securities. The Company’s earnings from its short-term investments are exposed to interest rate risk since individual investments held within the portfolio re-price to market interest rates as they mature and new investments are purchased. A 100 basis points decline in interest rates, occurring January 1, 2008 and sustained throughout the period ended September 30, 2008, would result in a decline in investment income of approximately $120 for that same period.

Foreign exchange risk

The Company purchases goods and services denominated primarily in U.S. and Canadian currencies and, to a lesser extent, in certain European currencies. To manage its Canadian dollar exposure to foreign exchange risk, the Company has considered, but generally does not utilize, derivative instruments. The effect of exchange rate fluctuations may adversely affect the Company’s results in the future. A 10% strengthening of the Canadian dollar against the U.S. dollar, occurring January 1, 2008 and sustained throughout the period ended September 30, 2008, would result in an increase in expenses of approximately $950. This analysis assumes that all other variables, in particular interest rates, remain constant.

At September 30, 2008, the Company has Canadian dollar denominated cash and cash equivalents of $865 and therefore, the carrying value of cash and cash equivalents may also be impacted by exchange rate fluctuations. At September 30, 2008, a 10% strengthening of the Canadian dollar against the U.S. dollar would result in a decrease in net loss of approximately $90 for the period ended September 30, 2008.

During 2008 and the comparative periods presented, the Company did not enter into any foreign exchange forward or other derivative contracts in order to reduce its exposure to fluctuating foreign currency exchange rates. As there were no open foreign exchange forward or other derivative contracts at September 30, 2008 and December 31, 2007, no assets or liabilities with respect to such contracts have been recorded in the condensed consolidated balance sheets as at those dates.

Short-term investments

The Company’s short term investments are typically invested in short-term obligations of the U.S. Treasury and Government of Canada, and commercial paper. When available, the Company uses quoted market prices to determine the fair value of its marketable securities included in Level 1. When quoted market prices are unavailable, the Company uses quotes provided by its fund manager

based on recent trading activity and other relevant information. At September 30, 2008 the Company did not hold any short term investments.

Accounts receivable, government grant receivable and accounts payable and accrued liabilities

The carrying amounts of accounts receivable, government grant receivable and accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these financial instruments.

Notes receivable

The fair value of notes receivable are assumed to be equal to their carrying value as the interest rate charged approximates market.

Capital lease obligations

The estimated fair value of the capital lease obligations is based on the present value of expected future cash flows discounted using an estimate of the Company’s current borrowing rate. As at September 30, 2008 fair value was estimated to be $90.

Notes payable and class UA preferred stock

The fair values of notes payable and class UA preferred stock are assumed to be equal to their carrying value as the amounts that will be paid and the timing of the payments cannot be determined with any certainty.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment; therefore, they cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Additional disclosure as required by SFAS 157 for assets and liabilities measured at fair value on a recurring basis are summarized below:

Fair Value Measurements at September 30, 2008

Significant other

Significant

Quoted prices in

observable

unobservable

Total carrying

active markets

inputs

value

(Level 1)

(Level 2)

(Level 3)

Short term investments

—

$—

—

$—

Capital lease obligations

—

11. SEGMENTED INFORMATION

The Company is engaged world wide primarily in the biotechnology health care industry in a single business segment—research and development of therapeutic products for the treatment of cancer. Operations and long-lived assets by geographic region for the periods indicated are as follows:


	Three months		Three months		Nine months		Nine months
	ended		ended		ended		ended
	September 30,		September 30,		September 30,		September 30,
	2008		2007		2008		2007
Revenue from operations in
Canada	$	4	$	6	$	12	$	36
United States		797		—		3,920		—
Barbados		—		1,076		28		1,773
Europe		1		17		14		51

	$	802	$	1,099	$	3,974	$	1,860

Depreciation
Canada	$	70	$	49	$	224	$	140
United States		41		11		93		22

	$	111	$	60	$	317	$	162


	September 30,		December 31,
	2008		2007
Long-lived assets
Canada	$	705	$	833
United States		2,873		2,662

	$	3,577	$	3,495

Long-lived assets consist of plant and equipment and goodwill.

The Company derives significant revenue from certain customers. The number of customers that individually accounts for more than 10% of revenue and total revenue from transactions with those customers is as follows:


	Customers		Revenue
Nine months ended September 30, 2007		1	$	1,827
Nine months ended September 30, 2008		1	$	3,962

12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA

These condensed consolidated financial statements have been prepared in accordance with U.S. GAAP that differs in some respects from Canadian GAAP. The following adjustments and disclosures would be required in order to present these condensed consolidated financial statements in accordance with Canadian GAAP.


	Three months			Three months			Nine months			Nine months
	ended			ended			ended			ended
	September 30,			September 30,			September 30,			September 30,
	2008			2007			2008			2007
Consolidated statements of operations and other comprehensive income
Net loss – U.S. GAAP	$	(3,569	)	$	(5,551	)	$	(13,599	)	$	(15,188	)
Intangible assets (1), (2)		(884	)		(768	)		(2,450	)		(2,181	)
Future income taxes (1)		446			323			1,266			1,374
Acquired in-process research and development, net of future income taxes (2)		—			93			—			528
Change in fair value of warrants (3)		—			(511	)		—			(1,179	)

Net loss – Canadian GAAP	$	(4,007	)	$	(6,414	)	$	(14,783	)	$	(16,646	)

Weighted average number of common shares outstanding		19,492,432			19,485,889			19,490,011			19,485,889

Loss per common share
Basic and diluted loss per share – U.S. GAAP	$	(0.18	)	$	(0.28	)	$	(0.70	)	$	(0.78	)
Basic and diluted loss per share – Canadian GAAP	$	(0.21	)	$	(0.33	)	$	(0.76	)	$	(0.85	)


	Nine months		Nine months
	ended		ended
	September 30,		September 30,
	2008		2007
Other comprehensive (loss) income – U.S. GAAP	$	—	$	3,085
Foreign currency translation adjustments		—		4,178

Other comprehensive (loss) income – Canadian GAAP	$	—	$	7,263


	September 30,						December 31,
	2008						2007
				Canadian						Canadian
	U.S. GAAP			GAAP			U.S. GAAP			GAAP
Consolidated balance sheets
Intangible assets (1), (2)	$	—		$	35,522		$	—		$	37,972
Future income tax liability (1)		—			9,202			—			10,468
Warrant liability (3)		—			—			64			—
Common Stock (1), (3)		325,043			324,188			324,992			324,137
Additional paid-in capital (3)		14,725			22,692			13,636			21,603
Deficit (1), (2), (3)		(335,142	)		(324,468	)		(321,543	)		(309,685	)
Accumulated other comprehensive loss		(5,066	)		(1,246	)		(5,066	)		(1,246	)
Warrants		64			4,778			—			4,778
Total Stockholders’ equity		(376	)		25,944			12,019			39,587

The cumulative effect of these adjustments on consolidated stockholder’s equity is as follows:


	September 30,			December 31,
	2008			2007
Stockholders’ equity (deficit) – U.S. GAAP	$	(376	)	$	12,019
Intangible assets (1), (2)		35,522			37,972
Future income taxes (1)		(9,202	)		(10,468	)
Warrant liability reclassification (3)		—			64

Stockholders’ equity – Canadian GAAP	$	25,944		$	39,587

The only effect of these differences on accumulated other comprehensive loss are foreign currency translation adjustments arising before the Company’s change in functional currency as follows:


	Nine months			Nine months
	ended			ended
	September 30,			September 30,
	2008			2007
Accumulated other comprehensive loss – U.S. GAAP	$	(5,066	)	$	(5,224	)
Foreign currency translation adjustments		3,820			3,596

Accumulated other comprehensive loss – Canadian GAAP	$	(1,246	)	$	(1,628	)


	Nine months			Nine months
	ended			ended
	September 30,			September 30,
	2008			2007
Consolidated statements of cash flow – Canadian GAAP
Cash and cash equivalents, beginning of period	$	12,035		$	13,409
Cash used in operating activities (2)		(12,196	)		(9,960	)
Cash provided by investing activities (2)		11,336			3,937
Cash used in financing activities		(78	)		(214	)
Effect of exchange rate fluctuations on cash and cash equivalents		281			1,593

Cash and cash equivalents, end of period	$	11,378		$	8,765


(1)		Business acquisitions

Under U.S. GAAP, the acquisition of Biomira USA Inc. (formerly OncoTherapeutics Inc.) in 1995 was valued at the stock market price of the shares issued at the date of closing. Under Canadian GAAP, the acquisition is valued at the fair value of the net assets acquired at the time the agreement was negotiated. The effect of this difference is that under U.S. GAAP the value of the net shares issued was higher, increasing the research and development acquired on acquisition by an equal amount. In addition, under U.S. GAAP, acquired technologies, which require regulatory approval to be commercialized and which have no proven alternative future uses are considered in-process research and development, and are immediately expensed on the date of acquisition. Under Canadian GAAP, the acquired technologies are considered to be development assets which are capitalized and amortized over their expected useful lives.

On October 30, 2006, Oncothyreon acquired a 100% interest in ProlX. Under U.S. GAAP, ProlX’s acquired technologies, which are primarily comprised of patents and technologies which require regulatory approval to be commercialized and which have no proven alternative future uses, are considered in-process research and development and are immediately expensed upon acquisition. The intangible assets acquired include $24,920 of acquired technologies that do not have an alternative future use given their specialized nature and limited alternative use. Under Canadian GAAP, the acquired technologies are considered to be development assets which are capitalized and amortized over their expected useful lives. In addition, a future income tax liability is recognized on the acquired technologies and amortized over their expected useful lives as an income tax recovery.

(2) Intangible assets acquired from others for use in research and development

Under U.S. GAAP, amounts paid for intangible assets used solely in research and development activities with no alternative future use are expensed and are reported as operating activities in the consolidated statements of cash flows. Under Canadian GAAP, finite life intangible assets, such as patents and licenses, acquired from others for use in research and development activities, are deferred and recognized over the period of the related development project for which reasonable certainty exits and are reported as investing activities in the consolidated statements of cash flows.

(3) Warrants

Under U.S. GAAP, the application of SFAS 133 requires share purchase warrants with an exercise price denominated in a currency other than the Company’s functional currency to be recorded as liabilities. Changes in the fair value of the warrants are required to be recognized in income through realized gains or losses each reporting period. Under Canadian GAAP, the fair value of the warrants on the issue date is recorded as a reduction to the proceeds from the issuance of common shares and convertible debentures, with the offset to the warrant component of stockholders’ equity. The warrants are not re-valued under Canadian GAAP.

As disclosed in Note 2, effective January 1, 2008 the Company changed its functional currency to the U.S. dollar from the Canadian dollar and therefore the exercise price of the warrants is now denominated in the Company’s functional currency. Accordingly, under U.S. GAAP the previously recognized liability associated with the fair value of the warrants as at December 31, 2007 of $64 was reclassified to stockholders’ equity on January 1, 2008.

Canadian GAAP accounting standards adopted in the current year

Inventories

In June 2007, the Accounting Standards Board (“AcSB”) of the Canadian Institute of Chartered Accountants (“CICA”) issued Handbook Section 3031,Inventories. Section 3031 prescribes the measurement of inventory at the lower of cost and net realizable value. The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Section 3031 applies to interim and annual consolidated financial statements for fiscal years beginning on or after January 1, 2008. The adoption of Section 3031 resulted in a change to the Company’s accounting policy for raw material supplies to be valued at the lower of cost and net realizable value, instead of at the lower of cost and replacement cost under the Company’s previous accounting policy; however this change did not result in a material impact on the Company’s financial position or results of operations, for the current and prior periods presented.

Financial instruments – Disclosures and Presentations

In December 2006, the AcSB of the CICA issued Handbook Section 3862,Financial Instruments — Disclosures, which modifies the disclosure requirements of Section 3861,Financial Instruments – Disclosures and Presentation, and Section 3863,Financial Instruments – Presentations, which carries forward unchanged the presentation requirements for financial instruments of Section 3861. Section 3862 requires entities to provide disclosures in their financial statements that enable users to evaluate the significance of financial instruments on the entity’s financial position and its performance, and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks. Section 3863 establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the classification of related interest, dividends, losses and gains, and circumstances in which financial assets and financial liabilities are offset. Sections 3862 and 3863 apply to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. The adoption of these revised Sections did not result in a material impact on the Company’s financial position or results of operations. The above additional disclosures with respect to the potential impact of risks arising from financial instruments as required by the Section 3862 are provided in Note 10.

