ACHIEVE LIFE SCIENCES, INC. - Annual Report: 2009 (Form 10-K)

OncoGenex Pharmaceuticals, Inc.

Table of Contents

PART I
ITEM 1. BUSINESS			3
ITEM 1A. RISK FACTORS			26
ITEM 1B. UNRESOLVED STAFF COMMENTS			46
ITEM 2. PROPERTIES			46
ITEM 3. LEGAL PROCEEDINGS			46
ITEM 4. RESERVED			46
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			47
ITEM 6. SELECTED FINANCIAL DATA			49
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			50
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			64
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			65
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			99
ITEM 9A. CONTROLS AND PROCEDURES			99
ITEM 9B. OTHER INFORMATION			99
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			100
ITEM 11. EXECUTIVE COMPENSATION			100
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			100
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			101
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES			101
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			101
Exhibit 10.36
Exhibit 10.37
Exhibit 10.40
Exhibit 10.44
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I

References in this Form 10-K to “OncoGenex Pharmaceuticals”, “OncoGenex”, the “Company”, “we”, “us” or “our” refer to OncoGenex Pharmaceuticals, Inc. and its wholly owned subsidiaries. The information in this Form 10-K contains certain forward-looking statements, including statements related to clinical trials, regulatory approvals, markets for the Company’s products, new product development, capital requirements and trends in its business that involve risks and uncertainties. The Company’s actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed in “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as those discussed elsewhere in this Form 10-K.

ITEM 1. BUSINESS

Overview of Our Business

OncoGenex is a biopharmaceutical company committed to the development and commercialization of new cancer therapies that address unmet needs in the treatment of cancer. OncoGenex has five product candidates in its pipeline, namely, OGX-011, OGX-427, OGX-225, SN2310 and CSP-9222, with each product candidate having a distinct mechanism of action and representing a unique opportunity for cancer drug development.

Product Candidates Overview and Recent Developments

Our product candidates OGX-011, OGX-427 and OGX-225 focus on mechanisms of treatment resistance in cancer patients and are designed to address treatment resistance by blocking the production of specific proteins which we believe promote survival of tumor cells and are over-produced in response to a variety of cancer treatments. Our aim in targeting these particular proteins is to disable the tumor cell’s adaptive defenses and thereby render the tumor cells more susceptible to attack with a variety of cancer therapies, including chemotherapy, which we believe will increase survival time and improve the quality of life for cancer patients. Product candidate SN2310 is a novel camptothecin for the treatment of cancer. Camptothecins are potent anticancer agents that belong to the family of drugs called topoisomerase I inhibitors that bind reversibly to the TOPO-I-DNA complex causing breaks in the DNA strands during replication resulting in cell death. Product candidate CSP-9222 is the lead compound from a family of compounds, which have been in-licensed from Bayer Healthcare LLC (“Bayer”), that demonstrates activation of programmed cell death in pre-clinical models.

OGX-011

In December 2009, we announced that our wholly-owned subsidiary, OncoGenex Technologies Inc. (“OncoGenex Technologies”), entered into a Collaboration and License Agreement (“Collaboration Agreement”) with Teva Pharmaceutical Industries Ltd. (“Teva”), for the development and global commercialization of OGX-011 (and related compounds targeting clusterin, excluding OGX-427 and OGX-225). In connection with the Collaboration Agreement, OncoGenex and Teva developed a Clinical Development Plan (the “Clinical Development Plan”) under which the following three phase 3 clinical trials will be initiated:

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a phase 3 clinical trial of OGX-011 in approximately 300 patients with second-line castrate resistant prostate cancer (“CRPC”), expected to initiate in the second quater of 2010 subject to institutional review board approval and patient screening. OncoGenex will have primary responsibility for the oversight of this trial;

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a phase 3 clinical trial of OGX-011 in approximately 800 patients with first-line CRPC, expected to initiate in the third quater of 2010. Teva will have primary responsibility for the oversight of this trial; and

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a phase 3 clinical trial of OGX-011 in at least 700 patients with first-line non-small cell lung cancer (“NSCLC”), expected to initiate by early 2011. Teva will have primary responsibility for the oversight of this trial.

Under the Collaboration Agreement, Teva agreed to pay us upfront payments in the aggregate amount of $50 million, will pay up to $370 million upon the achievement of developmental and commercial milestones and will pay royalties at percentage rates ranging from the mid-teens to mid-twenties on net sales. We have an option to co-promote OGX-011 in the United States and Canada.

In connection with the Collaboration Agreement, the Company and Teva also entered into a stock purchase agreement (the “Stock Purchase Agreement”) pursuant to which Teva made an additional $10 million equity investment in OncoGenex at a 20% premium to a thirty-day average closing share price.

Funding responsibilities for the Clinical Development Plan have been allocated as follows:

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We are required to contribute $30 million towards development of OGX-011 which will include our personnel costs for certain development activities; and

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Teva is required to fund all other expenses under the Clinical Development Plan.

In addition to the development costs noted above, Teva is also responsible for all costs relating to product commercialization, including any costs incurred in relation to our co-promotion option, except for start-up costs of any exercised co-promotion activities in advance of commercialization. For a detailed discussion of the terms of the Collaboration Agreement, refer to the discussion under the heading “License and Collaboration Agreements — Teva Pharmaceutical Industries Ltd.”

OncoGenex has conducted five phase 2 clinical trials to evaluate the ability of OGX-011 to enhance the effects of therapy in prostate, non-small cell lung and breast cancers. Results have been presented for each of these phase 2 studies. OncoGenex has designed phase 3 registration clinical trials to evaluate the clinical benefit of OGX-011 in first and second-line CRPC. Together with Teva, we are in the process of designing a phase 3 registration trial with respect to NSCLC. Refer to the discussion below under the headings “Summary of OGX-011 Product Registration Strategy” and “Summary of Results of OGX-011 Phase 2 Clinical Trials” for further details.

OGX-427

OGX-427, an inhibitor of heat shock protein 27, is being evaluated in a phase 1 clinical trial to evaluate safety for OGX-427 administered alone, as well as in combination with docetaxel chemotherapy (“docetaxel”), in patients with various types of cancer. Enrollment in the OGX-427 monotherapy aspect of the phase 1 clinical trial is complete. Enrollment in the OGX-427 in combination with docetaxel aspect of the clinical trial is ongoing. A second investigator-sponsored phase 1 clinical trial evaluating OGX-427 when administered directly into the bladder in patients with bladder cancer was initiated in August 2009. The study, which will enroll up to 36 patients with bladder cancer, is designed to determine the safety and potential benefit of OGX-427 administered directly into the bladder using a catheter, which is known as intravesical instillation. In addition, the study will measure the direct effect of OGX-427 on expression of Hsp27 in bladder tumor cells as well as determine the pharmacokinetics and pharmacodynamics of OGX-427 when delivered by intravesical instillation.

In January 2010, we announced that an investigator-sponsored phase 2 clinical trial evaluating OGX-427 when administered as a monotherapy to patients with CRPC has received grant funding. The randomized, controlled phase 2 study will enroll up to 72 patients and is designed to determine the potential benefit of OGX-427 by evaluating the number of patients who are without disease progression at 12 weeks post-study treatment, with or without OGX-427.

SN2310, OGX-225 and CSP-9222

SN2310 was evaluated in a phase 1 clinical trial to evaluate safety in patients with advanced cancer who have received on average 3 to 5 prior chemotherapy treatments. The phase 1 clinical trial has been completed. We are currently exploring options to out-license this product candidate.

OGX-225 is a second generation antisense drug which in preclinical experiments, inhibits production of both Insulin Growth Factor Binding Protein 2 (“IGFBP-2”) and Insulin Growth Factor Binding Protein-5 (“IGFBP-5”). Increased IGFBP-2 or IGFBP-5 production is observed in many human cancers, including prostate, non-small cell lung, breast, ovarian, bladder, pancreatic, colon, acute myeloid leukemia, acute lymphoblastic leukemia, neuroblastoma, glioma and melanoma cancers. Increased IGFBP-2 or IGFBP-5 production is linked to faster rates of cancer progression, treatment resistance and shorter survival duration in humans.

Product candidate CSP-9222, in pre-clinical development, is the lead compound from a family of compounds, which have been in-licensed from Bayer Healthcare LLC (“Bayer”), that demonstrates activation of programmed cell death in pre-clinical models.

Financial Overview

In the fourth quarter of 2009, we recognized $25.5 million in collaboration revenue attributable to our upfront payment from Teva. Previously, we had not recognized any revenue. We have devoted substantially all of our resources to the development of our product candidates.

We incurred a loss for the year ended December 31, 2009 of $5.5 million and had a cumulative loss at December 31, 2009 of $53.5 million and expect to continue to incur increasing additional losses in the future as we continue our research and development activities.

To date, we have funded our operations primarily through the private and public placements of equity securities and upfront payments received from our Collaboration Agreement with Teva.

Management believes that additional human resources will be required to carry on existing development activities, though some of these costs will be passed through to Teva. We are unable to predict when, if ever, we or Teva will be able to commence the sale of OGX-011 or any of our other product candidates.

Recent Corporate History

On August 21, 2008, the Company, then named Sonus Pharmaceuticals, Inc., completed its acquisition (the “Arrangement”) of OncoGenex Technologies, a Canadian corporation, as contemplated by the Arrangement Agreement between the companies dated May 27, 2008 (the “Arrangement Agreement”). As a result of the Arrangement, OncoGenex Technologies became a wholly-owned subsidiary of the Company. As used in this filing, the term “Sonus” is used to refer to the business of the Company prior to August 21, 2008. More information concerning the Arrangement is contained in note 5 to the financial statements included in this Annual Report on Form 10-K, as well as in our Current Report on Form 8-K filed on August 21, 2008 and our Definitive Proxy Statement on Schedule 14A filed on July 3, 2008.

The consolidated financial statements account for the Arrangement as a reverse acquisition, whereby OncoGenex Technologies is deemed to be the acquiring entity from an accounting perspective. The consolidated results of operations of the Company for the years ended December 31, 2009 and December 31, 2008 include the results of operations of only OncoGenex Technologies for the time period of January 1, 2008 through August 20, 2008 and include the results of the combined company following the completion of the Arrangement on August 21, 2008. The consolidated results of operations for the year ended December 31, 2007 include only the consolidated results of operations of OncoGenex Technologies and do not include historical results of Sonus. This treatment and presentation is in accordance with SFAS 141. Information relating to the number of shares, price per share and per share amounts of common stock are presented on a post- reverse stock split basis, as a reverse stock split in the ratio of one-for-eighteen was effected in connection with the Arrangement.

The Company was incorporated in October 1991 and OncoGenex Technologies was incorporated in May 2000.

Our Product Candidates

We have three clinical-stage product candidates (OGX-011, OGX-427, and SN2310) and two pre-clinical-stage product candidates (CSP-9222 and OGX-225).

OGX-011

Overview of OGX-011

Through our clinical trials, we are treating cancer patients with OGX-011 to reduce clusterin production. Clusterin is a protein that is over-produced in several types of cancer and in response to many cancer treatments, including hormone ablation therapy, chemotherapy and radiation therapy. Preclinical and other data suggest that clusterin promotes cell survival. Increased clusterin production has been linked to faster rates of cancer progression, treatment resistance and shorter survival duration. Since increased clusterin production is observed in many human cancers, including prostate, non-small cell lung, breast, ovarian, bladder, renal, pancreatic, anaplastic large cell lymphoma and colon cancers and melanoma, we believe that OGX-011 may have broad market potential to treat many cancer indications and disease stages.

A broad range of pre-clinical studies conducted by the Vancouver Prostate Centre and others have shown that reducing clusterin production with OGX-011: (i) facilitates tumor cell death by sensitizing human prostate, non-small cell lung, breast, ovarian, bladder, renal and melanoma tumor cells to various chemotherapies; and (ii) sensitizes prostate tumor cells to hormone ablation therapy and sensitizes prostate and non-small cell lung tumor cells to radiation therapy. Pre-clinical studies conducted by the Vancouver Prostate Centre also indicate that reducing clusterin production with OGX-011 re-sensitizes docetaxel-resistant prostate tumor cells to docetaxel.

Our phase 1 clinical trials evaluated the safety and established a recommended phase 2 dose of OGX-011 in combination with docetaxel (two different schedules), gemcitabine and a platinum chemotherapy or hormone ablation therapy. Docetaxel, gemcitabine, and a platinum regimen are all examples of chemotherapy agents. In all of our phase 1 clinical trials, 640 mg, the highest dose evaluated, was well tolerated and established as the recommended phase 2 dose.

We have conducted five phase 2 clinical trials to evaluate the ability of OGX-011 to enhance the effects of therapy in prostate, non-small cell lung and breast cancer. These phase 2 clinical trials have treated 294 patients with OGX-011 (or over 300 patients if including patients in control groups). Data is available from each of the five phase 2 studies which demonstrate that adding OGX-011 to therapy shows potential benefit of OGX 011, including:

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longer survival duration when adding OGX-011 to first-line docetaxel compared to first-line docetaxel alone in patients with CRPC within a randomized phase 2 trial;

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longer survival duration when adding OGX-011 to either mitoxantrone or docetaxel as second-line chemotherapy compared to survival duration observed in two published studies of CRPC patients receiving second-line chemotherapy (One is a study in patients with better prognostic risk factors who received docetaxel as second-line chemotherapy which was conducted at the British Columbia Cancer Agency and presented at the American Society of Clinical Oncology (“ASCO”) Genitourinary Conference in 2008 (“BCCA Study”) and the second study is the follow-up evaluation of patients on the TAX 327 Study (the “TAX 327 Study”) who later received second-line chemotherapy. The TAX 327 Study was the key registration study that showed a survival benefit for docetaxel over mitoxantrone for first-line chemotherapy treatment of patients with metastatic CRPC);

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increased frequency and duration of pain palliation when adding OGX-011 to either mitoxantrone or docetaxel as second-line chemotherapy compared to the frequency and duration of pain palliation observed in the TAX 327 Study for first-line chemotherapy alone in patients with CRPC; and

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longer survival duration when adding OGX-011 to gemcitabine and a platinum-containing chemotherapy compared to the survival duration reported in prior published results from randomized clinical trials in NSCLC patients receiving gemcitabine and a platinum-containing chemotherapy.

Refer to the discussion below under the heading “Summary of Results of OGX-011 Phase 2 Clinical Trials” for further details.

Final results of a randomized phase 2 trial evaluating the benefit of combining OGX-011 with first-line docetaxel chemotherapy were presented during an oral presentation at the ASCO 2009 Annual Meeting. Analyses indicating a survival benefit in patients treated with OGX-011 in combination with first-line docetaxel compared to docetaxel alone, the latter of which being the current standard care for patients with advanced, progressive metastatic prostate cancer, are described below under the heading “Summary of Final Results of OGX-011 Phase 2 Clinical Trial in First-Line Hormone Refractory Prostate Cancer.”

At the 2008 ASCO Annual Meeting, OGX-011 phase 2 data in second-line chemotherapy treatment of CRPC was reported. Durable pain palliation defined as pain palliation of 12 weeks or greater was observed in this phase 2 trial evaluating patients with metastatic CRPC who progressed while receiving, or within 6 months of completing, first-line docetaxel treatment. In this trial, 46% of patients who were retreated with docetaxel as second-line treatment in combination with OGX-011 had durable pain palliation. This is favorable even when compared to the 35% pain responses of 3 weeks or greater observed in the phase 3 study which supported the registration of docetaxel as first-line chemotherapy in patients with CRPC. The data from this clinical trial also showed evidence that adding OGX-011 to docetaxel as second-line chemotherapy may have reversed docetaxel resistance in some patients whose disease had progressed while being treated with first-line docetaxel. In preliminary analyses, the mean average levels of serum clusterin during the OGX-011 treatment period were significantly lower compared to baseline levels before OGX-011 treatment and low average serum clusterin levels were predictive of survival with low serum clusterin levels correlating to longer survival.

Due to the pain palliation results observed in our phase 2 trial, the other prostate cancer phase 3 registration trial, which we intend to initiate in 2010, will evaluate the durable pain palliation benefit of OGX-011 in patients treated with second-line chemotherapy. OncoGenex believes that its pre-clinical and clinical data support the use of OGX-011 to improve the activity of chemotherapy in both CRPC and NSCLC indications.

OGX-011 has received Fast Track designations from the U.S. Food & Drug Administration (“FDA”) for the treatment of CRPC in combination with docetaxel for both first and second-line docetaxel treatment. The FDA has agreed on the design of two phase 3 registration trials, each in CRPC, via the Special Protocol Assessment (“SPA”) process. One trial design investigates overall survival as the primary endpoint for OGX-011 in combination with first-line chemotherapy, whereas the other trial design investigates pain palliation as the primary endpoint for OGX-011 in combination with second-line chemotherapy.

OGX-011 has also received written, scientific advice from the European Medicines Agency (“EMA”) on the Company’s development plan for OGX-011 for the treatment of men with CRPC. The input received from the Committee for Medicinal Products for Human Use (“CHMP”) at the EMA was in overall agreement with OncoGenex’s development plan regarding the proposed preclinical studies and both the study designs and analyses for the phase III trials. The CHMP also agreed that the intended safety database would enable a sufficiently qualified risk-benefit assessment for market approval.

OGX-011 has been administered to 294 patients with various types of cancer. Some of the patients experienced various adverse events, the majority of which are associated with other treatments in the protocol and the disease. The majority of adverse events were mild and the most common adverse events associated with OGX-011 consisted of flu-like symptoms. Of the moderate and severe adverse events associated with OGX-011, neutropenia, vomiting, diarrhea, and difficulty breathing (also known as “dyspnea”) were the most common events, occurring in > 2% of patients.

The United States adopted name, or USAN, for the OGX-011 drug product is custirsen sodium.

Summary of OGX-011 Product Registration Strategy

As a result of the partnership with Teva, OGX-011 has committed funding for three phase 3 trials. Two phase 3 clinical trials will evaluate the clinical benefit of OGX- 011 in CRPC. Both trials are planned to initiate in 2010. The third phase 3 trial is being developed in collaboration with Teva, and will evaluate the clinical benefit of OGX-011 in NSCLC. The Clinical Development Plan agreed to by Teva and the Company under which the three phase 3 clinical trials will be initiated is as follows:

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Evaluating a survival benefit for OGX-011 in combination with first-line docetaxel treatment in approximately 800 men with CRPC, expected to initiate in the third quarter of 2010. Teva will have primary responsibility of the oversight of this trial;

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Evaluating a durable pain palliation benefit for OGX-011 in combination with docetaxel as second-line chemotherapy in approximately 300 men with CRPC, expected to initiate in the second quarter of 2010 subject to institutional review board approval and patient screening. OncoGenex will have primary responsibility for the oversight of this trial; and

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Evaluating a survival benefit for OGX-011 in combination with first-line chemotherapy in at least 700 patients with NSCLC, expected to initiate in 2011. Teva will have primary responsibility for the oversight of this trial.

Summary of Results of OGX-011 Phase 2 Clinical Trials

Five phase 2 clinical trials have been conducted to evaluate the ability of OGX-011 to enhance the effects of therapy in prostate, non-small cell lung and breast cancer. The following is a summary of the clinical trials evaluating OGX-011 in combination with chemotherapy.

Summary of Final Results of OGX-011 Phase 2 Clinical Trial in First-Line Hormone Refractory Prostate Cancer

Final results of a randomized phase 2 trial evaluating the benefit of combining OGX-011 with first-line docetaxel chemotherapy in patients with CRPC were presented during an oral presentation at the ASCO 2009 Annual Meeting. In this phase 2 trial, patients were randomized to receive either docetaxel or OGX-011 plus docetaxel.

The trial enrolled 82 patients at 12 sites in Canada and the United States from September 2005 to December 2006. Patients were randomized to one of two treatment arms to receive either 640 mg per week of OGX-011 by intravenous infusion in combination with docetaxel and prednisone or docetaxel and prednisone alone. Patients in both treatment arms received therapy until disease progression, toxicity or the completion of ten 3-week cycles of therapy. Analyses indicated a survival benefit in patients treated with OGX-011 in combination with docetaxel compared to docetaxel alone — the current standard of care for patients with advanced prostate cancer:

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The median overall survival in patients who were treated with OGX-011 plus docetaxel trial was 23.8 months compared to 16.9 months for patients treated with docetaxel alone, indicating a 6.9 month survival advantage in the OGX-011 arm;

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The unadjusted hazard ratio (“HR”), a measure used to compare the death rates between treatment groups, was 0.61, representing a 39% lower rate of death for patients treated with OGX-011; and

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A prospectively defined multivariate analysis indicated that the significant predictors of overall survival were treatment arm, performance status and presence of metastases other than in bone or lymph nodes. In the multivariate analysis, patients treated with OGX-011 had a rate of death of 51% lower than patients treated with docetaxel alone (HR=0.49; p=0.012). Additional exploratory analyses found that the lower rate of death was associated with the effect of OGX-011 treatment even when varying amounts of chemotherapy were administered (i.e. OGX-011 treatment resulted in a lower rate of death when compared to the control arm for patients receiving 6 or less cycles of chemotherapy as well as for patients receiving 10 cycles of chemotherapy).

OGX-011 treatment was well tolerated in combination with docetaxel. There was an increase in incidence of mild fever, chills and creatinine levels (a laboratory measure for reduced kidney function) and a moderate to significant decrease in circulating lymphocytes in the blood (another laboratory measure) without any increase in infection rate compared to the docetaxel arm. Lymphocytes are a type of white blood cell involved in the body’s defence against infections. Due to the final results of this randomized phase 2 trial, the phase 3 registration trial will evaluate the overall survival benefit of OGX-011 in patients treated with first-line chemotherapy.

