UNITED
STATES




SECURITIES
AND EXCHANGE COMMISSION




Washington,
D.C. 20549




FORM
20-F




£
            Registration
      Statement Pursuant to Section 12(b) or 12(g) of the Securities Exchange
      Act of 1934




OR




T
            Annual
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 for the fiscal year ended June 30,
2009




OR




£
            Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




OR




£
            Shell
      Company Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934




Commission
file number 1-32186




YM
BIOSCIENCES INC.


(Exact
Name of Registrant as Specified in its Charter)




Not
Applicable


(Translation
of Registrant’s Name into English)




Nova
Scotia, Canada


(Jurisdiction
of Incorporation or Organization)




Suite
400, Building 11


5045
Orbiter Drive


Mississauga,
Ontario L4W 4Y4


Canada


(Address
of Principal Executive Offices)




David
G.P. Allan, Telephone (905) 629-9761, Facsimile (905) 629-4959


5045 Orbitor Drive, Building 11,
Suite 400,


Mississauga,
Ontario, L4W 4Y4


Canada


(Name,
Telephone, E-mail and/or Facsimile number and Address of Company Contact
Person)




Securities
registered or to be registered pursuant to Section 12(b) of the
Act:




Title of Each Class
              
              Name of Each Exchange on Which RegisteredCommon Shares, No Par Value
              
              NYSE Amex




Securities
registered or to be registered pursuant to Section 12(g) of the Act:
NONE




Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
NONE




Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual report:
58,216,309 Common Shares (excluding 2,380,953 shares that are held in escrow to
be released contingent upon the completion of certain milestones), no par value,
as of June 30, 2009.




Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act




Yes           £                      No           S




If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.




Yes           £                      No           S




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           S                      No           £




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




Large
accelerated filer £               Accelerated
filer S                    Non-accelerated
filer £




Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:




US
      GAAP £
              
              International
      Financial Reporting Standards as issued  £
              
              Other
      Sby
      the International Accounting Standards Board




If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow.




Item
17     £                      Item
18   S




If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).




Yes           £                      No           S









TABLE OF
CONTENTS





PagePART
      I
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            7Item
      1:
                                                                                                                                            
                                                                                                                                            Identity
      of Directors, Senior Management and Advisors
                                                                                                                                            
                                                                                                                                            7A
                                                                                                                                            
                                                                                                                                            Directors
      and Senior Management
                                                                                                                                            
                                                                                                                                            7B
                                                                                                                                            
                                                                                                                                            Advisors
                                                                                                                                            
                                                                                                                                            7C
                                                                                                                                            
                                                                                                                                            Auditors
                                                                                                                                            
                                                                                                                                            7Item
      2:
                                                                                                                                            
                                                                                                                                            Offer
      Statistics and Expected Timetable
                                                                                                                                            
                                                                                                                                            7A
                                                                                                                                            
                                                                                                                                            Offer
      Statistics
                                                                                                                                            
                                                                                                                                            7B
                                                                                                                                            
                                                                                                                                            Method
      and Expected Timetable
                                                                                                                                            
                                                                                                                                            7Item
      3:
                                                                                                                                            
                                                                                                                                            Key
      Information
                                                                                                                                            
                                                                                                                                            7A
                                                                                                                                            
                                                                                                                                            Selected
      Financial Data
                                                                                                                                            
                                                                                                                                            7B
                                                                                                                                            
                                                                                                                                            Capitalization
      and Indebtedness
                                                                                                                                            
                                                                                                                                            8C
                                                                                                                                            
                                                                                                                                            Reasons
      for the Offer and Use of Proceeds
                                                                                                                                            
                                                                                                                                            8D
                                                                                                                                            
                                                                                                                                            Risk
      Factors
                                                                                                                                            
                                                                                                                                            8Item
      4:
                                                                                                                                            
                                                                                                                                            Information
      on the Company
                                                                                                                                            
                                                                                                                                            19A
                                                                                                                                            
                                                                                                                                            History
      and Development of the Company
                                                                                                                                            
                                                                                                                                            19B
                                                                                                                                            
                                                                                                                                            Business
      Overview
                                                                                                                                            
                                                                                                                                            21C
                                                                                                                                            
                                                                                                                                            Organizational
      Structure
                                                                                                                                            
                                                                                                                                            38D
                                                                                                                                            
                                                                                                                                            Property,
      Plant and Equipment
                                                                                                                                            
                                                                                                                                            38Item
      5:
                                                                                                                                            
                                                                                                                                            Operating
      and Financial Review and Prospects
                                                                                                                                            
                                                                                                                                            39Item
      6:
                                                                                                                                            
                                                                                                                                            Directors,
      Senior Management and Employees
                                                                                                                                            
                                                                                                                                            49A
                                                                                                                                            
                                                                                                                                            Directors
      and Senior Management
                                                                                                                                            
                                                                                                                                            49B
                                                                                                                                            
                                                                                                                                            Compensation
                                                                                                                                            
                                                                                                                                            53C
                                                                                                                                            
                                                                                                                                            Board
      of Directors Practices
                                                                                                                                            
                                                                                                                                            61D
                                                                                                                                            
                                                                                                                                            Employees
                                                                                                                                            
                                                                                                                                            65E
                                                                                                                                            
                                                                                                                                            Share
      Ownership
                                                                                                                                            
                                                                                                                                            65Item
      7:
                                                                                                                                            
                                                                                                                                            Major
      Shareholders and Related Party Transactions
                                                                                                                                            
                                                                                                                                            66A
                                                                                                                                            
                                                                                                                                            Major
      Shareholders
                                                                                                                                            
                                                                                                                                            66B
                                                                                                                                            
                                                                                                                                            Related
      Party Transactions
                                                                                                                                            
                                                                                                                                            67C
                                                                                                                                            
                                                                                                                                            Interests
      of Experts and Counsel
                                                                                                                                            
                                                                                                                                            67Item
      8:
                                                                                                                                            
                                                                                                                                            Financial
      Information
                                                                                                                                            
                                                                                                                                            67A
                                                                                                                                            
                                                                                                                                            Consolidated
      Statements and Other Financial Information
                                                                                                                                            
                                                                                                                                            67B
                                                                                                                                            
                                                                                                                                            Significant
      Changes
                                                                                                                                            
                                                                                                                                            67Item
      9:
                                                                                                                                            
                                                                                                                                            The
      Offer and Listing
                                                                                                                                            
                                                                                                                                            67A
                                                                                                                                            
                                                                                                                                            Offer
      and Listing Details
                                                                                                                                            
                                                                                                                                            67B
                                                                                                                                            
                                                                                                                                            Plan
      of Distribution
                                                                                                                                            
                                                                                                                                            68C
                                                                                                                                            
                                                                                                                                            Markets
                                                                                                                                            
                                                                                                                                            68D
                                                                                                                                            
                                                                                                                                            Selling
      Shareholders
                                                                                                                                            
                                                                                                                                            68E
                                                                                                                                            
                                                                                                                                            Dilution
                                                                                                                                            
                                                                                                                                            69F
                                                                                                                                            
                                                                                                                                            Expenses
      of the Issue
                                                                                                                                            
                                                                                                                                            69Item
      10:
                                                                                                                                            
                                                                                                                                            Additional
      Information
                                                                                                                                            
                                                                                                                                            69A
                                                                                                                                            
                                                                                                                                            Share
      Capital
                                                                                                                                            
                                                                                                                                            69B
                                                                                                                                            
                                                                                                                                            Articles
      of Continuance
                                                                                                                                            
                                                                                                                                            75C
                                                                                                                                            
                                                                                                                                            Material
      Contracts
                                                                                                                                            
                                                                                                                                            75D
                                                                                                                                            
                                                                                                                                            Exchange
      Controls
                                                                                                                                            
                                                                                                                                            75E
                                                                                                                                            
                                                                                                                                            Taxation
                                                                                                                                            
                                                                                                                                            77F
                                                                                                                                            
                                                                                                                                            Certain
      US Federal Income Tax Considerations
                                                                                                                                            
                                                                                                                                            79G
                                                                                                                                            
                                                                                                                                            Dividends
      and Paying Agents
                                                                                                                                            
                                                                                                                                            86H
                                                                                                                                            
                                                                                                                                            Statements
      by Experts
                                                                                                                                            
                                                                                                                                            86I
                                                                                                                                            
                                                                                                                                            Documents
      on Display
                                                                                                                                            
                                                                                                                                            86J
                                                                                                                                            
                                                                                                                                            Subsidiary
      Information
                                                                                                                                            
                                                                                                                                            87Item
      11:
                                                                                                                                            
                                                                                                                                            Quantitative
      and Qualitative Disclosures About Market Risk
                                                                                                                                            
                                                                                                                                            87Item
      12:
                                                                                                                                            
                                                                                                                                            Description
      of Securities Other Than Equity Securities
                                                                                                                                            
                                                                                                                                            87A
                                                                                                                                            
                                                                                                                                            Debt
      Securities
                                                                                                                                            
                                                                                                                                            87









B
                                                
                                                Warrants
      and Rights
                                                
                                                87C
                                                
                                                Other
      Securities
                                                
                                                87D
                                                
                                                American
      Depository Shares
                                                
                                                88PART
      II
                                                
                                                
                                                
                                                88Item
      13:
                                                
                                                Defaults,
      Dividend Arrearages and Delinquencies
                                                
                                                88Item
      14:
                                                
                                                Material
      Modification to the Rights of Security Holders and Use of
      Proceeds
                                                
                                                88Item
      15:
                                                
                                                Controls
      and Procedures
                                                
                                                88Item
      16A:
                                                
                                                Audit
      Committee Financial Expert
                                                
                                                89Item
      16B:
                                                
                                                Code
      of Ethics
                                                
                                                89Item
      16C:
                                                
                                                Principal
      Accounting Fees and Services
                                                
                                                89Item
      16D:
                                                
                                                Exemptions
      from the Listing Standards for Audit Committee
                                                
                                                90Item
      16E:
                                                
                                                Purchases
      of Equity Securities by the Issuer and Affiliated
Purchases
                                                
                                                90PART
      III
                                                
                                                
                                                
                                                91Item
      17:
                                                
                                                Financial
      Statements
                                                
                                                91Item
      18:
                                                
                                                Financial
      Statements
                                                
                                                91Item
      19:
                                                
                                                Exhibits
                                                
                                                91


Index
      to Financial Statements
            F-1








BASIS
OF PRESENTATION




General




Except
where the context otherwise requires, all references in this Form 20-F to the
“Company”, “YM”, “we”, “us”, “our” or similar words or phrases are to YM
Biosciences Inc. and its subsidiaries, taken together.  In this Form
20-F, references to “US$” are to US dollars and references to “C$” or “$” are to
Canadian dollars. Unless otherwise indicated, the statistical and financial data
contained in this Form 20-F are presented as at June 30, 2009.




FORWARD-LOOKING
STATEMENTS




This
annual report on Form 20-F contains “forward-looking statements” within the
meaning of the United States federal securities laws.  The words
“may,” “believe,” “will,” “anticipate,” “expect,” “estimate,” “project,”
“future,” and other expressions that are predictions of or indicate future
events and trends and that do not relate to historical matters identify
forward-looking statements.  The forward-looking statements in this
annual report on Form 20-F include, among others, statements with respect
to:




·
            our
      expected expenditure and accumulated deficit
  levels;




·
            our
      intentions with respect to acquiring or investing in production
      facilities;




·
            production
      quantities;




·
            our
      ability to obtain sufficient supplies of our
  products;




·
            our
      ability to identify licensable products or research suitable for licensing
      and commercialization;




·
            the
      locations of our clinical trials;




·
            our
      intention to license products from multiple
  jurisdictions;




·
            our
      ability to obtain necessary funding on favorable terms or at
      all;




·
            our
      potential sources of funding;




·
            our
      business strategy;




·
            our
      drug development plans;




·
            our
      ability to obtain licenses on commercially reasonable
    terms;




·
            the
      effect of third party patents on our commercial
  activities;




·
            our
      intentions with respect to developing manufacturing, marketing or
      distribution programs;




·
            our
      expectations with respect to the views toward our products held by
      potential partners;




·
            our
      plans for generating revenue;




·
            our
      plans for increasing expenditures for the development of certain
      products;




·
            our
      strategy for protecting our intellectual
  property;




·
            the
      sufficiency of our financial resources to support our activities and our
      prospective pivotal trials; and




·
            our
      plans to for future clinical trials and for seeking clinical
      clearance.





- 1
-




Reliance
should not be placed on forward-looking statements, as they involve known and
unknown risks, uncertainties and other factors that may cause the actual results
to differ materially from the anticipated future results expressed or implied by
such forward-looking statements.  Factors that could cause actual
results to differ materially from those set forward in the forward-looking
statements include, but are not limited to:




·
            our
      ability to obtain, on satisfactory terms or at all, the capital required
      for research, operations and
marketing;




·
            general
      economic, business and market
conditions;




·
            our
      ability to successfully and timely complete clinical
    studies;




·
            product
      development delays and other uncertainties related to new product
      development;




·
            our
      ability to attract and retain business partners and key
      personnel;




·
            the
      risk of our inability to profitably commercialize our
      products;




·
            the
      extent of any future losses;




·
            the
      risk of our inability to establish or manage manufacturing, development or
      marketing collaborations;




·
            the
      risk of delay of, or failure to obtain, necessary regulatory approvals
      and, ultimately, product launches;




·
            dependence
      on third parties for successful commercialization of our
      products;




·
            inability
      to obtain quantities of development product in sufficient quantity or at
      standards acceptable to health regulatory authorities to complete clinical
      trials or to meet commercial
demand;




·
            the
      risk of the termination or conversion to non-exclusive licenses or our
      inability to enforce our rights under our
  licenses;




·
            our
      ability to obtain patent protection and protect our intellectual property
      rights;




·
            commercialization
      limitations imposed by intellectual property rights owned or controlled by
      third parties




·
            uncertainty
      related to intellectual property liability rights and liability claims
      asserted against us;




·
            the
      uncertainty of recovery of advances to
  subsidiaries;




·
            the
      impact of competitive products and
pricing;




·
            future
      levels of government funding; and




·
            additional
      risks and uncertainties, many of which are beyond our control, referred to
      elsewhere in this Form 20-F and our other SEC
  filings.




Except as
required by law, we undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise.  However, any further disclosures made on related
subjects in subsequent reports on Forms 20-F or 6-K should be
consulted.




- 2
-




GLOSSARY
OF TERMS AND PROPER NAMES




This
glossary contains general terms used in the discussion of the biopharmaceutical
industry, as well as specific technical terms used in the descriptions of our
technology and business.




Adjuvant: Substance added to a
vaccine to enhance its immunogenicity (i.e. its ability to stimulate an immune
response). May also mean “at the time of surgery” as in “treatment with another
agent of its type at, or close to, the time of surgery”.




Akela: Akela Inc.




Alexza: Alexza Molecular
Delivery Corporation




Alza: Alza
Corporation




Amgen: Amgen
Incorporated




Aradigm: Aradigm
Corporation




ASCO: The American Society of
Clinical Oncology




AstraZeneca: AstraZeneca
PLC




BDSI: BioDelivery Services
International Inc.




Board: board of directors of
YM




BMS: Bristol Myers
Squibb




Cancer Vaccine: Vaccines or
candidate vaccines designed to treat cancer. Active immunotherapy.




Cephalon: Cephalon,
Inc.




cGMP: current good
manufacturing practices, as mandated from time to time by health regulatory
authorities




CIM: Centro de Inmunología
Molecular (Center for Molecular Immunology), Havana, Cuba




CIMAB: CIMAB S.A., a Cuban
company responsible for commercializing products developed at CIM




CIMYMandCIMYM BioSciences: CIMYM
BioSciences Inc., an 80% owned joint venture subsidiary of YM




CIMYM (Barbados): CIMYM Inc.,
a predecessor company to CIMYM BioSciences, incorporated under the laws of
Barbados




CR: Complete Response, the
disappearance of a tumor




CRO: contract research
organization




Clinical Trial Application
(“CTA”): previously
known as an Investigational New Drug application which must be filed and
accepted by the regulatory agency, Health Canada, before each phase of human
clinical trials may begin




Cytoprotective: Having the
capacity to protect cells




Cytotoxic: Having capacity to
kill cells




Daiichi: Daiichi
Pharmaceutical Co. Ltd. or Daiichi Sankyo Co., Ltd.




DEA: Drug Enforcement
Administration (US)




- 3
-




DEC: DPPE Epirubicin
Cyclophosphamide




DELEX: Delex Therapeutics
Inc., a wholly-owned subsidiary of YM which was wound up on April 30, 2006 into
the Corporation




EGFR: A protein known as
Epidermal Growth Factor Receptor




EMEA: The European Medicines
Agency - the European health regulatory authority




Endo: Endo Pharmaceuticals
Holdings Inc.




Epithelial: Derived from
epithelium which is the layer of cells forming the epidermis of the skin and the
surface layer of the serous and mucous membranes




Eximias: Eximias
Pharmaceutical Corporation




5-FU: Approved
chemotherapeutic agent, Fluorouracil




FDA: US Food and Drug
Administration




Genentech: Genentech
Incorporated




Genmab: Genmab
A/S




Glioma: A form of brain cancer
involving the malignant transformation of a glial cell




GMP: good manufacturing
practices, i.e. guidelines established by the governments of various countries,
including Canada and the US, to be used as a standard in accordance with the
World Health Organization’s Certification Scheme on the quality of
pharmaceutical products




HER-1: Tumors
expressing/producing the EGF receptor




Humanized: The process whereby
an antibody derived from murine cells is altered to resemble a human
antibody




ImClone: ImClone Systems
Incorporated




IND: Investigational New Drug
application which must be filed and accepted by the FDA before each phase of
human clinical trials may begin




Irinotecan: An approved
chemotherapeutic agent




In vivo: In the living body or
organism. A test performed on a living organism




K: thousand




Ligand: Used herein to
describe a protein or peptide that binds to a particular receptor




M: million




Merck: Merck KGaA




Metastatic: A term used to
describe a cancer where tumor cells have migrated from the primary tumor to a
secondary site (e.g. from prostate to bone)




MD&A: Management’s
discussion and analysis of financial condition and results of
operations




MTD: Maximum tolerated
dose




Monoclonal antibody (“MAb”): Antibodies of
exceptional purity and specificity derived from hybridoma cells




- 4
-




Murine: adjective for
mouse




Neoplastic: New and abnormal
growth of tissue (neoplasm), which may be benign or cancerous




NSCLC: Non-small-cell lung
cancer




OFAC: Office of Foreign Assets
Control of the US Department of the Treasury




Oncoscience: Oncoscience AG of
Germany




Orphan Drug: A drug aimed at
treating a condition with an incidence of less than 200,000 per year in the US
(often given a seven year market exclusivity by the FDA)




OSI: OSI Pharmaceuticals,
Inc.




Overall Survival: For patients
who have died, overall survival is calculated in months from the day of
randomization to date of death. Otherwise, survival is censored at the last day
the patient is known alive




Paion: Paion AG




PD: Pharmacodynamics - studies
the actions of drugs within the body - the routes and mechanisms of absorption
and excretion, the rate at which a drug action begins and the duration of the
effect, the biotransformation of the substance in the body and the effects and
routes of excretion of the metabolites of the drugs.




PK:Pharmacokinetics – the
study of the process by which a drug is absorbed, distributed, metabolized, and
eliminated by the body




PR: Partial Response, the
shrinkage of a tumor measured by decrease by at least 30% as measured by a
decrease in the sums of the longest diameter according to RECIST
criteria




Passive Immunotherapy:
Immunologically active material transferred into the patient as a passive
recipient. Monoclonal antibodies are considered Passive Immunotherapy since
antibodies are generated outside the body and given to the patient




Phosphorylation:
Addition/donation of a phosphate group to a particular amino acid which can lead
to tumor growth




Qualified Person(s):A
technical term used in European Union pharmaceutical regulation
(Directive 2001/83/EC for Medicinal products for human use); the regulations
specify that no batch of medicinal product can be released for sale or supply
prior to certification by a QP that the batch is in accordance with the relevant
requirements (EudraLex, Volume 4, Chapter 1). The QP is typically a licensed
pharmacist, biologist or chemist (or a person with another permitted academic
qualification) who has several years experience working in pharmaceutical
manufacturing operations, and has passed examinations attesting to his or her
knowledge.




RECIST: Response Evaluation
Criteria in Solid Tumors, a US standard




Roche: F.Hoffmann-LaRoche
Ltd.




SAE:Serious Adverse Event – a
term from clinical trials referring to untoward medical occurrence that results
in hospitalization or death, or is life-threatening




SD: Stable
Disease




Teva: Teva Pharmaceuticals
Inc.




TGFα:
Transforming growth factor alpha




Therapeutic cancer vaccine: An
approach to the treatment of cancer utilizing “active
immunotherapy”




- 5
-




Tyrosine kinase: An enzyme
that catalyzes the phosphorylation of tyrosine residues in proteins with
nucleotides as phosphate donors




US: United States of
America




YM USA: YM BioSciences USA
Inc., a wholly-owned subsidiary of YM




- 6
-




PART
I




Item
      1:
            Identity
      of Directors, Senior Management and
Advisors




A
            Directors
      and Senior Management




Not
applicable.




B
            Advisors




Not
applicable.




C
            Auditors




Not
applicable.




Item
      2:
            Offer
      Statistics and Expected Timetable




A
            Offer
      Statistics




Not
applicable.




B
            Method
      and Expected Timetable




Not
applicable.




Item
      3:
            Key
      Information




A
            Selected
      Financial Data




The
following table of selected consolidated financial data of our Company has been
derived from financial statements prepared in accordance with Canadian generally
accepted accounting principles (“GAAP”). The data is qualified by reference to,
and should be read in conjunction with, the consolidated financial statements
and related notes thereto prepared in accordance with GAAP (See Item 18,
“Financial Statements”). All dollar amounts are expressed in thousands of
Canadian dollars, except per share data.




Years Ended June 302009
                                        
                                        
                                        2008
                                        
                                        
                                        2007
                                        
                                        
                                        2006
                                        
                                        
                                        2005Consolidated
      operating data:Revenue
                                        
                                        $
                                        5,614
                                        
                                        
                                        $
                                        7,443
                                        
                                        
                                        $
                                        7,647
                                        
                                        
                                        $
                                        2,549
                                        
                                        
                                        $
                                        1,452Operating
      income:Income (loss) from continuing
      operations
                                        
                                        $
                                        (13,069
                                        )
                                        
                                        $
                                        (14,886
                                        )
                                        
                                        $
                                        (30,061
                                        )
                                        
                                        $
                                        (25,815
                                        )
                                        
                                        $
                                        (15,859
                                        )Net income
    (loss)
                                        
                                        $
                                        (13,069
                                        )
                                        
                                        $
                                        (14,886
                                        )
                                        
                                        $
                                        (31,730
                                        )
                                        
                                        $
                                        (25,815
                                        )
                                        
                                        $
                                        (15,859
                                        )Basic
      and diluted weighted average earnings (loss) per share:Income (loss) from continuing
      operations
                                        
                                        $
                                        (0.23
                                        )
                                        
                                        $
                                        (0.27
                                        )
                                        
                                        $
                                        (0.54
                                        )
                                        
                                        $
                                        (0.59
                                        )
                                        
                                        $
                                        (0.47
                                        )Net Income
    (loss)
                                        
                                        $
                                        (0.23
                                        )
                                        
                                        $
                                        (0.27
                                        )
                                        
                                        $
                                        (0.57
                                        )
                                        
                                        $
                                        (0.59
                                        )
                                        
                                        $
                                        (0.47
                                        )Cash
      dividends declared per share
                                        
                                        Nil
                                        
                                        
                                        Nil
                                        
                                        
                                        Nil
                                        
                                        
                                        Nil
                                        
                                        
                                        Nil





- 7
-




Years Ended June 302009
                                        
                                        
                                        2008
                                        
                                        
                                        2007
                                        
                                        
                                        2006
                                        
                                        
                                        2005Consolidated
      balance sheetCash,
      cash equivalents and short-term deposits
                                        
                                        $
                                        52,051
                                        
                                        
                                        $
                                        58,101
                                        
                                        
                                        $
                                        75,572
                                        
                                        
                                        $
                                        88,341
                                        
                                        
                                        $
                                        30,569Working
      capital
                                        
                                        $
                                        39,501
                                        
                                        
                                        $
                                        52,233
                                        
                                        
                                        $
                                        68,314
                                        
                                        
                                        $
                                        86,418
                                        
                                        
                                        $
                                        28,293Total
      assets
                                        
                                        $
                                        46,070
                                        
                                        
                                        $
                                        63,073
                                        
                                        
                                        $
                                        81,740
                                        
                                        
                                        $
                                        100,048
                                        
                                        
                                        $
                                        38,200Long-term
      obligations
                                        
                                        $
                                        2,898
                                        
                                        
                                        $
                                        4,414
                                        
                                        
                                        $
                                        8,930
                                        
                                        
                                        $
                                        844
                                        
                                        
                                        $
                                        327Common
      Shares
                                        
                                        $
                                        172,921
                                        
                                        
                                        $
                                        172,921
                                        
                                        
                                        $
                                        172,921
                                        
                                        
                                        $
                                        172,772
                                        
                                        
                                        $
                                        87,488Shareholders’
      equity (net assets)
                                        
                                        $
                                        39,704
                                        
                                        
                                        $
                                        52,013
                                        
                                        
                                        $
                                        64,835
                                        
                                        
                                        $
                                        94,748
                                        
                                        
                                        $
                                        33,840Number
      of Common Shares issued and outstanding (000s)
                                        
                                        
                                        55,835,356
                                        
                                        
                                        
                                        55,835,356
                                        
                                        
                                        
                                        55,835,356
                                        
                                        
                                        
                                        55,781,523
                                        
                                        
                                        
                                        38,584,288The
      above number of Common Shares excludes common shares held in escrow for
      contingent additional payment related to the acquisition of
      Delex
                                        
                                        
                                        2,380,953
                                        
                                        
                                        
                                        2,380,953
                                        
                                        
                                        
                                        2,380,953
                                        
                                        
                                        
                                        2,380,953
                                        
                                        
                                        
                                        2,777,778





Notes:


(1)
            Effective
      July 1, 2007, the Company adopted CICA Handbook Sections 1530, 3855, 3861
      and 3865 relating to financial instruments retrospectively, without
      restatement and therefore the losses for fiscal 2007 above do not include
      any adjustment to reflect the adoption of these
      standards.  There was no effect on the Company’s opening
      balances as a result of the change in accounting
  policy.


(2)
            The
      consolidated financial statements have been prepared by management in
      accordance with accounting principles generally accepted in Canada
      (Canadian GAAP).  These accounting principles differ in certain
      respects from United States GAAP.  The differences, as they
      affect our consolidated financial statements, are set out in Note 15 to
      the audited consolidated financial statements for the fiscal year ended
      June 30, 2009.





B
            Capitalization
      and Indebtedness




Not
applicable.




C
            Reasons
      for the Offer and Use of Proceeds




Not
applicable.




D
            Risk
      Factors




An
investment in our securities is speculative and involves a high degree of risk.
Prospective investors should carefully consider, together with other matters
referred to herein, the following risk factors. If any event arising from these
risks occurs, our business, prospects, financial condition, results of
operations and cash flows could be materially adversely affected.




Risks Related To Our
Business




We are susceptible to general economic
conditions




The past
year has been marked by global economic turmoil.  Economic conditions
worsened over the course of 2008 and into 2009. Recent economic projections by
various governmental and other agencies have predicted that these negative
conditions are likely to extend late into 2009 and likely into 2010. General
economic conditions may have a significant impact on YM, including our
commercialization opportunities, our ability to raise financing and our ability
to work with others upon whom we rely for basic research, manufacture,
development and sale of our products.




- 8
-


We
deal with products that are in the early stages of development and, as a result,
are unable to predict whether we will be able to profitably commercialize our
products.




Since our
incorporation in 1994, none of our products, licensed or owned, has received
regulatory approval for sale in any major market country in which we have an
economic interest in a product. Accordingly, we have not generated any
significant revenues from the product sales. A substantial commitment of
resources to conduct clinical trials and for additional product development will
be required to commercialize most of the products. There can be no assurance
that our remaining products will meet applicable regulatory standards, be
capable of being produced in commercial quantities at reasonable cost or be
successfully marketed, or that the investment made by us in the
commercialization of the products will be recovered through sales, license fees
or related royalties.




We
have few revenues and a history of losses and, therefore, are unable to predict
the extent of any future losses or when or if we will become
profitable.




For the
year ended June 30, 2009, we recognized as revenue approximately $4.5 million
from a number of licensing agreements including a January 2005 agreement with
Shin Poong Pharmaceutical Co., Ltd. to which we licensed the commercial rights
for tesmilifene for the South Korean market; an August 2005 agreement with
Kuhnil Pharmaceutical Co., Ltd. to which the Company licensed the commercial
rights for nimotuzumab for the South Korean market; an October 31, 2005
agreement with Innogene Kalbiotech Private Limited to which the Company licensed
the commercial rights for nimotuzumab for several countries in Asia and Africa;
a 2006 agreement with TTY BioPharm for Taiwan and a July 2006 agreement among
our subsidiary CIMYM BioSciences, CIMAB and Daiichi Pharmaceutical Co., Ltd.
under which CIMYM licensed certain development and marketing rights for
nimotuzumab in Japan. As at June 30, 2009, we have an accumulated deficit of
$146.3 million. We expect expenditures and the accumulated deficit to increase
as we proceed with our commercialization programs until such time as sales,
license fees and royalty payments, if any, may generate sufficient revenues to
fund our continuing operations. There can be no assurance that the revenues from
the commercialization of our products will be sufficient to support required
expenditures and therefore there can be no assurance of when or if we will
become profitable.




We
depend upon being able to identify promising molecules for licensing or
acquisition and successfully completing the acquisitions or licensing on
economic terms. There is no assurance that we can continue to identify and
license molecules for development.




We do not
conduct basic research of our own.  Basic research on a particular
drug product is conducted by other biopharmaceutical companies, scientific and
academic institutions and hospitals, or scientists affiliated with those
institutions. Generally, once the basic research is complete, we enter into
agreements to in-license the right to develop and market the products or acquire
them. We have negotiated certain in-licensing agreements with the University of
Manitoba, CancerCare Manitoba, Vincent Research and Consulting, and CIMAB. In
addition, AeroLEF®
technology was developed at Dalhousie University.




We
depend upon others for the manufacture, development and sale of our products. If
we are unable to establish or manage collaborations in the future, there could
be a delay in the manufacture, development and sale of our
products.




We enter
into arrangements, with and are dependent on others with respect to, the
manufacture, development and sale of our in-licensed products. Product
development includes, but is not limited to, pre-clinical testing, regulatory
approval processes, clinical testing, and the development of additional
regulatory and marketing information. Our ability to successfully develop and
commercialize our in-licensed products is dependent on our ability to make
arrangements with others on commercially acceptable terms and subject to our
depending upon them to meet regulatory quality standards. The product
development process may be delayed or terminated if we cannot secure or maintain
such arrangements on terms acceptable to us or at all. We do not have long-term,
material, third party manufacturing, formulation or supply agreements, except
with respect to one of our licensed products, nimotuzumab, which is manufactured
in quantities sufficient for clinical testing by CIMAB or a related party,
subject to certain terms and conditions of the licensing agreements between us
and CIMAB and CIMAB has contracted to supply commercial quantities or will
source such supply if, as and when approval for sale has been granted. The
formulation of AeroLEF is manufactured for us by Dalton Pharma Services in
Toronto, Canada in quantities sufficient for clinical trials.  YM has
not yet identified an importer in the European Union to test, certify or release
either clinical or commercial supplies.




- 9
-


We
expect to enter into out-licensing agreements with others with respect to the
manufacturing and marketing of our drug products. We may retain co-development
and marketing rights if management determines it appropriate to do
so.




On
November 12, 2003, we entered into the first out-licensing agreement through our
joint venture subsidiary, CIMYM Inc., an Ontario corporation, now CIMYM
BioSciences Inc. On such date, CIMYM BioSciences out-licensed the rights for
nimotuzumab in most of Europe to Oncoscience. Under the terms of the agreement,
CIMYM BioSciences is entitled to receive up to US$30 million as a share of any
amounts received by Oncoscience in relation to the development or sublicensing
of the product and/or as a royalty on sales. Once CIMYM BioSciences has received
US$30 million, CIMYM BioSciences will continue to receive royalties on net sales
of nimotuzumab but at a lesser percentage.




YM and
CIMYM (Barbados) (now CIMYM BioSciences Inc.) entered into the second
out-licensing agreement with Tarcanta and CIMAB relating to the licensing of
TGFa and HER-1 to Tarcanta from CIMAB. CancerVax (now, Micromet Inc.) received a
license from the US Department of Treasury authorizing Tarcanta to enter into
the transactions with CIMAB and us. On July 13, 2004, the Corporation, CIMYM
(Barbados), CIMAB and Tarcanta entered into a License, Development,
Manufacturing and Supply Agreement. Under the terms of this agreement, the 2001
CIMYM License was suspended until such time that there was a default under the
agreement with Tarcanta. Under the terms of the new agreement and in
consideration for the suspension of the 2001 CIMYM License, we have received an
aggregate payment of $1,000,000 paid in four equal instalments. On July 23,
2008, CIMAB terminated the license to
Tarcanta and thus both the HER1 and TGFα license were returned to
CIMYM.




On August
23, 2005 CIMYM BioSciences and CIMAB licensed development and marketing rights
to Kuhnil Pharmaceutical Co., Ltd. for Korea. There was an initial fee to CIMYM
BioSciences on signing and it is entitled to receive additional milestone
payments and royalties.




On
October 31, 2005 CIMYM BioSciences and CIMAB licensed development and marketing
rights to Innogene Kalbiotech Private Limited (a wholly owned subsidiary of P.T.
Kalbe Farma Tbk, Indonesia) for Indonesia, Malaysia, the Philippines and
Singapore and certain African countries including South Africa. The initial fee
to CIMYM BioSciences on signing was U$1,000,000 and it is entitled to receive
additional milestone payments and royalties.




On July
25, 2006 CIMYM BioSciences and CIMAB licensed development and marketing rights
in Japan for nimotuzumab to Daiichi Pharmaceutical Co., Ltd. (a wholly owned
subsidiary of Daiichi Sankyo Company, Ltd., one of Japan’s largest
pharmaceutical companies).  Under the agreement, CIMYM received an
up-front payment of $16.2M ($14.6 million net of withholding taxes) and is
entitled to receive certain milestone payments at certain stages of development
for each of a number of indications as well as payments based on supply of
nimotuzumab and sales performance in several cancer indications.




There can
be no assurance that we will be successful in maintaining our relationships with
research institutions or others or in negotiating additional in-licensing or
out-licensing agreements on terms acceptable to us or at all, or that any such
arrangements will be successful. In addition, there can be no assurance that
other parties will not enter into arrangements with such entities for the
development or commercialization of similar products or that the parties with
whom we have made such arrangements will not pursue alternative technologies or
develop products on their own or in collaboration with others, including our
competitors. If we do not establish sufficient in-licensing and out-licensing
arrangements, we may encounter delays in product introductions or may find that
the development, manufacture or sale of our licensed products could be
materially adversely affected.




- 10
-


We
have no experience in commercial manufacturing of our products and may encounter
problems or delays in making arrangements for products to be commercially
manufactured, which could result in delayed development, regulatory approval and
marketing.




We have
not commercially launched any of our licensed or owned products and have no
commercial manufacturing experience with respect to our products. To be
successful, the products must be manufactured in commercial quantities in
compliance with regulatory requirements and at acceptable costs over which we
have no control. We do not have, and do not intend to acquire, facilities for
the production of our products although we may invest in the ownership of
production facilities, or parts of the production process, if appropriate
opportunities are available.




Nimotuzumab
is required to be manufactured in quantities sufficient for clinical testing by
CIMAB or a related party, subject to certain terms and conditions of the
licensing agreements between us and CIMAB. Currently these expectations are
being met. There can be no assurance, however, that such entities will be able
to develop adequate manufacturing capabilities for sufficient commercial scale
quantities in a commercially reasonable manner.  In addition, there
are risks that we cannot control regarding the CIMAB manufacturing plant,
including amongst others, events such as weather, fire and other natural
disasters.  AeroLEF (which is owned by us)is a combination of free
and liposome-encapsulated fentanyl. The drug product is manufactured, finished,
and vials are filled, in quantities sufficient for clinical testing. AeroLEF is
currently delivered through a patient-activated nebulizer known as
AeroEclipse® and the
devices are purchased by us to be used in clinical trials. The manufacturing
processes for both AeroLEFdrug
product and the AeroEclipse® device
are such that we expect that commercial quantities of both can be
manufactured.  If the current AeroLEFsupplier
cannot manufacture commercial quantities or we otherwise experience a problem
with the current supplier, it will be necessary for us to obtain AeroLEFfrom
a second supplier.  The manufacture of AeroLEFhas
been successfully transferred to a second manufacturing source in the US which
may provide clinical material as well as future commercial supply.  We
do not have supply agreements with the third-party suppliers of AeroLEF, but
suppliers have produced quantities for us to specification on purchase order. We
expect that we could find new suppliers for AeroLEF, if necessary. There can be
no assurance, however, that we will be able to reach satisfactory arrangements
with our current suppliers or, if necessary, new suppliers or that such
arrangements for either AeroLEFor
an alternative nebulizing device will be successful. The Company has not
clinically tested any nebulizers appropriate for the out-patient market and it
is not known whether any of the products in this category currently available
could be purchased at an economic price or whether the combination of
AeroLEFin a
portable electronic nebulizer would be safe or effective. All manufacturing
facilities must comply with applicable regulations in their jurisdiction or
where products are to be sold. In addition, production of the licensed and owned
products may require raw materials for which the sources and amount of supply
are limited. An inability to obtain adequate supplies of such raw materials
could significantly delay the development, regulatory approval and marketing of
our licensed and owned products.




We
are dependent on devices from third parties in order to successfully
commercialize AeroLEF.




Third-party
devices will be an important element for successful commercialization of AeroLEF
in both the inpatient and outpatient settings.




We have
selected the AeroEclipse®
inhalation device for our Phase II clinical studies for the inpatient
indications for AeroLEF and anticipate using the AeroEclipse for further
clinical studies for the inpatient market opportunity. Material changes to the
AeroEclipse device by the manufacturer or a decision to switch to an alternative
inhalation device would likely delay the initiation of later stage clinical
trials. Switching after the initiation of Phase III studies, however, would
require additional clinical trials and could significantly delay the
commercialization of AeroLEF. Currently, YM purchases the AeroEclipse devices
and it does not have a defined supply agreement.




While
inpatient use of AeroLEF, in the hospital or hospice setting, is accomplished
with existing equipment such as the AeroEclipse, outpatient use will require a
portable nebulization device. Several devices currently exist and are otherwise
approved for use with certain respiratory agents (bronchodilators, antibiotics,
steroids).  We have established criteria to evaluate and identify the
best devices for use with AeroLEF. Although we would prefer to access these
devices on an arms-length basis from the manufacturer, we will explore the
benefits of a strategic partnership that could provide for custom adaptations to
optimize product delivery, lower prices or other benefits.




- 11
-


The
Drug Enforcement Administration limits the availability of the active
ingredients in certain of our current drug candidates and, as a result, our
quota may not be sufficient to complete clinical trials, or to meet commercial
demand or may result in clinical delays.




The DEA
and similar opioid-regulating agencies of other countries regulate chemical
compounds defined as Schedule I, II, III, IV and V substances, with Schedule I
substances considered to present the highest risk of substance abuse and
Schedule V substances the lowest risk. Certain active ingredients in AeroLEF,
such as fentanyl, are listed by the DEA as Schedule II under the Controlled Substances Act of
1970. Consequently, their manufacture, research, shipment, storage, sale
and use are subject to a high degree of oversight and regulation. For example,
all Schedule II drug prescriptions must be signed by a physician, physically
presented to a pharmacist and may not be refilled without a new prescription.
Further, the amount of Schedule II substances we can obtain for clinical trials
and commercial distribution is limited by the DEA and our quota may not be
sufficient to complete clinical trials or meet commercial demand. There is a
risk that DEA regulations may interfere with the supply of the drugs used in our
clinical trials, and, in the future, our ability to produce and distribute our
products in the volume needed to meet commercial demand. Manufacturers for this
product are limited because only those holding a DEA license to manufacture
Schedule II compounds may be considered.




We
are dependent on licenses from third parties and the maintenance of licenses is
necessary for our success.




We have
obtained our rights to the licensed products under license agreements from
various third party licensors as follows:




(a)
            License
      Agreement between CIMAB and us dated May 3, 1995 as amended with respect
      to nimotuzumab; and




(b)
            TGFα
      vaccine and HER-1 vaccine dated January 24, 2001;
  and




(c)
            License
      Agreement between our Company, the University of Manitoba and The Manitoba
      Cancer Treatment and Research Foundation, carrying on its undertaking as
      CancerCare Manitoba, dated November 2, 2000 with respect to
      tesmilifene.




As we own
AeroLEF, there are no license terms.




We depend
upon the license rights to the licensed products for commercialization of the
licensed products. While we believe we are in compliance with our obligations
under the licenses, certain licenses may be terminated or converted to
non-exclusive licenses by the licensors if there is a breach of the terms of the
licenses. There can be no assurance that the licenses are enforceable or will
not be terminated or converted. The termination or conversion of the licenses or
our inability to enforce our rights under the licenses would have a material
adverse effect on our business as we would not have the rights to the products
that we are developing. To the extent that management considers a particular
license to be material to our undertaking, we have entered into a signed license
agreement for that license. Terms of certain remaining licenses are to be
determined at a later date. The in-license agreements to which we are currently
a party require us to maintain and defend the patent rights that we in-license
against third parties.




Although
our current licenses are governed by the laws of Ontario, the enforcement of
certain of them may necessitate pursuing legal proceedings and obtaining orders
in other jurisdictions, including the US and the Republic of Cuba. There can be
no assurance that a court judgment or order obtained in one jurisdiction will be
enforceable in another. In international venture undertakings it is standard
practice to attorn to a neutral jurisdiction to seek remedy for unresolved
commercial disputes. These arrangements are usually negotiated as part of the
original business agreement. In the case of the license agreements with us, the
parties have agreed that the law governing the agreements is Ontario law and the
parties will attorn to the courts of Ontario or the Federal court of Canada to
resolve any dispute regarding the agreements.




- 12
-




One of
our products in clinical development is licensed from Cuba. The commercial and
legal environment in Cuba is in a formative stage and may be subject to
political risk. It is possible that we may not be able to enforce our legal
rights in Cuba or against Cuban entities to the same extent that we would be
able to do in a country with a more established commercial and legal system.
Termination of our license arrangements or difficulties in enforcement of such
arrangements could have a material adverse effect on our ability to continue
development of our licensed products from that country.




We have a
number of license agreements with CIMAB. CIMAB is a corporation owned by an
institution of the Government of Cuba that purportedly operates at arms-length
from the state bureaucracy with regard to its business, scientific and
administrative decision-making. CIMAB is reportedly akin to a “crown
corporation” in Canada. CIMAB’s management is purportedly both autonomous and
responsible for the success of its business decisions. Despite the fact that
CIMAB’s management is purportedly both autonomous and responsible for business
decisions and that the license agreements with us declare Ontario law as the
governing law, because of the fact that CIMAB is ultimately a state-owned entity
we will not necessarily be able to enforce compliance by CIMAB with any judgment
if CIMAB or the Government of Cuba refuses to comply.




Although
all of the funds advanced to our joint venture subsidiaries have been expensed,
we are only entitled to recover those expenditures when the joint venture’s net
income exceeds the amount of cumulative advances.




YM and
CIMAB entered into a funding agreement with CIMYM (now CIMYM BioSciences Inc.)
in November 1995 (the “Funding Agreement”) in connection with the 1995 CIMYM
license with respect to nimotuzumab. The Funding Agreement provides that we will
arrange for the appropriate studies and clinical trials for the licensed
products held by CIMYM BioSciences Inc. and will fund the cost of such studies
and trials provided that doing so would not be commercially or scientifically
unreasonable. Accordingly, we make the final determination as to whether or not
a clinical trial expense is justified with respect to any given
product.




We are
entitled to reimbursement of all advances made by us pursuant to the Funding
Agreement, from the results of the successful development of the licensed
products and generation of income.  CIMYM BioSciences repays such advances
out of a portion of its revenues in priority to eventual revenue or
profit sharing arrangements under the 1995 CIMYM License.




As at
June 30, 2009, we had advanced $56 million to CIMYM BioSciences. Since we have
expensed the total amount no further accounting for those advances would affect
our balance sheet or income statement and any reimbursement of such advances
would be considered to be income by us.




We
are reliant on licensors and others for research on new products.




We do not
conduct our own basic research with respect to the identification of new
products. Instead, we review and analyze research and development work conducted
by others as a primary source for new products. While we expect that we will be
able to continue to identify licensable products or research suitable for
licensing and commercialization by us, there can be no assurance that useful
products will be available to us on commercially acceptable terms.




- 13
-




We
conduct our development 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.




Clinical
trials on our development products have been conducted by us and our
sub-licensees in more than 20 countries including Canada, across the United
Kingdom, the European Union, Japan, Germany, India, Indonesia, Korea, Russia and
the US and we intend to, and may, conduct future clinical trials in these and
other jurisdictions. There can be no assurance that any sovereign government,
including Canada’s, 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 final
regulatory approval, and there can be no assurance that we will be able to
enforce our licenses in foreign jurisdictions. Governments have, from time to
time, established foreign exchange controls which could have a material adverse
effect on our business and financial condition, since such controls may limit
our ability to flow funds into a particular country to meet our obligations
under in-licensing agreements, and to flow funds which we may be entitled to, in
the form of royalty and milestone payments, under out-licensing agreements out
of a particular country  In addition, the value of our licenses will
depend upon the absence of punitive or prohibitive legislation in respect of
biological materials.




We
also conduct our in-licensing internationally and we currently own or license
products and technologies from sources in Canada and Cuba. We have previously
licensed, and intend to and may license, products from sources in other
jurisdictions.




We have
licensed nimotuzumab from CIMAB, a corporation representing a scientific
institute in Cuba. The US has maintained an embargo against Cuba, administered
by the US Department of Treasury. The laws and regulations establishing the
embargo have been amended from time to time, most recently by the passage of the
Cuban Liberty and Democratic Solidarity Act (the “Helms-Burton Act”). The
embargo applies to almost all transactions involving Cuba or Cuban enterprises,
and it bars from such transactions any US persons unless such persons obtain
specific licenses from the US Department of Treasury authorizing their
participation in the transactions. There is Canadian legislation (the Foreign
Extraterritorial Measures Act) which provides generally that judgments against
Canadian companies under the Helms-Burton Act will not be enforceable in Canada.
The US embargo could have the effect of limiting our access to US capital, US
financing, US customers and US suppliers. In particular, our products licensed
from Cuban sources, noted above, are likely to be prohibited from being licensed
or sold in the US unless the US Department of Treasury issues a license or the
embargo is lifted.




