Exhibit
      99.1









































**YM
      BIOSCIENCES INC.**





**ANNUAL
      INFORMATION FORM**





**YEAR
      ENDED JUNE 30, 2006**





















































**September
      21, 2006**
















**YM
      BIOSCIENCES INC.**





**ANNUAL
      INFORMATION FORM**











**TABLE
      OF CONTENTS**


DOCUMENTS
                  INCORPORATED BY REFERENCE
              2GLOSSARY
                  OF TERMS AND PROPER NAMES
              3FORWARD
                  LOOKING STATEMENTS
              7CORPORATE
                  STRUCTURE
              7GENERAL
                  DEVELOPMENT OF THE BUSINESS
              8NARRATIVE
                  DESCRIPTION OF THE BUSINESS
              10DIVIDENDS
              44CAPITAL
                  STRUCTURE
              44COMMON
                  SHARES
              44MARKET
                  FOR SECURITIES
              44DIRECTORS
                  AND OFFICERS
              44AUDIT
                  FEES
              52LEGAL
                  PROCEEDINGS
              52TRANSFER
                  AGENT AND REGISTRAR
              52MATERIAL
                  CONTRACTS
              52ADDITIONAL
                  INFORMATION
              53







**DOCUMENTS
      INCORPORATED BY REFERENCE** ****




YM
      BioSciences’ “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” (the “MD&A”) and the audited consolidated balance
      sheets as at June 30, 2006 and June 30, 2005, and the audited consolidated
      statements of earnings and retained earnings and changes in financial position
      for each of the years in the three year period ended June 30, 2006 (the
“Financial Statements”) previously filed.




The
      MD&A and the Financial Statements, in their entirety, are incorporated by
      reference in, and form part of, this Annual Information Form. The previously
      filed business acquisition report dated July 18 ,
      2006 in respect of the acquisition of Eximias Pharmaceutical Corporation on
      May
      9, 2006 is also incorporated by reference in, and forms part of, this Annual
      Information Form.




All
      of the documents referred to above have been filed via SEDAR (System for
      Electronic Document Analysis and Retrieval) and are available to the public
      at
      SEDAR’s website, *www.sedar.com* .
      Further information may also be found on the Corporation’s website *www.ymbiosciences.com* .










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          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.




Abgenix
      - Abegnix Incorporated




Active
      Immunotherapy - Deliberate stimulation of the patient's own immune response
      through administration of antigens with or without immunological adjuvants.
      Therapeutic cancer vaccines are considered Active Specific Immunotherapy agents
      because the body is stimulated to make its own antibodies specific for the
      tumor
      cells




Adjuvant
      - Substance added to a vaccine to enhance its immunogenicity (i.e. its ability
      to stimulate an immune response)




Amgen
      - Amgen Incorporated




Antisense
      Drug - Short spans of nucleic acid (DNA or RNA) used to disrupt the expression
      of disease related genetic code




Aphton
      - Aphton Corporation




ASCO
      - The American Society of Clinical Oncology




AZ/AstraZeneca
      - AstraZeneca PLC




Autocrine
      - Used herein to describe a hormonal pathway characterized by the production
      of
      a biologically active substance by a cell; the substance then binds to receptors
      on that same cell to initiate a cellular response




Autocrine
      loop - A self-sustaining process built on a self-feeding positive feedback
      cycle. Refers to the ability of a substance to act on the same cell that
      produced it




BMS
      - Bristol Myers Squibb Company




Cancer
      Vaccine - Vaccines or candidate vaccines designed to treat cancer, using pure
      or
      extracted tumor-specific antigens or using the patient's own whole tumor cells
      as the source of antigens - see “Active Immunotherapy”




CBQ
      - Centro de Bioactivos Quimicos (Center for Bioactive Chemicals), Santa Clara,
      Cuba




cDNA
      - Cloned copies of mRNA - the essential messenger element of the genes in the
      DNA that help in the coding of proteins




cGMP
      - current good manufacturing practices, as mandated from time to time by Health
      Canada and the FDA




CIM
      - Centro de Inmunologia Molecular (Center for Molecular Immunology), Havana,
      Cuba




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




c-myc
      - Cellular gene involved in proliferation, commonly deregulated in cancer