The following graph display the Kaplan-Meier curves for OGX-011 in combination with docetaxel as compared to docetaxel alone:

Summary of Results of OGX-011 Phase 2 Clinical Trial in Second-Line CRPC

We have completed accrual and patient treatment in our randomized phase 2 clinical trial in patients with CRPC evaluating OGX-011 in combination with either docetaxel or mitoxantrone as second-line chemotherapy. In this phase 2 trial, patients who were previously treated with a first-line, docetaxel-based chemotherapy regimen and progressed on or within 6 months of discontinuation of docetaxel treatment were randomized to receive OGX-011 plus either docetaxel retreatment or mitoxantrone. Initially, 42 patients were randomized and received at least one cycle of OGX-011 and chemotherapy and were included for analysis: 20 patients received docetaxel retreatment plus OGX-011 and 22 patients received mitoxantrone plus OGX-011. The protocol was amended to allow additional patients to be enrolled in the docetaxel retreatment arm. Enrollment into the amended protocol was initiated in May 2007 and 25 additional patients were enrolled as of September 2007. All patients received at least one cycle of OGX-011 and docetaxel retreatment and were included in the analysis. As of June 9, 2009, the median follow-up time for the 42 randomized patients (20 in the custirsen plus docetaxel retreatment arm and 22 in the custirsen plus mitoxantrone treatment arm) was 30 months (range 25 to 34 months).

The preliminary results for the clinical trial are summarized as follows:

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survival duration is longer than the survival duration observed in the follow-up evaluation of patients on the TAX 327 Study who later received second-line chemotherapy and were available for long-term follow-up. In the follow-up evaluation of TAX 327, 237 patients received either docetaxel or mitoxantrone as second-line chemotherapy. The median (50%) survival duration from the start of second-line chemotherapy was 10 months for both groups of patients (patients receiving mitoxantrone as second-line chemotherapy after receiving docetaxel as first-line chemotherapy or patients receiving docetaxel as second-line chemotherapy after receiving mitoxantrone as first-line chemotherapy). As of June 9, 2009, the estimated median over survival duration for the custirsen plus mitoxantrone arm was 11.4 months (95% C.I.: 6.5-15.2 months) based on a median follow-up of 30 months. For the custirsen plus docetaxel retreatment arm, the median overall survival is estimated at 15.8 months (95% C.I.:9.9-23.3 months) for the 20 randomized patients, based on a median follow-up of 30 months, and 12.8 months (95% C.I.:9.9-17.0 months) for the combined 45 patients, based on a median follow-up of 23 months;

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the survival data from this clinical trial also compares favorably to the median survival duration of 9.6 months for patients who received second-line docetaxel after first-line docetaxel in the retrospective BCCA Study. The patients in the BCCA Study had a better prognosis than the patients in OncoGenex’ clinical trial;

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preliminary analyses have shown that treatment with OGX-011 in combination with chemotherapy significantly lowers serum clusterin levels and that average serum clusterin levels were predictive of survival with low serum clusterin levels correlating to longer survival; and

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durable pain responses (defined as a duration of 12 weeks or greater) were observed in 46% of evaluable patients in the docetaxel retreatment plus OGX-011 arm and in 46% of patients in the mitoxantrone arm.

Summary of Preliminary Results of OGX-011 Phase 2 Clinical Trial in NSCLC

We have completed accrual and patient treatment in our clinical trial in patients with advanced NSCLC, evaluating OGX-011 in combination with gemcitabine and a platinum chemotherapy (cisplatin or carboplatin) as first-line chemotherapy. In this phase 2 trial, 81 patients with advanced NSCLC received OGX-011 in combination with gemcitabine and a platinum chemotherapy as first-line chemotherapy. Eighty two percent of the patients had stage IV disease at enrollment. Patients are currently being followed for survival. The preliminary results are summarized as follows:

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the median overall survival was 14.1 months and 54% of patients survived at least 1 year;

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in January 2009, we reported that at two years, 30% of patients who had received OGX-011 with first-line chemotherapy were alive;

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for comparison, published studies using a platinum-based regimen plus gemcitabine as first-line chemotherapy for advanced NSCLC reported median survivals of 8 to 11 months and one-year survival rates of 33% to 43%. Market approval for Avastin plus paclitaxel and carboplatin chemotherapy for NSCLC was based on results showing a median survival of 12.3 months compared to 10.3 months for patients treated with chemotherapy alone. Survival rates for Avastin plus chemotherapy versus chemotherapy alone were reported as 51% versus 44% at one year and 23% versus 15% at two years, respectively;

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73% of patients achieved disease control; and

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preliminary analyses have shown that treatment with OGX-011 in combination with gemcitabine and a platinum chemotherapy significantly lowers serum clusterin levels and that average serum clusterin levels were predictive of survival with low serum clusterin levels correlating to longer survival.

Summary of Preliminary Results of OGX-011 Phase 2 Clinical Trial in Advanced Breast Cancer

In January 2009, the results of this clinical trial in patients with advanced breast cancer evaluating OGX-011 in combination with docetaxel as first-line or second-line chemotherapy were published in the scientific journal, Clinical Cancer Research. The authors’ conclusion was that the combination of OGX-011 and docetaxel at 75 mg/m2 is well tolerated and clinical activity was seen in these patients with metastatic breast cancer.

OGX-427

The development program for our second product candidate, OGX-427, is focused on reducing heat shock protein 27 production to enhance treatment sensitivity and delay tumor progression in patients who have not fully developed treatment resistance and to restore treatment sensitivity in patients who have developed treatment resistance. Heat shock protein 27 is a protein that is over-produced in response to many cancer treatments and which we believe promotes cell survival based on preclinical data.

A number of pre-clinical studies conducted by the Vancouver Prostate Centre and others have shown that inhibiting the production of Hsp27 in human prostate, breast, ovarian, pancreatic and bladder tumor cells sensitizes the cells to chemotherapy. Pre-clinical studies conducted by The Vancouver Prostate Centre and others have shown that reducing Hsp27 production induced tumor cell death in prostate, breast, non-small cell lung, bladder and pancreatic cancers. The Vancouver Prostate Centre has also conducted pre-clinical studies that indicate that reducing Hsp27 production sensitizes prostate tumor cells to hormone ablation therapy.

A phase 1 trial has evaluated 53 patients with a variety of cancers, with enrollment ongoing. OGX-427 was first evaluated as a single agent in a dose escalation clinical trial with doses ranging from 200mg up to 1000mg OGX-427. A maximum tolerated dose was not identified up to and including the 1000mg dose of OGX-427 monotherapy. Subsequently, as defined by the protocol, OGX-427 was evaluated in combination with chemotherapy in a dose escalation trial design. An 800mg dose of OGX-427 in combination with docetaxel was evaluated, followed by a 1000mg dose of OGX-427 plus docetaxel. A maximum tolerated dose was not identified up to and including the 1000mg dose of OGX-427 plus docetaxel.

OGX-427 is administered as three loading doses within the first nine days and then continued weekly, with three weeks defined as a treatment cycle, until disease progression or toxicity. In those groups receiving OGX-427 in combination with docetaxel, 75mg/M2 docetaxel was administered on day 1 of every 3-week cycle starting after completion of the OGX-427 loading doses.

Preliminary results of this phase 1 trial were presented during an oral presentation at the ASCO 2009 Annual Meeting. At that time, 41 patients were enrolled who had a diagnosis of breast, ovarian, prostate or non-small cell lung cancer and most had failed multiple prior chemotherapy treatments. A median of two cycles (range of one to eight cycles) was administered.

OGX-427 treatment was well tolerated as a monotherapy. No evidence of altered cardiac activity was observed. A majority of adverse events were mild and mainly occurred during the loading doses. Adverse events consisted of chills, itching and fatigue in over one-third of patients. There was a trend for increasing incidence of some mild adverse events with escalating OGX-427 doses. For example, 33% of patients at the 200mg dose compared to 67% of patients at the 1000mg dose had mild adverse events during the loading doses. The half-life of OGX-427 in the blood remained constant, although there appeared to be an increase in maximum blood levels and a corresponding decease in blood clearance of OGX-427 as doses were escalated.

The combination of OGX-427 with docetaxel at both dose levels was also well tolerated. This data is subject to further analysis.

Circulating tumor cells (“CTCs”), an emerging metric to assess treatment effect, were evaluated at baseline before treatment and during OGX-427 treatment as a monotherapy. Both total and Hsp27-positive CTCs were evaluated. Declines of 50% or greater in both total and Hsp27-positive CTCs were observed in over one-half of the patients in each cohort and in each type of cancer. Declines in Hsp27 CTCs to 5 or less cells occurred in 27% of patients who had greater than 5 CTCs at baseline. Reduction in tumor markers defined as declines of prostate specific antigen, or PSA, levels in prostate cancer or CA-125 levels in ovarian cancer were also observed. A reduction in PSA level was observed in 7 of 20 patients (35%) with prostate cancer and a reduction in CA-125 levels was observed in 3 of 5 patients (60%) with ovarian cancer.

An investigator-sponsored phase 1 clinical trial evaluating OGX-427 when administered directly into the bladder in patients with bladder cancer was initiated in August 2009. The study, which will enroll up to 36 patients with bladder cancer, is designed to determine the safety and potential benefit of OGX-427 administered directly into the bladder using a catheter, which is known as intravesical instillation. In addition, the study will measure the direct effect of OGX-427 on expression of Hsp27 in bladder tumor cells as well as determine the pharmacokinetics and pharmacodynamics of OGX-427 when delivered by intravesical instillation. This investigator-sponsored study is funded by the National Cancer Institute of Canada (“NCIC”).

In January 2010, we announced that an investigator-sponsored phase 2 clinical trial evaluating OGX-427 when administered as a monotherapy to patients with CRPC has received grant funding. The randomized, controlled phase 2 study will enroll up to 72 patients and is designed to determine the potential benefit of OGX-427 by evaluating the number of patients who are without disease progression at 12 weeks post study treatment with or without OGX-427. This phase 2 trial will also measure the direct effect of OGX-427 on PSA levels, time to progression by PSA or measurable disease, numbers of CTCs and other relevant secondary endpoints. The trial is expected to start by mid 2010 following final analysis of phase 1 data and approval by Health Canada and the institutional review board. The funds were awarded by a third party granting agency to Dr. Kim Chi, a medical oncologist at the BC Cancer Agency, Research Scientist at the Vancouver Prostate Centre and the principal investigator of the OGX-427 phase 2 trial.

SN2310

Product candidate SN2310 is a novel camptothecin for the treatment of cancer. Camptothecins are potent anticancer agents that belong to the family of drugs called topoisomerase I inhibitors that bind reversibly to the TOPO-I-DNA complex causing breaks in the DNA strands during replication resulting in cell death. The phase 1 clinical trial evaluated safety in patients with advanced cancer who have received on average 3 to 5 prior chemotherapy treatments. The phase 1 clinical trial has been completed and the dose-limiting toxicity that defined a maximum tolerated dose in this heavily pretreated patient population, as expected, was a significant decrease in the number of neutrophils (“neutropenia”), a type of white blood cell that is involved in the body’s defense against infections.

SN2310 has been administered to 26 patients with various types of cancer in a phase 1 clinical trial. Enrollment for this clinical trial has been completed. Some of the patients experienced adverse events, which were considered unrelated to the trial drug and attributed to the underlying disease. Of the adverse events associated with the administration of SN2310, most were mild and the most common events were nausea, diarrhea, vomiting and fatigue. Mild to moderate reactions (back/chest pain, flushing) have been observed during infusions. Significant neutropenia has occurred in some patients and was the dose-limiting toxicity observed, sometimes associated with fever or septicemia. We have not defined additional development activities for this product candidate at this time and are currently exploring options to out-license this product candidate.

OGX-225

The development program for our fourth product candidate, OGX-225, is focused on reducing the production of both IGFBP-2 and IGFBP-5 with a single product to enhance treatment sensitivity and delay tumor progression. Increased IGFBP-2 or IGFBP-5 production is observed in many human cancers. Increased IGFBP-2 or IGFBP-5 production is linked to faster rates of cancer progression, treatment resistance and shorter survival duration. We believe employing OGX-225 as a single product to simultaneously inhibit the production of both IGFBP-2 and IGFBP-5 has the potential to delay disease progression in cancers dependent upon insulin-like growth factor 1 (“IGF-1”), for proliferation. OncoGenex has completed pre-clinical proof of concept studies with OGX-225.

We believe that because IGFBP-2 and IGFBP-5 are over-produced in a variety of cancers, OGX-225 may have broad market potential to treat many cancer indications. OncoGenex believes that the initial opportunity for OGX-225 would be in breast and prostate cancer patients early in the course of their recurrence after failed hormone ablation therapy.

We have identified the lead compound and numerous pre-clinical proof of concept studies with OGX-225 have been completed indicating that it delays progression to hormone independence in prostate and breast cancer model systems. We have not defined when it will initiate the pre-clinical studies required for a regulatory submission and initiation of phase 1 clinical trials.

CSP-9222

Product candidate CSP-9222 is the lead compound from a family of caspase activators. These novel, small molecules have been identified as activators of programmed cell death in pre-clinical models.

Summary of Product Development Programs

The following table summarizes the status of our product development programs:

		Cancer Indication and						Recent and Expected Near Term Data
Product Candidate		Study		Treatment Combination(1)		Development Phase/Status		Releases
OGX-011 phase 3 (2)		Castrate Resistant Prostate Cancer — Survival Endpoint (OGX-011-11)		First-line docetaxel with and without OGX-011 (~800 patients)		•     Initiation pending; SPA approved by the FDA and EMA in agreement with development plan		•     Expected to initiate in the third quarter of 2010. Teva has primary responsibility for the oversight of this trial
		Castrate Resistant Prostate Cancer — Durable Pain Palliation Endpoint (OGX-011-10)		Docetaxel as second-line chemotherapy with and without OGX-011(~300 patients)		•     Initiation pending; SPA approved by the FDA and EMA in agreement with development plan		•     Expected to initiate in the second quarter of 2010. OncoGenex has primary responsibility for the oversight of this trial
		Advanced Non-Small Cell Lung Cancer — Survival Endpoint		Chemotherapy with or without OGX-011 (~ 700 patients) (Protocol to be determined)		•     Initiation pending		•     Expected to initiate in early 2011. Teva has primary responsibility for the oversight of this trial
OGX-011 phase 2		Castrate Resistant Prostate Cancer		First-line docetaxel with and without OGX-011		•     Phase 2 completed		•     Final survival data presented at 2009 ASCO Annual Meeting
		(OGX-011-03)						•     Manuscript submitted
		Castrate Resistant Prostate Cancer (OGX-011-07)		OGX-011 with second-line chemotherapy (docetaxel or mitoxantrone)		•     Phase 2 completed		•     Interim data presented at ASCO GU Symposium 2008 Manuscript in preparation
								•     Manuscript in preparation
		Castrate Resistant Prostate Cancer (OGX-011-07A)		OGX-011 with docetaxel as second-line chemotherapy		•     Phase 2 completed		•     Manuscript in preparation
		Advanced Non-Small Cell Lung Cancer (OGX-011-05)		OGX-011 with first-line chemotherapy (gemcitabine and cisplatin or gemcitabine and carboplatin)		•     Phase 2 completed		•     2-year survival data presented Feb 2009 •     Manuscript in preparation
		Localized Prostate Cancer (OGX-011-04)		OGX-011 with hormone ablation therapy		•     Phase 2 completed		•     Results presented at ASCO GU 2008
		Advanced Breast Cancer (OGX-011-06)		OGX-011 with docetaxel as second-line chemotherapy		•     Phase 2 completed		•     Data published in Clinical Cancer Research 2009
OGX-011 phase 1		Localized Prostate Cancer (OGX-011-01)		OGX-011 with hormone ablation therapy		•     Phase 1 completed		•     Data published in Journal of National Cancer Institute 2005
		Solid Tumors (prostate, breast, NSCL, ovarian, renal, bladder, peritoneum) (OGX-011-02)		OGX-011 with docetaxel		•     Phase 1 completed		•     Data published in Clinical Cancer Research 2008
OGX-427 phase 2		Castrate Resistant Prostate Cancer		OGX-427 as monotherapy		•     Not yet initiated		•     Expected to initiate in 2010
OGX-427 phase 1		Solid Tumors		OGX-427 with and without chemotherapy		•     Phase 1 ongoing- accrual and treatment complete for evaluation of OGX-427 as monotherapy. On-going accrual and treatment ongoing for evaluation of OGX-427 with chemotherapy		•     Monotherapy evaluation complete — maximum tolerated dose not determined at highest dose level.
								•     Data presented at 2009 ASCO Annual Meeting
								•     Complete study in 2010 and present data if selected at ASCO 2010
		Bladder Cancer		OGX-427 as monotherapy		•     Phase 1 ongoing		•     None
SN2310		Solid Tumors		SN2310 administered to heavily pre-treated patients with advanced cancer		•     Phase 1 completed		•     Enrollment and treatment completed — maximum tolerated dose determined
OGX-225		Solid Tumors		OGX-225 with and without chemotherapy		•     Pre-clinical proof-of-concept studies completed		•     None
CSP-9222		Solid Tumors		To be determined		•     Formulation to be determined		•     None

Overview of Market and Treatment

In North America, cancer is expected to strike slightly fewer than one in two men and slightly more than one in three women in their lifetimes and has recently surpassed heart disease as the leading cause of death in the United States. The American Cancer Society estimated that in 2009 approximately 1,479,350 new patients in the United States would be diagnosed with cancer and that there would be approximately 562,340 patient deaths attributable to cancers.

Typically, cancer treatment is given sequentially and can include surgery, radiation therapy, chemotherapy and hormone therapy. Although a particular therapy may initially be effective, tumor cells often react to therapeutic treatment by increasing the production of proteins that afford them a survival advantage, which enable them to become resistant to therapy, multiply and spread to additional organs. As a result, many patients progress rapidly through all available therapies and ultimately die.

Our Strategy

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Focus on gaining market approval for OGX-011 by conducting registration trials, in both prostate and lung cancer, in collaboration with Teva, that demonstrate efficacy and safety. As a result of the Collaboration Agreement with Teva, committed funding is available for phase 3 trials in 1st line CRPC, 2nd line CRPC, and 1st line NSCLC. The prostate trials are intended to begin in 2010 and the NSCLC trial is expected to begin in early 2011. Currently, both mitoxantrone and docetaxel are approved for use in patients with CRPC, but docetaxel was shown to improve patient survival when compared to mitoxantrone. Currently, Avastin, carboplatin, gemcitabine and cisplatin are approved for use in patients with NSCLC, but Avastin in combination with paclitaxel and carboplatin chemotheraphy was shown to improve patient survival when compared to carboplatin chemotherapy alone.

•

Advance OGX-427 by conducting clinical trials across multiple cancer indications for OGX-427 including, but not limited to, bladder cancer and CRPC. Consistent with the strategy OncoGenex is following for OGX-011, OncoGenex intends to conduct parallel clinical trials to evaluate OGX-427 in several cancer indications and treatment combinations to accelerate its assessment of this product candidate for further development.

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Focus on developing and commercializing new cancer therapies to inhibit treatment resistance in cancer patients. OncoGenex plans to leverage its expertise in discovery and development to bring new products to market as fast as possible. OncoGenex intends to maintain and develop its relationships with the Vancouver Prostate Centre, and develop relationships with other research institutions in order to identify and source additional product candidates.

•

Optimize the development of our product candidates through use of outsourcing and internal expertise. In order to increase efficiency and lower its overhead, OncoGenex outsources, and plans to continue to outsource, pre-clinical and manufacturing activities. OncoGenex has chosen to establish critical product development functions in-house, including clinical trial management and regulatory affairs.

Second Generation Antisense Technology

OGX-011, OGX-427 and OGX-225 are based on second-generation antisense drug chemistry and belong to the drug class known as antisense therapeutics. On a product by product basis, OncoGenex has collaborated with Isis Pharmaceuticals Inc. (“Isis”) and selectively licensed technology from Isis to combine Isis’ second generation antisense chemistry with our proprietary gene target sequences to create inhibitors which are designed to down regulate certain proteins associated with cancer resistance. In contrast to first-generation antisense chemistry, second-generation antisense chemistry has improved target binding affinity, increased resistance to degradation and improved tissue distribution. These improvements result in slower clearance of the therapies from the body, allowing for less frequent dosing and thereby making treatment easier on patients at a lower associated cost. For example, clinical data from our phase 1 clinical trial in prostate cancer patients demonstrated that weekly intravenous administration of OGX-011 resulted in drug distribution to prostate cancer tissue and over 92% inhibition of its target, clusterin mRNA, in prostate tumor cells in these patients. These data demonstrate that following systemic administration, OGX-011 entered tumor cells and inhibited clusterin production.

License and Collaboration Agreements

Teva Pharmaceutical Industries Ltd.

OGX-011

As discussed above, in December 2009, OncoGenex, through its wholly-owned subsidiary, OncoGenex Technologies, entered into the Collaboration Agreement with Teva for the development and global commercialization of OGX-011 (and related compounds). Pursuant to the Collaboration Agreement, Teva received the exclusive worldwide right and license to develop and commercialize any products containing OGX-011 and related compounds (“Licensed Products”). We have an option to co-promote OGX-011 in the United States and Canada.

Under the Collaboration Agreement, Teva made upfront payments in the aggregate amount of $50 million, will pay up to $370 million upon the achievement of developmental and commercial milestones and will pay royalties at percentage rates ranging from the mid-teens to mid-twenties on net sales, depending on aggregate annual net sales of Licensed Products. In addition to the ongoing royalties, Teva will pay us additional one-time sales threshold royalties if certain aggregate net sales are achieved. We are required to contribute $30 million towards the development of OGX-011 which will include personnel costs for certain development activities.

