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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
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<div align="left" style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<!-- xbrl,ns -->
<!-- xbrl,nx -->
<div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b>
</div>
<div align="left">
</div>
<div align="center" style="font-size: 10pt"><b></b></div>
<div align="center" style="font-size: 10pt"><b></b></div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>1. NATURE OF BUSINESS AND BASIS OF PRESENTATION</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">OncoGenex Pharmaceuticals, Inc. (the “Company” or “OncoGenex”) is committed to the development and
commercialization of new therapies that address treatment resistance in cancer patients. The
Company was incorporated in the state of Delaware and, together with its subsidiaries, has a
facility in Bothell, Washington and an office in Vancouver, British Columbia (Canada).
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The unaudited financial statements have been prepared in accordance with generally accepted
accounting principles in the United States for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes
required to be presented for complete financial statements. The accompanying unaudited consolidated
financial statements reflect all adjustments (consisting only of normal recurring items) which are,
in the opinion of management, necessary for a fair presentation of the results for the interim
periods presented. The accompanying consolidated Balance Sheet at December 31, 2010 has been
derived from the audited consolidated financial statements included in the Company’s Annual Report
on Form 10-K for the year then ended. The consolidated financial statements and related disclosures
have been prepared with the assumption that users of the interim financial information have read or
have access to the audited consolidated financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the audited consolidated
financial statements and the related notes thereto included in the Annual Report on Form 10-K for
the year ended December 31, 2010 and filed with the United States Securities and Exchange
Commission (“SEC”) on March 10, 2011.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The consolidated financial statements include the accounts of OncoGenex and our wholly owned
subsidiary, OncoGenex Technologies Inc. (“OncoGenex Technologies”). All intercompany
balances and transactions have been eliminated.
</div>
</div>
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<div align="left" style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>2. ACCOUNTING POLICIES</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>Recently Adopted Accounting Policies</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">In April 2010, the Financial Accounting Standards Board, or FASB, issued ASU No. 2010 — 17 —
Revenue Recognition — Milestone Method (Topic 605): Milestone Method of Revenue Recognition. This
standard provides guidance on defining a milestone and determining when it may be appropriate to
apply the milestone method of revenue recognition for certain research and development
transactions. Under this new standard, a company can recognize as revenue consideration that is
contingent upon achievement of a milestone in the period in which it is achieved, only if the
milestone meets all criteria to be considered substantive. This standard was effective for us on a
prospective basis beginning in the quarter ended March 31, 2011. The adoption of this standard did
not have a significant impact on our financial position or results of operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">In January 2010, the FASB issued amended guidance on fair value measurements and disclosures. The
new guidance requires additional disclosures regarding fair value measurements, amends disclosures
about post-retirement benefit plan assets, and provides clarification regarding the level of
disaggregation of fair value disclosures by investment class. This guidance is effective for
interim and annual reporting periods beginning after December 15, 2009, except for certain Level 3
activity disclosure requirements that will be effective for reporting periods beginning after
December 15, 2010. Accordingly, we adopted this amendment in the quarter ended March 31, 2010,
while the additional Level 3 requirements were adopted
in the quarter ended March 31, 2011. The adoption of this standard did not have a significant
impact on our financial position or results of operations.
</div>
<!-- Folio -->
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</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>Recent Accounting Pronouncements</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement.” This ASU clarifies the
concepts related to highest and best use and valuation premise, blockage factors and other premiums
and discounts, the fair value measurement of financial instruments held in a portfolio and of those
instruments classified as a component of shareowners’ equity. The guidance includes enhanced
disclosure requirements about recurring Level 3 fair value measurements, the use of nonfinancial
assets, and the level in the fair value hierarchy of assets and liabilities not recorded at fair
value. The provisions of this ASU are effective prospectively for interim and annual periods
beginning on or after December 15, 2011. Early application is prohibited. We are currently
evaluating the impact of this new ASU.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income.” This ASU intends to enhance
comparability and transparency of other comprehensive income components. The guidance provides an
option to present total comprehensive income, the components of net income and the components of
other comprehensive income in a single continuous statement or two separate but consecutive
statements. This ASU eliminates the option to present other comprehensive income components as part
of the statement of changes in shareowners’ equity. The provisions of this ASU will be applied
retrospectively for interim and annual periods beginning after December 15, 2011. Early application
is permitted. We are currently evaluating the impact of this new ASU.