Capital Disclosures

In November 2006, the AcSB of the CICA issued Handbook Section 1535,Capital Disclosures. Section 1535 establishes standards for disclosing information about an entity’s capital and how it is managed. The standard is effective for interim and annual consolidated financial statements relating to fiscal years beginning on or after October 1, 2007. The adoption of Section 1535 did not result in a material impact on the Company’s financial position or results of operations; however, the additional disclosures as required by Section 1535 have been provided below.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

The Company monitors capital with the objective of having sufficient cash, cash equivalents and short-term investments to fund budgeted expenditures over a minimum of the next 12 months. The Company issues additional equity securities as required to finance its operations.

At September 30, 2008 cash, cash equivalents and short-term investments were approximately $11,378. The Company’s cash equivalents and short-term investments are invested in money market funds, short-term obligations of the certain provinces and commercial paper.

Going Concern

In April 2007, the CICA approved amendments to Handbook Section 1400, “General Standards of Financial Statement Presentation”. These amendments require management to assess an entity’s ability to continue as a going concern. When management is aware of material uncertainties related to events or conditions that may cast doubt on an entity’s ability to continue as a going concern, those uncertainties must be disclosed. In assessing the appropriateness of the going concern assumption, the standard requires management to consider all available information about the future, which is at least, but not limited to, 12 months from the balance sheet date. The adoption of these amendments did not result in a material impact on the Company’s financial position or results of operations.

Canadian GAAP accounting standards effective in future years

Goodwill and Intangible Assets

In February 2008, the CICA issued Handbook Section 3064,Goodwill and Intangible Assets Section 3064, which replaces Section 3062,Goodwill and Intangible Assets, and Section 3450,Research and Development Costs, establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. The provisions relating to the definition and initial recognition of intangible assets, including internally generated intangible assets, are equivalent to the corresponding provisions of International Financial Reporting Standard IAS 38,Intangible Assets. Section 3064 is effective for the Company’s interim and annual consolidated financial statements commencing January 1, 2009. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

Financial Statement Concepts

In February 2008, the CICA adopted conforming amendments based on Section 3064. The amendments clarify the relationship between incurring expenditures and creating assets. Incurring expenditures may or may not provide evidence that future economic benefits have been obtained and, therefore, is not conclusive proof that the definition of an asset has or has not been achieved. In addition, the amendments clarify that the application of the matching concept does not allow the recognition of items in the balance sheet which do not meet the definition of assets or liabilities. The effective date of these amendments is interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008. Earlier adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

13. OTHER INFORMATION

Concurrent with the change in the reporting entity (Note 1) the Company commenced preparing its financial statements in U.S. GAAP and adopted the U.S. dollar as the reporting currency.

The following presents the conversion of the Company’s comparative financial information from Canadian dollars and Canadian GAAP to U.S. dollars and U.S. GAAP:

a) Consolidated statement of operations and other comprehensive income for the nine months ended September 30, 2007:


	As previously
	reported			As restated
	Canadian			U.S. GAAP
	GAAP CDN $			U.S. $
Revenue
Contract research and development	$	665		$	602
Contract manufacturing		1,016			919
Licensing revenue from collaborative agreements		349			316
Licensing, royalties, and other revenue		25			23

		2,055			1,860

Expenses
Research and development		7,961			7,733
Manufacturing		1,290			1,168
General and administrative		9,093			8,230
Marketing and business development		595			539
Depreciation		2,589			162
Investment and other income		436			395
Change in fair value of warrant liability		—			(1,179	)

		21,964			17,048

Loss before income taxes		(19,909	)		(15,188	)

Income tax recovery:
Future		1,518			—

Net loss		(18,391	)		(15,188	)
Other comprehensive (loss) income		(52	)		3,085

Comprehensive loss	$	(18,443	)	$	(12,103	)

Basic and diluted loss per share	$	(0.96	)	$	(0.78	)

Weighted average number of common shares outstanding		19,485,889			19,485,889

b) Consolidated statement of cash flows for the nine months ended September 30, 2007:


	As previously
	reported			As restated
	Canadian			U.S. GAAP
	GAAP CDN $			U.S. $
Operating
Net loss	$	(18,391	)	$	(15,188	)
Depreciation		2,589			162
Future income tax recovery		(1,518	)		—
Stock-based compensation expense		1,369			1,239
Change in fair value of warrant liability		—			(1,179	)
Gain on sale of short-term investments		(52	)		(47	)
Unearned revenue		6,068			5,518

Recognition of unearned revenue		(349	)		(316	)
Foreign exchange gain on notes payable		(34	)		—
Foreign exchange loss on notes receivable		60			—
Foreign exchange loss on cash and cash equivalents		362			—
Net change in non-cash working capital balances from operations
Accounts receivable		834			755
Prepaid expenses		96			87
Inventory		(3,519	)		(3,185	)
Accounts payable and accrued liabilities		1,842			1,667

		(10,643	)		(10,487	)

Investing
Purchase of short-term investments		(28,998	)		(26,247	)
Redemption of short-term investments		34,739			31,444
Purchase of plant and equipment		(533	)		(482	)
Payment of accrued business acquisition costs		(277	)		(251	)
Purchase of intangible assets		(583	)		—

		4,348			4,464

Financing
Repayment of share issuance costs		(192	)		(174	)
Repayment of capital lease obligation		(44	)		(40	)

		(236	)		(214	)

Net cash outflow		(6,531	)		(6,237	)
Effect of exchange rate fluctuations on cash and cash equivalents		(362	)		1,593

Decrease in cash and cash equivalents		(6,893	)		(4,644	)
Cash and cash equivalents, beginning of period		15,626			13,409

Cash and cash equivalents, end of period	$	8,733		$	8,765

Supplemental disclosure of cash flow information
Amount of interest paid in the period	$	2		$	2
Amount of income taxes paid in the period	$	—		$	—

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

The information in this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our condensed consolidated financial statements and related notes included in Part I, Item 1 of this quarterly report. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this quarterly report in Part II, Item 1A – “Risk Factors,” and elsewhere in this quarterly report.These statements, like all statements in this quarterly report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments.

Overview

We are a clinical-stage biopharmaceutical company focused primarily on the development and commercialization of therapeutic products for the treatment of cancer. Our goal is to develop and commercialize novel synthetic vaccines and targeted small molecules that have the potential to improve the lives and outcomes of cancer patients. Our cancer vaccines are designed to stimulate the immune system to attack cancer cells, while our small molecule compounds are designed to inhibit the activity of specific cancer-related proteins. We are advancing our product candidates through in-house development efforts and strategic collaborations with leading pharmaceutical companies. We believe the quality and breadth of our product candidate pipeline, strategic collaborations and scientific team will enable us to become an integrated biopharmaceutical company with a diversified portfolio of novel commercialized therapeutics for major diseases.

Our lead product candidate is Stimuvax, which is a cancer vaccine currently in Phase 3 development for non-small cell lung cancer. We have an exclusive, worldwide collaboration agreement with Merck KGaA of Darmstadt, Germany, or Merck KGaA, for the development and commercialization of Stimuvax. Our pipeline of clinical and preclinical stage proprietary small molecule product candidates includes PX-12, PX-478 and PX-866 and was acquired by us in October 2006 in connection with our acquisition of ProlX Pharmaceuticals Corporation, or ProlX. The most advanced of our small molecule candidates are PX-12, which is currently in Phase 2 development for pancreatic cancer, and PX-478 for which we initiated a Phase 1 clinical trial in advanced metastatic cancer in August 2007. We initiated a Phase 1 trial for PX-866 for advanced metastatic cancer in June 2008. We have not licensed any rights to our small molecules to any third party and retain all development, commercialization, and manufacturing rights. In addition to our product candidates, we have developed novel vaccine technology that we may develop ourselves and/or license to others. On September 2, 2008, we announced a prioritization plan to focus our resources and capital on the clinical development of PX-478 and PX-866. We currently intend to seek a partner for further clinical development of PX-12, as the next stage of development for PX-12 will require substantial resources and time, which would be more suitable in partnership with a larger pharmaceutical company.

In 2001, we entered into exclusive supply and collaboration agreements with Merck KGaA to develop and market Stimuvax, subject to certain development and co-promotion rights we retained. In connection with the entry into these agreements, Merck KGaA made an equity investment in us in 2001, was obligated to make additional cash payments, generally contingent on satisfaction of specified milestones, and to pay us a royalty on Stimuvax sales, if any.

In August 2007, we amended our agreements with Merck KGaA such that Merck KGaA would fully assume responsibility for the further clinical development and marketing of Stimuvax. Under the amended agreements, we converted the U.S. and Canadian co-promotion interest to a specified royalty rate, which is higher than the rate Merck KGaA had agreed to pay in markets outside of North America under the original agreements. The amended agreements also contain development and sales-based milestone payments as well as revised payments related to manufacturing scale-up and process transfer. Under the amended agreements, we retained responsibility for the manufacture of Stimuvax, including process development and scale-up for commercial manufacturing. The execution of the amended agreements also triggered a milestone payment to us of $2.5 million, before associated payments to third parties of $0.1 million, which was received in September 2007. In December 2007, we announced that we had completed the transfer of certain assays and methodology related to Stimuvax to Merck KGaA triggering a payment to us of $5.0 million. In May 2008 we completed the transfer of certain additional assays and manufacturing technology related to Stimuvax which triggered a payment to us of $3.0 million.

Merck KGaA will exclusively purchase Stimuvax from us; with respect to purchases for commercial sales, the purchase price will be subtracted from our royalty.

We have not developed a therapeutic product to the commercial stage. As a result, our revenue has been limited to date, and we do not expect to recognize any material revenue for the foreseeable future. Our near term prospects will depend significantly on the development of Stimuvax and our small molecule compounds. In particular, our ability to generate revenue in future periods will depend substantially on the progress of ongoing clinical trials for Stimuvax and our small molecule compounds, our ability to obtain development and commercialization partners for our small molecule compounds, Merck KGaA’s success in obtaining regulatory approval for Stimuvax, our success in obtaining regulatory approval for our small molecule compounds, and Merck KGaA’s and our respective abilities to establish commercial markets for these drugs.

Any adverse clinical results relating to Stimuvax or any decision by Merck KGaA to discontinue its efforts to develop and commercialize the product would have a material and adverse effect on our future revenues and results of operations and would be expected to have a material adverse effect on the trading price of our common stock. Our small molecule compounds are much earlier in the development stage than Stimuvax, and we do not expect to realize any revenues associated with the commercialization of our products for the foreseeable future.

The continued research and development of our product candidates will require significant additional expenditures, including preclinical studies, clinical trials, manufacturing costs and the expenses of seeking regulatory approval. We rely on third parties to conduct a portion of our preclinical studies, all of our clinical trials and all of the manufacturing of cGMP material. We expect expenditures associated with these activities to increase in future years as we continue the development of our product candidates. We expect expenditures associated with the manufacture of Stimuvax to be substantially offset by payments from Merck KGaA.

We have incurred substantial losses since our inception. As of September 30, 2008, our accumulated deficit totaled $335.1 million. Financial results for the three months ended September 30, 2008 reflect a consolidated net loss from operations of $3.6 million or ($0.18) per share compared to $5.6 million or ($0.28) per share for the same period in 2007. We recognized net losses of $13.6 million or ($0.70) per share and $15.2 million or ($0.78) per share for the nine months ended September 30, 2008 and 2007, respectively. We expect to continue to incur substantial net losses as we expand our research and development activities with respect to our small molecules and processes for commercial scale manufacturing of our products. To date we have funded our operations principally through the sale of our equity securities, cash received through our strategic alliance with Merck KGaA, government grants, debt financings, and equipment financings. Because we have limited revenues and substantial research and development and operating expenses, we expect that we will in the future seek additional working capital funding from the sale of equity or debt securities.