Teva and OncoGenex have developed a Clinical Development Plan under which the following three phase 3 clinical trials will be initiated:

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a phase 3 clinical trial of OGX-011 in approximately 300 patients with second-line castrate resistant prostate cancer, expected to initiate in the second quarter of 2010 subject to institutional review board approval and patient screening. OncoGenex will have primary responsibility for the oversight of this trial;

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a phase 3 clinical trial of OGX-011 in approximately 800 patients with first-line castrate resistant prostate cancer, expected to initiate in the third quarter of 2010. Teva will have primary responsibility for the oversight of this trial; and

•

a phase 3 clinical trial of OGX-011 in at least 700 patients with first-line NSCLC, expected to initiate by early 2011. Teva will have primary responsibility for the oversight of this trial.

Teva will be responsible for conducting any other studies and development work necessary to obtain required regulatory approvals. We may assume some of these activities if assigned by the Joint Steering Committee, but Teva would be responsible for all associated costs. The Joint Steering Committee will oversee the development and regulatory approval of any Licensed Product. Funding responsibilities for the Clinical Development Plan will be allocated as follows:

•

We will be required to contribute $30 million towards the development of OGX-011 which will include personnel costs for certain development activities; and

•

Teva will be required to fund all other expenses under the Clinical Development Plan.

In addition to the development costs noted above, Teva is also responsible for all costs relating to product commercialization including any costs incurred in relation to our co-promotion option, except for start-up costs in advance of commercialization.

Teva was also granted the first right to file, prosecute and maintain, and enforce at its expense the patent rights associated with OGX-011. If Teva elects, however, not to or fails to file, prosecute and maintain, and enforce the patent rights associated with OGX-011, OncoGenex retains the right to assume responsibility for the filing, prosecution and maintenance, and enforcement of the patent rights associated with OGX-011.

The Collaboration Agreement will remain in effect, on a country-by-country basis, until the expiration of the obligation of Teva to pay royalties on sales of the Licensed Product in such country (or earlier termination under its terms). Commencing after the completion of all three phase 3 clinical trials set forth in the Clinical Development Plan, or upon early termination due to a material adverse change in our patent rights related to OGX-011 or safety issues or “futility” as defined in the Collaboration Agreement, Teva may terminate the Collaboration Agreement in its sole discretion upon three months’ notice if notice is given prior to regulatory approval of a Licensed Product and upon six months’ notice if notice is given after such regulatory approval. If Teva terminates the Collaboration for any reasons other than an adverse change in OGX-011 patent rights, safety issues or “futility” determination as previously described, it will remain responsible for paying for any remaining costs of all three phase 3 clinical trials, except for Company Development Expenses. Either party may terminate the Collaboration Agreement for an uncured material breach by the other party or upon the bankruptcy of either party. If the Collaboration Agreement is terminated other than for an uncured material breach by Teva, we will pay Teva a royalty on sales of Licensed Products. The percentage rates of such royalties (which are in the single digits) depend if termination occurs prior to the first regulatory approval in the United States or a primary European Market or after one of these approvals. These royalties would expire on a country-by-country basis on the earlier of ten years after the first commercial sale of a Licensed Product or certain thresholds related to generic competition.

In the event of a change of control of the Company and within 90 days of the change of control, Teva may terminate the Joint Steering Committee in its sole discretion, terminate the co-promotion option in its sole discretion if not then exercised by us or if exercised but not yet executed by us, or terminate the co-promotion option if in its commercially reasonable opinion co-promotion with our successor would be materially detrimental to Teva’s interests.

Isis Pharmaceuticals, Inc.

OGX-011

In November 2001, OncoGenex Technologies entered into an agreement with Isis to jointly develop and commercialize OGX-011 (“Original Isis Agreement”). This strategic relationship provided us with access to Isis’ proprietary position in second-generation antisense chemistry for use in OGX-011, Isis’ expertise in developing antisense therapeutics, including their manufacturing expertise, and allowed us to develop OGX-011 cost efficiently. Under the Original Isis Agreement, we shared with Isis, on a basis of 65% OncoGenex and 35% Isis, the costs and revenues resulting from the development and commercialization of OGX-011. On July 2, 2008, OncoGenex and Isis amended the Original Isis Agreement (“Amended Isis Agreement”) pursuant to which OncoGenex became solely responsible for the costs and development of OGX-011, and, in turn, took on certain financial obligations to Isis, primarily related to sharing revenues received by OncoGenex from a third party as a result of a licensing transaction.

Licensing revenues that are based on a percentage of net sales of a licensor are defined as Royalty Revenue, while other licensing revenues, with the exception of fair market value of equity and reimbursement of research and development expenses, are defined as Non-Royalty Revenue. We will pay Isis royalties comprised of a base percentage of net sales of OGX-011 and a percentage of Royalty Revenue we receive in excess of a certain threshold up to a certain cap. The amount of the royalties payable to Isis is dependent on whether Isis owes royalty payments to third parties pursuant to its license agreements with third parties. Based on the Royalty Revenue we are eligible to receive as a result of the royalty rates established in our collaboration with Teva, our total royalty obligations to Isis will range between 6.38% and 7.00% of net sales of OGX-011 by Teva during the period Isis owes royalty payments to third parties and between 3.88% and 4.50% when those third party obligations of Isis have expired, which we expect to occur in 2017.

OncoGenex paid Isis $10 million in January 2010 as Isis’ share of Non-Royalty Revenue received by OncoGenex in December 2009 in connection with our Collaboration Agreement with Teva. OncoGenex does not anticipate making any further payments to Isis in 2010 under the terms of the Amended Isis Agreement.

In addition, we are required to pay to Isis 30% of all Non-Royalty Revenue we receive. Isis has disclosed in its SEC filings that it is entitled to receive 30% of the up to $370 million in milestone payments we may receive from Teva as part of the Collaboration Agreement; however, we believe that certain of the milestone payments related to sales targets may qualify as Royalty Revenue, and therefore be subject to the lesser payment obligations as discussed above. No assurance can be provided that we will be entitled to receive these milestone payments or, if we are, that the applicable amount payable to Isis will be less than 30%. Neither OncoGenex nor Isis can pursue the development or commercialization of any antisense compound for clusterin outside of the Amended Isis Agreement. This arrangement will continue until OGX-011 is no longer being developed or commercialized or until the agreement is terminated early due to an uncured material breach.

To facilitate the execution and performance of the Collaboration Agreement, OncoGenex and Isis agreed to amend the Amended Isis Agreement (the “Second Isis Amendment”). The Second Isis Amendment provides that, among other things, if the Company is the subject of a change of control with a third party, where the surviving company immediately following such change of control has the right to develop and sell the product, then (i) a milestone payment of $20 million will be due and payable to Isis 21 days following the first commercial sale of the product in the United States; and (ii) unless such surviving entity had previously sublicensed the product and a royalty rate payable to Isis by the Company has been established, the applicable royalty rate payable to Isis will thereafter be the maximum amount payable under the Amended Isis Agreement. Any non-royalty milestone amounts previously paid will be credited toward the $20 million milestone if not already paid. As a result of the $10 million milestone payment paid to Isis in relation to the Collaboration Agreement, the remaining amount owing in the event of change of control discussed above is a maximum of $10 million. As the Company has now licensed the product to Teva and established a royalty rate payable to Isis, no royalty rate adjustments would apply if Teva acquires the Company and is the surviving company.

OncoGenex Technologies has agreed to indemnify Isis and persons affiliated with Isis against liabilities resulting from the development, manufacture, use, handling, storage, sale or other commercialization or disposition of OGX-011, caused by OncoGenex Technologies’ or its licensees’ or sublicensees’ gross negligence or willful misconduct, or caused by OncoGenex Technologies’ material breach of the agreement.

OGX-427

In January 2005, OncoGenex Technologies entered into a collaboration and license agreement with Isis to jointly identify antisense compounds designed to inhibit the production of proteins encoded by specified gene targets. OncoGenex Technologies is solely responsible for all product development activities for antisense compounds under this collaboration. This relationship provides OncoGenex Technologies with access to Isis’ proprietary position in second generation antisense chemistry for use in specified products. OncoGenex Technologies was permitted to designate up to two collaboration gene targets for collaborative research, development and commercialization. In April, 2005, Hsp27 was confirmed as a collaboration gene target. OncoGenex and Isis jointly designed and screened antisense compounds for this gene target. OncoGenex Technologies’ right to designate a second collaboration gene target expired on January 5, 2007.

Under the terms of the agreement, in the event that OncoGenex Technologies abandons OGX-427, Isis may elect to unilaterally continue development of OGX-427, in which case it must provide Isis with a worldwide license or sublicense (as the case may be) of its relevant technology solely to develop and commercialize OGX-427 in exchange for a royalty on Isis’ sales of OGX-427.

In consideration for the grant of rights related to OGX-427, on May 5, 2005 OncoGenex Technologies issued Isis a promissory note which was converted into shares of OncoGenex Technologies that were exchanged in the Arrangement for 53,200 OncoGenex Pharmaceuticals common shares. Under the terms of the agreement, OncoGenex Technologies may be obligated to make certain milestone payments to Isis contingent upon the occurrence of certain clinical development and regulatory events related to OGX-427. It is also obligated to pay to Isis certain milestone payments as well as certain royalties on net sales for OGX-427, with the amount of royalties depending on whether third party royalty payments are owed. We anticipate paying Isis $750,000 in 2010 upon the initiation of a phase 2 clinical trial of OGX-427 in patients with CRPC. We do not anticipate making any royalty payments to Isis under the terms of the agreement in 2010.

OncoGenex Technologies has agreed to indemnify Isis and certain persons affiliated with Isis against liabilities caused by its and its licensees’ and sublicensees’ gross negligence or willful misconduct, its material breach of the collaboration and license agreement, and the manufacture, use, handling, storage, sale or other disposition of OGX-427 that is sold by OncoGenex Technologies or its affiliates, agents or sublicensees.

The term of the agreement will continue for each product until the later of 10 years after the date of the first commercial sale of OGX-427, or the expiration of the last to expire of any patents required to be licensed in order to use or sell OGX-427, unless OncoGenex Technologies abandons OGX-427 and Isis does not elect to unilaterally continue development of OGX-427.

University of British Columbia

OGX-011

Under an agreement made in November 2001, as amended, the University of British Columbia (“UBC”) granted to OncoGenex Technologies an exclusive, worldwide license to commercialize its existing intellectual property and any improvements related to clusterin. This technology combined with Isis’ second-generation antisense chemistry is our product candidate, OGX-011. In connection with entering into this license agreement, we issued to UBC shares of OncoGenex Technologies that were exchanged in the Arrangement for 15,243 common shares of OncoGenex Pharmaceuticals. OncoGenex Technologies agreed to pay to UBC certain royalties on milestones and the revenue from sales of OGX-011. OncoGenex Technologies is obligated to pay to UBC CAD$2,000 in annual maintenance fees. In January 2010, we paid UBC $333,333 as a result of upfront payments we received from Teva in December 2009 in connection with our Collaboration Agreement. The occurrence and receipt of future milestone payments and the generation of royalty revenue are uncertain.

OncoGenex Technologies agreed to use its commercially reasonable efforts to develop and exploit the licensed technology and any improvements. OncoGenex Technologies also agreed to promote, market and sell any resulting products and to cause the market demand for such products to be satisfied. OncoGenex Technologies is permitted to sublicense the technology, subject to certain consent and other requirements. OncoGenex Technologies directs patent prosecution and is responsible for all fees and costs related to the preparation, filing, prosecution and maintenance of the patent rights underlying the agreement. OncoGenex Technologies indemnifies UBC and certain of UBC’s affiliates against liability arising out of the exercise of any rights granted pursuant to the agreement. The term of this agreement will expire on the later of 20 years from its effective date or the expiry of the last patent licensed under the agreement. Subject to patent term extensions, the current granted patent for OGX-011 expires in the United States in 2021 and would expire in all other jurisdictions by 2020. OncoGenex Technologies has additional patent applications pending which, if issued and not invalidated, may extend the expiration date of the last-to-expire patents. OncoGenex Technologies may also file additional patent applications related to clusterin that could potentially extend the expiration date of the last to expire patent in this area.

OGX-427

Under an agreement made in April 2005, as amended, UBC granted to OncoGenex Technologies an exclusive, worldwide license to commercialize its existing intellectual property and any improvements related to Hsp27. This technology combined with Isis’ second-generation antisense chemistry is our product candidate, OGX-427. In connection with entering into this license agreement, OncoGenex Technologies issued to UBC shares that were exchanged in the Arrangement for 6,533 common shares of OncoGenex Pharmaceuticals. OncoGenex Technologies also agreed to pay to UBC certain royalties on the revenue from sales of OGX-427, which royalty rate may be reduced in the event that OncoGenex Technologies must pay additional royalties under patent licenses entered into with third parties in order to manufacture, use or sell OGX-427. OncoGenex Technologies may be obligated to make milestone payments to UBC contingent upon the occurrence of certain clinical development and regulatory events related to OGX-427. OncoGenex Technologies is obligated to pay to UBC CAD$2,000 in annual maintenance fees. We anticipate paying UBC CAD$100,000 in 2010 upon the initiation of a phase 2 trial of OGX-427 in patients with CRPC. The occurrence and receipt of upfront and milestone payments and the generation of royalty revenue are uncertain.

Subject to certain exceptions, OncoGenex Technologies agreed to use its commercially reasonable efforts to (i) develop and exploit the licensed technology and any improvements, and (ii) promote, market and sell any resulting products. OncoGenex Technologies is permitted to sublicense the technology, subject to certain consent and other requirements. OncoGenex Technologies directs patent prosecution and is responsible for all fees and costs related to the preparation, filing, prosecution and maintenance of the patent rights underlying the agreement. OncoGenex Technologies indemnifies UBC and certain of UBC’s affiliates against liability arising out of the exercise of any rights granted pursuant to the agreement. The term of this agreement will expire on the later of 20 years from its effective date or the expiry of the last patent licensed under the agreement. Depending on the outcome of the pending patent applications in the licensed patent family, and subject to any applicable patent term extensions, a patent issuing from this family would expire in all jurisdictions by 2023. OncoGenex Technologies may also file additional patent applications related to Hsp27 that could potentially extend the expiration date of the last to expire patent in this area.

OGX-225 and CSP-9222

Pursuant to the terms of our third party license agreements relating to OGX-225 and CSP-9222, OncoGenex will owe payments upon the completion of product development milestones as well as royalties on product sales. We do not anticipate making any milestone or royalty payments to third parties under the terms of these agreements in 2010.

OncoGenex is also obligated to pay annual license fees to third parties with respect to these product candidates. These amounts are disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations”, which is incorporated herein by reference.

Summary of Milestone Obligations by Product Candidate

The following table sets forth the milestones that we may be required to pay to third parties under the license and collaboration agreements described above. As described above, we will also required to pay certain revenue-based royalties with respect to each of our product candidates.

Milestone Obligations to Third Parties		Amount Payable
OGX-011		31% of non-royalty revenue
OGX-427		Up to $5,813,000 (1)(2)(3)
OGX-225(3)		Up to $4,313,000 (2)(3)
CSP-9222		Up to $14,000,000 (4)

Government Regulations—Drug Approval Process

Regulation by governmental authorities in the U.S. and other countries is a significant factor in our ongoing research and development activities and in the production and marketing of our products. In order to undertake clinical trials, to produce and market products for human use, mandatory procedures and safety standards, established by the FDA in the U.S. and by comparable agencies in other countries, must be followed.

The standard process before a pharmaceutical agent may be marketed includes the following steps:

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preclinical studies including laboratory evaluation and animal studies to test for initial safety and efficacy;

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submission to national health authorities of an Investigational New Drug (“IND”) IND, or Clinical Trials Application (“CTA”) or equivalent dossier, which must be accepted by each national health authority before human clinical trials may commence in that country;

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adequate and well-controlled clinical trials to establish the safety and efficacy of the drug in its intended population and use(s);

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submission to appropriate national and/or regional regulatory health authorities of a NDA, or equivalent marketing authorization application, which application is not automatically accepted for review; and

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approval by appropriate regulatory health authorities of the marketing authorization application prior to any commercial sale or shipment of the drug in each country or jurisdiction.

As part of the regulatory health authority approval for each product, the drug-manufacturing establishment is subject to inspection by the FDA and must comply with current Good Manufacturing Practices (“cGMP”) requirements applicable to the production of pharmaceutical drug products. The facilities, procedures, and operations of manufacturers must be determined to be adequate by the FDA before product approval.

Preclinical studies include laboratory evaluation of the active drug substance and its formulation in animal studies to assess the potential safety and efficacy of the drug and its formulation. Prior to initiating the first clinical testing of a new drug product candidate, the results of the preclinical studies are submitted to regulatory health authorities as part of an IND or CTA, and must be accepted before the proposed clinical trial(s) can begin.

Clinical trials for cancer therapeutics involve the administration of the investigational drug product to patients with a defined disease state, under the supervision of a qualified principal investigator.

Clinical trials are conducted in accordance with protocols that detail the parameters to be used to monitor safety and efficacy. Each protocol is submitted to regulatory health authorities as part of the IND/CTA, in each country where clinical trials are to be conducted. Each clinical trial is approved and monitored by independent Institutional Review Boards or Ethics Committees who consider ethical factors, informed consent documents, the safety of human subjects and the possible liability of the institutions conducting a clinical trial. The Institutional Review Board or Ethics Committee may require changes in the clinical trials protocol, which may delay initiation or completion of the trial.

Clinical trials typically are conducted in three sequential phases, although the phases may overlap. In phase 1, the initial introduction of the drug to humans, the drug is tested for safety and clinical pharmacology. Phase 2 trials involve more detailed evaluation of the safety and efficacy of the drug in patients with a defined disease. Phase 3 trials consist of large scale evaluations of safety and efficacy of the investigational product compared to accepted standard therapy in a defined disease.

The process of completing clinical testing and obtaining regulatory health authority approval for a new product takes a number of years and requires the expenditure of substantial resources. Regulatory health authorities may conclude that the data submitted in a marketing authorization application are not adequate to support an approval and may require further clinical and preclinical testing, re-submission of the application, and further review. Even after initial approval has been obtained, further studies may be required to provide additional data about the approved indication, and further studies will be required to gain approval for the use of a product for clinical indications other than those for which the product was approved initially. Also, health authorities require post-marketing surveillance programs to monitor the drug product’s side effects.

Marketing of pharmaceutical products outside of the U.S. is subject to regulatory requirements that vary from country to country. In the European Union, the general trend has been towards coordination of common standards for clinical testing of new drug products. Centralized approval in the European Union is coordinated through the EMA.

The level of regulation outside the U.S. and European Union varies widely. The time required to obtain regulatory approval from regulatory agencies in each country may be longer or shorter than that required for FDA or EMA approval. In addition, in certain markets, reimbursement is subject to governmentally mandated prices.

Many of the chemicals and compounds used in our research and development efforts are classified as hazardous materials under applicable federal, state and local environmental laws and regulations. We are subject to regulations under state and federal law regarding occupational safety, laboratory practices, handling and disposing of chemicals, environmental protection and hazardous substance control.

Contract Research Agreements

Consistent with our strategy to outsource certain product development activities, we have established contract research agreements for pre-clinical, manufacturing and some data management services. We choose which business or institution to use for these services based on their expertise, capacity and reputation and the cost of the service.

We also provide quantities of our product candidates to academic research institutions to investigate the mechanism of action and evaluate novel combinations of its product candidates with other cancer therapies in various cancer indications. These collaborations expand our research activities for product candidates with modest contribution from OncoGenex.

Research and Development Expenditures

For the years ended December 31, 2009, 2008 and 2007, our expenditures for research and development activities were $24.2 million, $7.8 million, and $4.1 million, respectively. Such research and development expenses primarily related to the advancement of our lead product candidate, OGX-011.

Manufacturing

We do not own facilities for the manufacture of materials for clinical or commercial use. We rely and expect to continue to rely on contract manufacturers to manufacture our product candidates in accordance with cGMP, for use in clinical trials. We will ultimately depend on contract manufacturers for the manufacture of our products, when and if it has any, for commercial sale, as well as for process development as required.

To date, all active pharmaceutical ingredient (“API”), for OGX-011 has been manufactured by Isis or Avecia Biotechnology Inc. (“Avecia”) on a purchase order basis, under cGMP. Drug product manufactured from API has been performed by Formatech, Inc., Pyramid Laboratories Inc., and Laureate Pharma, Inc., in several separate manufacturing campaigns, pursuant to purchase orders or short-term contracts with OncoGenex or its licensors. For OGX-427, all API has been manufactured for OncoGenex by Avecia and all drug product has been manufactured for OncoGenex by Laureate Pharma, Inc., in each case pursuant to a purchase order or short-term contract that has been fulfilled. Contract manufacturing for commercial product is being evaluated and may or may not be performed at the current manufacturers. Larger contract manufacturers that can meet higher commercial drug quantities may be required and contracted to manufacture our products for commercial sale, when and if it has any.

Intellectual Property

Our success depends in part on the ability of us and our collaborators to obtain and maintain proprietary protection for our product candidates, technology and know-how; prevent others from infringing the proprietary rights for our product candidates; and operate without infringing on the proprietary rights of others.

For each of OGX-011, OGX-427 and OGX-225, our intellectual property results from our licenses with UBC and Isis. In addition, Isis has assigned a three-member patent family related to clusterin antisense to OncoGenex Technologies, and OncoGenex has a pending application on an OGX-427 formulation.

As discussed above, certain intellectual property rights relating to OGX-011 have been sublicensed exclusively to Teva. Teva will subsequently be taking over control of the prosecution of those rights in a graduated fashion, as OGX-011 is developed.

OncoGenex has been granted non-exclusive rights to all intellectual property owned, licensed or otherwise controlled by Isis at the date of its agreements with Isis that relate to second-generation antisense chemistry and that are required for its product candidates (such as OGX-011, OGX-427 and OGX-225). Isis is generally restricted from engaging in research, development and commercialization of antisense compounds related to clusterin, Hsp27, IGFBP-5 and IGFBP-2, other than as provided in the collaboration and license agreement related to each target. Isis directs patent prosecution and is responsible for all fees and costs related to the preparation, filing, prosecution and maintenance of these patent rights, which extend to numerous jurisdictions throughout the world. Individual patents have terms of protection depending on the laws of the countries in which the applications are made.