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>3. COLLABORATION AGREEMENT</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">On December 20, 2009, the Company, through its wholly-owned subsidiary, OncoGenex Technologies,
entered into a Collaboration Agreement with Teva Pharmaceutical Industries Ltd., or Teva, for the
development and global commercialization of custirsen (and related compounds), a pharmaceutical
compound designed to inhibit the production of clusterin, a protein we believe is associated with
cancer treatment resistance, or the Licensed Product. Under the Collaboration Agreement, Teva paid
the Company upfront payments in the aggregate amount of $50 million and has agreed to pay up to
$370 million upon the achievement of developmental and commercial milestones and royalties at
percentage rates ranging from the mid-teens to mid-twenties on net sales, depending on aggregate
annual net sales of the Licensed Product.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">On the same date, the Company and Teva also entered into a stock purchase agreement, or Stock
Purchase Agreement, pursuant to which Teva made an additional $10 million equity investment in the
Company at a 20% premium to a thirty-day average closing price, resulting in the issuance of
267,531 of our common shares purchased at a price of $37.38 per share. The 20% share premium was
included as consideration for the custirsen license and has been included in collaboration revenue.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">In connection with the Collaboration Agreement and pursuant to the terms of agreements between the
Company and Isis relating to custirsen, the Company paid Isis Pharmaceuticals, Inc., or Isis, $10
million which was recorded as research and development expense in 2009. The Company also paid
approximately $333,333 to the University of British Columbia, or UBC, pursuant to the terms of
their license agreement relating to custirsen, which has been recorded as research and development
expense in 2009. Pursuant to the terms of the third-party agreements, the Company anticipates that
it would be required to pay third parties 31% of any milestone payments that are not based on a
percentage of net sales of the Licensed Product. Pursuant to the terms of third-party agreements,
the Company anticipates it will pay royalties to third-parties of 4.88% to 8.00% of net sales,
unless the Company’s royalties are adjusted for competition from generic compounds, in which case
royalties to third parties will also be subject to adjustment on a country-by-country basis.
Certain third-party royalties are tiered based on the royalty rate received by the Company. Minimum
royalty rates payable by the Company assume certain third-party royalties are not paid
at the time that the Licensed Product is marketed due to the expiration of patents held by such
third parties. Maximum royalty rates assume all third-party royalty rates currently in effect
continue in effect at the time the Licensed Product is marketed.
</div>
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</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt">Teva has the exclusive worldwide right and license to develop and commercialize products containing
custirsen and related compounds. The Company has an option to co-promote any Licensed Product in
the United States and Canada.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Teva is 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.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Teva and the Company have developed a Clinical Development Plan under which three phase 3 clinical
trials will be initiated:
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
The ongoing phase 3 clinical trial, referred to as the Synergy trial, or SYNERGY, to evaluate a survival benefit for
custirsen in combination with first-line docetaxel treatment in patients with castrate resistant prostate cancer, or CRPC.
Expected timing of results from the survival primary endpoint for the custirsen SYNERGY Phase 3 clinical trial remains
unchanged at Q4 2013. During discussions regarding the Prostate Cancer SATURN trial, or SATURN, Special Protocol
Assessment, or SPA, amendment, U.S. Food and Drug Administration, or FDA, stated that an application supported primarily
by the results of SYNERGY alone would be acceptable for submission. We expect to increase patient enrollment in SYNERGY
from 800 to approximately 1000 patients, and expand the number of clinical trial sites.
</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
An ongoing phase 3 clinical trial, referred to as SATURN, to evaluate a durable pain palliation benefit for
custirsen in combination with docetaxel as second-line chemotherapy in approximately 300 patients with CRPC. We have
revised the custirsen SATURN Phase 3 trial protocol to expand the eligible patient population, and to align with the
recently approved chemotherapy, cabazitaxel. We are awaiting final, written FDA agreement on the SPA amendment that will
allow patients to receive either docetaxel re-treatment or cabazitaxel as second-line chemotherapy. Recruitment efforts
are ongoing to enroll more patients in the SATURN study, which has had few patients accrued due to restrictive enrollment
criteria regarding docetaxel retreatment and stable pain criteria. Expected timing of results for the pain palliation
primary endpoint is now projected to be Q4 2013 rather than Q2 2013.
