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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 style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<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 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 consideration that is contingent
upon achievement of a milestone as revenue in the period in which the milestone is achieved as long
as the milestone is considered substantive according to the criteria set forth in this new
standard. The Company adopted this standard 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 are 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>
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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"><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 Pharmaceuticals, Inc., or Isis, relating to custirsen, the Company paid 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 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 these 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. Results from the
survival primary endpoint for the custirsen SYNERGY phase 3 clinical trial are expected
during the fourth quarter of 2013. During discussions regarding the Prostate Cancer SATURN
trial, or SATURN, Special Protocol Assessment, or SPA, amendment, the 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 enroll at least 800
patients in SYNERGY.</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 cabazitaxel or docetaxel as
second-line chemotherapy in approximately 300 patients with CRPC. An amendment to the
SATURN phase 3 SPA was completed with the FDA to include cabazitaxel as a second-line
chemotherapy option and expand the criteria for patient enrollment in the third quarter of
2011. The SATURN study is designed to evaluate a durable pain palliation benefit of
custirsen in patients who had disease progression while receiving or after completing
1st-line docetaxel-based treatment. Patient accrual will continue to be closely monitored
to determine the impact of the amendment on SATURN’s previously reported accrual
challenges. Expected timing of results for the pain palliation primary endpoint is
projected to be the fourth quarter of 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 based on safety
considerations and the current and evolving standard of care. 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 the option has not been 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 withholding 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 nine months ended September 30, 2011 was $1.2 million and $4.3 million
respectively, 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 September 30, 2011, a remaining balance of
$19.0 million of the up-front payment was recorded in deferred collaboration revenue. There was
$4.9 million and $11.3 million in revenue recorded in the three and nine months ended September 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>
</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 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 large, well established Canadian and U.S.
financial institutions.
</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">1,367</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">$</td>
<td align="right">1,367</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Money market securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">11,931</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">$</td>
<td align="right">11,931</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Government securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,026</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">$</td>
<td align="right">1,026</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate bonds and commercial paper
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">55,309</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">55,309</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>14,324</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>55,309</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>69,633</b></td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Liabilities</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Warrants
</div></td>
<td> </td>
<td align="left"><b>$</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">6,248</td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right">6,248</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 align="left">(in thousands)</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"><b>2011</b></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">Cash
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,367</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">$</td>
<td align="right">1,367</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Money market
securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">11,554</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">$</td>
<td align="right">11,554</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Government
securities
</div></td>
<td> </td>
<td align="left">$</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">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate bonds and
commercial paper
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,802</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">$</td>
<td align="right">2,802</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Cash and cash
equivalents</b>
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>15,723</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">—</td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>15,723</b></td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Money market
securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">377</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">$</td>
<td align="right">377</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Restricted cash</b>
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>377</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>$</b></td>
<td align="right"><b>377</b></td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Government
securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,026</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">$</td>
<td align="right">1,026</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate bonds and
commercial paper
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">52,619</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(120</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">52,507</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Short-term
investments</b>
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right"><b>53,645</b></td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right"><b>8</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"><b>$</b></td>
<td align="right"><b>(120</b></td>
<td nowrap="nowrap"><b>)</b></td>
<td> </td>
<td align="left">$</td>
<td align="right"><b>53,533</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>
<!-- 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">There were no significant realized or unrealized gains or losses on the sales of marketable
securities in the nine months ended September 30, 2011 and no significant unrealized gains or
losses are included in accumulated other comprehensive income as at September 30, 2011. Realized
gains and losses are transferred out of accumulated other comprehensive income into interest income
using the specific identification method.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">All of the marketable securities held as of September 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
September 30, 2011.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The Company has recorded a $6,248,000 warrant liability as of September 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 nine months ended September 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> </td>
<td> </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>Liability at</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Liability at</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>September 30,</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>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">$</td>
<td align="right">9,021</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,248</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 nine month period ended September 30, 2011 the Company issued 54,761 common shares
(period ended September 30, 2010 — 156,472) 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 September 30, 2011 the
Company has reserved, pursuant to various plans, 1,567,974 common shares for issuance upon exercise
of stock options by employees, directors, officers and consultants of the Company, of which 762,441