All TOCOSOL™ and SN2310 intellectual property is owned by OncoGenex Pharmaceuticals, Inc, and intellectual property relating to CSP-9222 is licensed from Bayer.

For intellectual property under license from UBC and Bayer covering OGX-427, OGX-225, and CSP-9222, OncoGenex directs patent prosecution and is responsible for all fees and costs related to the preparation, filing, prosecution and maintenance of the patent rights underlying the agreement. For this intellectual property, OncoGenex files patent applications in the United States, Canada, Europe (through the European Patent Office), Japan, and other jurisdictions.

Composition of matter patents covering OGX-011, OGX-427, SN2310, CSP-9222 and TOCOSOL™ have issued in the U.S. and certain other jurisdictions. Additional patent applications covering all of these products, as well as other technologies, are pending in the U.S. and certain other countries.

Generally, patents issued in the U.S. are effective for 20 years from the earliest non-provisional filing date, if the application from which the patent issues was filed on or after June 8, 1995 (otherwise the term is the longer of 17 years from the issue date or 20 years from the earliest non-provisional filing date). The duration of patent terms for non-U.S. patents is typically 20 years from the earliest corresponding national or international filing date. OncoGenex’ licensed UBC patent estate, based on those patents and applications existing now and expected by OncoGenex to issue, will expire in years ranging from 2020 to 2024, such dates do not include extensions that may be available. Our TOCOSOL™ patent terms will expire starting from 2018, and the SN2310 and CSP-9222 patent terms from 2023. Patent term extensions, specifically to make up for regulatory delays, are available in the U.S., Europe, and Japan. Although we believe that some or all of its product candidates will meet the criteria for patent term extensions, there can be no assurance that it will obtain such extensions.

We also rely on unpatented trade secrets, proprietary know-how and continuing technological innovation, which we seek to protect, in part, by confidentiality agreements with our corporate partners, collaborators, employees and consultants in our drug development research. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets or know-how will not otherwise become known or be independently discovered by competitors. Further, there can be no assurance that we will be able to protect our trade secrets or that others will not independently develop substantially equivalent proprietary information and techniques.

Competition

The development and commercialization of new drugs is highly competitive. Our major competitors are large pharmaceutical, specialty pharmaceutical and biotechnology companies, in the United States, Canada and abroad. Many oncology drugs in clinical trials are being developed for the four primary cancer indications: lung, breast, colorectal, and prostate cancer. Certain of these drugs are, like OGX-011, OGX-427, and OGX-225, designed to interfere with mechanisms potentially involved with treatment resistance. If new drugs targeting mechanisms of treatment resistance are approved for sale for the indications that we are targeting in advance of our product candidates, or even after their commercialization, it may reduce the market’s interest in its product candidates. We are aware of several other companies developing therapeutics, whether antisense or otherwise, that seek to promote tumor cell death by inhibiting proteins believed to promote cell survival. Our competitors may seek to identify gene sequences, protein targets or antisense chemistry different from ours, and outside the scope of our intellectual property protection, to develop antisense therapeutics that serve the same function as its product candidates. Our competitors may also seek to use mechanisms other than antisense to inhibit the proteins that our product candidates are designed to inhibit the production of.

Many of our existing and potential competitors have substantially greater financial resources and expertise in manufacturing, developing products, conducting clinical trials, obtaining regulatory approvals, and marketing than us. These entities also compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring products and technologies complementary to its programs. Standard treatments vary considerably by cancer indication, and new drugs may be more effective in treating one cancer indication than another. In addition, it must be recognized that cancer is a difficult disease to treat and it is likely that no one therapeutic will replace all other therapies in any particular indication. Therapeutic strategies for treating cancer are increasingly focused on combining a number of drugs in order to yield the best results. Since OGX-011 and OGX-427 are intended to be used in multiple cancer indications and target the tumors’ adaptive survival mechanisms, these drugs will potentially be synergistic with many new and currently marketed therapies.

Our ability to compete successfully will depend largely on our ability and, where applicable, the ability of our collaborators to:

•

establish that our product candidates are well tolerated and result in a clinical benefit when administered to cancer patients;

•

advance the development of our lead programs, including the enrollment of patients for our clinical trials;

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gain regulatory approval for our product candidates in their respective first indications as well as expand into additional indications;

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commercialize our lead product candidates successfully, including convincing physicians, insurers and other third-party payors of the advantages of its products, when and if it has any, over current therapies;

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obtain intellectual property protection and protect the exclusivity for our product candidates and products, when and if it has any; and

•

acquire other product candidates to expand our pipeline.

Trademarks

We own two approved Canadian trademarks: OncoGenex™ and Bringing Hope to Life™. We have registered corresponding trademark Bringing Hope to Life™ in the U. S., and applied for OncoGenex™ in that jurisdiction. We are aware of a company called Tikvah Therapeutics of Atlanta, Georgia, which has filed Bringing Hope to Life™ for different goods and services on an intent-to-use basis. OncoGenex and Tikvah have agreed not to oppose or prevent the other from establishing their respective marks for their respective goods.

Registrations and applications relating to the SONUS™ and TOCOSOL™ trademarks are no longer being maintained.

There can be no assurance that the registered or unregistered trademarks or trade names of our Company will not infringe upon third party rights or will be acceptable to regulatory agencies.

Employees

We have a total of 26 employees; one part-time and 25 full-time. In our Vancouver office, we have 10 full-time employees and one part-time employee, three of whom are engaged in clinical development and regulatory affairs and seven of whom are engaged in administration, business development, accounting and finance. In our Bothell office, we have 15 full-time employees, with all 15 engaged in clinical and regulatory affairs.

All of our employees have entered into non-disclosure agreements regarding our intellectual property, trade secrets and other confidential information. None of our employees are represented by a labor union or covered by a collective bargaining agreement, nor have we experienced any work stoppages. We believe that we maintain satisfactory relations with our employees.

From time to time, OncoGenex also uses outside consultants to provide advice on its clinical development plans, research programs, administration and potential acquisitions of new technologies.

Company Information

The Company was incorporated in the state of California in October 1991 and subsequently reorganized as a Delaware corporation in September 2005. Our principal executive offices are located 1522 217^th Place SE, Suite 1090, Bothell, Washington 98021, and its telephone number is (425) 686-1500.

On August 21, 2008, pursuant to the Arrangement, OncoGenex Technologies Inc. became a wholly-owned subsidiary of the Company. OncoGenex Technologies was incorporated under the federal laws of Canada in May 2000. OncoGenex, Inc., the subsidiary of OncoGenex Technologies, was incorporated under the laws of Washington in August 2005 and was dissolved pursuant to Articles of Dissolution filed on July 1, 2009.

Available Information

We maintain a website at http://www.oncogenex.com. The information contained on or accessible through our website is not part of this Annual Report on Form 10-K. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge on our website as soon as reasonably practicable after we electronically file such reports with, or furnish those reports to, the Securities and Exchange Commission (the “SEC”).

ITEM 1A. RISK FACTORS

Risks Related to Our Business

Investing in our common shares involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this Form 10-K, before deciding to invest in our common shares. If any of the following risks materialize, our business, financial condition, results of operation and future prospects will likely be materially and adversely affected. In that event, the market price of our common shares could decline and you could lose all or part of your investment.

We have a limited operating history, have incurred losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We have never had any products available for commercial sale and we may never achieve or sustain profitability.

We are a clinical-stage biopharmaceutical company with a limited operating history. We are not profitable and have incurred losses in each year since our inception. We have never had any products available for commercial sale and we have not generated any revenue from product sales. We do not anticipate that we will generate revenue from the sale of products in the foreseeable future. Our only revenue to date has been collaboration revenue under our Collaboration Agreement with Teva. We have not yet submitted any products for approval by regulatory authorities. We continue to incur research and development and general and administrative expenses related to our operations. We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our research activities and conduct development of, and seek regulatory approvals for, our product candidates, and prepare for and begin to commercialize any approved products. If our product candidates fail in clinical trials or do not gain regulatory approval, or if our product candidates do not achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

Because we depend on financing from third parties for our operations, our business may fail if such financing becomes unavailable or is offered on commercially unreasonable terms.

To date, we have financed our operations primarily through the sale of our equity securities and from the upfront payment we received pursuant to our Collaboration Agreement with Teva. We believe that our existing capital resources and interest thereon, including the upfront payment we received from Teva in December 2009, will be sufficient to meet our current operating requirements into 2012 and expect that both phase 3 prostate cancer trials will be fully accrued by this time. However, if our Collaboration Agreement with Teva were to be terminated or if Teva failed to fulfill its obligations thereunder, or if we change our development plans, acquire rights to new product candidates or cannot find third party collaborators for our other product candidates, we may need additional capital sooner than we expect. Our future capital requirements will depend on many factors, including without limitation:

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maintaining our partnership with Teva and Teva’s ongoing commitment to develop OGX-011 in a timely fashion;

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the scope and results of our preclinical and clinical trials;

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whether we experience delays in our preclinical and clinical development programs, or slower than anticipated product development;

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whether opportunities to acquire additional product candidates arise and the costs of acquiring and developing those product candidates;

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whether we are able to enter into additional third party collaborative partnerships to develop and/or commercialize any of our other product candidates on terms that are acceptable to us;

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the timing and requirements of, and the costs involved in, conducting studies required to obtain regulatory approvals for our product candidates from the FDA and comparable foreign regulatory agencies;

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the availability of third parties to perform the key development tasks for our product candidates, including conducting preclinical and clinical studies and manufacturing our product candidates to be tested in those studies and the associated costs of those services; and

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the costs involved in preparing, filing, prosecuting, maintaining, defending the validity of and enforcing, patent claims and other costs related to patent rights and other intellectual property rights, including litigation costs and the results of such litigation.

If we are unable to raise funds on acceptable terms when it becomes necessary to do so, we may not be able to continue developing our product candidates, acquire or develop additional product candidates or respond to competitive pressures or unanticipated requirements. For these reasons, any inability to raise additional capital when we require it could have a materially adverse effect on our business.

We are dependent upon our collaborative relationship with Teva to further develop and commercialize OGX-011, and if our relationship were not to be successful or were to be terminated, we may not be able to effectively develop and/or commercialize OGX-011, which would have a material adverse effect on the Company.

Under our Collaboration Agreement with Teva, we rely heavily on Teva to collaborate with us in respect of the development and global commercialization of OGX-011. Furthermore, under the Collaboration Agreement, we and Teva must agree on any changes to the Clinical Development Plan for OGX-011. As a result of our dependence on our relationship with Teva, the eventual success or commercial viability of OGX-011 is largely beyond our control. The financial returns to us, if any, under our Collaboration Agreement with Teva depend in large part on the achievement of development and commercialization milestones, plus a share of any revenues from sales. Therefore, our success, and any associated financial returns to us and our investors, will depend in large in part on the performance of Teva under the agreement.

We are subject to a number of additional specific risks associated with our dependence on our collaborative relationship with Teva, including:

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adverse decisions by Teva or the Joint Steering Committee regarding the development and commercialization of OGX-011;

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possible disagreements as to the timing, nature and extent of our development plans, including clinical trials or regulatory approval strategy;

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loss of significant rights if we fail to meet our obligations under the Collaboration Agreement;

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our limited control over clinical trials with respect to OGX-011;

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changes in key management personnel at Teva that are members of the Joint Steering Committee; and

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possible disagreements with Teva regarding the Collaboration Agreement or ownership of proprietary rights.

If we and Teva are unable to reach an agreement under the Clinical Development Plan, or if either we or Teva fail to perform our respective obligations or effectively manage our relationship, such occurrence could cause clinical trial, regulatory approval or development progress to be significantly delayed or halted, could result in costly or time consuming litigation or arbitration and could have a material adverse effect on our business.

If Teva’s business strategy changes, it may adversely affect the development and commercialization of OGX-011.

Teva may change its business strategy. Decisions by Teva to either reduce or eliminate its participation in the oncology field, to emphasize other competitive agents currently in its portfolio, or to add additional competitive agents to its portfolio, could result in a decision to terminate the Collaboration Agreement. In the event of termination of the Collaboration Agreement, among other things, we would have responsibility for paying for any remaining costs of all three phase 3 clinical trials. Any such termination could adversely affect the timing and extent of development and commercialization activities, which could cause significant delays and funding shortfalls impacting those activities and seriously harm our business.

We are highly dependent on the success of our lead product candidate, OGX-011, and we cannot give any assurance that OGX-011 or any of our other product candidates will receive regulatory approval.

OGX-011 has been evaluated in five phase 2 clinical trials, and results for these trials were previously disclosed. If competitive products developed by third parties show significant benefit in the cancer indications in which we are developing our product candidates, any planned supportive or primary registration trials may be delayed, altered or not initiated and OGX-011 may never receive regulatory approval. In order to market OGX-011, we and Teva must, among other things, conduct additional clinical trials, including phase 3 or registration clinical trials, to demonstrate safety and efficacy. We are intending to initiate two registration trials in 2010 involving OGX-011, but we have not initiated any registration clinical trials with any of our product candidates to date. OGX-427 and SN2310 have been evaluated in humans, though we have very limited safety data and have not yet established efficacy in humans. We have completed enrollment in the phase 1 clinical trial of SN2310 and the dose limiting toxicity that defined a maximum tolerated dose in this heavily pretreated patient population, as expected, was significant neutropenia. Additional clinical trials will be required with SN2310 to establish the safety and efficacy of this product candidate. Neither OGX-225 nor CSP-9222 have yet been tested in humans. Our pre-clinical testing of these product candidates may not be successful and we may be unable to initiate clinical evaluation of them. Our clinical development programs for our product candidates may not receive regulatory approval either if such product candidates fail to demonstrate that they are safe and effective in clinical trials and consequently fail to obtain necessary approvals from the FDA, or similar non-U.S. regulatory agencies, or if we have inadequate financial or other resources to advance these product candidates through the clinical trial process. Any failure to obtain regulatory approval of OGX-011 or our other product candidates would have a material and adverse impact on our business.

Clinical trials may not demonstrate a clinical benefit of our product candidates.

Positive results from pre-clinical studies and early clinical trials, including those results from the OGX-011 clinical trials conducted to date, should not be relied upon as evidence that later-stage or large-scale clinical trials will succeed. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. Success in early clinical trials does not mean that future clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and other non-U.S. regulatory authorities despite having progressed through initial clinical trials.

Even after the completion of our planned phase 3 clinical trials, the FDA or other non-U.S. regulatory authorities may disagree with our clinical trial design and our interpretation of data, and may require us to conduct additional clinical trials to demonstrate the efficacy of our product candidates.

Our clinical trials may be suspended or terminated at any time, including by the FDA, other regulatory authorities, the Institutional Review Board (“IRB”) overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, by Teva in the case of OGX-011, or by us. Any failure or significant delay in completing clinical trials for our product candidates could materially harm our financial results and the commercial prospects for our product candidates.

We do not know whether any of our currently planned future clinical trials for OGX-011 or OGX-427 will proceed or be completed on schedule, or at all, or, with respect our current portfolio of product candidates, whether we will be able to initiate any future pre-clinical studies or clinical trials, as applicable, beyond those currently planned. The completion or commencement of future pre-clinical studies or clinical trials could be substantially delayed or prevented by several factors, including:

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decrease in Teva’s level of focus and efforts to develop OGX-011;

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delay or failure to obtain sufficient manufacturing supply of OGX-011;

•

delay or failure to obtain acceptance from the FDA’s of Avecia as our manufacturer for OGX-011;

•

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

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limited number of, and competition for, suitable sites to conduct clinical trials;

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delay or failure to obtain required future additional funding, when needed, through private or public offerings of our equity securities, debt financings, or executing a licensing, partnership or collaboration agreement with a third party for any of our product candidates;

•

introduction of new product candidates to the market in therapeutic areas similar to those which we are developing our product candidates;

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concurrent evaluation of new investigational product candidates in therapeutic areas similar to those which we are developing our product candidates;

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delay or failure to obtain the FDA’s or non-U.S. regulatory agencies’ approval or agreement to commence a clinical trial, including our phase 3 or registration clinical trials under a Special Protocol Assessment;

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delay or failure to obtain sufficient supplies of the product candidate for its clinical trials;

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delay or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or investigators; and

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delay or failure to obtain the approval of the IRB to conduct a clinical trial at a prospective site.

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

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slower than expected rates of patient recruitment and enrollment;

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failure of patients to complete the clinical trial;

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unforeseen safety issues;

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lack of efficacy evidenced during clinical trials;

•

termination of our clinical trials by one or more clinical trial sites;

•

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

	•		inability to monitor patients adequately during or after treatment;
	•		introduction of competitive products that may impede its ability to retain patients in its clinical trials; and

•

delay or failure to obtain future additional funding through private or public offerings of our equity securities, debt financings, or executing a licensing, partnership or collaboration agreement with a third party for any of our product candidates in the event of material unforeseen costs relating to our clinical trials currently in progress.

Our clinical trials may be suspended or terminated at any time by the FDA, other regulatory authorities, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or us. Any failure or significant delay in completing clinical trials for our product candidates could materially harm our financial results and the commercial prospects for our product candidates.

OGX-011 has been administered to 294 patients with various types of cancer. Some of the patients experienced various adverse events, the majority of which are associated with other treatments in the protocol and the disease. The majority of adverse events were mild and the most common adverse events associated with OGX-011 consisted of flu-like symptoms. Of the moderate and severe adverse events associated with OGX-011, neutropenia, vomiting, diarrhea, and difficulty breathing (also known as “dyspnea”) were the most common events, occurring in > 2% of patients.

As of February 12, 2010, OGX-427 has been administered to 53 patients with various types of cancer in a phase 1 clinical trial. Enrollment in the OGX-427 monotherapy aspect of the phase 1 clinical trial is complete and dose-limiting toxicity was not reached at the highest doses evaluated. Enrollment in the OGX-427 in combination with docetaxel aspect of the clinical trial is ongoing. Of the 41 patients presented at ASCO 2009, all patients experienced adverse events, the majority of which were unrelated to OGX-427. Of the adverse events associated with OGX-427, the majority of adverse events were mild and the most common adverse events consisted of flu-like symptoms, infusion-related reactions, pruritus and flushing. Serious adverse events have been reported for seventeen patients (50%). The serious adverse events were unrelated to OGX-427 administration for 14 patients and associated with OGX-427 administration for 3 patients. The events that were associated with OGX-427 administration were elevated creatinine in two patients, an indicator of kidney function, and rigors and chills in one patient.

SN2310 has been administered to 26 patients with various types of cancer in a phase 1 clinical trial. Enrollment for this clinical trial has been completed. Some of the patients experienced adverse events, which were considered unrelated to study drug and attributed to underlying disease. Of the adverse events associated with SN2310, most were mild and the most common events were nausea, diarrhea, vomiting and fatigue. Mild to moderate reactions (back/chest pain, flushing) have been observed during infusions. Significant neutropenia has occurred in some patients and was the dose-limiting toxicity observed, sometimes associated with fever or septicemia.

Since patients in our clinical trials have advanced stages of cancer, we expect that additional adverse events, including serious adverse events, will occur.

Undesirable side effects caused by any of our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or non-U.S. regulatory authorities for any or all targeted indications. This, in turn, could prevent us from commercializing our product candidates and generating revenues from their sale. In addition, if our product candidates receive marketing approval and we or others later identify undesirable side effects caused by the product:

•

Teva may elect to terminate the ongoing clinical trials and cease development of OGX-011;

•

regulatory authorities may withdraw their approval of the product;

•

we may be required to recall the product, change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

•

a product may become less competitive and product sales may decrease; or

•

our reputation may suffer.

Any one or a combination of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing the product, which in turn could delay or prevent us from generating significant revenues from the sale of the product.

Recent events have raised questions about the safety of marketed drugs and may result in increased cautiousness by the FDA in reviewing new drugs based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals, additional clinical trials being required, or more stringent product labeling requirements. Any delay in obtaining, or inability to obtain, applicable regulatory approvals, would prevent us from commercializing its product candidates.

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

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

•

timing of market introduction of competitive products;

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safety and efficacy of our products;

•

prevalence and severity of any side effects;

•

potential advantages or disadvantages over alternative treatments;

•

strength of marketing and distribution support;

•

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

•

availability of coverage and reimbursement from government and other third-party payors.

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

We may not be able to negotiate the exit or sublease of excess office and laboratory space currently leased in Bothell, Washington, on terms acceptable to us or at all.

Prior to the Arrangement, Sonus entered into a non-cancellable lease arrangement for office and laboratory space located in Bothell, Washington, which is considered to be in excess of our current requirements. We have been seeking to exit or sublease this excess space. To date, we have not entered into any agreement for the exit or sublease of this space, or identified which transactions or transaction structures would most benefit shareholders. The goal of minimizing future lease expenditures will impact any decisions we make regarding specific deal structures or transactions into which we may enter. We can provide no assurances that we will be able to negotiate the exit or sublease of this space, on terms acceptable to us or at all or on terms which meet our or our shareholders’ expectations.

Although we have entered into a Collaboration Agreement with Teva for OGX-011, we have not yet partnered with third party collaborators with respect to any of our other product candidates, and we cannot control whether we will be able to do so on favorable terms or at all.

Our business strategy relies in part on potentially partnering successful product candidates with larger companies to complement our internal development and commercialization efforts. While we have successfully entered into a Collaboration Agreement with Teva with respect to OGX-011, it may be difficult for us to find third parties that are willing to enter into a collaboration on acceptable economic terms or at all with respect to our other product candidates. We also will be competing with many other companies as we seek partners for our other product candidates and we may not be able to compete successfully against those other companies. If we are not able to enter into collaboration arrangements for our other product candidates, we would be required to undertake and fund further development, clinical trials, manufacturing and commercialization activities solely at our own expense and risk. If we are unable to finance and/or successfully execute those expensive activities, our business could be materially and adversely effected.