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




Cyclophosphamide
      - Approved chemotherapeutic agent




Cytoprotective
      - Having the capacity to protect cells






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          3 -




Cytostatic
      - Having capacity to arrest the growth of cells




Cytotoxic
      - Having capacity to kill cells




Cytotoxic
      T cell response - Killing the tumor cell by activated tumor-specific T cells




DEA
      - Drug Enforcement Administration (United States)




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




Doxorubicin
      - Approved chemotherapeutic agent




E.
      coli - A common bacterial strain often used as a host for recombinant protein
      production




EGFr
      - A protein known as Epidermal Growth Factor Receptor




Eli
      Lilly - Eli Lilly and Company




EMEA
      - The Europe Agency for the Evaluation of Medicinal Products - the European
      health regulatory authority




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




Estramustine
      - An approved chemotherapeutic agent




Eximias
      - Eximias Pharmaceutical Corporation




Extracellular
      domain (ECD) - The portion of a cell surface protein located outside the cell




5-FU
      - See Fluorouracil




FDA
      - United States Food and Drug Administration




Fluorouracil
      (5-Fluorouracil, 5-FU) - Approved chemotherapeutic agent




Fusion
      protein - Two or more proteins genetically engineered to be produced as a single
      protein




Genentech
      - Genentech Incorporated




Genmab
      - Genmab A/S




Genta
      - Genta Incorporated




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 United States, to be used as
      a
      standard in accordance with the World Health Organization's Certification Scheme
      on the quality of pharmaceutical products




GnRH
      - Gonadotrophin Releasing Hormone; controlling the circulating levels of the
      sex
      hormones




HER-1
      positive tumors - Tumors expressing/producing the EGF receptor




Hormone-refractory
      - Term used to indicate that a tumor is no longer responsive to hormone therapy






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          4 -




Humanized
      - The process whereby an antibody derived from murine cells is altered to
      resemble a human antibody. Humanized antibodies are less likely to cause
      allergic reactions when given to humans but retain the biological activity
      of
      the original murine form




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




ISIS
      - ISIS Pharmaceuticals




KFDA
      - Korea Food and Drug Administration - the Korean health regulatory
      authority




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




Lorus
      - Lorus Therapeutics Inc.




MDR
      - multiple drug resistant cells in a tumor that are resistant or become
      resistant to chemotherapy




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)




Mitoxantrone
      - An approved chemotherapy agent




Monoclonal
      antibody (“MAb”) - Antibodies of exceptional purity and specificity derived from
      hybridoma cells (cells which are fused cells, generally MAb produced in mice,
      that secrete MAbs)




Murine
      - Derived from mouse cells




NCE
      - A new chemical entity




NCIC
      - The National Cancer Institute of Canada




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 United States Department of the
      Treasury




Oncogene
      - A gene that induces or promotes uncontrolled cell growth




Oncoscience
      - Oncoscience AG of Germany




Orange
      Book - A reference to the Hatch/Waxman Act




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




OSI
      - OSI Pharmaceuticals, Inc.






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          5 -




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




P64k
      - Outer membrane protein of N. meningitides




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




pGp
      - P-Glycoprotein. A pumping mechanism that removes noxious substances from
      the
      cell




pGp
      inhibitor - Inhibitor of the activity of P-Glycoprotein




P.
      haemolytica - A bacterium causing respiratory disease in cattle and sheep




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




Prednisone
      - An approved standard anti-inflammatory




Resection
      - The process of tumor removal




Roche
      - F.Hoffmann-LaRoche Ltd.




TAP
      - TAP Pharmaceuticals




Taxol
      - An approved chemotherapeutic agent




Taxotere
      - An approved chemotherapeutic agent




TGFα -
      Transforming growth factor alpha




Th1
      - T helper cell type 1 (generally involved in stimulating a cell-mediated immune
      response)




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




Titers
      - Term used to express levels of circulating antibodies




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




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




YM
      U.S. Operations - YM BioSciences U.S. Operations Inc., an indirect wholly-owned
      subsidiary of YM




