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

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

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

As of ~~November 11, 2008,~~May 13, 2009, there were 128,226,787 shares of Adherex Technologies Inc. common stock outstanding.


	September 30, 2008			December 31, 2007			March 31, 2009			December 31, 2008
Assets

Current assets:
Cash and cash equivalents	$	7,882		$	16,162		$	3,047		$	5,349
Cash pledged as collateral		55			55			52			52
Accounts receivable		33			21
Investment tax credits recoverable		149			164			—			133
Prepaid expense		54			130
Other current assets		28			29			67			105
Assets held for sale								81			—

Total current assets		8,201			16,561			3,247			5,639

Property and equipment		153			285			—			136
Leasehold inducements		304			363			—			285

Total assets	$	8,658		$	17,209		$	3,247		$	6,060


Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable	$	990		$	532		$	686		$	547
Accrued liabilities		1,914			1,830			900			1,883
Other current liabilities		—			40			7			—

Total current liabilities		2,904			2,402			1,593			2,430

Other long-term liabilities								—			7
Deferred lease inducement		600			659			546			570

Total liabilities		3,504			3,061			2,139			3,007


Commitments and contingencies

Stockholders’ equity:
Common stock, no par value; unlimited shares authorized; 128,227 shares issued and outstanding		64,929			64,929			64,929			64,929
Additional paid-in capital		34,436			32,355			35,161			34,860
Deficit accumulated during development stage		(95,369	)		(84,379	)		(100,225	)		(97,979	)
Accumulated other comprehensive income		1,158			1,243			1,243			1,243

Total stockholders’ equity		5,154			14,148			1,108			3,053

Total liabilities and stockholders’ equity	$	8,658		$	17,209		$	3,247		$	6,060

(The accompanying notes are an integral part of these condensed consolidated financial statements)


	Three Months Ended						Nine Months Ended						Cumulative From September 3, 1996 to September 30, 2008

																Three Months Ended								Cumulative From September 3, 1996 to March 31, 2009
	September 30, 2008			September 30, 2007				September 30, 2008			September 30, 2007						March 31, 2009				March 31, 2008
Revenue	$	—		$	—			$	—		$	—			$	—			$	—			$	Cumulative From September 3, 1996 to March 31, 2009	—			$	—


Operating expenses:
Research and development		2,821			2,490			8,768			8,293			61,179				1,279				3,375				64,056
Acquired in-process research and development		—			—			—			—			13,094				—				—				13,094
General and administrative		478			966			2,478			2,717			22,454				673				1,061				24,169

Total operating expenses		3,299			3,456			11,246			11,010			96,727				1,952				4,436				101,319


Loss from operations		(3,299	)		(3,456	)		(11,246	)		(11,010	)		(96,727	)			(1,952	)			(4,436	)			(101,319	)


Other income (expense):
Settlement of Cadherin Biomedical Inc. litigation		—			—			—			—			(1,283	)			—				—				(1,283	)
Interest expense		—			—			—			—			(19	)			—				—				(19	)
Loss on impairment of assets held for sale and leasehold inducements																		(340	)			—				(340	)
Other income		—			—			—			—			98				—				—				98
Interest income		55			254			256			661			2,720				46				132				2,796

Total other income (expense), net		55			254			256			661			1,516
Total other income and expense, net																		(294	)			132				1,252

Net loss	$	(3,244	)	$	(3,202	)	$	(10,990	)	$	(10,349	)	$	(95,211	)

Other comprehensive loss, unrealized foreign exchange loss on cash and cash equivalents, net of tax		(85	)		—			(85	)		—
Net loss and comprehensive loss																	$	(2,246	)		$	(4,304	)		$	(100,067	)

Comprehensive loss	$	(3,329	)	$	(3,202	)	$	(11,075	)	$	(10,349	)

Basic and diluted net loss per common share	$	(0.03	)	$	(0.02	)	$	(0.09	)	$	(0.09	)					$	(0.02	)		$	(0.03	)

Weighted-average common shares used in computing basic and diluted net loss per common share		128,227			128,227			128,227			112,643							128,227				128,227

(The accompanying notes are an integral part of these condensed consolidated financial statements)


	Three Months Ended						Nine Months Ended						Cumulative From September 3, 1996 to September 30, 2008

																Three Months Ended							Cumulative From September 3, 1996 to March 31, 2009
	September 30, 2008			September 30, 2007				September 30, 2008			September 30, 2007						March 31, 2009			March 31, 2008
Cash flows from (used in):
Operating activities:																							Cumulative From September 3, 1996 to March 31, 2009
Net loss	$	(3,244	)	$	(3,202	)	$	(10,990	)	$	(10,349	)	$	(95,211	)		$	(2,246	)	$	(4,304	)		$	(100,067	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		17			24			147			57			1,387				—			77				1,404
Non-cash Cadherin Biomedical Inc. litigation		—			—			—			—			1,187
Non-cash Cadherin Biomedical Inc. litigation expense																		—			—				1,187
Unrealized foreign exchange loss		—			—			—			—			9				—			—				9
Amortization of leasehold improvements		(3	)		32			(7	)		114			130
Non-cash severance		—			—			—			—			168
Stock-based compensation—employees		280			385			2,016			1,789			6,770
Stock-based compensation—consultants		27			4			65			37			689
Amortization of deferred lease inducements																		(24	)		(2	)			102
Loss on impairment of assets held for sale and leasehold inducements																		340			—				340
Non-cash severance expense																		—			—				168
Stock options issued to consultants																		5			19				717
Stock options issued to employees																		296			1,314				7,467
Acquired in-process research and development		—			—						—			13,094				—			—				13,094
Changes in operating assets and liabilities		505			546			582			(2,792	)		2,197				(673	)		47				1,076

Net cash used in operating activities		(2,418	)		(2,211	)		(8,187	)		(11,144	)		(69,580	)			(2,302	)		(2,849	)			(74,503	)


Investing activities:
Purchase of capital assets		—			(22	)		(15	)		(58	)		(1,440	)			—			(15	)			(1,440	)
Disposal of capital assets		—			—			—			—			115				—			—				115
Release of restricted cash		—			(2	)		—			(2	)		190				—			—				190
Restricted cash		—			—			—			—			(209	)			—			—				(209	)
Purchase of short-term investments		—			(5,069	)		—			(5,069	)		(22,148	)			—			—				(22,148	)
Redemption of short-term investments		—			—			—			—			22,791				—			—				22,791
Investment in Cadherin Biomedical Inc.		—			—			—			—			(166	)			—			—				(166	)
Acquired intellectual property rights		—			—			—			—			(640	)			—			—				(640	)

Net cash used in investing activities		—			(5,093	)		(15	)		(5,129	)		(1,507	)			—			(15	)			(1,507	)


Financing activities:
Conversion of long-term debt to equity		—			—			—			—			68				—			—				68
Long-term debt repayment		—			—			—			—			(65	)
Long-term debt repayments																		—			—				(65	)
Capital lease repayments		—			—			—			—			(8	)			—			—				(8	)
Issuance of common stock, net of issue costs		—			—			—			23,915			76,687				—			—				76,687
Registration expense		—			—			—			—			(465	)			—			—				(465	)
Financing expenses																		—			—				(544	)
Proceeds from convertible note		—			—			—			—			3,017				—			—				3,017
Other liability repayments		—			—			—			—			(87	)			—			—				(87	)
Financing expenses		—			—			—			—			(544	)
Security deposits received		7			—			7			—			35
Security deposits																		—			—				35
Proceeds from exercise of stock options		—			—			—			—			51				—			—				51

Net cash provided in financing activities		7			—			7			23,915			78,689				—			—				78,689

Effect of exchange rate on cash and cash equivalents		(85	)		—			(85	)		—			280

Increase (decrease) in cash and cash equivalents		(2,496	)		(7,304	)		(8,280	)		7,642			7,882
Effect of exchange rate changes on cash and cash equivalents																		—			—				368

Net change in cash and cash equivalents																		(2,302	)		(2,864	)			3,047
Cash and cash equivalents—Beginning of period		10,378			20,611			16,162			5,665			—				5,349			16,162				—

Cash and cash equivalents—End of period	$	7,882		$	13,307		$	7,882		$	13,307		$	7,882			$	3,047		$	13,298			$	3,047

(The accompanying notes are an integral part of these condensed consolidated financial statements)


	Common Stock					Non-redeemable Preferred Stock of Subsidiary		Additional Paid-in Capital			Accumulated Other Comprehensive Income		Deficit Accumulated During Development Stage				Total Stockholders’ Equity

																Common Stock						Non-redeemable Preferred Stock of Subsidiary		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Deficit Accumulated During Development Stage			Total Shareholders’ Equity
			Number		Amount																Number	Non-redeemable Preferred Stock of Subsidiary				Amount							Total Shareholders’ Equity
Balance at June 30, 1996			—		$		—		$	—	$	—		$	—					$	—		$	Additional Paid-in Capital	—		Accumulated Other Comprehensive Income	—		Deficit Accumulated During Development Stage	$	—		$	—		$	—			$	—	$	—	$	—
Issuance of common stock	1,600			—			—		—			—		—					—			1,600			—		—			—			—			—				—
Net loss	—			—			—		—			—		(37	)			(37	)		—			—		—			—			—			(37	)			(37	)

Balance at June 30, 1997	1,600			—			—		—			—		(37	)			(37	)		1,600			—		—			—			—			(37	)			(37	)
Net loss	—			—			—		—			—		(398	)			(398	)		—			—		—			—			—			(398	)			(398	)

Balance at June 30, 1998	1,600			—			—		—			—		(435	)			(435	)		1,600			—		—			—			—			(435	)			(435	)
Exchange of Adherex Inc. shares for Adherex Technologies Inc. shares	(1,600	)		—			—		—			—		—				—			(1,600	)		—		—			—			—			—				—
Issuance of common stock	4,311			1,615			—		—			—		—				1,615			4,311			1,615		—			—			—			—				1,615
Cumulative translation adjustment	—			—			—		—			20		—				20			—			—		—			—			20			—				20
Net loss	—			—			—		—			—		(958	)			(958	)		—			—		—			—			—			(958	)			(958	)

Balance at June 30, 1999	4,311			1,615			—		—			20		(1,393	)			242			4,311			1,615		—			—			20			(1,393	)			242
Issuance of common stock	283			793			—		—			—		—				793			283			793		—			—			—			—				793
Issuance of equity rights	—			—			—		171			—		—				171			—			—		—			171			—			—				171
Issuance of special warrants	—			—			—		255			—		—				255			—			—		—			255			—			—				255
Settlement of advances:
Issuance of common stock	280			175			—		—			—		—				175			280			175		—			—			—			—				175
Cancellation of common stock	(120	)		—			—		—			—		—				—			(120	)		—		—			—			—			—				—
Cumulative translation adjustment	—			—			—		—			16		—				16			—			—		—			—			16			—				16
Net loss	—			—			—		—			—		(1,605	)			(1,605	)		—			—		—			—			—			(1,605	)			(1,605	)

Balance at June 30, 2000	4,754			2,583			—		426			36		(2,998	)			47			4,754			2,583		—			426			36			(2,998	)			47
Issuance of common stock:
Initial Public Offering (“IPO”)	1,333			5,727			—		—			—		(38	)			5,689			1,333			5,727		—			—			—			(38	)			5,689
Other	88			341			—		—			—		—				341			88			341		—			—			—			—				341
Issuance of special warrants	—			—			—		1,722			—		—				1,722			—			—		—			1,722			—			—				1,722
Conversion of special warrants	547			1,977			—		(1,977	)		—		—				—			547			1,977		—			(1,977	)		—			—				—
Issuance of Series A special warrants	—			—			—		4,335			—		—				4,335			—			—		—			4,335			—			—				4,335
Conversion of Series A special warrants	1,248			4,335			—		(4,335	)		—		—				—			1,248			4,335		—			(4,335	)		—			—				—
Conversion of equity rights	62			171			—		(171	)		—		—				—			62			171		—			(171	)		—			—				—
Cumulative translation adjustment	—			—			—		—			182		—				182			—			—		—			—			182			—				182
Net loss	—			—			—		—			—		(2,524	)			(2,524	)		—			—		—			—			—			(2,524	)			(2,524	)

Balance at June 30, 2001	8,032			15,134			—		—			218		(5,560	)			9,792			8,032			15,134		—			—			218			(5,560	)			9,792
Cumulative translation adjustment	—			—			—		—			11		—				11			—			—		—			—			11			—				11
Net loss	—			—			—		—					(3,732	)			(3,732	)		—			—		—			—						(3,732	)			(3,732	)

Balance at June 30, 2002	8,032			15,134			—		—			229		(9,292	)			6,071			8,032			15,134		—			—			229			(9,292	)			6,071

(The accompanying notes are an integral part of these consolidated financial statements)


	Common Stock			Non-redeemable Preferred Stock of Subsidiary			Additional Paid-in Capital		Accumulated Other Comprehensive Income			Deficit Accumulated During Development Stage			Total Stockholders’ Equity

											Common Stock						Non-redeemable Preferred Stock of Subsidiary			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Deficit Accumulated During Development Stage			Total Shareholders’ Equity
	Number	Amount									Number						Non-redeemable Preferred Stock of Subsidiary		Amount	Additional Paid-in Capital							Total Shareholders’ Equity
Balance at June 30, 2002	8,032	15,134				—			—					229				(9,292	)		6,071	Accumulated Other Comprehensive Income		Deficit Accumulated During Development Stage		8,032		15,134		—		—		229	(9,292	)	6,071
Common stock issued for Oxiquant acquisition	8,032	11,077				—			543			—			—			11,620			8,032	11,077		—			543		—		—		11,620
Exercise of stock options	5	4				—			—			—			—			4			5	4		—			—		—		—		4
Distribution to stockholders	—	—		—			—		—			(158	)		(158	)
Distribution to shareholders																		—		—		—		—			—		(158	)	(158	)
Stated capital reduction	—	(9,489	)	—			9,489		—			—			—			—		(9,489	)	—		9,489			—		—		—
Stock options issued to consultants	—	—		—			4		—			—			4			—		—		—		4			—		—		4
Equity component of June convertible notes	—	—		—			1,058		—			—			1,058			—		—		—		1,058			—		—		1,058
Financing warrants	—	—		—			53		—			—			53			—		—		—		53			—		—		53
Cumulative translation adjustment	—	—		—			—		(159	)		—			(159	)		—		—		—		—			(159	)	—		(159	)
Net loss	—	—		—			—		—			(17,795	)		(17,795	)		—		—		—		—			—		(17,795	)	(17,795	)

Balance at June 30, 2003	16,069	16,726		—			11,147		70			(27,245	)		698			16,069		16,726		—		11,147			70		(27,245	)	698
Stock options issued to consultants	—	—		—			148		—			—			148			—		—		—		148			—		—		148
Repricing of warrants related to financing	—	—		—			18		—			—			18			—		—		—		18			—		—		18
Equity component of December convertible notes	—	—		—			1,983		—			—			1,983			—		—		—		1,983			—		—		1,983
Financing warrants	—	—		—			54		—			—			54			—		—		—		54			—		—		54
Conversion of June convertible notes	1,728	1,216		—			(93	)	—			—			1,123			1,728		1,216		—		(93	)		—		—		1,123
Conversion of December convertible notes	1,085	569		—			(398	)	—			—			171			1,085		569		—		(398	)		—		—		171
Non-redeemable preferred stock	—	—		1,045			—		—			—			1,045			—		—		1,045		—			—		—		1,045
December private placement	11,522	8,053		—			5,777		—			—			13,830			11,522		8,053		—		5,777			—		—		13,830
May private placement	4,669	6,356		—			2,118		—			—			8,474			4,669		6,356		—		2,118			—		—		8,474
Exercise of stock options	18	23		—			—		—			—			23			18		23		—		—			—		—		23
Amalgamation of 2037357 Ontario Inc.	800	660		(1,045	)		363		—			—			(22	)		800		660		(1,045	)	363			—		—		(22	)
Cumulative translation adjustment	—	—		—			—		(219	)		—			(219	)		—		—		—		—			(219	)	—		(219	)
Net loss	—	—		—			—		—			(6,872	)		(6,872	)		—		—		—		—			—		(6,872	)	(6,872	)