The
Helms-Burton Act authorizes private lawsuits for damages against anyone who
“traffics” in property confiscated, without compensation, by the Government of
Cuba from persons who at the time were, or have since become, nationals of the
US. We do not own any real property in Cuba and, to the best of our knowledge,
and based upon the advice of the Cuban government, none of the properties of the
scientific centers of the licensors in which the licensed products were
developed and are or may be manufactured was confiscated by the Government of
Cuba from persons who at the time were, or have since become, nationals of the
US. However, there can be no assurance that this is correct.




Risks Related To Our
Financial Results And Need For Financing




We
expect to be a “passive foreign investment company” for the current taxable
year, which would likely result in materially adverse US federal income tax
consequences for US investors.




We will
be designated as a “passive foreign investment company” under the meaning of
Section 1297 of the United States Internal Revenue Code of 1986, as amended (a
"PFIC") if (a) 75% or more of our gross income is “passive income” (generally,
dividends, interest, rents, royalties, and gains from the disposition of assets
producing passive income) in any taxable year, or (b) if at least 50% of the
average value of our assets produce, or are held for the production of, passive
income. US shareholders should be aware that we believe that we constituted a
PFIC during one or more prior taxable years, and based on current business plans
and financial projections, we expect to be a PFIC for the current taxable year.
If we are designated as a PFIC for any taxable year during which a US
shareholder holds our common shares, it would likely result in materially
adverse US federal income tax consequences for such US shareholder, including,
but not limited to, any gain from the sale of our common shares would be taxed
as ordinary income, as opposed to capital gain, and such gain and certain
distributions on our common shares would be subject to an interest charge,
except in certain circumstances. In addition, US shareholders should be aware
that there can be no assurances that the Corporation will satisfy the record
keeping requirements that apply to a PFIC, or that the Corporation will supply
US shareholders with the information that such US shareholders require to make
certain elections available under the Code that are intended to mitigate the
adverse tax consequences of the PFIC rules. The PFIC rules are extremely
complex. A US shareholder of our common shares is encouraged to consult a tax
advisor regarding the PFIC Rules and the US federal income tax consequences of
the acquisition, ownership, and disposition of our common shares.




- 14
-




We
may not be able to obtain necessary funding from sales, license fees, milestones
or royalties and, as a result, may need to try to obtain capital through the
public market or private financing which may not be available on acceptable
terms, or at all.




We will
require additional funding for the commercialization of our products, licensed
and owned, and if new products are licensed or acquired and put into
development. The amount of additional funding required depends on the status of
each project or new opportunity at any given time. Our business strategy is to
in-license or acquire rights to promising products, further develop those
products by progressing the products toward regulatory approval by conducting
and managing clinical trials, and finally, generally, to out-license rights to
manufacture and/or market resulting products to other pharmaceutical firms
generally in exchange for royalties and license fees. Due to the in- and
out-licensing arrangements and our dependence on others for the manufacture,
development and sale of our in-licensed products, we do not have consistent
monthly or quarterly expenditures and cannot determine the amount and timing of
required additional funding with any certainty. As at June 30, 2009 we had cash
and short-term deposits totalling $42.1 million and accounts payables and
accrued liabilities of $918,000.




We assess
our additional funding needs on a project-by-project basis from time-to-time. To
the extent that we are unable to fund our expenditures from sales, license fees
and royalties, it will be necessary to reconsider whether to continue existing
projects or enter into new projects, or to access either the public markets or
private financings if conditions permit. In addition, we have no established
bank financing arrangements and there can be no assurance that we will be able
to establish such arrangements on satisfactory terms or at all. Such financing,
if required and completed, may have a dilutive effect on the holders of our
common shares. There is no assurance that such financing will be available if
required or that it will be available on favorable terms.




Our
operating results and stock price may fluctuate significantly.




The
trading price of our common shares, as with many pharmaceutical and
biotechnology companies, has historically been and is likely to remain highly
volatile.  The market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies.  Factors such as the efficacy and safety of our
products or the products of our competitors, announcements of technological
innovations by us or our competitors, governmental regulations, developments in
our patents or other proprietary rights, our licensors or our competitors,
litigation, fluctuations in our operating results, thin capitalization, market
conditions for biopharmaceutical stocks and general market and economic
conditions could have a significant impact on the future trading price of our
common shares. In addition, the price of our common shares is highly volatile
since it may take years before any of our licensed products will receive final
regulatory approval to be marketed in Canada, the US or other territories, if at
all.




There
is no assurance that an active trading market in our common shares will be
sustained.




Our
common shares are listed for trading on the TSX, NYSE Amex and AIM. However,
there can be no assurance that an active trading market in our common shares on
these stock exchanges will be sustained.




Risks Related To Our
Industry




If
our clinical testing of drug products do not produce successful results, we will
not be able to commercialize our products.




Each of
our products, licensed or owned, must be subjected to additional clinical
testing in order to demonstrate the safety and efficacy of our products in
humans. Our ability to commercialize our products will depend on the success of
currently ongoing clinical trials and subsequent clinical trials that have not
yet begun.




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We are
not able to predict the results of pre-clinical and clinical testing of our drug
products. It is not possible to predict, based on studies or testing in
laboratory conditions or in animals, whether a drug product will prove to be
safe or effective in humans. Further, preclinical data may not be sufficient for
regulators to accept positive clinical data for approval to commercialize a
product. Pre-clinical data must have been conducted to high regulatory standards
and may be found, on review by health regulatory authorities, to be of
insufficient quality to support an application for commercialization of our
products. In addition, success in one stage of testing is not necessarily an
indication that the particular drug product will succeed in later stages of
testing and development. There can be no assurance that the pre-clinical or
clinical testing of our products will yield satisfactory results that will
enable us to progress toward commercialization of such products. Unsatisfactory
results may have a material adverse effect on our business, financial condition
or results of operations as they could result in us having to reduce or abandon
future testing or commercialization of particular drug products.




If
our competitors develop and market products that are more effective than our
existing product candidates or any products that we may develop, or obtain
marketing approval before we do, our products may be rendered obsolete or
uncompetitive.




Technological
competition from pharmaceutical companies, biotechnology companies and
universities is intense and is expected to increase. Many of our competitors and
potential competitors have substantially greater product development
capabilities and financial, scientific, marketing and human resources than we
have. Our future success depends in part on our ability to maintain a
competitive position, including our ability to further progress our products,
licensed or owned, through the necessary pre-clinical and clinical trials
towards regulatory approval for sale and commercialization. Other companies may
succeed in commercializing products earlier than we are able to commercialize
our products or they may succeed in developing products that are more effective
than our products. We consider our main competitors to be: Amgen, AstraZeneca,
BMS, Roche, Eli Lilly, Genentech, Genmab, Merck KGaA and OSI with respect to
nimotuzumab. The main competitors, to our knowledge, for the AeroLEF product are
Cephalon, Endo, Akela, Alexza, Aradigm, Teva, BDSI, Paion and Alza.




Our
success depends in part on developing and maintaining a competitive position in
the development and commercialization of our products, licensed or owned, and
technological capabilities in our areas of expertise. The biotechnology and
pharmaceutical industries are subject to rapid and substantial technological
change. While we will seek to expand our technological capabilities in order to
remain competitive, there can be no assurance that developments by others will
not render our products non-competitive or that we or our licensors will be able
to keep pace with technological developments. Competitors have developed
technologies that could be the basis for competitive products. Some of those
products may have an entirely different approach or means of accomplishing the
desired therapeutic effect than our products and may be more effective or less
costly than our products. In addition, other forms of medical treatment may
offer competition to the products.  The success of our competitors and
their products and technologies relative to our technological capabilities and
competitiveness could have a material adverse effect on the future pre-clinical
and clinical trials of our products, including our ability to obtain the
necessary regulatory approvals for the conduct of such trials.




We
are subject to extensive government regulation that increases the cost and
uncertainty associated with gaining final regulatory approval of our product
candidates.




Securing
final regulatory approval for the manufacture and sale of human therapeutic
products in Canada and our other markets, including the US, is a long and costly
process that is controlled by that particular country’s national regulatory
agency. The national regulatory agency in Canada is Health Canada, in Europe it
is the EMEA and in the US it is the FDA. Other national regulatory agencies have
similar regulatory approval processes, but each is different. Approval in
Canada, Europe, or the US does not assure approval by other national regulatory
agencies, although often test results from one country may be used in
applications for regulatory approval in another country.




Prior to
obtaining final regulatory approval to market a drug product, every national
regulatory agency has a variety of statutes and regulations which govern the
principal development activities. These laws require controlled research and
testing of products, government review and approval of a submission containing
pre-clinical and clinical data establishing the safety and efficacy of the
product for each use sought, approval of manufacturing facilities including
adherence to good manufacturing practices during production and storage, and
control of marketing activities, including advertising and
labelling.




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None of
our products have been completely developed or tested and, therefore, we are not
yet in a position to seek final regulatory approval to market any of our
products. To date we have obtained various regulatory clearances to develop and
test our products. Nimotuzumab has been cleared for testing in the US, Canada,
Europe, Japan, Korea, and Indonesia/Malaysia/Singapore and has been designated
as an orphan drug for certain indications in Europe and the US. It is in Phase
II and III trials in certain of those territories. Trials of AeroLEF have
concluded a Phase I, IIa and IIb in Canada, a Phase II has been cleared for
initiation in the US and a Phase III is currently being designed.




Nimotuzumab,
which is being developed in Canada, the US, Europe, Japan, Korea, certain
African countries and Southeast Asian countries sub-licensed by YM is also being
separately developed, tested, or marketed in Argentina, Brazil, China, Colombia,
Cuba, India, and Peru, amongst others. The US established an embargo against
Cuba in 1961, reinforced by the Helms-Burton Act in 1996, and Cuba is among
several nations which have been identified by the US Department of State as
being a state sponsoring terrorism. As such the US Government has put in place
certain limitations on conduct of business with Cuba and anti-terrorism
legislation against Cuba. Although, as of the date of this filing such
anti-terrorism controls have not had any adverse effect on our operations,
because of the anti-terrorism controls and the Helms-Burton Act, there is no
assurance that the Company will be able to complete clinical testing in the US
or obtain OFAC or final regulatory approval in order to successfully
commercialize our nimotuzumab in the US. We were successful in September 2006 in
our application for a Special License to import nimotuzumab for a clinical trial
in the US and received clearance for this trial from the FDA in certain of these
territories following the fiscal 2007 year end.




There can
be no assurance that the licensed products will be successfully commercialized.
The process of completing clinical testing and obtaining final regulatory
approval to market the licensed products is likely to take a number of years for
most of the licensed products and require the expenditure of substantial
resources. Any failure to obtain, or a delay in obtaining, such approvals could
adversely affect our ability to develop the product and delay commercialization
of the product. Further, there can be no assurance that our licensed products
will prove to be safe and effective in clinical trials under the standards of
the regulations in our territories or receive applicable regulatory approvals
from applicable regulatory bodies.




Changes
in government regulations although beyond our control could have an adverse
effect on our business.




We have,
or have had, licenses with, or clinical trials at, various academic
organizations, hospitals and companies in Canada, Cuba, India, Italy, Japan,
Korea, Germany, the US, the United Kingdom, countries in Southeast Asia, and
other countries and we depend upon the validity of our licenses and access to
the data for the timely completion of clinical research in those jurisdictions.
Any changes in the drug development regulatory environment or shifts in
political attitudes of a government are beyond our control and may adversely
affect our business.




Our
business may also be affected in varying degrees by such factors as government
regulations with respect to intellectual property, regulation or export
controls. Such changes remain beyond our control and the effect of any such
changes cannot be predicted.




These
factors could have a material adverse effect on our ability to further develop
our licensed products.




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Risks Related To
Intellectual Property And Litigation




Our
success depends upon our ability to protect our intellectual property and our
proprietary technology.




Our
success will depend, in part, on our ability and our licensors’ ability to
obtain patents, maintain trade secrets protection, and operate without
infringing on the proprietary rights of third parties or having third parties
circumvent our rights. Certain licensors and the institutions that they
represent, and in certain cases, us on behalf of the licensors and the
institutions that they represent, have filed and are actively pursuing certain
applications for Canadian and foreign patents. The patent position of
pharmaceutical and biotechnology firms is uncertain and involves complex legal
and financial questions for which, in some cases, certain important legal
principles remain unresolved. There can be no assurance that the patent
applications made in respect of the owned or licensed products will result in
the issuance of patents, that the term of a patent will be extendable after it
expires in due course, that the licensors or the institutions that they
represent will develop additional proprietary products that are patentable, that
any patent issued to the licensors or us will provide us with any competitive
advantages, that the patents of others will not impede our ability to do
business or that third parties will not be able to circumvent or successfully
challenge the patents obtained in respect of the licensed products. The cost of
obtaining and maintaining patents is high. Furthermore, there can be no
assurance that others will not independently develop similar products which
duplicate any of the licensed products, or, if patents are issued, design around
the patent for the product. There can be no assurance that our processes or
products or those of our licensors do not or will not infringe upon the patents
of third parties, or that the scope of our patents or those of our licensors
will successfully prevent third parties from developing similar and competitive
products.




Much of
our know-how and technology may not be patentable, though they may constitute
trade secrets. There can be no assurance, however, that we will be able to
meaningfully protect our trade secrets. To help protect our intellectual
property rights and proprietary technology we require employees, consultants,
advisors and collaborators to enter into confidentiality agreements. There can
be no assurance that these agreements will provide meaningful protection for our
trade secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure.




We
maintain patents in connection with nimotuzumab and AeroLEF. The following is a
description of our key current and pending patents in connection with these drug
products.




Nimotuzumab




CIMYM is
the exclusive licensee for particular territories including the US under a
patent estate that includes composition of matter coverage for nimotuzumab, and
further includes coverage for nimotuzumab-based formulations and end-uses in the
treatment of EGFR-dependent cancers. Patents are granted in the US, Europe,
Japan, and Canada.




CIMYM’s
key US patent, US 5,891,996 expires in November 2015, and term extensions of up
to five years may be available under the Patent Term Restoration Act. The same
term and extension apply also to the key European patent, EP
712863.




There may
also be risks related to nimotuzumab as our license originates from
Cuba.  Cuba is a formally socialist country and, under the current
patent law, ownership of the inventions of the Cuban inventors for which patent
applications have been filed rests with the State. The material license
agreement for our Cuban sourced products is a license agreement between us and
CIMAB, dated May 3, 1995, as amended, with respect to nimotuzumab. There is no
guarantee that, with any future changes in the political regime, the Cuban
government would continue to honour such a license agreement.




AeroLEF®




The
AeroLEF® product
is described in four patent families. We own key patents, expiring in 2014,
claiming a method of administering systemic analgesia by inhaling free and
liposome-encapsulated opioid analgesic. North American coverage includes a
reissued US patent and a Canadian patent. We also own two US applications with
counterpart PCT applications now filed in all countries of
interest.  The term of patents issuing from these applications expires
in 2024.  These applications claim the formulation for use in a method
comprised of continuously inhaling the formulation to deposit at least one
rapid-onset opioid and one sustained-effect opioid in the lungs to avoid the
onset of side effects. The patent has been accepted in Europe, and is validated
in all important European countries. Another PCT application, now filed in all
countries of interest and entitled “Stable Compositions”, claims the
manufacturing method and other physical characteristics of the
formulation.




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Our
potential involvement in intellectual property litigation could negatively
affect our business.




Our
future success and competitive position depend in part upon our ability to
maintain our intellectual property portfolio. There can be no assurance that any
patents will be issued on any existing or future patent applications. Even if
such patents are issued, there can be no assurance that any patents issued or
licensed to us will not be challenged. Our ability to establish and maintain a
competitive position may be achieved in part by prosecuting claims against
others who we believe are infringing our rights and by defending claims brought
by others who believe that we are infringing their rights. In addition,
enforcement of our patents in foreign jurisdictions will depend on the legal
procedures in those jurisdictions. Even if such claims are found to be invalid,
our involvement in intellectual property litigation could have a material
adverse effect on our ability to out-license any products that are the subject
of such litigation. In addition, our involvement in intellectual property
litigation could result in significant expense, which could materially adversely
affect the use or licensing of related intellectual property and divert the
efforts of our valuable technical and management personnel from their principal
responsibilities, whether or not such litigation is resolved in our
favor.




Product
liability claims are an inherent risk of our business, and if our clinical trial
and product liability insurance prove inadequate, product liability claims may
harm our business.




Human
therapeutic products involve an inherent risk of product liability claims and
associated adverse publicity. We currently maintain clinical trial liability
insurance with an ultimate net loss value of up to $10 million per claim and a
policy aggregate of $10 million. We currently have no other product liability
insurance and there can be no assurance that we will be able to obtain or
maintain product liability insurance on acceptable terms or with adequate
coverage against potential liabilities. Such insurance is expensive, difficult
to obtain and may not be available in the future on acceptable terms, or at all.
An inability to obtain sufficient insurance coverage on reasonable terms or to
otherwise protect against potential product liability claims could have a
material adverse effect on our business by preventing or inhibiting the
commercialization of our products, licensed and owned, if a product is withdrawn
or a product liability claim is brought against us.




Risks Related To Being A
Canadian Entity




We
are governed by the corporate laws in Nova Scotia, Canada which in some cases
have a different effect on shareholders than the corporate laws in Delaware,
US.




The
material differences between the Nova Scotia Companies Act (the “NSCA”) as
compared to the Delaware General Corporation Law (“DGCL”) which may be of most
interest to shareholders include the following: (i) for material corporate
transactions (such as amalgamations, other extraordinary corporate transactions,
amendments to the memorandum of association and amendments to the articles of
association) the NSCA generally requires three-quarter majority vote by
shareholders which in most instances requires a confirmatory resolution by a
majority of the shareholders (and, in addition, especially where the holders of
a class of shares is being affected differently from others, approval will be
required by holders of two-thirds of the shares of such class voting in a
meeting called for the purpose), whereas DGCL generally only requires a majority
vote of shareholders for similar material corporate transactions; (ii) quorum
for shareholders meetings is not prescribed under the NSCA and is only 5% under
our articles of association, whereas under DGCL, quorum requires the holders of
a majority of the shares entitled to vote to be present; and (iii) our articles
of association require a special resolution and the Corporations Miscellaneous
Provisions Act (Nova Scotia) requires three-quarters of all shareholders
entitled to vote to pass a resolution for one or more directors to be removed,
whereas DGCL only requires the affirmative vote of a majority of the
shareholders.




Item
      4:
            Information
      on the Company




A
            History
      and Development of the Company




YM
BioSciences Inc. was incorporated under the laws of the Province of Ontario on
August 17, 1994 under the name “York Medical Inc.”. On February 7, 2001 we
changed our name to “YM BioSciences Inc.” and on December 11, 2001 were
continued into the Province of Nova Scotia under the NSCA.




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Our head
office and principal place of business is 5045 Orbitor Drive, Building 11, Suite
400, Mississauga, Ontario, L4W 4Y4; telephone (905) 629-9761. Our registered
head office is 1959 Upper Water Street, Suite 900, Halifax, Nova Scotia, B3J
2X2; telephone: (902) 420-3200.




GENERAL
DEVELOPMENT OF THE BUSINESS




We were
founded in 1994 to acquire rights to develop drug products. We are principally
focused on products for the treatment of patients with cancer.




In 1995,
we secured our first drug licenses and our initial financing. We initially
licensed a range of drug products and devices at various stages of assessment
and development, including certain of our current anti-cancer products. In 1998,
we concentrated our activities on anti-cancer products. We have used funds
raised in our initial financing and subsequent financings to advance certain of
our licensed drug products through clinical trials in Canada, the US, Europe and
elsewhere, and to expand our portfolio of anti-cancer products by licensing
additional cancer drug and cancer-related products in later stages of
development. In addition, we have previously licensed certain drug products that
were pre-clinical. See “Business Overview - Products in Clinical
Development”.




We have
two product candidates currently in the clinical stage of
development:




·
            NIMOTUZUMAB
      (previously known as TheraCIM hR3), a humanized monoclonal antibody,
      targeting the protein known as Epidermal Growth Factor Receptor (“EGFR”),
      is designed to treat epithelial cancers and to be administered prior to,
      simultaneously with, or subsequent to, chemotherapy and radiotherapy. In
      various Phase II trials, the drug has, inter alia, improved
      the reported response rate to radiation in head-and-neck tumors and
      demonstrated clinical benefit in adult and pediatric
      glioma.  The drug has reportedly been approved for sale in the
      People’s Republic of China (PRC) for nasopharangeal cancer and for head
      and neck cancer in Argentina, Colombia, India, and Peru. Certain of our
      rights to nimotuzumab have been sub-licensed to Daiichi-Sankyo Co. Ltd in
      Japan, Oncoscience AG in Europe, to Kuhnil Pharmaceutical Company for
      Korea and to Innogene Kalbiotech Ltd. of Singapore for certain Pacific-rim
      countries and certain African countries. As at June 30, 2009, there were
      at least eleven Phase II nimotuzumab trials being conducted by YM and
      these four licensees. In August 2009, we received an expected but
      important clearance from the US Treasury department to extend our US
      clinical program for nimotuzumab, permitting us to conduct trials in any
      solid tumour indication.




·
            AeroLEF,
      a proprietary formulation of both free and liposome-encapsulated fentanyl
      administered by pulmonary inhalation, is being developed for the treatment
      of severe and moderate acute pain including cancer
      pain.  AeroLEF has been developed to provide both rapid onset
      and extended relief from pain while recognizing the need for interpersonal
      variability as well as inter-episode variability in the amount of drug
      needed.  A 120-patient (99 randomized) Phase IIb trial reported
      positive results in 2007 and has been cleared by the US FDA to commence a
      US trial. YM continues to prepare AeroLEFfor
      further development internationally. After consulting with regulatory
      bodies in Europe and Canada, YM is now determining the optimal clinical
      path forward and conducting discussions with potential
      partners.




We have
three additional products licensed that are not in clinical development.
Tesmilifene and two anti-cancer vaccines, a “TGFα vaccine” and a
“HER1-targeting vaccine” which are both licensed by CIMYM.




There are
no proposed undisclosed material transactions that have progressed to a state
where the Company believes that the likelihood of the Company completing such a
transaction is high. We continue to evaluate opportunities to amplify and
diversify our development portfolio through potential licensing,
acquisition or M&A activity.




A
description of our principal capital expenditures and divestitures and a
description of acquisitions of material assets is found in our MD&A and in
the notes to our consolidated financial statements included elsewhere in this
annual report.




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B
            Business
      Overview




We are a
biopharmaceutical company engaged in the development of products primarily for
the treatment of patients with cancer. We own or in-license substances or
products in order to advance them along the regulatory and clinical pathways
toward commercial approval. Our rights generally cover the major market
countries of the developed world (including Canada, the US, Japan and Europe) or
are world-wide. We use our expertise to manage and perform, within our means,
what we believe are the most critical aspects of the drug development process
which include the design and conduct of clinical trials, the development and
execution of strategies for the protection and maintenance of intellectual
property rights and the interaction with drug regulatory authorities
internationally. We concentrate on drug development and do not engage in drug
discovery, avoiding the earlier risk and investment of time and capital that is
generally required before a compound is identified as appropriate for clinical
trials. We have previously in-licensed certain preclinical products which have
been relevant to our clinical programs. We both conduct and out-source clinical
trials, and we out-source the manufacture of clinical materials to third
parties.




Our
current portfolio of products in active clinical development includes one
anti-cancer agent (a monoclonal antibody) in a number of clinical trials
currently targeting more than 10 different tumors and/or stages of cancer, and a
proprietary, inhalation-delivery approach for fentanyl to treat acute pain
including cancer pain. We also have two additional anti-cancer immunotherapies
in pre-clinical development and the small molecule, tesmilifene, which is no
longer in clinical development. We principally intend to license the rights to
manufacture and/or market our products in development to other pharmaceutical
companies in exchange for license fees and royalty payments and to continue to
seek other in-licensing opportunities in pursuing our business strategy. We do
not currently intend to manufacture or market products although we may, if the
opportunity is available on terms that are considered attractive, participate in
ownership of manufacturing facilities or retain marketing or co-development
rights to specific products. We intend to generally license the rights to
manufacture and/or market our drug products to other pharmaceutical companies in
exchange for license fees and royalty payments and to continue to seek other
in-licensing opportunities in pursuing our business strategy.




Business
Strategy




We are
principally focused on development of products for the treatment of cancer or
cancer-related conditions. Our strategy is to in-license rights to promising
products or acquire such products, further develop those products by conducting
and managing clinical research trials and progressing the products toward
regulatory approval, and, generally, sub-license or out-license rights to
manufacture and/or market resulting drug products to other pharmaceutical firms
in exchange for royalties and license fees. We seek to use our product
development capabilities to bridge discoveries and research from
scientific/academic institutions or other biopharmaceutical companies, on the
one hand, with commercial manufacturing and marketing of biopharmaceutical
products, on the other hand.




The main
elements of our business strategy are described below:




Identification of
Product Candidates: We directly perform scientific evaluation and market
assessment of biopharmaceutical products and research developed by
scientific/academic institutions and other biopharmaceutical companies. As part
of this process, we evaluate the related scientific research and pre-clinical
and clinical research, if any, and the intellectual property rights in such
products and research, with a view to determining the therapeutic and commercial
potential of the applicable product candidates.




In-Licensing:
Upon identifying a promising biopharmaceutical product, we seek to negotiate a
license to the rights for the product from the holder of those rights, the
developer or researcher. The terms of such licenses vary, but generally our goal
is to secure licenses that permit us to engage in further development, clinical
trials, intellectual property protection (on behalf of the licensor or
otherwise) and further licensing of manufacturing and marketing rights to any
resulting products. This process of securing license rights to products is
commonly known as “in-licensing”.




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-




Further
Development: Upon in-licensing a cancer-related product, our strategy is
to apply our skills and expertise to progress the products toward regulatory
approval and commercial production and sale in major markets. These activities
include implementing intellectual property protection and registration
strategies, performing or having performed for us, pre-clinical research and
testing, the formulating or reformulating of drug products, making regulatory
submissions, performing or managing clinical trials in target jurisdictions, and
undertaking or managing the collection, collation and interpretation of clinical
and field data and the submission of such data to the relevant regulatory
authorities in compliance with applicable protocols and standards.




Out-Licensing:
We generally plan to further license manufacturing and marketing rights to our
licensed products to other pharmaceutical firms. This is commonly known as
“out-licensing”. Under our business model, licensees would be expected, to the
extent necessary, to participate in the remaining clinical development required
to obtain final regulatory approval for the product. We expect that
out-licensing would result in a pharmaceutical company or other licensee
marketing or manufacturing the product in return for licensing fees in addition
to royalties on any sales of the product. Management believes this model is
consistent with current biotechnology and pharmaceutical industry licensing
practices. In addition, although out-licensing is a primary strategy of ours, we
may retain co-development or marketing rights to particular products or
territories. To date, we have out-licensed one of our products in certain
European countries, two anti-cancer pre-clinical products to two wholly-owned
subsidiaries of a US corporation, one product in Japan, one product in several
jurisdictions in South East Asia and Africa and two products in South Korea. See
“Business Overview - Licensing Arrangements - Out-Licensing”.




We
actively search for new product opportunities using the relationships of our
management, board, and advisory team and continuous monitoring of the academic
and biotechnology environment in cancer treatment developments. Our staff
analyses and evaluates opportunities and continuously reviews them. In addition,
we have rights of first refusal in one of our existing license agreements for
certain additional products and extensions to existing products. We intend to
seek other in-licensing opportunities in pursuing our business
strategy.




Cancer And Cancer
Therapeutic Market




According
to the International Agency for Research on Cancer (IARC), cancer remains the
leading cause of death worldwide. There were approximately 12 million new cancer
cases and seven million cancer deaths worldwide in 2008, with 20-26 million new
cases and 13-17 million deaths projected for 2030 (World Cancer Report
2008).




Globally,
according to the World Health Organization, the cancers which contribute the
most deaths are lung (1.4 million), stomach (866,000), liver (653,000), colon
(677,000), and breast (548,000). According to the American Cancer Society, it is
estimated that 1.48 million new cancer cases will be diagnosed in the US in 2009
and 562,340 will die from the disease, while, in Canada, according to the
Canadian Cancer Society, there will be an estimated 171,000 new cases of cancer
and 75,300 deaths from cancer in 2009. Cancer is the second leading cause of
disease-related death in North America behind cardiovascular disease which it is
predicted to surpass in the next few years. The principal reasons for this
projection appear to be the aging population, environmental issues related to
industrial development, and improvements in the treatment of cardiovascular
disease. North America, Europe and Japan are currently the principal markets for
cancer therapies because of the established healthcare and payer
systems.




Surgery,
radiation and chemotherapy remain the principal effective treatments for
cancer.  Although the reason is not clearly understood, current
chemotherapy is generally effective in a subpopulation of individuals with the
same disease.  Notwithstanding this, revenues across 15 major oncology
markets were reported by IMS to be approximately US$ 48.2 billion in 2008 and
are expected to increase to by 15-16% in 2009, and remain the largest
therapeutic class by market size. The use of cancer therapies is forecast to
increase due to earlier use in the disease process as diagnostic methods improve
and as more effective treatments are developed.




Numerous
new approaches to cancer are currently in clinical trials. As targets become
validated and technologies improve, research is beginning to yield therapeutic
approaches that appear to be more effective than existing ones. Monoclonal
antibodies were first described in 1978, and have now become the largest market
segment within oncology with estimated global sales of US$33 billion in 2008.
The first approved (1998) in this category was Rituxan®. The Company is aware of
only six naked monoclonal antibodies approved in the US for the treatment
of cancer, Rituxan®, Campath®, Herceptin®, Avastin®, Erbitux® and Vectibix®
although many more are in development. A second approach to cancer treatment,
therapeutic cancer vaccines, has been under development for many years, and the
first such vaccine, Melacine®, was approved in 1999 in Canada although uptake of
therapeutic cancer vaccines has been extremely limited to date due to doubts
regarding efficacy.  The first such product to be licensed in the USA
may occur during 2010.




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We are
also developing, with our AeroLEF product, a novel formulation of an opioid,
fentanyl, for the treatment of severe and moderate pain, including cancer pain.
In the US cancer pain is suffered by more than 400,000 patients in the hospital
setting alone.  We are aware of several other companies that are
pursuing approaches to the delivery of fentanyl including Cephalon, Endo, Akela,
Alexza, Aradigm, Teva, BDSI, and Alza.




Product
Portfolio




Our
current portfolio of clinical products includes an anti-cancer agent (a novel
monoclonal antibody, nimotuzumab) in a number of trials currently targeting more
than 10 different tumors and/or stages of cancer as well as a proprietary, inhalation-delivery
approach for fentanyl to treat acute pain including cancer pain. Three other
products, tesmilifene, TGFα vaccine, and HER-1 vaccine are not currently
expected to advance in clinical development. The principal targets for our
monoclonal antibody are of the most ubiquitous cancer indications,
including non-small cell lung cancer, head-and-neck cancer and glioma (brain
cancers), the latter indication having orphan drug designations in Europe and
the US. We expect, based on clinical trials done to date, to develop our
clinical stage candidates beyond their respective initial
indications.




Nimotuzumab




Background:




Nimotuzumab
is a humanized MAb targeting the EGF receptor (EGFR). The EGFR is present in
high concentrations on the surface of many cancer cells and it is postulated
that the binding of ligands to this receptor is important in the continuing
growth of cancer cells. Nimotuzumab appears to block this binding resulting in
the potential for inhibition of cell growth or, possibly, cell destruction by
the immune system. Improved tumor responses or clinical benefit have been
reported when EGFR targeting agents are combined with other anti-cancer
treatments. Our EGFR MAb is being developed to be administered alone, or in
combination with other anti-cancer treatments.




Clinical Experience and
Development Pathway:




Nimotuzumab
is reported to have been administered to approximately 5,000 cancer patients
worldwide and shown to be well tolerated. The product has been cleared for use
in numerous clinical trials by various regulatory agencies including the EMEA,
Health Canada and the FDA. Nimotuzumab has reportedly been approved for sale for
the treatment of certain cancers in 18 countries including Argentina, China,
Colombia, Gabon, India, Peru, and the Philippines. Trials that were or are being
conducted with the drug include:




(a)
            Phase
      I safety and PK/PD trial in 12 patients with epithelial-derived cancers
      conducted by CIMAB and completed in
2004.




(b)
            Phase
      I PK/PD trial in 10 patients with locally advanced, unresectable head and
      neck cancers receiving nimotuzumab + radiation, conducted by CIMAB. The
      study was completed in 2005




(c)
            Phase
      I PD study by CIMYM in heavily pre-treated patients with solid tumors. The
      study investigated EGFR-related signalling in tumor and skin biopsies
      before and after treatment with 100, 200, 400 and 800 mg doses of
      nimotuzumab. Of the 16 evaluable patients enrolled in the trial, confirmed
      stable disease was reported in six patients, a confirmed partial response
      in one patient and prolonged progression-free status observed in three
      patients. The study was completed in
2006.




(d)
            Phase
      I clinical trial of nimotuzumab monotherapy for the treatment of solid
      tumors conducted by Daiichi Sankyo Inc. in Japan, in 13 patients with
      various solid tumors to evaluate the safety of nimotuzumab in the Japanese
      population. The best response was stable disease in 11 of the 13 patients.
      There were no SAEs. The study was completed in
  2007.




- 23
-




(e)
            Phase
      I trial in metastatic pancreatic cancer in combination with chemotherapy
      to study PD conducted by Oncoscience. The study included six patients. The
      study was completed in 2007.




(f)
            Phase
      I safety, PK/PD and MTD trial in 13 patients with stage III breast cancer
      receiving nimotuzumab and chemotherapy, conducted by CIMAB. The study was
      completed in 2008




(g)
            Phase
      I safety, PK/PD and MTD trial of nimotuzumab + chemotherapy in up to 15
      patients with transarterial immunochemoembolization in hepatocellular
      carcinoma conducted by CIMAB; the study is ongoing, with fifteen patients
      included up to July 2009.




(h)
            Phase
      I/II trial in patients with locally advanced, unresectable head and neck
      cancers conducted by CIMAB enrolled 24 fully evaluable patients receiving
      nimotuzumab with radiation. This trial demonstrated a greater than 60%
      response rate compared to approximately 30% response rate historically
      expected with radiation alone. The study was completed in
    2004




(i)
            Phase
      I/II trial in Canada and Korea in patients with stage IIb, III and IV
      NSCLC, who are not sufficiently fit to tolerate the standard chemotherapy
      regimen, conducted by CIMYM and Kuhnil Pharmaceutical Co., Ltd. The study
      is designed to assess safety, response rate and survival in these
      patients.  The study was completed in 2007 with 18 and 14
      patients enrolled in Canada and Korea
  respectively.




(j)
            Phase
      I/II safety, PK/PD and MTD trial of nimotuzumab plus chemotherapy in up to
      15 patients with liver metastasis from colorectal cancer conducted by
      CIMAB. The study is ongoing, with one patient included up to July
      2009.




(k)
            Phase
      II clinical trial in patients with locally advanced head and neck cancer
      conducted by CIMYM, designed to evaluate safety and efficacy in this
      indication. The study was completed in 2003. Complete tumor response was
      observed in 17 out of 24 evaluable patients. In 2008 12 patients were
      still alive.




(l)
            Phase
      II pivotal trial conducted by CIMAB and Biotech Pharmaceuticals Limited
      (China) assessing efficacy and safety of nimotuzumab combined with
      radiation compared to radiation alone in locally advanced Stage III-IV
      nasopharyngeal carcinoma, a subset of head-and-neck cancer.  The
      study of 137 patients was completed in 2005 and showed a 90.6 % response
      rate in the combination arm versus a 51.5% in the radiation-alone
      group.




(m)
            A
      Phase II randomized, four-arm safety and efficacy trial in 92 patients
      with locally advanced head and neck cancers comparing nimotuzumab +
      chemotherapy + radiation to chemotherapy + radiation and nimotuzumab +
      radiation to + radiation, conducted by Biocon Ltd. The study was completed
      in 2005 and demonstrated 90 % of response rate in 76 evaluable
      patients.




(n)
            Phase
      II study in first-line high grade gliomas of 24 adult patients, to
      evaluate efficacy and safety of nimotuzumab in combination with
      radiotherapy. This study was conducted by CIMAB and completed in 2005,
      demonstrating an objective response-rate of
  37.9%.




(o)
            Phase
      II study in pediatric patients with progressive high grade gliomas
      conducted by Oncoscience. The trial demonstrated a 38% clinical benefit
      rate in 45 evaluable patients. This included two partial responses in a
      patient population where no such responses had previously been
      documented.  The study was completed in
  2006.




(p)
            Phase
      II, randomized clinical trial in metastatic pancreatic cancer in
      combination with chemotherapy for evaluating dose escalation, PK, safety,
      conducted by Oncoscience. The study was completed in 2006 with 65
      patients.




- 24
-




(q)
            Phase
      II/III randomized trial in patients with locally advanced head and neck
      cancers conducted by CIMAB. The study was designed to assess local
      control, safety and survival in 112 patients receiving either nimotuzumab
      + radiation or radiation alone. The study was completed in 2007 and ITT
      results showed a CR of 59.5 % and median survival of 12.5
  m




(r)
            Phase
      II randomized trial of nimotuzumab + radiation vs. radiation alone in 30
      patients with brain metastases from NSCLC, to evaluate efficacy and
      quality of life, conducted by CIMAB. The study is ongoing with 31 patients
      included up to July 2009




(s)
            Phase
      II trial investigating nimotuzumab in colorectal cancer patients who have
      failed previous irinotecan-containing regimens. The single-arm trial
      conducted by CIMYM enrolled 61 patients in Canada who were treated with
      irinotecan plus nimotuzumab. The study was completed in
      2008.  There were fifty-eight evaluable patients. In a
      preliminary report, the objective response rate was 3.4%; disease control
      rate was 50%




(t)
            Phase
      II randomized trial of nimotuzumab + chemotherapy vs. chemotherapy alone
      designed to evaluate efficacy and safety in 70 patients with hormone
      refractory prostate cancers, conducted by CIMAB.  There were 70
      patients included up to July 2009.




(u)
            Phase
      II randomized trial of nimotuzumab + radiation + chemotherapy vs.
      radiation + chemotherapy designed to evaluate efficacy and safety in 68
      patients with esophageal cancers, conducted by CIMAB.  Enrolment
      in this study was completed in 2008 with 68
  patients.




(v)
            Phase
      II randomized trial of nimotuzumab + radiation vs. radiation alone in 80
      patients with high grade malignancy astrocytic tumors conducted by CIMAB.
      The study is designed to assess survival, local control and safety. The
      study is ongoing, with 70 patients included up to July
    2009.




(w)
            Phase
      II trial investigating nimotuzumab in pediatric patients with recurrent
      diffuse intrinsic pontine glioma (DIPG), a form of inoperable,
      treatment-resistant brain cancer. This study is being conducted by YM
      BioSciences USA Inc. and includes leading US pediatric clinical centers.
      The single-arm trial will enrol 44 patients with DIPG who will be treated
      with nimotuzumab as monotherapy.  The study is ongoing, with 29
      patients included up to July 2009.




(x)
            Phase
      II pediatric trial with first-line brain stem glioma conducted by CIMAB.
      Monotherapy with nimotuzumab to evaluate survival, local control and
      safety. The study is ongoing. The study will enrol 47 patients and has 10
      patients included up to July 2009.




(y)
            Phase
      II/III trial, induction and maintenance therapy in combination with
      radiotherapy and temozolomide in 58 patients with glioblastoma multiforme
      (Grade 4 astrocytoma). It is an evaluation of efficacy and safety. The
      study is being conducted by Biocon Ltd. The study is ongoing, with 56
      patients included up to July 2009.




(z)
            Phase
      II study in 37 patients with locally advanced, non-resectable
      SCCHN.  The study is ongoing. The study is being conducted by
      the National Cancer Center of Singapore and supported by Innogene
      Kalbiotech. It is non-randomised, nimotuzumab plus
      chemoradiation.  The study will evaluate response rates as
      primary endpoint and progression-free
      survival and toxicity as secondaries. There were 10 patients included up
      to July 2009.




(aa)
            Phase
      II randomized trial, utilizing nimotuzumab in combination with
      chemotherapy in  patients with Stage IIIb/IV non-small cell lung
      cancer (NSCLC), conducted by Biocon Ltd., to evaluate efficacy and safety.
      The enrolment in this study is completed with 100 patients. Follow-up for
      survival will continue until the  end of 2
  years.




(bb)
            Phase
      II double-blinded, randomized study in brain metastases from
      non-small-cell lung cancer conducted by CIMYM. The study is due to include
      88 patients and  was initiated in March
  2009.




- 25
-




(cc)
            Phase
      II double-blinded, randomized study on non-small-cell lung cancer
      ineligible for radical chemotherapy conducted by CIMYM. The study will
      enrol was 128 patients and was initiated in March
  2009.




(dd)
            Phase
      II in Stage III uterine cervix initiated in April 2009 by Innogene
      Kalbiotech with 14 patients included up to July
  2009.




(ee)
            Phase
      II clinical trial of advanced recurrent gastric cancer refractory to 5FU
      (2nd line) being conducted by Daiichi Sankyo in Japan and Kuhnil in Korea.
      The study is ongoing with 23 and 21 patients respectively up to July
      2009.




(ff)
            Phase
      II trial evaluating nimotuzumab in combination with radiation
      therapy/cisplatin/vinorelbine in patients with Stage III non-small-cell
      lung cancer (NSCLC) conducted by Daiichi Sankyo in Japan was initiated in
      June 2009.




(gg)
            A
      Phase II in esophageal tumors for the use of nimotuzumab in combination
      with chemoradiotherapy initiated enrolment in 2009 by Eurofarma in Brazil
      and has three patients enrolled up to July
2009.




(hh)
            Phase
      IIb/IIIa study in 188 patients with locally advanced or metastatic
      pancreatic cancer treated with either gemcitabine plus nimotuzumab or
      gemcitabine plus placebo conducted by Oncoscience.  The primary
      end-points for this trial are time to tumor progression and overall
      survival with quality of life and response rate among the secondary
      endpoints. There were 77 patients included up to July
  2009.




(ii)
            Phase
      III single arm first line pediatric trial of nimotuzumab in combination
      with radiation in 40 patients newly diagnosed with DIPG. The trial was
      conducted by Oncoscience in several European countries and intended to
      serve as a registration trial in EMEA countries. Enrolment was completed
      in 2007.  Median progression free survival was reported as 5.9
      months, median overall survival was 9.7
months.




(jj)
            Phase
      III study in which nimotuzumab and the current standard of care is
      compared to the current standard of care in 148 patients with glioblastoma
      multiforme (GBM), conducted by Oncoscience. The primary end-point for this
      first-line trial is progression-free survival with response rate and
      symptom control among the secondary endpoints. The study is ongoing, with
      115 patients included up to July
2009.




(kk)
            Phase
      III post-operative adjuvant concurrent chemoradiotherapy (CTRT) with or
      without nimotuzumab in SCCHN is being conducted by the National Cancer
      Center of Singapore and supported by Innogene Kalbiotech and is planning
      to enrol 710 patients.




(ll)
            An
      approved Phase III study in 168 patients with cervical cancer, combining
      nimotuzumab and Cisplatin + vinorelbine to placebo will be conducted by in
      Mexico by Laboratorios PISA, with  168 patients is anticipated
      to start during the second half of
2009.




(mm)
            Phase
      IV study in head and neck. Post-marketing study conducted by Biocon
      Biopharm Pvt.Ltd. on the use of nimotuzumab plus chemoradiotherapy.
      Enrolment was completed in 2009 with 150 patients that are now under
      follow-up.




(nn)
            Phase
      IV in advanced stage SCCHN in combination with radiochemotherapy conducted
      by CIMAB to enrol 200 patients, 73 patients enrolled up to July
      2009.




(oo)
            Phase
      IV in glioma patients in combination with radiotherapy conducted by CIMAB
      to enrol 100 patients, 30 patients enrolled up to July
    2009.




- 26
-




(pp)
            Eight
      investigator-sponsored clinical trials in India in several applications
      including H & N, NSCLC, prostate, gliomas, cervix, CRC and other
      tumors with 190 patients treated up to July
  2009.




(qq)
            An
      Expanded Access Program in Cuba, managed by CIMAB with 536 patients
      treated up to July 2009.




(rr)
            Expanded
      Access or equivalent programs are underway in Europe, Australia and
      Canada. Three patients have been treated in investigator-initiated or
      compassionate trials in Australia, 17 under the Expanded Access protocol
      in the US. An Expanded Access Program was launched during 2008 in Canada
      with nine patients treated up to July
2009.




Several
more trials are in planning stage but have not yet received regulatory
clearances.




Regulatory
Matters




In July
2004, nimotuzumab was designated an orphan drug for glioma by EMEA.




In
November 2004, nimotuzumab was designated an orphan drug for glioma by the FDA
in the US.




In
September 2006, YM USA received a Special License from OFAC for the importation
of nimotuzumab for a US trial in pediatric pontine glioma.




In
October 2007, we were advised that an application for marketing approval for
nimotuzumab was submitted to EMEA.




In March
2008, a Withdrawal Assessment Report on the withdrawal by the applicant of an
application for marketing approval for nimotuzumab to the EMEA was published by
the EMEA citing that the benefit/risk balance for the drug in that application
was negative.




In June
2008, we were advised that nimotuzumab was designated an orphan drug for
pancreatic cancer by EMEA.




In August
2009, we received an expected but important clearance from the US Treasury
Department to extend our US clinical program for nimotuzumab, permitting us to
conduct trials in any solid tumor indication.