Yttrium
      90 - A radioisotope used in the treatment of disease






-
          6 -


**FORWARD
      LOOKING STATEMENTS**




Statements
      contained in this annual information form that are not based on historical
      fact,
      including without limitation statements containing the words "believes," "may,"
      “likely,” "plans," "will," "estimate," "continue," "anticipates," "intends,"
      "expects" and similar expressions, constitute "forward-looking statements"
      within the meaning of the United States Private Securities Litigation Reform
      Act
      of 1995. Such forward-looking statements involve known and unknown risks,
      uncertainties and other factors that may cause the actual results, events or
      developments to be materially different from any future results, events or
      developments expressed or implied by such forward-looking statements. Such
      factors include, without limitation, changing market conditions, 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, intellectual property liability rights and
      liability claims asserted against us, the successful and timely completion
      of
      clinical studies, the impact of competitive products and pricing, new product
      development, uncertainties related to the regulatory approval process, product
      development delays, our ability to attract and retain business partners and
      key
      personnel, future levels of government funding, our ability to obtain the
      capital required for research, operations and marketing and other risks detailed
      elsewhere in this annual information form and in the documents incorporated
      by
      reference herein. These forward-looking statements are based on our beliefs
      and
      expectations on the date the statements are made, and subject to the
      requirements of applicable securities laws, we undertake no obligation to
      publicly update or revise any forward-looking statements, whether as a result
      of
      new information, future events or otherwise. In light of these risks,
      uncertainties and assumptions, the forward-looking events discussed in this
      annual information form might not occur and you should not place undue reliance
      on forward-looking statements. Forward-looking statements are subject to known
      and unknown risks, uncertainties and other factors that may cause our actual
      results, level of activity, performance or achievements to be materially
      different from those expressed or implied by such forward-looking statements,
      including:




•
            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 regulatory approvals and, ultimately, product
                launches


•
            dependence
                on third parties for successful commercialization of our
                products


•
            insufficient
                quota of active ingredient supply 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


•
            the
                uncertainty of recovery of advances to joint venture
                subsidiaries


•
            other
                factors discussed under “Risk
                Factors”.




Unless
      otherwise indicated, or the context requires otherwise, the information
      appearing in this annual information form is stated as at June 30, 2006 and
      references in this annual information form to “$” or “dollars” are to Canadian
      dollars. Information contained on our website is not part of this annual
      information form.




In
      this annual information form, “YM BioSciences”, “YM”, “we”, “us”, “our” and the
“Corporation” refer to YM BioSciences Inc.




**CORPORATE
      STRUCTURE**




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 Nova Scotia *Companies
      Act* .




Our
      head office and principal place of business is 5045 Orbitor Drive, Building
      11,
      Suite 400, Mississauga, Ontario, L4W 4Y4. Our registered head office is 1959
      Upper Water Street, Suite 800, Halifax, Nova Scotia, B3J 2X2




**Organizational
      Structure**




We
      currently have three material subsidiaries, shown in the following diagram:







-
          7 -










(1)
              20%
                  owned by CIMAB S.A.
 (2)
              U.S.
                  operating subsidiary (formerly Eximias Pharmaceutical
                  Corporation)




On
      June 30, 2006 CIMYM Inc., an Ontario company was amalgamated under the laws
      of
      Ontario with CIMYM Inc., a Barbados company to form CIMYM BioSciences Inc.
      CIMYM
      is 80% owned by the Corporation and 20% owned by CIMAB.




On
      May 2, 2005, the Corporation acquired all of the issued and outstanding shares
      of capital stock of DELEX Therapeutics Inc. YM issued to the DELEX shareholders
      common shares of YM in consideration for their DELEX shares and additional
      shares of YM in consideration for working capital in DELEX. On April 30, 2006
      DELEX was dissolved and wound up.




YM
      (USA) was incorporated on November 23, 2005 under the laws of Delaware. YM
      U.S.
      Operations was incorporated on April 10, 2006 under the laws of Delaware. On
      May
      9, 2006 YM U.S. Operations was merged with Eximias Pharmaceutical
      Corporation.




Unless
      otherwise noted, “YM BioSciences”, “YM”, and the “Corporation” includes YM
      BioSciences Inc. and its subsidiaries.




**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 at various stages of assessment and
      development, including certain of our current anti-cancer products. In 1998,
      we
      decided to concentrate 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 United States, Europe
      and
      elsewhere, and to expand our portfolio initially of anti-cancer products by
      licensing additional drug and cancer-related products in later stages of
      development. In addition, we have licensed certain drug products that were
      pre-clinical. See “Narrative Description of the Business - Products in Clinical
      Development” and “-- Products in Pre-Clinical Development”.