Balance at June 30, 2004	35,891	33,603		—			21,117		(149	)		(34,117	)		20,454			35,891		33,603		—		21,117			(149	)	(34,117	)	20,454
Stock options issued to consultants	—	—		—			39		—			—			39			—		—		—		39			—		—		39
Stock options issued to employees	—	—		—			604		—			—			604			—		—		—		604			—		—		604
Cost related to SEC registration	—	(493	)	—			—		—			—			(493	)		—		(493	)	—		—			—		—		(493	)
Acquisition of Cadherin Biomedical Inc.	644	1,252		—			—		—			—			1,252			644		1,252		—		—			—		—		1,252
Cumulative translation adjustment	—	—		—			—		1,392			—			1,392			—		—		—		—			1,392		—		1,392
Net loss—Six months ended December 31, 2004	—	—		—			—		—			(6,594	)		(6,594	)
Net loss – six months ended December 31, 2004																		—		—		—		—			—		(6,594	)	(6,594	)

Balance at December 31, 2004	36,535	34,362		—			21,760		1,243			(40,711	)		16,654			36,535		34,362		—		21,760			1,243		(40,711	)	16,654


	Common Stock			Non-redeemable Preferred Stock of Subsidiary	Additional Paid-in Capital		Accumulated Other Comprehensive Income			Deficit Accumulated During Development Stage			Total Stockholders’ Equity

												Common Stock						Non-redeemable Preferred Stock of Subsidiary			Additional Paid-in Capital			Accumulated Other Comprehensive Income			Deficit Accumulated During Development Stage				Total Shareholders’ Equity
	Number	Amount										Number				Amount		Non-redeemable Preferred Stock of Subsidiary									Deficit Accumulated During Development Stage				Total Shareholders’ Equity
Balance at December 31, 2004	36,535	34,362		—		21,760			1,243			(40,711			)		16,654			36,535	Additional Paid-in Capital			Accumulated Other Comprehensive Income		34,362				—			21,760			1,243			(40,711	)	16,654
Financing costs	—	(141	)	—		—			—			—			(141	)		—			(141	)			—			—			—			—				(141	)
Exercise of stock options	15	25		—		—			—			—			25			15			25				—			—			—			—				25
Stock options issued to consultants	—	—		—	276		—			—			276			—			—				—			276			—			—				276
July private placement	6,079	7,060		—	1,074		—			—			8,134			6,079			7,060				—			1,074			—			—				8,134
Net loss	—	—		—	—		—			(13,871	)		(13,871	)		—			—				—			—			—			(13,871	)			(13,871	)

Balance at December 31, 2005	42,629	41,306		—	23,110		1,243			(54,582	)		11,077			42,629			41,306				-			23,110			1,243			(54,582	)			11,077
Stock options issued to consultants	—	—		—	100		—			—			100			—			—				—			100			—			—				100
Stock options issued to employees	—	—		—	491		—			—			491			—			—				—			491			—			—				491
May private placement	7,753	5,218		—	822		—			—			6,040			7,753			5,218				—			822			—			—				6,040
Net loss	—	—		—	—		—			(16,440	)		(16,440	)		—			—				—			—			—			(16,440	)			(16,440	)

Balance at December 31, 2006	50,382	46,524		—	24,523		1,243			(71,022	)		1,268			50,382			46,524				—			24,523			1,243			(71,022	)			1,268
Stock options issued to consultants	—	—		—	59		—			—			59			—			—				—			59			—			—				59
Stock options issued to employees	—	—		—	2,263		—			—			2,263			—			—				—			2,263			—			—				2,263
February financing	75,759	17,842		—	5,379		—			—			23,221			75,759			17,842				—			5,379			—			—				23,221
Exercise of warrants	2,086	563		—	131		—			—			694			2,086			563				—			131			—			—				694
Net loss	—	—		—	—		—			(13,357	)		(13,357	)		—			—				—			—			—			(13,357	)			(13,357	)

Balance at December 31, 2007	128,227	64,929		—	32,355		1,243			(84,379	)		14,148			128,227			64,929				—			32,355			1,243			(84,379	)			14,148
Stock options issued to consultants	—	—		—	19		—			—			19			—			—				—			88			—			—				88
Stock options issued to employees	—	—		—	1,314		—			—			1,314			—			—				—			2,417			—			—				2,417
Net loss for the quarter	—	—		—	—		—			(4,304	)		(4,304	)
Net loss																—			—				—			—			—			(13,600	)			(13,600	)

Balance at March 31, 2008	128,227	64,929		—	33,688		1,243			(88,683	)		11,177
Balance at December 31, 2008																128,227			64,929				—			34,860			1,243			(97,979	)			3,053
Stock options issued to consultants	—	—		—	19		—			—			19			—			—				—			5			—			—				5
Stock options issued to employees	—	—		—	422		—			—			422			—			—				—			296			—			—				296
Net loss for the quarter	—	—		—	—		—			(3,442	)		(3,442	)
Net loss for quarter																—			—				—			—			—			(2,246	)			(2,246	)

Balance at June 30, 2008	128,227	64,929		—	34,129		1,243			(92,125	)		8,176
Stock options issued to consultants	—	—		—	27		—			—			27
Stock options issued to employees	—	—		—	280		—			—			280
Unrealized loss on cash and cash equivalents	—	—		—	—		(85	)		—			(85	)
Net loss for the quarter	—	—		—	—		—			(3,244	)		(3,244	)
Balance at March 31, 2009																128,227		$	64,929			$	—		$	35,161		$	1,243		$	(100,225	)		$	1,108

Balance at September 30, 2008	128,227	64,929		—	34,436		1,158			(95,369	)		5,154

(The accompanying notes are an integral part of these consolidated financial statements)

Adherex Technologies Inc. (“Adherex”), together with its wholly owned subsidiaries Oxiquant, Inc. (“Oxiquant”) and Adherex, Inc., both Delaware corporations, and Cadherin Biomedical Inc. (“CBI”), a Canadian corporation, collectively referred to herein as the “Company,” is a development stage biopharmaceutical company focused on cancer therapeutics.

These interim condensed consolidated financial statements have been prepared using generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) of America that are applicable to a going concern which contemplates that Adherex Technologies Inc. will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business.

The Company is a development stage company and during the ~~nine months~~three month period ended ~~September 30, 2008, has~~March 31, 2009, incurred a net loss of ~~$10,990, has~~$2,246. At March 31, 2009, it had an accumulated deficit of ~~$95,369~~$100,225 and ~~has~~had experienced negative cash flows from operations since inception in the amount of ~~$69,665.~~$74,503. At March 31, 2009, the Company had cash and cash equivalents of $3,047, which based on management’s current plans, will only fund operations into August 2009. On March 30, 2009, the Company announced a 75% headcount reduction effective April 30, 2009, representing all 13 of the non-executive positions of the Company. The Company continues to pursue various strategic alternatives, including, collaborations with other pharmaceutical and biotechnology companies, however if a strategic transaction is not completed or the Company does not otherwise obtain additional financial resources in the very near term, we might cease operations sooner than August 2009. The Company has also not been successful in obtaining additional financing since February 2007. These circumstances lend substantial doubt as to the ability of the Company to meet its obligations as they come due and, accordingly, the use of accounting principles applicable to a going concern may not be appropriate.

The Company’s ability to continue as a going concern is dependent on the raising of additional financial resources in the very near term. If the Company is unable to obtain adequate financial resources, it could be forced to cease operations. The Company’s management is considering all financial alternatives and ~~will seek~~seeking to raise additional funds for operations from current stockholders, other potential investors, corporate partners, or other sources. This disclosure is not an offer to sell, nor a solicitation of an offer to buy the Company’s securities. While the Company is striving to achieve these plans, there is no assurance that such funding will be ~~available or~~ obtainable on favorable ~~terms.~~terms or at all.

The Company’s ability to continue as a going concern is dependent on the raising of additional financial resources. If the Company is unable to obtain adequate financial resources, it could be forced to cease operations. These financial statements do not reflect the potentially material adjustments in the carrying values of assets and liabilities, the reported expenses, and the balance sheet classifications used, that would be necessary if the going concern assumption were not appropriate.

Adherex Technologies Inc. (“Adherex”), together with its wholly-owned subsidiaries Oxiquant, Inc. (“Oxiquant”) and Adherex, Inc., both Delaware corporations, and Cadherin Biomedical Inc. (“CBI”), a Canadian corporation, collectively referred to herein as the “Company,” is a development stage biopharmaceutical company with a portfolio of product candidates under development for use in the treatment of cancer.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and applicable Securities and Exchange Commission (“SEC”) regulations for interim financial information. These financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2007.~~2008. Except as set out below, the Company’s accounting policies are consistent with those presented in the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2007.~~2008. These unaudited interim condensed consolidated financial statements have been prepared in U.S. dollars.

~~The preparation of these unaudited interim condensed consolidated financial statements also conform~~

(U.S. dollars and shares in ~~all material respects with generally accepted accounting principles in Canada (“Canadian GAAP”)~~thousands, except ~~as described in Note 6 in the unaudited interim condensed consolidated financial statements.~~per share information)

The preparation of financial statements in conformity with GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in these interim condensed consolidated financial statements. Actual results could differ from these estimates. In the opinion of management, these unaudited interim condensed consolidated financial statements include all normal and recurring adjustments, considered necessary for the

fair presentation of the Company’s financial position at ~~September 30, 2008~~March 31, 2009 and to state fairly the results for the periods presented.

Cash and cash equivalents consist of highly liquid investments with original maturities at the date of purchase of three months or less.

The Company classifies its cash equivalents as “available for sale.” Such investments are recorded at fair value, determined based on quoted market prices, and unrealized gains and losses, which are considered to be temporary, are recorded as other comprehensive income (loss) in a separate component of stockholders’ equity until realized.

~~The Company~~ places its cash and cash equivalents in ~~high credit quality~~ investments held by financial institutions in accordance with its investment policy designed to protect the principal investment. At ~~September 30, 2008,~~March 31, 2009, the Company had ~~$6,296~~$1,940 in money market investments which typically have minimal ~~risk. In recent months the~~risk, $805 in guaranteed investment certificates and $302 in cash. The financial markets have been volatile resulting in concerns regarding the recoverability of money market investments. As a result, on September 19, 2008 the U.S. Treasury announced a Temporary Guarantee Program, which insures money market investments on a temporary basis. The Company’s money market ~~manager has submitted the necessary documentation and paid the required fee to participate in~~investments are insured by the U.S. Treasury’s Temporary Guarantee ~~Program funds for the Company’s money market investments. The~~Program. This program ~~will be in effect for an initial three month term and~~ ensures that if a participating fund’s share value declines to below one dollar and the fund is liquidated, the U.S. Treasury would cover any shortfall between the liquidated share price and one dollar. ~~The Secretary of~~On March 31, 2009, the U.S. Treasury ~~has~~announced the ~~option to extend the~~ program was extended until September 18, 2009. The Company has not experienced any loss or write down of its money market investments for the three ~~and nine~~ month periods ended ~~September 30, 2008~~March 31, 2009 and ~~2007.~~

At both September 30, 2008 and December 31, 2007, the Company had warrants outstanding to purchase common stock that were denominated in both U.S. and Canadian dollars, which results in the Company having warrants outstanding that are denominated outside the Company’s U.S. dollar functional currency.

In November 2007, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) issued EITF No. 07-5, Issue Summary No.1 “Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF 07-5”). In June 2008, one of the conclusions reached under EITF 07-05 was a consensus-for-exposure that an equity-linked financial instrument would not be considered indexed to the entity’s own stock if the strike price is denominated in a currency other than the issuer’s functional currency. The issues brought to the EITF for discussion related to how an entity should determine whether certain instruments or embedded features are indexed to its own stock. This discussion included equity-linked financial instruments where the exercise price is denominated in a currency other than the issuer’s functional currency; such as the Company’s outstanding warrants to purchase common stock that are denominated in Canadian dollars. This conclusion reached under EITF 07-05 clarified the accounting treatment for these and certain other financial instruments as it related to FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). SFAS 133 specifies that a contract that would otherwise meet the definition of a derivative under SFAS 133, issued or held by the reporting entity that is both (a) indexed to its own stock and (b) classified in stockholders’ equity in its statement of financial position should not be considered a derivative financial instrument for purposes of applying SFAS 133. As a result, the Company’s outstanding warrants denominated in Canadian dollars are not considered to be indexed to its own stock and would therefore be treated as derivative financial instruments and recorded at their fair value as a liability. EITF 07-05 will be effective for financial statements for fiscal years beginning after December 15, 2008 and earlier adoption is not permitted. Since the warrants to purchase common stock that are denominated in Canadian dollars expire on December 19, 2008, EITF 07-5 is not expected to have a material impact on the Company’s financial statements unless the Company issues further equity instruments denominated outside its functional currency.2008.

In ~~September 2006,~~December 2007, the ~~FASB released SFAS~~Emerging Issue Task Force (“EITF”) issued EITF No. ~~157, “Fair Value Measurements”~~07-01, “Accounting for Collaborative Arrangement Related to the Development and Commercialization of Intellectual Property (“EITF 07-01”). EITF 07-01 defines the accounting for collaborations between participants. EITF 07-01 requires certain transactions between collaborators to be recorded in the statement of operations on either a gross or net basis within expense when certain characteristics exist in the collaborative agreement. EITF 07-01 did not have a material impact on the financial statements.

In December 2007, the Financial Accountanting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R), “Business Combinations,” (“SFAS ~~157”~~141(R)”) ~~which is effective for fiscal years beginning after November 15, 2007, which is~~, requires an acquiring company to measure all assets acquired and liabilities assumed, including contingent considerations and all contractual contingencies, at the ~~year ending December 31, 2008 for the Company. SFAS 157 defines~~ fair value at the acquisition date. SFAS 141(R) establishes principles and requirements for how the acquirer: i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; ii) recognizes and measures the goodwill acquired in the business combination or a ~~framework for measuring fair value in GAAP,~~gain from a bargain purchase; and ~~expands disclosures about fair value measurements. In November 2007, the FASB agreed~~iii) determines what information to ~~a one-year deferral~~disclose to enable users of the ~~effective date for nonfinancial assets~~financial statements to evaluate the nature and ~~liabilities that are recognized or disclosed at fair value~~financial effects of the business combination. The adoption of SFAS 141(R) did not have a material impact on ~~a nonrecurring basis. The~~the financial statements.

Company is currently assessing the deferred portion of the pronouncement. As of January 1, 2008, the Company has adopted SFAS 157 for the fair value measurement of recurring items which has not had a material impact on the Company’s financial statements.3. Recent Accounting Pronouncements

In ~~February 2007,~~April 2009, the FASB issued ~~SFAS~~FASB Staff Position (“FSP”) FAS No. ~~159, “The~~157-4, “Determining Fair Value ~~Option~~When the Volume and Level of Activity for ~~Financial Assets~~the Asset or Liability has Significantly Decrease and ~~Financial Liabilities—including an amendment~~Indentifying Transactions That Are Not Orderly” (“FSP FAS 157-4”). FSP FAS 157-4 provides guidance for estimating fair value in accordance with SFAS 157 “Fair Value Measurements” when the volume and level of ~~FASB Statement No. 115”, (“SFAS 159”), which~~activity for the asset or liability have significantly decreased. FSP FAS 157-4 provided additional authoritative guidance in determining whether a market is active or inactive and whether a transaction is distressed. FSP FAS 157-4 is effective for ~~fiscal years beginning~~interim and annual reporting periods ending after ~~November~~June 15, ~~2007. SFAS 159 permits companies~~2009. The Company is evaluating FSP FAS 157-4, but it is not expected to choose to measure many financial instruments and certain other items at fair value on a per instrument basis, with changes in fair value recognized in earnings each reporting period. This will enable some companies to reduce volatility in reported earnings caused by measuring related assets and liabilities differently. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The adoption of this statement did not have a material impact on the ~~Company’s~~ financial statements.