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

The life sciences industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching and marketing products designed to address cancer indications for which we are currently developing products or for which we may develop products in the future. We are aware of several other companies which are developing therapeutics that seek to promote tumor cell death by inhibiting proteins believed to promote cell survival. Any products we may develop in the future are also likely to face competition from other drugs and therapies. Many of our competitors have significantly greater financial, manufacturing, marketing and drug development resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing and in obtaining regulatory approvals for drugs. These companies also have significantly greater research and marketing capabilities than we do. In addition, many universities and private and public research institutes are, or may become, active in cancer research, the products of which may be in direct competition with ours. If our competitors market products that are more effective, safer or less expensive than our future product candidates, if any, or that reach the market sooner than our future product candidates, if any, we may not achieve commercial success.

If new therapies become broadly used, we may need to conduct clinical trials of our product candidates in combination with these new therapies to demonstrate safety and efficacy of the combination. Additional trials will delay the development of our product candidates and increase our costs. The failure of certain of our product candidates to work in combination with these new therapies would have an adverse effect on our business.

Our intention is to combine certain of our product candidates with therapies that are broadly used by clinicians and considered highly effective. As new therapies are developed, we will need to assess these therapies to determine whether to conduct clinical trials of our product candidates in combination with them to demonstrate safety and efficacy of the combination. If we determine that it is appropriate to conduct additional clinical trials of our product candidates in combination with these new therapies, the development of our product candidates will be delayed and our costs will be increased. If these clinical trials generate safety concerns or lack of efficacy, our business would be adversely affected.

If our product candidates become approved in combination with a specific therapy that is broadly used and that therapy becomes displaced by another product, the market for our product candidate may decrease.

If we were to be successfully sued related to our products or operations, we could face substantial liabilities that may exceed our resources.

We may be held liable if any of our products or operations cause injury or death or are found otherwise unsuitable during product testing, manufacturing, marketing or sale. These risks are inherent in the development of pharmaceutical products. We currently maintain Commercial General and Umbrella Liability policies with combined limits of $10 million per occurrence and in the aggregate and in addition, a $10 million per claim and annual aggregate product liability insurance policy related to our clinical trials consistent with industry standards. When necessary for our products, we intend to obtain additional product liability insurance. Insurance coverage may be prohibitively expensive, may not fully cover potential liabilities or may not be available in the future. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our products. If we were to be sued for any injury caused by or associated with our products or operations, the litigation could consume substantial time and attention of our management, and the resulting liability could exceed our total assets.

If we fail to acquire and develop products or product candidates at all or on commercially reasonable terms, we may be unable to grow our business.

We currently do not have internal discovery capabilities and are dependent upon pharmaceutical and biotechnology companies and other researchers to sell or license products or product candidates to us. To date, three of our product candidates have been derived from technologies discovered by the Vancouver Prostate Centre and licensed to us by UBC and one candidate has been in-licensed from Bayer. We intend to continue to rely on the Vancouver Prostate Centre, UBC and other research institutions and other biotechnology or pharmaceutical companies as sources of product candidates. We cannot guarantee that the Vancouver Prostate Centre or UBC will continue to develop new product candidate opportunities, that we will continue to have access to such opportunities or that we will be able to purchase or license these product candidates on commercially reasonable terms, or at all. If we are unable to purchase or license new product candidates from the Vancouver Prostate Centre or UBC, we will be required to identify alternative sources of product candidates.

The success of our product pipeline strategy depends upon our ability to identify, select and acquire pharmaceutical product candidates. Proposing, negotiating and implementing an economically viable product acquisition or license is a lengthy and complex process. We compete for partnering arrangements and license agreements with pharmaceutical and biotechnology companies and academic research institutions. Our competitors may have stronger relationships with third parties with whom we are interested in collaborating and/or may have more established histories of developing and commercializing products. As a result, our competitors may have a competitive advantage in entering into partnering arrangements with such third parties. In addition, even if we find promising product candidates, and generate interest in a partnering or strategic arrangement to acquire such product candidates, we may not be able to acquire rights to additional product candidates or approved products on terms that we find acceptable, or at all. If we fail to acquire and develop product candidates from others, we may be unable to grow our business.

We expect that any product candidate that we acquire rights to will require additional development efforts prior to commercial sale, including extensive clinical evaluation and approval by the FDA and non-U.S. regulatory authorities. All product candidates are subject to the risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. Even if the product candidates are approved, we cannot be sure that we would be capable of economically feasible production or commercial success.

We will need to retain additional personnel and expand our other resources in order to complete development of OGX-011, promote OGX-011 in the event we exercise our co-promotion option and develop our other product candidates. If we fail to effectively expand our operations, including attracting and retaining key management and scientific personnel, we may be unable to successfully develop or commercialize our product candidates and our business may be materially adversely affected.

We will need to expand and effectively manage our managerial, operational, financial, development and other resources in order to successfully pursue our research, development and commercialization efforts for our existing and future product candidates. Our success depends on our continued ability to attract, retain and motivate highly qualified personnel, including management, pre-clinical and clinical personnel, including our executive officers Scott Cormack and Cindy Jacobs, and to recruit and retain a new Chief Financial officer. Currently, Cameron Lawrence, the Director of Financial Reporting, is our interim principal financial officer. We are in the process of searching for executive talent to fill the Chief Financial Officer position on a permanent basis. In addition, although we have entered into employment agreements with each of Mr. Cormack and Dr. Jacobs, such agreements permit the executive to terminate his or her employment with us at any time, subject to providing us with advance written notice.

With respect to OGX-011 specifically, we will need to hire additional clinical development personnel in order to perform our responsibilities under the Clinical Development Plan with Teva. In addition, should OGX-011 receive marketing approval in the United States and Canada, or should we exercise our co-promotion option, which we do not anticipate having the funds to do, we would need to hire a substantial number of specialized personnel, including field based medical affairs representatives. In turn, we would need to increase our administrative headcount to support such expanded development and commercialization operations with respect to our product candidates. Our ability to attract and retain qualified personnel in the future is subject to intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses and our current financial position. The loss of the services of any of our senior management, or our inability to recruit a new Chief Financial Officer, could delay or prevent the development and commercialization of our product candidates, or have other adverse effects on our business for an indefinite term. In particular, if we lose any members of our current senior management team, we may not be able to find suitable replacements in a timely fashion or at all and our business may be harmed as a result. Among other things, if any of such events were to occur, we may not be able to comply with our contractual obligations to Teva under our Collaboration Agreement or advance our product candidates, which could have a material adverse effect on our business.

We have scientific and clinical advisors who assist us in formulating our development and clinical strategies. These advisors are not employees of the Company and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.

We may encounter difficulties in managing our expected growth and in expanding our operations successfully.

As we advance our product candidates OGX-427, OGX-225, and CSP-9222 through development and clinical trials, we will need to develop or expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. Maintaining additional relationships and managing our future growth will impose significant added responsibilities on members of our management. We must be able to: manage our development efforts effectively; manage our clinical trials effectively; hire, train and integrate additional management, development, administrative and sales and marketing personnel; improve our managerial, development, operational and finance systems; and expand our facilities, all of which may impose a strain on our administrative and operational infrastructure.

Under the Collaboration Agreement, Teva is responsible for the commercialization costs associated with OGX-011; however, if we were to exercise our co-promotion option, which we do not anticipate having sufficient funds to do, we would need to expand our marketing and sales capabilities. In addition, as we have primary responsibility for the oversight of the second-line trial in CRPC, we must be able to manage our development responsibilities effectively, which may impose a strain on our administrative and operational infrastructure.

Furthermore, we may acquire additional businesses, products or product candidates that complement or augment our existing business. Integrating any newly acquired business, product or product candidate could be expensive and time-consuming. We may not be able to integrate any acquired business, product or product candidate successfully or operate any acquired business profitably. Our future financial performance will depend, in part, on our ability to manage any future growth effectively and our ability to integrate any acquired businesses. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing the Company.

We may need to further develop our financial and reporting processes, procedures and controls to support our anticipated growth.

To manage the anticipated growth of our operations and personnel, we may be required to improve existing, or implement new, operational and financial systems, processes and procedures, and to expand, train and manage our employee base. Our current and planned systems, procedures and controls may not be adequate to support our future operations.

We may be adversely impacted if our controls over external financial reporting fail or are circumvented.

We regularly review and update our internal controls, disclosure controls and procedures, and corporate governance policies. In addition, we are required under the Sarbanes Oxley Act of 2002 to report annually on our internal control over financial reporting. If it were to be determined that our internal control over financial reporting is not effective, such shortcoming could have an adverse effect on our business and financial results and the price of our common stock could be negatively affected. This reporting requirement could also make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. Any system of internal controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulation concerning control and procedures could have a material effect on our business, results of operation and financial condition. Any of these events could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively impact the market price of our shares, increase the volatility of our stock price and adversely affect our ability to raise additional funding. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees and as executive officers.

We rely, in part, on third parties to conduct clinical trials for our product candidates and plan to rely on third parties to conduct future clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize our current and future product candidates.

To implement our product development strategies, we rely on third parties, such as collaborators, contract research organizations, medical institutions, clinical investigators and contract laboratories, to conduct our clinical trials of our product candidates. In particular, we will have limited control over the two OGX-O11 phase 3 trials over which Teva will have primary oversight. Although we rely on third parties to conduct our clinical trials, we are responsible for ensuring that each of our clinical trials is conducted in accordance with our investigational plan and protocol. Moreover, the FDA and non-U.S. regulatory authorities require us to comply with regulations and standards, commonly referred to as Good Clinical Practices (“GCPs”) for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate and that the clinical trial subjects are adequately informed of the potential risks of participating in clinical trials. Our reliance on third parties does not relieve us of these responsibilities and requirements. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, do not meet expected deadlines or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to GCPs or for any other reason, we may need to enter into new arrangements with alternative third parties and our clinical trials may be extended, delayed or terminated. In addition, a failure by such third parties to perform their obligations in compliance with GCPs may cause our clinical trials to fail to meet regulatory requirements, which may require us to repeat our clinical trials.

We rely on third parties to manufacture and supply our product candidates.

We do not own or operate manufacturing facilities, and we depend on third-party contract manufacturers for production of our product candidates. We lack the resources and the capability to manufacture any of our product candidates ourselves. To date, our product candidates have been manufactured in limited quantities for pre-clinical studies and clinical trials. All active pharmaceutical ingredient for OGX-011 has been manufactured for us by Isis or Avecia and all drug product has been manufactured for us by Formatech, Inc. and Pyramid Laboratories, Inc., in each case pursuant to a purchase order or short-term contract that has been fulfilled. We will need to obtain additional quantities of OGX-011 to complete our first phase 3 clinical trial.

All active pharmaceutical ingredient for OGX-427 for IND-enabling toxicology studies and initial clinical trials has been manufactured for us by Avecia and all drug product has been manufactured for us by Laureate Pharma, Inc., in each case pursuant to a purchase order or short-term contract that has been fulfilled.

If, in the future, one of our product candidates is approved for commercial sale, we or a pharmaceutical partner that has licensed such product candidates, will need to manufacture that product candidate in commercial quantities. We cannot assure you that the third-party manufacturers with which we have contracted in the past will have sufficient capacity to satisfy our future manufacturing needs, that we will be able to negotiate additional purchases of active pharmaceutical ingredient or drug product from these or alternative manufacturers on terms favorable to us, or at all, or that a pharmaceutical partner that has licensed will have sufficient capacity or expertise to satisfy future needs.

Third party manufacturers may fail to perform under their contractual obligations, or may fail to deliver the required commercial quantities of bulk drug substance or finished product on a timely basis and at commercially reasonable prices. Any performance failure on the part of our contract manufacturers could delay clinical development or regulatory approval of our product candidates or commercialization of our future product candidates, depriving us of potential product revenue and resulting in additional losses. If we are required to identify and qualify an alternate manufacturer, we may be forced to delay or suspend our clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, which may cause us to incur higher costs and could prevent us from commercializing our product candidates successfully. If we are unable to find one or more replacement manufacturers capable of production at a reasonably favorable cost, in adequate volumes, of adequate quality, and on a timely basis, we would likely be unable to meet demand for our product candidates and our clinical trials could be delayed or we could lose potential revenue. Our ability to replace an existing active pharmaceutical ingredient manufacturer may be difficult because the number of potential manufacturers is limited to approximately four manufacturers, and the FDA must inspect any replacement manufacturer and review information related to product produced at the manufacturer before they can begin manufacturing our product candidates. It may be difficult or impossible for us to identify and engage a replacement manufacturer on acceptable terms in a timely manner, or at all. We expect to continue to depend on third-party contract manufacturers for the foreseeable future.

Our product candidates require precise, high quality manufacturing. Any of our contract manufacturers will be subject to ongoing periodic unannounced inspection by the FDA and non-U.S. regulatory authorities to ensure strict compliance with cGMP, and other applicable government regulations and corresponding standards. If our contract manufacturers fail to achieve and maintain high manufacturing standards in compliance with cGMP regulations, we may experience manufacturing errors resulting in patient injury or death, product recalls or withdrawals, delays or interruptions of production or failures in product testing or delivery, delay or prevention of filing or approval of marketing applications for our product candidates, cost overruns or other problems that could seriously harm our business.

Significant scale-up of manufacturing may require additional validation studies, which the FDA must review and approve. Additionally, any third party manufacturers we retain to manufacture our product candidates on a commercial scale must pass an FDA pre-approval inspection for conformance to the cGMPs before we can obtain approval of our product candidates. If we are unable to successfully increase the manufacturing capacity for a product candidate in conformance with cGMPs, the regulatory approval or commercial launch of any related products may be delayed or there may be a shortage in supply.

Global credit and financial market conditions could negatively impact the value of our current portfolio of cash equivalents and investment securities

Our cash and cash equivalents are maintained in highly liquid investments with maturities of 90 days or less at the time of purchase. As of the date of this filing, we are not aware of any material losses or other significant deterioration in the fair value of our cash equivalents or investment securities since December 31, 2009. However, no assurance can be given that deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents and investment securities and, as result, our financial condition.

Risks Related to Our Intellectual Property

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

Our commercial success will depend on our ability to obtain patents and/or regulatory exclusivity and maintain adequate protection for our technologies and product candidates in the United States and other countries. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies and future product candidates are covered by valid and enforceable patents or are effectively maintained as trade secrets.

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

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

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

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others will not independently develop similar or alternative technologies or duplicate any of our technologies;

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

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

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any patents issued to us or our licensors and collaboration partners will provide us with any competitive advantages, or will not be challenged by third parties;

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we will develop additional proprietary technologies that are patentable; or

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the patents of others will not have an adverse effect on our business.

The actual protection afforded by a patent varies on a product-by-product basis, from country to country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patents. The ability of us or our collaborators to maintain and solidify our proprietary position for our product candidates will depend on our success in obtaining effective claims and enforcing those claims once granted. Our issued patents and those that may issue in the future, or those licensed to us or our collaborators, may be challenged, invalidated, unenforceable or circumvented, and the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages against competitors with similar products. Due to the extensive amount of time required for the development, testing and regulatory review of a potential product, it is possible that, before any of our product candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.

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

We and our collaborators, including Teva, may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on all of our product candidates and products, when and if we have any, in every jurisdiction would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we or our licensors have not obtained patent protection to develop their own products. These products may compete with our products, when and if we have any, and may not be covered by any of our or our licensors’ patent claims or other intellectual property rights.

The laws of some non-U.S. countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology and/or pharmaceuticals, which could make it difficult for us to stop the infringement of our patents. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

The intellectual property protection for our product candidates is dependent on third parties.

With respect to OGX-011, OGX-427 and OGX-225, we have exclusively licensed from UBC certain issued patents and pending patent applications covering the respective antisense sequences underlying these product candidates and their commercialization and use and we have licensed from Isis certain issued patents and pending patent applications directed to product compositions and chemical modifications used in product candidates for commercialization, use and the manufacturing thereof, as well as some alternative antisense sequences. We have also received a sublicense from Isis under certain third party patent portfolios directed to such modifications. We have entered into an exclusive in-licensing agreement with Bayer for development of caspase activators that are presently being evaluated in preclinical studies.

The patents and pending patent applications underlying our licenses do not cover all potential product candidates, modifications and uses. In the case of patents and patent applications licensed from Isis and Bayer, we do not have and have not had any control over the filing, prosecution or enforcement of these patents or patent applications. We cannot be certain that such prosecution efforts have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents. We also cannot be assured that our licensors or their respective licensors will agree to enforce any such patent rights at our request or devote sufficient efforts to attain a desirable result. Any failure by our licensors or any of their respective licensing partners to properly protect the intellectual property rights relating to our product candidates could have a material adverse effect on our financial condition and results of operation.

We may become involved in disputes with Teva or potential future collaborators over intellectual property ownership, and publications by our research collaborators and scientific advisors could impair our ability to obtain patent protection or protect our proprietary information, which, in either case, could have a significant impact on our business.

Inventions discovered under research, material transfer or other such collaborative agreements, including our Collaboration Agreement with Teva, may become jointly owned by us and the other party to such agreements in some cases and the exclusive property of either party in other cases. Under some circumstances, it may be difficult to determine who owns a particular invention, or whether it is jointly owned, and disputes could arise regarding ownership of those inventions. These disputes could be costly and time consuming and an unfavorable outcome could have a significant adverse effect on our business if we were not able to protect or license rights to these inventions. In addition, our research collaborators and scientific advisors generally have contractual rights to publish our data and other proprietary information, subject to our prior review. Publications by our research collaborators and scientific advisors containing such information, either with our permission or in contravention of the terms of their agreements with us, may impair our ability to obtain patent protection or protect our proprietary information, which could significantly harm our business.

The patent protection for our product candidates or products may expire before we are able to maximize their commercial value which may subject us to increased competition and reduce or eliminate our opportunity to generate product revenue.

The patents for our product candidates have varying expiration dates and, when these patents expire, we may be subject to increased competition and we may not be able to recover our development costs. For example, the first granted U.S. patent directed to OGX-011 and licensed from UBC is due to expire in 2021. In some of the larger economic territories, such as the United States and Europe, patent term extension/restoration may be available to compensate for time taken during aspects of the product candidate’s regulatory review. However, we cannot be certain that an extension will be granted, or if granted, what the applicable time period or the scope of patent protection afforded during any extended period will be. In addition, even though some regulatory agencies may provide some other exclusivity for a product candidate under its own laws and regulations, we may not be able to qualify the product candidate or obtain the exclusive time period.

If we are unable to obtain patent term extension/restoration or some other exclusivity, we could be subject to increased competition and our opportunity to establish or maintain product revenue could be substantially reduced or eliminated. Furthermore, we may not have sufficient time to recover our development costs prior to the expiration of our U.S. and non-U.S. patents.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use of, our technology.

If we choose to go to court to stop someone else from using the inventions claimed in our patents or our licensed patents, that individual or company has the right to ask the court to rule that these patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other resources even if we were successful in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are invalid or unenforceable 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 or unenforceability of these patents is upheld, the court will refuse to stop the other party on the grounds that such other party’s activities do not infringe our rights.

If we wish to use the technology or compound claimed in issued and unexpired patents owned by others, we will need to obtain a license from the owner, enter into litigation to challenge the validity or enforceability of the patents or incur the risk of litigation in the event that the owner asserts that we infringed its patents. The failure to obtain a license to technology or the failure to challenge an issued patent that we may require to discover, develop or commercialize our product candidates may have a material adverse impact on us.

If a third party asserts that we infringed its patents or other proprietary rights, we could face a number of risks that could seriously harm our results of operations, financial condition and competitive position, including:

	•		patent infringement and other intellectual property claims, which would be costly and time consuming to defend, whether or not the claims have merit, and which could delay the regulatory approval process and divert management’s attention from our business;
	•		substantial damages for past infringement, which we may have to pay if a court determines that our product candidates or technologies infringe a competitor’s patent or other proprietary rights;
	•		a court prohibiting us from selling or licensing our technologies or future drugs unless the third party licenses its patents or other proprietary rights to us on commercially reasonable terms, which it is not required to do; and
	•		if a license is available from a third party, we may have to pay substantial royalties or lump sum payments or grant cross licenses to our patents or other proprietary rights to obtain that license.

The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our product candidates or methods of use either do not infringe the patent claims of the relevant patent, and/or that the patent claims are invalid, and/or the patent is unenforceable and we may not be able to do this. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.

U.S. patent laws as well as the laws of some foreign jurisdictions provide for provisional rights in published patent applications beginning on the date of publication, including the right to obtain reasonable royalties, if a patent subsequently issues and certain other conditions are met.

Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our licensors’ issued patents or our pending applications or our licensors’ pending applications, or that we or our licensors were the first to invent the technology.

Patent applications filed by third parties that cover technology similar to ours may have priority over our or our licensors’ patent applications and could further require us to obtain rights to issued patents covering such technologies. If another party files a United States patent application on an invention similar to ours, we may elect to participate in or be drawn into an interference proceeding declared by the U.S. PTO to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions.

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations. We cannot predict whether third parties will assert these claims against us or against the licensors of technology licensed to us, or whether those claims will harm our business. If we are forced to defend against these claims, whether they are with or without any merit, whether they are resolved in favor of or against us or our licensors, we may face costly litigation and diversion of management’s attention and resources. As a result of these disputes, we may have to develop costly non-infringing technology, or enter into licensing agreements. These agreements, if necessary, may be unavailable on terms acceptable to us, if at all, which could seriously harm our business or financial condition.

If we breach any of the agreements under which we license rights to our product candidates or technology from third parties, we could lose license rights that are important to our business. Certain of our license agreements may not provide an adequate remedy for their breach by the licensor.