</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
A phase 3 clinical trial to evaluate a survival benefit for custirsen in combination with first-line chemotherapy in
patients with non-small cell lung cancer, or NSCLC. The initiation of the Phase 3 clinical trial evaluating custirsen
in patients with NSCLC has been delayed as we determine the optimal chemotherapeutic combination. We believe NSCLC is
a promising indication and remain committed to the advancement of custirsen in NSCLC.
</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Teva will be responsible for conducting any other studies and development work necessary to obtain
required regulatory approvals. The Company may assume some of these activities if assigned by the
joint steering committee. Teva will be responsible for all such costs. The joint steering committee
will oversee the development and regulatory approval of any Licensed Product. The Company may
terminate its participation in the joint steering committee at any time.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Funding responsibilities for the Clinical Development Plan will be allocated as follows:
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>The Company will be required to spend $30 million in direct and indirect development
costs, and</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Teva will fund all other expenses under the Clinical Development Plan.</td>
</tr>
</table>
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="margin-top: 10pt">
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">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). 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 the Company’s patent rights related to custirsen or safety issues or
“futility” as defined in the Collaboration Agreement, Teva may
terminate the Collaboration Agreement at 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 Agreement for any
reasons other than an adverse change in custirsen 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 specified development expenses that are the
responsibility of the Company. 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 by the Company for other than an uncured material breach by
Teva, the Company will pay Teva a royalty on sales of Licensed Products. The percentage rates of
such royalties (which are in the single digits) vary depending on whether 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.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">In the event of a change of control of the Company, within 90 days of the change of control, Teva
may terminate the joint steering committee at its sole discretion, terminate the co-promotion
option at its sole discretion if not then exercised by the Company or if exercised but not yet
executed by the Company, or terminate the co-promotion option if in its commercially reasonable
opinion co-promotion with the Company’s successor would be materially detrimental to Teva’s
interests.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Upon entering into the Collaboration Agreement, the Company assessed whether withholdings taxes
were owed to the Israeli Tax Authority, or ITA, resulting from the Collaboration Agreement. It was
the Company’s position that withholdings taxes were not owed, and a claim was issued to the ITA
accordingly. For accounting purposes, management concluded that the withholdings tax claim was an
uncertain tax position, and $3 million, which represented the potential withholdings tax
obligation, once received from Teva was initially recorded as restricted cash pending the ITA
review of our claim and a corresponding liability of $3 million was included in accounts payable
and accrued liabilities. In June 2010, the Company received approval from the ITA for our request
for a withholdings tax exemption on amounts received from Teva in relation to the Collaboration
Agreement. Following receipt of this approval from the ITA the $3 million was released to the
Company from escrow. Subsequently, the Company released the $3 million liability and recorded a $3
million income tax recovery in the second quarter of 2010.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Revenue for the three and six months ended June 30, 2011 was $1.9 million, and $3.1 million which
consists of partial recognition of deferred collaboration revenue representing OncoGenex’s
contribution to the custirsen phase 3 development plan under our Collaboration Agreement with Teva
and custirsen manufacturing costs incurred by OncoGenex in the year ended December 31, 2010 that
are reimbursable from Teva. At June 30, 2011, a remaining balance of $19.9 million of the up-front
payment was recorded in deferred collaboration revenue. There was $1.7 million and $6.4 million in
revenue recorded in the three and six months ended June 30, 2010 as a result of the Collaboration
Agreement with Teva.
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>4. FAIR VALUE MEASUREMENTS</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">With the adoption of Accounting Standards Codification, or ASC, 820 “Fair Value Measurements and
Disclosures”, beginning January 1, 2008, assets and liabilities recorded at fair value in the
balance sheets are categorized based upon the level of judgment associated with the inputs used to
measure their fair value. For certain of the Company’s financial instruments including cash and
cash equivalents, amounts receivable, and accounts payable the carrying values approximate fair
value due to their short-term nature.