Dates on
which we are informed nimotuzumab received marketing approval in various
jurisdictions:





Date
                      
                      Country
                      
                      IndicationApril
      2005
                      
                      China
                      
                      Nasopharyngeal
      carcinomasApril
      2005
                      
                      Colombia
                      
                      Head
      an NeckJune
      2006
                      
                      Argentina
                      
                      Head
      and neckJune
      2006
                      
                      India
                      
                      Head
      and neckApril
      2007
                      
                      Cuba
                      
                      Head
      and neck, refractory children glioma, adult gliomaJune
      2007
                      
                      Peru
                      
                      Head
      and neckOctober
      2007
                      
                      Ukraine
                      
                      Head
      and neck, refractory children glioma and  adult
      gliomaJuly
      2008
                      
                      Argentina
                      
                      Head
      and neckJuly
      2008
                      
                      Paraguay
                      
                      Head
      and neckAugust
      2008
                      
                      Philippines
                      
                      GliomaSeptember
      2008
                      
                      Sri
      Lanka
                      
                      Head
      and neckNovember
      2008
                      
                      Indonesia
                      
                      Stage
      III/IV gliomaNovember
      2008
                      
                      Gabon
                      
                      Head
      and neckNovember
      2008
                      
                      Mauritania
                      
                      GliomaJanuary
      2009
                      
                      Cambodia
                      
                      Head
      and neck & gliomaMarch
      2009
                      
                      Brazil
                      
                      GliomaMay
      2009
                      
                      Vietnam
                      
                      Head
      and neck and gliomaJuly
      2009
                      
                      Algeria
                      
                      Head
      and
neck




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-


Manufacturing:




CIMAB
supplies nimotuzumab to facilitate the clinical development of these products.
The CIMYM BioSciences license agreement with CIMAB requires that CIMAB will
manufacture and supply, or will contract for the manufacture and supply of,
commercial quantities of nimotuzumab in accordance with the then-current
licensing agreements at such time and stage of product development as commercial
quantities of these products are required. There is a risk that CIMAB may
experience difficulties producing or obtaining commercially viable quantities of
these products. Product from CIMAB’s manufacturing plant has been cleared for
use in clinical trials in Canada, Europe, the USA and Japan amongst others.
Current reports on inspections of the manufacturing plant by Qualified Persons
confirm that the plant operates according to GMP principles.  In
addition the facility was inspected and approved by the Paul Erlich Institute
(PEI) that is responsible for approvals of biological manufacturing facilities
in Germany. The PEI approval, included 300, 500 and 1000 litre fermenters, and
covered a period of two years that expired in January 2009 following which two
inspections by Qualified Persons declared the facilities to be in accordance
with GMP principles. In 2007, CIMAB’s manufacturing process was accepted by
Health Canada as a suitable scale for commercial manufacturing.




CIMAB, or
a supplier contracted by CIMAB, manufactures and supplies the product to CIMYM
BioSciences. Should CIMAB agree to alternative manufacturing arrangements, such
as a sub-licensee of CIMYM manufacturing the product, the loss of manufacturing
benefits to CIMAB may be reflected in a lower license fee and royalty payable to
CIMYM than if manufacturing remains with CIMAB. See “Business - Licensing
Arrangements”.




Marketing:




Nimotuzumab
is licensed by us from a Cuban source, CIMAB, and as such is likely to be
prohibited from sale in the US unless OFAC issues a license or the US embargo
against Cuba is lifted. YM USA has received a Special License from OFAC to
import nimotuzumab for a clinical trial that has been cleared by the FDA and is
recruiting patients.




Intellectual
Property:




CIMYM is
the exclusive licensee for a number of territories, including the
US.  The patent estate includes coverage for the composition of
matter, claiming the amino acid sequence of nimotuzumab and variants thereof,
and end-uses in the treatment of EGFR-dependent cancers.  Patents are
granted in the US, Europe, Canada, and Japan.   The patents
US5,891,966 and US6,506,883 expire November 2015, and term extensions of up to
five years may be available under the Patent Term Restoration Act. The same term
and extension apply also to the key European patent, EP 712863.




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-


We are
aware of US5,770,195, a patent granted to Genentech, for the anti-cancer use of
EGFR MAbs in combination with a cytotoxic agent. We are also aware of US patents
granted to others in this field. In April 2001 Rorer International (Overseas)
(“Rorer”) was issued the US6,217,866 (“866 patent”) which includes claims to any
antibody targeting the EGFR administered with any anti-neoplastic agent. We
believe that the Rorer patents were exclusively licensed to ImClone (now Eli
Lilly and Company). A counterpart patent has been granted in Europe. We have
filed an opposition to the grant of the European patent. The opposition
proceedings in Europe were suspended pending the outcome of cases in the U.K.
and Germany related to inventorship claims filed by Yeda Research and
Development Corporation, Ltd. (“Yeda”). Those cases have culminated in a title
transfer to the current co-owners, Yeda and Aventis (the successor of Rorer). We
do not know when the opposition proceedings against that European patent will
resume. On the related US patent a September 19, 2006 decision in the US
District Court of Southern New York granted sole inventorship of the ‘866 patent
to scientists from Weizmann Institute of Science (Rehovet, Israel) represented
by Yeda.  Yeda now has the right to grant, and has granted,
non-exclusive licenses in the US.  In addition, we are aware of a
separate series of national patent applications filed by ImClone, and
represented by EP1080113, claiming the anti-cancer use of radiation in
combination with any inhibitor of any receptor tyrosine kinase that is involved
in the genesis of tumors.  In Europe and Canada, this ImClone
application has been withdrawn in response to prior art brought to the attention
of the respective patent examiners by YM.  YM continues to monitor
counterpart applications filed in Japan and in the United States. ImClone also
filed US and PCT applications covering the use of EGFR MAbs to treat patients
having tumors that are refractory to treatment with conventional therapies. We
continue to monitor ImClone’s pending patent applications.  We plan on
vigorously challenging ImClone’s claims in respect of any patent applications
that are material to our business.  The outcome of these challenges cannot
be predicted, and there can be no assurance that we will succeed in challenging
the validity or scope of patent claims by ImClone or any other patent
applicant.   If our challenges are not successful, this may have a
material adverse effect on our business. We are also aware of a European patent,
EP1058562, granted to the University of Pennsylvania and relating to
compositions and methods for treating tumors. YM’s European licensee,
OncoScience, and others have filed oppositions to the grant of this
patent.  The European opposition board has recently provided the
preliminary view that the Pennsylvania claims are patentable in amended
form.  YM believes that OncoScience intends to file objections to this
position and to attend an oral hearing on the matter to be held in November of
2009.




The
manufacturing of nimotuzumab may fall within the scope of process patents owned
by PDL BioPharma Inc., Genentech, and the Medical Research Council of the United
Kingdom.  We are aware that some of these process patents are
currently being challenged by companies other than us. In the event any of the
applicable process patents are upheld, we believe we will be able to obtain
licenses under such patents on commercially reasonable terms, though there can
be no assurance of this.




Competitive
Position:




To our
knowledge, other companies that are involved in the development of monoclonal
antibody cancer therapeutics directly related to our efforts include Amgen,
Genmab, ImClone/BMS, and Merck KGaA, amongst others.




We
understand that OSI, in concert with Genentech and Roche, and AstraZeneca, have
small molecules designed to target the tyrosine kinase domains of EGF
receptors.




We
understand that Iressa, previously approved as third line monotherapy in locally
advanced or metastatic NSCLC, is undergoing a revision of registration in
various countries. In Europe, the EMEA recently approved Iressa for the
treatment of locally advanced or metastatic NSCLC with activating mutations or
EGFR across all lines of therapy. The situation is the US is unclear, but
management believes it is likely that Iressa will be/has been refiled in the US
for use in patients with the activating mutation. Since 2005, the FDA has
severely restricted access to Iressa due to failure to show survival
improvements following the drug’s registration under accelerated
approval.




OSI
reported that it has positive survival data in a Phase III monotherapy study in
refractory lung cancer. Tarceva® monotherapy is now approved for the
treatment of patients with locally advanced or metastatic NSCLC. In
addition, Tarceva® in combination with gemcitabine is approved for the
first-line treatment of patients with locally advanced, unresectable or
metastatic pancreatic cancer.




OSI’s
product, Tarceva®, is in co-development with Roche and Genentech and is reported
to be in numerous trials in various indications, including Phase III trials
in ovarian cancer, colorectal cancer, hepatocellular cancer, head and neck
cancer, NSCLC (1st line and adjuvant) and metastasis of the brain. See
“Competition”.




We
understand that Erbitux®, developed by ImClone/BMS and Merck, is approved in the
US, Canada, Japan, Germany, Austria, Australia, and Switzerland, and numerous
other jurisdictions for metastatic colorectal cancer in combination with
irinotecan in irinotecan-refractory patients, in locally or regionally advanced
squamous cell carcinoma of the head and neck in combination with radiation
therapy, and in the US for secondline therapy in squamous cell carcinoma of the
head and neck progressing after platinum-based therapy. Erbitux® is approved in
the US for advanced NSCLC but the marketing application was rejected by the
EMEA. Erbitux® is being further developed in other indications, and management
believes it is reasonable to expect that the drug will be registered for
additional indications in the future.




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-


We
understand that Vectibix®, developed by Amgen, is approved for third line
monotherapy in irinotecan-refractory patients, and in Europe for the same
indication but restricted to patients with the wild-type KRAS gene.




We
understand that the market for Erbitux® and Vectibix® has recently been further
restricted in the US in colorectal cancer to patients with the wild-type KRAS
gene.




AEROLEF




Background:




AeroLEF
is a proprietary formulation of fentanyl, an opioid analgesic, that is
administered by inhalation and permits self-titration by patients. The
development of AeroLEF as a combination of pulmonarily-delivered free
and  liposomal dosage form takes advantage of (1) the lung’s large
absorptive surface and thin barrier to absorption to permit rapid transport of
the free fentanyl fraction (loading dose) into the systemic circulation and (2)
the capacity of liposomes to function as reservoirs for the regulated release
over time of the encapsulated fentanyl.  AeroLEF is being developed to
provide both rapid and extended opioid analgesic levels for patients with severe
and moderate acute pain and, eventually, breakthrough cancer pain.




Clinical
Experience:




The
clinical experience with AeroLEF® includes
two Phase I studies with healthy volunteers, one completed Phase II acute pain
study in post-surgical patients carried out in Canada, one Phase IIb randomized
trial in 120 patients (99 randomized, 21 open label) under IND submissions
approved by Health Canada and clearance by the FDA in June 2008 to initiate a
Phase II trial in the US.




The
preliminary results of a Phase II acute pain study using AeroLEF® as the
primary postoperative analgesic were reported at the annual meeting of the
American Society of Anesthesiologists in October 2004.  The study
involved a unique “dose-to-effective-analgesia” following patient-controlled
administration of AeroLEF® as the
primary analgesic treatment in adult patients experiencing severe and moderate
pain following elective orthopedic surgery.  This Phase II study
demonstrated that 95% of patients successfully achieved analgesia via
self-titration with AeroLEF® as the
primary medication. Eighteen (18) subjects rapidly achieved perceptible
analgesia soon after commencing nebulization (median 2.7 min) and continued
self-titration to a median time to effective/adequate analgesia of 17
minutes.




Results
of the Phase IIb acute pain study using AeroLEF® as the primary postoperative
analgesic were reported at the annual meeting of the American Pain Society in
May 2008.  This randomized, placebo-controlled trial successfully
achieved its primary endpoint, as well as other secondary efficacy endpoints of
pain relief.




In
January 2008 the FDA issued a “clinical hold” on the development of AeroLEF®in the
US. The restriction was subsequently lifted in June 2008 and the FDA cleared a
Phase II study to proceed.




YM
continues to prepare AeroLEF®for
further development internationally. After consulting with regulatory bodies in
Europe and Canada, YM is now determining the optimal path forward to
registration and conducting discussions with potential partners.




Manufacturing:




The
AeroLEF®
formulation is manufactured through a controlled process that has been developed
to produce a targeted ratio of liposome encapsulated fentanyl to free fentanyl
in combination.   AeroLEF® clinical
product supply for the two Phase I studies and the Phase IIa study was produced
by a manufacturer based in the Netherlands.  During 2004, the
manufacturing process was transferred to a company located in Ontario,
Canada.  AeroLEF® drug
product produced at the Canadian manufacturer was used in the Phase IIb trial,
and is expected to be used for future clinical trials and other development
activities.  The manufacturing of AeroLEF® has been
successfully transferred to a second manufacturing source in the US which may
provide pivotal trial material and future commercial supply.  Fentanyl
citrate, the active pharmaceutical ingredient in the AeroLEF®
formulation, is commercially available from multiple vendors holding Drug Master
Files (DMF) with the FDA and EMEA, and are licensed to synthesize controlled
substances.




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-


Intellectual
Property:




The
AeroLEF product is described in four patent families.  We own key
patents, expiring in 2014, claiming a method of administering systemic analgesia
by inhaling free and liposome-encapsulated opioid analgesic.  North
American coverage includes a reissued US patent and a granted patent in Canada.
We own two US applications with counterpart PCT applications, expiring in 2024,
claiming the formulation for use in a method comprised of continuously inhaling
the formulation to deposit at least one rapid-onset opioid and one
sustained-effect opioid in the lungs to avoid side effects.  A pending
PCT application entitled “Stable Compositions” claims the manufacturing methods
related to liposomal composition and other physical
characteristics.




Competitive
Position:




The
opioid analgesic market which includes products based on morphine, fentanyl,
oxycodone, or hydromorphone is currently dominated by several pharmaceuticals
companies such as Johnson & Johnson Inc., Abbott Laboratories, Baxter
International Inc., AstraZeneca, Purdue Pharma L.P., Cephalon, Inc., Endo
Pharmaceutical Holdings Inc. and Teva. The fentanyl segment of the opioid
analgesic market includes three approved routes of administration:




(a)
            intravenous
      administration of fentanyl citrate available as generic products from
      various suppliers




(b)
            transdermal
      administration via the Duragesic® patch and Ionsys®
  patch




(c)
            transmucosal
      administration via the Actiq® lollipop and
  Fentora®




Several
competitors are developing non-invasive alternatives for enhanced delivery of
fentanyl, including Endo (Rapinyl for sublingual delivery), BDSI (BEMA for
buccal delivery), Archimedes (intranasal delivery), Sosei (sublingual spray),
Alexza (pulmonary delivery) and Akela (pulmonary delivery).  All the
competitors, to our knowledge, will deliver fixed dosage forms of the
drug.




Tesmilifene




Background:




Tesmilifene
is a small molecule drug with multiple modes of action that appears to enhance
the activity of traditional chemotherapy agents. Its chemical designation is
N,N-diethyl-2-[4-(phenylmethyl)phenoxy]ethanamine hydrochloride. It has
demonstrated synergistic effects with anthracyclines in late-stage clinical
trials and with taxanes, 5-FU vinca alkaloids and platins in earlier-stage
clinical and pre-clinical studies.




Intellectual
Property:




We
obtained an exclusive license to patent rights covering tesmilifene from the
University of Manitoba.  Aspects of tesmilifene, including its
anti-cancer and cytoprotective uses, are the subject of patents that have issued
in the US, Europe, Japan, Canada and Australia.




The
patent estate comprises numerous layers of patent protection.  A key
patent among these is US Patent No. 5,859,065 claiming the use of tesmilifene,
including certain structural analogs, in combination with any chemotherapeutic
agents for the treatment of any cancer.   The twenty year term of
this patent expires in 2010.   Still other issued patents US
6,284,799 and 5,747,543, expire in 2014 and 2015 respectively. It is anticipated
that tesmilifene will qualify for patent term extension under the Patent Term
Restoration Act which could provide additional protection of up to five
years.   We intend to take full advantage of the available term
extension.




- 31
-


In
addition, international patent applications are pending based upon our clinical
development program.  This series of patent applications focused on
the survival advantage demonstrated following the analysis of the earlier phase
III trial and relates to the selection of patient populations that will most
benefit from the chemopotentiating and cytoprotective properties of
tesmilifene.  Patents that result from these filings should expires in
2022 in the US and other major markets.
  Development
Status
  We do not
intend to further develop tesmilifene and the asset is held for
sale.
  Clinical,
Pre-Clinical And Basic Research
  We
design, fund and manage clinical and some pre-clinical research, and may
support, but do not conduct, basic research. We manage the development of
products that we in-license through our own team of clinical, regulatory,
licensing and business development executives and through a number of research
and medical collaborations. We are responsible for filing applications with the
relevant authorities for regulatory approval for clinical trials and conduct, or
have conducted on our behalf, clinical trials to progress products in
development toward regulatory approval and possible out-licensing for commercial
sale. Our current licenses generally provide that we will conduct, or cause to
be conducted, the tests and clinical studies necessary to progress products in
development toward regulatory approval with a view to obtaining the approval for
sale of the licensed drug from appropriate regulatory authorities. We, and/or
our licensees, have received regulatory clearances for clinical trials in a
number of countries, including in Canada, the US, the United Kingdom, Europe,
India, Japan, Korea, Singapore, and South Africa and numerous Eastern European
countries from Phase I through Phase III. Some basic research is conducted at
the facilities of our licensors, and we pay for certain amounts of this
research.
  Licensing
Arrangements
  In-Licensing
  Licenses for
Nimotuzumab
  In May
1995, YM acquired an exclusive, sub-licensable license (as amended, the “1995
CIMYM License”) from CIMAB, acting on behalf of CIM, to products for passive
immunotherapy of cancer directed toward EGF and EGFR as targets, including hR3,
a humanized MAb targeting the EGFR. CIMAB is the company responsible for the
commercialization of products developed at CIM. The 1995 CIMYM License is in
respect of Europe, Canada, the US, Japan, Australia, Taiwan, Singapore,
Thailand, Hong Kong, South Korea, Malaysia, Indonesia and the Philippines. As a
term of the 1995 CIMYM License, YM has a right of first refusal with respect to
licensing any other products derived from the EGF and EGFR programs of CIMAB
except its anti-EGFR monoclonal antibody for psoriasis in Europe.
  Pursuant
to the 1995 CIMYM License, in 1995 we incorporated CIMYM and assigned the 1995
CIMYM License to CIMYM. Pursuant to the terms of the 1995 CIMYM License, CIMAB
acquired a 20% equity interest in CIMYM as partial consideration for the 1995
CIMYM License. In addition to that 20% equity interest in CIMYM, CIMAB is
entitled to receive 10% of net revenues received by CIMYM and CIMYM is entitled
to receive from CIMAB 15%. In addition, YM and CIMYM, pursuant to the terms of
the 1995 CIMYM License, paid US$2,750,000 for certain product development costs
for nimotuzumab and US$330,000 for certain product development costs for
RadioTheraCIM.
  - 32
-
  The terms
of the 1995 CIMYM License provide for CIMYM to conduct or cause to be conducted
pre-clinical and clinical trials to evaluate the licensed products and to work
with CIMAB to select sites, develop protocols and instruct investigators for
pre-clinical and clinical trials. CIMYM is to decide after the end of each stage
of trials whether to proceed with further development or to terminate the 1995
CIMYM License with respect to that product. In addition, the 1995 CIMYM License
provides that, where commercially reasonable, CIMYM shall file applications for
regulatory approval to market the licensed products in the applicable territory.
Pursuant to the 1995 CIMYM License, CIMAB has the right, subject to certain
terms and conditions, to supply the related drug substances (i.e., nimotuzumab)
for commercial sale. CIMAB shall sell the product manufactured by it in Cuba to
CIMYM at 85% of the sales price that CIMYM sets for the sale of the product to
sub-licensees, thereby entitling CIMYM to the 15% difference. CIMYM shall use
its best efforts to obtain a sub-license agreement in which CIMAB retains the
right to manufacture the product. YM will be responsible for any failure of
CIMYM to fulfill its obligations under the 1995 CIMYM License. This license
agreement shall be in force as long as any patents thereunder are valid, or
until such time as the license agreement is terminated by either party because
of a default by the other party, or by CIMYM with written notice within 90 days
after the end of a stage of pre-clinical trials or after each stage of clinical
trials.
  As at
June 30, 2009 we had advanced $50 million to CIMYM and for the licensing and
development of the products licensed by CIMYM. We have the right to recover all
funds advanced to CIMYM. To the extent that the net revenues of CIMYM are less
than or equal to the advanced amounts, we are entitled to recover such advances
from 30% of the net revenues. These advances have been repaid from license fees
paid by the licensees in Japan, Indonesia and Korea.
  On June
30, 2006 CIMYM amalgamated with CIMYM (Barbados) to form CIMYM BioSciences Inc.,
an Ontario company. CIMAB owns equity a 20% interest in CIMYM BioSciences and is
entitled to receive 10% of net revenues received by CIMYM.  We have
agreed to negotiate in good faith a further 10% equity interest in CIMYM
BioSciences to CIMAB such that we would then own a 70% equity interest and CIMAB
would own a 30% equity interest in CIMYM BioSciences.
  Licenses for
AeroLEF
  The
technology related to AeroLEF formulation and delivery is owned not
licensed.
  License for
Tesmilifene
  In
November 2000, YM was granted an exclusive worldwide license by the University
of Manitoba and The Manitoba Cancer Treatment and Research Foundation (now
CancerCare Manitoba) (the “Original Licensor”) for all products and formulations
of tesmilifene pursuant to which the Company undertook the responsibility for
the clinical development of the product and its commercialization.
  We must
pay to the Original Licensor a specified minority percentage of revenues
received from sub-licensing the product, after our recovery of certain specified
development and attributed overhead costs. If we manufacture and sell
tesmilifene itself rather than through sub-licensing, we must pay a specified
lesser minority percentage of net sales, after our recovery of certain specified
development and attributed overhead costs, to the Original Licensor. We believe
these royalties are consistent with general industry practice for similar
arrangements. No royalties have been paid to date, and future royalties cannot
be quantified because they are dependent on net sales, net royalties and net
revenues which have not yet materialized. There can be no assurance as to if or
when we may sell the licensed product nor enter into sub-licensing arrangements
for the product.  We may sub-license the product. This license
agreement shall be in force as long as any patents thereunder are valid, or
until such time as the license agreement is terminated by either party because
of a default by the other party, by either party if the other party enters into
liquidation or reorganization proceedings or receivership or bankruptcy, or by
YM on 90 days written notice if there are no sub-licensees. In 2003, we acquired
certain additional patent rights related to a method of selecting patients
demonstrating an enhanced survival benefit. Vincent Research and Consulting
transferred assignment of the patent applications in exchange for a small share
of YM’s future royalty revenues. We do not consider the agreement with Vincent
Research and Consulting to be material to us as of the date
hereof.
  - 33
-
  Nimotuzumab
  On
November 12, 2003, our subsidiary, CIMYM (now CIMYM BioSciences), licensed the
rights for nimotuzumab (known as “Theraloc” in Europe) in most of Europe to
Oncoscience of Germany.  Under the terms of the agreement, CIMYM
BioSciences is entitled to receive up to US$30 million as a share of any amounts
received by Oncoscience in relation to development or sublicensing of the
product and as a royalty on initial net sales. After CIMYM BioSciences has
received US$30 million, CIMYM BioSciences continues to receives royalties on net
sales but at a lesser percentage. Oncoscience has agreed to use diligent and
reasonable efforts to develop and commercially exploit nimotuzumab in the
licensed territory. A non-material amount of royalties have been received as of
the date hereof by CIMYM BioSciences from Oncoscience, from the Special Access
Program but no sublicensing fees have been received by Oncoscience. This license
agreement may be terminated by either party in the event of specified breaches
and insolvency events, if a Phase II trial of nimotuzumab has not commenced in
Europe within two years of licensing, or if certain regulatory approvals for
marketing nimotuzumab in Europe have not been obtained within five years. In
addition, Oncoscience may terminate the agreement at any time on 90 days
notice.
  On August
23, 2005 CIMYM BioSciences and CIMAB licensed development and marketing rights
to Kuhnil Pharmaceutical Co., Ltd. for Korea. There was an initial fee to CIMYM
BioSciences on signing and it is entitled to receive additional milestone
payments and royalties.
  On
October 31, 2005 CIMYM BioSciences and CIMAB licensed development and marketing
rights to Innogene Kalbiotech Private Limited (a wholly owned subsidiary of P.T.
Kalbe Farma Tbk, Indonesia) for Indonesia, Malaysia, the Philippines and
Singapore and certain African countries including South Africa. The initial fee
to CIMYM BioSciences on signing was U$1,000,000 and it is entitled to receive
additional milestone payments and royalties.
  In July
2006, CIMYM BioSciences licensed development and marketing rights for
nimotuzumab in Japan to Daiichi Pharmaceutical Co., Ltd., a wholly owned
subsidiary of Daiichi Sankyo Co., Ltd., one of Japan’s largest pharmaceutical
companies. Under the agreement, CIMYM BioSciences received an up-front payment
of US$14.5 million and significant milestone payments at certain states of
development for each of a number of indications as well as payments based on
supply of nimotuzumab and sales performance in the territory. Daiichi is
developing nimotuzumab for the Japanese market in several cancer
indications.
  Out-Licensing
  We
generally plan to out-license our licensed drugs to pharmaceutical companies for
manufacturing and marketing under license, although we may retain co-development
or marketing rights if management considers it appropriate to do so. Under our
business model, licensees would be expected, to the extent necessary, to
participate in the remaining clinical development required to obtain final
regulatory approval for the product. We expect that out-licensing would result
in a pharmaceutical company or other licensee marketing or manufacturing the
product in return for licensing fees and royalties on the sale of the product.
We believe this model is consistent with current biotechnology and
pharmaceutical industry licensing practices.
  Our
objectives in seeking to out-license products include:
  ·
              obtaining
      long term revenue streams from royalty payments on the sale of the
      products;
  ·
              providing
      access to the resources and experience of large pharmaceutical
      companies;
  ·
              obtaining
      up-front payments for product sub-licensing rights;
  and
  ·
              minimizing
      our development expenditures through cost sharing programs (especially
      late-stage clinical trials and regulatory approval
      applications).
  We
believe that out-licensing arrangements could be attractive to pharmaceutical
corporations because they would provide the prospective partner with access to
new products without the initial research risk or earlier clinical development
costs. Since partners are expected to be sought only at the later stages of a
product’s development, we anticipate that prospective licensees would view our
products as having a reduced risk of failure to achieve regulatory
approval.
  We do not
intend to develop our own manufacturing, marketing or distribution programs
although we may wish to participate in ownership of manufacturing facilities if
appropriate opportunities become available. We intend to remain principally
focused on the identification, further development and commercialization of
in-licensed products.
  - 34
-
  Regulatory
Approval
  Securing
final regulatory approval for the manufacture and sale of human therapeutic
products in Canada and our other territories, including the US, is a long and
costly process that is controlled by that particular territory’s national
regulatory agency. The national regulatory agency in Canada is Health Canada,
and in the US it is the FDA. Other national regulatory agencies have similar
regulatory approval processes, but each national regulatory agency has its own
approval processes. Approval in either Canada or the US does not assure approval
by other national regulatory agencies, although often test results from one
country may be used in applications for regulatory approval in another
country.
  Prior to
obtaining final regulatory approval to market a drug product, every national
regulatory agency has a variety of statutes and regulations which govern the
principal development activities. These laws require controlled research and
testing of products, government review and approval of a submission containing
pre-clinical and clinical data establishing the safety and efficacy of the
product for each use sought, approval of manufacturing facilities including
adherence to GMP during production and storage, and control of marketing
activities, including advertising and labelling.
  None of
our products has been completely developed or tested and, therefore, we are not
yet in a position to seek final regulatory approval to market any of our
in-licensed products. To date we have obtained various regulatory approvals to
develop and test our in-licensed products. Nimotuzumab has been designated an
orphan drug in Europe and by the FDA in the US. See “Products in Clinical
Development”.
  Canadian
Approval Process
  The
manufacture, distribution and consumption of medical` products, drugs and
equipment is regulated by a variety of industry-specific statutes and
regulations in Canada and the countries to which YM has rights for the licensed
products. Drugs sold in Canada are regulated by the Food and Drugs Act (Canada)
and the regulations made under that Act.
  Even
though a drug, medical product or device may be approved for use in another
jurisdiction, it may not be sold in Canada until approved by Health Canada.
Outside Canada, the regulatory approval process for the manufacture and sale of
pharmaceuticals varies from country to country and the time required may be
longer or shorter than that required by Health Canada.
  The
Canadian Food and Drug Regulations require licensing of manufacturing
facilities, carefully controlled research and testing of products, governmental
review and approval of test results prior to marketing of therapeutic products,
and adherence to GMP, as defined by each licensing jurisdiction, during
production.
  The
principal activities which must be completed prior to obtaining approval for
marketing of a therapeutic drug product are essentially the same in Canada as in
most major markets of the world and are as follows:
  Pre-clinical
Animal Studies.
Pre-clinical studies are conducted in animals to test pharmacology and
toxicology and to do formulation work based on in vivo results.
  Phase I Clinical
Trials. Phase I clinical trials consist of testing a product in a small
number of humans for its safety (toxicity), dose tolerance and pharmacokinetic
properties.
  Phase II Clinical
Trials. Phase II clinical trials usually involve a larger patient
population than is required for Phase I trials and are conducted to evaluate the
efficacy of a product in patients having the disease or medical condition for
which the product is indicated. These trials also serve to further identify side
effects and risks in a larger group of patients.
  - 35
-
  Phase III
Clinical Trials. Phase III clinical trials involve “conducting tests in
an expanded patient population at geographically dispersed test sites
(multi-center trials) in a controlled and/or uncontrolled environment to gather
information about clinical safety and efficacy.” These trials also generate
information from which the overall benefit-risk relationship of the drug can be
determined and provide a basis for drug labeling.
  Two key
factors influencing the progression of clinical trials are the rate at which
patients can be recruited into clinical trials and whether effective treatments
are currently available for the disease the drug is intended to treat. Patient
recruitment is largely dependent upon the incidence and severity of the disease
and the alternative treatments available, as well as alternate research
studies.
  A
Clinical Trial Application must be filed and accepted by either the Therapeutic
Products Directorate (“TPD”) or the Biologics and Genetic Therapies Directorate
(“BGTD”) of Health Canada before each phase of human clinical trials may begin.
The CTA application must contain specified information including the results of
the pre-clinical or clinical tests completed at the time of the CTA application.
In addition, since the method of manufacture may affect the efficacy and safety
of a drug, information on chemistry and manufacturing methods must be presented.
Health Canada conducts inspections to determine compliance with GMP. Good
manufacturing practices and quality control procedures must be in
place.
  Upon
completion of all clinical studies, the results are submitted to the TPD or BGTD
as part of a New Drug Submission (“NDS”). A notice of compliance (“NOC”) which
permits marketing of the product typically takes between 12 and 24 months from
the date a NDS is submitted.
  Even
after marketing approval has been obtained, further studies may be required to
provide additional data on safety and efficacy in order to gain approval for the
use of a drug as a treatment for clinical indications other than those for which
the product was initially tested. Also, Health Canada conducts post-market
surveillance programs to monitor a product’s side effects. Results of
post-marketing programs may limit or expand the further marketing of products. A
serious safety or efficacy problem involving an approved drug or medical device
may result in Health Canada action requiring withdrawal of the product from the
market.
  US
Approval Process
  In the
US, the FDA, a federal government agency, is responsible for the drug approval
process. The FDA’s mission is to ensure that all medications on the market are
safe and are effective. The FDA’s approval process examines potential drugs;
only those that meet strict requirements are approved.
  The US
food and drug regulations require licensing of manufacturing facilities,
carefully controlled research and testing of products, governmental review and
approval of test results prior to marketing of therapeutic products, and
adherence to GMP, as defined by each licensing jurisdiction, during
production.
  The drug
approval process begins with the discovery of a potential drug. Pharmaceutical
companies then test the drug extensively. A description of the different stages
in the drug approval process in the US follows.
  Stage 1:
Preclinical ResearchAfter an experimental drug is discovered, research
is conducted to help determine its potential for treating or curing an illness.
This is called preclinical research. Animal studies are conducted to determine
if there are any harmful effects of the drug and to help understand how the drug
works. Information from these experiments is submitted to the FDA in an
Investigational New Drug Application. The FDA reviews information in an IND
Application and decides if the drug is safe to study in humans.
  Stage 2: Clinical
ResearchIn Stage 2, the experimental drug is studied in humans. The
studies are known as clinical trials. Clinical trials are carefully designed and
controlled experiments in which the experimental drug is administered to
patients to test its safety and to determine the effectiveness of an
experimental drug. The four general phases of clinical research are described
below.
  - 36
-
  Phase I Clinical Studies.
Phase I clinical studies are generally conducted with healthy volunteers who are
not taking other medicines; patients with the illness that the drug will treat
are not tested at this stage. Ultimately, Phase I studies demonstrate how an
experimental drug affects the body of a healthy individual. Phase I consists of
a series of small studies consisting of “tens” of volunteers. Tests are done on
each volunteer throughout the study to see how the person’s body processes,
responds to, and is affected by the drug. Low doses and high doses of the drug
are usually studied, resulting in the determination of the safe dosage range in
volunteers by the end of Phase I. This information will determine whether the
drug proceeds to Phase II.
  Phase II Clinical
Studies.Phase
II clinical studies are conducted in order to determine how an experimental drug
affects people who have the disease to be treated. Phase II usually consists of
a limited number of studies that help determine the drug’s short-term safety,
side effects, and general effectiveness. The studies in Phase II are often
controlled investigations, involving comparison between the experimental drug
and a placebo, or between the experimental drug and an existing drug.
Information gathered in Phase II studies will determine whether the drug
proceeds to Phase III.
  Phase III Clinical Studies.
Phase III clinical studies are “expanded controlled and uncontrolled trials that
are used to more fully investigate the safety and effectiveness of the
drug”(CFR). These trials differ from Phase II trials because a larger number of
patients are studied (sometimes in the thousands) and because the studies are
usually of longer duration. As well, Phase III studies can include patients who
have more than one illness and are taking medications in addition to the
experimental drug used in the study. Therefore, the patients in Phase III
studies more closely reflect the general population. The information from Phase
III forms the basis for most of the drug’s initial labeling, which will guide
physicians on how to use the drug.
  Phase IV Clinical Studies.
Phase IV clinical studies are conducted after a drug is approved. Companies
often conduct Phase IV studies to more fully understand how their drug compares
to other drugs. Also, the FDA may require additional studies after the drug is
approved. FDA-required Phase IV studies often investigate the drug in specific
types of patients that may not have been included in the Phase III studies.
FDA-required Phase IV studies can also involve very large numbers of patients to
further assess the drug’s safety.
  Stage 3: FDA
Review for ApprovalFollowing Phase III, the pharmaceutical company
prepares reports of all studies conducted on the drug and a complete dossier on
the manufacturing of the product and submits the reports to the FDA in a New
Drug Application (“NDA”). The FDA reviews the information in the NDA to
determine if the drug is safe and effective for its intended use. Occasionally,
the FDA will ask experts for their opinion of the drug; this occurs at advisory
committee meetings. If the FDA determines that the drug is safe and effective,
the drug will be approved.
  Stage 4:
MarketingAfter the FDA has approved the experimental drug, the
pharmaceutical company can make it available to physicians and their patients. A
company may also continue to conduct research to discover new uses for the drug.
Each time a new use for a drug is discovered, the drug is once again subject to
the entire FDA approval process before it an be marketed for that
purpose.
  Arrangements
With Subsidiaries
  YM and
CIMAB entered into a funding agreement with CIMYM in November 1995 in connection
with the 1995 CIMYM License. The Funding Agreement provides that YM will arrange
for the appropriate studies and clinical trials for the licensed products held
by CIMYM and will fund the cost of such studies and trials, provided that doing
so would not be commercially or scientifically unreasonable. Accordingly, YM
makes the final determination as to whether or not a clinical trial expense is
justified with respect to any given product. YM is entitled to be reimbursed for
all funds we provide pursuant to the Funding Agreement out of revenue generated
from the exploitation of the relevant license, subject to the successful
development of the licensed products and adequate generation of
revenue.
  - 37
-
  YM and
CIMAB, contemporaneously with the assignment of the 1995 CIMYM License, entered
into a joint-venture shareholders agreement (the “Shareholders Agreement”) with
CIMYM relating to its operation. Pursuant to the Shareholders Agreement, CIMYM
is required to include nominees of CIMAB both as board members and as members of
operating management. The Shareholder Agreement provides that: (i) issued and
outstanding shares of CIMYM may not be sold or transferred without the consent
of both YM and CIMAB; (ii) the issue of additional shares of CIMYM shall first
be offered to each of YM and CIMAB in proportion to their holdings, and
thereafter, with the consent of both YM and CIMAB, to any other person; and
(iii) the boards of directors of CIMYM will consist of five directors, three of
whom are nominees of YM and two of whom are nominees of CIMAB. All material and
out-of-the-ordinary-course-of-business contracts of CIMYM, including those
relating to the borrowing of money, issuing guarantees, entering into non
arm’s-length agreements, paying dividends and pledging of property, must be
approved by four-fifths of the Board of Directors.
  CIMYM
(Barbados) was incorporated in Barbados in May 1996 to market the licensed
products under the 1995 CIMYM License outside of Canada. On June 30, 2006, CIMYM
(Barbados) was amalgamated with CIMYM to form CIMYM BioSciences
Inc.
  C
              Organizational
      Structure
  We
currently have two material subsidiaries, shown in the following
diagram:
  
 *subject
to current negotiations, ownership may become 70% mitigated by additional
revenues to YM from a manufacturing royalty
  On June
30, 2006 CIMYM Inc., an Ontario corporation, was amalgamated under the laws of
Ontario, Canada with CIMYM Inc., a Barbados corporation, to form CIMYM
BioSciences Inc (CIMYM). CIMYM is 80% owned by the Company and 20% owned by
CIMAB.
  YM
BioSciences USA Inc. (YM USA) was incorporated on November 23, 2005 under the
laws of Delaware. YM US Operations Inc. was incorporated on April 10, 2006 under
the laws of Delaware. On May 9, 2006 YM US Operations Inc. was merged with
Eximias Pharmaceutical Corporation.  On March 6, 2008 YM US Operations
Inc. was merged into YM USA.  YM USA is 100% owned by the
Company.
  D
              Property,
      Plant and Equipment
  Facilities
  We
currently occupy 7,070 square feet of space in Mississauga, Ontario pursuant to
a sub-lease agreement dated July 31, 1997 (the “Sub-Lease”) and a lease amending
and extension agreement dated February 1, 2008 (the “Lease Amending Agreement”),
such Lease Amending Agreement extended the initial terms of the Sub-Lease for a
term of five years commencing on February 1, 2008 and expiring on January 31,
2013. Average annual fixed rent, excluding operating costs is approximately
$75,000.
  YM USA
currently occupies 9,000 square feet of space in Wayne, Pennsylvania pursuant to
a lease agreement dated July 27, 2006 that expires on February 15, 2012. Average
annual fixed rent, excluding operating costs is approximately US
$218,000.
  There
are no environmental issues associated with any of our facilities and we
currently have no plans to construct, expand or improve our
facilities.
  - 38
-
  Item
      4A:
              Unresolved
      Staff Comments
  Not
applicable.
  Item
      5:
              Operating
      and Financial Review and Prospects
  MANAGEMENT’S
DISCUSSION AND ANALYSIS
  The
following MD&A should be read in conjunction with the audited financial
statements for the years ended June 30, 2009, 2008, 2007, and the notes
thereto.
  This
MD&A contains forward-looking statements that reflect our current views with
respect to future events and financial performance and that involve risks and
uncertainties.  Our actual results, performance or achievements could
differ materially from those anticipated in the forward-looking statements as a
result of certain factors, including risks discussed under the
heading  “Forward-Looking Statements” and elsewhere in this annual
report on Form 20-F for the year ended June 30, 2009.
  The
consolidated financial statements have been prepared by management in accordance
with accounting principles generally accepted in Canada (Canadian GAAP). These
accounting principles differ in certain respects from United States GAAP. The
differences, as they affect our consolidated financial statements, are set out
in Note 15 to the audited consolidated financial statements for the fiscal year
ended June 30, 2009.
  OVERVIEW
OF BUSINESS
  YM
BioSciences Inc. is engaged in the licensing and commercialization of drug
products and technologies from original research. We evaluate drug projects,
technologies, and products and the prospective markets for them and obtain, as
appropriate, a license for the further development and marketing of the
products.
  We expend
money on the evaluation, in-licensing and further development of certain drug
products and on providing out-licensing, marketing, clinical development and
regulatory affairs skills, intellectual property management and funding to
facilitate the introduction of the licensed products into the principal
pharmaceutical markets. This involves taking the products researched and
developed by others and taking them through the clinical and regulatory
processes in Canada and elsewhere in order to achieve regulatory approval for
their sale in the markets to which we have rights.
  We will
incur expenditures either directly or pursuant to agreements with certain
licensees or partners. These expenditures will include: costs associated with
the conduct of clinical trials; the collection and collation of data; the
organizing of data and market information for each product; the development and
production of non-confidential and confidential dossiers on each licensed
product and the marketing of the information contained in the dossiers to
prospective commercialization partners. We plan to generate revenues from
out-licensing the licensed products or from the direct commercialization of the
products.
  We do not
have our own manufacturing facilities but may participate in ownership of
manufacturing facilities and the marketing of the products if appropriate
opportunities are available.
  - 39
-
  SELECTED
ANNUAL FINANCIAL INFORMATION
  Year ended June 30,2009
                  
                  
                  2008
                  
                  
                  2007Out-licensing
      revenue
                  
                  
                  4,543,280
                  
                  
                  
                  4,859,085
                  
                  
                  
                  4,407,890Interest
      income
                  
                  
                  1,070,264
                  
                  
                  
                  2,584,080
                  
                  
                  
                  3,239,540Expenses:Licensing
      and product development
                  
                  
                  14,172,845
                  
                  
                  
                  15,631,550
                  
                  
                  
                  28,758,469General
      and administrative
                  
                  
                  4,839,870
                  
                  
                  
                  6,831,955
                  
                  
                  
                  6,978,336Impairment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,829,538Loss
      for the year
                  
                  
                  (13,069,466
                  )
                  
                  
                  (14,885,744
                  )
                  
                  
                  (31,730,240
                  )Deficit,
      beginning of year
                  
                  
                  (133,182,485
                  )
                  
                  
                  (118,296,741
                  )
                  
                  
                  (86,566,501
                  )Deficit,
      end of year
                  
                  
                  (146,251,951
                  )
                  
                  
                  (133,182,485
                  )
                  
                  
                  (118,296,741
                  )Basic
      and diluted loss per common share
                  
                  
                  (0.23
                  )
                  
                  
                  (0.27
                  )
                  
                  
                  (0.57
                  )Total
      Assets
                  
                  
                  46,069,936
                  
                  
                  
                  63,073,239
                  
                  
                  
                  81,739,800
 
 RESULTS
OF OPERATIONS
  Year
ended June 30, 2009 compared to year ended June 30, 2008
  Out-licensing
Revenue
  Revenue
from out-licensing decreased by $316 thousand for the year ended June 30, 2009
compared to the year ended June 30, 2008.  The decrease  is
mainly attributable to the 12 month extension of the revenue recognition period
for the initial payment from Daiichi Pharmaceutical Co., Ltd (“Daiichi”), as a
result of a revision to the estimated period of the
collaboration.  The majority of YM’s out-licensing revenue comes from
five out-licensing agreements with third party licensees. The licensing
agreements include a non-refundable up-front payment from the licensees. The
initial license fees have been recorded as deferred revenue and are being
recognized over the estimated period of collaboration until the milestone
associated with commercial approval of the first indication in the licensee’s
territory has been satisfied and the relevant payment received. The largest of
these contracts was entered into in July 2006 with Daiichi, a subsidiary of
Daiichi Sankyo Co., Ltd. The agreement licensed the commercial rights for
nimotuzumab for the Japanese market and included a non-refundable up-front
payment from Daiichi to the Company of $16.227 million. This initial license fee
has been recorded as deferred revenue and is being recognized over the revised
estimated period of collaboration of five years. The Company also began
receiving royalty payments from a limited sales program in Europe in the fourth
quarter of fiscal 2008.
  Interest
Income
  Interest
income decreased by $1.514 million in the year ended June 30, 2009 compared to
the year ended June 30, 2008. Interest income decreased as the Company drew on
its cash and short term investment balances to fund its operations, and due to
the dramatic decline in interest rates.
  Licensing
and Product Development Expenses
  Licensing
and product development expenses for the year ended June 30, 2009 decreased by
$1.459 million compared to the year ended June 30, 2008.  In addition
to the changes described below, core expenses for licensing and product
development decreased by $1.205 million for the year ended June 30, 2009. This
was mainly caused by decreases in salaries and travel expenses as a result of a
reduction of staff in the U.S. office.
  - 40
-
  Nimotuzumab
  Costs
associated with development activities for nimotuzumab increased by $889
thousand to $6.048 million for the year ended June 30, 2009, compared to the
year ended June 30, 2008. The increase was due mainly to two new clinical
trials, one for brain metastases from non-small cell lung cancer (NSCLC) and the
other for NSCLC patients ineligible for radical chemotherapy, which were
initiated during fiscal 2009.  These expenses were partially offset by
the decrease in expenditures for the phase II pediatric pontine glioma trial and
monkey toxology studies.
  AeroLEFTM
  Costs
associated with development activities for AeroLEFTM decreased by $260 thousand
to $1.741 million for the year ended June 30, 2009 as compared to the year ended
June 30, 2008.  The decrease was primarily due to the shift from
clinical activity in fiscal 2008, to new marketing, and out-licensing
initiatives, as well as clarifying our regulatory position in Europe, in fiscal
2009.
  Tesmilifene
  Costs
related to development activities for tesmilifene, have decreased by $883
thousand to $432 thousand for the year ended June 30, 2009 compared to the year
ended June 30, 2008.  The decrease in spending for the current fiscal
year resulted mainly from the curtailment of development subsequent to the
termination of the DEC study in January 2007 and from lower intellectual
property costs.   Fiscal 2008 costs were associated with closing
out the DEC study and completing the PK studies.  Fiscal 2009 costs
were related to the closing of the PK studies.
  General
and Administrative Expenses
  General
and administrative expenses have decreased by $1.992 million to $4.840 million
for the year ended June 30, 2009, compared to the year ended June 30,
2008.  This was due mainly to lower stock based-compensation expense
of $761 thousand in fiscal 2009 compared to $2.064 million in fiscal 2008, and
lower audit fees by $140 thousand since we do not require a SOX audit this
fiscal year end.  In addition, expenditures for consulting, legal
fees, salaries, and investor relations were also lower for the year ended June
30, 2009.
  Year
ended June 30, 2008 compared to year ended June 30, 2007
  Out-licensing
Revenue
  Revenue
from out-licensing increased by $451 thousand for the year ended June 30, 2008
compared to the year ended June 30, 2007. The increase in revenue was due to the
out-licensing agreement entered into at the end of July 2006 with
Daiichi.  The agreement licensed the commercial rights for nimotuzumab
for the Japanese market and included a non-refundable up-front payment from
Daiichi to the Company of $16.227 million. This initial license fee was recorded
as deferred revenue and was being recognized over the estimated period of
collaboration of four years. The Company also recognized royalty revenues based
on a limited sales program in Europe.
  Interest
Income
  Interest
income decreased by $655 thousand in the year ended June 30, 2008 compared to
the year ended June 30, 2007. Interest income decreased as the Company drew on
its cash and short term investment balances to fund its operations.
  Licensing
and Product Development Expenses
  Licensing
and product development expenses for the year ended June 30, 2008 decreased by
$13.127 million compared to the year ended June 30, 2007.  In addition
to the specific licensing and product development costs addressed below, there
was a significant decrease in licensing and product development salary expenses.
Salary expenses including termination costs were $2.039 million less in fiscal
2008 compared to fiscal 2007 as the Company reduced development staff following
the termination of the DEC study.
  - 41
-
  Nimotuzumab
  Costs
associated with development activities for nimotuzumab decreased by $784
thousand to $5.159 million for the fiscal year ended June 30, 2008 compared to
$5.943 million for the year ended June 30, 2007.
  The major
costs in fiscal 2007 were associated with the clinical trial in Head & Neck
cancer which was completed in fiscal 2007.  Expenses in fiscal 2008
were primarily associated with the monkey toxicity study, the Phase II clinical
trial in colorectal cancer, and the Phase II clinical trial in pediatric diffuse
incurable pontine glioma.  All of these activities began in fiscal
2008 and continued into fiscal 2009.
  AeroLEFTM
  Costs
associated with development activities for AeroLEFTM decreased by $909 thousand
to $2.001 million for the fiscal year ended June 30, 2008 compared to $2.910
million for the year ended June 30, 2007.  Last year’s costs were
associated with the Phase IIb study in acute pain.  In fiscal 2008,
the costs included transferring the manufacturing to a contact manufacturer in
the U.S. and preparing the submissions to the U.S. F.D.A.
  Tesmilifene
  Costs
related to development activities for tesmilifene for the year ended June 30,
2008 decreased by $6.193 million to $1.315 million compared to $7.508 million
for the prior year.  In the fiscal year ended June 30, 2007 the
Company was completing a Phase III clinical trial (DEC) and gearing up for a FDA
submission.  With the termination of this study, development of
tesmilifene halted at the end of January 2007 except for completing a
pharmacokinetic study and, as a result, the development costs for fiscal 2008
are significantly lower compared to the same period last year.  Costs
in fiscal 2008 consisted mainly of winding down the DEC study, completing the PK
studies, and maintaining the patent portfolio.
  General
and Administrative Expenses
  General
and administrative expenses decreased by $146 thousand to $6.832 million for the
year ended June 30, 2008 compared to the prior year. Stock option expense
increased by $347 thousand from $1.717 million for the year ended June 30, 2007
to $2.064 million for the year ended June 30, 2008. This increase was offset by
reductions in other expenses such as consulting and legal costs.
  Fourth
Quarter – Three Months Ended June 30, 2009 Compared to Three Months Ended June
30, 2008
  Out-licensing
Revenue
  Out-licensing
revenue for the quarter ended June 30, 2009 of $720 thousand decreased by $700
thousand compared to $1.420 million in the same quarter in the prior year. This
is mainly because the recognition period for the initial payments for the
Daiichi and Kuhnil contracts were extended by 12 months effective January 1,
2009 and the recognition period for the IGK contract ended in December 2008,
reducing the amount recognized in the quarters following.
  Interest
Income
  Interest
income has decreased by $483 thousand to $61 thousand for the three months ended
June 30, 2009 compared to $544 thousand in the same period in the prior year.
Interest income decreased as the Company drew on its cash and short term
investment balances to fund its operations, and due to the dramatic decline in
interest rates.
  Licensing
and Product Development Expenses
  Licensing
and product development expenses decreased by $932 thousand to $2.647 million
for the fourth quarter ended June 30, 2009 compared to the same period last
year. In addition to the changes described below, there were also decreases in
salaries and travel expenses as a result of a reduction of staff in the U.S.
office.
  - 42
-
  Nimotuzumab
  Costs
associated with development activities for nimotuzumab were $1.314 million for
the three months ended June 30, 2009, compared to $1.534 million for the three
months ended June 30, 2008.  The 2008 costs were primarily related to
the completion of the monkey toxicity study, the Phase II clinical trial in
colorectal cancer, and the Phase II clinical trial in pediatric diffuse
incurable pontine glioma. The 2009 costs were due mainly to two new clinical
trials, one for brain metastases from non-small cell lung cancer (NSCLC) and the
other for NSCLC patients ineligible for radical chemotherapy, which were
initiated during this fiscal year.
  AeroLEFTM
  AeroLEFTM
expenses have decreased by $174 thousand to $185 thousand for the three months
ended June 30, 2009 compared to the same period in the prior year. The decrease
was primarily due to the shift from clinical activity in fiscal 2008, to new
marketing and out-licensing in fiscal 2009.
  Tesmilifene
  Costs
related to tesmilifene totaled $13 thousand for the three months ended June 30,
2009, a decrease of $191 thousand compared to $204 thousand in the same quarter
of the previous year.  The decrease in spending for the current
quarter resulted mainly from the curtailment of development subsequent to the
termination of the DEC study in January 2007 and from lower intellectual
property costs.   Q4 2008 costs were associated with closing out
the DEC study and continuing the PK studies, as well as IP
management.  Q4 2009 costs were related to the closing of the PK
studies.
  General
and Administrative Expenses
  General
and administrative expenses for the fourth quarter of fiscal 2009 were $1.309
million, which is comparable to $1.306 million for the same quarter in the prior
year.
  - 43
-
  SUMMARY
OF QUARTERLY RESULTS
  Revenue
                                                          and Interest
                                                          Income
                                                        