-
          8 -




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




o
      TESMILIFENE is a small molecule drug that has been clinically demonstrated
      to
      augment the anti-tumor activity of the cytotoxic drug families of anthracyclines
      and taxanes and, preclinically, of other families of chemotherapy. We received
      a
      positive Special Protocol Assessment from the FDA for a pivotal, 700-patient
      Phase III trial comparing the combination of tesmilifene together with a
      standard-of-care anthracycline chemotherapy to the anthracycline chemotherapy
      alone with cyclophosphamide in both arms. Enrollment for that trial was
      completed in May 2006. In a previous Phase III trial, tesmilifene was used
      in
      combination with doxorubicin and demonstrated a greater than 50% increase in
      survival in women with metastatic and recurrent breast cancer compared with
      the
      patients treated with doxorubicin alone. The FDA has designated tesmilifene
      for
      a fast track review for use in combination with an anthracycline
      chemotherapeutic for the treatment of women with advanced breast cancer.




o
      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 significantly improved the reported complete
      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, Columbia, the PRC and India. Our rights
      to
      nimotuzumab have been sub-licensed to Oncoscience for our European territory,
      to
      Kuhnil Pharmaceutical Company for our Korean territory and to Innogene
      Kalbiotech Ltd. of Singapore for certain Pacific-rim countries and certain
      African countries.




o
      AeroLEFTM, 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 and cancer pain. AeroLEFTM has been
      developed to provide both rapid onset and extended relief of pain while
      recognizing the need for interpersonal variability as well as inter-episode
      variability in the amount of drug needed. Health Canada cleared for initiation
      a
      randomized, 120-patient Phase III trial in the second quarter of fiscal 2006.




o
      NORELIN TM is a therapeutic vaccine designed to stimulate in patients production of
      antibodies against GnRH, resulting in reduced production of hormones that may
      cause or contribute to the growth of certain sex-hormone dependent cancers.
      It
      has completed a Phase I/II safety and immunogenicity trial in hormone-sensitive
      prostate cancer suggesting that the approach may be better tolerated than
      currently available therapies.




On
      May 2, 2005, we acquired DELEX Therapeutics Inc., a private clinical stage
      company developing inhalation-delivered products to treat severe or moderate
      pain including cancer pain. DELEX’s lead product is AeroLEF TM ,
      a proprietary formulation of opioids for the treatment of acute and breakthrough
      pain.




Through
      this acquisition, DELEX became a wholly-owned subsidiary of YM. In consideration
      for their shares and the accompanying working capital in DELEX, we issued to
      the
      DELEX shareholders 1,587,302 common shares upon closing of the transaction.
      In
      addition, we issued 4,603,174 to be held in escrow for the benefit of DELEX
      shareholders. Of the escrowed common shares an aggregate of 912,698 were
      released during fiscal 2005 and another 912,698 will be released in two tranches
      of approximately 456,349 common shares each in November 2006, and May 2007,
      respectively and up to 2,777,778 common shares in escrow will be released only
      if specific milestones are achieved, including the receipt of an IND for the
      planned Phase IIb trial, the conclusion of a strategic partnership for further
      development and commercialization of the product, and upon the initiation of
      Phase III trials. On August 26, 2005, regulatory approval was received for
      a
      Phase II clinical trial, and 396,825 escrowed shares, with fair value of
      $1,464,284 were released. The fair value of the shares issued was based on
      the
      average closing price of our shares two days before, the day of, and two days
      after August 26, 2005, the date of the regulatory approval. On receipt of U.S.
      regulatory approval, if any, for AeroLEFTM or any product using DELEX’s
      technology, we will make an additional payment to the DELEX shareholders of
      $4.75 million in cash and/or common shares at our option. In addition to the
      above consideration, DELEX employees were granted an aggregate






-
          9 -




of
      437,000 stock options under our stock option plan. On April 30, 2006 DELEX
      was
      wound up and its assets distributed to YM.




On
      May 9, 2006 we completed the acquisition of Eximias Pharmaceutical Corporation
      (Berwyn, Pennsylvania), a privately-held pharmaceutical company engaged in
      the
      acquisition, development and commercialization of products for the treatment
      of
      cancer and cancer-related disorders. We completed the acquisition for share
      and
      cash consideration of approximately $38,910,000, including transaction costs.
      Our common shares were issued at $6.2272 per share, being the volume weighted
      average price for two days before, the day of, and two days after the closing
      date of the transaction. As a result of the transaction, we acquired more than
      $34.5 million in cash and a seasoned oncology management team. Eximias operates
      as YM BioSciences U.S.A. Inc. and serves as our base of operations in the United
      States.