In ~~June 2007,~~April 2009, the ~~EITF,~~FASB issued ~~EITF~~FSP FAS No. ~~07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services~~115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments” (“SFAS 115-2”). SFAS 115-2 amends current authoritative guidance to ~~Be Used~~improve the presentation and disclosure of other-than-temporary impairments of debt and equity securities in ~~Future Research and Development Activities”, (“EITF 07-3”), which provides guidance for up-front payments related to goods and services of research and development costs. EITF 07-3~~the financial statements. SFAS 115-2 is effective for ~~fiscal years beginning~~interim and annual reporting periods ending after ~~December~~June 15, ~~2007, which~~2009. The Company is ~~the year ending December 31, 2008 for the Company. The adoption of EITF 07-3 did~~evaluating SFAS 115-2, but it is not expected to have a material impact on the ~~Company’s~~ financial statements.

In ~~March 2008,~~April 2009, the FASB issued ~~SFAS~~FSP FAS No. ~~161, “Disclosures~~107-1 and APB 28-1 “Interim Disclosures About ~~Derivative Instruments~~Fair Value Instruments” (“FSP FAS 107-1”). FSP FAS 107-1 requires additional disclosure about fair value of financial instruments for interim reporting periods and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 expands quarterly disclosure requirements in SFAS No. 133 about an entity’s derivative instruments and hedging activities. SFAS No. 161annual financial statements. FSP FAS 107-1 is effective for ~~fiscal years beginning~~interim and annual reporting periods ending after ~~November~~June 15, ~~2008.~~2009. The Company is ~~currently assessing the~~evaluating FSP FAS 107-1, but it is not expected to have a material impact ~~of SFAS No. 161~~ on the ~~disclosures in the consolidated~~ financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting,” (“SFAS No. 162”). SFAS No. 162 indentifies the sources of accounting principles and the framework for selecting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the U.S. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not expect the adoption of SFAS 162 to have a material impact on the ~~Company’s~~ financial statements.

~~At September 30, 2008,~~The Company has written off $133 of investment tax receivables during the three months ended March 31, 2009. After being notified by Canadian tax authorities that the Company’s claims relating to this tax receivable were being denied, the Company estimates that these amounts are no longer recoverable.

The $133 was charged to research and development expense during the three month ended March 31, 2009 as the claims relate to certain research and development work being conducted in Canada.

In connection with the 75% reduction in the Company’s employee headcount and limited financial resources, the Company had ~~7,567 investor warrants outstanding~~decided to ~~purchase common stock priced in Canadian dollars~~list idle laboratory equipment, office furniture and other office equipment for sale as they are no longer required by the business. The Company determined this property met the criteria for “held for sale accounting” under SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS 144”) and have presented the assets separately on the face of the Unaudited Condensed Consolidated Balance Sheet at March 31, 2009.

Under SFAS 144 an asset classified as held for sale shall be measured at the lower of its carrying value amount or the fair value less any cost to sell with ~~an exercise price~~any loss. Management judgment is required to assess the criteria required to meet the held for sale accounting requirements and the estimated fair value of ~~CAD $2.15 that expire on December 19, 2008.~~

the assets. At ~~September 30, 2008,~~March 31, 2009, the Company ~~had~~determined the ~~following warrants outstanding~~carrying values of the assets exceeded their fair value less cost to ~~purchase common stock priced~~sell. Accordingly, the Company recorded a $55 loss on impairment of assets in ~~U.S. dollars with a weighted average exercise price~~the Unaudited Condensed Consolidated Statement of ~~$0.41 and a weighted average remaining life of 1.3 years:~~Operations for the three month ended March 31, 2009.

The Company expects the sale of these assets to be completed within a one year time period.

Management has also performed an impairment analysis under FAS 144 and has determined that the leasehold inducements, consisting primarily of equipment and leasehold improvements, were impaired at March 31, 2009. At March 31, 2009, the Company determined the fair value of these leasehold inducements to be nil. Accordingly, the Company recorded a $285 loss on impairment in the Unaudited Condensed Consolidated Statement of Operations for the three month ended March 31, 2009.

At March 31, 2009, the Company had the following warrants outstanding to purchase common stock priced in U.S. dollars with a weighted average exercise price of $0.44 and a weighted average remaining life of 1.1 years:

The Compensation Committee of the Board of Directors administers the Company’s stock option plan. The Compensation Committee designates eligible participants to be included under the plan and approves the number of options to be granted from time to time under the plan.

A maximum of 20,000 options (not including 700 options previously issued to the Chief Executive Officer and specifically approved by the stockholders outside the plan) are authorized for issuance under the plan. The option exercise price for all options issued under the plan is based on the fair value of the underlying shares on the date of grant. The stock option plan, as amended, allows the issuance of U.S. and Canadian dollar denominated grants.

During the ~~nine~~three month periods ended ~~September 30,~~March 31, 2009 and 2008, ~~and 2007,~~ the Company recognized total stock-based compensation expense of ~~$2,081~~$301 and ~~$1,826, respectively. During the three month periods ended September 30, 2008 and 2007, the Company recognized total stock-based compensation expense of $307 and $389,~~$1,333, respectively.

~~The fair value of~~There were no options granted in the ~~nine~~three month ~~periods~~period ended ~~September 30,~~March 31, 2009 and the options granted in the three month period ended March 31, 2008 ~~and 2007~~ were estimated using the Black-Scholes option-pricing model, using the following weighted average assumptions:

~~The following is~~ expected dividend 0%, risk-free interest rate of 3.15%, expected volatility 85% and a ~~summary of option activity for the nine month period ended September 30, 2008 for stock options denominated in Canadian dollars:~~

~~The following is a summary of option activity for the nine month period ended September 30, 2008 for stock options denominated in U.S. dollars:~~

The weighted average fair value per share of options granted during the nine month periods ended September 30, 2008 and 2007 was $0.29 and $0.43, respectively. There was no intrinsic value in stock options outstanding at September 30, 2008.

The unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP which conforms in all material respects to Canadian GAAP, except for the differences noted below and as more fully described in Note 15 in the Company’s annual audited consolidated financial statements included in its Annual Report on Form 10-K for the7 year ~~ended December 31, 2007. There are no differences in reported cash flow for the periods presented between U.S. and Canadian GAAP.~~expected life.

The following is a summary of ~~Operations—~~option activity for the three month period ended March 31, 2009 for stock options denominated in Canadian ~~GAAP:~~dollars:

~~Notes to~~The following is a summary of option activity for the ~~Interim Condensed Consolidated Financial Statements—Canadian GAAP (unaudited):~~three month period ended March 31, 2009 for stock options denominated in U.S. dollars:

~~Recent accounting pronouncements~~


	Number of Options		Weighted- average Exercise Price
Outstanding at December 31, 2008	15,633		$	0.54
Granted	—			—
Exercised	—			—
Forfeited/cancelled/expired	(13	)		0.28

Outstanding at March 31, 2009	15,620		$	0.54

~~Effective January 1, 2008, the Company adopted the following Canadian Institute of Chartered Accountants (“CICA”) accounting pronouncements:~~

Financial Instruments—Disclosures, Section 3862, describes the required disclosures related to the significance of financial instruments on the entity’s financial position and performance, and the nature and extent of risks arising from financial instruments to which the entity is exposed and how the entity manages those risks. This section replaces the disclosure standards of Section 3861, Financial Instruments—Disclosure and Presentation.

Financial Instruments—Presentation, Section 3863, establishes standards for presentation of financial instruments and non-financial derivatives. It replaces the presentation standards of Section 3861, Financial Instruments – Disclosure and Presentation.

Capital Disclosures, Section 1535, establishes the standards for disclosing information about the entity’s capital and how it is managed to enable users of financial statements to evaluate the entity’s objectives, policies and procedures for managing capital.

~~General Standards on Financial Presentation, Section 1400, has been amended to assess and disclose an entity’s ability to continue as a going concern.~~

Under U.S. GAAP, the cost of acquired technology is charged to expense as in-process research and development (“IPRD”) when incurred if the feasibility of such technology has not been established and no future alternative use exists. Canadian GAAP requires the capitalization and amortization of the costs of acquired technology. This difference increases the net loss from operations under U.S. GAAP in the year the technology is acquired and reduces the net loss under U.S. GAAP in subsequent periods because there is no amortization expense.

Under Canadian GAAP, a future tax liability is also recorded upon acquisition of the technology to reflect the tax effect of the difference between the carrying amount of the technology in the financial statements and the tax basis of these assets, which is nil. As the intellectual property is amortized, the future tax liability is also reduced to reflect the change in this temporary difference between the tax and accounting values of the assets. Under U.S. GAAP, because the technology is expensed immediately as IPRD, there is no difference between the tax basis and the financial statement carrying value of the assets and therefore no future tax liability exists.

On March 1, 2007, the Company purchased all of GlaxoSmithKline’s (“GSK”) remaining options to buy back eniluracil under the license agreement for a fee of $1,000. Under U.S. GAAP, the cost of the license fee paid to GSK was charged to expense as IPRD since the feasibility of such technology has not been established and no future alternative use exists. Canadian GAAP requires the capitalization and amortization of this acquired intellectual property. The intellectual property is being amortized over the estimated useful life of seven years on a straight-line basis.

Financial instruments of the Company consist of cash, cash equivalents, cash pledged as collateral, accounts receivable, accounts payable, accrued liabilities and other current liabilities. Due to the relatively short periods to maturity of these instruments, the carrying value approximates the fair value.

The Company is exposed to foreign currency risks as it conducts certain clinical development activities in Canada, the United Kingdom, Europe and the Pacific Rim. The Company has not elected to employ the use of derivative instruments. The Company does hold Canadian dollars which are used to pay certain Canadian dollar denominated obligations. At September 30, 2008 the Company held cash and cash equivalents totaling $1,227 and had current liabilities totaling $422 in Canadian dollars.

The Company’s capital consists of stockholders’ equity. The Company estimates its future capital requirements and manages its capital based on the current economic operating environment. The Company’s objective is to ensure that the Company will continue as a going concern so that it can develop its product candidates and maximize the value to stockholders.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion below contains forward-looking statements regarding our financial condition and our results of operations that are based upon our unaudited interim condensed consolidated financial statements, which have been prepared in accordance with generally accounting principles, or GAAP in the United States (“U.S.”). The preparation of these financial statements also conform in all material respects with generally accepted accounting principles in Canada, or Canadian GAAP, except as described in Note 6 in the interim condensed consolidated financial statements and as more fully described in Note 15 in our annual consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2007. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable.

We operate in a highly competitive environment that involves significant risks and uncertainties, some of which are beyond our control. Our actual results, performance or achievements may be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. Words such as “may,” “will,” “expect,” “might”, “believe,” “anticipate,” “intend,” “could,” “estimate,” “project,” “plan,” and other similar words are one way to identify such forward-looking statements. Forward-looking statements in this Quarterly Report include, but are not limited to, statements with respect to (1) our anticipated sources and uses of cash and cash ~~equivalents and short-term investments;~~equivalents; (2) our anticipated commencement dates, completion dates and results of clinical trials; (3) our efforts to pursue collaborations with the government, industry groups or other companies; (4) our anticipated progress and costs of our clinical and preclinical research and development programs; (5) our corporate and development strategies; (6) our expected results of operations; (7) our anticipated levels of expenditures; (8) our ability to protect our intellectual property; (9) the anticipated applications and efficacy of our drug candidates; (10) our ability to attract and retain key employees; and ~~(10)~~(11) the nature and scope of potential markets for our drug candidates. All statements, other than statements of historical fact, included in this Quarterly Report that address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements. We include forward-looking statements because we believe it is important to communicate our expectations to our investors. However, all forward-looking statements are based on management’s current expectations of future events and are subject to a number of risks and uncertainties, including ~~those~~our need to raise money in the very near term and others as discussed in this Quarterly Report in “Part II: Other Information-Item 1A. Risk Factors.” Although we believe the expectations reflected in the forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained, and we caution you not to place undue reliance on such statements.

~~We are a biopharmaceutical company focused on cancer therapeutics with preclinical and clinical product candidates~~The continuing turmoil in ~~development. The recent volatility in~~ the worldwide financial markets has led to an overall tightening in the credit markets and a significant decline in the availability of ~~capital.~~capital, especially for small biotechnology companies, which are generally viewed as higher risk investments. As a result of our limited financial resources and the decline in the availability of further capital, we have implemented both a prioritization initiative to focus our clinical development activities on ~~the~~our most attractive, nearer term value-generating ~~opportunities.~~opportunities and a corporate restructuring to reduce expenses. Accordingly, we have ~~begun a process of postponing~~postponed or ~~in certain cases, terminating~~terminated some of our ~~ongoing or~~ previously planned or ongoing clinical development ~~programs.~~programs as outlined below. We believe that our current cash and cash equivalents will be sufficient to satisfy our anticipated capital requirements into August 2009. In addition, we have implemented a 75% headcount reduction that was effective April 30, 2009, representing all 13 of our non-executive positions. The members of the Board of Directors have also agreed to continue to serve for the benefit of the shareholders without further compensation. We continue to pursue various strategic alternatives, including collaborations with other pharmaceutical and biotechnology companies and we believe that our current cash and cash equivalents will be sufficient to satisfy our currently anticipated capital requirements into August 2009. However, if a strategic transaction or other source of further financial resources cannot be secured in the very near term, we might cease operations sooner than August 2009. As a result, the audit opinion contained in our Annual Report filed on Form 10-K included a notation related to the uncertainty of our ability to continue as a going concern. Our projections of our capital requirements into August 2009 and beyond are subject to substantial uncertainty. Additional capital may be required earlier than August 2009 or more capital than we had anticipated thereafter may be required. To finance our operations beyond August 2009, or earlier if necessary, we will need to raise substantial additional funds through either the sale of additional equity, the issuance of debt, the establishment of collaborations that provide us with funding, the out-license or sale of certain aspects of our intellectual property portfolio, or from other sources. Given current economic conditions, we might not be able to raise the necessary capital or such funding may not be available on acceptable terms. If we cannot obtain adequate funding in the very near term, we might be required to further delay, scale back or eliminate certain research and development studies, consider business combinations or even shut down some, or all, of our operations.

We are a biopharmaceutical company focused on cancer therapeutics with three products in the clinical stage of development, namely eniluracil, ADH-1 and sodium thiosulfate (STS).

Eniluracil, ~~is a~~an oral dihydropyrimidine dehydrogenase, or DPD, inhibitor, ~~that we are developing~~is being developed to ~~enhance~~improve the ~~therapeutic value~~tolerability and effectiveness of 5-fluorouracil, or 5-FU, one of the ~~world’s~~ most widely used oncology ~~agents. 5-FU is currently used intravenously as first or second-line therapy for a variety of cancers, including colorectal, breast, gastric, head and neck, ovarian and basal cell cancer of~~drugs in the skin, among others. Eniluracil allows 5-FU to be given orally and was previously under development by GlaxoSmithKline, or GSK. GSK advanced eniluracil into a comprehensive Phase III clinical program which did not produce positive clinical results and terminated the development. We developed a hypothesis as to why the GSK Phase III trials were not successful and licensed the compound from GSK in July 2005. We successfully completed a proof of concept study using a modified dose and schedule of eniluracil and 5-FU. Using our modified dose and schedule, we believe that eniluracil will enhance and expand the therapeutic spectrum of activity of 5-FU, reduce the occurrence of a disabling side effect known as hand foot syndrome and allow 5-FU to be given orally.