                                                        
                                                        Net Loss
                                                        
                                                        
                                                        Basic and
                                                          diluted loss
                                                          per common
                                                          ShareJune
      30, 2009
                                                        
                                                        $
                                                        780,925
                                                        
                                                        
                                                        $
                                                        (3,264,030
                                                        )
                                                        
                                                        $
                                                        (0.06
                                                        )March
      31, 2009
                                                        
                                                        $
                                                        977,762
                                                        
                                                        
                                                        $
                                                        (3,474,839
                                                        )
                                                        
                                                        $
                                                        (0.06
                                                        )December
      31, 2008
                                                        
                                                        $
                                                        2,197,291
                                                        
                                                        
                                                        $
                                                        (3,174,385
                                                        )
                                                        
                                                        $
                                                        (0.06
                                                        )September
      30, 2008
                                                        
                                                        $
                                                        1,657,566
                                                        
                                                        
                                                        $
                                                        (3,156,212
                                                        )
                                                        
                                                        $
                                                        (0.06
                                                        )June
      30, 2008
                                                        
                                                        $
                                                        1,964,901
                                                        
                                                        
                                                        $
                                                        (2,962,900
                                                        )
                                                        
                                                        $
                                                        (0.05
                                                        )March
      31, 2008
                                                        
                                                        $
                                                        1,777,864
                                                        
                                                        
                                                        $
                                                        (3,818,647
                                                        )
                                                        
                                                        $
                                                        (0.07
                                                        )December
      31, 2007
                                                        
                                                        $
                                                        1,883,075
                                                        
                                                        
                                                        $
                                                        (4,479,888
                                                        )
                                                        
                                                        $
                                                        (0.08
                                                        )September
      30, 2007
                                                        
                                                        $
                                                        1,817,325
                                                        
                                                        
                                                        $
                                                        (3,624,309
                                                        )
                                                        
                                                        $
                                                        (0.06
                                                        )
  In
general, revenue remained steady over the first five quarters ending September
30, 2008, but changed in the last three quarters.  Revenue consists of
interest earned and licensing revenue.  Licensing revenue results
primarily from recognition, over time, of non-refundable up-front payments from
out-licensing agreements plus milestone payments.  Revenue decreased
in the quarters ended March 31, 2009 and June 30, 2009 because the payment
received for one contract was fully recognized in the quarter ended December
2008 and because the recognition period for the initial payment for the Daiichi
contract was extended by 12 months effective January 1, 2009, reducing the
amount recognized in the quarters following.  In the quarter ended
December 31, 2008 we received a one-time milestone payment of
US$500,000.  The Company’s policy is to recognize non-refundable
up-front payments from out-licensing agreements over the estimated period of
collaboration until the milestone associated with commercial approval of the
first indication in the licensee’s territory has been satisfied and the relevant
payment received.  There have been no new out-licensing agreements
signed since fiscal 2007. The Company also received royalty revenue based on a
limited sales program in Europe for the first time in the fourth quarter of
fiscal 2008.  Interest income is decreasing as the Company draws on
its cash and short term investment balances to fund its operations and due to
interest rates dropping to historic low levels.
  It is
inherent in the development of drug products that planned expenditures vary
depending on results achieved.  Our current plan calls for an increase
in expenditures for nimotuzumab with our two new clinical trials in brain
metastases and palliative non-small cell lung cancer.
  LIQUIDITY
AND CAPITAL RESOURCES
  Since
inception, the Company has financed the evaluation, licensing, and further
development of its products principally through equity issuances. Since the
Company does not have net earnings from its operations, the Company’s long-term
liquidity depends on its ability to out-license its products or to access the
capital markets, both of which will depend substantially on results of product
development programs.  In prior years, the Company was considered a
development stage company.
  The
Company’s cash requirements will be affected by the progress of its clinical
trials, the development of its regulatory submissions, the achievement of
commercialization agreements, the costs associated with obtaining and protecting
the patents for licensed products, and the availability of funding for part of
the process from investors and prospective commercialization
partners.
  - 44
-
  The
audited consolidated financial statements have been prepared on a going concern
basis which assumes that the Company will continue in operation for the
foreseeable future and accordingly, will be able to realize on its assets and
discharge its liabilities in the normal course of operations.  The
Company’s ability to continue as a going concern has always been dependent on
obtaining capital and, ultimately, the achievement of profitable
operations.  There can be no assurance that the Company will be
successful in increasing revenue or raising additional capital to generate
sufficient cash flows to continue as a going concern.  The audited
consolidated financial statements do not reflect the adjustments that might be
necessary to the carrying amount of reported assets, liabilities and revenue and
expenses and the balance sheet classifications used if the Company were unable
to continue operations in accordance with this assumption.
  As at
June 30, 2009 the Company had cash and short-term deposits totalling $42.051
million and accounts payables and accrued liabilities totalling $913 thousand
compared to $58.101 million and $2.023 million respectively, at June 30,
2008.  The Company’s short-term deposits are bankers’ acceptances
issued by Canadian Schedule A banks, maturing in less than one year. These
financial instruments have been classified as held-for-trading and all gains and
losses are included in loss for the period in which they arise.
  Management
believes that the cash and short-term deposits at June 30, 2009 are sufficient
to support the Company’s activities for at least the next twelve
months.
  TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS
  Contractual Obligations
                    
                    Total
                    
                    
                    Less Than
                      1 Year
                    
                    
                    1-3 Years
                    
                    
                    3-5 Years
                    
                    
                    More Than
                      5 YearsOffice
      Lease – Wayne, Pennsylvania
                    
                    $
                    684,000
                    
                    
                    $
                    254,000
                    
                    
                    $
                    430,000
                    
                    
                    $
                    Nil
                    
                    
                    $
                    NilOffice
      Lease  – Mississauga, Ontario
                    
                    $
                    277,000
                    
                    
                    $
                    75,000
                    
                    
                    $
                    155,000
                    
                    
                    $
                    46,000
                    
                    
                    $
                    NilTotal
      Operating Leases
                    
                    $
                    961,000
                    
                    
                    $
                    329,000
                    
                    
                    $
                    585,000
                    
                    
                    $
                    46,000
                    
                    
                    $
                    Nil
 
 OFF-BALANCE
SHEET ARRANGEMENTS
  The
Company fully consolidates a joint venture (CIMYM BioSciences Inc.) in which it
is considered the primary beneficiary; and as such, the Company has recognized
100% of the cost of operations and cash flows of this entity.
  In
addition, the Company is party to certain licensing agreements that require the
Company to pay a proportion of any fees that the Company may receive from
sublicensees in the future.  As of June 30, 2009 no amounts were owing
and the amount of future fees thereon, if any, is not determinable.
  In
November 2007, the Company entered into a contract for services of a clinical
research organization (“CRO”), relating to a pediatric pontine glioma clinical
trial for nimotuzumab in the U.S. at a cost of approximately $1.568 million
(U.S. $1.348 million) of which approximately $1.005 million has been paid as at
June 30, 2009 and the remaining $563 thousand has not yet been incurred. The
Company may cancel the contract with 30 days’ notice and is obligated for
services rendered by the CRO through to the effective date of termination and
for any closeout services furnished by the CRO after the termination of the
agreement. As at June 30, 2009 the Company continues to open clinical sites and
is in the process of recruiting patients.
  In
February 2009, the Company entered into 2 contracts for CRO services relating to
clinical trials for nimotuzumab.  The first pertains to a randomized,
Phase II, double-blind trial in brain metastases from NSCLC at a cost of $1.161
million, of which approximately $240 thousand has been incurred as at June 30,
2009 and the remaining $920 thousand is yet to be incurred.  The
second contract pertains to a randomized, Phase II, double-blind trial in NSCLC
patients ineligible for radical chemotherapy and costs approximately $1.500
million, of which approximately $508 thousand has been incurred as at June 30,
2009 and the remaining $991 thousand is yet to be incurred.  The
Company may cancel either contract with a 30-day notice and is obligated for
services rendered by the CRO through the effective date of termination and for
any close-out services furnished by the CRO after the termination of the
agreement.
  - 45
-
  In
addition to these above contracts, the Company has entered into many additional
contracts for pre-clinical and other studies, none of which individually exceed
$1 million, totaling approximately $4.058 million of which $2.010 million has
been incurred as at June 30, 2009 and the remaining $2.048 million has not yet
been incurred. Any early termination penalties cannot exceed the amount of the
contract commitment.
  The
Company plans to expend funds to continue the development of
nimotuzumab.  There are also ongoing activities directed at
out-licensing commercial rights for nimotuzumab and AeroLEFTM as well
as in evaluating new products to in-license.
  The
Company has certain arrangements with its subsidiaries that have an effect or
may have a future effect on our financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources in
that there is no assurance that funds advanced to its subsidiaries will be
reimbursed. The arrangements are described in note 2 of the consolidated
financial statements. The registrant has recorded 100% of the results of
operations and cash flows of these entities.
  TREND
INFORMATION
  Historical
patterns of expenditures cannot be taken as an indication of future
expenditures. The amount and timing of expenditures and therefore liquidity and
capital resources vary substantially from period to period depending on the
pre-clinical and clinical studies being undertaken at any one time and the
availability of funding from investors and prospective commercial
partners.
  Other
than as discussed above, the Company is not aware of any material trends related
to the Company’s business of product development, patents and
licensing.
  OUTLOOK
  The
business of YM is the identification, licensing, and further development of
products it believes to have the prospect for utility in human health. The
Company is continually evaluating the economic and prospective viability of its
various products. YM’s majority-owned joint venture, CIMYM BioSciences Inc., is
the licensee for nimotuzumab for Western and Eastern Europe, North America, and
Japan as well as Australia, New Zealand, Israel and certain Asian and African
countries, and YM owns AeroLEF®, its other principal product
in development, outright.
  Randomized,
Phase II, double-blind trials in brain metastases from non-small cell lung
cancer (NSCLC) and in NSCLC patients ineligible for radical chemotherapy, have
been initiated in Canada; recruitment commenced in March 2009 on NSCLC and is
anticipated for the brain metastases trial in Q3 of calendar year 2009. A Phase
II, second-line, single-arm trial in children with progressive diffuse intrinsic
pontine glioma (DIPG) is ongoing at multiple sites in the US, Canada, and
Israel.
  Completion
of recruitment in a single-arm, Phase III trial of nimotuzumab as first-line
therapy for DIPG was reported by Oncoscience AG (OSAG), CIMYM’s licensee for
Europe, in August 2007, and preliminary data from this trial was released at
ASCO in 2008. OSAG reports that it continues to recruit in a Phase III trial in
adult glioma patients and a Phase II/III trial in pancreatic cancer
patients.
  Innogene
Kalbiotech PTE Ltd. (IGK), a CIMYM licensee, reports marketing approval in the
Philippines and Indonesia bringing to 18 the number of countries that are
reported as having approved the drug for sale in specific indications. In
January 2009, the National Cancer Centre of Singapore announced that it was
launching a worldwide Phase III, 710-patient trial of nimotuzumab in the
adjuvant setting in head and neck cancer in cooperation with IGK. This trial is
in addition to the on-going investigator-initiated Phase II trial in locally
advanced head and neck cancer and the initiation of a Phase II trial in cervical
cancer.
  - 46
-
  Daiichi
Sankyo Co., Ltd., CIMYM’s licensee for nimotuzumab in Japan, initiated a
randomized trial with nimotuzumab in gastric cancer, designed to complete
recruitment in 2009, and launched a Phase II trial in first-line
NSCLC.
  Nimotuzumab
is, at the time of this report, being tested in 32 clinical trials worldwide
having completed 20 trials to date. Eleven of these are Phase II and Phase IIIs
being conducted by YM and our licensees.
  After consulting with regulatory bodies
in Europe and Canada, YM continues discussing the readiness of AeroLEF®
for late-stage trials to
identify its best options for
aggressive development and partnering of this unique approach to the use of
opioids.
  While
expenditures will increase with additional clinical activity we believe we have
the resources to permit the completion of the program designed to support
marketing authorization for nimotuzumab as well as AeroLEF.
  Subsequent
to the end of the fiscal year, YM received a license from the US Department of
the Treasury’s Office of Foreign Assets Control (OFAC) to further develop its
lead product, nimotuzumab, for patients in the United States. YM’s first
priority is discussion with the FDA on its two IND submissions to include US
citizens in the randomized, double-blind Phase II trial of nimotuzumab in NSCLC
patients ineligible for radical chemotherapy and the parallel Phase II trial in
patients with brain metastases from NSCLC, both of which YM initiated in Canada
during the 2009 fiscal year. Development plans may also include extending one of
the Phase III trials being conducted worldwide into the US, such as the
multinational 710-patient Phase III trial of nimotuzumab in the adjuvant setting
in head and neck cancer.
  CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
  The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amount of revenue and expenses during
the reporting period. Significant accounting policies and methods used in
preparation of the financial statements are described in note 2 to the
Consolidated Annual Financial Statements. Significant estimates affect: revenue
recognition; intangible assets; research and development costs; the
consolidation of variable interest entities; stock-based compensation; and the
income tax valuation allowance.
  Revenue
recognition
  Revenue
from licensing agreements is recognized when persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the
amount is determinable and collectability is reasonably assured. Contingent
revenue attributable to the achievement of milestones is recognized only on the
achievement of the milestone. Non-refundable up-front fees for access to the
Company’s proprietary technology are deferred and recognized on a systematic
basis over the estimated remaining period of collaboration required until the
milestone associated with commercial approval of the first indication in the
licensee’s territory has been satisfied and the relevant payment
received.  Currently we have license agreements that specify that
certain royalties are earned by the Company on sales of licensed products in the
licensed territories.  Licensees report sales and royalty information
in the 90 days after the end of the quarter in which the activity takes place
and typically do not provide us with forward estimates or current-quarter
information. Because we are not able to reasonably estimate the amount of
royalties earned during the period in which these licensees actually ship
products, we do not recognize royalty revenue until the royalties are reported
to us and the collection of these royalties is reasonably assured.
  Intangible
assets
  The
Company’s identifiable intangible assets consist of patents and in-process
research and development technologies acquired on the acquisition of DELEX in
May 2005. The intangible assets are amortized on a straight-line basis over the
estimated time to market of seven years for technologies acquired. The estimated
useful lives of the intangible assets are considered each reporting period and
the carrying value is reviewed on the occurrence of a triggering event, to
determine if there has been impairment in their value.
  - 47
-
  Research
and development costs
  The
Company does not engage in basic scientific research but does incur significant
product development costs. Only development costs that meet strict criteria
related to technical, marketing and financial feasibility would be capitalized
under Canadian GAAP. To date, no costs have met such criteria and, accordingly,
all development costs have been expensed when incurred.
  Variable
interest entity
  The
Company has a majority interest in a joint venture that is funded entirely by
the Company. This joint venture is classified as a variable interest entity
since the Company maintains a controlling financial interest. The Company has
recorded 100% of the results of operations and cash flows of this entity since
its inception.
  Stock-based
compensation
  The
Company expenses all stock-based payments using the fair value method and uses
the Black-Scholes Option Pricing Model in estimating the fair
value.  Under the fair value method and the option pricing model used
to determine fair value, estimates are made as to the volatility of the
Company’s shares and the expected life of the options.  Such estimates
affect the fair value determined by the option pricing model.
  Income
tax valuation allowance
 
 The
Company and its joint venture have a net tax benefit resulting from non-capital
losses carried forward, pools of scientific research and experimental
development expenditures, investment tax credits, and withholding taxes paid. In
view of the history of net losses incurred, management is of the opinion that it
is not more likely than not that these tax assets will be realized in the
foreseeable future and hence, a full valuation allowance has been recorded
against these future tax assets. Accordingly, no future tax assets are recorded
on the balance sheet.
 
 NEW
ACCOUNTING POLICIES
 
 The
following new accounting pronouncements have been adopted during fiscal
2009:
  General
standards on financial statement presentation
  On July
1, 2008 the Company adopted the amendments of CICA Handbook Section 1400 which
includes requirements to assess and disclose an entity’s ability to continue as
a going concern. Management has assessed the Company’s ability to continue as a
going concern and believe that the cash and short-term deposits at June 30, 2009
are sufficient to support the Company’s activities for at least the next twelve
months.
  NEW
ACCOUNTING PRONOUNCEMENTS
  The
following new accounting pronouncements have been issued and are not yet
effective:
  Goodwill
and intangible assets
  In
February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets,
which replaces Section 3062, Goodwill and Other Intangible Assets, and Section
3450, Research and Development Costs.  This new section establishes
standards for the recognition, measurement and disclosure of goodwill and
intangible assets and is effective for annual and interim financial statements
relating to fiscal years beginning on or after October 1, 2008, specifically
July 1, 2009 for the Company.  The Company is currently assessing the
impact of this section on its intangible asset recognized on the acquisition of
Delex Therapeutics Inc. (“Delex”).
  Financial
instruments
  In June
2009, the CICA issued amendments to Handbook Section 3862, Financial Instruments –
Disclosures, enhancing disclosure requirements about liquidity risk and
fair value measurements of financial instruments, effective for fiscal years
ending after September 30, 2009.  The Company is currently assessing
the impact of this section on its consolidated financial
statements.
  - 48
-
  International
financial reporting standards
  The
Accounting Standards Board of Canada has announced that public companies in
Canada are required to adopt IFRS for fiscal years beginning on or after January
1, 2011.  The Company is required to prepare its first financial
statements that are compliant with IFRS for the interim period ending September
30, 2011. The Company’s plan will consider the impact that IFRS has on its
accounting policies and implementation decisions, financial statement
presentation and disclosure options available on initial changeover to IFRS,
information technology and data systems, and internal control over financial
reporting. The Company is currently in the process of assessing the differences
between its current accounting policies and IFRS and cannot at this time
quantify the effect the adoption of the standards will have on its consolidated
financial statements.
  Consolidated
financial statements and non-controlling interests
  In
January 2009, the CICA issued Section 1601, Consolidated Financial Statements
(“Section 1601”), and Section 1602, Non-controlling Interests (“Section 1602”),
which together replace Section 1600, Consolidated Financial
Statements.  Section 1601 establishes standards for the preparation of
consolidated financial statements.  Section 1602 establishes standards
for accounting for a non-controlling interest in a subsidiary in consolidated
financial statements subsequent to a business combination.  It is
equivalent to the corresponding provisions of IFRS standard, International
Accounting Standard 27 (Revised), Consolidated and Separate Financial
Statements.  The sections apply to interim and annual consolidated
financial statements relating to fiscal years beginning on or after January 1,
2011.  Earlier adoption is permitted as of the beginning of a fiscal
year.  The Company is currently evaluating the impact of the adoption
of these new sections on its consolidated financial statements.
  OTHER
MD&A REQUIREMENTS
  As
      at June 30, 2009:
                            
                            
                            Amount
                            
                            
                            NumberCommon
      shares
                            
                            $
                            172,921,153
                            
                            
                            
                            55,835,356Warrants
                            
                            Nil
                            
                            
                            Nil
 
 Note
1:      In addition to the 55,835,356 shares
outstanding, 2,380,953 shares are held in escrow to be released contingent upon
the completion of certain milestones.  They will be valued and
accounted for when they are released from escrow.
 Note
2:       During fiscal 2009, 5,709,765
warrants expired.
  Item
      6:
              Directors,
      Senior Management and Employees
  A
              Directors
      and Senior Management
  Directors
  The name,
municipality of residence, age as of September 24, 2009 and position with us of
each of the current directors are set forth below.
  - 49
-
  Name
              
              Age
              
              Position
              
              Period ServedDavid
      G.P. Allan
                Toronto,
      Canada
              
              67
              
              Chairman,
      Chief Executive Officer and Director
              
              Since
      1994Thomas
      I.A. Allen, Q.C. (1)(2)(3)
                Toronto,
      Canada
              
              69
              
              Director
              
              Since
      1996Mark
      Entwistle, M.A. (3)
                Ottawa,
      Canada
              
              53
              
              Director
              
              Since
      1997Henry
      Friesen, C.C., M.D. (1)
                Winnipeg,
      Manitoba
              
              76
              
              Director
              
              Since
      2001Philip
      Frost, M.D., Ph.D. (2)
                Morristown,
      New Jersey
              
              68
              
              Director
              
              Since
      2007Francois
      Thomas, M.D. (3)
                Brussels,
      Belgium
              
              50
              
              Director
              
              Since
      2007Gilbert
      Wenzel, Ph.D. (1)
                Zurich,
      Switzerland
              
              53
              
              Director
              
              Since
      2001Tryon
      M. Williams, B.Sc. (1)(2)
                The
      Valley, Anguilla
              
              68
              
              Director
              
              Since
      1995
 
 Notes:
 (1)           Member
of Audit Committee.
 (2)           Member
of Corporate Governance and Nominating Committee.
 (3)           Member
of Compensation Committee.
  David
G.P. Allan - Chairman, Chief Executive Officer And Director
  Mr. Allan
has been Chief Executive Officer of the Company since April 1998 and Chairman of
the board of directors of the Company since 1994.  In addition, Mr.
Allan is a Director of Synthemed Inc. (medical devices), USA and DiaMedica Inc.
(diabetes therapeutics), Canada. In 1992 he founded the Knowledge-Based
Industries Group of a Canadian investment banking firm, organized as the first
in Canada involved in financing, analyzing and creating strategic alliances for
life sciences and information technology companies, where he was Executive
Director until 1998. Mr. Allan was formerly a governor of The Toronto Stock
Exchange, a member, and working group Chair, of the Ontario Biotechnology
Advisory Board, a member of the Awards Selection Committee for the Networks of
Centres of Excellence in Canada and a member of the Board of Trustees for the
Ontario College of Art and Design. Mr. Allan is currently a member of
BioteCanada’s Emerging Companies Advisory Board.
  Thomas
I.A. Allen, Q.C., F.C.I.Arb - Director
  Mr. Allen
is counsel to Ogilvy Renault, a Canadian law firm. Mr. Allen was the initial
Chairman of the Accounting Standards Oversight Council of Canada and was a
member of the Advisory Board of the Office of the Superintendent of Financial
Institutions of Canada. He is currently a director of a number of public
companies including Terra Nova Minerals Inc., Mundoro Mining Inc., Middlefield
Bancorp Limited, and Thomas Weisel Partners Group, Inc. Mr. Allen recently acted
as Chairman of the Task Force to Modernize Securities Legislation in
Canada.  Mr Allen has been a director of the Company since
1996.
  Mark
Entwistle, M.A. - Director
  Prior to
founding his own consulting practice in 1997 in international trade, political
business intelligence and strategic communications, Mr. Entwistle was Ambassador
for Canada to Cuba from 1993 to 1997. Mr. Entwistle was previously a career
diplomat with the Canadian Department of Foreign Affairs and International Trade
in a variety of embassy positions from 1982 to 1997, and served as Press
Secretary and Director of Communications to the Prime Minister of Canada from
1991-1993. He is a Fellow of the Canadian Defence and Foreign Affairs Institute.
Mr. Entwistle has been a director of the Company since October
1997.
  - 50
-
  Henry
Friesen, C.C., M.D., F.R.S.C. - Director
  Dr.
Friesen currently serves as Chair of the Gairdner Foundation whose international
awards are Canada’s most prestigious prizes in the biomedical sciences. He was
most recently Chair, Genome Canada, 2000-2005; a $600 million budget
non-profit organization that supports genomics/proteomics programs to position
Canada as a world leader in selected areas in this
important sector.  From 1991 to 2000 Dr. Friesen was President of
the Medical Research Council of Canada and was instrumental in transforming it
into the Canadian Institutes of Health Research, an organization with an annual
budget in 2008 of over $900 million dedicated to supporting Canadian researchers
as well as industry participants. Dr. Friesen is noted for his discoveries of
the human hormone prolactin. For 19 years he was Head of the Department of
Physiology at the University of Manitoba and now is Distinguished University
Professor Emeritus. Dr. Friesen is a Fellow of the Royal Society of Canada, a
Companion of the Order of Canada recipient of 8 honorary degrees and also sits
on the board of directors of Sanofi Pasteur Canada and Spectral Diagnostics Inc.
Dr. Friesen has been a director of the Company since November 2001.
  Philip
Frost, M.D., Ph.D. - Director
  Dr. Frost
is currently the President of Calesca Pharmaceuticals.  In 2005, Dr.
Frost was appointed Executive Vice-President and Chief Scientific Officer at
ImClone where he oversaw the company’s research, clinical and regulatory
departments.  He subsequently held the post of Interim Chief Executive
Officer until December 2006.  Prior to ImClone, Dr. Frost served as
Vice President of Oncology and Co-Director of the Oncology Therapeutic Area
Leadership Team at Wyeth, where he was responsible for the development of
various oncology compounds and contributed to the approval and commercialization
of Mylotarg® for the treatment of a specific form of acute myeloid
leukemia.  Dr. Frost has held the positions of Adjunct Professor of
Cell Biology and Adjunct Professor of Medicine at The University of Texas M.D.
Anderson Cancer Center.  He is also a Director of Innovive
Pharmaceuticals, a New York-based oncology company and a Director of Avalon
Pharmaceuticals.  Dr. Frost has been a director of the Company since
2007.
  François
Thomas, M.D. - Director
  Dr.Thomas, a board
certified medical oncologist, is a member of the Board of Directors of
Eurogentec, and formerly was a Director of DNA therapeutics, Entomed, Neurotech,
Newron, Novexel Unibioscreen, and CropDesign.  Dr. Thomas is currently
General Manager at Bioserve Ltd. (Cambridge, UK), a consultancy for the life
sciences arena. Dr Thomas has been a Senior Advisor at Bryan Garnier, a
Paris-based investment bank, and a Venture Partner at Atlas Venture, a venture
capital firm in London (UK).  He was previously Vice President
Licensing, Medical Affairs and Pharmacogenomics at Genset (Paris, France), Vice
President, Clinical Development at Ipsen (Paris, France) and Assistant Professor
of Medical Oncology at Institut Gustave Roussy (Paris, France).  Dr.
Thomas has been a director of the Company since 2007.
  Gilbert
Wenzel, Ph.D. - Director
  Dr.
Wenzel is currently Chairman and Chief Executive Officer of Wenzel Healthcare
Services AG, an investment company focused on investing into innovative
healthcare delivery models in Europe. He is also the founder of QUISISANA AG,
which imports, registers and commercializes generics for private label use by
pharmacy chains and insurance companies in Europe. Dr. Wenzel joined Novartis
Group, a global pharmaceutical manufacturer, in November 2000 where he served as
Head of Strategic Planning and a Member of its Executive Committee until January
2003. Prior to joining Novartis in November 2000, Dr. Wenzel spent 15 years with
McKinsey & Co., an international management consulting firm, and was a
member of the European Leadership Group of its Pharma/Healthcare Sector and of
the European New Venture Initiative. From 1981 to 1985, Dr. Wenzel was at
Hoechst AG in Germany and developed global strategies for generics and
over-the-counter medicines. Dr. Wenzel has been a director of the Company since
March 2001.
  Tryon
M. Williams, B.Sc. (Math) - Director
  Mr.
Williams is the Chairman, CEO and director of Bingo.com, Ltd., an internet
technology company and Chairman and director of CellStop International Ltd., an
automobile security device manufacturer.  From 1993 to 2007, Mr.
Williams was Adjunct Professor, Sauder School of Business, The University of
British Columbia.  Mr. Williams is also a director of several other
private corporations. Mr. Williams has been a director of the Company since
November 1995.
  - 51
-
  Officers
  The name,
municipality of residence, age as of September 24, 2009 and position with us of
each of the current officers are set forth below.
  Name
                  
                  Age
                  
                  PositionDavid
      G.P. Allan
                    Toronto,
      Ontario
                  
                  67
                  
                  Chairman
      and Chief Executive Officer, YM BioSciences Inc.
                    President,
      YM BioSciences USA Inc.Gary
      Floyd
                    Berwyn,
      USA
                  
                  63
                  
                  Vice
      President, Operations
                    YM
      BioSciences USA Inc.Vincent
      Salvatori
                    Victoria,
      British Columbia
                  
                  57
                  
                  Executive
      Vice President, YM BioSciences Inc.
                    President,
      CIMYM BioSciences Inc.Sean
      Thompson
                    Oakville,
      Ontario
                  
                  43
                  
                  Vice
      President, Corporate DevelopmentLeonard
      Vernon
                    Nobleton,
      Ontario
                  
                  65
                  
                  Vice
      President, Finance &
Administration
 
 Gary
Floyd – Vice-President Of Operations
  Mr. Floyd
is a seasoned executive with an extensive background and 36 years of experience
in the global pharmaceutical industry. Prior to joining Eximias in February 2005
as Vice-President, Operations, Mr. Floyd served as President of Pharmavene LLC,
a pharmaceutical consulting firm. Prior to this, he was Senior Vice President,
Worldwide Logistics and Procurement at Aventis Behring where he was responsible
for Supply Chain Management of the company’s global business. He has also held
senior positions in manufacturing, information systems, and sales and marketing
at Aventis Behring and its predecessor companies. Mr. Floyd holds a Bachelors
degree in Zoology and Chemistry from Olivet Nazarene University.  Mr.
Floyd has been an officer of the Company since 2006.
  Vincent
Salvatori, Ph.D. - Executive Vice President, President And CEO, CIMYM
Biosciences
  Dr.
Salvatori is an experienced drug development executive with an accomplished
background in the pharmaceutical and biotechnology industry. He has more than 27
years of experience in all aspects of drug development, corporate operations and
external collaborations. Dr. Salvatori most recently held the position of Senior
Vice President of Clinical Operations for Bioniche Life Sciences Inc. from May
1998 to July 2002. He was previously at StressGen Biotechnologies Corporation
from January 1995 to April 1998 where he held the positions of Chief Operating
Officer and Vice President of Research and Development, subsequently appointed
to Senior Vice President. In this capacity, Dr. Salvatori was responsible for
corporate operations, strategic management and clinical/regulatory development.
Prior to joining StressGen, Dr. Salvatori was the Senior Director of Program
Management at QLT PhotoTherapeutics Inc. from June 1990 to December 1994 and
held various positions at Boehringer Ingelheim (Canada) Ltd. from April 1982 to
June 1990.  Dr. Salvatori has been an officer of the Company since
2002.
  Sean
Thompson, B.Sc. – Vice President, Corporate Development
  Mr.
Thompson is responsible for all aspects of corporate development for YM,
including licensing, identifying targets for M&A and development
partnerships.  He has a solid background in clinical development and
big Pharma marketing experience, and was previously Director of Clinical
Research for YM.  Prior to YM he worked for Roche, sitting on the
Global Business Team in virology, and was Clinical Research Manager. Prior to
Roche, he was a Clinical Scientist for SmithKline Beecham developing products
for oncology, respiratory and CNS disorders. He is currently a member of the
Ontario Institute for Cancer Research Industry Advisory Board, Vice Chair of the
BIOTECanada Health Advisory Board and was a Board member for Variation
Biotechnologies Inc. Mr. Thompson holds a Bachelor of Science degree from the
University of Waterloo.  Mr. Thompson has been an officer of the
Company since 2000.
  - 52
-
  Leonard
Vernon, B.Sc., C.A. – Vice-President, Finance And Administration
  Mr.
Vernon earned a B.Sc. in 1968 and was awarded his C.A. in 1972 with Clarkson
Gordon & Co. (now Ernst & Young LLP). He has held senior financial
positions with a number of organizations both public and private. Prior to
joining YM as an officer in July 1997, Mr. Vernon was an independent consultant
working with senior management in a variety of industries. Prior to 1992 he was
Vice-President, Finance and Administration of Unitel Inc., now Allstream Inc., a
major Canadian telecommunications company.   Mr. Vernon has been
an officer of the Company since 1997.
  Clinical
And Scientific Advisory Board
  We
maintain a Clinical and Scientific Advisory Board (“CSAB”) composed of
internationally recognized clinicians and scientists. Management meets with
members of the CSAB periodically to review operational aspects of our clinical
and scientific programme and make recommendations with regard to the perceived
trends and direction of medical and biopharmaceutical technologies and the
industry generally. Each member of the CSAB has signed a confidentiality
agreement with us. CSAB members receive honoraria paid by us of varying amounts
per year. The current composition of the CSAB is as follows:
  Robert
S. Kerbel, Ph.D.
  Professor
of Medical Biophysics, University of Toronto, Toronto, Ontario, Canada; Canada
Research Chair in Molecular Medicine; Director, Molecular and Cell Biology
Research, Sunnybrook and Women’s College Health Science Centre, Toronto,
Ontario, Canada. Dr. Kerbel has been an advisor since April 1999.
  Leonard
Saltz, M.D
  Professor
of Medicine, Weill College of Medicine, Cornell University, New York, New York,
New York; Member of Memorial Sloan-Kettering Cancer Center, New York, New York,
US; Attending Physician, Memorial Hospital for Cancer and Allied Diseases, New
York, New York, US. Dr. Saltz has been an advisor since March 2006.
  Nicolas
Stiernholm, Ph.D.
  Chief
Executive Officer, Trillium Therapeutics Inc., Toronto, Ontario, Canada. Dr.
Stiernholm was an executive vice-president of the Company until he resigned in
December 2002 at which time he became an advisor.
  Mark
Vincent, M.D., M.R.C.P., F.R.C.P.C. - Chair
  Associate
Professor, Department of Oncology, University of Western Ontario, London,
Ontario, Canada; Staff Medical Oncologist, London Regional Cancer Centre,
London, Ontario, Canada. Dr. Vincent has been an advisor since October
1998.
  B
              Compensation
  Summary
of Compensation Paid to Directors in Fiscal 2009
  Directors
of the Company who are not full-time employees of the Company are entitled to
receive an annual retainer fee of $12,000 plus an attendance fee of $1,500 per
meeting (with the exception of informational meetings) and per day spent
traveling to attend the meeting, plus expenses. With respect to informational
meetings, directors of the Company who are not full-time employees of the
Company are entitled to an attendance fee of $500 per meeting and per day spent
traveling to attend the meeting, plus expenses. In addition, the Chair of the
Audit Committee is entitled to an annual retainer fee of $6,000 and the Chair of
each of the Compensation and the Nominating and Corporate Governance Committees
are entitled to an annual retainer fee of $4,000. Members of the Audit,
Compensation, and Nominating and Corporate Governance Committees who are not
full-time employees of the Company are entitled to an attendance fee of $1,500
per meeting and per day spent traveling to attend the meeting, plus
expenses.  The Lead Director is entitled to an annual retainer fee of
$10,000. As at the date hereof, the number of options held by non-executive
directors is 1,170,613. An additional 1,699,502 options are held by the
Chairman and Chief Executive Officer.
  - 53
-
  The table
below sets out the total fees (including retainer and attendance fees) paid or
accrued to each non-executive director of the Company for meetings held during
the fiscal year ended June 30, 2009.
  Name
      of Director
                        
                        Retainer
      Fees
                        
                        
                        Attendance
      FeesThomas
      I.A. Allen(1)
                        
                        $
                        26,000
                        
                        
                        $
                        25,500Mark
      Entwistle(2)
                        
                        $
                        16,000
                        
                        
                        $
                        16,500Henry
      Friesen, C.C.,
                        
                        $
                        12,000
                        
                        
                        $
                        21,000Philip
      Frost
                        
                        $
                        12,000
                        
                        
                        $
                        16,500Francois
      Thomas
                        
                        $
                        12,000
                        
                        
                        $
                        16,500Gilbert
      Wenzel
                        
                        $
                        12,000
                        
                        
                        $
                        28,500Tryon
      M. Williams(3)
                        
                        $
                        18,000
                        
                        
                        $
                        33,000
 
 Notes:
 (1)
                  Earned
      a $10,000 annual retainer fee as Lead Director and a $4,000 annual
      retainer fee as Chair of the Corporate Governance and Nominating
      Committees.
 (2)
                Earned
      a $4,000 annual retainer fee as Chair of the Compensation
      Committee.
 (3)
              Earned
      a $6,000 annual retainer fee as Chair of the Audit
    Committee.
  Report
on Executive Compensation
  General
  The
Company’s compensation policies are designed to support the Company’s strategic
objectives, ensure that incentive programs are designed to motivate senior
managers to achieve or exceed corporate objectives and to enhance shareholder
value and to ensure that there is reasonable consistency in the application of
the compensation policy.
  The
executive compensation comprises base salary, indirect compensation (benefits)
and long-term incentives in the form of stock options.  In determining
actual compensation levels, the total program is taken into consideration rather
than any single element in isolation.  Total compensation levels are
set to reflect both the marketplace (to ensure competitiveness) and the
responsibility of each position (to ensure internal equity).
  The
Company’s executive compensation program has the following
objectives:
  ·
              to
      attract, retain and motivate qualified
  executives;
 ·
              to
      provide incentives to executives to maximize productivity and enhance
      enterprise value by aligning the interests of the executives with those of
      the shareholders;
 ·
              to
      foster teamwork and entrepreneurial
spirit;
 ·
              to
      establish a direct link between all elements of compensation and the
      performance of the Company, its subsidiaries and individual performance;
      and
 ·
              to
      integrate compensation incentives with the development and successful
      execution of strategic and operating
plans.
  - 54
-
 
 Compensation
Program
 
 The key
elements of the Company’s compensation program are salary and stock option
grants. As the Company has limited discretionary resources, bonuses are paid
strictly at the discretion of the Board on recommendation from the Compensation
Committee in consultation with the Chief Executive Officer. In 2009, the Company
retained a human resources consultant to assist management in revising the job
description for each employee position and streamlining the performance review
process. The intent is to create a transparent system that is suitable for a
company of this size and structure.
  The base
salary for all executives is designed to be competitive and is adjusted for the
realities of the market.  The target salary is the mid-point, or just
below the mid-point, of a salary range for an executive officer which is set at
median levels in the comparator group to reflect similar positions in these
companies using direct comparison of responsibilities. The comparator group
consists of other publicly-traded Canadian life sciences companies that either
have a pipeline of products at similar stages of development or are comparable
in terms of revenue and market capitalization. Companies include: AEterna
Zentaris Inc., Angiotech Pharmaceuticals, Inc., BioMS Medical Corp., Bioniche
Life Sciences Inc., Cardiome Pharma Corp., MethylGene Inc. and Oncolytics
Biotech Inc.
  The
compensation levels of the Chief Executive Officer are designed to recognize the
Chief Executive Officer’s personal contributions and leadership. The
Compensation Committee, in consultation with the Board of Directors, formally
evaluates the performance of the Chief Executive Officer each year using both
financial and non-financial measurements (including share price, revenues,
product development and product pipeline as well as human resource management,
representation of the Corporation in the market, integrity and the ability to
respond to challenges of the business). On the recommendation of the
Compensation Committee, the Board may approve an increase in the Chief Executive
Officer’s total compensation to levels that are consistent with corporate and
individual performance within the framework established by reference to the
comparator group.
  For the
fiscal year ended June 30, 2008 the compensation plan included an annual bonus
based on achievement of objectives.  The Corporation used a formula
that combines corporate and personal objectives to determine an individual’s
appropriate bonus payout.  Bonuses of the less senior employees were
weighted more towards personal objectives while senior management’s bonuses were
tied more closely to achieving the corporate objectives.  Corporate
objectives are set for the fiscal year by the Board of Directors as part of
their annual strategic discussions.  Departmental goals are derived
therefrom by senior management and presented to the Board.  At the end
of fiscal 2008, the Board concluded that there was a 60% achievement of
corporate objectives and a grading system was applied on that basis to determine
the bonuses earned in fiscal 2008 and paid early in fiscal 2009.  This
bonus plan was withdrawn early in fiscal 2009 and replaced with a discretionary
and subjective approach to bonuses.  No bonuses were paid or are
payable in relation to fiscal 2009.
  The
Compensation Committee, along with senior management, have concluded that, in
light of the economic circumstances of the Corporation and the stage of
development of the Corporation’s two products, nimotuzumab and AeroLEFTM, the
compensation model described above is no longer appropriate for the renewed
entrepreneurial profile of the Corporation.  Instead a less rigid and
formulaic approach to compensation has been recommended, whereby the Board will
set the Chief Executive Officer’s salary (and bonus, if any), with all other
salaries being derived therefrom on the Chief Executive Officer’s recommendation
and subject to consultation with and review by the Compensation Committee. In
addition, the compensation philosophy adopted by the Board of Directors holds
that it is more appropriate and effective going forward to tie any bonuses more
closely to revenues and activities that enhance shareholder value. In this
context, management recommended a cost of living increase to base salary and an
award of stock options for fiscal 2010, with some discretionary adjustments to
reflect individual performance as recommended by the Chief Executive
Officer.
  Option
Based Awards
  The
stock-based compensation program provides stock options that create a direct
link between executive rewards and enhanced shareholder value since the full
benefit of this compensation element cannot be realized unless stock
appreciation occurs over a number of years.  The Committee, at its
discretion, may grant stock options annually to executives and employees under
the Company’s stock option plan based on the employee’s position and annual
compensation.  In addition, special grants of stock options may be
approved to recognize singular achievements or to retain and motivate executives
in order to further align executive and shareholder interests and to motivate
employees.
  - 55
-
  The
Committee designates from time to time eligible persons to whom options are
granted and determines the number of shares covered by such
options.  The underlying security of the options granted under the
stock option plan is the Common Shares in the capital of the
Company.  During the fiscal year ended June 30, 2009, a total of
2,114,250 options were issued of which 1,531,750 were issued to management and
employees, 350,000 were issued to directors and 232,500 were issued to third
party consultants. The maximum number of shares available for issuance under the
stock option plan is a rolling number equal to 15% of the issued and outstanding
capital of the Company on the particular date of grant. See “Stock Option
Plan”
  Summary
Compensation Table
  The
following table sets forth all compensation earned during the fiscal year ended
June 30, 2009 by each of the Company’s Chief Executive Officer, Vice President,
Finance and Administration and three other most highly compensated officers of
the Company who earn greater than $150,000 in total salary and bonus
(collectively, “Named Executive Officers”):
  Non-equity incentive
                                            plan compensationName and Principal
                                            Position
                                          
                                          Year
                                          
                                          Salary
                                            ($)
                                          
                                          
                                          Share-
                                            based
                                            awards
                                            ($)
                                          