Our ability to continue as a going concern is dependent on our success at raising additional capital sufficient to meet our obligations on a timely basis, and to ultimately attain profitability. We believe we will raise the necessary funds for our growth and development activities. However, there is no assurance that we will raise capital sufficient to enable us to continue our planned operations for the next 12 months. On September 2, 2008, we announced our intention to offer 5,100,000 shares of our common stock in a fully-underwritten, public offering pursuant to our effective shelf registration statement. As of the date of this report on Form 10-Q, we have not been able to consummate such offering given adverse market conditions.

The current financing environment in the United States, particularly for biotechnology companies like us, is exceptionally challenging and we can provide no assurances as to when such environment will improve. While we may continue to seek additional financing from the sale and issuance of equity or debt securities we are also exploring other financing alternatives, and may sell rights related to our existing product candidates, form strategic partnerships for our product candidates or enter into other transactions designed to improve our cash position. We cannot predict that financing will be available when and as we need financing or, if available, that the financing terms will be commercially reasonable. Accordingly, in the event new financing is not obtained, we will likely continue to reduce general and administrative expenses and delay research development projects as well as further acquisition of scientific equipment and supplies until we are able to obtain sufficient financing to do so.

On August 20, 2008, we disclosed that we had received a letter from The Nasdaq Stock Market indicating that (i) we did not comply with the requirements for continued listing on The NASDAQ Global Market because we did not meet the maintenance standard in Marketplace Rule 4450(b)(1)(A) that specifies, among other things, that the market value of our common stock be at least $50 million and (ii) in accordance with the Marketplace Rule 4450(e)(4), we had a 30-calendar-day period in which to regain compliance. On September 16, 2008, we received a Staff Determination Letter from The Nasdaq Stock Market indicating that we had not regained compliance.

We appealed this initial delisting determination to a hearing conducted by a NASDAQ Listing Qualifications Panel, or the Panel, on October 23, 2008. The Panel has not yet rendered a decision regarding our appeal. In the event of an unfavorable determination by the Panel, we would alternatively apply to have our common stock transferred to the Nasdaq Capital Market, as long as we satisfy the requirements for continued inclusion on the Nasdaq Capital Market set forth in the NASDAQ Marketplace Rules. There can be no assurance that the Panel will grant our request for continued listing on The NASDAQ Global Market, nor can there be assurance that our shares will alternatively be approved for listing on the NASDAQ Capital Market.

On December 10, 2007, we became the successor corporation to Biomira Inc., a Canadian corporation, by way of a plan of arrangement effected pursuant to Canadian law. Pursuant to the plan of arrangement, shareholders of the former Biomira received one share of our common stock for each six common shares of Biomira that they held. For the quarter and nine months ended September 30, 2008, this Management’s Discussion and Analysis of Financial Condition and Results of Operations and our condensed consolidated financial statements and related notes included elsewhere in this quarterly report have been prepared after giving effect to the six for one share exchange. The condensed consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations have been prepared using U.S. dollars as the reporting currency.

Key Financial Metrics

Revenue

Historically, our revenue has been derived from our contract research and development activities, payments under our collaborative agreements, and miscellaneous licensing, royalty and other revenues from ancillary business and operating activities. In addition, in connection with the entry into the amended collaboration and supply agreements with Merck KGaA in August 2007, we retained responsibility for the manufacture of Stimuvax and Merck KGaA agreed to exclusively purchase Stimuvax from us. As a result, our financial reporting from August 7, 2007, the date of the signed amended agreements, reflects the revenue related to the supply of Stimuvax separately as contract manufacturing revenue. Previously, these amounts were reported under contract research and development revenue. Our collaboration with Merck KGaA has contributed the substantial majority of our revenue, accounting for 99.4%, and 99.6% of total revenue in the three months ended September 30, 2008 and 2007, and 99.7% and 98.2% for the nine months ended September 30, 2008 and 2007, respectively.

Contract Research and Development. Contract research and development revenue represents Merck KGaA’s contribution toward shared costs associated with Stimuvax clinical trials and clinical trial material provided to Merck KGaA related to Stimuvax. Effective March 1, 2006, we transitioned responsibility for all Stimuvax clinical development and regulatory activities and the related costs thereon to Merck KGaA. In January 2007, Merck KGaA initiated a global Phase 3 clinical trial under our collaboration assessing the efficacy and safety of Stimuvax as a potential treatment for inoperable non-small cell lung cancer. We expect the clinical trial to include approximately 1,300 patients in approximately 30 countries. Because of the change in our responsibilities for Stimuvax clinical trials, our contract research and development revenue has been recently reduced as we no longer receive reimbursements for shared clinical trial costs.

Contract Manufacturing. Our contract manufacturing revenue represents amounts that were previously reported as reimbursements of a portion of the Stimuvax manufacturing costs as contract research development revenue. As a result of our amended agreements with Merck KGaA and the fact that we are now responsible for supplying Merck KGaA with supplies of Stimuvax, our financial reporting from August 7, 2007, the date of the signed agreements, reflects the revenue for the supply of Stimuvax as contract manufacturing revenue. Previously, these amounts were reported under contract research and development revenue. We expect revenue associated with this activity to increase in future periods as patient enrollment increases in the Phase 3 clinical trial that Merck KGaA is currently conducting for Stimuvax.

Licensing Revenue from Collaborative Agreements. Licensing revenue from collaborative agreements represents the amortization over the remaining patent life of upfront payments received under our agreements with Merck KGaA as well as amortization of other payments made upon achievement of development milestones relating to signing of the agreements, transfers of know-how, clinical trials, regulatory approvals, and commercial development of Stimuvax. The milestone payments that have been previously received will be fully amortized by 2019.

Other Revenue. Other revenue includes revenue from sales of compounds and processes from patented technologies to third parties. We did not generate any revenue from the sale of such compounds or processes during the three month period ended September 30, 2008. Revenue generated in the nine months ended September 30, 2008 was not material to our results of operations.

Expenses

Research and Development/Manufacturing. Research and development/manufacturing expense consists of costs associated with research activities as well as costs associated with our product development efforts, conducting preclinical studies, and sale of clinical trial material. These expenses include external research and development expenses incurred pursuant to agreements with third party manufacturing organizations; technology access and licensing fees related to the use of proprietary third party technologies; employee and consultant-related expenses, including salaries, stock-based compensation expense; third party supplier expenses and an allocation of facility costs.

To date, we have recognized research and development expenses, including those paid to third parties, as they have been incurred.

We credit funding received from government research and development grants against research and development expense. These credits totaled $0.3 million and $0.6 million in the three months ended September 30, 2008 and 2007 and $1.1 million and $1.4 million for the nine months ended September 30, 2008 and 2007, respectively. These grants were Small Business Innovation Research, or SBIR, grants that we assumed in connection with our acquisition of ProlX on October 30, 2006. We have successfully applied for and received approval for a further $1.0 million grant for the period ended July 31, 2009.

Most of our research and development programs are at an early stage and may not result in any approved products. Product

candidates that appear promising at early stages of development may not reach the market for a variety of reasons. For example, Merck KGaA cancelled our collaboration relating to Theratope after receiving Phase 3 clinical trial results. We had made substantial investments over several years in the development of Theratope and terminated all development activities following the cancellation of our collaboration. Similarly, any of our continuing product candidates may be found to be ineffective or cause harmful side effects during clinical trials, may take longer to complete clinical trials than we have anticipated, may fail to receive necessary regulatory approvals, and may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality. As part of our business strategy, we may enter into collaborative agreements with larger third party pharmaceutical companies to complete the development and commercialization of our small molecule or other product candidates, and it is unknown whether or on what terms we will be able to secure collaboration arrangements for any product candidate. In addition, it is difficult to provide the impact of collaboration arrangements, if any, on the development of product candidates. Establishing collaborative product development relationships with large pharmaceutical companies may or may not accelerate the time to completion or reduce our costs with respect to the development and commercialization of any product candidate.

As a result of these uncertainties and the other risks inherent in the drug development process, we cannot determine the duration and completion costs of current or future clinical stages of any of our product candidates. Similarly, we cannot determine when, if, or to what extent we may generate revenue from the commercialization and sale of any product candidate. The timeframe for development of any product candidate, associated development costs, and the probability of regulatory and commercial success vary widely. As a result, other than with respect to Stimuvax, which is subject to our obligations under the agreements with Merck KGaA, we continually evaluate our product candidates and make determinations as to which programs to pursue and how much funding to direct to specific candidates. These determinations are typically made based on consideration of numerous factors, including our evaluation of scientific and clinical trial data and an ongoing assessment of the product candidate’s commercial prospects. We anticipate that we will continue to develop our portfolio of product candidates, which will increase our research and development expense in future periods. We do not expect any of our current candidates to be commercially available before 2012, if at all.

As of the date of the amended collaboration and supply agreements with Merck KGaA, we began to report costs associated with the manufacturing and sale of Stimuvax clinical trial material as manufacturing expense. Previously, these amounts were aggregated with other research and development expenses. We expect manufacturing expense associated with this activity to increase in future periods as patient enrollment increases in the Phase 3 clinical trial Merck KGaA is currently conducting for Stimuvax.

General and Administrative. General and administrative expense consists principally of salaries, benefits, stock-based compensation expense, and related costs for personnel in our executive, finance, accounting, information technology, and human resource functions. Other general and administrative expenses include professional fees for legal, consulting, and accounting services and an allocation of our facility costs.

Marketing and Business Development. Marketing and business development expense consists principally of salaries, benefits, stock-based compensation expense, and related costs for marketing and business development personnel, including travel costs, research subscriptions, and other marketing administrative costs.

Depreciation. Depreciation expense consists of depreciation of the cost of plant and equipment such as scientific, office, manufacturing, and computer equipment as well as depreciation of leasehold improvements.

Investment and other income. Investment and other income consists of interest and other income on our cash and short-term investments and foreign exchange gains and losses. Our short term investments typically consist of Canadian or U.S. federal, state, or provincial debt securities, investment grade corporate debt securities and commercial paper, and term deposits or similar instruments of trust companies and banks, all with original maturities of between 90 days and one year at the time of purchase. Our short term investments and cash balances are denominated in either U.S. or Canadian dollars, and the relative weighting between U.S. and Canadian dollars will vary from time to time based on market conditions and our operating requirements in the two countries. We have historically not engaged in hedging transactions with respect to our U.S. and Canadian dollars investment assets or cash balances.

Interest expense. Interest expense consists of interest payments under capital lease agreements for computer equipment.

Change in fair value of warrants. Change in fair value of warrants relates to outstanding warrants to acquire shares of common stock. The exercise prices of the warrants are denominated in U.S. dollars. Share purchase warrants with an exercise price denominated in a currency other than our functional currency, which, prior to January 1, 2008, was the Canadian dollar, are recorded as liabilities. Changes in the fair value of the warrants are then reflected in our statement of operations.

Critical Accounting Policies and Significant Judgments and Estimates

We have prepared this Management’s Discussion and Analysis of Financial Condition and Results of Operations based on our condensed consolidated financial statements, which have been included elsewhere in this report. The preparation of our financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the dates of our consolidated financial statements as well as the reported amounts of revenue and expense during the periods presented. Significant estimates and assumptions are required in the determination of revenue recognition, in particular revenue related to our agreements with Merck KGaA. Significant estimates and assumptions are also required to determine stock-based compensation, the change in fair value of warrants and foreign currency translation. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. For any given individual estimate or assumption we make, there may also be other estimates or assumptions that are reasonable. We believe that the estimates and judgments upon which we rely are reasonable based upon historical experience and information available to us at the time that we make these estimates and judgments. To the extent there are material differences between these estimates and actual results, our consolidated financial statements will be affected. Although we believe that our judgments and estimates are appropriate, actual results may differ from these estimates.

Effective January 1, 2008, we changed our functional currency to the U.S. dollar from the Canadian dollar as a result of our redomicile into the United States effective December 10, 2007 and the corresponding increasing U.S. dollar denominated revenues and expenditures. As our reporting currency is also the U.S. dollar, the September 30, 2008 condensed consolidated financial statements were translated under guidance provided in SFAS 52,Foreign Currency Translation; namely, transactions denominated in foreign currencies are recorded in the functional currency at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated into the functional currency at the rate prevailing at the balance sheet date. Gains and losses arising on the revaluation are included in the income statement. The change in functional currency was adopted prospectively with no restatement of comparative balances.