As part of our prioritization initiative, we have closed patient enrollment in our Phase I/II trial studying eniluracil in liver cancer in Asia. We have also temporarily suspended patient enrollment in our Phase I clinical trial which was designed to determine the maximum tolerated dose, or MTD of oral 5-FU in combination with eniluracil. To date, a

total of 38 patients have been enrolled in this clinical trial. We have also indefinitely postponed our planned Phase II clinical trial with eniluracil in breast cancer. We have begun funding a new investigator-initiated clinical trial where eniluracil is being studied in a topical formulation for the prevention of hand-foot syndrome induced by capecitabine or Xeloda® in cancer patients. If we establish a partnership which provides funding for eniluracil or we obtain additional funding from other sources, we may resume the suspended clinical studies for eniluracil.

world. ADH-1 is a small peptide molecule that selectively targets N-cadherin, a protein present on certain tumor cells and ~~tumor~~the blood ~~vessels.~~ vessels of solid tumors. STS is a chemoprotectant being developed to reduce or prevent hearing loss that may result from treatment with platinum-based chemotherapy drugs.

We ~~have completed single-agent Phase I and Phase II studies for ADH-1 and based on encouraging data from~~are currently focusing our preclinical combination studies, we initiated a clinical program with ADH-1 in combination with three separate chemotherapies: ADH-1 + docetaxel (Taxotere®), ADH-1 + carboplatin (a generically available agent), and ADH-1 + capecitabine (Xeloda®). In April 2008, we completed patient enrollment in that study and are in the processdevelopment of ~~evaluating the full dataset for presentation at an upcoming scientific forum. Our Phase I study combining systemic~~ ADH-1 in combination with regionally-infused melphalan for the treatment of ~~melanoma has been expanded into~~melanoma. We have completed patient enrollment in a Phase ~~IIB study. To date, we have enrolled 42 patients~~I/IIb study and ~~are expecting~~plan to ~~complete patient enrollment by~~release results of this study at the ~~end~~American Society of ~~November 2008. The patients will then be followed for the required three month period to assess their responses.~~Clinical Oncology Annual Meeting, or ASCO, in June 2009. We have ~~indefinitely~~ postponed our planned Phase III clinical trial for ADH-1 in combination with ~~melphalan. We have funded investigator-initiated clinical trials using ADH-1 in combination with chemotherapy and other biologic therapies in lung and pancreatic cancer.~~

STS is a chemoprotectant that has been shown in Phase I and Phase II clinical studies conducted by investigators at Oregon Health & Science University, or OHSU, to reduce the disabling loss of hearing in patients treated with platinum-based anti-cancer agents. In 2007, the results of a Phase III trial conducted by the Netherlands Cancer Institute—Antoni van Leeuwenhoek Hospital, or NCI-AVL, in adults with head and neck cancer treated with cisplatin were reported demonstrating that STS wasmelphalan until we are able to protect against cisplatin-induced hearing loss without any apparent affect on the anticancer treatment efficacy of cisplatin two years after treatment. In May 2008, we completed a license agreement with the NCI-AVL for the option to the exclusive use of the data from the completed Phase III trial. The agreement also includes an exclusive license to data from a planned long-term study intended to provide follow-up on the hearing status, disease-free status and overall survival of patients from the completed Phase III trial. Our decision to exercise the option will be based on a quality assurance audit of the data.secure adequate financial resources.

We continue to enroll patients in our Phase III ~~trial~~trials of STS with the International Childhood Liver Tumour Strategy Group, known as SIOPEL ~~which~~and the Children’s Oncology Group, or COG. The SIOPEL trial is expected to enroll approximately 100 pediatric patients with liver (hepatoblastoma) cancer at participating SIOPEL centers ~~in up to 33 countries. The~~worldwide and the COG study is comparing the level of hearing loss associated with cisplatin alone versus the combination of cisplatin plus STS, as well as the safety, tolerability and anti-tumor activity in both arms of the study. In October 2008, we begun enrolling patients into our Phase III trial with STSexpected to prevent hearing loss in children receiving cisplatin-based chemotherapy in collaboration with the Children’s Oncology Group, or COG. The goal of this Phase III study is to evaluate whether STS is an effective and safe means of preventing hearing loss in children receiving cisplatin-based chemotherapy for newly diagnosed germ cell, liver (hepatoblastoma), brain (medulloblastoma), nerve tissue (neuroblastoma) or bone (osteosarcoma) cancers. This trial will enroll up to 120 pediatric patients ~~over approximately three years~~worldwide in up to 230 COG centers in the U.S., Canada, Australia and Europe. Both SIOPEL and COG fund the clinical activities for these studies and we provide the drug and drug distribution. We indefinitely postponed our planned STS Phase III study in adult patients with head and neck cancer to evaluate hearing loss protection during platinum-based chemotherapy and radiation therapy. If we establish a partnership which provides funding for STS or we obtain additional funding from other sources, we may reconsider this Phase III clinical trial.five different disease indications.

Our current prioritization initiative ~~will focus~~focuses primarily on our clinical activities, and preclinical support will be limited only to those activities necessary to support the ongoing clinical programs. Our preclinical portfolio includes: (1) novel peptides and small chemical molecule successors to ADH-1; (2) peptides and small molecules targeting the cadherin-mediated metastatic spread of some cancers; and (3) peptides that combine both angiolytic and anti-angiogenic properties. We have synthesized small chemical molecules and peptide antagonists and agonists for a wide array of cadherin adhesion molecules, with drug candidates available to move into future clinical development, particularly in the following areas:

•

~~OB-cadherin~~. OB-cadherin is reported to be involved in the metastatic spread of certain cancers to sites distant from the original tumor. Metastatic disease is a major determinant of both a patient’s survival and quality-of-life. We have developed OB-cadherin peptide and small molecule antagonists with the potential to reduce or slow down the metastatic spread of tumors, such as breast and prostate cancers.

In addition to our current development efforts, we ~~will~~ continue to pursue collaborations with other pharmaceutical and biotechnology companies, governmental agencies, academic or other corporate collaborators with respect to these molecules. A number of these preclinical molecules are currently being tested under agreements with third parties that may help to advance these products into future clinical development, either by us or under investigator-initiated studies.

In December 2008 we were notified by the NYSE Alternext US LLC, formerly the American Stock Exchange, or AMEX, that the Company did not meet the minimum stockholders’ equity requirement of at least $6 million with sustained net losses in the five most recent fiscal years. On January 20, 2009, we filed a notification to remove our common stock from the AMEX and effective January 30, 2009, our common stock no longer traded on the AMEX. Our ~~portfolio is supported~~common stock continues to trade the Toronto Stock Exchange, or TSX, and on the over the counter market, or pink sheets, in the U.S.

Given the continuing difficult market conditions and our limited financial resources, we have expanded our ongoing efforts to explore and review potential partnering opportunities for each of our three main product candidates as well as other strategic alternatives. In addition, we implemented a success-based incentive plan for the executive management for the completion of a partnership, asset sale, or merger transaction. Executives will be eligible for a success-based cash bonus ranging from 1% to 5% upon the completion of a transaction prior to July 31, 2009 provided the executive continues to be employed at the time of the transaction. The cash bonus paid under this incentive plan would be offset dollar for dollar from the value of any “in the money” stock options held by ~~more than 50 issued U.S. patents and more than 50 issued and pending patents worldwide that we either own or have licensed exclusively.~~the executive.

We have not received and do not expect to have significant revenues from our product candidates until we are either able to sell our product candidates after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties or other revenue. We experienced net losses of approximately $2.2 million for the three months ended March 31, 2009, $13.6 million for the year ended December 31, 2008, $13.4 million for the fiscal year ended December 31, 2007, and $16.4 million for the fiscal year ended December 31, 2006. As of ~~September 30, 2008,~~March 31, 2009, our deficit accumulated during development stage was ~~$95.4~~approximately $100.2 million.

Our operating expenses will depend on many factors, including the progress of our drug development efforts and the ~~potential commercialization~~implementation of ~~our product candidates.~~further cost reduction measures. Our research and development expenses, which include expenses associated with our clinical trials, drug manufacturing to support clinical programs, salaries for research and development personnel, stock-based compensation, consulting fees, sponsored research costs, toxicology studies, license fees, milestone payments, and other fees and costs related to the development of product candidates, will depend on the availability of financial resources, the results of our clinical trials and any directives from regulatory agencies, which are difficult to predict. Our general and administration expenses include expenses associated with the compensation of employees, stock-based compensation, professional fees, consulting fees, insurance and other administrative matters associated with our facilities in the Research Triangle Park, North Carolina in support of our drug development programs.

~~Nine~~Three months ended ~~September 30, 2008~~March 31, 2009 versus ~~nine~~three months ended ~~September 30, 2007:~~March 31, 2008:


In thousands of U.S. Dollars	Nine Months Ended September 30, 2008			%		Nine Months Ended September 30, 2007			%		Change			Three Months Ended March 31, 2009			%		Three Months Ended March 31, 2008			%		Change
Revenue	$	—				$	—				$	—		$	—				$	—				$	—

Operating expenses:
Research and development		8,768		78	%		8,293		75	%		475			1,279		66	%		3,375		75	%		(2,096	)
General and administration		2,478		22	%		2,717		25	%		(239	)		673		34	%		1,061		25	%		(388	)

Total operating expenses		11,246		100	%		11,010		100	%		236			1,952		100	%		4,436		100	%		(2,484	)


Loss from operations		(11,246	)				(11,010	)				(236	)		(1,952	)				(4,436	)				2,484


Loss on impairment of assets held for sale and leasehold inducements															(340	)				—					(340	)
Interest income		256					661					(405	)		46					132					(86	)

Net loss and total comprehensive loss	$	(10,990	)			$	(10,349	)			$	(641	)	$	(2,246	)			$	(4,304	)			$	(2,058	)

Total operating expense ~~increased~~decreased in the ~~nine~~three months ended ~~September 30, 2008,~~March 31, 2009, as compared to the same period in ~~2007~~2008 primarily due to ~~an increase~~a significant decrease in ~~R&D~~our overall research and development activities. As part of our prioritization initiative we have terminated certain ongoing and planned clinical studies over the last six months. Research and development expense ~~associated with $0.2~~includes $0.1 million ~~in milestone expense relating~~due to our ~~agreement with McGill University, expense associated with~~writing off investment tax receivables at March 31, 2009. We expect our ~~ADH-1 Phase I/II melanoma study and expense associated with our eniluracil clinical studies that were offset by lower G&A expense~~operating expenses to continue to decrease in the ~~nine months ended September~~future quarters, especially due to our 75% reduction of our employee headcount that was effective April 30, ~~2008 as compared~~2009.

~~expense of $2.1 million in the nine months ended September 30, 2008, as compared to $1.8 million for the same period in 2007.~~

~~Three months ended September 30, 2008 versus three months ended September 30, 2007:~~

Total operating expenses decreased in the three months ended September 30, 2008, as compared to the same period in 2007, primarily due to lower G&A expense that were offset by higher R&D expense in the three months ended September 30, 2008, as compared to the prior period. The decrease in G&A expense was due to lower salary expense from reduced headcount and no bonus expense in the three months ended September 30, 2008, as compared to the same period in 2007. Operating expense also included non-cash stock-based compensation expense of $0.3 million in the three months ended September 30, 2008, as compared to $0.4 million for the same period in 2007.leasehold improvments at March 31, 2009.

The following table presents selected consolidated financial data for each of the last eight quarters through ~~September 30, 2008,~~March 31, 2009, as prepared under U.S. GAAP (U.S. dollars in thousands, except per share information):


Period	Net Loss for the Period			Basic and Diluted Net Loss per Common Share
June 30, 2007	$	(3,179	)	$	(0.03	)
September 30, 2007	$	(3,202	)	$	(0.02	)
December 31, 2007	$	(3,008	)	$	(0.02	)
March 31, 2008	$	(4,304	)	$	(0.03	)
June 30, 2008	$	(3,442	)	$	(0.03	)
September 30, 2008	$	(3,244	)	$	(0.03	)
December 31, 2008	$	(2,610	)	$	(0.02	)
March 31, 2009	$	(2,246	)	$	(0.02	)


In thousands of U.S. dollars	September 30, 2008			December 31, 2007			March 31, 2009			December 31, 2008
Selected Asset and Liability Data:
Cash and cash equivalents	$	7,882		$	16,162		$	3,047		$	5,349
Working capital		5,297			14,159			1,654			3,209

Selected Stockholders’ Equity Data:
Common stock	$	64,929		$	64,929		$	64,929		$	64,929
Deficit accumulated during the development stage		(95,369	)		(84,379	)		(100,225	)		(97,979	)
Total stockholders’ equity		5,154			14,148			1,108			3,053

We have financed our operations since inception on September 3, 1996 through the sale of equity and debt securities and have raised gross proceeds totaling approximately $86.0 million through ~~September 30, 2008.~~March 31, 2009. We have incurred net losses and negative cash flow from operations each year, and we had an accumulated deficit of ~~$95.4~~approximately $100.2 million ~~as of September 30, 2008.~~at March 31, 2009. We have not generated any revenues to date through the sale of products. We do not expect to have significant revenues or income, other than interest income, until we are able to sell our product candidates after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments, licensing fees, ~~royalties,~~ milestone payments, royalties or other ~~revenue.~~payments.

The net cash flow used in operating activities ~~totaled $8.3 million~~ for the ~~nine~~three months ended ~~September 30, 2008,~~March 31, 2009 was approximately $2.3 million, as compared to ~~$11.1~~$2.8 million induring the same period ~~during 2007. The~~in 2008. This decrease is ~~primarily~~ due to ~~the $1.0 million payment to GSK~~a decrease in ~~March 2007 and increased cash payments to vendors~~our overall clinical activities during the ~~first quarter of 2007 from our improved liquidity~~three months ended March 31, 2009, as ~~a result of our February 2007 equity offering.~~ compared to the same period in 2008.

At ~~September 30, 2008~~March 31, 2009, our working capital decreased by approximately ~~$8.9~~$1.5 million ~~as compared to~~from December 31, ~~2007~~2008 primarily due to ~~the~~ funding ofresearch and development activities and general corporate operations.

In December 2008 we received notice from the NYSE Alternext US, LLC (formerly the American Stock Exchange), or AMEX that we were not in compliance with Section 1003(a)(ii) of its Company Guide, because our stockholders’ equity was below $6 million and we incurred losses from continued operation and net losses in the five most recent fiscal years. On January 29, 2009, we voluntarily filed to delist our common stock from the AMEX and effective January 29, 2009 our common stock was no longer traded on the AMEX. As a result, any trading of our common stock in the U.S. must now be conducted in the over-the-counter markets, on the pink sheets. Our common stock continues to trade on the Toronto Stock Exchange, or TSX. The TSX also has continued listing standards, including minimum market capitalization and other requirements, that we might not meet in the future, particularly if the price of our common stock does not increase or we are unable to raise capital to continue our operations.

We believe that our current cash and cash equivalents of ~~$7.9~~$3.0 million will be sufficient to satisfy our anticipated capital requirements ~~to September 30,~~into August 2009. ~~Our~~In the third quarter of fiscal 2008, we implemented a prioritization initiative ~~is designed~~ to focus onour clinical ~~programs that we believe represent~~development activities on the most attractive, nearer term value-generating ~~opportunities~~opportunities.

Accordingly, we have postponed or terminated some of our ongoing or previously planned clinical development programs. In addition, we have implemented a 75% headcount reduction that was effective April 30, 2009, representing all 13 of our non-executive positions. The members of the Board of Directors have also agreed to continue to serve for the benefit of the shareholders without further compensation. We continue to pursue various strategic alternatives, including, collaborations with other pharmaceutical and biotechnology companies and we believe that our current cash and cash equivalents will be sufficient to ~~conserve~~satisfy our ~~existing~~currently anticipated capital requirements into August 2009. However, if a strategic transaction or other source of further financial ~~resources.~~resources cannot be secured in the very near term, we might cease operations sooner than August 2009. Our projections of further capital requirements are subject to substantial uncertainty. Our working capital requirements may fluctuate in future periods depending upon numerous factors, including: our ability to obtain additional financial resources; our ability to enter into collaborations that provide us with up-front payments, milestones or other payments; results of our research and development activities; progress or lack of progress in our preclinical studies or clinical trials; unfavorable toxicology in our clinical programs, our drug substance requirements to support clinical programs; ~~our ability to enter into collaborations that provide us with funding, up-front payments, milestone or other payments; our ability to obtain additional financial resources;~~ change in the focus, direction, or costs of our research and development programs; headcount expense; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our patent claims; competitive and technological advances; the potential need to develop, acquire or license new technologies and products; our business development activities; new regulatory requirements implemented by regulatory authorities; the timing and outcome of any regulatory review process; and commercialization activities, if any.