                                          
                                          Option-
                                            based
                                            awards
                                            ($)(1)
                                          
                                          
                                          Annual
                                            incentive
                                            plans
                                            ($)
                                          
                                          
                                          Long
                                            term
                                            incentive
                                            plans
                                            ($)
                                          
                                          
                                          Pension
                                            Value
                                            ($)
                                          
                                          
                                          All
                                            other
                                            compen-
                                            sation
                                            ($)(2)
                                          
                                          
                                          Total
                                            compen-
                                            sation
                                            ($)David
      G.P. Allan
                                          
                                          2009
                                          
                                          
                                          436,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          183,016
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          565,016CEOLeonard
      Vernon
                                          
                                          2009
                                          
                                          
                                          244,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          61,389
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          331,389VP,
      Finance and AdministrationAli
      Raza
                                          
                                          2009
                                          
                                          
                                          442,000
                                          (3)
                                          
                                          
                                          -
                                          
                                          
                                          
                                          18,191
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          455,217President,
      AeroLEFVincent
      Salvatori
                                          
                                          2009
                                          
                                          
                                          279,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          30,694
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          336,694Executive
      VPSean
      Thompson
                                          
                                          2009
                                          
                                          
                                          187,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          30,694
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          238,694VP
      Business Development
  (1)
              Value
      of share option awards determined using the Black-Scholes pricing model
      calculated as at the award date.
 (2)
              NEO’s
      are entitled to the same health, dental, etc. as all employees; the
      aggregate value for any individual does not exceed
  $50,000.
 (3)
              Ali
      Raza acted as President, AeroLEF throughout the fiscal year and was paid
      on a consulting basis.  Fees totalled £240,000 and the $442,000
      is the Canadian dollar equivalent translated throughout the
      year.
  Compensation
for the Named Executive Officers changed from fiscal 2008 with the elimination
of bonus entitlements in fiscal 2009. The base salaries for the executives are
reviewed on an annual basis to monitor any substantive changes over a three year
period. The salaries are set to industry and regional economic standards and
also reflect any cost of living adjustments as determined to be appropriate by
the Compensation Committee in consultation with management. Changes in salary
amounts in 2009 were based on a cost of living increase only.
  Options
were awarded as part of annual compensation with a view to aligning employees’
interests with those of the shareholders. Option grants were calculated as a
percentage of the base salary based on a value ascribed by the Black-Scholes
model. Percentages were positively correlated with seniority of the position of
the employee or officer, as applicable.  Dr. Raza’s compensation was
negotiated by the Chief Executive Officer at the time of his engagement and
approved by the Board of Directors. Any additional compensation that may become
payable to Dr. Raza is tied to specific milestones in the development of
AeroLEFTM.
  - 56
-
  Incentive
Plan Awards
  Outstanding
share-based awards and option-based awards as at June 30, 2009.
  Option Based Awards
                                                                                
                                                                                Share Based AwardsNumber of
                                                                                  securities
                                                                                  underlying
                                                                                  unexercised
                                                                                  options
                                                                                
                                                                                
                                                                                Option
                                                                                  Exercise
                                                                                  Price
                                                                                
                                                                                Option
                                                                                  Expiration
                                                                                
                                                                                Value of
                                                                                  unexercised
                                                                                  in-the-
                                                                                  money
                                                                                  options
                                                                                
                                                                                Number
                                                                                  of shares
                                                                                  or units
                                                                                  of shares
                                                                                  that
                                                                                  have not
                                                                                  vested
                                                                                
                                                                                Market or payout
                                                                                  value of share-based
                                                                                  awards that have not
                                                                                  vestedName
                                                                                
                                                                                (#)
                                                                                
                                                                                
                                                                                ($)
                                                                                
                                                                                Date
                                                                                
                                                                                ($)
                                                                                
                                                                                (#)
                                                                                
                                                                                ($)David
      G.P. Allan
                                                                                
                                                                                
                                                                                250,000
                                                                                
                                                                                
                                                                                $
                                                                                4.50
                                                                                
                                                                                9/1/2010CEO
                                                                                
                                                                                
                                                                                7,500
                                                                                
                                                                                
                                                                                $
                                                                                2.00
                                                                                
                                                                                4/30/2013102,500
                                                                                
                                                                                
                                                                                $
                                                                                1.75
                                                                                
                                                                                4/30/2013200,000
                                                                                
                                                                                
                                                                                $
                                                                                1.75
                                                                                
                                                                                11/27/201350,000
                                                                                
                                                                                
                                                                                $
                                                                                3.15
                                                                                
                                                                                4/17/201590,000
                                                                                
                                                                                
                                                                                $
                                                                                3.61
                                                                                
                                                                                1/25/2016200,000
                                                                                
                                                                                
                                                                                $
                                                                                4.36
                                                                                
                                                                                6/15/2016203,252
                                                                                
                                                                                
                                                                                $
                                                                                1.53
                                                                                
                                                                                9/29/2017596,250
                                                                                
                                                                                
                                                                                $
                                                                                0.50
                                                                                
                                                                                9/29/2018
                                                                                
                                                                                
                                                                                89,438
                                                                                
                                                                                NIL
                                                                                
                                                                                NILLeonard
      Vernon
                                                                                
                                                                                
                                                                                10,000
                                                                                
                                                                                
                                                                                $
                                                                                4.50
                                                                                
                                                                                9/1/2010VP,
      Finance and
                                                                                
                                                                                
                                                                                15,000
                                                                                
                                                                                
                                                                                $
                                                                                4.50
                                                                                
                                                                                12/1/2010Administration
                                                                                
                                                                                
                                                                                25,000
                                                                                
                                                                                
                                                                                $
                                                                                2.50
                                                                                
                                                                                4/30/201323,000
                                                                                
                                                                                
                                                                                $
                                                                                1.75
                                                                                
                                                                                4/30/201320,000
                                                                                
                                                                                
                                                                                $
                                                                                3.15
                                                                                
                                                                                4/17/201525,000
                                                                                
                                                                                
                                                                                $
                                                                                3.61
                                                                                
                                                                                1/25/201675,000
                                                                                
                                                                                
                                                                                $
                                                                                4.36
                                                                                
                                                                                6/15/2016101,626
                                                                                
                                                                                
                                                                                $
                                                                                1.53
                                                                                
                                                                                9/29/2017200,000
                                                                                
                                                                                
                                                                                $
                                                                                0.50
                                                                                
                                                                                9/29/2018
                                                                                
                                                                                
                                                                                30,000
                                                                                
                                                                                NIL
                                                                                
                                                                                NILAli
      Raza
                                                                                  President,
      AeroLEF
                                                                                
                                                                                
                                                                                100,000
                                                                                
                                                                                
                                                                                $
                                                                                1.25
                                                                                
                                                                                6/16/2011
                                                                                
                                                                                
                                                                                0
                                                                                
                                                                                NIL
                                                                                
                                                                                NILVincent
      Salvatori
                                                                                
                                                                                
                                                                                14,500
                                                                                
                                                                                
                                                                                $
                                                                                1.75
                                                                                
                                                                                4/30/2013Executive
      VP
                                                                                
                                                                                
                                                                                40,500
                                                                                
                                                                                
                                                                                $
                                                                                1.75
                                                                                
                                                                                11/27/20135,000
                                                                                
                                                                                
                                                                                $
                                                                                2.75
                                                                                
                                                                                11/8/201425,000
                                                                                
                                                                                
                                                                                $
                                                                                3.15
                                                                                
                                                                                4/17/201535,000
                                                                                
                                                                                
                                                                                $
                                                                                3.61
                                                                                
                                                                                1/25/201675,000
                                                                                
                                                                                
                                                                                $
                                                                                4.36
                                                                                
                                                                                6/15/2016101,626
                                                                                
                                                                                
                                                                                $
                                                                                1.53
                                                                                
                                                                                9/29/2017100,000
                                                                                
                                                                                
                                                                                $
                                                                                0.50
                                                                                
                                                                                9/29/2018
                                                                                
                                                                                
                                                                                15,000
                                                                                
                                                                                NIL
                                                                                
                                                                                NILSean
      Thompson
                                                                                
                                                                                
                                                                                5,000
                                                                                
                                                                                
                                                                                $
                                                                                4.50
                                                                                
                                                                                5/24/2010VP
      Business
                                                                                
                                                                                
                                                                                20,000
                                                                                
                                                                                
                                                                                $
                                                                                4.50
                                                                                
                                                                                5/24/2010Development
                                                                                
                                                                                
                                                                                13,000
                                                                                
                                                                                
                                                                                $
                                                                                1.75
                                                                                
                                                                                4/30/201320,000
                                                                                
                                                                                
                                                                                $
                                                                                2.50
                                                                                
                                                                                4/30/201319,875
                                                                                
                                                                                
                                                                                $
                                                                                1.75
                                                                                
                                                                                11/27/201312,500
                                                                                
                                                                                
                                                                                $
                                                                                3.15
                                                                                
                                                                                4/17/201525,000
                                                                                
                                                                                
                                                                                $
                                                                                3.61
                                                                                
                                                                                1/25/201650,000
                                                                                
                                                                                
                                                                                $
                                                                                4.36
                                                                                
                                                                                6/15/201654,064
                                                                                
                                                                                
                                                                                $
                                                                                1.53
                                                                                
                                                                                9/29/201733,333
                                                                                
                                                                                
                                                                                $
                                                                                0.50
                                                                                
                                                                                9/29/2018
                                                                                
                                                                                
                                                                                15,000
                                                                                
                                                                                NIL
                                                                                
                                                                                NIL
 Incentive
plan awards – value vested or earned during the year
  - 57
-
  Name
                                  
                                  Option-based awards -
                                    Value vested during the
                                    year
                                    ($)(1)
                                  
                                  Share-based awards -
                                    Value vested during the
                                    year
                                    ($)
                                  
                                  Non-equity incentive plan
                                    compensation – Value earned
                                    during the year
                                    ($)David
      G.P. Allan
                                    CEO
                                  
                                  NIL
                                  
                                  NIL
                                  
                                  NILLeonard
      Vernon
                                    VP,
      Finance and Administration
                                  
                                  NIL
                                  
                                  NIL
                                  
                                  NILAli
      Raza
                                    President,
      AeroLEF
                                  
                                  NIL
                                  
                                  NIL
                                  
                                  NILVincent
      Salvatori
                                    Executive
      VP
                                  
                                  NIL
                                  
                                  NIL
                                  
                                  NILSean
      Thompson
                                    VP
      Business Development
                                  
                                  NIL
                                  
                                  NIL
                                  
                                  NIL
 
 (1)  The
aggregate dollar value that would have been realized if stock options had been
exercised on the vesting date.
  Stock
Option Plan
  The
stock-based compensation program provides stock options that create a direct
link between executive rewards and enhanced shareholder value since the full
benefit of this compensation element cannot be realized unless stock
appreciation occurs over a number of years.  The Committee, at its
discretion, may grant stock options annually to executives and employees under
the Company’s stock option plan based on the employee’s position and annual
compensation.  In addition, special grants of stock options may be
approved to recognize singular achievements or to retain and motivate executives
in order to further align executive and shareholder interests and to motivate
employees.
  The
Committee designates from time to time eligible persons to whom options are
granted and determines the number of shares covered by such
options.  The underlying security of the options granted under the
stock option plan is the Common Shares in the capital of the
Company.  During the fiscal year ended June 30, 2009, a total of
2,114,250 options were issued of which 1,531,750 were issued to management and
employees, 350,000 were issued to directors and 232,500 were issued to third
party consultants.  The maximum number of shares available for
issuance under the stock option plan is a rolling number equal to 15% of the
issued and outstanding capital of the Company on the particular date of
grant.
  The
material terms of the Option Plan are as follows:
  •
              The
      persons eligible to receive Options under the Option Plan are the
      officers, directors, employees and service providers of the
      Company.
  •
              The
      Board may grant Options to any of the foregoing (an “Eligible Person”), as
      determined by the Board in its discretion.  At the time of the
      grant of an Option the Board, in its discretion, must fix the number of
      shares being optioned to the Eligible Person, the exercise price of the
      Option, the time when the Option is exercisable (including any vesting
      provisions) and the expiration date of the
  Option.
  •
              The
      maximum number of common shares available for issuance under the Option
      Plan is a rolling number equal to 15% of the number of common shares
      issued and outstanding on the particular date of
  grant.
  - 58
-
  •
              The
      number of common shares that may be reserved for issuance to our insiders
      (as defined in the Securities Act
      (Ontario)) and any affiliate and subsidiary thereof (collectively,
      “Insiders”) pursuant to the Plan, may not exceed 10% of the then
      outstanding issue.
  •
              In
      any one-year period, Options that may be granted to Insiders shall not
      exceed 10% of the outstanding
issue.
  •
              In
      any one-year period, Options that may be granted to any one Insider, and
      such Insider’s associates, shall not exceed 5% of the outstanding
      issue.
  •
              The
      exercise price of an Option may not be less than the market price of the
      common shares on the date on which the grant of the Option is approved by
      the Board.  For this purpose the market price is the closing
      price of the common shares on the last trading day preceding the date of
      grant on which the common shares are traded on the TSX or another exchange
      on which the common shares are
listed.
  •           The
term of an Option may not exceed 10 years from the date of grant.
  •
              Once
      granted, the Options may only be transferred or assigned between an
      Eligible Person and a related “Employee Company” (as defined in the Option
      Plan) provided the assignor gives notice to the Company prior to
      assignment.
  •
              The
      number of common shares that may be issued to any one person under the
      Option Plan shall not exceed 5% of the outstanding common
      shares.
  •
              An
      Option and all rights to purchase common shares pursuant thereto shall
      expire and terminate immediately upon the optionee who holds such Option
      ceasing to be an Eligible Person, except in the following
      circumstances:
  o
              If,
      before the expiry of an Option in accordance with the terms thereof, an
      optionee shall cease to be an Eligible Person (an “Event of Termination”)
      for any reason other than his or her resignation or the termination for
      “cause” of his or her employment with the Company, or his or her
      resignation or failure to be re-elected as a director of the Company, then
      the optionee may:
  a)
              exercise
      the Option to the extent that he or she was entitled to do so at the time
      of such Event of Termination, at any time up to and including, but not
      after, a date that is three (3) months (or such other longer period as may
      be determined by the Board in its sole discretion) following the date of
      such Event of Termination, or prior to the close of business on the
      expiration date of the Option, whichever is earlier;
  and
  b)
              with
      the prior written consent of the Board or the compensation committee,
      which consent may be withheld in the Company’s sole discretion, exercise a
      further Option at any time up to and including, but not after, a date that
      is three (3) months (or such other longer period as may be determined by
      the Board in its sole discretion) following the date of such Event of
      Termination, or prior to the close of business on the expiration date of
      the Option, whichever is earlier, to purchase all or any of the optioned
      shares as the Board or the compensation committee may designate but not
      exceeding the number of optioned shares the optionee would have otherwise
      been entitled to purchase pursuant to the Option had the optionee’s status
      as an Eligible Person been maintained for the term of the
      Option.
  o
              If
      an optionee dies before the expiry of an Option in accordance with the
      terms thereof, the optionee’s legal representative(s) may, subject to the
      terms of the Option and the Option
Plan:
  a)
              exercise
      the Option to the extent that the optionee was entitled to do so at the
      date of his or her death at any time up to and including, but not after, a
      date one year following the date of death of the optionee, or prior to the
      close of business on the expiration date of the Option, whichever is
      earlier; and
  - 59
-
  b)
              with
      the prior written consent of the Board or the compensation committee,
      exercise at any time up to and including, but not after, a date one year
      following the date of death of the optionee, a further Option to purchase
      all or any of the optioned shares as the Board or the compensation
      committee may designate but not exceeding the number of optioned shares
      the optionee would have otherwise been entitled to purchase had the
      optionee survived.
  •
              The
      Company has no security purchase agreement or stock appreciation rights
      plan, and the Company does not have authority to transform Options into
      stock appreciation rights.
  •
              By
      its terms, the Option Plan may be amended by the Board without the consent
      of the shareholders, including amendments necessary to ensure that the
      Option Plan complies with the applicable regulatory requirements,
      including the rules of the TSX, in place from time to time; amendments
      respecting the administration of the Option Plan and eligibility for
      participation under the Option Plan; amendments respecting the terms and
      conditions on which Options may be granted pursuant to the Option Plan,
      including provisions relating to the option price, the option period and
      the vesting schedule, provided however, that if the Board proposes to
      reduce the option price or extend the option period of options granted to
      insiders of the Company pursuant to the Option Plan, such amendments will
      require shareholder approval; and amendments that are of a housekeeping
      nature.  It should also be noted that any amendment to increase
      the maximum percentage of the outstanding shares available for issuance
      under the Option Plan requires shareholder
  approval.
  •
              The
      Board may terminate the Option Plan at any
time.
 
 Termination
and Change of Control Benefits
 
 Mr. David
Allan is entitled to receive twenty-four months salary upon his termination as
Chief Executive Officer if such termination is caused by a change of control of
the Company. Certain other Named Executive Officers, namely Messrs. Vincent
Salvatori and Leonard Vernon, are entitled to receive six months salary upon
termination if such termination is caused by a change of control of the
Company.  Assuming a change of control occurred on June 30, 2009, Mr.
Allan would have been entitled to a payment of $872,000 and Mr. Salvatori and
Mr. Vernon would have each been entitled to a payment of $139,500 and $122,000,
respectively. A “change of control” is defined as: (i) the acquisition by any
person or group of persons acting jointly or in concert of more than 50% of the
voting shares of the Company; (ii) the sale of all or substantially all of the
assets of the Company; or (iii) the individuals who at the commencement of the
officer’s employment with the Company constitute the board of directors ceases
to constitute at least a majority thereof, unless the election or the nomination
for election, by the shareholders of each new Board member was approved by a
majority of the Board members then still in office. These arrangements were put
in place by a resolution of the Board of Directors.  Other than the
foregoing arrangements, the Company does not currently have employment
agreements with any of the Named Executive Officers.
 
 Director
Compensation
 
 Director
compensation table
  The
following table shows the compensation earned by the non-executive directors for
the fiscal year ended June 30, 2009.
  Name
                    
                    Fees
                      Earned
                      ($)
                    
                    Share-based
                      awards
                      ($)
                    
                    Option-
                      based
                      awards
                      ($)(5)
                    
                    Non-equity
                      incentive plan
                      compensation
                      ($)
                    
                    All other
                      compensation
                      ($)
                    
                    
                    Total
                      ($)Thomas
      I.A. Allen (1)
                    
                    
                    51,500
                    
                    NIL
                    
                    
                    15,347
                    
                    NIL
                    
                    
                    
                    
                    
                    66,847Mark
      Entwistle (2)
                    
                    
                    32,500
                    
                    NIL
                    
                    
                    15,347
                    
                    NIL
                    
                    
                    
                    
                    
                    47,847Henry
      Friesen, C.C.,
                    
                    
                    33,000
                    
                    NIL
                    
                    
                    15,347
                    
                    NIL
                    
                    
                    
                    
                    
                    48,347Philip
      Frost
                    
                    
                    28,500
                    
                    NIL
                    
                    
                    15,347
                    
                    NIL
                    
                    
                    2,960
                    (6)
                    
                    
                    46,807François
      Thomas
                    
                    
                    28,500
                    
                    NIL
                    
                    
                    15,347
                    
                    NIL
                    
                    
                    59,422
                    (7)
                    
                    
                    103,269Gilbert
      Wenzel(4)
                    
                    
                    40,500
                    
                    NIL
                    
                    
                    15,347
                    
                    NIL
                    
                    
                    
                    
                    
                    
                    55,847Tryon
      M. Williams (3)
      (4)
                    
                    
                    51,000
                    
                    NIL
                    
                    
                    15,347
                    
                    NIL
                    
                    
                    3,938
                    (6)
                    
                    
                    70,285
  - 60
-
 
 (1)
              Earned
      a $10,000 annual retainer fee as Lead Director and a $4,000 annual
      retainer fee as Chair of the Corporate Governance and Nominating
      Committees.
 (2)
              Earned
      a $4,000 annual retainer fee as Chair of the Compensation
      Committee.
 (3)
              Earned
      a $6,000 annual retainer fee as chair of the Audit
      Committee.  Mr. Williams was awarded 15,000 stock options in
      trust for an individual employee, in addition to the 50,000 stock options
      awarded to all Board members.
 (4)
              Earned
      $9,000 for travel days related to board
  meetings.
 (5)
              Fair
      value of 50,000 stock options awarded to each director in September,
      2008.
 (6)
              Earned
      for serving as a member of a special committee of the Board formed to
      respond to an unsolicited offer for the
Company.
 (7)
              Various
      consulting assignments principally relating to drug development and
      assessment of potential drug
candidates.
 
 Narrative
Discussion
  Directors
of the Company who are not full-time employees of the Company are entitled to
receive an annual retainer fee of $12,000 plus an attendance fee of $1,500 per
meeting (with the exception of informational meetings) and per day spent
traveling to attend the meeting, plus expenses. With respect to informational
meetings, directors of the Company who are not full-time employees of the
Company are entitled to an attendance fee of $500 per meeting and per day spent
traveling to attend the meeting, plus expenses. In addition, the Chair of the
Audit Committee is entitled to an annual retainer fee of $6,000 and the Chair of
each of the Compensation and the Corporate Governance and Nominating Committees
are entitled to an annual retainer fee of $4,000. Members of the Audit,
Compensation, and Corporate Governance and Nominating Committees who are not
full-time employees of the Company are entitled to an attendance fee of $1,500
per meeting and per day spent traveling to attend the meeting, plus
expenses.  The Lead Director is entitled to an annual retainer fee of
$10,000. As at the date hereof, the number of options held by non-executive
directors is 1,170,613.A total of 10 meetings
of the board were held in fiscal 2009. Despite the reduction in the size of the
Board from 10 to eight members and an increased amount of tasks and
responsibilities as a direct result of Sarbanes-Oxley and other regulatory
compliance obligations, director compensation has remained largely unchanged
since 2004. Options are granted annually to non-executive members of the
Board.
  Share-based
awards, option-based awards and non-equity incentive plan
compensation
  Name
                      
                      Option-based awards -
                        Value vested during
                        the year
                        ($)(1)
                      
                      Share-based awards -
                        Value vested during
                        the year
                        ($)
                      
                      Non-equity incentive plan
                        compensation –
      Value earned
                        during the year
                        ($)Thomas
      I.A. Allen (1)
                      
                      
                      28,219
                      
                      NIL
                      
                      NILMark
      Entwistle (2)
                      
                      
                      24,310
                      
                      NIL
                      
                      NILHenry
      Friesen, C.C.,
                      
                      
                      20,402
                      
                      NIL
                      
                      NILPhilip
      Frost
                      
                      
                      20,402
                      
                      NIL
                      
                      NILFrançois
      Thomas
                      
                      
                      20,402
                      
                      NIL
                      
                      NILGilbert
      Wenzel
                      
                      
                      20,402
                      
                      NIL
                      
                      NILTryon
      M. Williams (3)
                      
                      
                      20,310
                      
                      NIL
                      
                      NIL
  (1)  The fair value of each option granted
was estimated on the date of grant using the Black-Scholes fair value options
pricing model with the following assumptions: Risk free interest rate 3.34%;
volatility factor 74%; expected life 7 years.
  C
              Board
      of Directors Practices
  The Board
of Directors has adopted corporate governance guidelines as well as written
charters to provide the framework for effective governance of our
company.  These guidelines and charters are reviewed annually by the
Nominating and Corporate Governance Committee and recommendations are made to
the Board of Directors, if necessary.
  - 61
-
  Role
of the Lead Director
  The Board
of Directors appointed Thomas I.A. Allen as Lead Director. In this role, Mr.
Allen is responsible for providing leadership to the independent directors. Key
elements of Mr. Allen’s role include, but are not limited to:
  ·
              fostering
      processes to enable the Board to function effectively without
      management;
  ·
              providing
      input to the Chairman of the Board of Directors on behalf of the
      independent directors with respect to Board
  agendas;
  ·
              working
      with the Chairman of the Board of Directors to ensure adequate resources
      and timely and relevant information are available to the Board of
      Directors;
  ·
              chairing
      in camerameetings of the independent directors and communicating to the
      Chairman of the Board of Directors with regard to such discussions;
      and
  ·
              assisting
      the Board of Directors in satisfying itself as to the integrity of the
      Chief Executive Officer.
  Mandate
of the Board of Directors
  Our
directors are elected by the shareholders and are responsible for the
stewardship of the business and affairs of the Company.  The Board
seeks to discharge such responsibility by reviewing, discussing and approving
the Company’s strategic planning and organizational structure and supervising
management to oversee that the foregoing enhance and preserve the underlying
value of the Company.
  Although
directors may be elected by the shareholders to bring special expertise or a
point of view to Board deliberations, they are not chosen to represent a
particular constituency.  The best interests of the Company as a whole
must be paramount at all times.
  Duties
of Directors
  The Board
discharges its responsibility for overseeing the management of our business and
delegates responsibility our senior officers for day-to-day management of the
Company. The Board discharges its responsibilities, including those listed
below, either directly or through one of its committees: the Audit Committee,
the Nominating and Corporate Governance and the Compensation Committee. In
addition to these regular committees, the Board may appoint ad hoc committees
periodically to address certain issues of a more short-term
nature.  In addition to the Board’s primary roles of overseeing
corporate performance and providing quality, depth and continuity of management
to meet our strategic objectives, principal duties include, but are not limited
to (i) appointment of management, (ii) Board organization, (iii) strategic
planning, (iv) monitoring of financial performance and other financial reporting
matters, (v) risk management, (vi) policies and procedures, (vii) communications
and reporting, (viii) position descriptions, (ix) orientation and continuing
education, (x) nomination of directors and (xi) Board evaluation.
  Committees
of the Board of Directors
  Our Board
currently has three committees: the Audit Committee, the Nominating and
Corporate Governance Committee and the Compensation Committee. Pursuant to its
written charter, each committee assists and provides advice and recommendations
to our Board of Directors.
  Audit
Committee
  The Audit
Committee is directly responsible for overseeing our accounting and financial
reporting processes and audits of our financial statements, and the Audit
Committee is directly responsible for the appointment, compensation, and
oversight of the work of any registered external auditor employed by us
(including resolution of disagreements between management of the Company and the
external auditor regarding financial reporting) for the purpose of preparing or
issuing an audit report or related work. In so doing, the Audit Committee will
comply with all applicable Canadian and US securities laws, rules and
guidelines, any applicable stock exchange requirements or guidelines and any
other applicable regulatory rules.
  - 62
-
  The Audit
Committee is composed of a minimum of three members. Members of the Audit
Committee shall be appointed by the Board. Each member shall serve until such
member’s successor is appointed, unless that member resigns or is removed by the
Board or otherwise ceases to be a director of the Company. The Board shall fill
any vacancy if the membership of the Committee is less than three directors. The
Chair of the Committee may be designated by the Board or, if it does not do so,
the members of the Committee may elect a Chair by vote of a majority of the full
Committee membership. All members of the Audit Committee must satisfy the
independence, financial literacy and experience requirements of applicable
Canadian and US securities laws, rules and guidelines, any applicable stock
exchange requirements or guidelines and any other applicable regulatory rules.
In particular:
  (a)
              each
      member shall be “independent” and “financially literate” within the
      meaning of Multilateral Instrument 52-110 “Audit
      Committees”;
  (b)
              at
      least one member must be “financially sophisticated” under the rules of
      the American Stock Exchange; and
  (c)
              at
      least one member must be an “audit committee financial expert” within the
      meaning of that term under the US Securities Exchange Act of 1934, as
      amended, and the rules adopted by the US Securities and Exchange
      Commission thereunder.
  The
members of the Company’s Audit Committee are Tryon M. Williams (Chair), Thomas
I.A. Allen, Henry Friesen and Gilbert Wenzel.
  Compensation
Committee
  The
Compensation Committee is comprised of a minimum of three directors, the
majority of whom will be Canadian citizens ordinarily resident in Canada, and,
other than a non-executive Chair, may not be executive officers or employees of
the Company or any of its affiliates.   The members of the
Company’s Compensation Committee are Mark Entwistle (Chair), Thomas I.A. Allen
and François Thomas.
  The
mandate of the Compensation Committee is to establish and monitor our policies
for attracting, retaining, developing and motivating senior employees. The
compensation policies are designed to support our strategic objectives, ensure
that incentive programs are designed to motivate senior managers to achieve or
exceed corporate objectives and to enhance shareholder value and to ensure that
there is reasonable consistency in the application of the compensation policies.
The Committee’s responsibilities include reviewing annually the performance of
the Chief Executive Officer (or more frequently if deemed necessary by the
Compensation Committee), setting the Chief Executive Officer’s compensation and,
in consultation with the Chief Executive Officer, establishing his personal
objectives, reviewing the performance and approving the compensation of
executive officers of the Company on the recommendation of the Chief Executive
Officer, establishing incentive compensation programs and monitoring their
effectiveness and developing and documenting the compensation policy and
philosophy of the Company for approval by the Board of Directors.  All
members of this Committee are non-executive directors of the
Company.
  Compensation
Committee Authority and Responsibilities
  (a)
              The
      Compensation Committee has the power and authority of the Board to perform
      the following duties and fulfill the following
      responsibilities:
  (i)
              Review
      the compensation practices and policies of the Company to ensure that they
      are competitive and that they provide appropriate motivation for corporate
      performance and increased shareholder
value.
  - 63
-


(ii)
            Oversee
      the administration of the Company’s compensation programs, and review and
      approve the employees who receive compensation and the nature of the
      compensation provided under such programs, and to ensure that all
      management compensation programs are linked to meaningful and measurable
      performance targets.




(iii)
            Make
      recommendations to the Board regarding the adoption, amendment or
      termination of compensation programs and the approval of the adoption,
      amendment and termination of compensation programs of the Company,
      including for greater certainty, ensuring that if any equity-based
      compensation plan is subject to shareholder approval, that such approval
      is sought.




(iv)
            Periodically
      survey the executive compensation practices of other comparable
      companies.




(v)
            Establish
      and ensure the satisfaction of performance goals for performance-based
      compensation.




(vi)
            Annually
      review and approve the annual base salary and bonus targets for the senior
      executives of the Company, other than the Chief Executive Officer (the
      “CEO”).




(vii)
            Review
      and approve annual corporate goals and objectives for the CEO and evaluate
      the CEO’s performance against such goals and
  objectives.




(viii)
            Annually
      review and approve, based on the Compensation Committee’s evaluation of
      the CEO, the CEO’s annual base salary, the CEO’s bonus, and any stock
      option grants and other awards to the CEO under the Company’s compensation
      programs. In determining the CEO’s compensation, the Compensation
      Committee will consider the Company’s performance and relative shareholder
      return, the compensation of CEOs at other companies, and the CEO’s
      compensation in past years.




(ix)
            Review
      the annual report on executive compensation required to be prepared under
      applicable corporate and securities legislation and regulation including
      the disclosure concerning members of the Compensation Committee and
      settling the reports required to be made by the Compensation Committee in
      any document required to be filed with a regulatory authority and/or
      distributed to shareholders.




Nominating
and Corporate Governance Committee




Members




The
Committee is comprised of a minimum of three directors, none of whom is an
officer or an employee of the Company, other than a non-executive chair. Each
Committee member shall satisfy the independence and experience requirements of
applicable securities laws, rules or guidelines, any applicable stock exchange
requirements or guidelines and any other applicable regulatory rules.
Determinations as to whether a particular director satisfies the requirements
for membership on the Committee shall be made by the Board.  The
members of the Company’s Nominating and Corporate Governance Committee are
Thomas I.A. Allen (Chair), Tryon M. Williams and Philip Frost.




Committee
Authority and Responsibilities




The
Committee has the power and authority of the Board to perform the following
duties and fulfill the following responsibilities:




(a)
            Develop
      and recommend to the Board a set of corporate governance guidelines and
      procedures applicable to the Company. The Committee will annually reassess
      the corporate governance guidelines and procedures and recommend any
      necessary revisions to the Board;




- 64
-


(b)
            Make
      recommendations regarding the size and composition of the
      Board.




(c)
            Establish
      and recommend to the Board qualification criteria for the selection of new
      directors to serve on the Board and annually review the appropriate
      experience, skills and characteristics required of each Board
      member.




(d)
            Work
      with the Chairman of the Board to identify individuals qualified to become
      Board members, consistent with criteria approved by the
    Board.




(e)
            Recommend
      to the Board the director nominees for the next annual meeting of
      shareholders.




(f)
            Recommend
      the appropriate committee structure of the Board and annually review and
      recommend to the Board qualified members of the Board for membership on
      committees of the Board and recommend committee members to fill vacancies
      as needed.




(g)
            Approve
      an appropriate orientation and education program for directors and oversee
      the training and orientation of
directors.




(h)
            Establish
      a minimum attendance expectation for
directors.




(i)
            At
      intervals which the Committee considers appropriate, evaluate the
      performance of




(i)
            individual
      directors,




(ii)
            the
      Board,




(iii)
            Board
      committees and




(iv)
            executive
      management of the Company. The purpose of the evaluations is to assess
      and, where possible, increase the effectiveness of the Board and its
      committees. The Committee may make recommendations to the Board for
      improving the Board’s effectiveness and shall discuss annually with the
      full Board its effectiveness.




(v)
            Recommend
      the termination of board membership of individual directors when
      appropriate.




(vi)
            Provide
      regular reports of the Committee’s activities to the
  Board.




D
            Employees




As of
June 30, 2009, we employed 24 permanent employees. All employees are currently
located in Mississauga, Ontario. Other than administrative staff, our employees
conduct our licensing and product development activities.  None of our
employees are represented by labour unions.




E
            Share
      Ownership




The
following table sets out details of our shares and options that are directly or
indirectly owned or controlled by directors and executive officers as at June
30, 2009, based on 58,216,309 common shares issued and outstanding on such
date.


- 65
-




Name
                      
                      Number of
                        Common
                        Shares
                      
                      
                      Percentage of
                        Common
                        Shares
                        Outstanding
                      
                      
                      Common
                        Shares Held
                        Under Option
                      
                      
                      Exercise
                        Price
                      
                      
                      Expiration
                        DateDavid
      G.P. Allan
                      
                      
                      1,039,659
                      
                      
                      
                      1.78
                      %
                      
                      
                      1,699,502
                      
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2010-2019Thomas
      I.A. Allen
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      184,135
                      
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2010-2019Mark
      Entwistle
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      171,940
                      
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2010-2019Gary
      Floyd
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      198,495
                      
                      
                      
                      $0.50-$5.74
                      
                      
                      
                      2016—2019Henry
      Friesen
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      184,745
                      
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2011-2019Philip
      Frost
                      
                      
                      1,000
                      
                      
                      
                      *
                      
                      
                      
                      86,585
                      
                      
                      
                      $0.50-$1.53
                      
                      
                      
                      2017-2019Vincent
      Salvatori
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      396,626
                      
                      
                      
                      $0.50-$4.36
                      
                      
                      
                      2013-2019Francois
      Thomas
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      86,585
                      
                      
                      
                      $0.50-$1.53
                      
                      
                      
                      2017-2019Sean
      Thompson
                      
                      
                      19,500
                      
                      
                      
                      *
                      
                      
                      
                      348,675
                      
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2010-2019Leonard
      Vernon
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      494,626
                      
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2008-2019Gilbert
      Wenzel
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      179,745
                      
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2011-2019Tryon
      M. Williams
                      
                      
                      20,100
                      
                      
                      
                      *
                      
                      
                      
                      276,878
                      
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2010-2019


* Less
than one percent




Note:


(1) Of
such shares, 80,000 common shares are held through private holding companies
over which Mr. Allan exercises direction and control.




As of the
date of hereof, the directors and senior officers of YM BioSciences as a group
beneficially owned or controlled, directly or indirectly, 1,079,259 common
shares of YM, representing approximately 1.85 % of the issued and outstanding
voting shares of the Company.




Item
      7:
            Major
      Shareholders and Related Party
Transactions




A
            Major
      Shareholders




We are
not directly or indirectly owned or controlled by another company or by any
foreign government.




To the
knowledge of our directors and senior officers, at September 24, 2009 set out
below are the only persons/entities who beneficially owned, directly or
indirectly, or exercised control or direction over, our Common Shares carrying
more than 5% of the voting rights attached to all our outstanding Common Shares.
As used in the table below, “beneficial ownership” means sole or shared power to
vote or direct the voting of the security, or the sole or shared investment
power with respect to a security (i.e., the power to dispose, or direct a
disposition, of a security). A person is deemed at any date to have “beneficial
ownership” of any security that the person has a right to acquire within 60
days. More than one person may be deemed to have beneficial ownership of the
same securities.


- 66
-




Name of Shareholder
                      
                      Approximate Number of Common
                        Shares Beneficially Owned, Directly
                        or Indirectly, or over which Control
                        or Direction is Exercised
                      
                      
                      Percentage of Outstanding
                        Common Shares RepresentedAccipiter
      Capital Management, L.L.C.
                      
                      
                      5,915,258
                      
                      
                      
                      10.16
                      %





None of
the shareholders set out above has different voting rights from the other
shareholders.




To the
knowledge of our directors and senior officers, the following table indicates as
of September 24, 2009, the total number of Common Shares issued and outstanding,
the approximate total number of holders of record of Common Shares, the number
of holders of record of Common Shares with US addresses, the portion of the
outstanding Common Shares held by US holders of record, and the percentage of
Common Shares held by US holders of record. This table does not indicate
beneficial ownership of Common Shares.




Total Number of
                      Holders of Record
                    
                    Total Number of
                      Common Shares
                      Issued and
                      Outstanding
                    
                    
                    Number of US
                      Holders of Record
                    
                    
                    Number of Common
                      Shares Held by US
                      Holders of Record
                    
                    
                    Percentage of
                      Common Shares Held
                      by US
                      Holders of Record73
                    
                    
                    58,225,458
                    
                    
                    
                    33
                    
                    
                    
                    22,279,017
                    
                    
                    
                    38.26
                    %




B
            Related
      Party Transactions




Occasionally,
directors will provide assistance to management on a consulting basis to
evaluate new opportunities or provide guidance for drug development activities.
The fees incurred during the fiscal year ended June 30, 2009 totalled $66,000
(2008 - $92,000; 2007 - nil). The transactions occurred in the normal course of
operations and were measured at the exchange amount, which is the amount of
consideration established and agreed by the related parties.




C
            Interests
      of Experts and Counsel




Not
applicable.




Item
      8:
            Financial
      Information




A
            Consolidated
      Statements and Other Financial
Information




The
financial statements filed as part of this annual report are filed under Item
18.




B
            Significant
      Changes




Not
applicable.




Item
      9:
            The
      Offer and Listing




A
            Offer
      and Listing Details




Our
CommonShares are
traded on the NYSE Amex, the TSX and AIM under the symbols “YMI”, “YM” and
“YMBA”, respectively. The last reported sales price of our Common Shares on
September 23, 2009 on the NYSE Amex was US$1.66, on the TSX was C$1.79 and on
the AIM was £104.50.  The following table sets forth the high and low
per share sales prices for our Common Shares on the NYSE Amex and TSX for the
periods indicated.


- 67
-


Market
Price




Common SharesNYSE Amex(1)
                                                          
                                                          
                                                          TSXFiscal
                                                          
                                                          High
                                                          
                                                          
                                                          Low
                                                          
                                                          
                                                          High
                                                          
                                                          
                                                          LowUS$
                                                          
                                                          
                                                          US$
                                                          
                                                          
                                                          C$
                                                          
                                                          
                                                          C$2005
                                                          
                                                          
                                                          3.33
                                                          
                                                          
                                                          
                                                          1.96
                                                          
                                                          
                                                          
                                                          4.1
                                                          
                                                          
                                                          
                                                          2.452006
                                                          
                                                          
                                                          6.5
                                                          
                                                          
                                                          
                                                          2.35
                                                          
                                                          
                                                          
                                                          7.4
                                                          
                                                          
                                                          
                                                          2.932007
                                                          
                                                          
                                                          4.15
                                                          
                                                          
                                                          
                                                          1.25
                                                          
                                                          
                                                          
                                                          4.88
                                                          
                                                          
                                                          
                                                          1.552008
                                                          
                                                          
                                                          1.89
                                                          
                                                          
                                                          
                                                          0.84
                                                          
                                                          
                                                          
                                                          1.98
                                                          
                                                          
                                                          
                                                          0.86Quarter
      1
                                                          
                                                          
                                                          4.05
                                                          
                                                          
                                                          
                                                          2.58
                                                          
                                                          
                                                          
                                                          4.4
                                                          
                                                          
                                                          
                                                          2.91Quarter
      2
                                                          
                                                          
                                                          3.45
                                                          
                                                          
                                                          
                                                          2.62
                                                          
                                                          
                                                          
                                                          3.9
                                                          
                                                          
                                                          
                                                          2.98Quarter
      3
                                                          
                                                          
                                                          4.15
                                                          
                                                          
                                                          
                                                          1.25
                                                          
                                                          
                                                          
                                                          4.88
                                                          
                                                          
                                                          
                                                          1.55Quarter
      4
                                                          
                                                          
                                                          2.11
                                                          
                                                          
                                                          
                                                          1.5
                                                          
                                                          
                                                          
                                                          2.39
                                                          
                                                          
                                                          
                                                          1.772009
                                                          
                                                          
                                                          2.24
                                                          
                                                          
                                                          
                                                          0.20
                                                          
                                                          
                                                          
                                                          2.42
                                                          
                                                          
                                                          
                                                          0.27(to
      and including September 23)January
                                                          
                                                          
                                                          0.43
                                                          
                                                          
                                                          
                                                          0.32
                                                          
                                                          
                                                          
                                                          0.49
                                                          
                                                          
                                                          
                                                          0.40February
                                                          
                                                          
                                                          0.34
                                                          
                                                          
                                                          
                                                          0.23
                                                          
                                                          
                                                          
                                                          0.41
                                                          
                                                          
                                                          
                                                          0.27March
                                                          
                                                          
                                                          0.40
                                                          
                                                          
                                                          
                                                          0.20
                                                          
                                                          
                                                          
                                                          0.48
                                                          
                                                          
                                                          
                                                          0.29April
                                                          
                                                          
                                                          0.53
                                                          
                                                          
                                                          
                                                          0.37
                                                          
                                                          
                                                          
                                                          0.63
                                                          
                                                          
                                                          
                                                          0.46May
                                                          
                                                          
                                                          0.60
                                                          
                                                          
                                                          
                                                          0.42
                                                          
                                                          
                                                          
                                                          0.63
                                                          
                                                          
                                                          
                                                          0.48June
                                                          
                                                          
                                                          0.68
                                                          
                                                          
                                                          
                                                          0.49
                                                          
                                                          
                                                          
                                                          0.73
                                                          
                                                          
                                                          
                                                          0.55July
                                                          
                                                          
                                                          0.70
                                                          
                                                          
                                                          
                                                          0.48
                                                          
                                                          
                                                          
                                                          0.75
                                                          
                                                          
                                                          
                                                          0.55August
                                                          
                                                          
                                                          2.24
                                                          
                                                          
                                                          
                                                          0.57
                                                          
                                                          
                                                          
                                                          2.42
                                                          
                                                          
                                                          
                                                          0.63September
                                                          
                                                          
                                                          2.00
                                                          
                                                          
                                                          
                                                          1.40
                                                          
                                                          
                                                          
                                                          2.14
                                                          
                                                          
                                                          
                                                          1.51(to
      and including September 23)Note:(1)
      Commenced trading on the NYSE Amex (formerly AMEX) on October 1,
      2004.




Volatility
of Common Shares




The
trading price of our common shares, as with many pharmaceutical and
biotechnology companies, has historically been and is likely to remain highly
volatile.  The market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies.  Factors such as the efficacy and safety of our
products or the products of our competitors, announcements of technological
innovations by us or our competitors, governmental regulations, developments in
our patents or other proprietary rights, our licensors or our competitors,
litigation, fluctuations in our operating results, thin capitalization, market
conditions for biopharmaceutical stocks and general market and economic
conditions could have a significant impact on the future trading price of our
common shares. In addition, the price of our common shares is highly volatile
since it may take years before any of our licensed products will receive final
regulatory approval to be marketed in Canada, the US or other territories, if at
all.




B
            Plan
      of Distribution




Not
applicable.




C
            Markets




Our
Common Shares are traded on the NYSE Amex, the TSX and AIM under the symbols
“YMI”, “YM” and “YMBA”, respectively. The last reported sales price of our
Common Shares on September 23, 2009 on the NYSE Amex was US$1.66, on the TSX was
C$1.79 and on AIM was £104.50.




D
            Selling
      Shareholders




Not
applicable.


- 68
-


E           Dilution




Not
applicable.




F
            Expenses
      of the Issue




Not
applicable.




Item
      10:
            Additional
      Information




A
            Share
      Capital




Authorized
Capital




Our
authorized share capital consists of 500,000,000 common shares without nominal
or par value, 500,000,000 Class A non-voting common shares without nominal or
par value, 500,000,000 Class A preferred shares without nominal or par value and
500,000,000 Class B preferred shares, issuable in series, without nominal or par
value. As of September 24, 2009, there were 58,216,309 common shares, no Class A
non-voting common shares and no Class A or Class B preferred shares
outstanding.




The
following is a summary of the material provisions attached to the common shares,
the Class A preferred shares and the Class B preferred shares.




Common
Shares




All of
the common shares rank equally to voting rights, participation in a distribution
of the assets of our Company on a liquidation, dissolution or winding-up of our
Company and the entitlement to dividends. The holders of our common shares are
entitled to receive notice of all meetings of shareholders and to attend and
vote the common shares at the meetings. Each common share carries with it the
right to one vote.




In the
event of the liquidation, dissolution or winding-up of our Company the holders
of our common shares will be entitled, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of our
Company, to receive, on a pro rata basis, share for share, with the Class A
non-voting common shares, all of our remaining property. There are no
pre-emptive or conversion rights and no provisions for redemption, retraction,
purchase for cancellation or surrender or singing or purchase
funds.




Class A Preferred Shares and
Class B Preferred Shares




The Class
A preferred shares and Class B preferred shares are issuable in series. Each
series may consist of such number of shares and have such designation, rights,
privileges, restrictions and conditions attached thereto as may be determined by
the board of directors, subject to the provisions attached to the Class A
preferred shares as a class or the Class B preferred shares as a class. The
Class A preferred shares and the Class B preferred shares each rank ahead of the
common shares with respect to the distribution of our assets upon liquidation,
dissolution or winding-up.




Stock Option
Plan




We have a
stock option plan (the “Option Plan”) pursuant to which stock options to
purchase our common shares (“Options”) may be granted.  The material
terms of the Option Plan are as follows:




·
            The
      persons eligible to receive Options under the Option Plan are the
      officers, directors, employees and service providers of the
      Company.