In
      addition to the above consideration, Eximias employees were granted an aggregate
      of 800,000 stock options under our stock option plan.




There
      is no indication of any public takeover offers by third parties in respect
      of
      the YM's shares or by YM in respect of other companies' shares which have
      occurred during the last and current financial year.




**NARRATIVE
      DESCRIPTION OF THE BUSINESS**




We
      are a biopharmaceutical company engaged in the development of products primarily
      for the treatment of patients with cancer (the “Business”). We generally
      in-license substances designed for anti-cancer use in order to advance them
      along the regulatory and clinical pathways toward commercial approval. Our
      licenses generally cover the major market countries of the developed world
      (including Canada, the United States, Japan and Europe) or are world-wide.
      We
      use our expertise to manage and perform 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 significant investment of time
      and
      capital that is generally required before a compound is identified as
      appropriate for clinical trials. We have in-licensed certain preclinical
      products which have been related 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 clinical development includes three anti-cancer
      agents (a small molecule, a vaccine and a monoclonal antibody) in a number
      of
      formulations currently targeting nine different tumors and/or stages of cancer
      as well as a proprietary inhalation delivery approach for fentanyl to treat
      acute pain including cancer pain. We also have a financial interest in two
      additional anti-cancer immunotherapies in pre-clinical development. We intend
      to
      license the rights to manufacture and 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. We may participate in ownership of manufacturing facilities and the
      marketing of the products if appropriate opportunities are available.




**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 in this prospectus, 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 in the early stages of development and, as a result, are unable to predict
      whether we will be able to profitably commercialize our
      products.**






-
          10
          -




Since
      our incorporation in 1994, none of our products, licensed or owned, have
      received regulatory approval for sale in any jurisdiction. Accordingly, we
      have
      not generated any revenues from the commercialization of our products. A
      significant 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 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 a lack of 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.**




Up
      to June 30, 2006, we recognized as revenue approximately $ 1.9
      million from the July 2004 agreement signed with Tarcanta Inc. (a subsidiary of
      Cancervax Corporation, now Micromet Inc.) with respect to products relating
      to
      HER-1 and TGFa; 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; and a January 2006 agreement with Innogene Kalbiotech Private
      Limited to which the Company licensed the commercial rights for nimotuzumab
      for
      several countries in Asia and Africa. As at June 30, 2006, we have an
      accumulated deficit of $ 86.6
      million .
      We expect expenditures and the accumulated deficit to increase as we proceed
      with our commercialization programs until such time as any sales, license fees
      and royalty payments 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 offset increases in
      expenditures and the accumulated deficit and therefore there can be no assurance
      of when or if we will become profitable.




**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
      do not conduct any basic research of our own. Basic research on a particular
      drug product is conducted by biopharmaceutical companies, scientific and
      academic institutions and hospitals, or scientists affiliated with those
      institutions. Once the basic research is complete, we enter into license
      agreements to in-license the right to develop and market the products. We have
      negotiated certain in-licensing agreements with the University of Manitoba,
      CancerCare Manitoba, Vincent Research and Consulting, CIMAB, Biostar Inc.,
      and
      the Veterinary Infectious Disease Organization (a division of the University
      of
      Saskatchewan). In addition, AeroLEFTM technology was developed at Dalhousie
      University.




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, clinical
      testing, regulatory approvals 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. 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
      manufacture, formulation or supply agreements, except with respect to one of
      our
      licensed products, nimotuzumab, which is manufactured in small quantities 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 shall
      supply commercial quantities or will source such supply if, as and when approval
      for sale has been granted. However, we have entered into an agreement with
      Pharm-Olam International, Ltd. in connection with clinical testing and product
      development of tesmilifene.




**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. At this
      time, we have one out-licensing agreement.**






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          11
          -




On
      November 12, 2003, we entered into the first out-licensing agreement through
      our
      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 U.S.$30 million as a share of any amounts received
      by
      Oncoscience in relation to the development or sublicensing of the product and
      as
      a royalty on initial net sales. Once CIMYM BioSciences has received U.S.$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 United States 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 has been suspended until such time, if at
      all,
      that there is 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 were entitled to receive an aggregate payment of $1,000,000 payable
      in four equal instalments, with the final payment being made on December 31,
      2005. In addition, under the new agreement we may receive 35% of an aggregate
      of
      $16,350,000 in milestone payments to be paid by Tarcanta upon the successful
      completion of certain research and development activities. We have no continuing
      involvement in these research and development activities and have no future
      obligations under the development plan established by the out-licensing
      arrangement between CIMAB and Tarcanta. Finally, we retain an interest in the
      revenues from the manufacture, marketing and sub-licensing of the drugs.