To finance our operations beyond ~~September 30,~~August 2009, we will need to raise substantial additional funds through either the sale of additional equity, the issuance of debt, the establishment of collaborations that provide us with funding, the out-license or sale of certain aspects of our intellectual property portfolio, or from other sources. WeThe recent turmoil in the worldwide financial markets has led to an overall tightening in the credit markets and a significant decline in the availability of capital, especially for small biotechnology companies which are actively considering all strategic alternatives to raise additional funds for our development programs and operations, including a particular focus on partnerships or other strategic business collaborations. Whilegenerally viewed as higher risk investments. Given the current economic conditions, there is serious risk that we ~~are striving to achieve these plans and are engaged in discussions with third parties regarding collaborations, funding via collaborations~~ might not be able to raise the necessary capital or such funding may not be available ~~or obtainable~~ on ~~favorable~~acceptable terms. In the interim, the current initiative to better align our development priorities with the financial resources we have available should allow us to extend our cash reserves and achieve some near term value-enhancing milestones. Particularly given current market condition, thereWe can betherefore make no assurance that we will be able to raise the necessary capital ~~or that such funding will be available on favorable terms or at all. As a result, substantial doubt exists that we will be able~~ to ~~finance~~continue our ~~operations beyond September 30, 2009.~~operations.

The outstanding share data for our company as of ~~September 30, 2008~~March 31, 2009 (in thousands):

At ~~September 30, 2008,~~March 31, 2009, we held cash and cash equivalents of ~~$7.9~~$3.0 million, which consisted primarily of highly liquid money market ~~funds.~~funds and cash.

We invest cash and cash equivalents in high credit quality investments held by financial institutions in accordance with our investment policy designed to protect the principal investment. At ~~September 30, 2008,~~March 31, 2009, we had ~~$6.3~~$1.9 million in money market investments which typically have minimal ~~risk. In recent months however, the~~risk, $805 in guaranteed investments and $302 in cash. The financial markets have been volatile resulting in concerns regarding the recoverability of money market investments. As a result, on September 19, 2008 the U.S. Treasury announced a Temporary Guarantee Program which insures money market investments on a temporary basis. Our money market ~~manager has submitted the necessary documentation and paid the required fee to participate in~~investments are insured by the U.S. Treasury’s Temporary Guarantee ~~Program for money market funds for our money market investments.~~Program. The program ~~will be in effect for an initial three month term and~~ ensures that if a participating fund’s share value declines to below one dollar and the fund is liquidated, the U.S. Treasury would cover any shortfall between the liquidated share price and one dollar. ~~The Secretary of~~On March 31, 2009, the U.S. Treasury ~~has~~announced the ~~option to extend the~~ program was extended until September 18, 2009. We have not experienced any loss or write down of our money market investments for the three ~~and nine~~ month periods ended ~~September 30, 2008~~March 31, 2009 and ~~2007.~~2008.

Our investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Investments may be made in U.S. or Canadian obligations and bank securities, commercial paper of U.S. or Canadian industrial companies, utilities, financial institutions and consumer loan companies, and securities of foreign banks provided the obligations are guaranteed or carry ratings

appropriate to the policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted average time to maturity of twelve months. This policy applies to all of our financial resources.

The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. As our main purpose is research and development, we have chosen to avoid investments of a trade or speculative nature.

We classify investments with original maturities at the date of purchase greater than three months which mature at or less than twelve months as current. We carry investments at their fair value with unrealized gains and losses included in other comprehensive income (loss); however we have not held any instruments that were classified as short term investments during the periods presented in this Quarterly Report.

Since our inception, we have not had any material off-balance sheet arrangements. In addition, we do not engage in trading activities involving non-exchange trade contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such activities.

Since our inception, inflation has not had a material ~~effect~~impact on our operations. We had no material commitments for capital expenses as of ~~September 30, 2008.~~March 31, 2009.

The following table represents our contractual obligations and commitments at ~~September 30,~~December 31, 2008 (in thousands of U.S. dollars):


	Less than 1 year		1-3 years		4-5 years		More than 5 years		Total		Less than 1 year		1-3 years		4-5 years		More than 5 years		Total
Englert Lease (1)	$	104	$	107	$	—	$	—	$	211	$	104	$	80	$	—	$	—	$	184
Maplewood Lease (2)		369		1,141		—		—		1,510		372		1,046		—		—		1,418
Drug purchase commitments (3)		228		180		31		—		439
Clinical trial and drug related commitments (3)												254		280		24		—		558
McGill License (4)		604		935		—		—		1,539		805		935		—		—		1,740
OHSU License (5)		—		—		—		—		—		—		—		—		—		—
GSK License (6)		—		—		—		—		—		—		—		—		—		—
Netherlands Cancer Institute—Antoni van Leeuwenhoek Hospital License (7)		225		—		—		—		225		223		—		—		—		223

Total	$	1,530	$	2,363	$	31	$	—	$	3,924	$	1,758	$	2,341	$	24	$	—	$	4,123

of $5.0 million to GSK. Depending upon whether the NDA is approved by the FDA and whether eniluracil becomes a commercial success, we may be required to pay up to an additional $70.0 million in development and sales milestones for the initial approved indication, plus double-digit royalties based on annual net sales. We may also be required to pay up to $15.0 million to GSK for each FDA-approved indication. Royalty and milestone payments that we may be required to pay, which are contingent on sales or progress of clinical trials, are not included.

(7)

In May 2008, we completed a license agreement with the Netherlands Cancer ~~Institute -~~ Institute—Antoni van Leeuwenhoek Hospital for an option to the exclusive use of data from a completed Phase III trial with STS to prevent hearing loss in adults with head and neck cancer. The payment amounts shown in the table above are contingent upon a quality assurance audit of the data from the study. Once the quality assurance audit is completed, we will assess the benefit of the data and determine if we want to exercise our option to obtain exclusive use of the data.

Our research and development efforts have been focused on the development of cancer ~~therapeutics and our cadherin technology platform~~ and currently include ADH-1, eniluracil, STS and various cadherin-based preclinical programs.

We have established relationships with contract research organizations, universities and other institutions, which we utilize to perform many of the day-to-day activities associated with our drug development. Where possible, we have sought to include leading scientific investigators and advisors to enhance our internal capabilities. Research and development issues are reviewed internally ~~by our executive management~~ and ~~supporting scientific staff. Major~~major development issues are presented to the members of our Scientific and Clinical Advisory Board for discussion and review. We have limited financial resources and may have to discontinue the development of some on-going programs. In addition, we are pursuing relationships with clinical institutions to conduct investigator initiated clinical

~~studies. Such investigator initiated clinical studies might provide us valuable additional data with respect to our product candidates.~~

Research and development expenses totaled ~~$8.8~~$1.3 million and ~~$8.3~~$3.4 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2009 and 2008, ~~and 2007,~~ respectively.

Our product candidates are in various stages of development and still require significant, time-consuming and costly research and development, testing and regulatory approvals. We will require significant additional resources to complete the development of our product candidates. We currently have very limited financial and human resources and if we are unable to secure additional funding, we may have to delay or discontinue the development of some or all of our on-going programs. In developing our product candidates, we are also subject to the risks of failure that are inherent in the development of products based on innovative technologies. Our product candidates might be ineffective or toxic, or may otherwise fail to receive the necessary regulatory clearances. There is a risk that our product candidates will be uneconomical to manufacture or market or will not achieve market acceptance. There is also a risk that third parties may hold proprietary rights that preclude us from marketing our product candidates or that others will market a superior or equivalent product. As a result of these factors, we are unable to accurately estimate the nature, timing and future costs necessary to complete the development of these product candidates. In addition, we are unable to reasonably estimate the period when material net cash inflows could commence from the sale, licensing or commercialization of such product candidates, if ever.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. These estimates are based on assumptions and judgments that may be affected by commercial, economic and other factors. Actual results could differ from these estimates.

Except as set out below our accounting policies are consistent with those presented in our annual consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2007.~~2008.

In September 2006, the Financial Accounting Standards, or FASB, released SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) which is effective for fiscal years beginning after November 15, 2007, which for us is the year ending December ~~31, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. In November~~ 2007, the ~~FASB agreed to a one-year deferral of the effective date for nonfinancial assets and liabilities that are recognized~~Emerging Issue Task Force, or disclosed at fair value on a nonrecurring basis. We are currently assessing the deferred portion of the pronouncement. As of January 1, 2008, we adopted SFAS 157 for the fair value measurement of recurring items which has not had a material impact on our financial statements.

In February 2007, the FASB, issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115”, (“SFAS 159”), which is effective for fiscal years beginning after November 15, 2007, which for us is the year ending December 31, 2008. SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value on a per instrument basis, with changes in fair value recognized in earnings each reporting period. This will enable some companies to reduce volatility in reported earnings caused by measuring related assets and liabilities differently. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The adoption of this statement did not have a material impact on our financial statements.

~~In June 2007, the~~ EITF, issued EITF No. ~~07-3,~~07-01, “Accounting for ~~Nonrefundable Advance Payments~~Collaborative Arrangement Related to the Development and Commercialization of Intellectual Property”, or EITF 07-01. EITF 07-01 defines the accounting for ~~Goods~~collaborations between participants. EITF 07-01 requires certain transactions between collaborators to be recorded in the statement of operations on either a gross or ~~Services to Be Used~~net basis within expense when certain characteristics exist in ~~Future Research and Development Activities”, (“~~the collaborative agreement. EITF 07-3”), which provides guidance for up-front payments related to goods and services of research and development costs. EITF 07-3 is effective for fiscal years beginning after December 15, 2007, which for us is the year ending December 31, 2008. The adoption of EITF 07-307-01 did not have a material impact on our financial statements.

~~Common Stock~~In December 2007, the Financial Accounting Standards Board, or FASB, issued SFAS No. 141(R), “Business Combinations,” or SFAS 141(R), requires an acquiring company to measure all assets acquired and ~~Warrants~~

~~Common stock is recorded as~~liabilities assumed, including contingent considerations and all contractual contingencies, at the ~~net proceeds received on issuance after deducting all share issuance costs and the value of investor warrants. Warrants are recorded at~~ fair value at the acquisition date. SFAS 141(R) establishes principles and ~~are deducted~~requirements for how the acquirer: i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; ii) recognizes and measures the goodwill acquired in the business combination or a gain from ~~the proceeds of common stock~~a bargain purchase; and ~~recorded on the consolidated statements of stockholders’ equity as additional paid-in capital.~~

~~At September 30, 2008, we had warrants~~iii) determines what information to ~~purchase common stock that were denominated in both U.S. and Canadian dollars, which results in our having warrants outstanding that are denominated outside its U.S. dollar functional currency.~~

~~In November 2007, the FASB, Emerging Issues Task Force, or EITF, issued EITF No. 07-5, Issue Summary No.1 “Determining Whether an Instrument (or an Embedded Feature) is Indexed~~disclose to ~~an Entity’s Own Stock” (“EITF 07-5”). In June 2008, one~~enable users of the conclusions reached under EITF 07-05 was a consensus-for-exposure that an equity-linked financial instrument would not be considered indexed to the entity’s own stock if the strike price is denominated in a currency other than the issuer’s functional currency. The issues brought to the EITF for discussion related to how an entity should determine whether certain instruments or embedded features are indexed to its own stock. This discussion included equity-linked financial instruments where the exercise price is denominated in a currency other than the issuer’s functional currency; such as our outstanding warrants to purchase common stock that are denominated in Canadian dollars. This conclusion reached under EITF 07-05 clarified the accounting treatment for these and certain other financial instruments as it related to FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). SFAS 133 specifies that a contract that would otherwise meet the definition of a derivative under SFAS 133, issued or held by the reporting entity that is both (a) indexed to its own stock and (b) classified in stockholders’ equity in its statement of financial position should not be considered a derivative financial instrument for purposes of applying SFAS 133. As a result, our outstanding warrants denominated in Canadian dollars are not considered to be indexed to our stock and would therefore be treated as derivative financial instruments and recorded at their fair value as a liability. EITF 07-05 will be effective for financial statements ~~for fiscal years beginning after December 15, 2008~~to evaluate the nature and ~~earlier~~financial effects of the business combination. The adoption isof SFAS 141 (R) did not ~~permitted. Since the warrants to purchase common stock that are denominated in Canadian dollars expire on December 19, 2008, EITF 07-5 is not expected to~~ have ~~an effect~~a material impact on our financial ~~statements unless we issue further equity instruments denominated outside our functional currency.~~statements.

In ~~March 2008,~~April 2009, the FASB issued FASB Staff Position, or FSP, FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability has Significantly Decrease and Indentifying Transactions That Are Not Orderly,” or FSP FAS 157-4. FSP FAS 157-4 provides guidance for estimating fair value in accordance with SFAS 157 “Fair Value Measurements” when the volume and level of activity for the asset or liability have significantly decreased. FSP FAS 157-4 provided additional authoritative guidance in determining whether a market is active or inactive and whether a transaction is distressed. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009. We are evaluating SFAS 157-4, but it is not expected to have a material impact on our financial statements.

In April 2009, the FASB issued SFAS No. ~~161, “Disclosures About Derivative Instruments~~115-2 and ~~Hedging Activities—an amendment~~FAS 124-2 “Recognition and Presentation of ~~FASB Statement No. 133”~~Other-Than-Temporary Impairments,” or SFAS ~~No. 161.~~115-2. SFAS ~~No. 161 expands quarterly~~115-2 amends current authoritative guidance to improve the presentation and disclosure ~~requirements~~of other-than-temporary impairments of debt and equity securities in the financial statements. SFAS ~~No. 133 about an entity’s derivative instruments and hedging activities. SFAS No. 161~~115-2 is effective for ~~fiscal years beginning~~interim and annual reporting periods ending after ~~November~~June 15, ~~2008.~~2009. We are ~~currently assessing~~evaluating SFAS 115-2, but it is not expected to have a material impact on our financial statements.

In April 2009, the FASB issued FSP FAS No. 107-1 and APB 28-1 “Interim Disclosures About Fair Value Instruments,” or FSP FAS 107-1. FSP FAS 107-1 requires additional disclosure about fair value of financial instruments for interim reporting periods and annual financial statements. FSP FAS 107-1 is effective for interim and annual reporting periods ending after June 15, 2009. We are evaluating FSP FAS 107-1, but it is not expected to have a material impact ~~of SFAS No. 161~~ on ~~our~~the financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting,” or SFAS No. 162. SFAS No. 162 indentifies the sources of accounting principles and the framework for selecting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the U.S. ~~GAAP.~~ SFAS No. 162 is effective 9060 days following the ~~SEC’s~~ approval by the Securities and Exchange Commission, or SEC, of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” We doare evaluating SFAS 162, but it is not ~~expect the adoption of SFAS 162~~expected to have a material impact on ~~our~~the financial statements.

We are subject to increased risk associated with our cash and cash equivalents ~~and investment portfolio~~ due to the recent bank and financial institution failures in the U.S. We maintain an investment portfolio consisting of U.S. or Canadian obligations and bank securities and money market investments in compliance with our investment policy. We do not hold any mortgaged-backed investments in our investment portfolio. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy also provides for investment limits on

concentrations of securities by issuer and maximum-weighted average time to maturity of twelve months. This policy applies to all of our financial resources.