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt">ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those
valuation techniques are observable or unobservable. In accordance with ASC 820, these inputs are
summarized in the three broad levels listed below:
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Level 1 — Quoted prices in active markets for identical securities;</td>
</tr>
<tr>
<td style="font-size: 8pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Level 2 — Other significant observable inputs that are observable through
corroboration with market data (including quoted prices in active markets for similar
securities); and</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Level 3 — Significant unobservable inputs that reflect management’s best estimate of
what market participants would use in pricing the asset or liability.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">As quoted prices in active markets are not readily available for certain financial instruments, the
Company obtains estimates for the fair value of financial instruments through third party pricing
service providers.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">In determining the appropriate levels, the Company performed a detailed analysis of the assets and
liabilities that are subject to ASC 820.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The Company invests its excess cash in accordance with investment guidelines that limit the credit
exposure to any one financial institution other than securities issued by the U.S. Government. Our
securities are not collateralized and mature within one year.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">A description of the valuation techniques applied to the Company’s financial instruments measured
at fair value on a recurring basis follows.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Financial Instruments</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Cash</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Significant amounts of cash are held on deposit with a large well established Canadian financial
institution.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Government and Agency Securities</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><u>Government Securities</u> U.S. and Canadian Government securities are valued using quoted
market prices. Valuation adjustments are not applied. Accordingly, U.S. and Canadian government
securities are categorized in Level 1 of the fair value hierarchy.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><u>U.S. Agency Securities</u> U.S. agency securities are comprised of two main categories
consisting of callable and non-callable agency-issued debt securities. Non-callable agency-issued
debt securities are generally valued using quoted market prices. Callable agency issued debt
securities are valued by benchmarking model-derived prices to quoted market prices and trade data
for identical or comparable securities. Actively traded non-callable agency issued debt securities
are categorized in Level 1 of the fair value hierarchy. Callable agency issued debt securities are
categorized in Level 2 of the fair value hierarchy.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Corporate and Other Debt</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><u>Corporate Bonds and Commercial Paper</u> The fair value of corporate bonds and commercial
paper is estimated using recently executed transactions, market price quotations (where
observable), bond spreads or credit default swap spreads adjusted for any basis difference between
cash and derivative instruments. The spread data used are for the same maturity as the bond. If the
spread data does not reference the issuer, then data that reference a comparable issuer are used.
When observable price quotations are not available, fair value is determined based on cash flow
models with yield curves, bond or single name credit default swap spreads and recovery rates based
on collateral values as significant inputs. Corporate bonds and commercial paper are generally
categorized in Level 2 of the fair value hierarchy; in instances where prices, spreads or any of
the other aforementioned key inputs are unobservable, they are categorized in Level 3 of the
hierarchy.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt">The following table presents information about our assets and liabilities that are measured at fair
value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques we
utilized to determine such fair value:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000">(in thousands)</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 1</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 2</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 3</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Assets</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,824</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,824</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Money market securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">7,830</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,830</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Government securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">6,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate bonds and commercial paper
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">60,260</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">60,260</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>15,654</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>60,260</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>75,914</b></td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Liabilities</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Warrants
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right">14,828</td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right">14,828</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Marketable securities consist of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Amortized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Estimated</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000">(in thousands)</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Gain</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>2011</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,824</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,824</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Money market
securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">7,329</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,329</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Government securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">5,998</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate bonds and
commercial paper
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">5,715</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">9</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(1</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">5,723</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Cash and cash
equivalents</b>
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>20,866</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>11</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"><b>$</b></td>
<td align="right"><b>(1</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>20,876</b></td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Money market
securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">502</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">502</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Restricted cash</b>
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>502</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>—</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>—</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>502</b></td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate bonds and
commercial paper
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">54,578</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(45</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">54,536</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Short-term
investments</b>
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right"><b>54,578</b></td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right"><b>3</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"><b>$</b></td>
<td align="right"><b>(45</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td align="left">$</td>
<td align="right"><b>54,536</b></td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">All securities included in cash, and cash equivalents have maturities of 90 days or less at the
time of purchase. All securities included in short-term investments have maturities of within one
year of the balance sheet date.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">There were no significant realized or unrealized gains or losses on the sales of marketable
securities in the six months ended June 30, 2011 and no significant unrealized gains or losses are
included in accumulated other comprehensive income as at June 30, 2011. Realized gains and losses
are transferred out of accumulated other comprehensive income into interest income using the
specific identification method.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt">All of the marketable securities held as of June 30, 2011 had maturities of one year or less. The
Company only invests in A (or equivalent) rated securities with maturities of one year or less.