We license the development and commercialization rights for most of our product candidates, including OGX-011, OGX-427, OGX-225 and CSP-9222, and we expect to enter into similar licenses in the future. Under such licenses, we are subject to various obligations such as sublicensing, royalty and milestone payments, annual maintenance fees, limits on sublicensing, insurance obligations and the obligation to use commercially reasonable best efforts to develop and exploit the licensed technology. If we fail to comply with any of these obligations or otherwise breach these agreements, our licensors may have the right to terminate the license in whole or in part or to terminate the exclusive nature of the license. Loss of any of these licenses or the exclusivity rights provided therein could harm our financial condition and operating results. In addition, certain of our license agreements with UBC eliminate our ability to obtain money damages in respect of certain claims against UBC.

Under the terms of our Collaboration Agreement with Teva, we are required to use commercially reasonable efforts to maintain and not to breach in any material manner certain of our third party license agreements relating to OGX-011. If we breach any of these agreements in a material manner, we would be in breach of the Collaboration Agreement with Teva, which would allow them to terminate the Collaboration Agreement.

We may be subject to damages resulting from claims that we, or our employees or consultants, have wrongfully used or disclosed alleged trade secrets of third parties.

Many of our employees were previously employed, and certain of our consultants are currently employed, at universities or biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we have not received any claim to date, we may be subject to claims that these employees or consultants or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of these current or former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. We may be subject to claims that employees of our partners or licensors of technology licensed by us have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. We may become involved in litigation to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.

Risks Related to our Common Stock and Other Securities

If we raise additional financing, the terms of such transactions may cause dilution to existing shareholders or contain terms that are not favorable to us.

To date, our sources of cash have been limited primarily to proceeds from the private or public placement of our securities and proceeds from the Collaboration Agreement with Teva. In the future, we may seek to raise additional financing through private placements or public offerings of our equity or debt securities. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our shareholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants, such as limitations on our ability to incur additional indebtedness, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

The price for our common stock is volatile.

The market prices for our common stock and that of emerging growth companies generally have historically been highly volatile. Future announcements concerning us or our competitors may have a significant impact on the market price of our common stock.

The stock markets also experience significant price and volume fluctuation unrelated to the operating performance of particular companies. These market fluctuations may also adversely affect the market price of our common stock.

An increase in the market price of our common shares, which is uncertain and unpredictable, may be your sole source of gain from an investment in our common shares. An investment in our common shares may not be appropriate for investors who require dividend income.

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

Anti-takeover provisions in our shareholder rights plan, our constating documents and under Delaware law could make a third party acquisition of the Company difficult.

We have a shareholder rights plan that may have the effect of discouraging unsolicited takeover proposals. Specifically, the rights issued under the shareholder rights plan could cause significant dilution to a person or group that attempts to acquire us on terms not approved in advance by our board of directors. In addition, our certificate of incorporation and bylaws contain provisions that may discourage unsolicited takeover proposals that shareholders may consider to be in their best interests. These provisions include the ability of our board of directors to designate the terms of and issue new series of preferred stock and the ability of our board of directors to amend the bylaws without stockholder approval. In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless certain specific requirements are met as set forth in Section 203. Collectively, these provisions could make a third party acquisition of the Company difficult or could discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock.

Risks Related to Our Industry

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

The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive regulation by the FDA and non-U.S. regulatory authorities, which regulations differ from country to country. We are not permitted to market our product candidates in the United States until we receive approval of a NDA, from the FDA. We have not submitted an application for or received marketing approval for any of our product candidates. Obtaining approval of an NDA can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA, non-U.S. regulatory authorities’ or other applicable United States and non-U.S. regulatory requirements may, either before or after product approval, if any, subject our company to administrative or judicially imposed sanctions, including:

•

restrictions on the products, manufacturers or manufacturing process;

•

warning letters;

•

civil and criminal penalties;

•

injunctions;

•

suspension or withdrawal of regulatory approvals;

•

product seizures, detentions or import bans;

•

voluntary or mandatory product recalls and publicity requirements;

•

total or partial suspension of production;

•

imposition of restrictions on operations, including costly new manufacturing requirements; and

•

refusal to approve pending NDAs or supplements to approved NDAs.

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

•

a drug candidate may not be deemed safe or effective;

•

the FDA may not find the data from pre-clinical studies and clinical trials sufficient;

•

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

•

the FDA may change its approval policies or adopt new regulations; or

•

third party products may enter the market and change approval requirements.

Even if we obtain regulatory approvals for our product candidates, the terms of approvals and ongoing regulation of our product candidates may limit how we manufacture and market our product candidates, which could materially impair our ability to generate revenue.

Upon regulatory approval to market any of our product candidates, if any, the approved product and its manufacturer are subject to continual review. Any regulatory approval that we receive for a product candidate is likely to be subject to limitations on the indicated uses for which the end product may be marketed, or include requirements for potentially costly post-approval follow-up clinical trials. In addition, if the FDA and/or non-U.S. regulatory authorities approve any of our product candidates, the labeling, packaging, adverse event reporting, storage, advertising and promotion for the end product will be subject to extensive regulatory requirements. We and the manufacturers of our products, when and if we have any, will also be required to comply with cGMP regulations, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Further, regulatory agencies must approve these manufacturing facilities before they can be used to manufacture our products, when and if we have any, and these facilities are subject to ongoing regulatory inspection. If we fail to comply with the regulatory requirements of the FDA and other non-U.S. regulatory authorities, or if previously unknown problems with our products, when and if we have any, manufacturers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions, including:

	•		restrictions on the products, manufacturers or manufacturing process;
	•		warning letters;
	•		civil or criminal penalties or fines;
	•		injunctions;
	•		product seizures, detentions or import bans;
	•		voluntary or mandatory product recalls and publicity requirements;
	•		suspension or withdrawal of regulatory approvals;
	•		total or partial suspension of production;
	•		imposition of restrictions on operations, including costly new manufacturing requirements; and
	•		refusal to approve pending NDAs or supplements to approved NDAs.

In addition, the FDA and non-U.S. regulatory authorities may change their policies and additional regulations may be enacted that could prevent or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States, Canada or abroad. If we are not able to maintain regulatory compliance, we would likely not be permitted to market our future product candidates and we may not achieve or sustain profitability.

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

Our product candidates are in various stages of development and are prone to the risks of failure inherent in drug development. We will need to complete significant additional clinical trials before we can demonstrate that our product candidates are safe and effective to the satisfaction of the FDA and non-U.S. regulatory authorities. Clinical trials are expensive and uncertain processes that take years to complete. Failure can occur at any stage of the process, and successful early clinical trials do not ensure that later clinical trials will be successful. Product candidates in later-stage clinical trials may fail to show desired efficacy and safety traits despite having progressed through initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials. In addition, a clinical trial may prove successful with respect to a secondary objective, but fail to demonstrate clinically significant benefits with respect to a primary objective. Failure to satisfy a primary objective in a phase 3 clinical trial (registration trial) would generally mean that a product candidate would not receive regulatory approval.

If government and third-party payors fail to provide coverage and adequate reimbursement rates for our product candidates, our revenues and potential for profitability will be reduced.

In the United States and elsewhere, our product revenues will depend principally upon the reimbursement rates established by third-party payors, including government health administration authorities, managed-care providers, public health insurers, private health insurers and other organizations. These third-party payors are increasingly challenging the price, and examining the cost effectiveness, of medical products and services. In addition, significant uncertainty exists as to the reimbursement status, if any, of newly approved drugs, pharmaceutical products or product indications. We may need to conduct post-marketing clinical trials in order to demonstrate the cost-effectiveness of products. Such clinical trials may require us to commit a significant amount of management time and financial and other resources. If reimbursement of such product is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels, our revenues could be reduced.

In some countries other than the United States, particularly the countries of the European Union and Canada, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, obtaining pricing approval from governmental authorities can take six to twelve months or longer after the receipt of regulatory marketing approval of a product for an indication. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of one of our product candidates to other available therapies. If reimbursement of such product candidate is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels, our revenues could be reduced.

Domestic and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare, including drugs. In the United States, there have been, and we expect that there will continue to be, federal and state proposals to implement similar governmental control. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the pricing of pharmaceutical products. For example, the Medicare Prescription Drug Improvement and Modernization Act of 2003 reforms the way Medicare will cover and reimburse for pharmaceutical products. The legislation expands Medicare coverage for drug purchases by the elderly and eventually will introduce a new reimbursement methodology based on average sales prices for certain drugs. In addition, the new legislation provides authority for limiting the number of outpatient drugs that will be covered in any therapeutic class. As a result of the new legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. The Medicaid program and state healthcare laws and regulations may also be modified to change the scope of covered products and/or reimbursement methodology. Cost control initiatives could decrease the established reimbursement rates that we receive for any products in the future, which would limit our revenues and profitability. Legislation and regulations affecting the pricing of pharmaceutical products, including OGX-011, may change at any time, which could further limit or eliminate reimbursement rates for OGX-011 or other product candidates.

Failure to obtain regulatory approval outside the United States would prevent us or Teva from marketing our product candidates abroad.

We intend to market certain of our existing and future product candidates in non-North American markets. In order to market our existing and future product candidates in the European Union and many other non-North American jurisdictions, we must obtain separate regulatory approvals. We have had no interactions with non-North American regulatory authorities, and the approval procedures vary among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Approval by the FDA or other regulatory authorities does not ensure approval by regulatory authorities in other countries, and approval by one or more non-North American regulatory authorities does not ensure approval by regulatory authorities in other countries or by the FDA. The non-North American regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain non-North American regulatory approvals on a timely basis, if at all. We may not be able to file for non-North American regulatory approvals and may not receive necessary approvals to commercialize our existing and future product candidates in any market.

We are at risk of securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because our stock price and that of other biotechnology and biopharmaceutical companies have experienced significant stock price volatility in recent years and particularly over the past year. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

OncoGenex has business offices located in Bothell, Washington and Vancouver, British Columbia. Prior to the Arrangement, Sonus entered into a non-cancellable lease agreement for laboratory and office space in Bothell, Washington. Sonus moved into this facility on December 14, 2007. The lease involves approximately 42,600 square feet of laboratory and office space in a single facility, currently at a rent of $2 million per annum. The lease has a 10 year term and includes two options to renew for additional five year periods.

In its Vancouver office, OncoGenex leases approximately 4,857 square feet, currently at a rent of approximately $181,000 per annum. This lease expires in March 2011. OncoGenex has an option to renew the lease for a further term of five years.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company may be involved in litigation relating to claims arising out of our operations in the normal course of business. The Company currently is not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the Company’s results of operations or financial position. There are no material proceedings to which any director, officer or any of our affiliates, any owner of record or beneficially of more than five percent of any class of our voting securities, or any associate of any such director, officer, our affiliates, or security holder, is a party adverse to the Company or its consolidated subsidiary or has a material interest adverse thereto.

ITEM 4. Reserved

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock first began trading on the Nasdaq National Market under the symbol “SNUS” on October 12, 1995. Following the completion of the Arrangement discussed elsewhere in this Annual Report on Form 10-K, our common stock commenced trading on the Nasdaq Capital Market under the stock symbol “OGXI” effective August 21, 2008.

No cash dividends have been paid on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. As of February 26, 2010, there were approximately 159 shareholders of record and approximately 9,000 beneficial shareholders of our Common Stock. The high and low sales prices of our common stock as reported by Nasdaq for the periods indicated are as follows:

OncoGenex Pharmaceuticals, Inc		HIGH (1)				LOW (1)
YEAR ENDED DECEMBER 31, 2008:
First quarter			10.26				6.12
Second quarter			9.00				4.50
Third quarter			8.22				3.02
Fourth quarter			9.38				2.00
YEAR ENDED DECEMBER 31, 2009:
First quarter			5.94				2.90
Second quarter			27.05				3.90
Third quarter			42.99				19.30
Fourth quarter			37.88				20.10

The information required by this item regarding equity compensation plan information is set forth in Part III, Item 12 of this Annual Report filed on Form 10-K. We made no purchases of equity securities during the year ended December 31, 2009.

Recent Sales of Unregistered Securities

On December 24, 2009, pursuant to the Stock Purchase Agreement between the Company and Teva (which was entered into in connection with the Collaboration Agreement), the Company issued to Teva 267,531 shares of common stock at a price per share of $37.38, for aggregate cash consideration of approximately $10 million. Such shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and were issued on a private placement basis pursuant to the exemptions from registration provided under Section 4(2) of the Securities Act and Regulation D thereunder, based, in part, on representations by Teva that it is an “accredited investor”, as such term is defined in Rule 501 of Regulation D under the Securities Act. The shares cannot be resold unless they are registered under the Securities Act or sold pursuant to an exemption therefrom.

Stock Performance Graph

The following performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filings. The graph compares the cumulative five year total return provided to shareholders on the Company’s common stock relative to the cumulative total returns of the Nasdaq Composite index and the Nasdaq Pharmaceutical index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on December 31, 2004 and its relative performance is tracked through December 31, 2009. All amounts reflected in the graph are presented after having given effect to the one-for-eighteen reverse stock split effected in connection with the Arrangement.

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

		12/04				12/05				12/06				12/07				8/20/08				12/08				12/09
OncoGenex Pharmaceuticals, Inc.			100.00				142.49				173.09				12.32				7.93				4.72				35.06
NASDAQ Composite			100.00				101.33				114.01				123.71				106.91				73.11				105.61
NASDAQ Pharmaceutical			100.00				102.23				105.16				99.56				113.74				91.99				98.21

ITEM 6. SELECTED FINANCIAL DATA

The data set forth below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements and Notes thereto appearing at Item 8 of this report. The selected statements of operations data for the years ended December 31, 2009, 2008, and 2007 and balance sheet data as of December 31, 2009 and 2008 set forth below have been derived from our audited financial statements included elsewhere in this Annual Report on Form 10-K. The selected statements of operations data for the years ended December 31, 2006 and December 31, 2005 and balance sheet data as of December 31, 2007, 2006 and 2005 set forth below have been derived from the audited financial statements for such years not included in this Annual Report on Form 10-K.

In connection with the Arrangement, OncoGenex Technologies was considered to be the acquiring company for accounting purposes. Accordingly, the assets and liabilities of Sonus were recorded, as of the effective time of the Arrangement, at their respective fair values and added to those of OncoGenex Technologies. The results of the operations and balance sheet data for the year ended December 31, 2008 reflect the results of only OncoGenex Technologies for the time period of January 1, 2008 through August 20, 2008 and the results of the combined company from August 21, 2008 through December 31, 2008. The historical results of operations and balance sheet data shown for years ended December 31, 2007, 2006, and 2005 reflect only those of OncoGenex Technologies prior to the Arrangement, and do not reflect the results of Sonus. The historical results presented are not necessarily indicative of future results.

		December 31,
		2009				2008				2007				2006				2005
		(in thousands except share and per share amounts)
Statements of Operations Data:
Collaboration revenue		$	25,539				—				—				—				—
Operating expenses		$	28,121			$	11,112			$	7,675			$	11,302			$	4,666
Net loss		$	5,476			$	4,204			$	8,536			$	11,594			$	4,929
Redeemable convertible preferred share accretion		$	—			$	1,973			$	2,944			$	2,604			$	1,843
Loss attributable to common shareholders		$	5,476			$	6,177			$	11,480			$	14,198			$	6,772
Basic and diluted loss per common share		$	(0.95	)		$	(3.38	)		$	(96.63	)		$	(119.51	)		$	(58.71	)
Shares used in calculation of net loss per share
Basic			5,766,850				1,829,276				118,801				118,801				115,350
Diluted			5,766,850				1,829,276				118,801				118,801				115,350

		December 31,
		2009				2008				2007				2006				2005
		(in thousands)
Balance Sheet Data:
Cash, cash equivalents and marketable securities		$	64,568			$	12,419			$	5,131			$	8,012			$	13,785
Total assets		$	68,980			$	14,790			$	7,350			$	9,395			$	19,750
Current liabilities		$	25,781			$	2,884			$	8,200			$	2,532			$	1,752
Series preferred shares		$	—			$	—			$	37,373			$	34,429			$	31,825
Common shares		$	73,804			$	56,076			$	399			$	399			$	399
Accumulated deficit		$	(53,485	)		$	(48,009	)		$	(41,832	)		$	(30,352	)		$	(16,154	)
Shareholders equity			22,959				10,707				(38,223	)			(27,566	)			(13,827	)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of risks and uncertainties. We caution readers that any forward looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. Such statements include, but are not limited to, statements about future financial and operating results, plans, objectives, expectations and intentions, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management and other statements that are not historical facts. You can find many of these statements by looking for words like “believes,” “expects,” “anticipates,” “estimates,” “may,” “should,” “will,” “could,” “plan,” “intend,” or similar expressions in this document or in documents incorporated by reference in this document. We intend that such forward-looking statements be subject to the safe harbors created thereby. Examples of these forward-looking statements include, but are not limited to:

•

our anticipated future capital requirements and the terms of any capital financing agreements;

•

progress and preliminary and future results of clinical trial conducted by us or our collaborators;

•

anticipated regulatory filings, requirements and future clinical trials conducted by us or our partners;

•

timing and amount of future contractual payments, product revenue and operating expenses; and

•

market acceptance of our products and the estimated potential size of these markets.

These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements:

•

uncertainties regarding our future operating results, and the risk that our product candidates will not obtain the requisite regulatory approvals to commercialize or that the future sales of our product candidates may be less than expected or nil;

•

future capital requirements and uncertainty of obtaining additional funding through debt or equity financings on terms acceptable to us;

•

dependence on Teva’s ongoing commitment and ability to develop and commercialize OGX-011;

•

dependence on the development and commercialization of our product candidates, particularly on OGX-011;

•

the risk that previous clinical trial results may not be indicative of results in future studies;

•

the risk that results of research and preclinical studies may not be indicative of results in humans;

•

uncertainty relating to the timing and results of clinical trials;

•

uncertainties regarding the safety and effectiveness of our products and technologies;

•

the timing, expense and uncertainty associated with the development and regulatory approval process for products;

•

acceptance of our products by the medical community;

•

the uncertainty associated with exiting or subleasing our excess office and laboratory space;

•

our ability to build out our product candidate pipeline through product in-licensing or acquisition activities;

•

our future dependence on Teva to market and promote OGX-011 and to provide us with accurate financial data;

•

general competitive conditions within the drug development and pharmaceutical industry and new development s or therapies that may not work in combination with our product candidates;

•

our dependence on key employees;

•

proper management of our operations will be critical to the success of the Company;

•

the potential for product liability issues and related litigation;

•

the potential for claims arising from the use of hazardous materials in our business;

•

the potential inability to successfully protect and enforce our intellectual property rights;

•

the reliance on third parties who license intellectual property rights to us to comply with the terms of such agreements and to enforce, prosecute and defend such intellectual property rights;

•

the impact of current, pending or future legislation, regulations and legal actions in the United States, Canada and elsewhere affecting the pharmaceutical and healthcare industries;

•

volatility in the value of our common stock; and

•

general economic conditions.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document or, in the case of documents referred to or incorporated by reference, the date of those documents.

All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

MD&A Overview

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations we explain the general financial condition and the results of operations for our Company, including:

•

an overview of our business;

•

results of operations and why those results are different from the prior year; and

•

capital resources we currently have and possible sources of additional funding for future capital requirements.

Arrangement Agreement

As discussed in the notes to the financial statements below, during 2008, we completed the Arrangement with OncoGenex Technologies and, in connection therewith, effected a one-for-eighteen reverse stock split. All information in this report relating to the number of shares, price per share, and per share amounts of common stock are presented on a post-reverse stock split basis. For more information concerning the Arrangement, see the discussion of the Arrangement in note 5 to the financial statements included in this Annual Report on Form 10-K.

Overview of the Company and 2009 Developments

OncoGenex is a biopharmaceutical company committed to the development and commercialization of new cancer therapies that address unmet needs in the treatment of cancer. We have five product candidates in our pipeline, with each product candidate having a distinct mechanism of action and representing a unique opportunity for cancer drug development.

Our product candidates OGX-011, OGX-427 and OGX-225 focus on mechanisms of treatment resistance in cancer patients and are designed to address treatment resistance by blocking the production of specific proteins which we believe promote survival of tumor cells and are over-produced in response to a variety of cancer treatments. Our aim in targeting these particular proteins is to disable the tumor cell’s adaptive defenses and thereby render the tumor cells more susceptible to attack with a variety of cancer therapies, including chemotherapy, which we believe will increase survival time and improve the quality of life for cancer patients. Product candidate SN2310 is a novel camptothecin for the treatment of cancer. Camptothecins are potent anticancer agents that belong to the family of drugs called topoisomerase I inhibitors that bind reversibly to the TOPO-I-DNA complex causing breaks in the DNA strands during replication resulting in cell death. Product candidate CSP-9222 is the lead compound from a family of compounds, which have been in-licensed from Bayer, that demonstrate activation of programmed cell death in pre-clinical models.

Product Candidate OGX-011

As discussed above, in December 2009, we announced our entry into the Collaboration Agreement with Teva, for the development and global commercialization of OGX-011 (and related compounds targeting clusterin with the exclusion of OGX-427 and OGX-225).

OncoGenex and Teva have developed a Clinical Development Plan under which three phase 3 clinical trials will be initiated. We have designed two of the phase 3 clinical trials to evaluate the clinical benefit of OGX- 011 in CRPC and, together with Teva, we are in the process of designing a third phase 3 clinical trial evaluating the clinical benefit of OGX-011 in NSCLC, as follows:

•

Evaluating a survival benefit for OGX-011 in combination with first-line docetaxel treatment in approximately 800 men with CRPC;

•

Evaluating a durable pain palliation benefit for OGX-011 in combination with docetaxel as second-line chemotherapy in approximately 300 men with CRPC; and

•

Evaluating a survival benefit for OGX-011 in combination with first-line chemotherapy in at least 700 patients with NSCLC.

For detailed information regarding our relationship with Teva and the Collaboration Agreement, refer to the discussion under the heading “License and Collaboration Agreements — Teva Pharmaceutical Industries Ltd.”, which is incorporated herein by reference.