At ~~September 30, 2008,~~March 31, 2009, we had ~~$6.3~~$1.9 million in money market investments which typically have minimal risk. ~~In recent months the~~The financial markets have been volatile resulting in concerns regarding the recoverability of money market investments. As a result, on September 19, 2008 the U.S. Treasury announced a Temporary Guarantee Program which insures money market investments on a temporary basis. Our money market ~~manager has submitted the necessary documentation and paid the required fee to participate in~~investments are insured by the U.S. Treasury’s Temporary Guarantee ~~Program for our money market investments.~~Program. The program ~~will be in effect for an initial three month term and~~ ensures that if a participating ~~fund~~fund’s share value declines to below one

dollar and the fund is liquidated, the U.S. Treasury would cover any shortfall between the liquidated share price and one dollar. ~~The Secretary of~~On March 31, 2009, the U.S. Treasury ~~has~~announced the ~~option to extend the~~ program was extended until September 18, 2009. ~~To date, we~~We have not experienced any loss or write down of ~~any of~~ our money market ~~investments.~~investments for the three month periods ended March 31, 2009 and 2008.

Our investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Our risk associated with fluctuating interest rates on our investments is minimal and not significant to the results of operations. We currently do not use interest rate derivative instruments to manage exposure to interest rate changes. As the main purpose is research and development, we have chosen to avoid investments of a trade or speculative nature.

We are subject to foreign currency risks as we conduct certain clinical development activities in Canada, the United Kingdom, Europe and the Pacific Rim. To date, we have not employed the use of derivative instruments; however, we do hold Canadian dollars which we use to pay certain clinical development activities conducted in Canada and research, ~~license obligations payable to McGill~~ and other corporate obligations. At March 31, 2009 we held approximately $0.8 million in Canadian dollars. We monitor our commitments in Euros, British pounds, and Pacific Rim currencies and may utilize derivatives in the future to minimize our foreign currency risks. ~~At September 30, 2008 we held cash and cash equivalents totaling $1,227 and had current liabilities totaling $441 in Canadian dollars.~~

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or the Exchange Act) as of ~~September 30, 2008.~~March 31, 2009. Based on this evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control over financial reporting that occurred during the three month period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

An investment in our common stock involves a significant risk of loss. You should carefully read this entire report and should give particular attention to the following risk factors. You should recognize that other significant risks may arise in the future, which we cannot reasonably foresee at this time. Also, the risks that we now foresee might affect us to a greater or different degree than currently expected. There are a number of important factors that could cause our actual results to differ materially from those expressed or implied by any of our forward-looking statements in this report. These factors include, without limitation, the risk factors listed below and other factors presented throughout this report and any other documents filed by us with the SEC and the Ontario Securities Commission, or the OSC.

We will need to raise substantial additional funds in the very near future to continue our operations.

We believe that our current cash and cash equivalents will only be sufficient to satisfy our anticipated capital requirements into August 2009. As a result, the audit opinion contained our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2008 included a notation related to ~~September 30,~~the uncertainty of our ability to continue as a going concern. The current conditions in worldwide financial markets make fund-raising for small biotechnology companies like us very difficult. We continue to pursue various strategic alternatives, including collaborations with other pharmaceutical and biotechnology companies however, if a strategic transaction or other source of further financial resources cannot be secured in the very near term, we might cease operations sooner than August 2009. Our projections of our capital requirements ~~through September 30,~~into August 2009 and beyond are subject to substantial uncertainty. Our current and future working capital requirements may change depending upon numerous factors, including: our ability to obtain additional financial resources; our ability to enter into collaborations that provide us with funding, up-front payments, milestones or other ~~payments,~~payments; results of our research and development activities; progress or lack of progress in our preclinical studies or clinical trials; unfavorable toxicology in our clinical programs; our drug substance requirements to support clinical programs; changes in the focus, direction, or costs of our research and development programs; employee related expense; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our patent claims; competitive and technological advances; the potential need to develop, acquire or license new technologies and products; our business development activities; new regulatory requirements implemented by regulatory authorities; the timing and outcome of any regulatory review process; and our commercialization activities, if any. Any such change could mean additional capital may be required earlier than ~~September 30,~~August 2009 or more capital than we had anticipated thereafter may be required. To finance our operations beyond ~~September 30,~~August 2009, or earlier if necessary, we will need to raise substantial additional funds through either the sale of additional equity, the issuance of debt, the establishment of collaborations that provide us with funding, the out-license or sale of certain aspects of our intellectual property portfolio, or from other sources. WeGiven current market conditions, there is a serious risk that we might not be able to raise the necessary capital or such funding may not be available on favorable terms or at all. If we cannot obtain adequate funding in the very near term, we might be required to delay, scale back or eliminate certain research and development studies, consider business combinations or shut down some, or all of our operations.

As a result of our recent corporate restructuring, we have very limited human resources remaining and the loss of any of the remaining personnel could lead to a significant deterioration in our strategic alternative or business prospects. If we lose any of our remaining key personnel, we may be unable to effectively manage our business or successfully develop our product candidates.

As a result of the recent corporate restructuring, our success depends upon the remaining key personnel, namely our four executives, the loss of any of whom might significantly delay or prevent the achievement of our near term business or scientific objectives. Although we have employment agreements with each of our executives, we cannot be certain that any individual will continue in such capacity for any period of time, particularly in light of our severely constrained financial resources. The loss of any key personnel, or the inability to hire and retain qualified employees to replace any of them, could negatively affect our ability to manage our business or secure a strategic transaction. We do not currently carry any key person life insurance.

We have a history of significant losses and have had no revenues to date through the sale of our products. If we do not generate significant revenues, we will not achieve profitability.

To date, we have been engaged primarily in research and development activities. We have had no revenues ~~to date~~ through the sale of our products, and we do not expect to have significant revenues until we are able to either sell our product candidates after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties or other revenue. We have incurred significant operating losses every year since our inception on September 3, 1996. We ~~have~~ experienced net losses of approximately ~~$11.0~~$2.2 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2009, $13.6 million for the year ended December 31, 2008, $13.4 million for the fiscal year ended December 31, 2007, and $16.4 million for the fiscal year ended December 31, ~~2006 and $13.9 million for the fiscal year ended December~~2006. At March 31, ~~2005. As of September 30, 2008,~~2009, we had an accumulated deficit of ~~$95.4~~approximately $100.2 million. We anticipate incurring substantial additional losses ~~over the next several years~~ due to the need to spend substantial amounts on our current clinical trials, anticipated research and development activities, and general and administrative expenses, among other factors. We have not commercially introduced any product and our product candidates are in varying stages of development and testing. Our ability to attain profitability will depend upon our ability to fund and develop products that are safe, effective and commercially viable, to obtain regulatory approval for the manufacture and sale of our product candidates and to license or otherwise market our product candidates successfully. Any revenues generated from such products, assuming they are successfully developed, marketed and sold, may not be realized for a number of years. We may never achieve or sustain profitability on an ongoing basis.

If we do not maintain current or enter into new collaborations with other companies, we might not successfully develop our product candidates or generate sufficient revenues to expand our business.

We currently rely on scientific and research and development collaboration arrangements with academic institutions and other third party collaborators, ~~including without limitation~~ our ~~Development and License Agreement~~agreement for eniluracil with GSK, a general collaboration agreement with McGill ~~University~~ for ADH-1 and other related compounds, and an exclusive worldwide license from OHSU for STS.

The agreements with McGill and OHSU are terminable by either party in the event of an uncured breach by the other party. We may also terminate our agreement with McGill and OHSU at any time upon prior written notice of specified durations to the licensor. Termination of any of our collaborative arrangements could materially adversely affect our business. In addition, our collaborators might not perform as agreed in the future.

In addition to the collaborative arrangements above, we have received approval from the Drug Development Group of the U.S. National Cancer Institute’s Division of Cancer Treatment and Diagnosis, or NCI, for Level III collaboration for the clinical development of our lead biotechnology compound, ADH-1. The NCI has no obligation to sponsor future clinical trials of ADH-1 or perform any preclinical work for us and may terminate the collaboration at any time, as may we. To date, the NCI has not commenced any clinical studies using ADH-1. The success of our business strategy will be dependent on our ability to maintain current and enter into new collaborations with other industry participants that advance the development and clinical testing of, regulatory approval for and

commercialization of our product candidates, as well as collaborations that provide us with funding, such as up-front payments, licensing fees, milestone payments, royalties or otherwise. We may not be successful in maintaining current collaborations or establishing any future collaborations and any collaborations we have or may establish may not lead to the successful development of our product candidates.

Since we conduct a significant portion of our research and development through collaborations, our success may depend significantly on the performance of such collaborators, as well as any future collaborators. Collaborators might not commit sufficient resources to the research and development or commercialization of our product candidates. Economic or technological advantages of products being developed by others, or other factors could lead our collaborators to pursue other product candidates or technologies in preference to those being developed in collaboration with us. The commercial potential of, development stage of and projected resources required to develop our drug candidates will affect our ability to maintain current collaborations or establish new collaborators. There is a risk of dispute with respect to ownership of technology developed under any collaboration. Our management of any collaboration will require significant time and effort as well as an effective allocation of resources. We may not be able to simultaneously manage a large number of collaborations.

Our product candidates are still in development. Due to the long, expensive and unpredictable drug development process, we might not ever successfully develop and commercialize any of our product candidates.

In order to achieve profitable operations, we, alone or in collaboration with others, must successfully fund, develop, manufacture, introduce and market our product candidates. The time necessary to achieve market success for any individual product is long and uncertain. Our product candidates and research programs are in various stages of clinical development and require significant, time-consuming and costly research, testing and regulatory clearances. In developing our product candidates, we are subject to risks of failure that are inherent in the development of therapeutic products based on innovative technologies. For example, our product candidates might be ineffective, as eniluracil was shown to be in earlier clinical trials conducted by GSK, or may be overly toxic, or otherwise might fail to receive the necessary regulatory clearances. The results of preclinical and initial clinical trials are not necessarily predictive of future results. Our product candidates might not be economical to manufacture or market or might not achieve market acceptance. In addition, third parties might hold proprietary rights that preclude us from marketing our product candidates or others might market equivalent or superior products.

We must conduct human clinical trials to assess our product candidates. If these trials are delayed or are unsuccessful, our development costs will significantly increase and our business prospects may suffer.

Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate, through preclinical studies with animals and clinical trials with humans, that our product candidates are safe and effective for use in each target indication. To date, we have performed only limited clinical trials, and we have only done so with some of our product candidates. Much of our testing has been conducted on animals or on human cells in the laboratory, and the benefits of treatment seen in animals may not ultimately be obtained in human clinical trials. As a result, we will need to perform significant additional research and development and extensive preclinical and clinical testing prior to any application for commercial use. We may suffer significant setbacks in clinical trials, and the trials may demonstrate our product candidates to be unsafe or ineffective. We may also encounter problems in our clinical trials that will cause us to delay, suspend or terminate those clinical trials, which would increase our development costs

and harm our financial results and commercial prospects. Identifying and qualifying patients to participate in clinical trials of our potential products is critically important to our success. The timing of our clinical trials depends on the speed at which we can recruit patients to participate in testing our product candidates. We have experienced delays in some of our clinical trials, including a significant delay in the initial activation of our STS Phase III study with COG and patient enrollment in the ~~ongoing~~STS Phase ~~I clinical trial of eniluracil in combination~~III trials with ~~oral 5-FU,~~COG and SIOPEL, and we may experience significant delays in the future. If patients are unwilling to participate in our trials because of competitive clinical trials for similar patient populations, perceived risk or any other reason, the timeline for recruiting patients, conducting trials and obtaining regulatory approval of potential products will be delayed. Other factors that may result in significant delays include obtaining regulatory or ethics review board approvals for proposed trials, reaching agreement on acceptable terms with prospective clinical trial sites, and obtaining sufficient quantities of drug for use in the clinical trials. Such delays could result in the termination of the clinical trials altogether.

Regulatory approval of our product candidates is time-consuming, expensive and uncertain, and could result in unexpectedly high expenses and delay our ability to sell our products.

Development, manufacture and marketing of our products are subject to extensive regulation by governmental authorities in the United States and other countries. This regulation could require us to incur significant unexpected expenses or delay or limit our ability to sell our product candidates, including eniluracil, ADH-1 and STS, our product candidates that are farthest along in development and the regulatory process.

Our clinical studies might be delayed or halted, or additional studies might be required, for various reasons, including:

If regulatory approval of any product is granted, it will be limited to those indications for which the product has been shown to be safe and effective, as demonstrated to the FDA’s satisfaction through clinical studies. Furthermore, approval might entail ongoing requirements for post-marketing studies. Even if regulatory approval is obtained, labeling and promotional activities are subject to continual scrutiny by the FDA and state regulatory agencies and, in some circumstances, the Federal Trade Commission. FDA enforcement policy prohibits the marketing of approved products for unapproved, or off-label, uses. These regulations and the FDA’s interpretation of them might impair our ability to effectively market our products.

We and our third-party manufacturers are also required to comply with the applicable FDA current Good Manufacturing Practices, or GMP, regulations, which include requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation. Further, manufacturing facilities must be approved by the FDA before they can be used to manufacture our products, and they are subject to additional FDA inspection. If we fail to comply with any of the FDA’s continuing regulations, we could be subject to reputational harm and sanctions, including:

In addition, identification of side effects after a drug is on the market or the occurrence of manufacturing problems could cause subsequent withdrawal of approval, reformulation of the drug, additional testing or changes in labeling of the product.

We do not presently have the financial or human resources to complete Phase III trials for our lead product candidates.

We do not presently have the financial or human resources internally to complete Phase III trials for any of our lead product candidates. We are currently developing STS in Phase III trials in collaboration with SIOPEL and COG. SIOPEL and COG may not conduct or complete the clinical trials with STS as currently planned. Such collaborators might not commit sufficient resources to the development of our product candidates, which may lead to significant delays. We have already experienced significant delays in the activation of the COG trial and subsequent accrual of patients into the COG and SIOPEL clinical trials. We may not be able to independently develop or conduct such trials ourselves. We continue to seek a licensing or funding partner for the further development of one or all of our product candidates. If a partner for one or all of these technologies is not found, we may not be able to further advance these products. If a partner is found, the financial terms that they propose may not be acceptable to us.

~~As we expand the size of our organization, we may experience difficulties in effectively managing our growth, which could adversely impact our business.~~

Any future growth will strain our management, human, operational, financial and other resources. As of September 30, 2008, we had 18 full-time employees. We also use contractors as needed, primarily within clinical development, with approximately five full time equivalents at September 30, 2008. In order to manage any future growth effectively, we will have to implement and improve operational, financial, manufacturing and management

information systems and expand, train, manage and motivate our employees. To the extent that we are unable to manage our growth effectively, we may not be able to successfully accomplish our business objectives.

We may expand our business through new acquisitions that could disrupt our business, harm our financial condition and dilute current stockholders’ ownership interests in our company.

Our business strategy includes expanding our products and capabilities, and we may seek mergers, acquisitions or ~~acquisitions~~other business arrangements to do so. Mergers and acquisitions involve numerous risks, including:

We cannot assure you that any merger or acquisition will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or business. In addition, our future success would depend in part on our ability to assimilate the companies and their personnel effectively. We might not be able to make the combination of our business with that of acquired businesses or companies work or be successful. Furthermore, the development or expansion of our business or any acquired business or companies may require a substantial capital investment by us. We may not have the necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to raise the necessary funds by selling shares of our stock, which could dilute current stockholder’s ownership interest in our company.

If ~~we lose our key personnel or are unable to attract and retain personnel, we may be unable to effectively manage our business and successfully develop our product candidates.~~

Our success depends upon certain key personnel, in particular Dr. William P. Peters, our Chief Executive Officer and Chairman of the Board, the loss of whose services might significantly delay or prevent the achievement of our scientific or business objectives. Although we have an employment agreement with Dr. Peters and with each of our other key personnel, we cannot be certain that any individual will continue in such capacity for any particular period of time. The loss of any key personnel, or the inability to hire and retain qualified employees, could negatively affect our ability to manage our business. We do not currently carry key person life insurance.