Given the quality of the investment portfolio, its short-term nature, and subsequent proceeds
collected on sale of securities that
reached maturity, the Company does not believe that there are any other than temporary impairments
related to its investments in marketable securities at June 30, 2011.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The Company has recorded a $14,828,000 warrant liability as of June 30, 2011. The Company
reassesses the fair value of the common stock warrants at each reporting date utilizing a
Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price
volatility, expected warrant life and risk-free interest rate. The computation of expected
volatility was based on the historical volatility of comparable companies from a representative
peer group selected based on industry and market capitalization. See note 5(d) in the Notes to
Financial Statements for further details on the inputs used in the Black-Scholes pricing model used
to recalculate the warrant liability.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The following table presents the changes in fair value of the Company’s total Level 3 financial
liabilities for the six months ended June 30, 2011:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="58%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Liability at</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Remaining</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Gain (loss) on</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Liability at June</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>(In thousands)</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>warrants</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b> 30, 2011</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Warrant liability
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">15,269</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">441</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">14,828</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:StockholdersEquityNoteDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>5. COMMON STOCK</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>[a] Authorized</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">25,000,000 authorized common shares, par value of $0.001, and 5,000,000 preferred shares, par value
of $0.001.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>[b] Issued and Outstanding Shares</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">During the six month period ended June 30, 2011 the Company issued 24,660 common shares upon
exercise of stock options (period ended June 30, 2010 — 117,643) to satisfy stock option
exercises.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>[c] Stock options</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><i>2010 Performance Incentive Plan</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">At the 2011 Annual Meeting of Stockholders of the Company held on May 26, 2011, stockholders of the
Company approved an amendment to the Company’s 2010 Performance Incentive Plan. As a result of this
amendment, the 2010 Plan was amended to provide for an increase in the total shares of common stock
available for issuance under the 2010 Plan from 450,000 to 1,050,000. As at June 30, 2011 the
Company has reserved, pursuant to various plans, 1,598,075 common shares for issuance upon exercise
of stock options by employees, directors, officers and consultants of the Company, of which 777,359
are reserved for options currently outstanding, and 820,716 are available for future option grants.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Stock Option Summary</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Options vest in accordance with terms as determined by the board of directors of the Company, or
the Board, typically over four years for employee grants and one to three years for Board option
grants. The expiry date for each option is set by the Board, which is typically seven to ten years.
The exercise price of the options is determined by the Board but generally will be at least equal
to the fair value of the share at the grant date.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Stock option transactions and the number of stock options outstanding are summarized below:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Number <br />
of</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Weighted</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Optioned</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Average</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Common</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Exercise</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Shares</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Price</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>#</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>$</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Balance, December 31, 2010</b>
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>744,913</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right"><b>8.73</b></td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Option grants
</div></td>
<td> </td>
<td> </td>
<td align="right">75,900</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17.03</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Option expirations/cancellations
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(6,112</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">13.86</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Option exercises
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(24,660</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">3.67</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Option forfeitures
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(12,682</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">12.66</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Balance, June 30, 2011</b>
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>777,359</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right"><b>9.59</b></td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The fair value of each stock award is estimated on the grant date using the Black-Scholes
option-pricing model based on the weighted-average assumptions noted in the following table:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Six months ended June 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Risk-free interest rates
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">2.39</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">2.41</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected dividend yield
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">0</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">0</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected life
</div></td>
<td> </td>
<td colspan="2" nowrap="nowrap" align="right">6 years</td>
<td> </td>
<td> </td>
<td colspan="2" nowrap="nowrap" align="right">6 years</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected volatility
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">75</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">74</td>
<td nowrap="nowrap">%</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The expected life was calculated based on the simplified method as permitted by the SEC’s Staff
Accounting Bulletin 110, Share-Based Payment. The computation of expected volatility was based on
the historical volatility of comparable companies from a representative peer group selected based
on industry and market capitalization. The Company considers the use of these methods of
calculating expected term and volatility appropriate because of the lack of sufficient historical
exercise data following the reverse takeover of Sonus. The risk-free interest rate was based on a
U.S. Treasury instrument whose term is consistent with the expected life of the stock options. In
addition to the assumptions above, as required under ASC 718, management made an estimate of
expected forfeitures and is recognizing compensation costs only for those equity awards expected to
vest.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt">The results for the periods set forth below included share-based compensation expense in the
following expense categories of the consolidated statements of loss:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Six Months</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000">(In thousands)</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left"> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>$</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>$</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>$</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>$</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Research and development
</div></td>
<td> </td>
<td> </td>
<td align="right">122</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">74</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">243</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">142</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">General and administrative
</div></td>
<td> </td>
<td> </td>
<td align="right">161</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">70</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">311</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">169</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Total share-based compensation</b>
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>283</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right"><b>144</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right"><b>554</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right"><b>311</b></td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Options vest in accordance with terms as determined by the Board, typically over three or four
years for employee grants and over one or three years for Board of Director option grants. The
expiry date for each option is set by the Board with, which is typically seven to ten years.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">As at June 30, 2011 and December 31, 2010 the total unrecognized compensation expense related to
stock options granted is $3,176,000 and $2,962,000 respectively, which is expected to be recognized
into expense over a period of approximately four years.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">As of June 30, 2011 and December 31, 2010 a total of 2,364,660 and 2,332,214 options and warrants,
respectively, have not been included in the calculation of potential common shares as their effect
on diluted per share amounts would have been anti-dilutive.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>[d] Stock Warrants</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">At June 30, 2011, there were exercisable warrants outstanding to purchase 1,587,301
shares of common stock at an exercise price of $20 per share, expiring in October 2015.