·
            The
      Board may grant Options to any of the foregoing (an “Eligible Person”), as
      determined by the Board in its discretion.  At the time of the
      grant of an Option the Board, in its discretion, must fix the number of
      shares being optioned to the Eligible Person, the exercise price of the
      Option, the time when the Option is exercisable (including any vesting
      provisions) and the expiration date of the
  Option.




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·
            The
      maximum number of common shares available for issuance under the Option
      Plan is a rolling number equal to 15% of the number of common shares
      issued and outstanding on the particular date of
  grant.




·
            The
      number of common shares that may be reserved for issuance to our insiders
      (as defined in the Securities Act(Ontario)) and any affiliate and subsidiary thereof (collectively,
      “Insiders”) pursuant to the Plan, may not exceed 10% of the then
      outstanding issue.




·
            In
      any one-year period, Options that may be granted to any Insider, and such
      Insider’s associates, shall not exceed 5% of the outstanding
      issue.




·
            The
      exercise price of an Option may not be less than the market price of the
      common shares on the date on which the grant of the Option is approved by
      the Board.  For this purpose the market price is the closing
      price of the common shares on the last trading day preceding the date of
      grant on which the common shares are traded on the TSX or another exchange
      on which the common shares are
listed.




·
            The
      term of an Option may not exceed 10 years from the date of
      grant.




·
            Once
      granted, the Options may only be transferred or assigned between an
      Eligible Person and a related “Employee Corporation” (as defined in the
      Option Plan) provided the assignor gives notice to the Company prior to
      assignment.




·
            The
      number of common shares that may be issued to any one person under the
      Option Plan shall not exceed 5% of the outstanding common
      shares.




·
            An
      Option and all rights to purchase common shares pursuant thereto shall
      expire and terminate immediately upon the optionee who holds such Option
      ceasing to be an Eligible Person, except in the following
      circumstances:




o
            If,
      before the expiry of an Option in accordance with the terms thereof, an
      optionee shall cease to be an Eligible Person (an “Event of Termination”)
      for any reason other than his or her resignation or the termination for
      “cause” of his or her employment with the Company, or his or her
      resignation or failure to be re-elected as a director of the Company, then
      the optionee may:





a)
            exercise
      the Option to the extent that he or she was entitled to do so at the time
      of such Event of Termination, at any time up to and including, but not
      after, a date that is three (3) months (or such other longer period as may
      be determined by the Board in its sole discretion) following the date of
      such Event of Termination, or prior to the close of business on the
      expiration date of the Option, whichever is earlier;
  and





b)
            with
      the prior written consent of the Board or the compensation committee,
      which consent may be withheld in the Company’s sole discretion, exercise a
      further Option at any time up to and including, but not after, a date that
      is three (3) months (or such other longer period as may be determined by
      the Board in its sole discretion) following the date of such Event of
      Termination, or prior to the close of business on the expiration date of
      the Option, whichever is earlier, to purchase all or any of the optioned
      shares as the Board or the compensation committee may designate but not
      exceeding the number of optioned shares the optionee would have otherwise
      been entitled to purchase pursuant to the Option had the optionee’s status
      as an Eligible Person been maintained for the term of the
      Option.


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o
            If
      an optionee dies before the expiry of an Option in accordance with the
      terms thereof, the optionee’s legal representative(s) may, subject to the
      terms of the Option and the Option
Plan:





a)
            exercise
      the Option to the extent that the optionee was entitled to do so at the
      date of his or her death at any time up to and including, but not after, a
      date one year following the date of death of the optionee, or prior to the
      close of business on the expiration date of the Option, whichever is
      earlier; and





b)
            with
      the prior written consent of the Board or the compensation committee,
      exercise at any time up to and including, but not after, a date one year
      following the date of death of the optionee, a further Option to purchase
      all or any of the optioned shares as the Board or the compensation
      committee may designate but not exceeding the number of optioned shares
      the optionee would have otherwise been entitled to purchase had the
      optionee survived.





·
            The
      Company has no security purchase agreement or stock appreciation rights
      plan.  The Compensation Committee has authority to and may from
      time to time consider the implementation of such other equity incentive
      plans.




·
            By
      its terms, the Option Plan may be amended by the Board without the consent
      of the shareholders, for limited purposes such as amendments necessary to
      ensure that the Option Plan complies with the applicable regulatory
      requirements, including the rules of the TSX, in place from time to time;
      amendments respecting the administration of the Option Plan and
      eligibility for participation under the Option Plan; amendments respecting
      the terms and conditions on which Options may be granted pursuant to the
      Option Plan, including provisions relating to the option price, the option
      period and the vesting schedule; and amendments that are of a housekeeping
      nature.




·
            The
      Board may terminate the Option Plan at any
time.




Shareholder Rights
Plan




We
entered into a shareholder rights plan effective November 28, 2007, upon the
expiry of our previous shareholder rights plan (the “Rights
Plan”).  The Rights Plan was not implemented in response to, or in
anticipation of an acquisition or take-over bid of the Company.




Many
Canadian public companies continue to have shareholders rights plans in
effect.  These plans have as their objectives provided shareholders of
the companies involved, and the board of directors of such companies, with the
time necessary to ensure that, in the event of a take-over bid for their
corporations, alternatives to the bid are explored and developed which may be in
the best interest of the particular corporation and its
shareholders.  Securities legislation in Canada currently permits a
take-over bid to expire in 35 days.  The Board of Directors is of the
view that this is not sufficient time to assess a take-over bid, were such a bid
to be made, and if the Board of Directors deems appropriate, to explore and
develop alternatives in the best interests of the Company and its
shareholders.  In the event that competing bids emerge, the Board of
Directors also believes that current securities legislation in Canada does not
provide a sufficient minimum period of time for a board of directors to assess a
competing offer or for shareholders to make a reasoned decision about the merits
of the competing bids.  The Rights Plan is not intended to prevent a
take-over bid or deter offers for the Common Shares or any other voting
securities of the Company that might be issued in the future.  It is
designed to encourage anyone seeking to acquire control of the Company to
proceed either by way of a “Permitted Bid” (as described below), which requires
a take-over bid to satisfy certain minimum standards designed to promote the
fair treatment of all holders of the voting shares, or with the concurrence of
the Board of Directors.




The
following is a brief summary of the principal terms of our Rights Plan, which is
qualified in its entirety by reference to the text of the Rights Plan Agreement,
which is filed herewith as an Exhibit and incorporated by reference
herein.  All capitalized terms used but not defined herein are defined
in the Rights Plan Agreement.


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Term




The term
of the Rights Plan ends on the date of the Company’s Annual Meeting of
Shareholders to be held in 2017, subject to ratification by the Company’s
shareholders every three years, at which time the Rights will expire unless they
are earlier terminated, redeemed or exchanged by the Board of Directors of the
Company.




Distribution
of Rights




To
implement the Rights Plan, the Board of Directors authorized the issuance of
share purchase rights (“Rights”) to the then-current shareholders of the Company
at the rate of one Right for each common share outstanding as of the time of the
termination of business at the Company’s annual and special meeting of
shareholders held on November 28, 2007 (the “Record Time”).  In
addition, one Right has been, and will continue to be, issued with each common
share issued after the Record Time and prior to the earlier of the Separation
Time (as defined below) and the redemption or expiration of the
Rights.  The Rights Plan Agreement provides for the exercise of the
Rights, the issue of certificates evidencing the Rights, and other related
matters.




Exercise
of Rights




The
Rights will trigger (i.e. separate from the Company’s common shares) (the
“Separation Time”) and will become exercisable eight trading days after a person
(an “Acquiring Person”) has acquired 20% or more of, or commences or announces a
take-over bid for, the Company’s outstanding common shares (defined to include
the common shares and any other shares that the Company may issue that carry
voting rights relating to the election of directors), other than by an
acquisition pursuant to a Permitted Bid or a Competing Permitted Bid (each as
defined below).  The acquisition by an Acquiring Person of 20% or more
of the Company’s outstanding common shares is referred to as a “Flip-in
Event”.




Any
Rights held by an Acquiring Person will become void upon the occurrence of the
Flip-in Event.  By making any take-over bid other than a Permitted Bid
or a Competing Permitted Bid prohibitively expensive for an Acquiring Person,
the Rights Plan is designed to require any person interested in acquiring more
than 20% of the Company’s common shares to do so by way of a Permitted Bid or a
Competing Permitted Bid, or to make a take-over bid that the Board of Directors
considers to represent the full and fair value of the Company’s common
shares.




Prior to
the Rights being triggered, they will have no value and no dilutive effect on
the Company’s common shares.




Certificates
and Transferability




Prior to
separation, the Rights will be evidenced by a legend imprinted on the Company’s
common share certificates and will not be transferable separately from the
common shares.  Common share certificates are not required to be
exchanged in order for a shareholder to be entitled to the Rights.  A
legend will be imprinted on all new certificates issued by the
Company.  From and after separation, the Rights will be evidenced by
Rights certificates and will be transferable separately from the Company’s
common shares.




Rights
of Rights Holders




No holder
of Rights is entitled to vote, receive dividends or be deemed for any purpose
whatsoever the holder of any common share or other share or security of the
Company that may at any time be issuable on the exercise of the Rights
represented thereby, nor shall the holding of a Right be construed or deemed to
confer upon the holder of any Right any of the rights, titles, benefits or
privileges of a holder of common shares or any other shares or securities of the
Company, any right to vote at any meeting of shareholders of the Company, or any
right to consent or withhold consent to any action of the
Company.


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Flip-in
Event




A
“Flip-in Event” will be triggered if a transaction occurs pursuant to which a
person becomes an Acquiring Person (as defined in the Rights
Plan).  Upon the occurrence of the Flip-in Event, each Right (except
for Rights Beneficially Owned (as defined in the Rights Plan) by the Acquiring
Person and certain other persons specified below) will provide the right to
purchase from the Company upon exercise of the Right, in accordance with the
terms of the Rights Plan, the number of common shares of the Company having an
aggregate Market Price (as calculated under the Rights Plan) on the date of the
consummation or occurrence of such Flip-in Event equal to twice the Exercise
Price (as defined below) for an amount in cash equal to the Exercise
Price.  Accordingly, if one assumes a market price of $10 per share,
then a shareholder could purchase for $50.00 ten shares, effectively acquiring
the shares at half of the current market price, with the effect that the
Acquiring Person may suffer substantial dilution of its interest in the
Company.




The
Rights Plan provides that Rights that are Beneficially Owned by (i) an Acquiring
Person or any affiliate or associate of an Acquiring Person, or any person
acting jointly or in concert with an Acquiring Person, or any affiliate or
associate of such Acquiring Person; or (ii) a transferee or other successor in
title of Rights of an Acquiring Person (or of an affiliate or associate of an
Acquiring Person or of any person acting jointly or in concert with an Acquiring
Person or any associate or affiliate of an Acquiring Person) who becomes a
transferee or successor in title concurrently with or subsequent to the
Acquiring Person becoming an Acquiring Person, shall become null and void
without any further action, and any holder of such Rights (including transferees
or successors in title) shall not have any right whatsoever to exercise such
Rights under any provision of the Rights Plan.




Beneficial
Ownership




Beneficial
ownership is broadly defined in the Rights Plan, but certain exceptions from its
scope are provided, including an exception designed to avoid inadvertent
triggering of the dilutive effects of the Rights by portfolio managers acting
for pension funds and others who do not intend to make a take-over bid for the
Company’s common shares.




Acquiring
Person




An
“Acquiring Person” is a person who Beneficially Owns (as defined in the Rights
Plan) 20% or more of the outstanding voting shares of the Company.  An
Acquiring Person does not, however, include the Company or any subsidiary of the
Company, or any person who becomes the Beneficial Owner of 20% or more of the
outstanding voting shares of the Company as a result of Permitted Bids,
Competing Permitted Bids, and certain other exempt transactions.




Exercise
Price and Anti-Dilution Adjustments




The
“Exercise Price” of a Right is, as of any date, the price at which a holder may
purchase the common shares issuable upon exercise of one whole
Right.  Until that price is adjusted under the terms of the Rights
Plan, the Exercise Price will be $200.00.




The
Exercise Price of a Right, the number and kind of shares subject to purchase
upon exercise of a Right, and the number of Rights outstanding, are subject to
adjustment from time to time upon certain events, including:




1.
            if
      there is a dividend paid or payable in common shares or securities
      exchangeable for or convertible into or giving a right to acquire common
      shares or other securities (other than the issue of common shares or such
      other securities to holders of common shares in lieu of, but not in an
      amount that exceeds the value of, regular periodic cash
      dividends;




2.
            a
      subdivision or consolidation of the common shares into a greater or lesser
      number of common shares, as the case may
be;




3.
            the
      issuance of any common shares or securities exchangeable for or
      convertible into or giving a right to acquire common shares or other
      securities in respect of, in lieu of or in exchange for existing common
      shares, except as otherwise permitted under the Rights Plan;
      or




4.
            if
      the Company fixes a record date for the distribution to all holders of
      common shares of evidences of indebtedness, cash (other than a regular
      periodic cash dividend paid in common shares, but including any dividend
      payable in securities other than common shares), assets or subscription
      rights, options or warrants (other than securities referred to in the
      following paragraph), at a price per common share that is less than 90% of
      the Market Price per common share on the second trading day immediately
      preceding such record date; and




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5.
            if
      the Company fixes a record date for the distribution to all holders of
      common shares of certain rights, options or warrants to acquire common
      shares or securities convertible into or exchangeable for or carrying a
      right to purchase common shares at a price per common share less than 90%
      of the Market Price per common share on such record
  date.




No
adjustment to the Exercise Price is required unless the adjustment, together
with all other adjustments that have not been made as of such time as a result
of this de minimis
exception, would require an increase an increase or decrease in the Exercise
Price of at least 1%.




Permitted
Bids and Competing Permitted Bids




A
Permitted Bid or Competing Permitted Bid will not trigger the dilutive effects
of the Rights.  A “Permitted Bid” is a take-over bid made by take-over
bid circular in compliance with the following additional
provisions:




1.
            the
      bid must be made to all holders of record of common
  shares;




2.
            the
      bid must be open for a minimum of 60 days following the date of the bid,
      and no shares may be taken up prior to such
  time;




3.
            take-up
      and payment for shares may not occur unless the bid is accepted by persons
      holding more than 50% of the outstanding common shares (excluding, among
      others, shares held by the person responsible for triggering the Flip-in
      Event or any person that has announced an intention to make, or who has
      made, a takeover bid for the shares of the Company and the respective
      affiliates and associates of such persons and persons acting jointly or in
      concert with such persons);




4.
            shares
      may be deposited into or withdrawn from the bid at any time prior to the
      take-up date; and




5.
            if
      the bid is accepted by the requisite percentage specified in clause (3)
      above, the bidder must extend the bid for a period of 10 business days to
      allow other shareholders to tender into the bid, should they so wish, and
      must make a public announcement to such
effect.




A
“Competing Permitted Bid” is a take-over bid that satisfies all of the criteria
of a Permitted Bid except that since it is made after a Permitted Bid has been
made, the minimum deposit period and the time period for the take-up of and
payment for shares tendered under a Competing Bid is not 60 days, but is instead
the greater of 35 days (the minimum permitted by applicable law) and the 60th
day after the date on which the Permitted Bid then in existence was
made.




Neither a
Permitted Bid nor a Competing Permitted Bid must be approved by the Board of
Directors and may be taken directly to the shareholders of the
Company.  Acquisitions of common shares made pursuant to a Permitted
Bid or a Competing Permitted Bid do not give rise to a Flip-in
Event.




Redemption
and Waiver




The Board
of Directors may, at any time prior to the occurrence of a Flip-in Event, and
subject to shareholder approval, elect to redeem all, but not less than all, of
the Rights at a redemption price of C$0.0001 per Right (the “Redemption Price”),
appropriately adjusted in certain events.  Rights will be deemed to be
automatically redeemed at the Redemption Price where a person that has made a
Permitted Bid, a Competing Permitted Bid, or a take-over bid otherwise exempted
by the Board of Directors takes up and pays for the Company’s shares under the
terms of the bid.  If the Board of Directors elects or is deemed to
have elected to redeem the Rights, the right to exercise the Rights will
terminate, and each Right will, after redemption, be null and void, and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price.  Under the Rights Plan, the Board of Directors has discretion
to waive application of the Rights Plan a take-over bid, subject to an automatic
waiver with respect to all other take-over bids made while the waived take-over
bid is outstanding.  The Board of Directors may also waive the
application of the Rights Plan to a Flip-in Event that occurs through
inadvertence, subject to the “inadvertent” Acquiring Person reducing its holding
of the Company’s shares within an agreed time.  Other waivers of the
Rights Plan will require shareholder approval.


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Shareholder
Approval




The
Rights Plan must be ratified by a majority of the votes cast at the Company’s
applicable shareholder meeting by shareholders present or voting by
proxy.  In addition, The Toronto Stock Exchange requires the Rights
Plan to be ratified by shareholders within six months of the date of adoption of
the Rights Plan by the Board of Directors. The Rights Plan will be subject to
further ratification by the Company’s shareholders every three
years




Amendment




Amendments
or supplements to the terms of the Rights Plan (other than to fix clerical
errors or to maintain the Rights Plan’s validity as a result of changes in
legislation) require shareholder approval.  Changes arising from
changes in applicable legislation will require subsequent shareholder
ratification.




B
            Articles
      of Continuance




Other
Provisions of Articles and By-laws




There are
no provisions in the Articles or By-laws:




·
            delaying
      or prohibiting a change in control of our company that operate only with
      respect to a merger, acquisition or corporate
    restructuring;




·
            discriminating
      against any existing or prospective holder of shares as a result of such
      shareholder owning a substantial number of
  shares;




·
            requiring
      disclosure of share ownership; or




·
            governing
      changes in capital, where such provisions are more stringent than those
      required by law.




C
            Material
      Contracts




In the
prior two years, we have not entered into any contract other than in the
ordinary course of business.




D
            Exchange
      Controls




Canada
has no system of exchange controls. There are no Canadian restrictions on the
repatriation of capital or earnings of a Canadian public company to non-resident
investors. There are no laws in Canada or exchange restrictions affecting the
remittance of dividends, profits, interest, royalties and other payments to
non-resident holders of our securities, except as discussed in Section E,
Taxation.


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Restrictions
on Share Ownership by Non-Canadians




There are
no limitations under the laws of Canada or in our organizational documents on
the right of foreigners to hold or vote securities of our company, except that
the Investment Canada
Act (the “Investment Canada Act”) may require review and approval by the
Minister of Industry (Canada) or the Minister of Canadian Heritage of certain
acquisitions of “control” of our company by a “non-Canadian.”




Investment
Canada Act




Under the
Investment Canada Act
(the “ICA”), foreign investors proposing to acquire “control” of a “Canadian
business” must file an Application for Review (“Application”) with the Director
of Investments at Industry Canada if the proposed transaction exceeds the
following financial thresholds:




·
            For
      non-WTO investors, assets in Canada with a book value exceeding C$5
      million for direct acquisitions and C$50 million for indirect acquisitions
      (e.g., an acquisition of a US corporation with a Canadian
      subsidiary);




·
            For
      WTO investors, C$312 million for 2009 for direct acquisitions (the
      threshold is expected to be increased to an enterprise value of C$600
      million in the fall of 2009).  Indirect acquisitions by WTO
      Investors are only subject to notification;
or




·
            For
      both WTO and non-WTO investors, if the acquisition involves a cultural
      business, C$5 million for direct acquisitions and C$50 million for
      indirect acquisitions.  Acquisitions involving a cultural
      business must also be notified the Department of Canadian
      Heritage.




If an
Application is required, the Investment Review Division (the “IRD”) of Industry
Canada must review the proposed transaction and the Minister of Industry (the
“Minister”) must be satisfied that the transaction is likely to be of “net
benefit to Canada.”  The Minister is required to consider six economic
factors specified in the ICA, as well as any written undertakings that may have
been given by the investor.  The ICA contemplates an initial review
period of up to 45 days after a complete Application is filed; however, the
Minister may unilaterally extend the review period by up to 30 days (or a longer
period with the investor’s consent) to permit completion of the
review.




A
transaction that requires an Application to be filed often cannot be implemented
prior to the investor receiving regulatory clearance.  Non-compliance
may lead to court-ordered divestiture of control and a fine of up to C$10,000
for each day that the statute is contravened.




Even if
the transaction is not reviewable because it does not meet or exceed the
applicable financial threshold, the foreign investor must still file a
notification (which essentially constitutes notice of the investment) with the
Director of Investments within 30 days of the transaction’s
closing.  Investments in certain businesses relating to Canada’s
national heritage or culture may be reviewable following notification if the
Director of the IRD notifies the party making the investment within 21 days of a
complete notification.




The ICA also authorizes the Minister to
review investments that impair or threaten to impair national security and, if
necessary, take appropriate action.The duration of a national
security review can vary depending on whether the transaction is notifiable or
reviewable, the seriousness of the potential security threat, the imminence of
such security threat and the complexity of the review.  Under draft
regulations under the ICA, where the Minister gives notice of a possible review,
the Cabinet of the Government has 25 days to determine whether to order a review
of the transaction.  The Minister has 45 days from the date on which
Cabinet ordered the review of the investment to recommend to Cabinet what, if
any, action should be taken to protect Canada’s national security.  If
divestiture is recommended, the Cabinet has 15 further days to make such an
order, and the Minister shall notify the investor forthwith.


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Competition
Act




The Competition Act(the “CA”)
requires that a pre-merger notification filing be submitted by both parties to a
transaction to the Commissioner of Competition (the “Commissioner”) in respect
of proposed transactions that exceed certain financial and other thresholds. If
a proposed transaction is subject to pre-merger notification, a pre-merger
notification filing must be submitted to the Commissioner and a waiting period
must expire or be waived by the Commissioner before the transaction may be
completed. The parties to a proposed transaction subject to pre-merger
notification must submit a filing and respect a 30 day waiting period before
closing the proposed transaction.  During this initial 30 day period,
the Commissioner may make a request for further information and
documents.  This request suspends the initial 30 day waiting period,
with a second 30 day waiting period commencing on the day on which the parties
comply with the Commissioner’s information request. .




The
Commissioner may, upon request, issue an advance ruling certificate (“ARC”) in
respect of a proposed transaction where she is satisfied that the transaction
gives rise to no or minimal anti-competitive effects (or is pro-competitive). If
the Commissioner issues an ARC in respect of a proposed transaction, the
transaction is exempt from the pre-merger notification provisions. In addition,
if the transaction to which the ARC relates is substantially completed within
one year after the ARC is issued, the Commissioner may not challenge the
transaction under the substantive merger provisions of the CA solely on the
basis of information that is the same or substantially the same as the
information on the basis of which the ARC was issued.




If the
Commissioner is unwilling to issue an ARC, she may nevertheless issue a “no
action” letter confirming that she is of the view that grounds do not then exist
to initiate proceedings before the Competition Tribunal under the merger
provisions of the CA with respect to the proposed transaction, while preserving,
during year following completion of the proposed transaction, her authority to
challenge the transaction.  A “no action” letter does not by itself
eliminate the need for notification.




Regardless
of whether pre-merger notification is required, within one year after a merger
has been substantially completed, the Commissioner may apply to the Competition
Tribunal (a specialized administrative tribunal) for an order under the merger
provisions of the CA. If the Competition Tribunal finds that the transaction
prevents or lessens or is likely to prevent or lessen competition substantially,
it may order that the parties not proceed with the transaction or part of it or,
in the event that the transaction has already been completed, order its
dissolution or the disposition of some of the assets or shares involved. In
addition, the Competition Tribunal may, with the consent of the person against
whom the order is directed and the Commissioner, order that person to take any
other action as is deemed necessary to remedy any substantial lessening or
prevention of competition that the Competition Tribunal determines would or
would likely result from the transaction.




E
            Taxation




Canadian
Federal Income Taxation




In the
opinion of Heenan Blaikie LLP, counsel to the Company, the following is a
summary of the principal Canadian federal income tax considerations under the
Tax Act generally applicable to holders of our Common Shares. This summary
summarizes Canadian federal income tax considerations applicable to the holders
of Common Shares who, for the purposes of the Tax Act are residents in Canada,
who deal at arm’s length and are not affiliated with the Company and hold their
Common Shares as capital property. No part of this summary is applicable to
holders which are “financial institutions” for the purposes of the “mark to
market” provisions of the Tax Act, to any “specified financial institution” as
defined in the Tax Act to any person an investment in which would constitute a
“tax shelter” for the purposes of the Tax Act, to Underwriters or agents acting
on behalf of the Company nor to holders who report their income in a functional
currency. The Common Shares will generally be “capital property” to a holder
unless they are held in the course of carrying on a business of trading or
dealing in securities or the holder is engaged in an adventure in the nature of
trade with respect to such shares. Certain holders who might not otherwise be
considered to hold their Common Shares as capital property may, in certain
circumstances, be entitled to have them treated as capital property by making
the irrevocable election permitted by subsection 39(4) of the Tax Act. Holders of Common Shares
contemplating making the election permitted by subsection 39(4) of the Tax Act
should consult their own independent tax advisors as such an election would
affect the income tax treatment of dispositions by the holder of other Canadian
securities.


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This
summary is based upon the current provisions of the Tax Act and the Regulations
in force as of the date hereof, all specific proposals (the “Proposed Amendments”) to amend
the Tax Act or the Regulations that have been publicly announced by, or on
behalf of, the Minister of Finance (Canada) prior to the date hereof and
counsel’s understanding of the current published administrative and assessing
practices of the Canada Revenue Agency. If the Proposed Amendments are not
enacted as presently proposed or other relevant amendments to the Tax Act or
Regulations come into force, the tax consequences may not be as described below.
This summary does not take into account or anticipate any other changes to the
law, whether by legislative, governmental or judicial decision or action, nor
does it take into account provincial, territorial or foreign income tax
legislation or considerations, which may differ from the Canadian federal income
tax considerations. This
summary is of a general nature only, is not exhaustive of all possible Canadian
federal income tax considerations and is not intended to be, nor should it be
construed to be, legal or tax advice to any particular holder. Therefore,
holders should consult their own tax advisors with respect to their particular
circumstances.




Adjusted
Cost Base of Shares




The
“adjusted cost base” of each Common Share of the Company owned by a holder at
any particular time will be the average adjusted cost base to the holder of all
common shares of the Company owned at that time.




Dividends




Dividends
received or deemed to be received on the Common Shares will be included in
computing the holder’s income and will be subject to gross-up and dividend tax
credit rules applicable to dividends paid by a taxable Canadian corporation.
Taxable dividends received from a public corporation that is a taxable Canadian
corporation which are designated by such corporation as “eligible dividends” in
accordance with the Tax Act will be grossed-up by 45% and the tax credit will be
11/18 of the grossed-up amount. Dividends which are not designated as “eligible
dividends” will be grossed-up by 25% and the dividend tax credit will be 2/3 of
the gross-up amount. Dividends received by a corporation on the Common Shares
must be included in computing its income but generally will be deductible in
computing its taxable income. Private corporations (as defined in the Tax Act)
and certain other corporations controlled by or for the benefit of an individual
(other than a trust) or related group of individuals (other than trusts)
generally will be liable to pay a 33 1/3% refundable tax under Part IV of the
Tax Act on dividends to the extent such dividends are deductible in computing
the corporation’s taxable income. This refundable tax generally will be refunded
to a corporate holder at the rate of $1 for every $3 of taxable dividends paid
while it is a private corporation.




Capital
Gains or Capital Losses




Upon a
disposition (or a deemed disposition) of a common share of the Company, a holder
generally will realize a capital gain (or a capital loss) equal to the amount by
which the proceeds of disposition of such share, net of any reasonable costs of
disposition, are greater (or are less) than the adjusted cost base of such share
to the holder. One-half of any capital gain will be included in income as a
taxable capital gain. One-half of any capital loss may generally be deducted as
an allowable capital loss against taxable capital gains realized in the year of
disposition, any of the three preceding taxation years or any subsequent
taxation year, subject to detailed provisions of the Tax Act. The amount of any
capital loss realized on the disposition or deemed disposition of common shares
by a holder that is a corporation may be reduced by the amount of dividends
received or deemed to have been received by it on such shares or shares
substituted for such shares to the extent and in the circumstances prescribed by
the Tax Act. Similar rules may apply where a holder is a corporation that is a
member of a partnership or beneficiary of a trust that owns such shares or that
is itself a member of a partnership or a beneficiary of a trust that owns such
shares. A holder that is throughout the relevant taxation year a
“Canadian-controlled private corporation” (as defined in the Tax Act) also may
be liable to pay an additional refundable tax of 6 2/3% on its “aggregate
investment income” for the year which will include taxable capital gains. This
refundable tax generally will be refunded to a corporate holder at the rate of
$1 for every $3 of taxable dividends paid while it is a private
corporation.


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Minimum
Tax on Individuals




The Tax
Act provides for an alternative minimum income tax applicable to individuals
(including certain trusts and estates) resident in Canada, which is computed by
reference to an adjusted taxable income amount under which certain items are not
deductible or exempt. In calculating adjusted taxable income for the purpose of
determining the minimum tax liability, eighty percent of taxable capital gains
and the actual amount of taxable dividends (not including any gross-up or
dividend tax credit) is included in the adjusted taxable income. Any additional
tax payable by an individual under the minimum tax provisions may be carried
forward and applied against certain tax otherwise payable in any of the seven
immediately following taxation years; however, this carry-forward amount will
only be creditable in a particular year to the extent that the individual’s tax
payable for the year, calculated without reference to the minimum tax
provisions, exceeds the tax payable under the minimum tax provisions for the
year.




F
            Certain
      US Federal Income Tax
Considerations




The
following is a summary of certain material US federal income tax consequences to
a US Holder (as defined below) arising from and relating to the acquisition,
ownership, and disposition of our common shares of the Company.




This
summary is for general information purposes only and does not purport to be a
complete analysis or listing of all potential US federal income tax consequences
that may apply to a US Holder as a result of the acquisition, ownership, and
disposition of our common shares.  In addition, this summary does not
take into account the individual facts and circumstances of any particular US
Holder that may affect the US federal income tax consequences of the
acquisition, ownership, and disposition of our common
shares.  Accordingly, this summary is not intended to be, and should
not be construed as, legal or US federal income tax advice with respect to any
US Holder.  Each US Holder should consult its own tax advisor
regarding the US federal income, US state and local, and foreign tax
consequences of the acquisition, ownership, and disposition of our common
shares.




Scope
of this Summary




Authorities




This
summary is based on the Internal Revenue Code of 1986, as amended (the “Code”),
Treasury Regulations (whether final, temporary, or proposed), published rulings
of the Internal Revenue Service (the “IRS”), published administrative positions
of the IRS, the Convention Between Canada and the United States of America with
Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended
(the “Canada-US Tax Convention”), and US court decisions that are applicable
and, in each case, as in effect and available, as of the date of this Annual
Report.  Any of the authorities on which this summary is based could
be changed in a material and adverse manner at any time, and any such change
could be applied on a retroactive basis.  This summary does not
discuss the potential effects, whether adverse or beneficial, of any proposed
legislation that, if enacted, could be applied on a retroactive
basis.




US
Holders




For
purposes of this summary, a “US Holder” is a beneficial owner of our common
shares that is (a) an individual who is a citizen or resident of the US for
US federal income tax purposes, (b) a corporation, or any other entity
classified as a corporation for US federal income tax purposes, that is created
or organized in or under the laws of the US, any state in the US, or the
District of Columbia, (c) an estate if the income of such estate is subject
to US federal income tax regardless of the source of such income, or (d) a
trust if (i) such trust has validly elected to be treated as a US person
for US federal income tax purposes or (ii) a US court is able to exercise
primary supervision over the administration of such trust and one or more US
persons have the authority to control all substantial decisions of such
trust.


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Non-US
Holders


For
purposes of this summary, a “non-US Holder” is a beneficial owner of our common
shares other than a US Holder.  This summary does not address the US
federal income tax consequences of the acquisition, ownership, and disposition
of our common shares to non-US Holders.  Accordingly, a non-US Holder
should consult its own tax advisor regarding the US federal income, US state and
local, and foreign tax consequences (including the potential application of and
operation of any income tax treaties) of the acquisition, ownership, and
disposition of our common shares.




US
Holders Subject to Special US Federal Income Tax Rules Not
Addressed




This
summary does not address the US federal income tax consequences of the
acquisition, ownership, and disposition of our common shares to US Holders that
are subject to special provisions under the Code, including the following US
Holders:  (a) US Holders that are tax-exempt organizations,
qualified retirement plans, individual retirement accounts, or other
tax-deferred accounts; (b) US Holders that are financial institutions,
insurance companies, real estate investment trusts, or regulated investment
companies; (c) US Holders that are dealers in securities or currencies or
US Holders that are traders in securities that elect to apply a mark-to-market
accounting method; (d) US Holders that have a “functional currency” other
than the US dollar; (e) US Holders that are liable for the alternative
minimum tax under the Code; (f) US Holders that own common shares as part
of a straddle, hedging transaction, conversion transaction, constructive sale,
or other arrangement involving more than one position; (g) US Holders that
acquired common shares in connection with the exercise of employee stock options
or otherwise as compensation for services; (h) US Holders that hold common
shares other than as a capital asset within the meaning of Section 1221 of
the Code; or (i) US Holders that own (directly, indirectly, or
constructively) 10% or more of the total combined voting power of all classes of
shares of the Company entitled to vote.  US Holders that are subject
to special provisions under the Code, including US Holders described immediately
above, should consult their own tax advisors regarding the US federal income tax
consequences of the acquisition, ownership, and disposition of our common
shares.




If an
entity that is classified as a partnership for US federal income tax purposes
holds common shares, the US federal income tax consequences of the acquisition,
ownership, and disposition of our common shares to such partnership and the
partners of such partnership generally will depend on the activities of the
partnership and the status of such partners.  Partners of entities
that are classified as partnerships for US federal income tax purposes should
consult their own tax advisors regarding the US federal income tax consequences
of the acquisition, ownership, and disposition of our common
shares.




Tax
Consequences Other than US Federal Income Tax Consequences Not
Addressed




This
summary does not address the US state and local, US federal estate and gift, or
foreign tax consequences to US Holders of the acquisition, ownership, and
disposition of our common shares.  Each US Holder should consult its
own tax advisor regarding the US state and local, US federal estate and gift,
and foreign tax consequences of the acquisition, ownership, and disposition of
our common shares.




US
Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition
of Our Common Shares




Distributions
on Common Shares




Subject
to the “passive foreign investment company” rules discussed below, a US Holder
that receives a distribution, including a constructive distribution, with
respect to our common shares will be required to include the amount of such
distribution in gross income as a dividend (without reduction for any Canadian
income tax withheld from such distribution) to the extent of the current or
accumulated “earnings and profits” of the Company.  To the extent that
a distribution exceeds the current and accumulated “earnings and profits” of the
Company, such distribution will be treated (a) first, as a tax-free return
of capital to the extent of a US Holder’s tax basis in our common shares and,
(b) thereafter, as gain from the sale or exchange of such common
shares.  (See “Disposition of our common shares” below). However, the
Company does not intend to maintain the calculations of earnings and profits in
accordance with U.S. federal income tax principles, and each US Holder should
therefore assume that any distribution by the Company with respect to our common
shares will constitute ordinary dividend income.  Dividends paid on
our common shares generally will not be eligible for the “dividends received
deduction.”


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Reduced
Tax Rates for Certain Dividends




For
taxable years beginning or before January 1, 2011, a dividend paid by the
Company generally will be taxed at the preferential tax rates applicable to
long-term capital gains if (a) the Company is a “qualified foreign
corporation” (as defined below), (b) the US Holder receiving such dividend
is an individual, estate, or trust, and (c) such dividend is paid on common
shares that have been held by such US Holder for at least 61 days during the
121-day period beginning 60 days before the “ex-dividend date.”




The
Company generally will be a “qualified foreign corporation” under
Section 1(h)(11) of the Code (a “QFC”) if (a) the Company is eligible
for the benefits of the Canada-US Tax Convention, or (b) our common shares
are readily tradable on an established securities market in the
US  However, even if the Company satisfies one or more of such
requirements, the Company will not be treated as a QFC if the Company is a
“passive foreign investment company” (or “PFIC,” as defined below) for the
taxable year during which the Company pays a dividend or for the preceding
taxable year.




As
discussed below, the Company believes that it constituted a “PFIC” for one or
more prior taxable years, and based on current business plans and financial
projections, the Company expects that it will be a PFIC for the current taxable
year. (See “Passive Foreign Investment Company Rules”
below).  Accordingly, the Company does not expect to be a QFC for the
current taxable year.




If the
Company is not a PFIC, but a U.S. Holder otherwise fails to qualify for the
preferential tax rate applicable to dividends discussed above, a dividend paid
by the Company to a US Holder, including a US Holder that is an individual,
estate, or trust, generally will be taxed at ordinary income tax rates (and not
at the preferential tax rates applicable to long-term capital
gains).  The dividend rules are complex, and each US Holder should
consult its own tax advisor regarding the dividend rules.




Distributions
Paid in Foreign Currency




The
amount of a distribution received on our common shares in foreign currency
generally will be equal to the US dollar value of such distribution based on the
exchange rate applicable on the date of receipt.  A US Holder that
does not convert foreign currency received as a distribution into US dollars on
the date of receipt generally will have a tax basis in such foreign currency
equal to the US dollar value of such foreign currency on the date of
receipt.  Such a US Holder generally will recognize ordinary income or
loss on the subsequent sale or other taxable disposition of such foreign
currency (including an exchange for US dollars).




Dividends
Received Deduction




Dividends
received on our common shares generally will not be eligible for the “dividends
received deduction.”  The availability of the dividends received
deduction is subject to complex limitations that are beyond the scope of this
summary, and a US Holder that is a corporation should consult its own tax
advisor regarding the dividends received deduction.




Disposition
of Common Shares




A US
Holder will recognize gain or loss on the sale or other taxable disposition of
our common shares in an amount equal to the difference, if any, between
(a) the amount of cash plus the fair market value of any property received
and (b) such US Holder’s adjusted tax basis in our common shares sold or
otherwise disposed of.  Subject to the “passive foreign investment
company” rules discussed below, any such gain or loss generally will be capital
gain or loss, which will be long-term capital gain or loss if our common shares
are held for more than one year.




Preferential
tax rates apply to long-term capital gains of a US Holder that is an individual,
estate, or trust.  There are currently no preferential tax rates for
long-term capital gains of a US Holder that is a
corporation.  Deductions for capital losses are subject to significant
limitations under the Code.


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Foreign
Tax Credit




A US
Holder that pays (whether directly or through withholding) Canadian income tax
with respect to dividends received on our common shares generally will be
entitled, at the election of such US Holder, to receive either a deduction or a
credit for such Canadian income tax paid.  Generally, a credit will
reduce a US Holder’s US federal income tax liability on a dollar-for-dollar
basis, whereas a deduction will reduce a US Holder’s income subject to US
federal income tax.  This election is made on a year-by-year basis and
applies to all foreign taxes paid (whether directly or through withholding) by a
US Holder during a taxable year.




Complex
limitations apply to the foreign tax credit, including the general limitation
that the credit cannot exceed the proportionate share of a US Holder’s US
federal income tax liability that such US Holder’s “foreign source” taxable
income bears to such US Holder’s worldwide taxable income.  In
applying this limitation, a US Holder’s various items of income and deduction
must be classified, under complex rules, as either “foreign source” or “US
source.”  In addition, this limitation is calculated separately with
respect to specific categories of income.  Gain or loss recognized by
a US Holder on the sale or other taxable disposition of our common shares
generally will be treated as “US source” for purposes of applying the foreign
tax credit rules, unless such gain is resourced under an applicable provision of
the Canada-US Tax Convention and an election is made under the
Code.  Dividends received on our common shares generally will be
treated as “foreign source” and generally will be categorized as “passive
income.”  The foreign tax credit rules are complex, and each US Holder
should consult its own tax advisor regarding the foreign tax credit
rules.




Information
Reporting; Backup Withholding Tax




Payments
made within the US, or by a US payor or US middleman, of dividends on, or
proceeds arising from the sale or other taxable disposition of, common shares
generally will be subject to information reporting and backup withholding tax,
at the rate of 28%, if a US Holder (a) fails to furnish such US Holder’s
correct US taxpayer identification number (generally on Form W-9),
(b) furnishes an incorrect US taxpayer identification number, (c) is
notified by the IRS that such US Holder has previously failed to properly report
items subject to backup withholding tax, or (d) fails to certify, under
penalty of perjury, that such US Holder has furnished its correct US taxpayer
identification number and that the IRS has not notified such US Holder that it
is subject to backup withholding tax.  However, US Holders that are
corporations generally are excluded from these information reporting and backup
withholding tax rules.  Any amounts withheld under the US backup
withholding tax rules will be allowed as a credit against a US Holder’s US
federal income tax liability, if any, or will be refunded, if such US Holder
furnishes required information to the IRS.  Each US Holder should
consult its own tax advisor regarding the information reporting and backup
withholding tax rules.




Passive
Foreign Investment Company Rules




If the
Company is considered a “passive foreign investment company” under the meaning
of Section 1297 of the Code (a “PFIC”) at any time during a U.S. Holder’s
holding period, the following sections will generally describe the U.S. federal
income tax consequences to U.S. Holders of the acquisition, ownership, and
disposition of our common shares.




The
Company generally will be a PFIC under Section 1297(a) of the Code if, for
a taxable year, (a) 75% or more of the gross income of the Company for such
taxable year is passive income or (b) on average, 50% or more of the assets
held by the Company either produce passive income or are held for the production
of passive income, based on the fair market value of such assets (or on the
adjusted tax basis of such assets, if the Company is not publicly traded and
either is a “controlled foreign corporation” or makes an
election).  “Gross income” means, generally, sales revenues less the
cost of goods sold.  “Passive income” includes, for example,
dividends, interest, certain rents and royalties, certain gains from the sale of
stock and securities, and certain gains from commodities
transactions.


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For
purposes of the PFIC income test and asset test described above, if the Company
owns, directly or indirectly, 25% or more of the total value of the outstanding
shares of another foreign corporation, the Company will be treated as if it
(a) held a proportionate share of the assets of such other foreign
corporation and (b) received directly a proportionate share of the income
of such other foreign corporation.  In addition, for purposes of the
PFIC income test and asset test described above, “passive income” does not
include any interest, dividends, rents, or royalties that are received or
accrued by the Company from a “related person” (as defined in
Section 954(d)(3) of the Code), to the extent such items are properly
allocable to the income of such related person that is not passive
income.




The
Company believes that it constituted a PFIC for one or more prior taxable years,
and based on current business plans and financial projections, the Company
expects that it will be a PFIC for the current taxable year.  The
determination of whether the Company was, or will be, a PFIC for a taxable year
depends, in part, on the application of complex US federal income tax rules,
which are subject to various interpretations.  In addition, whether
the Company will be a PFIC for the current taxable year ending depends on the
assets and income of the Company over the course of each such taxable year and,
as a result, cannot be predicted with certainty as of the date of this annual
report.  Accordingly, there can be no assurance that the IRS will not
challenge the determination made by the Company concerning its PFIC
status.




Default
PFIC Rules Under Section 1291 of the Code




If the
Company is a PFIC, the US federal income tax consequences to a US Holder of the
acquisition, ownership, and disposition of our common shares will depend on
whether such US Holder makes an election to treat the Company as a “qualified
electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”)
or a mark-to-market election under Section 1296 of the Code (a
“Mark-to-Market Election”).  A US Holder that does not make either a
QEF Election or a Mark-to-Market Election will be referred to in this summary as
a “Non-Electing US Holder.”




A
Non-Electing US Holder will be subject to the rules of Section 1291 of the
Code with respect to (a) any gain recognized on the sale or other taxable
disposition of our common shares and (b) any excess distribution received
on our common shares.  A distribution generally will be an “excess
distribution” to the extent that such distribution (together with all other
distributions received in the current taxable year) exceeds 125% of the average
distributions received during the three preceding taxable years (or during a US
Holder’s holding period for our common shares, if shorter).




Under
Section 1291 of the Code, any gain recognized on the sale or other taxable
disposition of our common shares, and any excess distribution received on our
common shares, must be ratably allocated to each day in a Non-Electing US
Holder’s holding period for our common shares.  The amount of any such
gain or excess distribution allocated to prior years of such Non-Electing US
Holder’s holding period for our common shares (other than years prior to the
first taxable year of the Company beginning after December 31, 1986 for which
the Company was not a PFIC) will be subject to US federal income tax at the
highest tax rate applicable to ordinary income in each such prior
year.  A Non-Electing US Holder will be required to pay interest on
the resulting tax liability for each such prior year, calculated as if such tax
liability had been due in each such prior year.  Such a Non-Electing
US Holder that is not a corporation must treat any such interest paid as
“personal interest,” which is not deductible.  The amount of any such
gain or excess distribution allocated to the current year of such Non-Electing
US Holder’s holding period for our common shares will be treated as ordinary
income in the current year, and no interest charge will be incurred with respect
to the resulting tax liability for the current year.




If the
Company is a PFIC for any taxable year during which a Non-Electing US Holder
holds our common shares, the Company will continue to be treated as a PFIC with
respect to such Non-Electing US Holder, regardless of whether the Company ceases
to be a PFIC in one or more subsequent taxable years.  A Non-Electing
US Holder may terminate this deemed PFIC status by electing to recognize gain
(which will be taxed under the rules of Section 1291 of the Code discussed
above) as if such common shares were sold on the last day of the last taxable
year for which the Company was a PFIC.


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In
addition, if the Company is a PFIC and owns shares of another foreign
corporation that also is a PFIC (a “Subsidiary PFIC”), under certain indirect
ownership rules, a disposition by the Company of the shares of such Subsidiary
PFIC or a distribution received by the Company from such Subsidiary PFIC
generally will be treated as an indirect disposition by a US Holder or an
indirect distribution received by a US Holder, subject to the rules of Section
1291 of the Code discussed above.  To the extent that gain recognized
on the actual disposition by a US Holder of our common shares or income
recognized by a US Holder on an actual distribution received on our common
shares was previously subject to US federal income tax under these indirect
ownership rules, such amount generally should not be subject to US federal
income tax.




QEF
Election




The
procedure for making a QEF Election, and the US federal income tax consequences
of making a QEF Election, will depend on whether such QEF Election is
timely.  A QEF Election generally will be “timely” if it is made for
the first year in a US Holder’s holding period for our common shares in which
the Company is a PFIC.  In this case, a US Holder may make a timely
QEF Election by filing the appropriate QEF Election documents with such US
Holder’s US federal income tax return for such first year.  However,
if the Company was a PFIC in a prior year in a US Holder’s holding period for
our common shares, then in order to be treated as making a “timely” QEF
Election, such US Holder must elect to recognize gain (which will be taxed under
the rules of Section 1291 of the Code discussed above) as if our common
shares were sold on the qualification date for an amount equal to the fair
market value of our common shares on the qualification date.  The
“qualification date” is the first day of the first taxable year in which the
Company was a QEF with respect to such US Holder.  In addition, under
very limited circumstances, a US Holder may make a retroactive QEF Election if
such US Holder failed to file the QEF Election documents in a timely
manner.