If our licenses to proprietary technology owned by others are terminated or expire, we may suffer increased development costs and delays, and we may not be able to successfully develop our product candidates.

The development of our drug candidates and the manufacture and sale of any products that we develop will involve the use of processes, products and information, some of the rights to which are owned by others. A number of our product candidates are licensed under agreements with GSK, McGill and OHSU. Although we have obtained licenses or rights with regard to the use of certain processes, products and information, the licenses or rights could be terminated or expire during critical periods and we may not be able to obtain, on favorable terms or at all, licenses or other rights that may be required. Some of these licenses provide for limited periods of exclusivity that may be extended only with the consent of the licensor, which may not be granted.

If we are unable to adequately protect or maintain our patents and licenses related to our product candidates, or we infringe upon the intellectual property rights of others, we may not be able to successfully develop and commercialize our product candidates.

The value of our technology will depend in part upon our ability, and those of our collaborators, to obtain patent protection or licenses to patents, maintain trade secret protection and operate without infringing on the rights of third parties. Although we have successfully pursued patent applications in the past, it is possible that:

It is not possible for us to be certain that we are the original and first creator of inventions encompassed by our pending patent applications or that we were the first to file patent applications for any such inventions. Further, any of our patents, once issued, may be declared by a court to be invalid or unenforceable.

ADH-1 is currently protected under issued composition of matter patents in the United States that we exclusively licensed from McGill that expire in 2017. Eniluracil is currently protected under issued composition of matter and method patents that we exclusively licensed from GSK that expire in 2014 and 2015 (in combination with 5-FU). STS is currently protected by method of use patents that we exclusively licensed from OHSU that expire in Europe in 2021 and are currently pending in the United States. None of the above expiry dates take into consideration additional pending patent applications for ADH-1 and eniluracil that, if issued, could provide additional patent protection nor possible patent term extensions or periods of data exclusivity that may be available upon marketing approval in the various countries worldwide. In addition, periods of marketing exclusivity for ADH-1 and STS may also be possible in the United States under orphan drug status. We obtained Orphan Drug Designation in the United States for the use of STS in the prevention of platinum-induced ototoxicity in pediatric patients in 2004 and for the use of ADH-1 in conjunction with melphalan for the treatment of Stage IIb/c, III, and IV malignant melanoma in 2008, and as a result, if approved, will have seven years of exclusivity in the United States from the approval date.

We may be required to obtain licenses under patents or other proprietary rights of third parties but the extent to which we may wish or need to do so is unknown. Any such licenses may not be available on terms acceptable to us or at all. If such licenses are obtained, it is likely they would be royalty bearing, which would reduce ~~our~~any future income. If licenses cannot be obtained on an economical basis, we could suffer delays in market introduction of planned products or their introduction could be prevented, in some cases after the expenditure of substantial funds. If we do not obtain such licenses, we would have to design around patents of third parties, potentially causing increased costs and delays in product development and introduction or precluding us from developing, manufacturing or selling our planned products, or our ability to develop, manufacture or sell products requiring such licenses could be foreclosed.

Litigation may also be necessary to enforce or defend patents issued or licensed to us or our collaborators or to determine the scope and validity of a third party’s proprietary rights. We could incur substantial costs if litigation is required to defend ourselves in patent suits brought by third parties, if we participate in patent suits brought against or initiated by our collaborators, or if we initiate such suits. We might not prevail in any such action. An adverse outcome in litigation or an interference to determine priority or other proceeding in a court or patent office could subject us to significant liabilities, require disputed rights to be licensed from other parties or require us or our collaborators to cease using certain technology or products. Any of these events would likely have a material adverse effect on our business, financial condition and results of operations.

Much of our technological know-how that is not patentable may constitute trade secrets. Our confidentiality agreements might not provide for meaningful protection of our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure of information. In addition, others may independently develop or obtain similar technology and may be able to market competing products and obtain regulatory approval through a showing of equivalency to our product that has obtained regulatory approvals, without being required to undertake the same lengthy and expensive clinical studies that we would have already completed.

The vulnerability to off-label use or sale of our product candidates that are covered only by “method of use” patents may cause downward pricing pressure on these product candidates if they are ever commercialized and may make it more difficult for us to enter into collaboration or partnering arrangements for the development of these product candidates.

Some of our product candidates, including STS, are currently only covered by “method of use” patents, which cover the use of certain compounds to treat specific conditions, and not by “composition of matter” patents, which would cover the chemical composition of the compound. Method of use patents provides less protection than composition of matter patents because of the possibility of off-label competition if other companies develop or market the compound for other uses. If another company markets a drug that we expect to market under the protection of a

method of use patent, physicians may prescribe the other company’s drug for use in the indication for which we obtain approval and have a patent, even if the other company’s drug is not approved for such an indication. Off-label use and sales could limit our sales and exert pricing pressure on any products we develop covered only by method of use patents. Also, it may be more difficult to find a collaborator to license or support the development of our product candidates that are only covered by method of use patents.

If our third party manufacturers breach or terminate their agreements with us, or if we are unable to secure arrangements with third party manufacturers on acceptable terms as needed in the future, we may suffer significant delays and additional costs.

We have no experience manufacturing products and do not currently have the resources to manufacture any products that we may develop. We currently have agreements with contract manufacturers for clinical supplies of ADH-1, STS, eniluracil and 5-FU, including drug substance providers and drug product suppliers, but they might not perform as agreed in the future or may terminate our agreement with them before the end of the required term. Significant additional time and expense would be required to effect a transition to a new contract manufacturer.

We plan to continue to rely on contract manufacturers for the foreseeable future to produce quantities of products and substances necessary for research and development, preclinical trials, human clinical trials and product commercialization, and to perform their obligations in a timely manner and in accordance with applicable government regulations. If we develop any products with commercial potential, we will need to develop the facilities to independently manufacture such products or secure arrangements with third parties to manufacture them. We may not be able to independently develop manufacturing capabilities or obtain favorable terms for the manufacture of our products. While we intend to contract for the commercial manufacture of our product candidates, we may not be able to identify and qualify contractors or obtain favorable contracting terms. We or our contract manufacturers may also fail to meet required manufacturing standards, which could result in delays or failures in product delivery, increased costs, injury or death to patients, product recalls or withdrawals and other problems that could significantly hurt our business. We intend to maintain a second source for back-up commercial manufacturing, wherever feasible. However, if a replacement to our future internal or contract manufacturers were required, the ability to establish second-sourcing or find a replacement manufacturer may be difficult due to the lead times generally required to manufacture drugs and the need for FDA compliance inspections and approvals of any replacement manufacturer, all of which factors could result in production delays and additional commercialization costs. Such lead times would vary based on the situation, but might be twelve months or longer.

We lack the resources necessary to effectively market our product candidates, and we may need to rely on third parties over whom we have little or no control and who may not perform as expected.

We do not have the necessary resources to market our product candidates. If we develop any products with commercial potential, we will either have to develop a marketing capability, including a sales force, which is difficult and expensive to implement successfully, or attempt to enter into a collaboration, merger, joint venture, license or other arrangement with third parties to provide a substantial portion of the financial and other resources needed to market such products. We may not be able to do so on acceptable terms, if at all. If we rely extensively on third parties to market our products, the commercial success of such products may be largely outside of our control.

We conduct our business internationally and are subject to laws and regulations of several countries which may affect our ability to access regulatory agencies and may affect the enforceability and value of our licenses.

We have conducted clinical trials in the United States, Canada, Europe and the Pacific Rim and intend to, or may, conduct future clinical trials in these and other jurisdictions. There can be no assurance that any sovereign government will not establish laws or regulations that will be deleterious to our interests. There is no assurance that we, as a Canadian corporation, will continue to have access to the regulatory agencies in any jurisdiction where we might want to conduct clinical trials or obtain regulatory approval, and we might not be able to enforce our license or patent rights in foreign jurisdictions. Foreign exchange controls may have a material adverse effect on our business and financial condition, since such controls may limit our ability to flow funds into or out of a particular country to meet obligations under licenses, clinical trial agreements or other collaborations.

There has been significant deterioration and instability in the financial markets. Even though we believe we take a conservative approach to investing our funds, the volatility of the current financial markets exposes us to increased investment risk, including the risks that the value and liquidity of our money market investments could deteriorate significantly and the issuers of the investments we hold could be subject to credit rating downgrades. This might result in significant losses in our money market investments that could adversely impact our financial condition, ~~and~~which could be an immediate problem given our extremely limited financial ~~statements. Our investment manager of~~ resources. On September 19, 2008, the U.S. Treasury announced a Temporary Guarantee Program which insures money market investments on a temporary basis, including

our money market ~~funds has submitted the necessary documentation and paid the required fee to participate in the U.S. Treasury’s Temporary Guarantee Program funds for our money market investments.~~funds. The program ~~will be in effect for an initial three month term and~~ ensures that if a participating fund’s share value declines to below one dollar and the fund is liquidated, the U.S. Treasury would cover any shortfall between the liquidated share price and one dollar. ~~The Secretary of~~On March 31, 2009, the U.S. Treasury ~~has~~announced the ~~option to extend the~~ program was extended until September 18, 2009. IfWhile we ~~must rely on the U.S. Treasury to recover future potential losses in~~have not experienced any loss or write down of our money market ~~funds,~~investments in the past, we ~~might experience lengthy delays~~cannot guarantee that such losses will not occur in ~~accessing our funds which might have an adverse impact on our operations.~~future periods.

If we are unable to obtain applicable U.S. and/or foreign regulatory approvals, we will be unable to develop and commercialize our drug candidates.

The preclinical studies and clinical trials of our product candidates, as well as the manufacturing, labeling, sale and distribution, export or import, marketing, advertising and promotion of our product candidates are subject to various regulatory frameworks in the United States, Canada and other countries. Any products that we develop must receive all relevant regulatory approvals and clearances before any marketing, sale or distribution. The regulatory process, which includes extensive preclinical studies and clinical testing to establish product safety and efficacy, can take many years and cost substantial amounts of money. As a result of the length of time, many challenges and costs associated with the drug development process, the historical rate of failures for drug candidates is extremely high. For example, prior development of our compound eniluracil by GSK was not successful. Varying interpretations of the data obtained from studies and tests could delay, limit or prevent regulatory approval or clearance. Changes in regulatory policy could also cause delays or affect regulatory approval. Any regulatory delays may increase our development costs and negatively impact our competitiveness and prospects. It is possible that we may not be able to obtain regulatory approval of any of our drug candidates or approvals may take longer and cost more to obtain than expected.

Regulatory approvals, if granted, may entail limitations on the uses for which any products we develop may be marketed, limiting the potential sales for any such products. The granting of product approvals can be withdrawn at any time, and manufacturers of approved products are subject to regular reviews, including for compliance with GMP. Failure to comply with any applicable regulatory requirement, which may change from time to time, can result in warning letters, fines, sanctions, penalties, recalling or seizing products, suspension of production, or even criminal prosecution.

Future sales of our product candidates may suffer if they fail to achieve market acceptance.

Even if our product candidates are successfully developed and achieve appropriate regulatory approval, they may not enjoy commercial acceptance or success. Product candidates may compete with a number of new and traditional drugs and therapies developed by major pharmaceutical and biotechnology companies. Market acceptance is dependent on product candidates demonstrating clinical efficacy and safety, as well as demonstrating advantages over alternative treatment methods. In addition, market acceptance is influenced by government reimbursement policies and the ability of third parties to pay for such products. Physicians, patients, the medical community or patients may not accept or utilize any products we may develop.

We face a strong competitive environment. Other companies may develop or commercialize more effective or cheaper products, which may reduce or eliminate the demand for our product candidates.

The biotechnology and pharmaceutical industry, and in particular the field of cancer therapeutics where we are focused, is very competitive. Many companies and research organizations are engaged in the research, development and testing of new cancer therapies or means of increasing the effectiveness of existing therapies, including, among many others, Abbott Laboratories, Amgen, Antisoma, Adventrix, AstraZeneca, Bayer, Bristol-Myers Squibb, EntreMed, Genentech, Johnson & Johnson, Merck & Co., NeoPharm, Novartis, Onyx, OSI Pharmaceuticals, OXiGENE, Peregrine Pharmaceuticals, Pfizer, Roche, Sanofi-Aventis, and Taiho. Many of these companies have marketed drugs or are developing targeted cancer therapeutics which, depending upon the mechanism of action of such agents could thus be competitors.

Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market products. In addition, many of these competitors have extensive experience with preclinical testing and human clinical trials and in obtaining regulatory approvals. Also, some of the smaller companies that compete with us have formed collaborative relationships with large, established companies to support the research, development, clinical trials and commercialization of any products that they may develop.Academic institutions, government agencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborative arrangements for research, clinical development and marketing of products similar to those we seek to develop. These companies and institutions

compete with us in recruiting and retaining qualified scientific and management personnel as well as in acquiring technologies complementary to our projects.

We are likely to face competition in the areas of product efficacy and safety, ease of use and adaptability, as well as pricing, product acceptance, regulatory approvals and intellectual property. Competitors could develop more effective, safer and more affordable products than we do, and they may obtain patent protection or product commercialization before we do or even render our product candidates obsolete. The existence of competitive

products, including products or treatments of which we are not aware, or products or treatments that may be developed in the future, may adversely affect the marketability of any products that we develop.

We may face product liability claims that could require us to defend costly lawsuits or incur substantial liabilities that could adversely impact our financial condition, receipt of regulatory approvals for our product candidates and our results of operation.

The use of our product candidates in clinical trials and for commercial applications, if any, may expose us to liability claims in the event that such product candidates cause injury or death or result in other adverse effects. These claims could be made by health care institutions, contract laboratories, and subjects participating in our clinical studies, patients or others using our product candidates. In addition to liability claims, certain serious adverse events could require interruption, delay and/or discontinuation of a clinical trial and potentially prevent further development of the product candidate. We carry clinical trial insurance with a policy limit of $5.0 million, but the coverage may not be sufficient to protect us from legal expenses and liabilities we might incur. Litigation is very expensive, even if we are successful. In addition, our existing coverage may not be adequate if we further develop products, and future coverage may not be available in sufficient amounts or at reasonable cost. Adverse liability claims may also harm our ability to obtain or maintain regulatory approvals.

We use hazardous material and chemicals in our research and development, and our failure to comply with laws related to hazardous materials could materially harm us.

Our research and development processes involve the controlled use of hazardous materials, such as flammable organic solvents, corrosive acids and corrosive bases. Accordingly, we are subject to federal, state, local and foreign laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. ~~While we believe that our safety procedures for handling and disposing of such materials will comply with the standards prescribed by applicable federal, state, local or foreign regulations, the~~The risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources and may not be covered by our general liability insurance. We currently do not carry insurance specifically for hazardous materials claims. We may be required to incur significant costs to comply with environmental laws and regulations, which may change from time to time.

Efforts to reduce product pricing and health care reimbursement and changes to government policies could negatively affect the commercialization of our product candidates.

If any of our product candidates achieve regulatory approval, we may be materially adversely affected by the continuing efforts of governmental and third-party payors to contain or reduce health care costs. For example, if we succeed in bringing one or more products to market, such products may not be considered cost-effective and the availability of consumer reimbursement may not exist or be sufficient to allow the sale of such products on a competitive basis. The constraints on pricing and availability of competitive products may further limit our pricing and reimbursement policies as well as adversely impact market acceptance and commercialization for the products.

In some foreign markets, the pricing or profitability of healthcare products is subject to government control. In recent years, federal, state, provincial and local officials and legislators have proposed or are proposing a variety of price-based reforms to the healthcare systems in the United States, Canada and elsewhere. Some proposals include measures that would limit or eliminate payments from third-party payors to the consumer for certain medical procedures and treatments or allow government control of pharmaceutical pricing. The adoption of any such proposals or reforms could adversely affect the commercial viability of our product candidates.

Any significant changes in the healthcare system in the United States, Canada or abroad would likely have a substantial impact on the manner in which we conduct business and could have a material adverse effect on our ability to raise capital and the viability of product commercialization.