No warrants were exercised during the six months ended June 30, 2011 or six months ended
June 30, 2010.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The estimated fair value of warrants issued is reassessed at each balance sheet date
using the Black-Scholes option pricing model. The following assumptions were used to
value the warrants on the following balance sheet dates:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Six months ended June 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Risk-free interest rates
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">1.43</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected dividend yield
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">0</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected life
</div></td>
<td> </td>
<td colspan="2" nowrap="nowrap" align="right">4.3 years</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected volatility
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">76</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>6. RESTRUCTURING ACTIVITIES</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">On August 21, 2008, Sonus Pharmaceuticals, Inc., or Sonus, completed a transaction, or “the
Arrangement”, with OncoGenex Technologies whereby Sonus acquired all of the outstanding preferred
shares, common shares and convertible debentures of OncoGenex Technologies. Sonus then changed its
name to OncoGenex Pharmaceuticals, Inc. 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 the then effective EITF No. 95-3, “Recognition of Liabilities in Connection with
a Purchase Business Combination”. This represents the Company’s best estimate of the liability.
Subsequent changes in the liability due to changes in estimates of sublease assumptions are
recognized as adjustments to restructuring charges.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt">In June 2009, the Company revised its sublease income assumptions used to estimate the excess lease
facility liability. These assumptions were subsequently revised again in December 2009 and
September
2010. These changes in estimate resulted in increases in the value of the excess lease liability of
$494,000, $3,457,000, and $4,038,000 and a corresponding expense recorded in June 2009, December
2009, and September 2010, respectively, to reflect these changes in estimate. The estimated value
of the liability remaining with respect to excess facilities was $7,467,000 as of December 31,
2010. In the six months ended June 30, 2011, with respect to excess facilities, $140,000 was
amortized into income resulting in a remaining liability of $7,327,000 at June 30, 2011.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Remaining</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Amortization</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Additional</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Remaining</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Liability at</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>of excess</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Liability</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Liability</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>(In thousands)</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>December 31, 2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>lease facility</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Recorded</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>at June 30, 2011</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Current portion of
excess lease
facility
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,303</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(53</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,356</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Long-term portion
of excess lease
facility
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">6,164</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">193</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,971</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Total</b>
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>7,467</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>140</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>—</b></td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right"><b>7,327</b></td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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<!-- Begin Block Tagged Note 7 - us-gaap:CommitmentsAndContingenciesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>7. COMMITMENTS AND CONTINGENCIES</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Teva Pharmaceutical Industries Ltd.</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Under the Collaboration Agreement, Teva made upfront payments in the aggregate amount of $50
million, may make up to $370 million in additional payments upon the achievement of developmental
and commercial milestones and may be required in the future to pay royalties at percentage rates
ranging from the mid-teens to mid-twenties on net sales. The Company is required to contribute $30
million in direct and indirect costs towards the Clinical Development Plan. As of June 30, 2011,
$10.1 million of these costs have been incurred by OncoGenex, resulting in a remaining funding
responsibility of $19.9 million which has been recorded under Current and Long-term Deferred
Collaboration Revenue as of June 30, 2011. Teva will fund all other expenses under the Clinical
Development Plan. See note 3 in the Notes to Financial Statements for further details on our
Collaboration Agreement with Teva.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Isis Pharmaceuticals Inc. and University of British Columbia</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">To facilitate the execution and performance of the Collaboration Agreement with Teva, OncoGenex and
Isis agreed to amend the Isis License Agreement and the Company and UBC agreed to amend the UBC
License Agreement, in each case, effective December 19 and December 20, 2009, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The amendment to the Isis License Agreement provides, among other things, that 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 Isis License 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 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. If the $30
million in advanced reimbursement of development activities has not been spent by OncoGenex prior
to the third anniversary of the Collaboration Agreement between OncoGenex and Teva, OncoGenex will
pay Isis an amount equal to 30% of any un-spent portion less $3.5 million.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt">In addition, we are required to pay to Isis 30% of all Non-Royalty Revenue we receive on custirsen
sales. 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%.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Pursuant to license agreements the Company has with the UBC and Isis, the Company is obligated to
pay milestone payments of up to CAD $1.6 million and $7.75 million, respectively, upon the