During 2009, OGX-011 received Fast Track designations from the FDA for the treatment of progressive metastatic prostate cancer in combination with docetaxel for both first and second-line docetaxel treatment. The FDA has agreed on the design of two phase 3 registration trials, each in CRPC, via the SPA process. One trial design investigates overall survival as the primary endpoint for OGX-011 in combination with first-line chemotherapy, whereas the other trial design investigates pain palliation as the primary endpoint for OGX-011 in combination with second-line chemotherapy.

As discussed above, in February of 2010, OGX-011 received written, scientific advice from the EMA on the Company’s development plan for OGX-011 for the treatment of men with CRPC. The input received from the CHMP at the EMA was in overall agreement with OncoGenex’s development plan regarding the proposed preclinical studies and both the study designs and analyses for the phase III trials. The CHMP also agreed that the intended safety database would enable a sufficiently qualified risk-benefit assessment for market approval.

Final results of a randomized phase 2 trial evaluating the benefit of combining OGX-011 with first-line docetaxel chemotherapy were presented during an oral presentation at the ASCO 2009 Annual Meeting. Analyses indicating a survival benefit in patients treated with OGX-011 in combination with first-line docetaxel compared to docetaxel alone, the latter of which being the current standard care for patients with advanced, progressive metastatic prostate cancer, are described above under the heading “Summary of Final Results of OGX-011 Phase 2 Clinical Trial in First-Line Hormone Refractory Prostate Cancer”, which is incorporated herein by reference.

Due to the final results of this randomized phase 2 trial, the phase 3 registration trial that Teva will initiate in 2010 will evaluate the overall survival benefit of OGX-011 in patients treated with first-line chemotherapy.

Durable pain palliation defined as pain palliation of 12 weeks or greater has been observed in another phase 2 trial evaluating patients with metastatic CRPC who progressed while receiving, or within 6 months of completing, first-line docetaxel treatment. In this trial, 46% of patients who were retreated with docetaxel as second-line treatment in combination with OGX-011 had durable pain palliation. This is favorable even when compared to the 35% pain responses of 3 weeks or greater observed in the phase 3 study which supported the registration of docetaxel as first-line chemotherapy in patients with CRPC. Due to the results of our phase 2 trial, the phase 3 registration trial that OncoGenex will initiate in 2010 will evaluate the durable pain palliation benefit of OGX-011 in patients treated with second-line chemotherapy.

Product Candidate OGX-427

A phase 1 trial has evaluated 53 patients with a variety of cancers, with enrollment ongoing. OGX-427 was first evaluated as a single agent in a dose escalation manner up to 1000mg OGX-427. A maximum tolerated dose was not identified up to and including the 1000mg dose of OGX-427 monotherapy. Subsequently, as defined by the protocol, an 800mg dose of OGX-427 in combination with docetaxel was evaluated, followed by a 1000mg OGX-427 plus docetaxel. OGX-427 is administered as three loading doses within the first nine days and then continued weekly, with three weeks defined as a treatment cycle, until disease progression or toxicity. In those groups receiving OGX-427 in combination with docetaxel, 75mg/M2 docetaxel was administered on day 1 of every 3-week cycle starting after completion of the OGX-427 loading doses.

Preliminary results of this phase 1 trial were presented during an oral presentation at the ASCO 2009 Annual Meeting. At that time, 41 patients were enrolled who had a diagnosis of breast, ovarian, prostate or non-small cell lung cancer and most had failed multiple prior chemotherapy treatments. A median of two cycles (range of one to eight cycles) was administered.

OGX-427 treatment was well tolerated as a monotherapy. No evidence of altered cardiac activity was observed. A majority of adverse events were mild and mainly occurred during the loading doses. Adverse events consisted of chills, itching and fatigue in over one-third of patients. There was a trend for increasing incidence of some mild adverse events with escalating OGX-427 doses. For example, 33% of patients at the 200mg dose compared to 67% of patients at the 1000mg dose had mild adverse events during the loading doses. The half-life of OGX-427 in the blood remained constant, although there appeared to be an increase in maximum blood levels and a corresponding decrease in blood clearance of OGX-427 as doses were escalated.

The combination of OGX-427 with docetaxel at both dose levels was also well tolerated. This data is subject to further analysis.

CTCs, an emerging metric to assess treatment effect, were evaluated at baseline before treatment and during OGX-427 treatment as a monotherapy. Both total and Hsp27-positive CTCs were evaluated. Declines of 50% or greater in both total and Hsp27-positive CTCs were observed in over one-half of the patients in each cohort and in each type of cancer. Declines in Hsp27 CTCs to 5 or less cells occurred in 27% of patients who had greater than 5 CTCs at baseline. Reduction in tumor markers defined as declines of prostate specific antigen, or PSA, levels in prostate cancer or CA-125 levels in ovarian cancer were also observed. A reduction in PSA level was observed in 7 of 20 patients (35%) with prostate cancer and a reduction in CA-125 levels was observed in 3 of 5 patients (60%) with ovarian cancer.

A second investigator-sponsored phase 1 clinical trial evaluating OGX-427 when administered directly into the bladder in patients with bladder cancer was initiated in August 2009. The study, which will enroll up to 36 patients with bladder cancer, is designed to determine the safety and potential benefit of OGX-427 administered directly into the bladder using a catheter, which is known as intravesical instillation. In addition, the study will measure the direct effect of OGX-427 on expression of Hsp27 in bladder tumor cells as well as determine the pharmacokinetics and pharmacodynamics of OGX-427 when delivered by intravesical instillation. This investigator-sponsored study is funded by the National Cancer Institute of Canada (“NCIC”).

In January 2010, we announced that an investigator-sponsored phase 2 clinical trial evaluating OGX-427 when administered as a monotherapy to patients with CRPC has received grant funding. The randomized, controlled phase 2 study will enroll up to 72 patients and is designed to determine the potential benefit of OGX-427 by evaluating the number of patients who are without disease progression at 12 weeks post study treatment with or without OGX-427. This phase 2 trial will also measure the direct effect of OGX-427 on PSA levels, time to progression by PSA or measurable disease, numbers of CTCs and other relevant secondary endpoints. The trial is expected to start by mid 2010 following final analysis of phase 1 data and approval by Health Canada and the institutional review board. The funds were awarded by a third party granting agency to Dr. Kim Chi, a medical oncologist at the BC Cancer Agency, Research Scientist at the Vancouver Prostate Centre and the principal investigator of the OGX-427 phase 2 trial.

Product Candidates OGX-225, SN2310 and CSP-9222

SN2310 was evaluated in a phase 1 clinical trial to evaluate safety in patients with advanced cancer who have received on average three to five prior chemotherapy treatments. SN2310 has been administered to 26 patients with various types of cancer in a phase 1 clinical trial. The phase 1 clinical trial has been completed and the dose-limiting toxicity that defined a maximum tolerated dose in this heavily pretreated patient population has been determined. We do not intend to initiate additional trials for SN2310 but rather will seek to out-license or sell this product candidate to a third party. OGX-225, an inhibitor of insulin growth factor binding proteins 2 and 5, and CSP-9222 are in pre-clinical development.

Collaboration Revenue

We recorded $25.5 million of collaboration revenue in connection with our OGX-011 Collaboration Agreement with Teva in the year ended December 31, 2009. At December 31, 2009, $26.5 million of the upfront payment was included in the balance sheet line item Deferred Collaboration Revenue, which we are amortizing over a period of approximately 3 years based on the expected performance period of our deliverables under this agreement. Further, we are eligible to receive payments of up to $370 upon the achievement of developmental and commercial milestones. At present, we are unable to predict the timing or likelihood of such milestone payments, although we do not expect to receive any milestone payments from Teva in the year ended December 31, 2010. There were no revenues in 2008 or 2007. See note 4 in the Notes to Financial Statements for further details on our collaboration with Teva.

Research and Development Expenses

Research and development (“R&D”) expenses consist primarily of costs for: milestone payments to third parties, clinical trials; materials and supplies; facilities; personnel, including salaries and benefits; regulatory activities; pre-clinical studies; licensing and intellectual property; and allocations of other research and development-related costs. External research and development expenses include fees paid to universities, hospitals and other entities that conduct certain research and development activities and that manufacture our product candidates for use in our clinical trials. We expect our research and development expenses to increase significantly in the future as we continue to develop our product candidates. Currently, OncoGenex manages its clinical trials through independent medical investigators at their sites and at hospitals.

Under the Collaboration Agreement with Teva, we are required to spend $30 million towards development of OGX-011 which will include personnel costs for certain development activities. Teva will fund all other expenses under the Clinical Development Plan. A total of $3.5 million of costs incurred by the Company in 2009 were applied against the Company’s $30 million funding commitment, resulting in a remaining funding commitment of $26.5 million at December 31, 2009. We expect full time equivalent reimbursement of between $1.5 and $2.5 million per year from 2010 to 2012. We expect to incur the remaining costs associated with the Clinical Development Plan over the next three years.

A majority of the Company’s expenditures to date have been related to the development of OGX-011. Until July 2, 2008, OGX-011 was being co-developed with Isis and R&D expenses for OGX-011 were shared on the basis of 65% OncoGenex and 35% Isis. On July 2, 2008, OncoGenex and Isis amended their agreement to provide for unilateral development of OGX-011 by OncoGenex. In connection with the Collaboration Agreement and pursuant to the terms of agreements between the Company and Isis relating to OGX-011, the Company accrued a payment of $10 million to Isis, which was included in R&D expenses in the period. The Company also accrued a payment of approximately $333,333 to UBC pursuant to the terms of their license agreement relating to OGX-011, which was also included in R&D expenses in the period.

Several of the Company’s clinical trials have been supported by grant funding which was received directly by the hospitals and/or clinical investigators conducting the clinical trials allowing OncoGenex to complete these clinical trials with minimal expense.

Since the Company’s drug candidates are in the early stage of development, we cannot estimate completion dates for development activities or when we might receive material net cash inflows from our research and development projects.

We expect our research and development expenses to increase in 2010 as we further expand development of OGX-011, OGX-427 and our other programs. Our projects or intended projects may be subject to change from time to time as we evaluate our research and development priorities and available resources.

General and Administrative Expenses

General and administrative (“G&A”) expenses consist primarily of salaries and related costs for our personnel in executive, business development, human resources, external communications, finance and other administrative functions, as well as consulting costs, including market research and business consulting. Other costs include professional fees for legal and auditing services, insurance and facility costs. We believe that G&A resources are sufficient to carry on existing development activities. We anticipate that G&A expenses will increase significantly in the future as we continue to expand our operating activities.

Restructuring Activities

On August 21, 2008, immediately following the completion of the Arrangement, the Company reduced its workforce by approximately 49%. Severance payable at the date of the restructuring in connection with former employees of Sonus was $1,322,000 and has been accounted for in accordance with EITF No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination” as part of the purchase price allocation. During 2008, the Company made payments totalling $1,186,000 and the amount owing at December 31, 2008 was $137,000. All remaining severance liabilities relating to transaction-related workforce reductions were paid out during 2009, and the amount owing at December 31, 2009 was nil.

Prior to the Arrangement, Sonus entered into a non-cancellable lease arrangement for office space located in Bothell, Washington, which is considered to be in excess of the Company’s current requirements. The Company is currently in the process of evaluating opportunities to exit or sublet portions of the leased space and recorded an initial restructuring charge of $2,084,000 on August 21, 2008 as part of the purchase price allocation. The liability is computed as the present value of the difference between the remaining lease payments due less the estimate of net sublease income and expenses and has been accounted for in accordance with EITF No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination”. This represents the Company’s best estimate of the fair value of the liability. Subsequent changes in the liability due to accretion, or changes in estimates of sublease assumptions will be recognized as adjustments to restructuring charges in future periods. During 2008, $362,000 was amortized into income, resulting in a remaining liability.

In June 2009 the Company revised its sublease income assumptions used to estimate the fair value of the excess lease facility liability. These assumptions were subsequently revised again in December 2009. These changes in estimate resulted in increases in the fair value of the excess lease liability and $494,000 and $3,547,000 in charges to research and development expense recorded in June 2009 and December 2009, respectively, to reflect these changes in estimate. These changes in estimate had a $0.69 impact on loss per common share for year ended December 31, 2009. The estimated carrying value of the liability remaining at December 31, 2009 with respect to excess facilities is $4,645,000.

Results of Operations

The consolidated financial statements reflect the Arrangement between Sonus and OncoGenex Technologies as a reverse acquisition, whereby OncoGenex Technologies is deemed to be the acquiring entity from an accounting perspective. Accordingly, for the year ended December 31, 2008, the consolidated results of operations of the Company include only the results of operations of OncoGenex Technologies for the time period of January 1, 2008 through August 21, 2008 and the results of the combined company following the completion of the Arrangement on August 21, 2008. The consolidated results of operations for the years ended December 31, 2007 include only the consolidated results of operations of OncoGenex Technologies and do not include historical results of Sonus. This treatment and presentation is in accordance with SFAS 141, “Business Combinations”. Proforma results are included in note 5 to the financial statements.

Years Ended December 31, 2009 and December 31, 2008

R&D expenses for the year ended December 31, 2009 increased to $24.2 million from $7.8 million for the year ended December 31, 2008, due mainly to higher OGX-011 and OGX-427 development costs, milestone payments owed to Isis and UBC resulting from the Collaboration Agreement with Teva, an increase in employee expenses and higher facility costs resulting from the Arrangement. Included in the year ended December 31, 2008 was a SRED claim of $0.6 million, which offset R&D expenses in the period. Since OncoGenex Technologies ceased to be a Canadian Controlled Private Company under Canadian tax laws as a result of the Arrangement, SRED claims can now only be applied against taxes payable. The SRED program is a Canadian federal tax incentive program that encourages Canadian businesses to conduct research and development in Canada.

G&A expenses for the year ended December 31, 2009 increased to $4.0 million from $3.3 million for the year ended December 31, 2008, due mainly to higher employee expenses and increased costs associated with operating as a public company.

Interest income for the year ended December 31, 2009 decreased to $47 thousand from $210 thousand for year ended December 31, 2008. Of the $210 thousand in interest for the 2008 period, $60 thousand related to interest received from the Canada Revenue Agency in relation to the Company’s 2006 Scientific Research and Development claim, while the 2009 amount includes only interest earned on cash and cash equivalents and marketable securities.

Other for the year ended December 31, 2009 decreased to $70 thousand in income from to $211 thousand in income for the year ended December 31, 2008, due to lower gains on sales of equipment.

Years Ended December 31, 2008 and December 31, 2007

R&D expenses for the year ended December 31, 2008 were $7.8 million compared to $4.1 million for the year ended December 31, 2007, which reflects an increase of $3.7 million due mainly to costs associated with the development of OGX-427, an increase in employee expenses and higher facility costs both resulting from the reverse takeover of Sonus.

G&A expenses for the year ended December 31, 2008 were $3.3 million compared to $3.5 million for the year ended December 31, 2007, which reflects a decrease of approximately $200 thousand due mainly to higher costs associated with employee expenses and increased costs associated with operating as a public company, offset by higher costs incurred as part of a planned initial public offering in 2007 by OncoGenex Technologies which was later abandoned.

Interest income for the year ended December 31, 2008 was $210 thousand compared to $177 thousand for year ended December 31, 2007, which reflects an increase of $33 thousand due mainly to an increase in cash equivalents and short term investments.

Other for the year ended December 31, 2008 was $211 thousand in income compared to $325 thousand in expense for the year ended December 31, 2007, due to gains on sales of equipment, and foreign exchange gains.

Liquidity and Capital Resources

OncoGenex has incurred an accumulated deficit of $53.5 million through December 31, 2009, and we expect to incur substantial and increasing additional losses in the future as we expand our research and development activities. We have not generated any revenue from product sales to date, and we do not expect to generate product sales revenue for several years, if ever. In the year ended December 31, 2009, we generated $25.5 million in collaboration revenue from the Teva Collaboration Agreement.

All of our operations to date have been funded through the sale of our debt and equity securities, and upfront payments received from Teva. As at December 31, 2009, OncoGenex had cash, cash equivalents, and short-term investments of $64.6 million in the aggregate as compared to cash, cash equivalents and short-term investments of $12.4 million as at December 31, 2008. As at December 31, 2009, OncoGenex does not have any borrowing or credit facilities available to it. Based upon our current expectations, we believe our capital resources at December 31, 2009 will be sufficient to fund our currently planned operations into 2012 and expect that both phase 3 prostate cancer trials will be fully accrued by this time. We may seek additional funding through, among other things, executing a partnership or collaboration agreement, or licensing or sale of certain of our product candidates, or through private or public offerings of our equity securities or debt financings. Our currently planned operations are set forth below under the heading “Operating Capital and Capital Expenditure Requirements”.

Cash Flows

Cash Used in Operations

For the years ended December 31, 2009, net cash provided by operating activities was $34.9 million, compared to $12.3 million of net cash used in operation in 2008. This increase in cash provided by operating activities during 2009 was driven by the upfront cash payment from Teva, offset by increased R&D expenses associated with personnel and facilities assumed in the Arrangement, cash used to reduce liabilities assumed in the Arrangement and increased current assets associated with R&D activities.

For the year ended December 31, 2008, cash used in operations of $7.9 million was attributable primarily to our losses from operations, offset by an increase in investment tax credit recoverable of $1.0 million, and an increase in taxes payable under Part VI.1 of the Income Tax Act (“Part VI.1 tax”) of $1.0 million and the interest on its convertible debentures of $0.2 million.

Cash Provided by Financing Activities

For the years ended December 31, 2009 and 2008, net cash provided by financing activities was $17.3 million and $121 thousand respectively. Net cash provided by financing activities in the year ended December 31, 2009 was attributable to the net proceeds we received from the issuance of common shares through a registered direct offering, net proceeds we received from the issuance of common shares to Teva as part of the Share Purchase Agreement, and the proceeds from the issuance of common shares on stock option exercises. All net cash provided by financing activities in the year ended December 31, 2008 was the result of proceeds from the issuance of common shares on stock option exercises, offset by cash paid on the elimination of fractional shares following the one-for-eighteen reverse stock split. All net cash provided by financing activities in the year ended December 31, 2007 was due to the issuance of convertible debentures.

Cash Used/Provided by Investing Activities

Net cash provided by investing activities for the year ended December 31, 2009 and December 31, 2008 was $2.2 million and $15.1 million, respectively. Net cash provided by investing activities in the year ended December 31, 2009 was due to transactions involving marketable securities in the normal course of business. Net cash provided by investing activities in the year ended December 31, 2008 was due to the Arrangement with Sonus and transactions involving marketable securities in the normal course of business.

Net cash provided by investing activities for the years ended December 31, 2007 of $6.3 million was due primarily to maturities of investments.

Operating Capital and Capital Expenditure Requirements

We believe that our cash, cash equivalents and short-term investments will be sufficient to fund our currently planned operations into 2012, including:

•

completing patient accrual in a phase 3 clinical trial evaluating a durable pain palliation benefit for OGX-011 in combination with docetaxel as second-line chemotherapy in approximately 300 men with CRPC which we expect to initiate in the second quarter of 2010;

•

completing patient accrual in a phase 3 clinical trial evaluating a survival benefit for OGX-011 in combination with docetaxel as first-line chemotherapy in approximately 800 men with CRPC which we expect to initiate in the third quarter of 2010;

•

completing follow-up monitoring visits related to our completed phase 2 clinical trials of OGX-011;

•

completing follow-up monitoring visits related to the phase 1 clinical trial evaluating OGX-427 as a monotherapy in patients with solid tumors and continuing evaluation of OGX-427 in combination with docetaxel in patients with solid tumors;

•

continuing an investigator-sponsored phase 1 clinical trial evaluating OGX-427 treatment in patient with bladder cancer;

•

initiating an investigator-sponsored phase 3 clinical trial evaluating OGX-427 treatment in patients with prostate cancer; and

•

meeting working capital needs, capital expenditures and general corporate purposes.

As of December 31, 2009 we have a remaining commitment to fund $26.5 million towards the three phase 3 trials of OGX-011, while Teva is required to fund all additional expenses under the clinical development plan. The final results from the phase 3 trials may be released at a date beyond our current available cash runway. In addition, if we desire to conduct development activities with respect to our other product candidates beyond those development activities mentioned in the list above, we will require additional funding to support such operations. If and when needed to extend our cash availability or to conduct any such currently unplanned development activities, we would seek any such necessary funding through the licensing or sale of certain of our product candidates, executing a partnership or collaboration agreement, or through private or public offerings of our equity securities or debt financings.

Our future capital requirements will depend on many factors including:

•

maintaining Teva relationship and Teva’s ongoing level of focus and efforts to develop OGX-011;

•

our ability to obtain additional funding through a partnership or collaboration agreement with a third party or licenses of certain of our product candidates, or through private or public offerings of our equity securities or debt financings;

•

timing and costs of clinical trials, preclinical development and regulatory approvals;

•

timing and cost of drug discovery and research and development;

•

entering into new collaborative or product license agreements for products in our pipeline; and

•

costs related to obtaining, defending and enforcing patents.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2009:

						Less than												More than
Contractual Obligations		Total				1 year				1-3 years				3-5 years				5 years
Bothell office operating lease (1)		$	17,743,000			$	1,995,000			$	4,172,000			$	4,426,000			$	7,150,000
Vancouver office operating lease (2)		$	226,000			$	181,000			$	45,000				—				—
Bayer license maintenance fees (3)		$	875,000			$	125,000			$	325,000			$	425,000				—
UBC license maintenance fees (4)		$	38,200			$	7,600			$	15,300			$	15,300				—
Leased equipment		$	67,300			$	41,800			$	20,200				5,300				—
Total		$	18,949,500			$	2,350,400			$	4,577,500			$	4,871,600			$	7,150,000

Off-Balance Sheet Arrangements

We do not have any off-balance sheet financing arrangements at December 31, 2009.

Inflation

We not believe that inflation has had a material impact on our business and operating results during the periods presented.