New accounting or regulatory pronouncements may impact our future financial position and results of operations.

There may be new accounting or regulatory pronouncements or rulings, which could have an impact on our future financial position and results of operations. Changing laws, regulations and standards relating to corporate governance

and public disclosures can create uncertainty and such uncertainty may lead to increased expenses and exposure to liabilities.

~~The market price of our~~Our common shares ~~is highly volatile and could cause~~have been delisted from NYSE Alternext US LLC (formerly the ~~value~~American Stock Exchange), which may make it more difficult to dispose of your ~~investment to significantly decline.~~shares.

~~Historically, the market price of our common shares has been highly volatile and the market for our common shares has~~In December 2008, we received notice from time to time experienced significant price and volume fluctuations, some of which are unrelated to our operating performance. From November 12, 2004 to November 11, 2008, the trading price of our stock fluctuated from a high closing price of CAD$2.09 per share to a low closing price of CAD$0.07 per share on the TSX, and from a high closing price of $1.71 per share to a low closing price of $0.07 per share on the NYSE Alternext US, LLC (formerly the American Stock Exchange)~~. Historically,~~, or AMEX, that we were not in compliance with Section 1003(a)(ii) of its Company Guide, because our stockholders’ equity was below $6 million and we had incurred losses from continued operations and net losses in the five most recent fiscal years. On January 20, 2009, we voluntarily filed to delist our common ~~shares have had~~stock from the AMEX and effective January 30, 2009, our common stock no longer traded on the AMEX. As a ~~low~~result, any trading ~~volume, and may continue to have a low trading volume in the future. This low volume may contribute to the volatility of the market price~~ of our common ~~shares. It is likely that~~stock in the U.S. will need to be conducted in the over-the-counter market, ~~price of~~or on the pink sheets. In addition, our common ~~shares will continue~~stock is also subject to ~~fluctuate significantly~~the SEC’s penny stock rules, which impose additional requirements on broker-dealers who effect trades. As a result, shareholders might have difficulty selling our common stock, particularly in the ~~future.~~U.S.

~~The market price of our stock may be significantly affected by many factors, including without limitation:~~

We may be unable to maintain the listing of our common stock on ~~the NYSE Alternext US (formerly, the American Stock Exchange) and~~ the Toronto Stock Exchange and that would make it more difficult for stockholders to dispose of their common stock.

Our common stock is currently listed on ~~the NYSE Alternext US, or ASE, and~~ the Toronto Stock Exchange, or TSX. ~~We cannot guarantee that it will always be listed. Both exchanges have~~The TSX has rules for continued listing, including minimum market capitalization and other requirements, that we might not meet in the future, particularly if the price of our common stock does not increase or we are unable to raise additional capital to continue operations. In January 2009, our common stock was delisted from the AMEX as the Company did not meet the continued listing requirements of that exchange.

Delisting from ~~either or both exchanges~~the TSX would make it more difficult for stockholders to dispose of their common stock and more difficult to obtain accurate quotations on our common stock. This could have an adverse effect on the price of our common stock. There can be no assurances that a market maker will make a market in our common stock on the ~~OTC Bulletin Board~~pink sheets or any other stock quotation system after delisting. Furthermore, securities quoted on the ~~OTC Bulletin Board~~pink sheets generally have significantly less liquidity than securities traded on a national securities exchange, not only in the number of shares that can be bought and sold, but also through delays in the timing of transactions and lower market prices than might otherwise be obtained. As a result, ~~you~~stockholders might find it difficult to resell shares at prices quoted in the market or at all. Furthermore, because of the limited market and generally low volume of trading in our common stock, our common stock is more likely to be affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in the market’s perception of our business, and announcements made by us, our competitors or parties with whom we have business relationships. Our ability to issue additional securities for financing or other purposes, or to otherwise arrange for any financing we may need in the future, may also be materially and adversely affected by the fact that our securities are not traded on a national securities exchange.

The market price of our common shares is highly volatile and could cause the value of your investment to significantly decline.

Historically, the market price of our common shares has been highly volatile and the market for our common shares has from time to time experienced significant price and volume fluctuations, some of which are unrelated to our operating performance. From November 12, 2004 to May 13, 2009, the trading price of our stock fluctuated from a high closing price of CAD$2.09 per share to a low closing price of CAD$0.02 per share on the TSX. From November 12, 2004 until our delisting on January 30, 2009, the trading price of our stock fluctuated from a high closing price of $1.71 per share to a low closing price of $0.01 per share on the NYSE Alternext US, LLC (formerly, the American Stock Exchange). Historically, our common shares have had a low trading volume, and may continue to have a low trading volume in the future. This low volume may contribute to the volatility of the market price of our common shares. It is likely that the market price of our common shares will continue to fluctuate significantly in the future.

The market price of our stock may be significantly affected by many factors, including without limitation:

Our existing principal stockholders hold a substantial number of our common shares and may be able to exercise influence in matters requiring approval of stockholders.

At March 31, 2009, our current 5% stockholders beneficially own approximately 60% of our common shares. In particular, Southpoint Capital Advisors LP owns or exercises control over 41.5 million common shares, representing approximately 32% of the issued and outstanding common shares and 42% beneficially owned (assuming full exercise of the 20.8 million warrants issued to Southpoint Capital but no other outstanding warrants or options). In addition, Mr. Robert Butts, Co-Founder and Portfolio Manager of Southpoint Capital Advisors LP, serves as a member of our Board of Directors. Southpoint Capital, our other 5% stockholders, and other insiders, acting alone or together, might be able to influence the outcomes of matters that require the approval of our stockholders, including but not limited to certain equity transactions (such as a financing), an acquisition or merger with another company, a sale of substantially all of our assets, the election and removal of directors, or amendments to our incorporating documents. These stockholders might make decisions that are adverse to your interests. The concentration of ownership could have the effect of delaying, preventing or deterring a change of control of our company, which could adversely affect the market price of our common shares or deprive our other stockholders of an opportunity to receive a premium for their common shares as part of a sale of our company.

There are a large number of our common shares underlying outstanding warrants and options, and reserved for issuance under our stock option plan, that may be sold in the market, which could depress the market price of our stock and result in substantial dilution to the holders of our common shares.

Sale or issuance of a substantial number of our common shares in the future could cause the market price of our common stock to decline. It may also impair our ability to obtain additional financing. ~~As of September 30, 2008,~~At March 31, 2009, we had outstanding warrants to purchase approximately ~~7.6~~41.1 million of our common shares ~~at an~~and had a weighted average exercise price of ~~CAD$2.15 per share, and outstanding warrants to purchase approximately 45.9 million of our common shares at exercise prices ranging from $0.33 to $0.97.~~$0.44. In addition, ~~as of September 30, 2008,~~at March 31, 2009, there were approximately ~~18.8~~18.4 million common shares issuable upon the exercise of stock options granted by us of which approximately ~~2.9~~2.8 million were denominated in Canadian dollars and had a weighted average exercise price of CAD$~~2.16~~2.17 per common share and approximately ~~15.9~~15.6 million were denominated in U.S. dollars and had a weighted average exercise price of $0.54 per common share. We may also issue further warrants as part of any future financings as well as the additional ~~1.7~~2.3 million options to acquire our common shares currently remaining available for issuance under our stock option plan.

We have not and do not intend to list any of our outstanding warrants on any securities exchange or to arrange for any quotation system to quote them. We cannot assure you that there will be a liquid trading market for our warrants or that a trading market for our warrants will develop.

We are a passive foreign investment company under U.S. tax law, which has adverse tax consequences for our U.S. stockholders.

As further described in Item 5. “Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” – “Material United States Federal and Canadian Income Tax Consequences” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2007,~~2008, we have determined that we are currently a Passive Foreign Investment Company, or PFIC, under U.S. tax law and likely will continue to be a PFIC at least until we develop a source of significant operating revenues. As a result, there may be adverse tax consequences to U.S. holders of our common shares. A U.S. holder whose holding period for our shares includes a period during which we are classified as a PFIC generally may be required to treat certain excess distributions with respect to our shares and gains realized on the disposition of our shares as ordinary income earned ratably over the holder’s holding period and may be subject to a special tax and interest charge on amounts treated as earned in the periods in which we are a PFIC. In addition, the holder’s shares may not receive a “stepped-up” basis upon a transfer at death. These PFIC tax rules

may not apply if a U.S. holder makes an election for the first taxable year of the holder’s holding period to be taxed currently on the holder’s pro rata share of our ordinary earnings and net capital gain for any year we are a PFIC. Alternatively, a U.S. holder may avoid the special tax and interest charge on excess distributions and gains by making an election to mark the shares to market annually during any period in which we are a PFIC and our shares are treated as marketable shares. If a mark-to-market election is made, amounts included in or deducted from income pursuant to the election and actual gains and losses realized upon disposition generally may be treated as ordinary gains or losses. Whether or not an applicable election is made, if we are classified as a PFIC for the taxable year in which a dividend is paid, or for the preceding taxable year, a dividend paid to a non-corporate U.S. holder may not qualify for the reduced long-term capital gains rates. These tax issues could make our stock less attractive to U.S. investors and therefore negatively affect our stock price and the ability to sell our shares.

We ~~are no longer a foreign private issuer and may incur additional expenses associated with compliance with the U.S. securities laws applicable to U.S. domestic issuers.~~

Beginning in 2007, we have had to comply with the provisions of U.S. securities laws applicable to U.S. domestic issuers including, without limitation, the U.S. proxy solicitation rules, Regulation FD and the Section 16 short swing profit rules. As a result, we must now report on the forms required of U.S. companies, such as Forms 10-K, 10-Q and 8-K, rather than the forms we have filed with the SEC in the past as a foreign private issuer, such as Forms 20-F and 6-K. Compliance with these additional securities laws may result in increased expenses. In addition, we are now subject to additional restrictions on offers and sales of securities outside of the United States, including in Canada. To the extent that we were to offer or sell our securities outside of the United States in the future, we will have to comply with the generally more restrictive Regulation S requirements that apply to U.S. companies.

We have not paid any dividends since incorporation and do not anticipate declaring any dividends in the foreseeable future. As a result, you will not be able to recoup your investment through the payment of dividends on your common shares and the lack of a dividend payable on our common shares might depress the value of your investment.

We will use all available funds to finance the development of our product candidates and operation of our business. Our directors will determine if and when dividends should be declared and paid in the future based on our financial position at the relevant time, but since we have no present plans to pay dividends, you should not expect receipt of dividends either for your cash needs or to enhance the value of your common shares.

~~Our existing principal stockholders hold a substantial number of our common shares and may be able to exercise influence in matters requiring approval of stockholders.~~

As of September 30, 2008, our current 5% stockholders beneficially own approximately 60% of our common shares. In particular, Southpoint Capital Advisors LP owns or exercises control over 41.5 million common shares, representing approximately 32% of the issued and outstanding common shares and 42% beneficially owned (assuming full exercise of the 20.8 million warrants issued to Southpoint Capital but no other outstanding warrants or options). In addition, Mr. Robert Butts, Co-Founder and Portfolio Manager of Southpoint Capital Advisors LP, serves as a member of our Board of Directors. Southpoint Capital, our other 5% stockholders, and other insiders, acting alone or together, might be able to influence the outcomes of matters that require the approval of our stockholders, including but not limited to the election and removal of directors, an acquisition or merger with another company, certain equity transactions, a sale of substantially all of our assets, or amendments to our incorporating documents. These stockholders might make decisions that are adverse to your interests. The concentration of ownership could have the effect of delaying, preventing or deterring a change of control of our company, which could adversely affect the market price of our common shares or deprive our other stockholders of an opportunity to receive a premium for their common shares as part of a sale of our company.

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


		Page
PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)		3

Unaudited Condensed Consolidated Balance ~~Sheets—September 30, 2008~~Sheets – March 31, 2009 and December 31, ~~2007~~2008		3

Unaudited Condensed Consolidated Statements of Operations—Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~		4

Unaudited Condensed Consolidated Statements of Cash Flows—Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~		5

Unaudited Condensed Consolidated Statements of Stockholders’ ~~Equity—~~Equity – For the Period Ended September 3, 1996 to ~~September 30, 2008~~March 31, 2009		6

Notes to Unaudited Condensed Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1614

Item 3. Quantitative and Qualitative Disclosures about Market Risk		2421

Item 4. Controls and Procedures		2522

PART II: OTHER INFORMATION		2522

Item 1A. Risk Factors		2522

Item 6. Exhibits		3734

Signatures		3835


Warrant Description	Number Outstanding at September 30, 2008	Exercise Price In U.S. Dollars		Expiration Date
Broker warrants	4,818	$	0.33	February 21, 2009
Investor warrants	38,794	$	0.40	February 21, 2010
Investor warrants	2,326	$	0.97	May 7, 2010

	45,938


Warrant Description	Number Outstanding at March 31, 2009	Exercise Price In U.S. Dollars		Expiration Date
Investor warrants	38,794	$	0.40	February 21, 2010
Investor warrants	2,326	$	0.97	May 7, 2010

	41,120


	Nine Months Ended September 30,
	2008		2007
Expected dividend	0	%	0	%
Risk-free interest rate	3.16	%	4.75	%
Expected volatility	85.6	%	77.1	%
Expected life in years	7		7


	Number of Options		Weighted- average Exercise Price
Outstanding at December 31, 2007	2,939		CAD$	2.18
Granted	—			—
Exercised	—			—
Forfeited/cancelled/expired	(44	)	CAD$	2.93

Outstanding at September 30, 2008	2,895		CAD$	2.16


	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Net loss in accordance with U.S. GAAP	$	(3,244	)	$	(3,202	)	$	(10,990	)	$	(10,349	)
Adjustments to reconcile to Canadian GAAP:
License fee paid (2)		—			—			—			1,000
License fee amortization (2)		(36	)		(36	)		(108	)		(84	)
Acquired intellectual property rights amortization (2)		(416	)		(452	)		(1,248	)		(1,356	)
Future income taxes—intellectual property (2)		126			165			378			495

Net loss in accordance with Canadian GAAP	$	(3,570	)	$	(3,525	)	$	(11,968	)	$	(10,294	)

Other comprehensive loss, unrealized foreign exchange loss on cash and cash equivalents, net of tax		(85	)		—			(85	)		—

Comprehensive loss	$	(3,655	)	$	(3,525	)	$	(12,053	)	$	(10,294	)

Net loss per share of common stock in accordance with Canadian GAAP, basic and diluted	$	(0.03	)	$	(0.03	)	$	(0.09	)	$	(0.09	)

Weighted-average number of shares of common stock outstanding, basic and diluted		128,227			128,227			128,227			112,643


In thousands of U.S. Dollars	Three Months Ended September 30, 2008			%		Three Months Ended September 30, 2007			%		Change
Revenue	$	—				$	—				$	—

Operating expenses:
Research and development		2,821		86	%		2,490		72	%		331
General and administration		478		14	%		966		28	%		(488	)

Total operating expenses		3,299		100	%		3,456		100	%		(157	)

Loss from operations		(3,299	)				(3,456	)				157

Interest income		55					254					(199	)

Net loss and total comprehensive loss	$	(3,244	)			$	(3,202	)			$	(42	)


		September 30, 2008
Common shares		128,227
Warrants		~~53,505~~41,120
Stock options		~~18,809~~18,379

Total		~~200,541~~187,726


Exhibit No.	Description of Exhibit	Registrant’s Form	Dated	Exhibit Number	Filed Herewith
31.1	Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002				X

31.2	Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002				X

32.1	Certification of Chief Executive Officer and Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002				X


	Adherex Technologies Inc.

Date: ~~November 12, 2008~~May 14, 2009	By:	/s/ William P. Peters
		William P. Peters
		Chairman & Chief Executive Officer
		(principal executive officer)

Date: ~~November 12, 2008~~May 14, 2009	By:	/s/ James A. Klein, Jr.
		James A. Klein, Jr.
		Chief Financial Officer
		(principal financial and chief accounting officer)

Large Accelerated Filer

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Smaller reporting company