A QEF
Election will apply to the taxable year for which such QEF Election is made and
to all subsequent taxable years, unless such QEF Election is invalidated or
terminated or the IRS consents to revocation of such QEF Election.  If
a US Holder makes a QEF Election and, in a subsequent taxable year, the Company
ceases to be a PFIC, the QEF Election will remain in effect (although it will
not be applicable) during those taxable years in which the Company is not a
PFIC.  Accordingly, if the Company becomes a PFIC in another
subsequent taxable year, the QEF Election will be effective and the US Holder
will be subject to the QEF rules described above during any such subsequent
taxable year in which the Company qualifies as a PFIC.  In addition,
the QEF Election will remain in effect (although it will not be applicable) with
respect to a US Holder even after such US Holder disposes of all of such US
Holder’s direct and indirect interest in our common
shares.  Accordingly, if such US Holder reacquires an interest in the
Company, such US Holder will be subject to the QEF rules described above for
each taxable year in which the Company is a PFIC.




A US
Holder that makes a timely QEF Election generally will not be subject to the
rules of Section 1291 of the Code discussed above.  For example,
a US Holder that makes a timely QEF Election generally will recognize capital
gain or loss on the sale or other taxable disposition of our common
shares.




However,
for each taxable year in which the Company is a PFIC, a US Holder that makes a
QEF Election will be subject to US federal income tax on such US Holder’s pro
rata share of (a) the net capital gain of the Company, which will be taxed
as long-term capital gain to such US Holder, and (b) and the ordinary
earnings of the Company, which will be taxed as ordinary income to such US
Holder.  Generally, “net capital gain” is the excess of (a) net
long-term capital gain over (b) net short-term capital loss, and “ordinary
earnings” are the excess of (a) “earnings and profits” over (b) net
capital gain.  A US Holder that makes a QEF Election will be subject
to US federal income tax on such amounts for each taxable year in which the
Company is a PFIC, regardless of whether such amounts are actually distributed
to such US Holder by the Company.  However, a US Holder that makes a
QEF Election may, subject to certain limitations, elect to defer payment of
current US federal income tax on such amounts, subject to an interest
charge.  If such US Holder is not a corporation, any such interest
paid will be treated as “personal interest,” which is not
deductible.




A US
Holder that makes a QEF Election generally (a) may receive a tax-free
distribution from the Company to the extent that such distribution represents
“earnings and profits” of the Company that were previously included in income by
the US Holder because of such QEF Election and (b) will adjust such US
Holder’s tax basis in our common shares to reflect the amount included in income
or allowed as a tax-free distribution because of such QEF
Election.


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US
Holders should be aware that there can be no assurances that the Company will
satisfy the record keeping requirements that apply to a QEF, or that the Company
will supply US Holders with the information that such US Holders require to
report under the QEF rules, in the event that the Company is a PFIC and a US
Holder wishes to make a QEF Election.  Each US Holder should consult
its own tax advisor regarding the availability of, and procedure for making, a
QEF Election.




Mark-to-Market
Election




A US
Holder may make a Mark-to-Market Election only if our common shares are
marketable stock.  Our common shares generally will be “marketable
stock” if our common shares are regularly traded on a qualified exchange or
other market.  For this purpose, a “qualified exchange or other
market” includes (a) a national securities exchange that is registered with
the Securities and Exchange Commission, (b) the national market system
established pursuant to section 11A of the Securities and Exchange Act of 1934,
or (c) a foreign securities exchange that is regulated or supervised by a
governmental authority of the country in which the market is located, provided
that (i) such foreign exchange has trading volume, listing, financial
disclosure, surveillance, and other requirements designed to prevent fraudulent
and manipulative acts and practices, remove impediments to and perfect the
mechanism of a free, open, fair, and orderly market, and protect investors (and
the laws of the country in which the foreign exchange is located and the rules
of the foreign exchange ensure that such requirements are actually enforced) and
(ii) the rules of such foreign exchange effectively promote active trading
of listed stocks.  If our common shares are traded on such a qualified
exchange or other market, our common shares generally will be “regularly traded”
for any calendar year during which our common shares are traded, other than in
de minimis quantities, on at least 15 days during each calendar
quarter.




A
Mark-to-Market Election applies to the taxable year in which such Mark-to-Market
Election is made and to each subsequent taxable year, unless our common shares
cease to be “marketable stock” or the IRS consents to revocation of such
election.  Each US Holder should consult its own tax advisor regarding
the availability of, and procedure for making, a Mark-to-Market
Election.




A US
Holder that makes a Mark-to-Market Election generally will not be subject to the
rules of Section 1291 of the Code discussed above.  However, if a
US Holder makes a Mark-to-Market Election after the beginning of such US
Holder’s holding period for our common shares and such US Holder has not made a
timely QEF Election, the rules of Section 1291 of the Code discussed above
will apply to certain dispositions of, and distributions on, our common
shares.




A US
Holder that makes a Mark-to-Market Election will include in ordinary income, for
each taxable year in which the Company is a PFIC, an amount equal to the excess,
if any, of (a) the fair market value of our common shares as of the close
of such taxable year over (b) such US Holder’s adjusted tax basis in such
common shares.  A US Holder that makes a Mark-to-Market Election will
be allowed a deduction in an amount equal to the lesser of (a) the excess,
if any, of (i) such US Holder’s adjusted tax basis in our common shares
over (ii) the fair market value of such common shares as of the close of
such taxable year or (b) the excess, if any, of (i) the amount
included in ordinary income because of such Mark-to-Market Election for prior
taxable years over (ii) the amount allowed as a deduction because of such
Mark-to-Market Election for prior taxable years.




A US
Holder that makes a Mark-to-Market Election generally will adjust such US
Holder’s tax basis in our common shares to reflect the amount included in gross
income or allowed as a deduction because of such Mark-to-Market
Election.  In addition, upon a sale or other taxable disposition of
our common shares, a US Holder that makes a Mark-to-Market Election will
recognize ordinary income or loss (not to exceed the excess, if any, of
(a) the amount included in ordinary income because of such Mark-to-Market
Election for prior taxable years over (b) the amount allowed as a deduction
because of such Mark-to-Market Election for prior taxable years).




Other
PFIC Rules




Under
Section 1291(f) of the Code, the IRS has issued proposed Treasury
Regulations that, subject to certain exceptions, would cause a US Holder that
had not made a timely QEF Election to recognize gain (but not loss) upon certain
transfers of our common shares that would otherwise be tax-deferred (such as
gifts and exchanges pursuant to tax-deferred reorganizations under Section 368
of the Code).  However, the specific US federal income tax
consequences to a US Holder may vary based on the manner in which common shares
are transferred.


- 85
-


Certain
additional adverse rules will apply with respect to a US Holder if the Company
is a PFIC, regardless of whether such US Holder makes a QEF
Election.  For example under Section 1298(b)(6) of the Code, a US
Holder that uses common shares as security for a loan will, except as may be
provided in Treasury Regulations, be treated as having made a taxable
disposition of such common shares.




The PFIC
rules are complex, and each US Holder should consult its own tax advisor
regarding the PFIC rules and how the PFIC rules may affect the US federal income
tax consequences of the acquisition, ownership, and disposition of our common
shares.




G
            Dividends
      and Paying Agents




Dividends




We have
not paid any dividends since its incorporation.  We will consider
paying dividends in future as our operational circumstances may permit having
regard to, among other things, our earnings, cash flow and financial
requirements.  It is the current policy of our Board of Directors to
retain all earnings to finance our business plan.




H
            Statements
      by Experts




Not
applicable.




I
            Documents
      on Display




We are
subject to the informational requirements of the Exchange Act and file reports
and other information with the SEC. You may read and copy any of our reports and
other information at, and obtain copies upon payment of prescribed fees from,
the Public Reference Room maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. In addition, the SEC maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC at http://www.sec.gov. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.




We are
required to file reports and other information with the securities commissions
in all provinces of Canada. You are invited to read and copy any reports,
statements or other information, other than confidential filings, that we file
with the provincial securities commissions. These filings are also
electronically available from the Canadian System for Electronic Document
Analysis and Retrieval (“SEDAR”) (http://www.sedar.com), the Canadian equivalent
of the SEC’s electronic document gathering and retrieval system.




We
“incorporate by reference” information that we file with the SEC, which means
that we can disclose important information to you by referring you to those
documents. The information incorporated by reference is an important part of
this Form 20-F and more recent information automatically updates and supersedes
more dated information contained or incorporated by reference in this Form
20-F.




As a
foreign private issuer, we are exempt from the rules under the Exchange Act
prescribing the furnishing and content of proxy statements to
shareholders.




We will
provide without charge to each person, including any beneficial owner, to whom a
copy of this Annual Report has been delivered, on the written or oral request of
such person, a copy of any or all documents referred to above which have been or
may be incorporated by reference in this Annual Report (not including exhibits
to such incorporated information that are not specifically incorporated by
reference into such information). Requests for such copies should be directed to
us at the following address: YM Biosciences, 5045 Orbiter Drive, Suite 400,
Building 11, Mississauga, Ontario, Canada, L4W 4Y4, Attention: Secretary.
Telephone: (905) 629-9761. Facsimile (905) 629-4959 EMAIL:
ir@ymbiosciences.com.


- 86
-




J
            Subsidiary
      Information




Our
subsidiaries are detailed under Item 4.C, “Organizational
Structure”.




Item
      11:
            Quantitative
      and Qualitative Disclosures About Market
Risk




Information
relating to quantitative and qualitative disclosures about market risk is
detailed in Item 5.




Item
      12:
            Description
      of Securities Other Than Equity
Securities




A
            Debt
      Securities




Not
applicable.




B
            Warrants
      and Rights




Not
applicable.




C
            Other
      Securities




Not
applicable.




D
            American
      Depository Shares




Not
applicable.


- 87
-




PART
II




Item
      13:
            Defaults,
      Dividend Arrearages and
Delinquencies




Item
      14:
            Material
      Modification to the Rights of Security Holders and Use of
      Proceeds




Not
applicable.




Item
      15:
            Controls
      and Procedures




(a)
            Disclosure Controls
      and Procedures.  As of the end of our fiscal year ended
      June 30, 2009, an evaluation of the effectiveness of our “disclosure
      controls and procedures” (as such term is defined in Rules 13a-15(e) and
      15d-15(e) of the Securities Exchange Act of 1934, as amended (the
      “Exchange Act”)) was carried out under the supervision and with the
      participation of our principal executive officer and principal financial
      officer. Based upon that evaluation, our principal executive officer and
      principal financial officer have concluded that as of the end of that
      fiscal year, our disclosure controls and procedures are effective to
      ensure that information required to be disclosed by us in reports that we
      file or submit under the Exchange Act is (i) recorded, processed,
      summarized and reported within the time periods specified in SEC rules and
      forms and (ii) accumulated and communicated to our management, including
      our principal executive officer and principal financial officer, to allow
      timely decisions regarding required
disclosure.




It should
be noted that while our principal executive officer and principal financial
officer believe that our disclosure controls and procedures provide a reasonable
level of assurance that they are effective, they do not expect that our
disclosure controls and procedures or internal control over financial reporting
will prevent all errors and fraud.  A control system, no matter how
well conceived or operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met.




(b)
            Management’s Report on
      Internal Control Over Financial
  Reporting.




The
management of YM is responsible for establishing and maintaining adequate
internal control over financial reporting (“ICFR”), as such term is defined in
Exchange Act Rules 13a-15(f). ICFR includes those policies and procedures that
(i) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with the authorizations of
our management and our directors; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on our financial
statements.  Because of its inherent limitations, ICFR may not prevent
or detect misstatements.




Our
management team assessed ICFR as of June 30, 2009 using the criteria established
in the Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). In management’s
opinion our ICFR is effective, based on the assessment completed as at June 30,
2009.




KPMG LLP,
an independent public accounting firm registered with the PCAOB, has issued a
report on the effectiveness of our ICFR, which is included with our consolidated
financial statements appearing beginning on page F-4 of this Annual Report on
Form 20-F.




(c)
                Changes in Internal
      Control Over Financial Reporting.  During the fiscal year
      ended June 30, 2009, there were no changes in our internal control over
      financial reporting that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial
      reporting.




- 88
-




Item
      16A:
            Audit
      Committee Financial Expert




Our Board
of Directors has determined that Tryon M. Williams, a member of the Company’s
audit committee, qualifies as an “audit committee financial expert” because of
his experience as Chairman, CEO and director of Bingo.com Ltd., Chairman and
director of CellStop International Ltd. and as an Adjunct Professor, Sauder
School of Business, The University of British Columbia..  Mr. Williams
satisfies the specified criteria for being “independent” under the rules of NYSE
Amex.




Item
      16B:
            Code
      of Ethics




On
October 19, 2004, we adopted a Code of Ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions.  The Company
undertakes to provide to any person, without charge, upon request, a copy of the
Code of Ethics.  Requests for such copies should be directed, either
orally or in writing, to: Secretary, Suite 400, Building 11, 5045 Orbitor Drive,
Mississauga, Ontario, Canada  L4W 4Y4, phone number  (905)
629-9761.




Since the
adoption of the Code of Ethics, there have not been any amendments to the Code
of Ethics or waivers, including implicit waivers, from any provision of the Code
of Ethics.




Item
      16C:
            Principal
      Accounting Fees and Services




During
the years ended June 30, 2008 and 2009, the following are the fees from our
external auditors:




Fees BilledService
                              
                              2008
                              
                              
                              2009Audit
      Fees
                              
                              $
                              352,500
                              
                              
                              $
                              250,000Audit
      Related Fees
                              
                              
                              —
                              
                              
                              
                              —Tax
      Fees
                              
                              $
                              49,500
                              
                              
                              $
                              53,000All Other Fees
                              
                              
                              —
                              
                              
                              
                              —Total Fees Billed
                              
                              $
                              402,000
                              
                              
                              $
                              303,000




Audit
fees consist of fees for the audit of the registrant’s annual financial
statements or services that are normally provided in connection with statutory
and regulatory filings or engagements.




Tax fees
consist of fees for tax advisory services, such as the preparation of income tax
returns for the Corporation and its subsidiaries in Canada and the United States
and for services in regard to tax planning, tax compliance, capital taxes and
sales taxes.




Pre-Approval
Policies and Procedures




The audit
committee of the Company’s board of directors has adopted a policy regarding the
provision of services by the Company’s external auditors.  This policy
requires audit committee pre-approval of all permitted audit, audit-related and
non-audit services.




Under the
policy, all permitted services to be provided by the external auditors must be
pre-approved by the audit committee or a designated member of the audit
committee.  Any pre-approval granted by a designated member must be
reported to the audit committee at its next scheduled meeting.  The
pre-approval of services may be given at any time up to one year before
commencement of the specified service.


- 89
-


Of the
fees reported under “Principal Accounting Fees and Services” above, none of the
fees billed by the external auditors were approved by the audit committee of the
board of directors of the Company pursuant to the de minimis exception provided
by Section (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.




Item
      16D:
            Exemptions
      from the Listing Standards for Audit
Committee




Not
applicable.




Item
      16E:
            Purchases
      of Equity Securities by the Issuer and Affiliated
  Purchases




Not
applicable.


- 90
-




PART
III




Item
      17:
            Financial
      Statements




We have
elected to provide financial statements pursuant to Item 18 of Form
20-F.




Item
      18:
            Financial
      Statements




The
financial statements appear on pages F-1 through F-35.




Item
      19:
            Exhibits




See the
Exhibit Index to this annual report on Form 20-F appearing on page
EX-1.




SIGNATURES




The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.




Date:           September
24, 2009




YM
      BIOSCIENCES INC.By:
                  /s/ David G. P.
      AllanDavid
      G. P. AllanChairman
      and Chief Executive
Officer




- 91
-




INDEX
TO FINANCIAL STATEMENTS




PageReport
      of Independent Registered Public Accounting Firm
                            
                            
                            F-2Report
      of Independent Registered Public Accounting Firm on Internal Control Over
      Financial ReportingConsolidated
      Balance Sheets as at June 30, 2009 and 2008
                            
                            
                            F-4Consolidated
      Statements of Operations and Comprehensive Loss and Deficit for the years
      ended June 30, 2009, 2008 and 2007
                            
                            
                            F-5Consolidated
      Statements of Cash Flows for the years ended June 30, 2009, 2008 and
      2007
                            
                            
                            F-6Notes
      to the Consolidated Financial Statements
                            
                            
                            F-7






F-1




KPMG
      LLP
                  Telephone
                  (416)
      228-7000Chartered
      Accountants
                  Fax
                  (416)
      228-7123Yonge
      Corporate Centre
                  Internet
                  www.kpmg.ca4100
      Yonge Street Suite 200Toronto
      ON  M2P 2H3Canada
  REPORT
OF INDEPENDENT REGISTERED
 PUBLIC
ACCOUNTING FIRM
  To the
Board of Directors of YM Biosciences Inc.
  We have
audited the accompanying consolidated balance sheets of YM Biosciences Inc.
(the "Company") and subsidiaries as at June 30, 2009 and 2008 and the
related consolidated statements of operations and comprehensive loss and deficit
and cash flows for each of the years in the three-year period ended June 30,
2009.  These consolidated financial statements are the responsibility
of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
  We
conducted our audits in accordance with Canadian generally accepted auditing
standards.  With respect to the consolidated financial statements for
the years ended June 30, 2009 and 2008, we also conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States).  Canadian generally accepted auditing standards and
the standards of the Public Company Accounting Oversight Board (United States)
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company and subsidiaries
as at June 30, 2009 and 2008 and the results of their operations and their cash
flows for each of the years in the three-year period ended June 30, 2009 in
conformity with Canadian generally accepted accounting principles.
  Canadian
generally accepted accounting principles vary in certain significant respects
from U.S. generally accepted accounting principles.  Information
relating to the nature and effect of such differences is presented in note 16 to
the consolidated financial statements.
  The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in note 1
to the consolidated financial statements, the fact that the Company has no net
earnings, minimal revenue and negative operating cash flows raises substantial
doubt about its ability to continue as a going concern.  The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
  KPMG LLP,
is a Canadian limited liability partnership and a member firm of the
KPMG
 network
of independent member firms affiliated with KPMG International, a Swiss
cooperative.
 KPMG
Canada provides services to KPMG LLP.
  F-2
  
  Page
2
  As
discussed in note 2(p) to the consolidated financial statements, effective July
1, 2008, the Company adopted The Canadian Institute of Chartered Accountants'
Handbook Section 1400, General Standards on Financial Statement
Presentation.
  
  Chartered
Accountants, Licensed Public Accountants
  Toronto,
Canada
 September
23, 2009
  F-3
  YM
BIOSCIENCES INC.
 Consolidated
Balance Sheets
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 June 30,
2009 and 2008
 2009
                      
                      
                      2008AssetsCurrent
      assets:Cash
                      
                      $
                      2,337,716
                      
                      
                      $
                      3,119,189Short-term
      deposits
                      
                      
                      39,713,042
                      
                      
                      
                      54,981,737Accounts
      receivable
                      
                      
                      564,584
                      
                      
                      
                      403,371Prepaid
      expenses
                      
                      
                      352,850
                      
                      
                      
                      375,13342,968,192
                      
                      
                      
                      58,879,430Property
      and equipment (note 3)
                      
                      
                      96,876
                      
                      
                      
                      128,400Intangible
      assets (note 4)
                      
                      
                      3,004,868
                      
                      
                      
                      4,065,409$
                      46,069,936
                      
                      
                      $
                      63,073,239Liabilities
      and Shareholders' EquityCurrent
      liabilities:Accounts
      payable
                      
                      $
                      431,028
                      
                      
                      $
                      307,588Accrued
      liabilities
                      
                      
                      486,723
                      
                      
                      
                      1,715,024Deferred
      revenue (note 10)
                      
                      
                      2,549,568
                      
                      
                      
                      4,623,3403,467,319
                      
                      
                      
                      6,645,952Deferred
      revenue (note 10)
                      
                      
                      2,898,292
                      
                      
                      
                      4,414,256Shareholders'
      equity:Share
      capital (note 6)
                      
                      
                      172,921,153
                      
                      
                      
                      172,921,153Share
      purchase warrants (note 7)
                      
                      
                      –
                      
                      
                      
                      3,150,539Contributed
      surplus (note 8)
                      
                      
                      13,035,123
                      
                      
                      
                      9,123,824Deficit
                      
                      
                      (146,251,951
                      )
                      
                      
                      (133,182,485
                      )39,704,325
                      
                      
                      
                      52,013,031Basis
      of presentation (note 1)Commitments
      (note 12)$
                      46,069,936
                      
                      
                      $
                      63,073,239
 See
accompanying notes to consolidated financial statements.
  On behalf
of the Board:
 
 /s/
      Tryon Williams
                
                Director/s/
      David G. P. Allan
                
                Director
  F-4
  YM
BIOSCIENCES INC.
 Consolidated
Statements of Operations and Comprehensive Loss and Deficit
 (Expressed
in Canadian dollars, unless otherwise noted)
 Years
      ended June 30,2009
                                        
                                        
                                        2008
                                        
                                        
                                        2007Out-licensing
      revenue (note 10)
                                        
                                        $
                                        4,543,280
                                        
                                        
                                        $
                                        4,859,085
                                        
                                        
                                        $
                                        4,407,890Interest
      income
                                        
                                        
                                        1,070,264
                                        
                                        
                                        
                                        2,584,080
                                        
                                        
                                        
                                        3,239,5405,613,544
                                        
                                        
                                        
                                        7,443,165
                                        
                                        
                                        
                                        7,647,430Expenses:Licensing
      and product development
                                        
                                        
                                        14,172,845
                                        
                                        
                                        
                                        15,631,550
                                        
                                        
                                        
                                        28,758,469General
      and administrative
                                        
                                        
                                        4,839,870
                                        
                                        
                                        
                                        6,831,955
                                        
                                        
                                        
                                        6,978,336Impairment
      of intangible assets (note 4)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        1,829,53819,012,715
                                        
                                        
                                        
                                        22,463,505
                                        
                                        
                                        
                                        37,566,343Loss
      before the undernoted
                                        
                                        
                                        (13,399,171
                                        )
                                        
                                        
                                        (15,020,340
                                        )
                                        
                                        
                                        (29,918,913
                                        )Gain
      (loss) on foreign exchange
                                        
                                        
                                        67,075
                                        
                                        
                                        
                                        32,463
                                        
                                        
                                        
                                        (142,552
                                        )Gain
      (loss) on short-term deposits
                                        
                                        
                                        (40,200
                                        )
                                        
                                        
                                        172,276
                                        
                                        
                                        
                                        –Loss
      on disposal of property and equipment
                                        
                                        
                                        –
                                        
                                        
                                        
                                        (70,143
                                        )
                                        
                                        
                                        –Other
      income
                                        
                                        
                                        307,140
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –Loss
      before income taxes
                                        
                                        
                                        (13,065,156
                                        )
                                        
                                        
                                        (14,885,744
                                        )
                                        
                                        
                                        (30,061,465
                                        )Current
      income taxes (note 13)
                                        
                                        
                                        4,310
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        1,668,775Loss
      and comprehensive loss for the year
                                        
                                        
                                        (13,069,466
                                        )
                                        
                                        
                                        (14,885,744
                                        )
                                        
                                        
                                        (31,730,240
                                        )Deficit,
      beginning of year
                                        
                                        
                                        (133,182,485
                                        )
                                        
                                        
                                        (118,296,741
                                        )
                                        
                                        
                                        (86,566,501
                                        )Deficit,
      end of year
                                        
                                        $
                                        (146,251,951
                                        )
                                        
                                        $
                                        (133,182,485
                                        )
                                        
                                        $
                                        (118,296,741
                                        )Basic
      and diluted loss percommon share
                                        
                                        $
                                        (0.23
                                        )
                                        
                                        $
                                        (0.27
                                        )
                                        
                                        $
                                        (0.57
                                        )Weighted
      average number of common shares outstanding
                                        
                                        
                                        55,835,356
                                        
                                        
                                        
                                        55,835,356
                                        
                                        
                                        
                                        55,804,674Excludes
      common shares held in escrow for contingent additional payment
      related to the acquisition of Delex Therapeutics Inc. (note
      6)
                                        
                                        
                                        2,380,953
                                        
                                        
                                        
                                        2,380,953
                                        
                                        
                                        
                                        2,380,953
  See
accompanying notes to consolidated financial statements.
  F-5
  YM
BIOSCIENCES INC.
 Consolidated
Statements of Cash Flows
 (Expressed
in Canadian dollars, unless otherwise noted)
 Years
      ended June 30,2009
                      
                      
                      2008
                      
                      
                      2007Cash
      provided by (used in):Operating
      activities:Loss
      for the year
                      
                      $
                      (13,069,466
                      )
                      
                      $
                      (14,885,744
                      )
                      
                      $
                      (31,730,240
                      )Items
      not involving cash:Amortization
      of property and equipment
                      
                      
                      91,896
                      
                      
                      
                      125,271
                      
                      
                      
                      107,107Amortization
      of intangible assets
                      
                      
                      1,060,541
                      
                      
                      
                      1,060,541
                      
                      
                      
                      1,913,040Impairment
      of intangible assets
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      1,829,538Loss
      on disposal of property and equipment
                      
                      
                      –
                      
                      
                      
                      70,143
                      
                      
                      
                      –Unrealized
      loss on short-term deposits
                      
                      
                      41,912
                      
                      
                      
                      –
                      
                      
                      
                      –Stock-based
      compensation
                      
                      
                      760,760
                      
                      
                      
                      2,063,973
                      
                      
                      
                      1,716,913Change
      in non-cash operating working capital:Accounts
      receivable and prepaid expenses
                      
                      
                      (138,930
                      )
                      
                      
                      (61,483
                      )
                      
                      
                      1,816,092Accounts
      payable, accrued liabilities and deferred revenue
                      
                      
                      (4,694,597
                      )
                      
                      
                      (5,844,790
                      )
                      
                      
                      11,604,460(15,947,884
                      )
                      
                      
                      (17,472,089
                      )
                      
                      
                      (12,743,090
                      )Financing
      activities:Issuance
      of common shares on exercise of options
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      11,232Issuance
      of common shares on exercise of warrants
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      89,375–
                      
                      
                      
                      –
                      
                      
                      
                      100,607Investing
      activities:Short-term
      deposits, net
                      
                      
                      15,226,783
                      
                      
                      
                      14,742,701
                      
                      
                      
                      15,881,679Additions
      to property and equipment
                      
                      
                      (60,372
                      )
                      
                      
                      (37,770
                      )
                      
                      
                      (127,162
                      )Proceeds
      from sale of property and equipment
                      
                      
                      –
                      
                      
                      
                      38,996
                      
                      
                      
                      –15,166,411
                      
                      
                      
                      14,743,927
                      
                      
                      
                      15,754,517Increase
      (decrease) in cash and cash equivalents
                      
                      
                      (781,473
                      )
                      
                      
                      (2,728,162
                      )
                      
                      
                      3,112,034Cash
      and cash equivalents, beginning of year
                      
                      
                      3,119,189
                      
                      
                      
                      5,847,351
                      
                      
                      
                      2,735,317Cash
      and cash equivalents, end of year
                      
                      $
                      2,337,716
                      
                      
                      $
                      3,119,189
                      
                      
                      $
                      5,847,351
 
 See
accompanying notes to consolidated financial statements.
  F-6
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  
  YM
Biosciences Inc. (the "Company" or "YM") was incorporated on August 17,
1994 under the laws of the Province of Ontario and was continued under the laws
of the Province of Nova Scotia on December 11, 2001.   In
prior years, the Company was considered a development stage
company.  It has entered into licensing agreements with certain
biotechnology, pharmaceutical and medical institutes or has acquired technology
originated in such institutes.  The acquisitions of licenses provide
exclusive rights for certain territories for certain products or families of
products developed and rights of first refusal on additional territories,
additional products or extensions to existing
products.  The Company is developing certain therapeutic products
for patients with cancer and an inhalation delivered fentanyl product to treat
acute and breakthrough pain, including cancer pain.
  1.
              Basis
      of presentation:
  These
consolidated financial statements have been prepared on a going-concern basis,
which assumes that the Company will continue in operation for the foreseeable
future and, accordingly, will be able to realize on its assets and discharge its
liabilities in the normal course of operations.  Management has
assessed the Company's ability to continue as a going concern.  Since
inception, the Company has concentrated on product licensing and product
development.  It has had no net earnings, minimal revenue and negative
operating cash flows, and has financed its activities primarily through the
issuance of shares and warrants.  The Company's ability to continue as
a going concern is dependent on obtaining additional investment capital and the
achievement of profitable operations.  There can be no assurance that
the Company will be successful in increasing revenue or raising additional
investment capital to generate sufficient cash flows to continue as a going
concern.  These consolidated financial statements do not reflect the
adjustments that might be necessary to the carrying amount of reported assets,
liabilities, revenue and expenses and the balance sheet classifications used if
the Company were unable to continue operations in accordance with this
assumption.
  Taking
into consideration the cash and short-term deposits, management has determined
that the Company has sufficient cash resources to fund its operations beyond the
next 12 months.
  F-7
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
 
  2.
              Significant
      accounting policies:
  The
accompanying consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP") which,
except as described in note 16, conform in all material respects to accounting
principles generally accepted in the United States ("United States
GAAP").  Significant accounting policies are summarized
below:
  (a)
              Basis
      of consolidation:
  The
consolidated financial statements include the assets and liabilities and results
of operations of all wholly-owned subsidiaries and variable interest entities
("VIEs") where the Company is the primary beneficiary, after elimination of
intercompany transactions and balances.
  The
Company consolidates all VIEs of which it is the primary beneficiary in
accordance with Canadian GAAP.  VIEs are entities in which equity
investors do not have controlling financial interest or the equity at risk is
not sufficient to permit the entity to finance its activities without additional
subordinated financial support by other parties.   The Company's
only VIE is CIMYM BioSciences Inc., an 80% owned joint venture incorporated in
Canada.
  The
Company proportionately consolidated its joint venture and has made provisions
for any advances to the joint venture that did not eliminate on consolidation,
such that the Company has recorded 100% of the results of operations and cash
flows of this entity since its inception.
  (b)
              Foreign
      currency translation:
  Foreign
currency transactions entered into by the Company and financial statements of
integrated foreign operations are translated into Canadian dollars using the
temporal method.  Under this method, monetary assets and liabilities
are translated at year-end rates of exchange, non-monetary assets and
liabilities are translated at historic rates of exchange and consolidated
statement of operations and comprehensive loss and deficit items are translated
at actual rates prevailing during the year.  Exchange gains and losses
are included in income.
  F-8
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  2.
              Significant
      accounting policies (continued):
  (c)
              Revenue
      recognition:
  Revenue
is deemed to be realized and earned when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the Company's
price to the customer is fixed or determinable, and collectibility is reasonably
assured.
  Contingent
revenue attributable to the achievement of regulatory or developmental
milestones is recognized only on the achievement of the applicable
milestone.
  Non-refundable,
up-front fees for access to the Company's proprietary technology in connection
with certain research and development collaborations are deferred and recognized
as revenue on a systematic basis over the term of the related
collaboration.
  The
Company has license agreements that specify that certain royalties are earned by
the Company on sales of licensed products in the licensed
territories.  Licensees report sales and royalty information in the 90
days after the end of the quarter in which the activity takes place and
typically do not provide the Company with forward estimates or current-quarter
information.  Because the Company is not able to reasonably estimate
the amount of royalties earned during the period in which these licensees
actually ship products, royalty revenue is not recognized until the royalties
are reported to the Company and the collection of these royalties is reasonably
assured.
  (d)
              Cash
      and cash equivalents:
  Cash and
cash equivalents are recorded at fair value.  Cash equivalents consist
of highly liquid bankers' acceptances issued by Canadian Schedule A banks, with
terms extending up to 90 days from the date of acquisition.  Cash is
on deposit with Canadian Schedule A banks.
  (e)
              Short-term
      deposits:
  Short-term
deposits are recorded at fair value and consist mainly of highly liquid bankers'
acceptances issued by Canadian Schedule A banks, held to maturity with terms
extending beyond 90 days from the date of acquisition and are held to
maturity.
  F-9
 
 YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  2.
              Significant
      accounting policies (continued):
  (f)
              Property
      and equipment:
  Property
and equipment are stated at cost less accumulated
amortization.  Amortization is provided to amortize the cost of
property and equipment over their estimated useful lives using the straight-line
method over the following periods:
 
 Computer
      equipment
              3
      yearsFurniture
      and equipment
              5
      yearsLeasehold
      improvements
              Term
      of lease
  (g)
                Intangible
      assets:
  Intangible
assets consist of acquired technologies and are amortized on a straight-line
basis over the estimated time to market of seven years.
  (h)
              Impairment
      of long-lived assets:
  The
Company reviews the carrying value of intangible assets with finite lives and
property and equipment for existence of facts or changes in circumstances that
might indicate a condition of impairment.  An impairment loss would be
recognized when estimates of undiscounted future cash flows expected to result
from the use of an asset and its eventual disposition are less than the carrying
amount.  Such impairment loss would be calculated as the excess of
carrying value over fair value of the long-lived asset.
  (i)
              Development
      costs:
  To date,
all development costs incurred have been expensed.  Development costs
include costs associated with product development activities, including salaries
of scientific and technical staff and payments to third parties for development
activities.  Development costs that meet specific stringent criteria
related to technical, market and financial feasibility are
capitalized.  To date, none of the development costs have met such
criteria.
  F-10
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
 2.
              Significant
      accounting policies (continued):
  (j)
              Government
      assistance:
  Government
assistance, including investment tax credits relating to development costs, is
recorded as a reduction of the development costs when there is reasonable
assurance that the assistance will be received.
  (k)
              Income
      taxes:
  The
Company uses the asset and liability method of accounting for income
taxes.  Under the asset and liability method, future tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.  Future tax assets and
liabilities are measured using enacted or substantively enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.  The effect on
future tax assets and liabilities of a change in tax rates is recognized in
income in the year that includes the date of enactment or substantive
enactment.
  In
assessing the realizability of future income tax assets, management considers
whether it is more likely than not that some portion or all of the future income
tax assets will be realized.  The ultimate realization of future
income tax assets is dependent upon the generation of future taxable income
during the period in which the temporary differences are
deductible.  Management considers the scheduled reversals of future
income tax liabilities, the character of the future income tax asset and tax
planning strategies in making this assessment.  To the extent that
management believes that the realization of future income tax assets does not
meet the more-likely-than-not realization criteria, a valuation allowance is
recorded against the future income tax assets.
  F-11
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  2.
              Significant
      accounting policies (continued):
  (l)
              Stock-based
      compensation:
  The
Company has a stock option plan for directors, officers, employees and service
providers.  All stock options issued under the plan have an exercise
price equal to the fair market value of the underlying shares on the date of the
grant.  The Company uses the fair value-based method for all options
granted to service providers and for employee stock options granted on or after
July 1, 2002.  Under the fair value-based method, compensation cost is
measured at the fair value of the award at the date of grant using the
Black-Scholes option pricing model.  Forfeitures are accounted for on
an estimated basis based on historical trends.  Compensation cost is
expensed over the vesting period of the awards.  The settlement method
was used to account for employee stock options granted before July 1,
2002.  Under the settlement method, no compensation cost was
recognized at the date of grant or recognized over the vesting
period.  Any consideration paid by employees on the exercise of stock
options or purchase of stock is credited to share capital.
  (m)
              Basic
      and diluted loss per common share:
  Basic
loss per common share is computed by dividing loss for the period by the
weighted average number of common shares outstanding during the reporting
period.  Diluted loss per common share is computed similarly to basic
loss per common share, except that the weighted average number of shares
outstanding is increased to include additional shares from the assumed exercise
of stock options and warrants, if dilutive.  The number of additional
shares is calculated by assuming that outstanding stock options and warrants
were exercised and that proceeds from such exercises were used to acquire shares
of common stock at the average market price during the reporting
period.  These common equivalent shares were not included in the
calculation of the weighted average number of shares outstanding for diluted
loss per common share as the effect would have been
anti-dilutive.
  F-12
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  2.
              Significant
      accounting policies (continued):
  (n)
              Use
      of estimates:
  The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
years.  Significant items subject to such estimates include, but are
not limited to, the carrying amount of property, plant and equipment,
determination of fair value of intangible assets, stock-based compensation
expense, amortization periods and the valuation of long-lived assets and future
income taxes.  Actual results could differ from those
estimates.
  (o)
              Financial
      instruments:
  Financial
assets and financial liabilities are initially recorded at fair value and their
subsequent measurements are determined in accordance with their classification.
The classification depends on the purpose for which the financial instruments
were acquired or issued and their characteristics.  Cash and cash
equivalents and short-term deposits are classified as held-for-trading assets
and are accounted at fair value.  All changes in fair value are
included in loss for the year in which they arise.  Accounts
receivable are classified as loans and receivables, and after initial
recognition are recorded at amortized cost.  Accounts payable and
accrued liabilities are classified as other financial liabilities, and after
initial recognition are recorded at amortized cost.
  (p)
              New
      accounting pronouncements:
  General
standards on financial statement presentation:
  On July
1, 2008, the Company adopted amendments of The Canadian Institute of Chartered
Accountants' ("CICA") Handbook Section 1400, General Standards of Financial
Statement Presentation, which includes requirements to assess and disclose an
entity's ability to continue as a going concern, as disclosed in note
1.  The adoption of this change did not have an impact on the
Company's consolidated financial statements.
  F-13
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  2.
              Significant
      accounting policies (continued):
  (q)
              Recent
      accounting pronouncements issued and not yet effective are as
      follows:
  (i)
              Goodwill
      and intangible assets:
  In
February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets,
which replaces Section 3062, Goodwill and Other Intangible Assets, and Section
3450, Research and Development Costs.  This new section establishes
standards for the recognition, measurement and disclosure of goodwill and
intangible assets and is effective for annual and interim financial statements
relating to fiscal years beginning on or after October 1, 2008, specifically
July 1, 2009 for the Company.  The Company is currently assessing the
impact of this section on its intangible asset recognized on the acquisition of
Delex Therapeutics Inc. ("Delex").
  (ii)
              Financial
      instruments:
  In June
2009, the CICA issued amendments to Handbook Section 3862, Financial Instruments
- Disclosures, enhancing disclosure requirements about liquidity risk and fair
value measurements of financial instruments, effective for fiscal years ending
after September 30, 2009.  The Company is currently assessing the
impact of this section on its consolidated financial statements.
  (iii)
              International
      financial reporting standards:
  The
Accounting Standards Board of Canada has announced that public companies in
Canada are required to adopt International Financial Reporting Standards
("IFRS") for fiscal years beginning on or after January 1, 2011. The
Company is in the process of assessing the effects of the standards on its
consolidated financial statements.
  F-14
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  2.
              Significant
      accounting policies (continued):
  (iv)
              Consolidated
      financial statements and non-controlling
  interests:
  In
January 2009, the CICA issued Section 1601, Consolidated Financial Statements
("Section 1601"), and Section 1602, Non-controlling Interests ("Section 1602"),
which together replace Section 1600, Consolidated Financial
Statements.  Section 1601 establishes standards for the preparation of
consolidated financial statements.  Section 1602 establishes
standards for accounting for a non-controlling interest in a subsidiary in
consolidated financial statements subsequent to a business combination. It is
equivalent to the corresponding provisions of IFRS standard, International
Accounting Standard 27 (Revised), Consolidated and Separate Financial
Statements.  The sections apply to interim and annual consolidated
financial statements relating to fiscal years beginning on or after January 1,
2011.  Earlier adoption is permitted as of the beginning of a fiscal
year.  The Company is currently evaluating the impact of the adoption
of these new sections on its consolidated financial statements.
  3.
              Property
      and equipment:
  2009
                        
                        
                        2008Accumulated
                        
                        
                        Net
      book
                        
                        
                        
                        
                        
                        Accumulated
                        
                        
                        Net
      bookCost
                        
                        
                        amortization
                        
                        
                        value
                        
                        
                        Cost
                        
                        
                        amortization
                        
                        
                        valueComputer
      equipment
                        
                        $
                        419,259
                        
                        
                        $
                        359,857
                        
                        
                        $
                        59,402
                        
                        
                        $
                        378,289
                        
                        
                        $
                        278,449
                        
                        
                        $
                        99,840Furniture
      and equipment
                        
                        
                        99,574
                        
                        
                        
                        80,316
                        
                        
                        
                        19,258
                        
                        
                        
                        80,172
                        
                        
                        
                        76,765
                        
                        
                        
                        3,407Leasehold
      improvements
                        
                        
                        52,539
                        
                        
                        
                        34,323
                        
                        
                        
                        18,216
                        
                        
                        
                        52,539
                        
                        
                        
                        27,386
                        
                        
                        
                        25,153$
                        571,372
                        
                        
                        $
                        474,496
                        
                        
                        $
                        96,876
                        
                        
                        $
                        511,000
                        
                        
                        $
                        382,600
                        
                        
                        $
                        128,400
 F-15
 YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  4.
              Intangible
      assets:
  2009
                          
                          
                          2008Accumulated
                          
                          
                          Net
      book
                          
                          
                          
                          
                          
                          Accumulated
                          
                          
                          Net
      bookCost
                          
                          
                          amortization
                          
                          
                          value
                          
                          
                          Cost
                          
                          
                          amortization
                          
                          
                          valueAcquired
      technologies
                          
                          $
                          7,348,185
                          
                          
                          $
                          4,343,317
                          
                          
                          $
                          3,004,868
                          
                          
                          $
                          7,348,185
                          
                          
                          $
                          3,282,776
                          
                          
                          $
                          4,065,409
  Delex:
  In 2005,
on acquisition of Delex, the Company recorded $7,348,185 of acquired
technologies which includes the intellectual property and in-process research
and development of the Company's inhalation delivered fentanyl product to treat
acute and breakthrough pain, including cancer pain.
  Eximias:
  The
Company identified the workforce as an intangible asset as part of the
acquisition of assets from Eximias in 2006 because of the expected future
benefits that could be derived with respect to their involvement with the
Company's lead product, tesmilifene.
  On
January 30, 2007, based on the recommendation of the Data Safety Monitoring
Board, the Company stopped the phase III tesmilifene clinical trial based on an
interim analysis of 351 events.  As a result, the workforce
intangible asset was determined to be impaired based on an analysis of the
carrying value and projected future cash flows of the asset.  The
impairment analysis resulted in a write-down of $1,829,538, the net book value
of the asset on the day of impairment.
  F-16
 
 YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  5.
              Consolidation
      of variable interest entity:
  The
consolidated financial statements include the revenue and expenses of an
incorporated joint venture as follows:
 
 Years
      ended June 30,2009
                      
                      
                      2008
                      
                      
                      2007Out-licensing
      revenue
                      
                      $
                      4,474,671
                      
                      
                      $
                      4,802,291
                      
                      
                      $
                      4,236,398Expenses:General
      and administrative
                      
                      
                      4,312,867
                      
                      
                      
                      5,677,860
                      
                      
                      
                      2,458,547Licensing
      and product development
                      
                      
                      9,886,659
                      
                      
                      
                      8,277,154
                      
                      
                      
                      8,913,42514,199,526
                      
                      
                      
                      13,955,014
                      
                      
                      
                      11,371,972Loss
      before income taxes
                      
                      
                      (9,724,855
                      )
                      
                      
                      (9,152,723
                      )
                      
                      
                      (7,135,574
                      )Current
      income taxes
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      1,622,695Loss
      for the year
                      
                      $
                      (9,724,855
                      )
                      
                      $
                      (9,152,723
                      )
                      
                      $
                      (8,758,269
                      )
 
 6.
              Share
      capital:
  Authorized:
 500,000,000
      Class A preferred shares
 500,000,000
      Class B preferred shares, Series 1
 500,000,000
      Class A non-voting common shares
 500,000,000
      common shares
  Issued:
 
 Number
      ofshares
                          
                          
                          AmountCommon
      shares:Balance,
      June 30, 2007, 2008 and 2009
                          
                          
                          55,835,356
                          
                          
                          $
                          172,921,153
  F-17
 
 YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  6.
              Share
      capital (continued):
  At June
30, 2009, 2,380,953 (2008 - 2,380,953) common shares were held in escrow for
contingent payments related to the Delex acquisition.  These escrowed
shares will be valued based upon their fair market value at the time of
resolution of the related milestone contingency: 634,921 common shares upon
entering a collaboration or other licensing arrangement; 1,111,112 common shares
upon initiation of the first Phase III clinical trial; and 634,920 common shares
upon initiation of the second Phase III clinical trial.  Upon receipt
of United States regulatory approval to market a product using Delex's
technology, the Company will make an additional payment of $4,750,000 in cash or
common shares, or a combination of both, at its option, to the former Delex
shareholders.
  7.
              Share
      purchase warrants:
  The
Company has issued warrants for the purchase of common shares for a specified
price for a specific period of time.  Nominal value was ascribed to
the warrants issued prior to June 30, 2002.  Warrants issued
after that date have been valued on a relative fair value basis using the
Black-Scholes option pricing model.  The following table contains
information regarding the outstanding warrants to acquire common shares for the
years ended June 30, 2009, 2008 and 2007.
 