achievement of specified product development milestones related to OGX-427 and OGX-225 and
royalties on future product sales. We paid Isis and UBC $750,000 and CAD $100,000, respectively, 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 2011.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Unless otherwise terminated, the Isis agreements for custirsen 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 custirsen 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.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">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 relating to custirsen, OGX-427 and OGX-225.
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.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Bayer HealthCare LLC</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">On August 7, 2008, Sonus completed an exclusive in-licensing agreement with Bayer HealthCare LLC,
or Bayer, for the right to develop, commercialize or sublicense a family of compounds known as
caspase activators presently in pre-clinical 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.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Under the terms of the agreement, Bayer received an upfront license fee of $450,000. OncoGenex will
make annual payments to Bayer on the anniversary date (Anniversary Payments), with an initial
payment of $100,000 paid in 2008. The payments 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, or
NDA, 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 $14,000,000 for
clinical development and regulatory milestones. No milestone payments are triggered prior to the
initiation of a phase 3 clinical trial. OncoGenex has the option to terminate this contract upon 60
days written notice to Bayer.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Lease Arrangements</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The Company has an operating lease agreement for office space in Vancouver, Canada, which expires
in September 2014.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Future minimum annual lease payments under the Vancouver lease are as follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">CAD</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2011
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right">53</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2012
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">107</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2013
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">107</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2014
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">80</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Total</b>
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>347</b></td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">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 (note 6). In connection
with the lease, Sonus was required to provide a cash security deposit of approximately $497,000,
which is included in Other Long Term Assets. In addition, a standby letter of credit was issued in
2010, and $502,000 was deposited in a restricted money market account as collateral. 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 $7,327,000 as at June 30,
2011 (note 6).
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">If the Company is unable to exit or sublet portions of this leased space, the future minimum annual
lease payments are as follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,027</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2012
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,117</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2013
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,180</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2014
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,246</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2015
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,313</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Remainder
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,837</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Total</b>
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>14,720</b></td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Consolidated rent expense relating to both the Vancouver, Canada and Bothell, Washington
offices for the periods ended June 30, 2011 and 2010 was $1,313,000 and $1,092,000 respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Guarantees and Indemnifications</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">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.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">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
June 30, 2011.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">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.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
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<!-- Begin Block Tagged Note 8 - us-gaap:ComprehensiveIncomeNoteTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>8. COMPREHENSIVE LOSS</b>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Six Months</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000">(In thousands)</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left"> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>$</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>$</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>$</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>$</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Loss (income) for the period
</div></td>
<td> </td>
<td> </td>
<td align="right">6,530</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(154</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">9,575</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,890</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Unrealized gain on cash
equivalents and marketable
securities
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(14</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(14</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Unrealized loss on cash
equivalents and short-term
investments
</div></td>
<td> </td>
<td> </td>
<td align="right">46</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">46</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Comprehensive loss (income)
</div></td>
<td> </td>
<td> </td>
<td align="right">6,562</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(154</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">9,607</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,890</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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<!-- Begin Block Tagged Note 9 - us-gaap:SubsequentEventsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>9. SUBSEQUENT EVENTS</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The Company has performed an evaluation of events occurring subsequent to June 30, 2011. Based on
our evaluation, no material events have occurred requiring financial statement disclosure.
</div>
</div>