Our critical accounting policies and significant estimates are detailed in our annual report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 20, 2008, as amended. There have been no material changes in our critical accounting policies and estimates and judgments since that date.

Results of Operations for the Three and Nine Month Periods Ended September 30, 2008 and September 30, 2007

The following table sets forth selected consolidated statements of operations data for each of the periods indicated.

Overview


	Three Months Ended								Nine Months Ended
	September 30,					%			September 30,					%
	2008		2007			Change			2008		2007			Change
	(In millions, except per								(In millions, except per
	share amounts)								share amounts)
Revenue	$	0.8	$	1.1			(27.3	)%	$	4.0	$	1.9			110.5	%
Expenses		4.4		7.1			(38.0	)%		17.6		18.2			3.3	%
Change in fair value of warrant liability		—		(0.5	)		N/M	+		—		(1.2	)		N/M	+
Net loss	$	3.6	$	5.5			(34.5	)%	$	13.6	$	17.0			(20.0	)%
Other comprehensive (income) loss		—		(1.1	)		N/M	+		—		(3.1	)		N/M	+
Comprehensive loss	$	3.5	$	4.4			(20.5	)%	$	13.6	$	12.1			(12.4	)%
Basic and diluted loss per share	$	0.18	$	0.28			(35.7	)%	$	0.70	$	0.78			(10.3	)%


+		Not meaningful

As discussed in more detail below, the decrease in our net loss for the three months ended September 30, 2008 relative to the prior year period was primarily attributable to a decrease in operating costs. Our operating results were also affected by the amendments to the collaborative and supply agreements with Merck KGaA.

The decrease in our net loss for the nine months ended September 30, 2008 compared to the prior year period was attributable to an increase in revenue from the sale of clinical trial material to Merck KGaA to support the Phase 3 trial of Stimuvax.

A portion of our operating expenses are denominated in Canadian dollars, which was our functional currency in the quarter ended September 30, 2007, and increases in the value of the Canadian dollar relative to the U.S. dollar had an adverse effect on our expenses when expressed in U.S. dollars on our condensed consolidated statements of operations. Effective January 1, 2008, the U.S. dollar became both our functional and reporting currency, but we expect to continue to incur certain expenses in Canadian dollars associated with our Canadian operations and will therefore continue to be subject to foreign currency exchange risks.

Revenue


	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2008		2007		% Change			2008		2007		% Change
	(In millions)							(In millions)
Contract research and development	$	—	$	—		N/M	+	$	—	$	0.6		N/M	+
Contract manufacturing		0.4		0.9		(55.6	)%		2.9		0.9		222.2	%
License revenue from collaborative agreements		0.4		0.2		100.0	%		1.0		0.3		233.3	%

	$	0.8	$	1.1		(27.3	)%	$	3.9	$	1.8		116.7	%


+		Not meaningful

The decrease in contract research and development revenue during the nine months ended September 30, 2008 relative to the comparable period in 2007 was due to the cessation of the clinical research collaboration with Merck as described in the section captioned “—Key Financial Metrics—Revenue,” above.

Our contract manufacturing revenue decreased for the three months ended September 30, 2008 relative to the comparable period in 2007 as a result of a lower number of lots released relative to the comparable period in 2007. Contract manufacturing revenue increased for the nine months ended September 30, 2008 relative to the comparable period in 2007 as a result of the amended collaboration and supply agreements, which we signed with Merck KGaA in August 2007. Under the terms of such agreements, we have the responsibility of manufacturing Stimuvax and Merck KGaA has agreed to exclusively purchase Stimuvax from us.

The increased licensing revenue from collaborative agreements represents the amortization of milestone payments received during 2007 and 2008. These upfront milestone payments received under our agreements with Merck KGaA are deferred and recognized over the remaining patent life. The milestone payments that have been previously received will be fully amortized by 2019.

Research and Development / Manufacturing Expenses


	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2008		2007		% Change			2008		2007		% Change
	(In millions)							(In millions)
Research and development	$	1.9	$	1.4		35.7	%	$	6.9	$	7.7		(10.4	)%
Manufacturing		0.4		1.2		(66.7	)%		3.1		1.2		158.3	%

	$	2.3	$	2.6		(11.5	)%	$	10.0	$	8.9		12.4	%

The combined research and development /manufacturing expenses were lower in the three months ended September 30, 2008 due to the lower number of lots released relative to the comparable period in the previous year. The increase in our combined research and development / manufacturing expense during the nine month period relative to the comparable period in 2007 relates primarily to the manufacturing and sale of clinical trial material associated with the amended agreements with Merck KGaA relating to Stimuvax which came into effect in the second half of 2007.

As noted in the section captioned “—Key Financial Metrics—Revenue,” effective August 7, 2007, the date of amended agreements with Merck KGaA, clinical trial material costs related to the supply of Stimuvax to Merck KGaA have been presented separately in the condensed consolidated statements of operations as manufacturing expense. Previously, these costs were reported under research and development expenses. As a result, the decrease in research and development expense in the quarter ended September 30, 2008 relative to the prior year period was primarily attributable to the change in our business relationship with Merck

KGaA reflected in the amended agreements.

General and Administrative Expense


	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2008		2007		% Change			2008		2007		% Change
	(In millions)							(In millions)
General and administrative	$	1.9	$	4.1		-53.7	%	$	7.3	$	8.2		11.0	%

The decrease in general and administrative expense for the three and nine month period ended September 30, 2008 relative to the comparable prior year periods was attributable higher professional fees incurred in the prior year for the reincorporation into the United States.

Marketing and Business Development Expense


	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2008		2007		% Change			2008		2007		% Change
	(In millions)							(In millions)
Marketing and Business Development	$	—	$	—		—	%	$	—	$	0.5		N/M+

We eliminated our marketing and business development organization in March 2007, as we increased our focus on the ongoing development of our newly acquired portfolio of small molecule compounds. As a result, our marketing and business development expense has been reduced to zero from $0.5 million.

Depreciation Expense


	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2008		2007		% Change			2008		2007		% Change
	(In millions)							(In millions)
Depreciation	$	0.1	$	0.1		—	%	$	0.3	$	0.2		50.0	%

The relatively flat depreciation expense reflects the fact that we have not made any substantial capital expenditures or equipment purchases in the last two years.

Investment and Other Income


	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2008		2007			% Change		2008		2007			% Change
	(In millions)							(In millions)
Investment and Other Income/(Expense)	$	—	$	(0.3	)		N/M+	$	0.1	$	(0.4	)		125.0	%


+		Not meaningful

The increase in investment and other income in the nine months ended September 30, 2008 compared to the previous year was primarily attributable to foreign exchange losses recognized during the three months ended September 30, 2007.

Change in Fair Value of Warrant Liability

Three Months Ended

Nine Months Ended

September 30,

2008

2007

% Change

2008

2007

% Change

(In millions)

Change in fair value of warrant liability

—

0.5

N/M+

—

1.2

N/M+

Effective January 1, 2008, we changed our functional currency to the U.S. dollar from the Canadian dollar. Since the exercise price of the warrants is now denominated in our functional currency, there is no further requirement under SFAS 133,Accounting for Derivative Instruments and Hedging Activities, to adjust the warrants to fair value through earnings at each reporting date.

Liquidity and Capital Resources

Cash, cash equivalents, short term investments and working capital

As of September 30, 2008, our principal sources of liquidity consisted of cash and cash equivalents of $11.4 million, and accounts receivable of $1.6 million. Our cash equivalents and short-term investments are typically invested in money market funds, short-term obligations of the U.S. Treasury and Government of Canada, and commercial paper. Of our cash and cash equivalents at September 30, 2008, approximately $0.9 million was denominated in Canadian dollars and was reflected on our balance sheet based at applicable conversion rates on September 30, 2008. Our accounts receivable primarily represent invoices issued to Merck KGaA related to clinical trial materials. Our primary source of cash has historically been proceeds from the issuance of equity securities, debt and equipment financings, and payments to us under licensing and collaboration agreements. These proceeds have been used to fund our losses. Our cash, cash equivalents and short-term investments were $11.4 million as of September 30, 2008 compared to $24.2 million as of December 31, 2007, a decrease of $12.8 million or 52.9% which reflects net operating expenditures during the period.

As of September 30, 2008, our working capital ( defined as current assets less current liabilities) was $9.5 million compared to $21.1 million as of December 31, 2007, a decrease of $11.6 million or 55.0%. The decrease in working capital is primarily attributable to a $12.8 million decrease in cash, cash equivalents and short-term investments, a $0.4 decrease in government grant receivable, a $0.4 million decrease in accounts receivable, $0.4 million decrease in notes receivable and a $3.4 million increase in current portion of deferred revenue, which was offset in part by a $0.7 million decrease in accounts payable and accrued liabilities and a $5.2 million increase in inventory.

We believe that our currently available cash and cash equivalents will be sufficient to finance our operations into the first quarter of 2009.

On March 20, 2008, we filed a shelf registration statement on Form S-3 to issue up to $50 million in common stock, preferred stock, debt securities, depositary shares, warrants, units and guarantees. On July 29, 2008, we filed a post-effective amendment to such registration statement to give us the flexibility to offer and sell our common stock and preferred stock through the issuance of subscription rights to our stockholders on a pro rata basis. On September 2, 2008, we announced our intention to offer 5,100,000 shares of our common stock in a fully-underwritten, public offering pursuant to our effective shelf registration statement. As of the date of this report on Form 10-Q, we have not been able to consummate such offering given adverse market conditions.

We will require additional capital in order to continue the development of products in our pipeline and to expand our product portfolio. The current financing environment in the United States, particularly for biotechnology companies like us, is exceptionally challenging and we can provide no assurances as to when such environment will improve. While we may continue to seek additional financing from the sale and issuance of equity or debt securities we are also exploring other financing alternatives, and may sell rights related to our existing product candidates, form strategic partnerships for our product candidates or enter into other transactions designed to improve our cash position. We cannot predict that financing will be available when and as we need financing or, if available, that the financing terms will be commercially reasonable. Accordingly, in the event new financing is not obtained, we will likely continue to reduce general and administrative expenses and delay research development projects as well as further acquisition of scientific equipment and supplies until we are able to obtain sufficient financing to do so. If we are unable to raise additional financing when and if we require, it would raise substantial doubt about the Company’s ability to continue as a going concern.

Cash Flows From Operating Activities

We used $12.2 million of cash in operating activities for the nine months ended September 30, 2008, an increase of $1.7 million compared to $10.5 million for the nine months ended September 30, 2007 which is attributable to the higher inventory level.

Cash Flows From Investing Activities

Cash flow from investing activities was $11.3 million for the nine months ended September 30, 2008, an increase of $6.8 million over cash flow from investing activities of $4.5 million for the nine months ended September 30, 2007. The increase in cash inflows from investing activities was attributable primarily to increased net redemptions of short-term investments.

Cash Flows From Financing Activities

We used $78,000 of cash in financing activities during the nine months ended September 30, 2008, a decrease of $136,000 over the $214,000 used in the nine months ended September 30, 2007. The decrease was attributable to payment in the first quarter of 2007 of offering expenses associated with our December, 2006 issuance of common stock.

Contractual Obligations and Contingencies

In our operations, we have entered into long-term contractual arrangements from time to time for our facilities, debt financing, the provision of goods and services, and acquisition of technology access rights, among others. The following table presents contractual obligations arising from these arrangements as of September 30, 2008:


	Payments Due by Period
			Less than
	Total		1 Year		1-3 Years		4-5 Years		After 5 Years
	(In thousands)
Operating leases — premises	$	6,599	$	850	$	1,666	$	1,300	$	2,783
Capital lease obligations (including interest)		90		69		21		—		—

Total contractual obligations	$	6,689	$	919	$	1,687	$	1,300	$	2,783

The lease for our corporate facilities in Edmonton, Alberta expired on June 30, 2007, and we have continued to occupy the premises on a month-to-month basis. During the quarter ended June 30, 2007, we entered into an offer to lease approximately 32,000 square feet with the Edmonton Economic Development Corporation. The offer to lease contemplates a lease term extending through to June 30, 2012 with an average base annual rent of $0.3 million with an option to renew for a further five year term. The base annual rent under the offer to lease has been reflected in the above schedule of contractual obligations.