are reserved for options currently outstanding, and 805,533 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</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>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"><b>Shares</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><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" style="border-bottom: 1px solid #000000"><b>#</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><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">95,600</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">15.15</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">(6,320</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">13.93</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">(54,761</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">3.90</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">(16,991</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">17.82</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, September 30, 2011</b>
</div></td>
<td> </td>
<td> </td>
<td align="right"><b>762,441</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right"><b>9.64</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"><b>Nine months 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>September 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">2.16</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">2.36</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 nowrap="nowrap" align="left"> </td>
<td align="right">6</td>
<td nowrap="nowrap"> years</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">6</td>
<td nowrap="nowrap"> years</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 nowrap="nowrap" align="left"> </td>
<td align="right">75</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 Pharmaceuticals, Inc., or 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>Nine 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>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 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">181</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">88</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">493</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">231</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">131</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">61</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">373</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">231</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>312</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right"><b>149</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right"><b>866</b></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right"><b>462</b></td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">As of September 30, 2011 and December 31, 2010 the total unrecognized compensation expense related
to stock options granted is $2,949,627 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 September 30, 2011 and December 31, 2010 a total of 2,042,510 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">As of September 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 nine months ended September 30, 2011
or nine months ended September 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"><b>Nine months 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>September 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">0.71</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 nowrap="nowrap" align="left"> </td>
<td align="right">4.06</td>
<td nowrap="nowrap"> years</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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<!-- Begin Block Tagged Note 6 - us-gaap:RestructuringAndRelatedActivitiesDisclosureTextBlock-->
<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 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 nine months ended September 30, 2011, with respect to excess facilities,
$252,000 was amortized into income resulting in a remaining liability of $7,215,000 at September
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> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </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>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>Liability</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>at September 30,</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>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">$</td>
<td align="right">(74</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,377</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Long-term portion
of excess lease
facility
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">6,164</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">326</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,838</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Total</b>
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>7,467</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>252</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>—</b></td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7<b>,215</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 September 30,
2011, $11.0 million of these costs have been incurred by OncoGenex, resulting in a remaining
funding responsibility of $19.0 million which has been recorded under Deferred collaboration
revenue and Deferred collaboration revenue, less current portion as of September 30, 2011. Teva
will fund all other expenses under the Clinical Development Plan. See note 3 in the Notes to
Consolidated 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>
<!-- 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 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>
<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, as defined in the Amended Isis License Agreement. 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, as defined in the Amended Isis
License Agreement, 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 USD $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 UBC and Isis CAD $100,000 and USD $750,000,
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>
<!-- 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">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 dates, which are referred to as 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
$14,000,000 for clinical development and regulatory milestones. No milestone payments are triggered
prior to the initiation of a phase 3 clinical trial. OncoGenex has the option to terminate this
contract upon 60 days written notice to Bayer.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Lease Arrangements</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">The Company has an operating lease agreement for office space in Vancouver, Canada, which expires
in September 2014.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">Future minimum annual lease payments under the Vancouver lease are as follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">CAD</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2011
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right">27</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>321</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 for $377,000
is 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 $7,215,000 as at September 30, 2011 (note 6).
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt">If the Company is unable to exit or sublet portions of this leased space, the future minimum annual
lease payments are as follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">514</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>14,207</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 in use periods ended September 30, 2011 and 2010 was $1,971,000 and $1,715,000
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 us 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
September 30, 2011.
</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">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>
</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 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 (INCOME)</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>Nine 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>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td 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>$</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>$</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>$</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><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 nowrap="nowrap" align="left"> </td>
<td align="right">(4,470</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">6,894</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,104</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,784</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> </td>
<td align="right">8</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3</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">120</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">120</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3</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 nowrap="nowrap" align="left"> </td>
<td align="right">(4,358</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">6,894</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,216</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,784</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 September 30, 2011. Based
on our evaluation, no material events have occurred requiring financial statement disclosure.
</div>
</div>
25000000
25000000