Contingencies and Commitments

Teva Pharmaceutical Industries Ltd.

Under the Collaboration Agreement, the Company is required to contribute $30 million in direct and indirect costs towards the Clinical Development Plan. $3.5 million of these costs were incurred by OncoGenex during 2009, resulting in a remaining funding responsibility of $26.5 million which has been recorded on the Company’s balance sheet as Deferred Collaboration Revenue. Teva will fund all other expenses under the Clinical Development Plan.

In addition to the development costs noted above, Teva is also responsible for all costs relating to product commercialization including costs incurred in relation to the Company’s co-promotion option, except for start-up costs in advance of commercialization.

Isis Pharmaceuticals Inc. and University of British Columbia

Pursuant to license agreements the Company has with the UBC and Isis, the Company is obligated to pay royalties on future product sales and milestone payments of up to $10.1 million upon the achievement of specified product development milestones related to OGX-427 and OGX-225.

In addition, we are required to pay to Isis 30% of all Non-Royalty Revenue we receive. Isis has disclosed in its SEC filings that it is entitled to receive 30% of the up to $370 million in milestone payments we may receive from Teva as part of the Collaboration Agreement; however, we believe that certain of the milestone payments related to sales targets may qualify as Royalty Revenue, and therefore be subject to the lesser payment obligations. No assurance can be provided that we will be entitled to receive these milestone payments or, if we are, that the applicable amount payable to Isis will be less than 30%.

We are also obligated to pay to UBC certain patent costs and annual license maintenance fees for the extent of the patent life of CAD $8,000 per year. We anticipate paying Isis $750,000 in 2010 upon the initiation of a phase 2 clinical trial of OGX-427 in patients with CRPC. We do not anticipate making any royalty payments to Isis in 2010.

The UBC agreements have effective dates ranging from November 1, 2001 to April 5, 2005 and each agreement expires upon the later of 20 years from its effective date or the expiry of the last patent licensed thereunder, unless otherwise terminated.

Unless otherwise terminated, the Isis agreements for OGX-011 and OGX-427 will continue for each product until the later of 10 years after the date of the first commercial product sale, or the expiration of the last to expire of any patents required to be licensed in order to use or sell the product, unless OncoGenex Technologies abandons either OGX-011 or OGX-427 and Isis does not elect to unilaterally continue development. The Isis agreement for OGX-225 will continue into perpetuity unless OncoGenex Technologies abandons the product and Isis does not elect to unilaterally continue development.

Under the Second Isis Amendment, the Company is the subject of a change of control with a third party, where the surviving company immediately following such change of control has the right to develop and sell the product, then (i) a milestone payment of $20 million will be due and payable to Isis 21 days following the first commercial sale of the product in the United States; and (ii) unless such surviving entity had previously sublicensed the product and a royalty rate payable to Isis by the Company has been established, the applicable royalty rate payable to Isis will thereafter be the maximum amount payable under the Company’s agreement with Isis. Any non-royalty milestone amounts previously paid will be credited toward the $20 million milestone if not already paid. As a result of the $10 million milestone payment payable to Isis in relation to the Collaboration Agreement, the remaining amount owing in the event of change of control discussed above is a maximum of $10 million. As the Company has now licensed the product to Teva and established a royalty rate payable to Isis, no royalty rate adjustments would apply if Teva acquires the Company and is the surviving company.

Bayer HealthCare LLC

On August 7, 2008, Sonus completed an exclusive in-licensing agreement with Bayer for the right to develop, commercialize or sublicense a family of compounds known as caspase activators presently in preclinical research. Under terms of the agreement, Sonus was granted exclusive rights to develop two core compounds for all prophylactic and therapeutic uses in humans. Additionally, Sonus was granted rights to all other non-core compounds covered under the patents for use in oncology.

Under the terms of the agreement, Bayer received an upfront license fee of $450,000. OncoGenex will make Anniversary Payments, with an initial payment of $100,000. The payments will increase by $25,000 each year until the initiation of the first phase 3 clinical trial, at which point the Anniversary Payments reset to $100,000 each year and increase by $25,000 until the Company achieves either the first New Drug Application filing in the United States or the European Union. OncoGenex is obligated to pay royalties on net future product sales in addition to aggregate milestone payments of up to $14,000,000 for clinical development and regulatory milestones. No milestone payments are triggered prior to the initiation of a phase 3 clinical trial. OncoGenex has the option to terminate this contract upon 60 days written notice to Bayer.

Lease Arrangements

The Company has an operating lease agreement for office space in Vancouver, Canada, which expires in March 2011.

Future minimum annual lease payments under the Vancouver lease are as follows (in thousands):

2010		$	181
2011			45
Total		$	226

In November 2006, prior to the Arrangement, Sonus entered into a non-cancellable operating lease agreement for office space in Bothell, Washington, expiring in 2017. In connection with the new lease, Sonus was required to provide a cash security deposit of approximately $497,000, which is included in Other Long Term Assets. In addition, the lease stipulates the Company must issue a standby letter of credit for approximately $500,000 which is expected to be issued during 2010. The Company is currently in the process of evaluating opportunities to exit or sublet portions of the leased space and has recorded a liability in the excess facilities lease charge of $4,645,000 as at December 31, 2009.

If the Company is unable to exit or sublet portions of this leased space, the future minimum annual lease payments are as follows (in thousands):

2010		$	1,995
2011			2,055
2012			2,117
2013			2,180
2014			2,245
remainder			7,150
Total		$	17,742

Consolidated rent expense relating to both the Vancouver, Canada and Bothell, Washington offices for years ended December 31, 2009, 2008, and 2007 was $2,408,000, $801,000, and $220,000 respectively.

Guarantees and Indemnifications

OncoGenex indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at our request in such capacity. The term of the indemnification period is equal to the officer’s or director’s lifetime.

The maximum amount of potential future indemnification is unlimited; however, we have obtained director and officer insurance that limits our exposure and may enable it to recover a portion of any future amounts paid. We believe that the fair value of these indemnification obligations is minimal. Accordingly, we have not recognized any liabilities relating to these obligations as of December 31, 2009.

We have certain agreements with certain organizations with which we do business that contain indemnification provisions pursuant to which we typically agree to indemnify the party against certain types of third-party claims. We accrue for known indemnification issues when a loss is probable and can be reasonably estimated. There were no accruals for or expenses related to indemnification issues for any period presented.

Material Changes in Financial Condition

(in thousands)		December 31, 2009				December 31, 2008
Total Assets		$	68,980			$	14,790
Total Liabilities		$	46,021			$	4,083
Total Equity		$	22,959			$	10,707

The increase in assets from December 31, 2008 primarily relates to increase in cash, cash equivalents and marketable securities following the Collaboration Agreement with Teva. The increase in liabilities from December 31, 2008 relates to deferred collaboration revenue and milestone payments owing to Isis and UBC resulting from our Collaboration Agreement with Teva. The increase in equity relates predominantly to the issuance of shares through private placements of our common stock and shares sold to Teva.

Critical Accounting Policies and Estimates

Significant Accounting Policies

Revenue Recognition

Revenue recognized to date is attributable solely to the upfront payment the Company received in the fourth quarter of 2009 pursuant to its Collaboration Agreement with Teva. For a description of the Collaboration Agreement, see note 4 in the Notes to Financial Statements for further details on our collaboration with Teva.

The Collaboration Agreement contains multiple elements and deliverables, and requires evaluation pursuant to ASC 605-25, Multiple-Element Arrangements (“ASC 605-25”). The Company evaluated the facts and circumstances of the Collaboration Agreement to determine whether it had obligations constituting deliverables under ASC 605-25. The Company concluded that it had multiple deliverables under the Collaboration Agreement, including deliverables relating to the grant of a technology license, and performance of manufacturing, regulatory and clinical development services in the U.S. and Canada, and estimated that the period in which the Company would perform those deliverables began in the fourth quarter of 2009 and will be completed in 2013. Because the Company was able to establish vendor specific objective evidence (“VSOE”) of the fair value of the maintenance, regulatory, and clinical services, the Company concluded that these deliverables should be accounted as separate units of accounting under ASC 605-25. In establishing VSOE for the manufacturing, regulatory, and clinical development services, management relied on rates charged by other service providers providing similar development services.

The Company will recognize $30 million allocated to the manufacturing, regulatory and clinical development services element as revenue over the estimated performance period, using the proportional performance model. Estimation of the performance period of the Company’s deliverables required the use of management’s judgement. Significant factors considered in management’s evaluation of the estimated performance period include, but are not limited to its experience, along with Teva’s experience, in conducting clinical development activities. The Company will review the estimated duration of its performance period on a quarterly basis and make any appropriate adjustments on a prospective basis. Future changes in estimates of the performance period may materially impact the timing of the future revenue recognized under the Collaboration Agreement.

Because management is not able to reliably estimate the fair value of the technology license, it used the residual value approach to determine the amount of revenue to recognize. Based on this approach, the Company recognized $22 million in 2009 relating to this element.

Under the Collaboration Agreement, the Company is entitled to receive up to $370 million upon the achievement of developmental and commercial milestones. Management evaluated the nature of the events triggering these contingent payments and concluded that these events constituted substantive milestones. This conclusion was based primarily on the facts that each triggering event represents a specific outcome that can be achieved only through successful performance by the Company of one or more of its deliverables, and that achievement of each triggering event was subject to inherent risk and uncertainty and would result in additional payments becoming due to the Company. Management concluded that each of these milestones was substantive, based primarily on the facts that the payments they trigger are non-refundable, that achievement of the milestone entails risk and was not reasonably assured at inception of the Collaboration Agreement, that substantial effort is required to complete each milestone, that the amount of each milestone payment is reasonable in relation to the value created in achieving the milestone, that a substantial amount of time is expected to pass between the upfront payment and the potential milestone payments, and that the milestone payments, once received, relate solely to past performance. Based on the foregoing, the Company will recognize any revenue from these milestone payments under the substantive milestone method in the period in which the underlying triggering event occurs.

Under the Collaboration Agreement, the Company is also entitled to receive royalties on sales of OGX-011 ranging from the mid-teens to the mid-twenties. The Company will recognize any revenue from these events based on the revenue recognition criteria set forth in ASC 605, Revenue Recognition. Based on those criteria, the Company considers these potential payments to be contingent revenues, and will recognize them as revenue in the period in which the applicable contingency is resolved.

Under the Collaboration Agreement, the Company and Teva share certain OGX-011-related development costs. The Company will be required to spend $30 million in direct and indirect development costs such as full-time equivalent (“FTE”) reimbursement for time incurred by OncoGenex personnel for the benefit of the OGX-011 development plan, such contribution to be funded by the upfront payment provided by Teva as an advanced reimbursement for the Company Development Expenses. Teva will fund all other expenses under the Clinical Development Plan (“Clinical Development Plan”). Once the Company has fulfilled its requirement to spend $30 million in direct and indirect development costs, including FTEs, Teva will, on a quarterly basis, reimburse all development expenses incurred in accordance with the Clinical Development Plan. The Company’s policy is to account for these reimbursements as Collaboration Revenue.

Income Taxes

Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the differences between the carrying values of assets and liabilities and their respective income tax bases and for operating losses and tax credit carry forwards. A valuation allowance is provided for the portion of deferred tax assets that is more likely than not to be unrealized. Deferred tax assets and liabilities are measured using the enacted tax rates and laws.

Research and Development Costs

Research and development costs are expensed as incurred, net of related refundable investment tax credits, with the exception of non-refundable advanced payments for goods or services to be used in future research and development, which are capitalized in accordance with ASC 730, “Research and Development” and included within Other Assets.

Clinical trial expenses are a component of research and development costs. These expenses include fees paid to contract research organizations and investigators and other service providers, which conduct certain product development activities on our behalf. The Company uses an accrual basis of accounting, based upon estimates of the amount of service completed. In the event payments differ from the amount of service completed, prepaid expense or accrued liabilities amounts are adjusted on the balance sheet. These expenses are based on estimates of the work performed under service agreements, milestones achieved, patient Enrollment and experience with similar contracts. The Company monitors each of these factors to the extent possible and adjusts estimates accordingly.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of the ASC 718, “Stock Compensation”, using the modified prospective method with respect to options granted to employees and directors. Under this transition method, compensation cost is recognized in the financial statements beginning with the effective date for all share-based payments granted after January 1, 2006 and for all awards granted prior to but not yet vested as of January 1, 2006. The expense is amortized on a straight-line basis over the graded vesting period. Short-Term Investments

Short-term investments consist of financial instruments purchased with an original maturity of greater than three months and less than one year. The Company considers its short-term investments as available-for-sale and they are carried at market value with unrealized gains and losses, if any, reported as accumulated other comprehensive income or loss, which is a separate component of shareholders’ equity. Realized gains and losses on the sale of these securities are recognized in net loss. The cost of investments sold is based on the specific identification method.

Fair value of financial instruments

The fair value of the Company’s cash equivalents and marketable securities is based on quoted market prices and trade data for comparable securities. Other financial instruments including amounts receivable, accounts payable and accrued liabilities, are carried at cost, which the Company believes approximates fair value because of the short-term maturities of these instruments.

Recent accounting pronouncements

There were no recent accounting pronouncements which the Company expects would have any impact on the consolidated financial position, results of operations or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We invest our cash in a variety of financial instruments, primarily in short-term bank deposits, money market funds, and domestic and foreign commercial paper and government securities. These investments are denominated in U.S. dollars and are subject to interest rate risk, and could decline in value if interest rates fluctuate. Our investment portfolio includes only marketable securities with active secondary or resale markets to help ensure portfolio liquidity. Due to the conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk. For example, if market rates hypothetically increase immediately and uniformly by 100 basis points from levels at December 31, 2009, the decline in the fair value of our investment portfolio would not be material.

Foreign Currency Exchange Risk

We are exposed to risks associated with foreign currency transactions on certain contracts and payroll expenses related to our Canadian subsidiary, OncoGenex Technologies, denominated in Canadian dollars and we have not hedged these amounts. As our unhedged foreign currency transactions fluctuate, our earnings might be negatively affected. Accordingly, changes in the value of the U.S. dollar relative to the Canadian dollar might have an adverse effect on our reported results of operations and financial condition, and fluctuations in exchange rates might harm our reported results and accounts from period to period.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS:

Report of Independent Registered Public Accounting Firm			66
Consolidated Balance Sheets as of December 31, 2009 and 2008			68
Consolidated Statements of Loss for the years ended December 31, 2009, 2008, and 2007			69
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2009, 2008, and 2007			70
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008, and 2007			71
Notes to the Consolidated Financial Statements			72

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
OncoGenex Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of OncoGenex Pharmaceuticals, Inc. (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of loss, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of OncoGenex Pharmaceuticals, Inc. at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), OncoGenex Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2010 expressed an unqualified opinion thereon.

Vancouver, Canada, March 8, 2010		/s/ ERNST & YOUNG LLP

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
OncoGenex Pharmaceuticals, Inc.

We have audited OncoGenex Pharmaceuticals, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO” criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2009 and 2008, and the related consolidated statements of loss, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009 and our report dated March 8, 2010 expressed an unqualified opinion thereon.

OncoGenex Pharmaceuticals, Inc.

Consolidated Balance Sheets

(In thousands of U.S. dollars)

		December 31,				December 31,
		2009				2008
		$				$
ASSETS
Current
Cash and cash equivalents			62,051				7,618
Short-term investments [note 6]			2,517				4,801
Amounts receivable [note 4]			3,109				153
Investment tax credit recoverable			—				1,090
Prepaid expenses			722				587
Total current assets			68,399				14,249
Property and equipment, net [note 7]			72				44
Other assets			509				497
Total assets			68,980				14,790
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued liabilities			14,453				2,252
Deferred Collaboration Revenue			10,000				—
Current portion of long-term obligations [note 8]			1,328				632
Total current liabilities			25,781				2,884
Deferred Collaboration Revenue, net of current			16,528				—
Long-term obligation, less current portion [note 8]			3,712				1,199
Total liabilities			46,021				4,083
Commitments and contingencies [note 13]
Shareholders’ equity:
Common shares:
$0.001 par value 11,019,930 shares authorized and 6,324,033 issued and outstanding at December 31, 2009			6				6
Additional paid-in capital			73,798				56,070
Accumulated deficit			(53,485	)			(48,009	)
Accumulated other comprehensive income			2,640				2,640
Total shareholders’ equity			22,959				10,707
Total liabilities and shareholders’ equity			68,980				14,790
Subsequent events [note 16]

OncoGenex Pharmaceuticals, Inc.

Consolidated Statements of Loss

(In thousands of U.S. dollars, except share and per share amounts)

		Years Ended
		December 31,
		2009				2008				2007
		$				$				$
COLLABORATION REVENUE			25,539				—				—
EXPENSES
Research and development			24,160				7,819				4,135
General and administrative			3,961				3,293				3,540
Total expenses			28,121				11,112				7,675
OTHER INCOME (EXPENSE)
Interest income			47				210				177
Other			70				211				(325	)
Total other income (expense)			117				421				(148	)
Loss for the period before taxes and extraordinary gain			(2,465	)			(10,691	)			(7,823	)
Income tax expense (recovery) [note 10]			3,011				(2,059	)			713
Loss before extraordinary gain			(5,476	)			(8,632	)			(8,536	)
Extraordinary gain [note 5]			—				4,428				—
Net loss			(5,476	)			(4,204	)			(8,536	)
Redeemable convertible preferred share accretion			—				1,973				2,944
Loss attributable to common shareholders			(5,476	)			(6,177	)			(11,480	)
Basic and diluted loss per common share [note 11[h]]			(.95	)			(3.38	)			(96.63	)
Weighted average number of common shares [note 11[h]]			5,766,850				1,829,276				118,801

See accompanying notes.

OncoGenex Pharmaceuticals, Inc.

Consolidated Statements of Shareholders’ Equity

(In thousands of U.S. dollars, except share amounts)

										Accumulated												Total
										Other												Shareholders’
		Common								Comprehensive				Comprehensive				Accumulated				Equity
		Shares				Amount				Income (Loss)				Income (Loss)				deficit				(Deficiency)
		(in thousands of U.S. dollars, except share amounts)
Balance, December 31, 2006			118,801				703				2,083								(30,352	)			(27,566	)
Stock-based compensation expense							263																263
Cumulative translation adjustment from application of US dollar reporting											557				557								557
Reclassification of unrealized loss on marketable securities											2				2								2
Unrealized gain on marketable securities											1				1								1
Redeemable convertible preferred share accretion																			(2,944	)			(2,944	)
Loss for the year															(8,536	)			(8,536	)			(8,536	)
Comprehensive loss for the year															(7,976	)
Balance, December 31, 2007			118,801				966				2,643								(41,832	)			(38,223	)
Stock-based compensation expense							174																174
Shares held by Sonus shareholders			2,059,898				10,456																10,456
Shares issued in exchange for convertible debentures			1,036,586				5,012																5,012
Shares issued in exchange for preferred shares			905,131				39,345																39,345
Escrow shares released on achievement of milestones			1,388,875
Stock option exercises			34,601				122																122
Issuance of common stock under employee benefit plans			222				1																1
Cumulative translation adjustment from application of US dollar reporting											(3	)			(3	)							(3	)
Redeemable convertible preferred share accretion																			(1,973	)			(1,973	)
Loss for the period															(4,204	)			(4,204	)			(4,204	)
Comprehensive loss for the period															(4,207	)
Balance, December 31, 2008			5,544,114				56,076				2,640								(48,009	)			10,707
Stock-based compensation expense							380																380
Shares issued in July 2009 financing			475,000				9,304																9,304
Shares issued in Teva share purchase agreement			267,531				7,903																7,903
Stock option exercises			37,388				141																141
Loss for the period															(5,476	)			(5,476	)			(5,476	)
Comprehensive loss for the period															(5,476	)
Balance, December 31, 2009			6,324,033				73,804				2,640								(53,485	)			22,959

OncoGenex Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(In thousands of U.S. dollars)

		Years ended
		December 31,
		2009				2008				2007
		$				$				$
OPERATING ACTIVITIES
Loss for the period			5,476				4,204				8,536
Add items not involving cash
Extraordinary gain			—				(4,428	)			—
Depreciation and amortization			50				89				83
Stock-based compensation [note 11[c]]			380				174				263
Accrued interest on convertible debenture [note 11]			—				313				193
Changes in non-cash working capital items
Amounts receivable			(2,955	)			204				181
Investment tax credit recoverable			1,090				646				(993	)
Prepaid expenses			(136	)			—				(68	)
Other assets			(12	)			(117	)			(1	)
Accounts payable and accrued liabilities			12,200				(2,244	)			(2	)
Lease obligation			3,210				(253	)			—
Deferred collaboration revenue			26,527				—				—
Taxes payable on preferred shares			—				(2,487	)			1,001
Cash provided by (used in) operating activities			34,878				(12,307	)			(7,879	)
FINANCING ACTIVITIES
Cash paid on fractional shares eliminated on reverse share split			—				(3	)			—
Proceeds from issuance of common stock under stock option and employee purchase plans			141				124				—
Issuance of common shares, net of share issue costs			17,206				—				—
Issuance of convertible debentures net of issue costs			—				—				4,442
Cash provided by financing activities			17,347				121				4,442
INVESTING ACTIVITIES
Purchase of investments			(4,036	)			(4,843	)			(6,763	)
Proceeds from sale of investments			6,280				15,276				13,058
Purchase of property and equipment			(15	)			(3	)			(17	)
Cash received on reverse takeover of Sonus			—				5,464				—
Transaction fees on reverse takeover of Sonus			—				(807	)			—
Cash provided by investing activities			2,229				15,087				6,278
Effect of exchange rate changes on cash			(21	)			90				(68	)
Increase in cash and cash equivalents during the period			54,433				2,992				2,773
Cash and cash equivalents, beginning of the period			7,618				4,626				1,853
Cash and cash equivalents, end of the period			62,051				7,618				4,626
Supplemental cash flow information
Property and equipment acquired under lease obligation			65				—				—