In July 2007, Biomira Marketing Inc., our wholly-owned subsidiary, entered a lease agreement for an office facility in Bellevue, Washington. The lease has a term extending through November 2008 and provides for a monthly base rent of $8,200 for the first 12 months increasing to $8,500 for the remaining six months. In May of 2008, we entered into a sublease agreement for an office facility in Seattle, Washington totaling approximately 17,000 square feet where we intend to consolidate certain of our operations. The sublease expires in December 17, 2011. In May of 2008 we also entered into a lease agreement directly with the landlord beginning on December 18, 2011 for a period of 84 months to December 18, 2017. The sublease provides for a base rent of $33,324 increasing to $36,354. The lease provides for a base rent of $47,715 increasing to $52,259 in 2018.

In September 2007, we entered into a new three year capital lease for computer equipment.

In connection with the acquisition of ProlX, we assumed two loan agreements under which approximately $0.2 million was outstanding as of December 31, 2007 and September 30, 2008. One loan, in the aggregate principal amount of $0.1 million, requires repayment only if we commercialize the product or service developed with the funds provided under the loan agreement. For purposes of the loan, a product or service is considered to be commercialized as of the date we receive FDA approval for the product or service or upon receipt of consideration for the sale or license of the product or service. In addition, if we commercialize a product or service developed with funding under the loan agreement, we are required to conduct manufacturing in the Commonwealth of Pennsylvania or pay a transfer fee equal to three times the amount of the funding. A second loan, in the aggregate principal amount of $0.1 million, is repayable on similar terms as the first loan if we commercialize a product or service developed with funding received under the second loan. In addition, under the second loan agreement, if we commercialize a product or service funded under the second loan, we are obligated to maintain a “significant presence,” defined as 80% of our personnel, in the Commonwealth of Pennsylvania for a period of ten years or to pay a transfer fee equal to three times the amount of the funding. Finally, if we become obligated to repay the loans as a result of having commercialized a product or service, the aggregate amount repayable will equal the original funded amount multiplied by a factor ranging from one to two, subject to certain conditions. As the timing of any future payments under these loans cannot be determined with any certainty, the related repayments have not been reflected in the above schedule of contractual obligations.

In connection with the acquisition of ProlX, we may become obligated to issue additional shares of our common stock to the former stockholders of ProlX upon satisfaction of certain milestones. We may become obligated to issue shares of our common stock with a fair market value of $5.0 million (determined based on a weighted average trading price at the time of issuance) upon the initiation of the first Phase 3 clinical trial for a ProlX product. We may become obligated to issue shares of our common stock with a fair market value of $10.0 million (determined based on a weighted average trading price at the time of issuance) upon regulatory approval of a ProlX product in a major market. Finally, under certain circumstances, if prior to October 30, 2008 we enter into a collaboration agreement for a ProlX product in a specified non-oncology indication, we may become obligated to pay the former ProlX stockholders 50% of any collaboration consideration we realize from the collaboration.

Under certain licensing arrangements for technologies incorporated into our product candidates, we are contractually committed to payment of ongoing licensing fees and royalties, as well as contingent payments when certain milestones as defined in the agreements have been achieved.

Guarantees and Indemnification

In the ordinary course of our business, we have entered into agreements with our collaboration partners, vendors, and other persons and entities that include guarantees or indemnity provisions. For example, our agreements with Merck KGaA and the former stockholders of ProlX contain certain tax indemnification provisions, and we have entered into indemnification agreements with our officers and directors. Based on information known to us as of September 30, 2008, we believe that our exposure related to these guarantees and indemnification obligations is not material.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for another contractually narrow or limited purpose.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157Fair Value Measurements(“SFAS 157”). SFAS 157 introduces a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities.

	•		Level 1 — quoted prices in active markets for identical assets or liabilities;

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

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

The adoption of SFAS 157 did not have any effect on our financial condition or results of operations, however, SFAS 157 introduced new disclosures about how we value certain assets and liabilities. Much of the disclosure is focused on the inputs used to measure fair value, particularly in instances where the measurement uses significant unobservable, i.e., Level 3, inputs. All of our financial instruments as of September 30, 2008 are valued based on other observable inputs. For financial assets and liabilities, SFAS 157 was effective for fiscal years beginning after November 15, 2007, and we have adopted the standard for those assets and liabilities as of January 1, 2008. The impact of adoption was not significant.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(“SFAS 159”). SFAS 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. We have not elected to apply SFAS 159 to any assets or liabilities, therefore the adoption of SFAS 159 did not result in a material impact on our financial position or results of operations.

In June 2007, the Emerging Issues Task Force, or EITF, issued EITF Issue No. 07-3,Accounting for Non Refundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (“EITF 07-3”). EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. The adoption of EITF 07-3 did not result in a material impact on our financial position or results of operations.

In May 2008 the Financial Accounting Standard Board (“FASB”) released SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (the “GAAP hierarchy”). FASB believes that the GAAP hierarchy should be directed to entities because it is the entity, not its auditor, that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. Accordingly, FASB concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB and issued SFAS 162 to achieve that result. SFAS 162 becomes effective 60 days following the SEC’s approval of the Public Accounting Oversight Board amendment to AU Section 411.

We are currently evaluating the potential impact, if any, of the adoption of SFAS 162 on its consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. SFAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP SFAS 142-3”). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of FSP SFAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R (revised 2007), “Business Combinations” (“SFAS 141R”) and other applicable accounting literature. FSP SFAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and must be applied prospectively to intangible assets acquired after the effective date. We are currently evaluating the potential impact, if any, of FSP SFAS 142-3 on its consolidated financial statements.

In September 2007, the EITF reached a consensus on EITF Issue No. 07-1,Collaborative Arrangements (“EITF 07-1”). EITF 07-1 addresses the accounting for arrangements in which two companies work together to achieve a commercial objective, without forming a separate legal entity. The nature and purpose of a company’s collaborative arrangements are required to be disclosed, along with the accounting policies applied and the classification and amounts for significant financial activities related to the arrangements. The consensus is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact of EITF 07-1 on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (Revised),Business Combinations, (“SFAS 141R”). SFAS 141R requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at fair value. SFAS 141R applies to all business combinations, including combinations among mutual entities and combinations by contract alone. Under SFAS 141R, all business combinations will be accounted for by applying the acquisition method. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier application of SFAS 141R is prohibited.

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the retained interest and gain or loss when a subsidiary is deconsolidated. This statement is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 with earlier adoption prohibited. We are currently evaluating the impact of SFAS 160 on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, which amends SFAS 133,Accounting for Derivative Instruments and Hedging Activities, (“SFAS 161”). SFAS 161 requires each company with derivative instruments to disclose information about how and why it uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133, and how derivative instruments and hedged items affect its financial position, financial performance, and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit risk-related contingent features in derivative agreements, counterparty credit risk, and the company’s strategies and objectives for using derivative instruments. SFAS 161 expands the current disclosure framework in SFAS 133,Accounting for Derivative Instruments and Hedging Activities(“SFAS 133”). SFAS 161 is effective prospectively for periods beginning on or after November 15, 2008. We do not utilize derivative instruments and, therefore, do not expect that there will be any impact on our consolidated financial statements.

Item 3. Qualitative and Quantitative Disclosures about Market Risks

Foreign Currency Exchange Risk

As of September 30, 2008 and December 31, 2007, approximately $0.9 million and $10.9 million respectively, of our cash, cash equivalents, and short-term investments were denominated in Canadian dollars. As a result, the carrying value of our cash, cash equivalents, and short-term investments may be impacted by exchange rate fluctuations. In addition, we purchase goods and services denominated primarily in U.S. and Canadian currencies and, to a lesser extent, in certain European currencies. To manage our Canadian dollar exposure to foreign exchange risk, we have considered, but generally do not utilize, derivative instruments. The effect of exchange rate fluctuations may adversely affect our results in the future. During 2008 and the comparative periods presented, we did not enter into any foreign exchange forward or other derivative contracts in order to reduce our exposure to fluctuating foreign currency exchange rates.

Interest Rate Sensitivity

We had cash, cash equivalents, and short-term investments totaling $11.4 million and $24.2 million as of September 30, 2008 and December 31, 2007. These amounts were invested primarily in money market funds, short term obligations of certain Provinces of Canada, and commercial paper. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short term nature of our cash, cash equivalents, and short-term investments. Declines in interest rates, however, would reduce future investment income.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness, as of the end of the period covered by this quarterly report, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The purpose of this evaluation was to determine whether as of the evaluation date our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the SEC under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Based on their evaluation, our management has concluded, as discussed in our annual report on Form 10-K, that a material weakness existed in our internal control over financial reporting as of December 31, 2007 and as a result our disclosures controls and procedures were not effective. Our management has concluded that, as of September 30, 2008, the material weakness remains present.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation

In response to the material weakness in our internal controls noted in our annual report on Form 10-K, we have formalized procedures relating to the preparation of the schedules supporting financial statement disclosure and enhanced the review process for such schedules. Specifically, the schedules supporting financial statement disclosure will be subject to an additional level of review. While we have implemented procedures to remedy the material weakness, due to changes in personnel, we have not fully remediated this material weakness. We expect that this will be remediated when we have recruited the full complement of professional staff and have them in place for a three month period. We expect this to occur by the fourth quarter of the fiscal year 2008; however such procedures will not be tested until close of 2008.

Inherent Limitation on the Effectiveness of Internal Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any material legal proceedings with respect to us, our subsidiaries, or any of our material properties. From time to time, we may become involved in legal proceedings in the ordinary course of our business.

Item 1A. Risk Factors

Set forth below and elsewhere in this quarterly report, and in other documents we file with the SEC are descriptions of risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Because of the following factors, as well as other variables affecting our operating results, past financial performance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods. The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also affect our results of operations and financial condition.

Risks Relating to our Business

Our ability to continue as a going concern is dependent on our success at raising additional capital sufficient to meet our obligations on a timely basis. If we fail to obtain additional financing when needed, we may be unable to complete the development, regulatory approval and commercialization of our product candidates.

We have expended and continue to expend substantial funds in connection with our product development activities and clinical trials and regulatory approvals. Funds generated from our operations will be insufficient to enable us to bring all of our products currently under development to commercialization. Accordingly, we need to raise additional funds from the sale of our securities, partnering arrangements or other financing transactions in order to finance the commercialization of our product candidates. There is no assurance that we will raise capital sufficient to enable us to continue our operations for the next 12 months. On September 2, 2008, we announced our intention to offer shares of our common stock in a fully-underwritten public offering; however, as of the date of this Quarterly Report on Form 10-Q, we have not been able to consummate such offering due to adverse market conditions. In addition, our ability to sell our securities would likely be hampered if we are unable to maintain the listing of our common stock on The Nasdaq Stock Market. Further, the current financing environment in the United States, particularly for biotechnology companies like us, is exceptionally challenging and we can provide no assurances as to when such environment will improve. For these reasons, among others, we cannot be certain that additional financing will be available when and as needed or, if available, that it will be available on acceptable terms. If financing is available, it may be on terms that adversely affect the interests of our existing stockholders. If adequate financing is not available, we may need to continue to reduce or eliminate our expenditures for research and development, testing, production and marketing for some of our product candidates. Our actual capital requirements will depend on numerous factors, including:

	•		our commercialization activities and arrangements;

	•		the progress of our research and development programs;

	•		the progress of our pre-clinical and clinical testing;

	•		the time and cost involved in obtaining regulatory approvals for our product candidates;

	•		the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights with respect to our intellectual property;

	•		the effect of competing technological and market developments;

	•		the effect of changes and developments in our existing collaborative, licensing and other relationships; and

	•		the terms of any new collaborative, licensing and other arrangements that we may establish.

We may not be able to secure sufficient financing on acceptable terms. If we cannot, we may need to delay, reduce or eliminate

some or all of our research and development programs, any of which would be expected to have a material adverse effect on our business, operating results, and financial condition. These factors raise substantial doubt about our ability to continue as a going concern.