 WeightedaverageNumber
      of
                      
                      
                      exercisewarrants
                      
                      
                      price
                      
                      
                      AmountOutstanding,
      June 30, 2006
                      
                      
                      9,022,777
                      
                      
                      $
                      2.88
                      
                      
                      $
                      4,597,988Exercised
                      
                      
                      (50,500
                      )
                      
                      
                      1.77
                      
                      
                      
                      (44,680
                      )Outstanding,
      June 30, 2007
                      
                      
                      8,972,277
                      
                      
                      
                      2.89
                      
                      
                      
                      4,553,308Expired
                      
                      
                      (3,262,512
                      )
                      
                      
                      3.69
                      
                      
                      
                      (1,402,769
                      )Outstanding,
      June 30, 2008
                      
                      
                      5,709,765
                      
                      
                      
                      2.43
                      
                      
                      
                      3,150,539Expired
                      
                      
                      (5,709,765
                      )
                      
                      
                      2.43
                      
                      
                      
                      (3,150,539
                      )Outstanding,
      June 30, 2009
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      $
                      –
  F-18
 
 YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  8.
              Contributed
      surplus:
  
 Balance,
      June 30, 2006
                      
                      $
                      3,944,492Stock-based
      compensation
                      
                      
                      1,716,913Exercise
      of options
                      
                      
                      (4,323
                      )Balance,
      June 30, 2007
                      
                      
                      5,657,082Stock-based
      compensation
                      
                      
                      2,063,973Expiry
      of warrants
                      
                      
                      1,402,769Balance,
      June 30, 2008
                      
                      
                      9,123,824Stock-based
      compensation
                      
                      
                      760,760Expiry
      of warrants
                      
                      
                      3,150,539Balance,
      June 30, 2009
                      
                      $
                      13,035,123
 
 9.
              Stock-based
      compensation:
  The
Company has granted stock options pursuant to a stock option
plan.  Under the plan, options to purchase common shares may be
granted to directors, officers, employees and service providers of the
Company.
  Compensation
cost recognized as an expense for the year ended June 30, 2009 for stock-based
employee compensation awards was $760,760 (2008 - $2,063,973; 2007 -
$1,716,913).
  As at
June 30, 2009, total compensation cost related to non-vested awards not yet
recognized was $353,458 and the weighted average period over which it is
expected to be recognized was 0.6 years.  The Company has 2,168,831
stock options that have been authorized but not granted.
  The fair
value of each option granted was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
 
 Issue
      date
                            
                            2009
                            
                            
                            2008
                            
                            
                            2007Number
      of options issued
                            
                            
                            2,114,250
                            
                            
                            
                            2,110,290
                            
                            
                            
                            165,000Risk-free
      interest rate
                            
                            
                            1.9%
      - 3.3
                            %
                            
                            
                            3.2%
      - 4.4
                            %
                            
                            
                            3.9%
      - 4.1
                            %Volatility
      factor
                            
                            
                            68%
      - 87
                            %
                            
                            
                            72%
      - 74
                            %
                            
                            
                            51%
      - 73
                            %Dividend
      rate
                            
                            
                            0
                            %
                            
                            
                            0
                            %
                            
                            
                            0
                            %Contractual
      life of options
                            
                            3
      - 10 years
                            
                            
                            10
      years
                            
                            
                            10
      yearsVesting
      period (months)
                            
                            0
      to 24
                            
                            
                            0
      to 24
                            
                            
                            0
      to 24Weighted
      average fair value of options granted
                            
                            $
                            0.31
                            
                            
                            $
                            1.13
                            
                            
                            $
                            1.41Fair
      value of options granted
                            
                            $
                            660,001
                            
                            
                            $
                            2,374,465
                            
                            
                            $
                            232,931
  F-19
 
 YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  9.
              Stock-based
      compensation (continued):
  The
following tables reflect the activity under the stock option plan for the years
ended June 30, 2009, 2008 and 2007 and the share options outstanding at the end
of the year:
 
 2009
                            
                            
                            2008
                            
                            
                            2007Weighted
                            
                            
                            
                            
                            
                            Weighted
                            
                            
                            
                            
                            
                            Weightedaverage
                            
                            
                            
                            
                            
                            average
                            
                            
                            
                            
                            
                            averageexercise
                            
                            
                            
                            
                            
                            exercise
                            
                            
                            
                            
                            
                            exerciseNumber
                            
                            
                            price
                            
                            
                            Number
                            
                            
                            price
                            
                            
                            Number
                            
                            
                            priceOutstanding,
      beginning of year
                            
                            
                            5,633,102
                            
                            
                            $
                            2.80
                            
                            
                            
                            4,196,205
                            
                            
                            $
                            3.63
                            
                            
                            
                            4,779,789
                            
                            
                            $
                            3.78Granted
                            
                            
                            2,114,250
                            
                            
                            
                            0.55
                            
                            
                            
                            2,110,290
                            
                            
                            
                            1.51
                            
                            
                            
                            165,000
                            
                            
                            
                            3.49Cancelled/forfeited
                            
                            
                            (1,183,737
                            )
                            
                            
                            2.78
                            
                            
                            
                            (673,393
                            )
                            
                            
                            3.96
                            
                            
                            
                            (745,251
                            )
                            
                            
                            4.53Exercised
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            (3,333
                            )
                            
                            
                            3.37Outstanding,
      end of year
                            
                            
                            6,563,615
                            
                            
                            
                            2.08
                            
                            
                            
                            5,633,102
                            
                            
                            
                            2.80
                            
                            
                            
                            4,196,205
                            
                            
                            
                            3.63Exercisable,
      end of year
                            
                            
                            4,664,072
                            
                            
                            $
                            2.60
                            
                            
                            
                            4,342,733
                            
                            
                            $
                            3.17
                            
                            
                            
                            3,587,176
                            
                            
                            $
                            3.55
  As at
June 30, 2009:
 
 Options outstanding
                                  
                                  
                                  Options exercisableWeighted
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  Weightedaverage
                                  
                                  
                                  Weighted
                                  
                                  
                                  
                                  
                                  
                                  average
                                  
                                  
                                  Weightedremaining
                                  
                                  
                                  average
                                  
                                  
                                  
                                  
                                  
                                  remaining
                                  
                                  
                                  averageRange
      of
                                  
                                  Number
                                  
                                  
                                  contractual
                                  
                                  
                                  exercise
                                  
                                  
                                  Number
                                  
                                  
                                  contractual
                                  
                                  
                                  exerciseexercise prices
                                  
                                  outstanding
                                  
                                  
                                  life (years)
                                  
                                  
                                  price
                                  
                                  
                                  exercisable
                                  
                                  
                                  life (years)
                                  
                                  
                                  price$0.50
      - $1.00
                                  
                                  
                                  1,961,250
                                  
                                  
                                  
                                  9.0
                                  
                                  
                                  $
                                  0.50
                                  
                                  
                                  
                                  676,393
                                  
                                  
                                  
                                  8.9
                                  
                                  
                                  $
                                  0.50$1.01
      - $2.00
                                  
                                  
                                  2,385,505
                                  
                                  
                                  
                                  6.7
                                  
                                  
                                  
                                  1.57
                                  
                                  
                                  
                                  1,770,819
                                  
                                  
                                  
                                  6.5
                                  
                                  
                                  
                                  1.61$2.01
      - $3.00
                                  
                                  
                                  63,750
                                  
                                  
                                  
                                  3.9
                                  
                                  
                                  
                                  2.52
                                  
                                  
                                  
                                  63,750
                                  
                                  
                                  
                                  3.9
                                  
                                  
                                  
                                  2.52$3.01
      - $4.00
                                  
                                  
                                  853,610
                                  
                                  
                                  
                                  5.4
                                  
                                  
                                  
                                  3.42
                                  
                                  
                                  
                                  853,610
                                  
                                  
                                  
                                  5.4
                                  
                                  
                                  
                                  3.42$4.01
      - $5.74
                                  
                                  
                                  1,299,500
                                  
                                  
                                  
                                  4.8
                                  
                                  
                                  
                                  4.50
                                  
                                  
                                  
                                  1,299,500
                                  
                                  
                                  
                                  4.8
                                  
                                  
                                  
                                  4.50$0.50
      - $5.74
                                  
                                  
                                  6,563,615
                                  
                                  
                                  
                                  6.8
                                  
                                  
                                  
                                  2.08
                                  
                                  
                                  
                                  4,664,072
                                  
                                  
                                  
                                  6.1
                                  
                                  
                                  
                                  2.60
  F-20
 YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2009, 2008 and 2007
  
  10.
              Out-licensing
      agreements:
 
 Deferred revenue
                                                                        
                                                                        
                                                                        Revenue recognizedInitial
                                                                        
                                                                        
                                                                        as at June 30,
                                                                        
                                                                        
                                                                        for years ended June 30,Date of agreement
                                                                        
                                                                        Product
                                                                        
                                                                        license fee
                                                                        
                                                                        
                                                                        2009
                                                                        
                                                                        
                                                                        2008
                                                                        
                                                                        
                                                                        2009
                                                                        
                                                                        
                                                                        2008
                                                                        
                                                                        
                                                                        2007November
      3, 2006
                                                                        
                                                                        Tesmilifene
                                                                        
                                                                        $
                                                                        230,400
                                                                        
                                                                        
                                                                        $
                                                                        120,400
                                                                        
                                                                        
                                                                        $
                                                                        154,000
                                                                        
                                                                        
                                                                        $
                                                                        33,600
                                                                        
                                                                        
                                                                        $
                                                                        26,800
                                                                        
                                                                        
                                                                        $
                                                                        49,600July
      25, 2006
                                                                        
                                                                        Nimotuzumab
                                                                        
                                                                        
                                                                        16,226,950
                                                                        
                                                                        
                                                                        
                                                                        5,179,975
                                                                        
                                                                        
                                                                        
                                                                        8,451,538
                                                                        
                                                                        
                                                                        
                                                                        3,271,563
                                                                        
                                                                        
                                                                        
                                                                        4,056,735
                                                                        
                                                                        
                                                                        
                                                                        3,718,677January
      20, 2006
                                                                        
                                                                        Nimotuzumab
                                                                        
                                                                        
                                                                        1,152,788
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        192,131
                                                                        
                                                                        
                                                                        
                                                                        192,131
                                                                        
                                                                        
                                                                        
                                                                        384,262
                                                                        
                                                                        
                                                                        
                                                                        384,263August
      30, 2005
                                                                        
                                                                        Nimotuzumab
                                                                        
                                                                        
                                                                        441,792
                                                                        
                                                                        
                                                                        
                                                                        6,995
                                                                        
                                                                        
                                                                        
                                                                        64,428
                                                                        
                                                                        
                                                                        
                                                                        57,433
                                                                        
                                                                        
                                                                        
                                                                        96,643
                                                                        
                                                                        
                                                                        
                                                                        133,458January
      26, 2005
                                                                        
                                                                        Tesmilifene
                                                                        
                                                                        
                                                                        620,311
                                                                        
                                                                        
                                                                        
                                                                        140,490
                                                                        
                                                                        
                                                                        
                                                                        175,499
                                                                        
                                                                        
                                                                        
                                                                        35,009
                                                                        
                                                                        
                                                                        
                                                                        29,995
                                                                        
                                                                        
                                                                        
                                                                        121,892Royalty
      revenue
                                                                        
                                                                        Nimotuzumab
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        953,544
                                                                        
                                                                        
                                                                        
                                                                        264,650
                                                                        
                                                                        
                                                                        
                                                                        –$
                                                                        18,672,241
                                                                        
                                                                        
                                                                        $
                                                                        5,447,860
                                                                        
                                                                        
                                                                        $
                                                                        9,037,596
                                                                        
                                                                        
                                                                        $
                                                                        4,543,280
                                                                        
                                                                        
                                                                        $
                                                                        4,859,085
                                                                        
                                                                        
                                                                        $
                                                                        4,407,890
  Under the
terms of the agreements, the Company continues to be involved in the development
of its products and is not required to fund any development in the licensed
territory.  The agreements also entitle the Company to receive
milestone payments on the occurrence of regulatory approval and royalties on the
commercial sale of the developed product.  Initial license fee revenue
is non-refundable and is deferred and recognized as revenue over the term of the
related collaboration.
  As a
result of a revision to the estimated period of collaboration, the revenue
recognition period for the July 25, 2006 agreement was extended by 12
months.  This change was made as at January 1, 2009.
  F-21
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
    
  11.
              Related
      party transactions:
  Occasionally,
directors will provide assistance to management on a consulting basis to
evaluate new opportunities or provide guidance for drug development
activities.  The fees incurred during the fiscal year ended June 30,
2009 totalled $66,000 (2008 - $92,000; 2007 - nil).  The transactions
occurred in the normal course of operations and were measured at the exchange
amount, which is the amount of consideration established and agreed by the
related parties.
  12.
              Commitments:
  In
November 2007, the Company entered into a contract for services of a Clinical
Research Organization ("CRO") relating to a pediatric pontine glioma clinical
trial for nimotuzumab in the United States at a cost of approximately $1.568
million (U.S. $1.348 million), of which approximately $1.005 million has
been incurred as at June 30, 2009 and the remaining $563,000 has yet to be
incurred.  The Company may cancel the contract with 30 days
notice and is obligated for services rendered by CRO through to the effective
date of termination and for any close-out services furnished by CRO after the
termination of the agreement.
  In
February 2009, the Company entered into two contracts for CRO services relating
to clinical trials for nimotuzumab.  The first pertains to a
randomized, phase II, double-blind trial in brain metastases from non-small cell
lung cancer ("NSCLC") at a cost of $1.161 million, of which approximately
$240,000 has been incurred as at June 30, 2009 and the remaining $921,000 has
yet to be incurred.  The second contract pertains to a randomized,
phase II, double-blind trial in NSCLC patients ineligible for radical
chemotherapy at a cost of approximately $1,500,000, of which approximately
$508,000 has been incurred as at June 30, 2009 and the remaining $992,000
has yet to be incurred.  The Company may cancel either contract with
30 days notice and is obligated for services rendered by the CRO through
the effective date of termination and for any close-out services furnished by
the CRO after the termination of the agreement.
  In
addition to the above contracts, the Company has entered into many additional
contracts for pre-clinical and other studies, none of which individually exceeds
$1.0 million, totalling approximately $4.058 million, of which approximately
$2.010 million has been incurred as at June 30, 2009 and the obligation to
pay the remaining $2.048 million has yet to be incurred.  Any early
termination penalties cannot exceed the amount of the contract
commitment.
  F-22
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  12.
              Commitments
      (continued):
  As at
June 30, 2009, the approximate future minimum rental payments relating to
operating leases for premises are as follows:
 
 2010
                      
                      $
                      328,9662011
                      
                      
                      338,6602012
                      
                      
                      246,2952013
                      
                      
                      46,397$
                      960,318
  13.
              Income
      taxes:
  (a)
              Reconciliations
      of the income tax provisions with the amounts shown in the consolidated
      statements of operations and comprehensive loss are as
      follows:
 
 2009
                                              
                                              
                                              2008
                                              
                                              
                                              2007Average
      Canadian income tax rate
                                              
                                              
                                              33.25
                                              %
                                              
                                              
                                              34.82
                                              %
                                              
                                              
                                              36.12
                                              %Loss
      before income taxes
                                              
                                              $
                                              (13,065,156
                                              )
                                              
                                              $
                                              (14,885,744
                                              )
                                              
                                              $
                                              (30,061,465
                                              )Income
      tax expense calculated  at average Canadian
      income  tax rates
                                              
                                              $
                                              (4,344,164
                                              )
                                              
                                              $
                                              (5,183,330
                                              )
                                              
                                              $
                                              (10,858,201
                                              )Change
      in income taxes  resulting from:Tax
      effect of changes in rates
                                              
                                              
                                              (205,046
                                              )
                                              
                                              
                                              8,185,555
                                              
                                              
                                              
                                              –Differences
      in rates applicable  to subsidiary in
      foreign  jurisdiction
                                              
                                              
                                              449,471
                                              
                                              
                                              
                                              186,000
                                              
                                              
                                              
                                              (298,859
                                              )Withholding
      taxes
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              1,668,775Other
      non-deductible items
                                              
                                              
                                              194,049
                                              
                                              
                                              
                                              734,775
                                              
                                              
                                              
                                              586,813Change
      in valuation allowance
                                              
                                              
                                              3,910,000
                                              
                                              
                                              
                                              (3,923,000
                                              )
                                              
                                              
                                              10,570,247Income
      tax expense
                                              
                                              $
                                              4,310
                                              
                                              
                                              $
                                              –
                                              
                                              
                                              $
                                              1,668,775
  F-23
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  13.
              Income
      taxes (continued):
  (b)
              The
      tax effects of temporary differences that give rise to significant
      portions of future tax assets and future tax liabilities as at June 30 are
      as follows:
 
 2009
                        
                        
                        2008Future
      tax assets:Property
      and equipment
                        
                        $
                        4,848,000
                        
                        
                        $
                        4,806,000Financing
      costs
                        
                        
                        41,000
                        
                        
                        
                        186,000Deferred
      revenue
                        
                        
                        3,084,000
                        
                        
                        
                        2,621,000Capital
      loss carryforward
                        
                        
                        152,000
                        
                        
                        
                        173,000Eligible
      capital expenditures
                        
                        
                        41,000
                        
                        
                        
                        41,000Federal
      Ontario harmonization credit
                        
                        
                        1,090,000
                        
                        
                        
                        –Non-capital
      losses - United States
                        
                        
                        25,552,000
                        
                        
                        
                        27,338,000Non-capital
      losses - Canada
                        
                        
                        21,046,000
                        
                        
                        
                        18,885,000Research
      and development expenses
                        
                        
                        6,636,000
                        
                        
                        
                        4,838,00062,490,000
                        
                        
                        
                        58,888,000Future
      tax liabilities:Acquired
      technologies
                        
                        
                        (871,000
                        )
                        
                        
                        (1,179,000
                        )61,619,000
                        
                        
                        
                        57,709,000Less
      valuation allowance
                        
                        
                        61,619,000
                        
                        
                        
                        57,709,000Net
      future tax asset
                        
                        $
                        –
                        
                        
                        $
                        –
  2008
numbers have been re-stated to conform to 2009 presentation.
  F-24
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  13.
              Income
      taxes (continued):
  (c)
              The
      Company has available Canadian and United States non-capital loss
      carryforwards that expire as
follows:
 
 Canada
                        
                        
                        United States2010
                        
                        $
                        2,250,000
                        
                        
                        $
                        –2014
                        
                        
                        7,158,000
                        
                        
                        
                        –2015
                        
                        
                        16,300,000
                        
                        
                        
                        –2019
                        
                        
                        –
                        
                        
                        
                        1,0002020
                        
                        
                        –
                        
                        
                        
                        32,0002021
                        
                        
                        –
                        
                        
                        
                        96,0002022
                        
                        
                        –
                        
                        
                        
                        2,969,0002023
                        
                        
                        –
                        
                        
                        
                        5,256,0002024
                        
                        
                        –
                        
                        
                        
                        3,471,0002025
                        
                        
                        –
                        
                        
                        
                        3,589,0002026
                        
                        
                        12,075,000
                        
                        
                        
                        49,670,0002027
                        
                        
                        10,235,000
                        
                        
                        
                        5,694,0002028
                        
                        
                        15,469,000
                        
                        
                        
                        3,008,0002029
                        
                        
                        9,084,000
                        
                        
                        
                        1,366,000$
                        72,571,000
                        
                        
                        $
                        75,152,000
  (d)
                The
      Company has approximately $22,884,000 (2008 - $15,722,000) of unclaimed
      development costs that may be claimed against future taxable
      income.
  (e)
              The
      Company has accumulated net capital losses for tax purposes of
      approximately $1,049,000, which may be carried forward and used to reduce
      taxable capital gains in future
years.
  F-25
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  13.
              Income
      taxes (continued):
  (f)
              The
      Company performs certain activities that result in investment tax credits
      ("ITCs") that can be used to offset future Canadian and United States
      federal taxes payable, Ontario Research and Development tax credits
      ("ORDTCs") that can be used to offset future Ontario provincial taxes
      payable and Ontario innovation tax credits ("OITCs") that are payable in
      cash from the Province of Ontario.  The Company does not accrue
      the federal ITCs or the ORDTCs as they can only be used to offset future
      taxes payable and the Company has not recorded the benefit of any tax
      assets to date.  The ITCs and ORDTCs expire as
      follows:
 
 Ontario
                        
                        
                        Canada
                        
                        
                        United States2019
                        
                        $
                        –
                        
                        
                        $
                        –
                        
                        
                        $
                        2,0002020
                        
                        
                        –
                        
                        
                        
                        25,000
                        
                        
                        
                        10,0002021
                        
                        
                        –
                        
                        
                        
                        305,000
                        
                        
                        
                        129,0002022
                        
                        
                        –
                        
                        
                        
                        430,000
                        
                        
                        
                        87,0002023
                        
                        
                        –
                        
                        
                        
                        356,000
                        
                        
                        
                        223,0002024
                        
                        
                        –
                        
                        
                        
                        302,000
                        
                        
                        
                        202,0002025
                        
                        
                        –
                        
                        
                        
                        1,097,000
                        
                        
                        
                        227,0002026
                        
                        
                        –
                        
                        
                        
                        703,000
                        
                        
                        
                        408,0002027
                        
                        
                        –
                        
                        
                        
                        1,180,000
                        
                        
                        
                        233,0002028
                        
                        
                        –
                        
                        
                        
                        1,151,000
                        
                        
                        
                        106,0002029
                        
                        
                        223,000
                        
                        
                        
                        1,042,000
                        
                        
                        
                        –$
                        223,000
                        
                        
                        $
                        6,591,000
                        
                        
                        $
                        1,627,000
  The
Company accrues and records cash refundable OITCs amounts directly against
development expenses where there is reasonable assurance that the assistance
will be realized.  During the year, the Company received cash
refundable OITCs claims related to prior years in the amount of
$135,305.  At June 30, 2009, OITCs receivable amounted to $300,000
(2008 - $158,742; 2007 - $143,049).
 
 2009
                        
                        
                        2008
                        
                        
                        2007Gross
      development expenses
                        
                        $
                        14,456,637
                        
                        
                        $
                        15,613,224
                        
                        
                        $
                        28,758,469OITCs
                        
                        
                        (283,792
                        )
                        
                        
                        18,326
                        
                        
                        
                        –Licensing
      and product  development expenses
                        
                        $
                        14,172,845
                        
                        
                        $
                        15,631,550
                        
                        
                        $
                        28,758,469
  F-26
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  13.
              Income
      taxes (continued):
  (g)
              The
      province of Ontario harmonized its corporate taxation system with the
      Government of Canada effective at the commencement of the first taxation
      year that included January 1, 2009.  At that time, the
      Company's accumulated loss carryforwards, undepreciated capital costs,
      research and development expenditure pools and undeducted eligible capital
      expenditures for Ontario purposes were required to be adjusted to the
      federal values.  Since the Company's Ontario balances exceeded
      its federal balances, the reduction resulted in a harmonization credit of
      $1,090,000 which can be utilized to reduce Ontario taxes payable over the
      next five years.  A full valuation allowance has been provided
      against the future tax amount.
  14.
              Capital
      management:
  The
Company's primary objective when managing capital is to ensure that it has
sufficient cash resources to fund its development and commercialization
activities and to maintain its ongoing operations.  To secure the
additional capital necessary to pursue these plans, the Company may attempt to
raise additional funds through the issuance of equity or by securing strategic
partners.
  The
Company includes cash and cash equivalents, short-term deposits in the
definition of capital.
  The
Company is not subject to externally imposed capital requirements and there has
been no change with respect to the overall capital management strategy during
the 12 months ended June 30, 2009.
  15.
              Financial
      instruments:
  (a)
                Financial
      assets and liabilities:
  The
Company has determined the estimated fair values of its financial instruments
based on appropriate valuation methodologies; however, considerable judgment is
required to develop these estimates.  The carrying values of current
monetary assets and liabilities approximate their fair values due to their
relatively short periods to maturity.
  F-27
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  15.
              Financial
      instruments (continued):
  (b)
              Risks
      arising from financial instruments and risk
  management:
  The
Company's activities expose it to a variety of financial risks: market risk
(including foreign exchange and interest rate risks), credit risk and liquidity
risk.  Risk management is the responsibility of the Company, which
identifies, evaluates and, where appropriate, mitigates financial
risks.
  (i)
              Foreign
      exchange risk:
  The
Company operates in Canada and the United States and has relationships with
entities in other countries.  Foreign exchange risk arises because the
cost of transactions denominated in foreign currencies may vary due to changes
in exchange rates ("transaction exposures").
  Balances
in foreign currencies at June 30, 2009 were approximately:
 
 U.S. dollars
                            
                            
                            EurosCash
      and short-term deposits
                            
                            $
                            344,999
                            
                            
                            €
                            23,502Accounts
      receivable
                            
                            
                            29,917
                            
                            
                            
                            –Accounts
      payable and accrued liabilities
                            
                            
                            (103,337
                            )
                            
                            
                            –$
                            271,579
                            
                            
                            €
                            23,502
  Fluctuations
in the U.S. dollar exchange rate may potentially have a significant impact on
the Company's results of operations.
  (ii)
              Interest
      rate risk:
  The
Company is exposed to interest rate risk to the extent that short-term deposits
are at a fixed rate of interest and their market value can vary with the change
in market interest rates.  The Company's maximum exposure to interest
rate risk is based on the effective interest rate and the current carrying value
of these assets.  The Company monitors market interest rates and
mitigates against interest rate risk by not investing in deposits longer than 18
months.
  F-28
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  15.
              Financial
      instruments (continued):
  There is
a risk that future cash flows from invested cash, cash equivalents and
short-term deposits will vary as the market interest rates fluctuate because
these investments earn interest at market rates.  Based on the June
30, 2009 balance of approximately $42 million, a variation of 100 basis points
in the market interest rate could affect the consolidated statement of
operations and comprehensive loss and deficit by approximately
$420,000.  For the year ended June 30, 2009, the Company recorded
interest income of $1.070 million (2008 - $2.584 million; 2007 -
$3.240 million) in relation to these assets.
  (iii)
              Credit
      risk:
  Accounts
receivable are subject to normal credit risk.  The maximum exposure to
credit risk is equal to the carrying value of the accounts
receivable.  The Company regularly assesses the accounts receivable
and takes action to collect the amounts or provide adequate reserves against
doubtful accounts.  The Company currently has no reserve for doubtful
accounts as there have been no bad debts to date.
  (iv)
              Liquidity
      risk:
  Liquidity
risk is the risk that the current financial obligations exceed the cash
available to satisfy those obligations at any point in time.  The
Company's objective in managing liquidity risk is to maintain sufficient readily
available cash in order to meet its liquidity requirements.  The
Company achieves this by maintaining sufficient cash and cash
equivalents.
  16.
              Canadian
      and United States accounting policy
differences:
  The
Company's consolidated financial statements are prepared in accordance with
Canadian GAAP, which differ in certain respects from those applied in the United
States.  The following items present the impact of material
differences between Canadian GAAP and United States GAAP on the Company's
consolidated financial statements.
  F-29
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  16.
              Canadian
      and United States accounting policy differences
    (continued):
  (a)
              Consolidated
      statements of operations and comprehensive
loss:
  The
following table reconciles loss for the year as reported in the consolidated
statements of operations and comprehensive loss and deficit reported under
Canadian GAAP to what would have been reported had the statements been prepared
in accordance with United States GAAP:
 
 2009
                                          
                                          
                                          2008
                                          
                                          
                                          2007Loss
      for the year based on  Canadian GAAP
                                          
                                          $
                                          (13,069,466
                                          )
                                          
                                          $
                                          (14,885,744
                                          )
                                          
                                          $
                                          (31,730,240
                                          )Amortization
      of acquired  technologies (i)
                                          
                                          
                                          1,060,541
                                          
                                          
                                          
                                          1,060,541
                                          
                                          
                                          
                                          1,059,255Loss
      for the year and comprehensive  loss based on United States
      GAAP
                                          
                                          $
                                          (12,008,925
                                          )
                                          
                                          $
                                          (13,825,203
                                          )
                                          
                                          $
                                          (30,670,985
                                          )2009
                                          
                                          
                                          2008
                                          
                                          
                                          2007Basic
      and diluted loss per share (ii)
                                          
                                          $
                                          (0.22
                                          )
                                          
                                          $
                                          (0.25
                                          )
                                          
                                          $
                                          (0.55
                                          )Weighted
      average number of common shares outstanding
                                          
                                          
                                          55,835,356
                                          
                                          
                                          
                                          55,835,356
                                          
                                          
                                          
                                          55,804,674Excludes
      common shares held  in escrow for contingent additional payment
      related to the acquisition of Delex (note 6)
                                          
                                          
                                          2,380,953
                                          
                                          
                                          
                                          2,380,953
                                          
                                          
                                          
                                          2,380,953
  (i)
              Under
      United States GAAP, the Company's acquired technologies, which are
      primarily comprised of patents and technologies which require regulatory
      approval to be commercialized and which have no proven alternative future
      uses, are considered in-process research and development and are
      immediately expensed upon acquisition in accordance with FASB Statement
      No. 2, Accounting for Research and Development Costs.  The
      Company's acquired technologies do not have an alternative future use
      given their specialized nature.  Under Canadian GAAP, the
      acquired technologies are considered to be development assets which are
      capitalized and amortized over their expected useful
  lives.
  F-30
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  16.
              Canadian
      and United States accounting policy differences
    (continued):
  (ii)
              Loss
      per common share has been calculated using the weighted average number of
      common shares outstanding during the year.  The potential effect
      of share options is not dilutive to the loss per common
    share.
  (b)
              Consolidated
      statement of changes in shareholders'
equity:
  United
States GAAP requires the inclusion of a consolidated statement of changes in
shareholders' equity for each year a statement of operations is
presented.  Shareholders' equity under United States GAAP was as
follows:
 AdditionalShare
                                
                                
                                
                                
                                
                                paid-inWarrants
                                
                                
                                capital
                                
                                
                                Deficit
                                
                                
                                capital
                                
                                
                                TotalTotal
      shareholders' equity under U.S. GAAP,  June 30,
    2006
                                
                                $
                                4,597,988
                                
                                
                                $
                                172,771,544
                                
                                
                                $
                                (90,933,372
                                )
                                
                                $
                                2,183,380
                                
                                
                                $
                                88,619,540Issued
      on exercise of options
                                
                                
                                –
                                
                                
                                
                                15,554
                                
                                
                                
                                –
                                
                                
                                
                                (4,323
                                )
                                
                                
                                11,231Issued
      on exercise of warrants
                                
                                
                                (44,680
                                )
                                
                                
                                134,055
                                
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                89,375Stock-based
      compensation
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                1,716,913
                                
                                
                                
                                1,716,913Loss
      for the year
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                (30,670,985
                                )
                                
                                
                                –
                                
                                
                                
                                (30,670,985
                                )Total
      shareholders' equity  under U.S. GAAP,  June 30,
      2007
                                
                                
                                4,553,308
                                
                                
                                
                                172,921,153
                                
                                
                                
                                (121,604,357
                                )
                                
                                
                                3,895,970
                                
                                
                                
                                59,766,074Expiry
      of warrants
                                
                                
                                (1,402,769
                                )
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                1,402,769
                                
                                
                                
                                –Stock-based
      compensation
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                2,063,973
                                
                                
                                
                                2,063,973Loss
      for the year
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                (13,825,203
                                )
                                
                                
                                –
                                
                                
                                
                                (13,825,203
                                )Total
      shareholders' equity  under U.S. GAAP,  June 30,
      2008
                                
                                
                                3,150,539
                                
                                
                                
                                172,921,153
                                
                                
                                
                                (135,429,560
                                )
                                
                                
                                7,362,712
                                
                                
                                
                                48,004,844Expiry
      of warrants
                                
                                
                                (3,150,539
                                )
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                3,150,539
                                
                                
                                
                                –Stock-based
      compensation
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                760,760
                                
                                
                                
                                760,760Loss
      for the year
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                (12,008,925
                                )
                                
                                
                                –
                                
                                
                                
                                (12,008,925
                                )Total
      shareholders' equity  under U.S. GAAP,  June 30,
      2009
                                
                                
                                –
                                
                                
                                
                                172,921,153
                                
                                
                                
                                (147,438,485
                                )
                                
                                
                                11,274,011
                                
                                
                                
                                36,756,679Stock-based
      compensation
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                (1,818,334
                                )
                                
                                
                                1,761,112
                                
                                
                                
                                (57,222
                                )In-process
      research and  development acquired
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                7,348,185
                                
                                
                                
                                –
                                
                                
                                
                                7,348,185Amortization
      of in-processresearch
      and development acquired
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                (4,343,317
                                )
                                
                                
                                –
                                
                                
                                
                                (4,343,317
                                )Total
      shareholders' equity  under Canadian GAAP,  June 30,
      2009
                                
                                $
                                –
                                
                                
                                $
                                172,921,153
                                
                                
                                $
                                (146,251,951
                                )
                                
                                $
                                13,035,123
                                
                                
                                $
                                39,704,325
  F-31
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  16.
              Canadian
      and United States accounting policy differences
    (continued):
  United
States GAAP requires the disclosures of a consolidated statement of
comprehensive income.  Comprehensive income generally encompasses all
changes in shareholders' equity, except those arising from transactions with
shareholders.  There have been no material transactions that would
have been included in comprehensive income had the statements been prepared in
accordance with United States GAAP.
  (c)
              Investment
      tax credits:
  Canadian
GAAP requires that investment tax credits relating to development costs be
accounted for as a reduction of development costs.  United States GAAP
requires such amounts to be accounted for as a reduction of income tax
expense.  There is no impact on the loss for the year as a result of
this GAAP difference.  For the year ended June 30, 2009, the Company
recognized $283,792 (2008 - nil; 2007 - nil) of investment tax
credits.
  (d)
              Income
      taxes:
  Canadian
GAAP requires that future income taxes be calculated using enacted income tax
rates or, where they exist, substantively enacted income tax rates. United
States GAAP does not permit the use of substantively enacted
rates.  As a full valuation allowance was recorded against all future
tax assets, the future tax assets and valuation allowances are also different as
a result of Canadian/United States GAAP loss differences.
  The
future tax assets and related valuation allowances calculated using United
States GAAP were approximately $70,932,000, $65,212,000 and $68,741,000,
respectively, for the years ended June 30, 2009, 2008 and 2007.
  The
Company fully recognizes its tax benefits, which are offset by a valuation
allowance to the extent that it is more likely than not that the deferred tax
assets will not be realized.
  The
parent company and its Canadian subsidiary each file a Canadian federal and
Ontario income tax return.  Generally, the Company is no longer
subject to federal and provincial income tax examinations by Canadian tax
authorities for year ends prior to June 30, 2004.  However, years from
2001 to 2009 remain open with respect to related party
transactions.
  F-32
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  16.
              Canadian
      and United States accounting policy differences
    (continued):
  The
Company's U.S. subsidiary files a U.S. federal income tax return and income tax
returns in many U.S. state jurisdictions.  Generally, the Company is
no longer subject to federal and state income tax examinations by U.S. tax
authorities for years prior to 2004.
  The
Company recognizes any interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses.  During the year
ended June 30, 2009, there were no such interest or penalties.
  (e)
              New
      accounting pronouncements:
  On July
1, 2008, the Company adopted FASB Statement No. 157 ("SFAS 157"), Fair Value
Measurements, which defines fair value, establishes a framework for measuring
fair value under United States GAAP, and expands disclosures about fair value
measurements.  SFAS 157 applies to other accounting pronouncements
that require or permit fair value measurements.  The adoption of this
change did not have an impact on the Company's consolidated financial
statements.
  On July
1, 2008, the Company adopted FASB Statement No. 159 ("SFAS 159"), The Fair Value
Options for Financial Assets and Financial Liabilities, which permits entities
to choose to measure many financial instruments as fair value on a
contract-by-contract basis.  SFAS 159 applies to all reporting
entities and contains financial statement presentation and disclosure
requirements for assets and liabilities reported at fair value as a consequence
of the election.  The adoption of this change did not have an impact
on the Company's consolidated financial statements.
  (f)
              Recently
      issued accounting pronouncements not yet
  adopted:
  In
December 2007, the FASB issued Statement No. 141R ("SFAS 141R"), Business
Combinations, which requires most identifiable assets, liabilities,
non-controlling interests and goodwill acquired in a business combination to be
recorded at full fair value.  SFAS 141R applies to all business
combinations, including combinations among mutual entities and combinations by
contract alone.  Under SFAS 141R, all business combinations will be
accounted for by applying the acquisition method.  SFAS 141R is
effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008, specifically July 1, 2009 for the Company.
  F-33
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  16.
              Canadian
      and United States accounting policy differences
    (continued):
  In
December 2007, the FASB issued Statement No. 160 ("SFAS 160"), Non-controlling
Interests in Consolidated Financial Statements, which requires non-controlling
interests (previously referred to as minority interests) to be treated as a
separate component of equity, not as a liability or other item outside permanent
equity.  SFAS 160 applies to the accounting for non-controlling
interests and transactions with non-controlling interest holders in consolidated
financial statements and is effective July 1, 2009 for the
Company.  SFAS 160 will be applied prospectively to all
non-controlling interests, including any that arose before the effective date,
except that comparative period information must be recast to classify
non-controlling interests in equity, attribute net income and other
comprehensive income to non-controlling interests and provide other disclosures
required by SFAS 160.  The Company does not expect the adoption of
SFAS 160 will have an impact on its consolidated financial
statements.
  In March
2008, the FASB issued Statement No. 161 ("SFAS 161"), Disclosures about
Derivative Instruments and Hedging Activities, which requires enhanced
disclosures about an entity's derivative and hedging activities and thereby
improves the transparency of financial reporting.  Mainly, entities
are required to provide enhanced disclosures about (i) how and why an
entity uses derivative instruments, (ii) how derivative instruments and related
hedged items are accounted for under Statement 133 and its related
interpretations, and (iii) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash
flows.  SFAS 161 is effective July 1, 2009 for the
Company.  SFAS 161 encourages, but does not require, comparative
disclosures for earlier periods at initial adoption.  The Company does
not expect the adoption of SFAS 161 will have an impact on its consolidated
financial statements.
  F-34
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
  Years
ended June 30, 2009, 2008 and 2007
  16.
              Canadian
      and United States accounting policy differences
    (continued):
  In June
2009, the FASB issued Statement No. 168 ("SFAS 168"), The FASB Accounting
Standards CodificationTM ("Codification") and the Hierarchy of Generally Accepted
Accounting Principles to replace SFAS 162, The Hierarchy of Generally Accepted
Accounting Principles, which became effective November 13, 2008.  The
Codification will become the source of authoritative United States GAAP
recognized by the FASB to be applied by non-governmental
entities.  Rules and interpretive releases of the Securities and
Exchange Commission ("SEC") under authority of federal securities laws are also
sources of authoritative United States GAAP for SEC registrants.  On
the effective date of this statement, the Codification will supersede all
then-existing non-SEC accounting and reporting standards.  All other
non-grandfathered non-SEC accounting literature not included in the Codification
will become non-authoritative.  This statement is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009.  The Company does not expect the adoption of SFAS
168 will have an impact on its consolidated financial statements other than
changes to note disclosures.
  F-35




Exhibit
Index




Exhibit
Description




1.1
            Certificate
      of Continuance dated December 11, 2001 (incorporated by reference to
      Exhibit 1.1 to the Form 20-F of YM BioSciences Inc., filed on May 18, 2004
      (File No. 1-32186)).




1.2
            Certificate
      of Registration dated December 11, 2001 (incorporated by reference to
      Exhibit 1.2 to the Form 20-F of YM BioSciences Inc., filed on May 18, 2004
      (File No. 1-32186)).




1.3
            Memorandum
      of Association dated December 11, 2001(incorporated by reference to
      Exhibit 1.3 to the Form 20-F of YM BioSciences Inc., filed on May 18, 2004
      (File No. 1-32186)).




1.4
            Articles
      of Association dated December 11, 2001(incorporated by reference to
      Exhibit 1.4 to the Form 20-F of YM BioSciences Inc., filed on May 18, 2004
      (File No. 1-32186)).




1.5
            Directors
      resolution re creation and issuance of Class B Preferred Shares, Series 1
      (incorporated by reference to Exhibit 1.5 to the Form 20-F of YM
      BioSciences Inc., filed on May 18, 2004 (File No.
    1-32186)).




2.1
            Form
      of the Corporation’s Canadian common share purchase warrant (incorporated
      by reference to Exhibit 2.1 to the Form 20-F of YM BioSciences Inc., filed
      on May 18, 2004 (File No.
1-32186)).




2.2
            Form
      of the Corporation’s United States common share purchase warrant
      (incorporated by reference to Exhibit 2.2 to the Form 20-F of YM
      BioSciences Inc., filed on May 18, 2004 (File No.
    1-32186)).




2.3
            Form
      of the Corporation’s Canadian placement agent warrant (incorporated by
      reference to Exhibit 2.3 to the Form 20-F of YM BioSciences Inc., filed on
      May 18, 2004 (File No. 1-32186)).




2.4
            Form
      of the Corporation’s United States placement agent warrant (incorporated
      by reference to Exhibit 2.4 to the Form 20-F of YM BioSciences Inc., filed
      on May 18, 2004 (File No.
1-32186)).




2.5
            Form
      of warrant certificate granted by the Corporation to Scott McLean dated
      February 7, 2006 (incorporated by reference to Exhibit 2.5 to the Form
      20-F of YM BioSciences Inc., filed on September 22, 2008 (File No.
      1-32186)).




4.1
            Licensing
      Bonus Pool Plan dated March 31, 2004(incorporated by reference to Exhibit
      4.8 to the Form 20-F of YM BioSciences Inc., filed on May 18, 2004 (File
      No. 1-32186)).




4.2
            Amended
      and Restated Stock Option Plan dated November 28, 2007 (incorporated by
      reference to Exhibit 4.2 to the Form 20-F of YM BioSciences Inc., filed on
      September 22, 2008 (File No.
1-32186)).


EX-1




4.3
            Shareholder
      Rights Plan Agreement dated as of October 22, 2007 (incorporated by
      reference to Exhibit 2.1 to the Form 8-A of YM BioSciences Inc., filed on
      December 11, 2007 (File No.
1-32186)).




4.4
            License
      Agreement between YM BioSciences Inc. (formerly known as York Medical
      Inc.), University of Manitoba and The Manitoba Cancer Treatment and
      Research Foundation, carrying on its undertaking as Cancercare Manitoba,
      dated November 2, 2000 (incorporated by reference to Exhibit 4.4 to the
      Form 20-F of YM BioSciences Inc., filed on May 18, 2004 (File No.
      1-32186)).




4.5
            License
      Agreement between CIMYM Inc. and CIMAB SA, January 24, 2001(incorporated
      by reference to Exhibit 4.5 to the Form 20-F of YM BioSciences Inc., filed
      on May 18, 2004 (File No.
1-32186)).




4.6
            License
      Agreement between YM BioSciences Inc. (formerly known as Yorkton Medical
      Inc.) and CIMAB SA, dated May 3, 1995(incorporated by reference to Exhibit
      4.6 to the Form 20-F of YM BioSciences Inc., filed on May 18, 2004 (File
      No. 1-32186)).




4.7
            Joint
      Venture Shareholders’ Agreement between YM Biosciences Inc. (formerly
      known as York Medical Inc.), CIMYM Inc. (an Ontario Corporation) and CIMAB
      S.A dated November 14, 1995 (incorporated by reference to Exhibit 4.10 to
      the Form 20-F of YM BioSciences Inc., filed on May 18, 2004 (File No.
      1-32186)).




4.8
            Assignment
      and Assumption Agreement between YM Biosciences Inc. (formerly known as
      York Medical Inc.), and CIMYM Inc. dated November 22, 1995 (incorporated
      by reference to Exhibit 4.11 to the Form 20-F of YM BioSciences Inc.,
      filed on May 18, 2004 (File No.
1-32186)).




4.9
            Letter
      from YM Biosciences Inc. (formerly known as York Medical Inc.) to CIMYM
      Inc. dated November 23, 1995 (incorporated by reference to Exhibit 4.12 to
      the Form 20-F of YM BioSciences Inc., filed on May 18, 2004 (File No.
      1-32186)).




4.10
            Joint
      Venture Shareholders’ Agreement between YM BioSciences Inc. (formerly
      known as York Medical Inc.), CIMYM Inc. (a Barbados Corporation) and CIMAB
      S.A. dated May 16, 1996 (incorporated by reference to Exhibit 4.14 to the
      Form 20-F of YM BioSciences Inc., filed on May 18, 2004 (File No.
      1-32186)).




4.11
            Amended
      and Restated Development and License Agreement between CIMYM Inc., CIMAB
      SA and Oncoscience AG, dated August 15, 2007 (incorporated by reference to
      Exhibit 4.11 to the Form 20-F of YM BioSciences Inc., filed on September
      22, 2008 (File No. 1-32186)).




4.12
            Lease
      Agreement between Chesterbrook Partners, L.P. and YM BioSciences USA, Inc.
      dated July 27, 2006 (incorporated by reference to Exhibit 4.12 to the Form
      20-F of YM BioSciences Inc., filed on September 22, 2008 (File No.
      1-32186)).




4.13
            Lease
      Amending and Extension Agreement between 1411029 Ontario Limited and YM
      BioSciences Inc. dated December 4, 2007 (incorporated by reference to
      Exhibit 4.13 to the Form 20-F of YM BioSciences Inc., filed on September
      22, 2008 (File No. 1-32186)).


EX-2




4.14
            Merger
      Agreement among YM BioSciences Inc., 2069044 Ontario Limited, DELEX
      Therapeutics Inc., Business Development Bank of Canada, New Generation
      Biotech (Equity) Fund Inc., and Eastern Technology Seed Investment Fund
      Limited Partnership dated April 12, 2005 (incorporated by reference to
      Exhibit 99.2 to the Form 6-K of YM BioSciences Inc., filed on May 3, 2005
      (File No. 1-32186)).




4.15
            Amalgamation
      Agreement among YM BioSciences Inc., 2069044 Ontario Limited and DELEX
      Therapeutics Inc. dated May 2, 2005 (incorporated by reference to Exhibit
      99.3 to the Form 6-K of YM BioSciences Inc., filed on May 3, 2005 (File
      No. 1-32186)).




4.16
            Escrow
      Agreement between YM BioSciences Inc. and Equity Transfer Services Inc.
      dated May 2, 2005 (incorporated by reference to Exhibit 99.4 to the Form
      6-K of YM BioSciences Inc., filed on May 3, 2005 (File No.
      1-32186)).




4.17
            Placement
      Agent Agreement between YM BioSciences Inc., and SG Cowen & Co., LLC,
      Dundee Securities Corporation and Canaccord Capital Corporation as
      placement agents dated February 13, 2006 (incorporated by reference to
      Exhibit 99.1 to the Form 6-K of YM BioSciences Inc., filed on February 17,
      2007 (File No. 1-32186)).




4.18
            Agreement
      and Plan of Merger by and among YM BioSciences Inc., YM Biosciences USA
      Inc., YM Biosciences U.S. Operations Inc., Eximias Pharmaceutical
      Corporation, and Orbimed Advisors, LLC, as Stockholder Representative
      dated April 13, 2006 (incorporated by reference to Exhibit 4.18 to the
      Form 20-F of YM BioSciences Inc., filed on September 22, 2008 (File No.
      1-32186)).




4.19
            Clinical
      Research Services Agreement between YM BioSciences Inc. and Pharm-Olam
      International Ltd. dated as of February 22, 2005 (incorporated by
      reference to Exhibit 4.19 to the Form 20-F of YM BioSciences Inc., filed
      on September 22, 2008 (File No.
1-32186)).




4.20
            Clinical
      Research Services Agreement between YM BioSciences Inc. and All-Phase
      Clinical Research Inc. dated as of April 2, 2007 (incorporated by
      reference to Exhibit 4.20 to the Form 20-F of YM BioSciences Inc., filed
      on September 22, 2008 (File No.
1-32186)).




4.21
            Clinical
      Research Services Agreement between YM BioSciences Inc. and AAI Pharma
      Inc. dated as of November 9, 2007 (incorporated by reference to Exhibit
      4.21 to the Form 20-F of YM BioSciences Inc., filed on September 22, 2008
      (File No. 1-32186)).





12.1
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14 of the
      Securities Exchange Act of 1934.





12.2
            Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14 of the
      Securities Exchange Act of 1934.





13.1
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section
    1350.





13.2
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section
    1350.





15.1
              Consentof
      KPMG LLP.


EX-3