Our near-term success is highly dependent on the success of our lead product candidate, Stimuvax, and we cannot be certain that it will receive regulatory approval or be successfully commercialized.

Our lead product candidate, Stimuvax, is currently being evaluated in a Phase 3 clinical trial for the treatment of non-small cell lung cancer, or NSCLC, and will require the successful completion of this and possibly other clinical trials before submission of a biologic license application, or BLA, or its foreign equivalent for approval. This process can take many years and require the expenditure of substantial resources. Pursuant to our agreement with Merck KGaA of Darmstadt, Germany, or Merck KGaA, Merck KGaA is responsible for the regulatory approval process and any subsequent commercialization of Stimuvax. Merck KGaA may not advance the development and commercialization of Stimuvax as quickly as we would hope. Clinical trials involving the number of sites and patients required for Food and Drug Administration, or FDA, approval of Stimuvax may not be successfully completed. If these clinical trials fail to demonstrate that Stimuvax is safe and effective, it will not receive regulatory approval. Even if Stimuvax receives regulatory approval, it may never be successfully commercialized. If Stimuvax does not receive regulatory approval or is not successfully commercialized, we may not be able to generate revenue, become profitable or continue our operations. Any failure of Stimuvax to receive regulatory approval or be successfully commercialized would have a material adverse effect on our business, operating results, and financial condition and could result in a substantial decline in the price of our common stock.

Stimuvax and our other vaccine product candidates are based on novel technologies, which may raise new regulatory issues that could delay or make FDA approval more difficult.

The process of obtaining required FDA and other regulatory approvals, including foreign approvals, is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. Stimuvax and our other vaccine therapies are novel; therefore, regulatory agencies may lack experience with them, which may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of Stimuvax and our other active vaccine products under development.

To date, the FDA has not approved for commercial sale in the United States any active vaccine designed to stimulate an immune response against cancer. Consequently, there is no precedent for the successful commercialization of products based on our technologies in this area.

We have a history of net losses, we anticipate additional losses and we may never become profitable.

We have incurred net losses in each fiscal year since we commenced our research activities in 1985. For the year ended December 31, 2007 and the three and nine months ended September 30, 2008, we incurred a net loss of approximately $20.3 million and $3.6 million and $13.6 million respectively. In addition, as of September 30, 2008, our accumulated deficit was approximately $335.1 million. Our losses have resulted primarily from expenses incurred in research and development of our product candidates. We do not know when or if we will complete our product development efforts, receive regulatory approval for any of our product candidates, or successfully commercialize any approved products. As a result, it is difficult to provide the extent of any future losses or the time required to achieve profitability, if at all. Any failure of our products to complete successful clinical trials and obtain regulatory approval and any failure to become and remain profitable would adversely affect the price of our common stock and our ability to raise capital and continue operations.

There is no assurance that we will be granted regulatory approval for any of our product candidates.

Merck KGaA is currently testing our lead product candidate, Stimuvax, in an ongoing Phase 3 clinical trial for the treatment of NSCLC. PX-12 is currently in a Phase 2 clinical trial for pancreatic cancer and a Phase 1b trial in patients with advanced metastatic cancer which we initiated in June of 2008 to explore a more prolonged infusion regime. In addition, we have recently initiated a Phase 1 clinical trial for PX-478 and PX-866. Our other product candidates remain in the pre-clinical testing stages. The results from pre-clinical testing and clinical trials that we have completed may not be predictive of results in future pre-clinical tests and clinical trials, and there can be no assurance that we will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals. A number of companies in the biotechnology and pharmaceutical industries, including our company, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Regulatory approval may not be obtained for any of our product candidates. If our product candidates are not shown to be safe and effective in clinical trials, the resulting delays in developing

other product candidates and conducting related pre-clinical testing and clinical trials, as well as the potential need for additional financing, would have a material adverse effect on our business, financial condition and results of operations.

We are dependent upon our collaborative relationship with Merck KGaA to develop and commercialize our lead product candidate, Stimuvax.

Under our collaboration with Merck KGaA for our lead product candidate, Stimuvax, Merck KGaA is responsible for the development and worldwide commercialization of Stimuvax and the costs associated with such development and commercialization. We are responsible for manufacturing clinical supplies, and if Stimuvax is approved, commercial supplies of the product, and Merck KGaA is obligated to purchase such supplies from us. Any future payments, including royalties to us, will depend on the extent to which Merck KGaA advances Stimuvax through development and commercialization. With respect to control over decisions and responsibilities, the collaboration provides for a steering committee, consisting of representatives of Merck KGaA and us. Ultimate decision-making authority as to most matters within the collaboration, however, is vested in Merck KGaA, with the exception of matters relating to manufacturing with respect to which we have ultimate decision-making authority. Merck KGaA has the right to terminate the collaboration agreement, upon 30 days’ written notice, if, in Merck KGaA’s reasonable judgment, Merck KGaA determines that there are issues concerning the safety or efficacy of Stimuvax which materially adversely affect Stimuvax’s medical, economic or competitive viability, provided that if we do not agree with such determination we have the right to cause the matter to be submitted to binding arbitration. Our ability to receive any significant revenue from Stimuvax is dependent on the efforts of Merck KGaA. If Merck KGaA fails to fulfill its obligations under this agreement, we would need to obtain the capital necessary to fund the development and commercialization of Stimuvax or enter into alternative arrangements with a third party. We could also become involved in disputes with Merck KGaA, which could lead to delays in or termination of our development and commercialization of Stimuvax and time-consuming and expensive litigation or arbitration. If Merck KGaA terminates or breaches its agreement with us, or otherwise fails to complete its obligations in a timely manner, the chances of successfully developing or commercializing Stimuvax would be materially and adversely affected.

We currently rely on third party manufacturers to supply our product candidates, which could delay or prevent the clinical development and commercialization of our product candidates.

We currently depend on a single manufacturer, Baxter International Inc., or Baxter, for the supply of our lead product candidate, Stimuvax, and on Corixa Corp. (now part of GlaxoSmithKline plc, or GSK) for the manufacture of the adjuvant in Stimuvax. We also currently depend on other manufacturers for certain other biopharmaceutical components of Stimuvax and for the manufacture of our small molecule product candidates. Any disruption in production, inability of these third party manufacturers to produce adequate quantities to meet our needs or other impediments with respect to development or manufacturing could adversely affect our ability to continue our research and development activities or successfully complete pre-clinical studies and clinical trials, delay submissions of our regulatory applications or adversely affect our ability to commercialize our product candidates in a timely manner, or at all.

For example, if Stimuvax is not approved by 2015, Corixa/GSK may terminate its obligation to supply the adjuvant to us. In this case, we would retain the necessary licenses from Corixa/GSK required to have the adjuvant manufactured for us, but the transfer of the process to a third party would delay the development and commercialization of Stimuvax, which would materially harm our business.

Our product candidates have not yet been manufactured on a commercial scale. In order to commercialize a product candidate, the third party manufacturer may need to increase its manufacturing capacity, which may require the manufacturer to fund capital improvements to support the scale up of manufacturing and related activities. We may be required to provide all or a portion of these funds. The third party manufacturer may not be able to successfully increase its manufacturing capacity for our product candidate for which we obtain marketing approval in a timely or economic manner, or at all. If any manufacturer is unable to provide commercial quantities of a product candidate, we will need to successfully transfer manufacturing technology to a new manufacturer. Engaging a new manufacturer for a particular product candidate could require us to conduct comparative studies or utilize other means to determine equivalence between product candidates manufactured by a new manufacturer and those previously manufactured by the existing manufacturer, which could delay or prevent our ability to commercialize our product candidates. If any of these manufacturers is unable or unwilling to increase its manufacturing capacity or if we are unable to establish alternative arrangements on a timely basis or on acceptable terms, the development and commercialization of our product candidates may be delayed or there may be a shortage in supply.

Any manufacturer of our products must comply with current Good Manufacturing Practices, or cGMP, requirements enforced by the FDA through its facilities inspection program or by foreign regulatory agencies. These requirements include quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our products may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. We have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and

civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products.

The continuing threat of terrorist attacks on the United States and current concern regarding the possibility of further chemical/biological terrorist threats could interfere with the manufacturing and distribution of our product candidates.

Certain ingredients of our product candidates are manufactured by third parties in the United States or other countries who ship these ingredients to third party manufacturing locations, which currently are in the United States. The continuing threat of terrorist attacks on the United States and current concern regarding the possibility of further chemical/biological terrorist threats have resulted in increased scrutiny of shipments of many materials into the United States from Canada and abroad. As a consequence, it is possible that there could be delays in the shipment of the components and materials made outside the United States and shipped to the manufacturing locations in the United States, or in the reshipment from within the United States to our Canadian locations and to Merck KGaA for distribution within and outside the United States.

Any failure or delay in commencing or completing clinical trials for our product candidates could severely harm our business.

Each of our product candidates must undergo extensive pre-clinical studies and clinical trials as a condition to regulatory approval. Pre-clinical studies and clinical trials are expensive and take many years to complete. The commencement and completion of clinical trials for our product candidates may be delayed by many factors, including:

	•		our or our collaborators’ ability to obtain regulatory approval to commence a clinical trial;

	•		our or our collaborators’ ability to manufacture or obtain from third parties materials sufficient for use in pre-clinical studies and clinical trials;

	•		delays in patient enrollment and variability in the number and types of patients available for clinical trials;

	•		poor effectiveness of product candidates during clinical trials;

	•		safety issues or side effects;

	•		governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; and

	•		varying interpretation of data by the FDA and similar foreign regulatory agencies.

It is possible that none of our product candidates will complete clinical trials in any of the markets in which we and/or our collaborators intend to sell those product candidates. Accordingly, we and/or our collaborators may not receive the regulatory approvals necessary to market our product candidates. Any failure or delay in commencing or completing clinical trials or obtaining regulatory approvals for product candidates would prevent or delay their commercialization and severely harm our business and financial condition.

The failure to enroll patients for clinical trials may cause delays in developing our product candidates.

We may encounter delays if we or our collaboration partners are unable to enroll enough patients to complete clinical trials. Patient enrollment depends on many factors, including, the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites and the eligibility criteria for the trial. Moreover, when one product candidate is evaluated in multiple clinical trials simultaneously, patient enrollment in ongoing trials can be adversely affected by negative results from completed trials. Our product candidates are focused in oncology, which can be a difficult patient population to recruit.

We rely on third parties to conduct our clinical trials. If these third parties do not perform as contractually required or otherwise expected, we may not be able to obtain regulatory approval for or be able to commercialize our product candidates.

We rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to assist in conducting our clinical trials. We have, in the ordinary course of business, entered into agreements with these third parties. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with its general

investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and 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 trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our product candidates.

Even if regulatory approval is received for our product candidates, the later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions, including withdrawal of the product from the market.

Approval of a product candidate may be conditioned upon certain limitations and restrictions as to the drug’s use, or upon the conduct of further studies, and may be subject to continuous review. After approval of a product, if any, there will be significant ongoing regulatory compliance obligations, and if we or our collaborators fail to comply with these requirements, we and/or our collaborators could be subject to penalties, including:

	•		warning letters;

	•		fines;

	•		product recalls;

	•		withdrawal of regulatory approval;

	•		operating restrictions;

	•		disgorgement of profits;

	•		injunctions; and

	•		criminal prosecution.

Regulatory agencies may require us or our collaborators to delay, restrict or discontinue clinical trials on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. In addition, we or our collaborators may be unable to submit applications to regulatory agencies within the time frame we currently expect. Once submitted, applications must be approved by various regulatory agencies before we or our collaborators can commercialize the product described in the application. All statutes and regulations governing the conduct of clinical trials are subject to change in the future, which could affect the cost of such clinical trials. Any unanticipated costs or delays in our clinical studies could delay our ability to generate revenues and harm our financial condition and results of operations.

Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our products internationally.

We intend to have our product candidates marketed outside the United States. In order to market our products in the European Union and many other non-U.S. jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. To date, we have not filed for marketing approval for any of our product candidates and may not receive the approvals necessary to commercialize our product candidates in any market. The approval procedure varies among countries and can involve additional testing and data review. The time required to obtain foreign regulatory approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory agencies in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory agencies in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in other jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in foreign jurisdictions could harm our business.

Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.

Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial success of these product candidates will depend on, among other things, their acceptance by physicians, patients, third party payors such as health insurance companies and other members of the medical community as a therapeutic and cost-effective alternative to competing products and treatments. If our product candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors, including:

	•		our ability to provide acceptable evidence of safety and efficacy;

	•		the prevalence and severity of adverse side effects;

	•		availability, relative cost and relative efficacy of alternative and competing treatments;

	•		the effectiveness of our marketing and distribution strategy;

	•		publicity concerning our products or competing products and treatments; and

	•		our ability to obtain sufficient third party insurance coverage or reimbursement.

If our product candidates do not become widely accepted by physicians, patients, third party payors and other members of the medical community, our business, financial condition and results of operations would be materially and adversely affected.

If we are unable to obtain, maintain and enforce our proprietary rights, we may not be able to compete effectively or operate profitably.

Our success is dependent in part on obtaining, maintaining and enforcing our patents and other proprietary rights and will depend in large part on our ability to:

	•		obtain patent and other proprietary protection for our technology, processes and product candidates;

	•		defend patents once issued;

	•		preserve trade secrets; and

	•		operate without infringing the patents and proprietary rights of third parties.

As of September 30, 2008, we owned approximately 12 United States and corresponding foreign patents and patent applications and held exclusive or partially exclusive licenses to over 14 United States and corresponding foreign patents and patent applications. The degree of future protection for our proprietary rights is uncertain. For example:

	•		we might not have been the first to make the inventions covered by any of our patents, if issued, or our pending patent applications;

	•		we might not have been the first to file patent applications for these inventions;

	•		others may independently develop similar or alternative technologies or products and/or duplicate any of our technologies and/or products;

	•		it is possible that none of our pending patent applications will result in issued patents or, if issued, these patents may not be sufficient to protect our technology or provide us with a basis for commercially-viable products and may not provide us with any competitive advantages;

	•		if our pending applications issue as patents, they may be challenged by third parties as infringed, invalid or unenforceable under U.S. or foreign laws;

	•		if issued, the patents under which we hold rights may not be valid or enforceable; or

•

we may develop additional proprietary technologies that are not patentable and which may not be adequately protected through trade secrets, if for example a competitor were to independently develop duplicative, similar or alternative technologies.

The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves many complex legal and technical issues. There is no clear policy involving the breadth of claims allowed in patents or the degree of protection afforded under patents. Although we believe our potential rights under patent applications provide a competitive advantage, it is possible that patent applications owned by or licensed to us will not result in patents being issued, or that, if issued, the patents will not give us an advantage over competitors with similar products or technology, nor can we assure you that we can obtain, maintain and enforce all ownership and other proprietary rights necessary to develop and commercialize our product candidates. For example, PX-12 was described in a publication over a year before the earliest priority date of a patent application covering PX-12 in the United States. Therefore, claims to the PX-12 composition cannot be obtained in the U.S. or in a foreign country. Similarly, claims covering the composition of PX-478 were only filed in the U.S. and Canada, which will prevent us from being able to obtain claims covering the composition of PX-478 in other foreign jurisdictions, including Europe.

Even if any or all of our patent applications issue as patents, others may challenge the validity, inventorship, ownership, enforceability or scope of our patents or other technology used in or otherwise necessary for the development and commercialization of our product candidates. We may not be successful in defending against any such challenges. Moreover, the cost of litigation to uphold the validity of patents to prevent infringement or to otherwise protect our proprietary rights can be substantial. If the outcome of litigation is adverse to us, third parties may be able to use the challenged technologies without payment to us. There is no assurance that our patents, if issued, will not be infringed or successfully avoided through design innovation. Intellectual property lawsuits are expensive and would consume time and other resources, even if the outcome were successful. In addition, there is a risk that a court would decide that our patents, if issued, are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of a patent were upheld, a court would refuse to stop the other party from using the inventions, including on the ground that its activities do not infringe that patent. If any of these events were to occur, our business, financial condition and results of operations would be materially and adversely effected.

In addition to the intellectual property and other rights described above, we also rely on unpatented technology, trade secrets, trademarks and confidential information, particularly when we do not believe that patent protection is appropriate or available. However, trade secrets are difficult to protect and it is possible that others will independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality and invention assignment agreement at the commencement of an employment or consulting relationship with us. However, it is possible that these agreements will not provide effective protection of our confidential information or, in the event of unauthorized use of our intellectual property or the intellectual property of third parties, provide adequate or effective remedies or protection.

If our vaccine technology or our product candidates, including Stimuvax, conflict with the rights of others, we may not be able to manufacture or market our product candidates, which could have a material and adverse effect on us and on our collaboration with Merck KGaA.

Issued patents held by others may limit our ability to develop commercial products. All issued patents are entitled to a presumption of validity under the laws of the United States. If we need licenses to such patents to permit us to develop or market our product candidates, we may be required to pay significant fees or royalties, and we cannot be certain that we would be able to obtain such licenses on commercially reasonable terms, if at all. Competitors or third parties may obtain patents that may cover subject matter we use in developing the technology required to bring our products to market, that we use in producing our products, or that we use in treating patients with our products. We know that others have filed patent applications in various jurisdictions that relate to several areas in which we are developing products. Some of these patent applications have already resulted in the issuance of patents and some are still pending. We may be required to alter our processes or product candidates, pay licensing fees or cease activities. Certain parts of our vaccine technology, including the MUC1 antigen, originated from third party sources. These third party sources include academic, government and other research laboratories, as well as the public domain. If use of technology incorporated into or used to produce our product candidates is challenged, or if our processes or product candidates conflict with patent rights of others, third parties could bring legal actions against us, in Europe, the United States and elsewhere, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. Additionally, it is not possible to predict with certainty what patent claims may issue from pending applications. In the United States, for example, patent prosecution can proceed in secret prior to issuance of a patent. As a result, third parties may be able to obtain patents with claims relating to our product candidates which they could attempt to assert against us. Further, as we develop our products, third parties may assert that we infringe the patents currently held or licensed by them and it is difficult to provide the outcome of any such action.

There has been significant litigation in the biotechnology industry over patents and other proprietary rights and if we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license, grant cross-licenses and pay substantial royalties in order to continue to manufacture or market the affected products.

There is no assurance that we would prevail in any legal action or that any license required under a third party patent would be made available on acceptable terms or at all. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations, as a result of claims of patent infringement or violation of other intellectual property rights, which could have a material and adverse effect on our business, financial condition and results of operations.

If any products we develop become subject to unfavorable pricing regulations, third party reimbursement practices or healthcare reform initiatives, our ability to successfully commercialize our products will be impaired.

Our future revenues, profitability and access to capital will be affected by the continuing efforts of governmental and private third party payors to contain or reduce the costs of health care through various means. We expect a number of federal, state and foreign proposals to control the cost of drugs through government regulation. We are unsure of the form that any health care reform legislation may take or what actions federal, state, foreign and private payors may take in response to the proposed reforms. Therefore, it is difficult to provide the effect of any implemented reform on our business. Our ability to commercialize our products successfully will depend, in part, on the extent to which reimbursement for the cost of such products and related treatments will be available from government health administration authorities, such as Medicare and Medicaid in the United States, private health insurers and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care products, particularly for indications for which there is no current effective treatment or for which medical care typically is not sought. Adequate third party coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product research and development. If adequate coverage and reimbursement levels are not provided by government and third party payors for use of our products, our products may fail to achieve market acceptance and our results of operations will be harmed.

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

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

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.

The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

•		decreased demand for our product candidates;

•		impairment of our business reputation;

•		withdrawal of clinical trial participants;

•		costs of related litigation;

•		substantial monetary awards to patients or other claimants;

•		loss of revenues; and

•		the inability to commercialize our product candidates.

Although we currently have product liability insurance coverage for our clinical trials for expenses or losses up to a $10 million aggregate annual limit, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any or all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

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

Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the design, development and commercialization of our product candidates. We expect any product candidate that we commercialize with our collaborative partners or on our own will compete with existing, market-leading products and products in development.

Stimuvax. Currently, no product has been approved for maintenance therapy following induction chemotherapy for Stage III NSCLC, which is the indication for which Stimuvax is being developed. However, it is possible that existing or new agents will be approved for this indication. In addition, there are three vaccines in development for the treatment of NSCLC, including GSK’s MAGE A3 vaccine in Phase 3, IDM Pharma Inc.’s EP-2101 in Phase 2 and Transgene S.A.’s TG-4010, also in Phase 2. To our knowledge, these vaccines are not currently being developed in the same indication as Stimuvax. However, subsequent development of these vaccines, including Stimuvax, may result in direct competition.

Small Molecule Products. PX-478 is a HIF-1 alpha inhibitor and we believe that at least one other company, Enzon Pharmaceutical, Inc., has a HIF-1 alpha anti-sense compound that is currently in Phase 1. There are also several approved targeted therapies for cancer and in development against which our small molecule products might compete. For example, Avastin is a direct inhibitor of vascular endothelial growth factor, or VEGF, and PX-478 is expected to lower levels of VEGF.

Many of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of these competitors have significantly greater commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to:

	•		design and develop products that are superior to other products in the market;

	•		attract qualified scientific, medical, sales and marketing and commercial personnel;

	•		obtain patent and/or other proprietary protection for our processes and product candidates;

	•		obtain required regulatory approvals; and

	•		successfully collaborate with others in the design, development and commercialization of new products.

PX-866 is an inhibitor of phosphoinositide 3-kinase (PI3K). We are aware of several companies that have entered clinical trials with competing compounds targeting the same protein. Among those are Novartis (clinical phase I/II), Semafore (phase I), Exelixis (phase I), Genentech (phase I), and Calistoga (phase I).

Established competitors may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete. In addition, any new product that competes with a generic market-leading product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome severe price competition and to be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.

If we are unable to enter into collaborations with partners to perform sales and marketing functions, or build these functions ourselves, we will not be able to commercialize our product candidates.

We currently do not have any internal sales, marketing or distribution capabilities. In order to commercialize any of our product candidates, we must either acquire or internally develop a sales, marketing and distribution infrastructure or enter into collaborations with partners to perform these services for us. Under our agreements with Merck KGaA, Merck KGaA is responsible for developing and commercializing Stimuvax, and any problems with that relationship could delay the development and commercialization of Stimuvax. Additionally, we may not be able to enter into collaborations with respect to our product candidates not covered by the Merck KGaA agreements on commercially acceptable terms, if at all. Factors that may inhibit our efforts to commercialize our product candidates without collaboration partners include:

	•		our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

	•		the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;

	•		the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

	•		unforeseen costs and expenses associated with creating a sales and marketing organization.

If we are not able to partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketing and distribution infrastructure, we will have difficulty commercializing our product candidates, which would adversely affect our business and financial condition.

If we lose key personnel, or we are unable to attract and retain highly-qualified personnel on a cost-effective basis, it would be more difficult for us to manage our existing business operations and to identify and pursue new growth opportunities.

Our success depends in large part upon our ability to attract and retain highly qualified scientific, clinical, manufacturing, and management personnel. In addition, any difficulties retaining key personnel or managing this growth could disrupt our operations. Future growth will require us to continue to implement and improve our managerial, operational and financial systems, and continue to retain, recruit and train additional qualified personnel, which may impose a strain on our administrative and operational infrastructure. In particular, we are in the process of recruiting a Chief Medical Officer to oversee our clinical development programs. The competition for qualified personnel in the biopharmaceutical field is intense. We are highly dependent on our continued ability to attract, retain and motivate highly-qualified management, clinical and scientific personnel. Due to our limited resources, we may not be able to effectively recruit, train and retain additional qualified personnel. If we are unable to retain key personnel or manage our growth effectively, we may not be able to implement our business plan.

Furthermore, we have not entered into non-competition agreements with all of our key employees. In addition, we do not maintain “key person” life insurance on any of our officers, employees or consultants. The loss of the services of existing personnel, the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, and the loss of our employees to our competitors would harm our research and development programs and our business.

Our business is subject to increasingly complex environmental legislation that has increased both our costs and the risk of noncompliance.

Our business may involve the use of hazardous material, which will require us to comply with environmental regulations. We face increasing complexity in our product development as we adjust to new and upcoming requirements relating to the materials composition of many of our product candidates. If we use biological and hazardous materials in a manner that causes contamination or injury or violates laws, we may be liable for damages. Environmental regulations could have a material adverse effect on the results of our operations and our financial position. We maintain insurance under our general liability policy for any liability associated with our hazardous materials activities, and it is possible in the future that our coverage would be insufficient if we incurred a material environmental liability.

If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our consolidated operating results, our ability to operate our business, and our stock price.

Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Failure on our part to have effective internal financial and accounting controls would cause our financial reporting to be unreliable, could have a material adverse effect on our business, operating results, and financial condition, and could cause the trading price of our common stock to fall dramatically. We and our independent registered public accounting firm have recently identified a material weakness in our internal controls. As a result of this material weakness, our chief executive officer and chief financial officer have determined that, as of December 31, 2007, our internal controls over financial reporting were not effective to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external reporting in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.

Specifically, an error was discovered in a schedule supporting the foreign currency translation necessary to present in a note to our consolidated financial statements the summary of significant differences between generally accepted accounting principles in the United States and Canada. Due to this error, we concluded that a material weakness in internal control over financial reporting existed because there is a reasonable possibility that a material misstatement of the interim and annual financial statements would not have been prevented or detected on a timely basis.

Remedying this material weakness and maintaining proper and effective internal controls requires substantial management time and attention and will result in our incurring substantial incremental expenses, including with respect to increasing the breadth and depth of our finance organization to ensure that we have personnel with the appropriate qualifications and training in certain key accounting roles and adherence to certain control disciplines within the accounting and reporting function. In particular, we have recruited and continue to recruit financial personnel in order to improve our internal controls. We are also relying on an outside consulting firm to assist us in developing our internal controls over financial reporting. Any failure to remedy our identified control deficiency or any additional errors or delays in our financial reporting would have a material adverse effect on our business and results of operations and could have a substantial adverse impact on the trading price of our common stock.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected. As discussed in our 2007 Annual Report on Form 10-K, as amended, our management, together with our independent registered chartered accountants, has identified a control deficiency in the past and may identify additional deficiencies in the future.

We are expending significant resources in maintaining and improving the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act. We cannot be certain that the actions we are taking to improve our internal controls over financial reporting will be sufficient or that we will be able to implement our planned processes and procedures in a timely manner. In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act reveals further material weaknesses or significant deficiencies, the correction of any such material weaknesses or significant deficiencies could require additional remedial measures which could be costly and time-consuming. In addition, we may be unable to produce accurate financial statements on a timely basis. Any of the foregoing could cause investors to lose confidence in the reliability of our consolidated financial statements, which could cause the market price of our common stock to decline and make it more difficult for us to finance our operations and growth.

We may expand our business through the acquisition of companies or businesses or in-licensing product candidates that could disrupt our business and harm our financial condition.

We may in the future seek to expand our products and capabilities by acquiring one or more companies or businesses or in-licensing one or more product candidates. Acquisitions and in-licenses involve numerous risks, including:

•

substantial cash expenditures;

	•		potentially dilutive issuance of equity securities;

	•		incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;

	•		difficulties in assimilating the operations of the acquired companies;

	•		diverting our management’s attention away from other business concerns;

	•		entering markets in which we have limited or no direct experience; and

	•		potential loss of our key employees or key employees of the acquired companies or businesses.

In our recent history, we have not expanded our business through in-licensing and we have completed only one acquisition; therefore, our experience in making acquisitions and in-licensing is limited. We cannot assure you that any acquisition or in-license will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or business or in-licensed product candidate. In addition, our future success would depend in part on our ability to manage the rapid growth associated with some of these acquisitions and in-licenses. We cannot assure you that we would be able to make the combination of our business with that of acquired businesses or companies or in-licensed product candidates work or be successful. Furthermore, the development or expansion of our business or any acquired business or company or in-licensed product candidate may require a substantial capital investment by us. We may not have these necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to raise funds by selling shares of our capital stock, which could dilute our current stockholders’ ownership interest, or securities convertible into our capital stock, which could dilute current stockholders’ ownership interest upon conversion.

Risks Related to the Ownership of Our Common Stock

Our common stock may become ineligible for listing on The NASDAQ Stock Market, which would materially adversely affect the liquidity and price of our common stock.

Our common stock is currently listed for trading in the United States on The NASDAQ Global Market. We have in the past and could in the future be unable to meet The NASDAQ Global Market listing requirements, particularly if (i) the market value of our common stock is not at least $50 million or, in the alternative, the value of our total assets and total revenue is not at least $50 million or (ii) our common stock fails to trade at or above $1.00 per share for an extended period of time.

On August 20, 2008 we disclosed that we had received a letter from The Nasdaq Stock Market indicating that (i) we did not comply with the requirements for continued listing on The NASDAQ Global Market because we did not meet the maintenance standard in Marketplace Rule 4450(b)(1)(A) that specifies, among other things, that the market value of its common stock be at least $50 million and (ii) in accordance with the Marketplace Rule 4450(e)(4), we had a 30-calendar-day period in which to regain compliance. On September 16, 2008 we received a Staff Determination Letter from The Nasdaq Stock Market indicating that we had not regained compliance.

In addition, on November 2, 2007, we received a letter from NASDAQ notifying Biomira, our predecessor corporation, that for the 30 consecutive trading days preceding the date of the letter, the bid price of Biomira’s common stock had closed below the $1.00 per share minimum required for continued inclusion on The NASDAQ Global Market pursuant to NASDAQ Marketplace Rule 4450(a)(5). On January 2, 2008, we were notified by NASDAQ that our common stock had regained compliance with the minimum bid requirement for continued listing on The NASDAQ Global Market.

The trading price of our common stock may be volatile.

The market prices for and trading volumes of securities of biotechnology companies, including our securities, have been historically volatile. The market has from time to time experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The market price of our common shares may fluctuate significantly due to a variety of factors, including:

•		the results of pre-clinical testing and clinical trials by us, our collaborators and/or our competitors;

•		technological innovations or new therapeutic products;

•		governmental regulations;

•		developments in patent or other proprietary rights;

•		litigation;

•		public concern as to the safety of products developed by us or others;

•		comments by securities analysts;

•		the issuance of additional shares of common stock, or securities convertible into, or exercisable or exchangeable for, shares of our common stock in connection with financings, acquisitions or otherwise;

•		the incurrence of debt;

•		general market conditions in our industry or in the economy as a whole; and

•		political instability, natural disasters, war and/or events of terrorism.

In addition, the stock market has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

Because we do not expect to pay dividends on our common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.

We have never paid cash dividends on our common shares and have no present intention to pay any dividends in the future. We are not profitable and do not expect to earn any material revenues for at least several years, if at all. As a result, we intend to use all available cash and liquid assets in the development of our business. Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, if any, capital requirements, operating and financial conditions and on such other factors as our board of directors deems relevant. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

Future sales of shares by existing stockholders could cause our stock price to decline.

As of September 30, 2008, we had outstanding 19,492,432 common shares. Of these shares, 2,979,623 common shares, approximately 15.3%, were held by former ProlX stockholders, including 800,239 common shares held by D. Lynn Kirkpatrick and 813,633 common shares held by Garth Powis. Dr. Kirkpatrick and Dr. Powis are married. The former ProlX stockholders were permitted to begin selling the shares they acquired in the acquisition in compliance with Rule 144 on the one year anniversary of the closing date, or October 30, 2007. As a result of the arrangement, all shares of our common stock received by former ProlX stockholders, other than Dr. Kirkpatrick and Dr. Powis, are freely tradeable and not subject to the restrictions of Rule 144. Because they are deemed our “affiliates,” the shares issued to Dr. Kirkpatrick and Dr. Powis are subject to the restrictions on sale imposed by Rule 144 for as long as they remain our “affiliates.” If any substantial amount of our common stock, including former ProlX

stockholders, is sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. Our average trading volume is not large, and sales of large blocks of shares can have an adverse impact on the trading price of our common stock.

We expect to raise additional capital in the future; however, such capital may not be available to us on reasonable terms, if at all, when or as we require additional funding. If we issue additional shares of our common stock or other securities that may be convertible into, or exercisable or exchangeable for, our common stock, our existing stockholders would experience further dilution.

We expect that we will seek to raise additional capital from time to time in the future. Such financings may involve the issuance of debt, equity and/or securities convertible into or exercisable or exchangeable for our equity securities. These financings may not be available to us on reasonable terms or at all when and as we require funding. If we are able to consummate such financings, the terms of such financings may adversely affect the interests of our existing stockholders. Any failure to obtain additional working capital when required would have a material adverse effect on our business and financial condition and would be expected to result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.

Changes in financial accounting standards related to share-based payments are expected to continue to have a significant effect on our reported results.

On January 1, 2006, we adopted SFAS 123,Share-Based Payment, Revised 2004, or SFAS 123(R), which requires that we record compensation expense in the statement of operations for share-based payments, such as employee stock options, using the fair value method. The adoption of this new standard has had and is expected to continue to have a significant effect on our reported results of operations, although it will not affect our cash flows, and could adversely impact our ability to provide accurate guidance on our future reported financial results due to the variability of the factors used to estimate the values of share-based payments. If factors change and we employ different assumptions or different valuation methods in the application of SFAS 123(R) in future periods, the compensation expense that we record under SFAS 123(R) may differ significantly from what we have recorded in the current period, which could create volatility in the way we report earnings, and therefore, negatively affect our stock price and our stock price volatility.

Our operating results may be affected by currency exchange rate fluctuations.

Of our cash and cash equivalents as of September 30, 2008, approximately $0.9 million were denominated in Canadian dollars. A portion of our operating expenses, are denominated in Canadian dollars. We do not hedge our exposure to foreign currency risks.

We can issue shares of preferred stock that may adversely affect the rights of a stockholder of our common stock.

Our certificate of incorporation authorizes us to issue up to 10,000,000 shares of preferred stock with designations, rights, and preferences determined from time-to-time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock. For example, an issuance of shares of preferred stock could:

•		adversely affect the voting power of the holders of our common stock;

•		make it more difficult for a third party to gain control of us;

•		discourage bids for our common stock at a premium;

•		limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or

•		otherwise adversely affect the market price or our common stock.

		We have in the past, and we may at any time in the future, issue additional shares of authorized preferred stock.

Item 6. Exhibits


Exhibit
Number		Description

	10.1	Offer Letter with Gary Christianson, dated June 29, 2007.

	10.2	Sublease Agreement between Muze Inc. and Oncothyreon Inc., dated May 9, 2008.

	10.3	Lease Agreement between Selig Holdings Company and Oncothyreon Inc., dated May 9, 2008.

	10.4	Amendment Number 1 to Adjuvant License Agreement and Adjuvant Supply Agreement between Corixa Corporation, d/b/a GlaxoSmithKline Biologicals N.A. and Biomira Management Inc., dated August 8, 2008.

	12.1	Ratio of Earnings to Fixed Charges.

	31.1	Certification of Chief Executive Officer and President Pursuant to Exchange Act Rule 13a-14(a).

	31.2	Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a).

	32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ONCOTHYREON INC. (Registrant)
Date: November 10, 2008	/s/ Edward A. Taylor
	Vice President, Finance and Administration,
	Chief Financial Officer and Corporate Secretary

INDEX OF EXHIBITS


Exhibit
Number		Description

	10.1	Offer Letter with Gary Christianson, dated June 29, 2007.

	10.2	Sublease Agreement between Muze Inc. and Oncothyreon Inc., dated May 9, 2008.

	10.3	Lease Agreement between Selig Holdings Company and Oncothyreon Inc., dated May 9, 2008.

	10.4	Amendment Number 1 to Adjuvant License Agreement and Adjuvant Supply Agreement between Corixa Corporation, d/b/a GlaxoSmithKline Biologicals N.A. and Biomira Management Inc., dated August 8, 2008.

	12.1	Ratio of Earnings to Fixed Charges.

	31.1	Certification of Chief Executive Officer and President Pursuant to Exchange Act Rule 13a-14(a).

	31.2	Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a).

	32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Positive
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Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

Cascadian Therapeutics (ONTY) Inactive 10-Q2008 Q3 Quarterly report

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