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.




**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. 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 if appropriate
      opportunities are available.




Nimotuzumab
      is expected to be manufactured in small quantities for 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 commercial scale quantities in a
      commercially reasonable manner.




Tesmilifene
      and NorelinTM (which are licensed to us) and AeroLEFTM (which is owned by us) are
      currently manufactured, finished and filled in small quantities for testing
      by
      third parties. The manufacturing processes for these drugs are such that we
      expect that commercial quantities of these drugs can be manufactured. If current
      suppliers cannot manufacture commercial quantities or we otherwise experience
      a
      problem with current suppliers, it will be necessary for us to obtain these
      drugs from new suppliers. We do not have supply agreements with the third party
      suppliers of tesmilifene, NorelinTM or AeroLEFTM, but such suppliers have produced
      quantities for us to specification on purchase order. We expect that we could
      find new suppliers for these drugs, if necessary. There can




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          12 -




be
      no assurance, however, that we or our licensor will be able to reach
      satisfactory arrangements with our current suppliers or, if necessary, new
      suppliers or that such arrangements will be successful.




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 AeroLEFTM.**




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




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




While
      inpatient use of AeroLEFTM, in the hospital or hospice setting, is accomplished
      with existing equipment such as the AeroEclipse(R), outpatient use will require
      a portable nebulization device. Several devices currently exist and are
      available for use with approved respiratory agents (bronchodilators,
      antibiotics, steroids). We have an active development program to evaluate and
      identify the best devices for use with AeroLEFTM and other pipeline products.
      Although we would prefer to access these devices on 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.




**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 regulates chemical compounds 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
      AeroLEFTM, 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.




**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 our Corporation, 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;




(b)
            License
                Agreement between Biostar Inc. and us dated October 11, 2000 with
                respect
                to NorelinTM;






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          13 -




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




(d)
            License
                Agreement between the University of Saskatchewan and us dated July
                13,
                2005 with respect to a portfolio of small molecule oncology compounds,
                the
                lead compound being
                propargylamines.




As
      we own AeroLEFTM, we do not have to license it.




We
      depend upon the license rights to the licensed products and 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 United States 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.




One
      of our products is licensed from Cuba, a developing country. As is the case
      in
      many developing countries, the commercial and legal environment in Cuba is
      in a
      formative stage and may be subject to greater 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
      developed 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 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. It is akin to a "crown corporation" in Canada. CIMAB's
      management is purportedly both autonomous and responsible for the success of
      their 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 a state-owned entity, we will not be able to force CIMAB
      to comply with any judgment if CIMAB or the Government of Cuba refuses to
      comply.




**We
      have advanced funds to our joint venture subsidiaries which we are only entitled
      to recover 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)
      in
      November 1995 (the "Funding Agreement") in connection with the 1995 CIMYM
      License. The Funding Agreement provides that we will arrange for the appropriate
      studies and clinical trials for the licensed products held by CIMYM BioSciences
      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.






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          14 -




We
      are entitled to be reimbursed for all funds we provide pursuant to the Funding
      Agreement out of revenue generated from the exploitation of the 1995 CIMYM
      License, subject to the successful development of the licensed products and
      adequate generation of revenue. There can be no assurance, however, that we
      will
      be able to recover the advances, as we are not entitled to recover such advances
      unless and until the joint venture's net income exceeds the amount of the
      cumulative advances.




As
      at June 30, 2006, we have advanced $ 30.9 million to CIMYM BioSciences. Accordingly, we have expensed the total amount
      by
      setting up a reserve in full against the other joint venture partners’ share of
      the advances. Therefore, any reimbursement of such advances would be considered
      to be income by us.




**We
      are reliant on licensors for research on new products.**




We
      do not conduct our own basic research with respect to the identification of
      new
      products. Instead, we rely upon 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 this
      will
      occur.




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




We
      have conducted clinical trials in more than 20 countries including Canada,
      the
      United Kingdom, India, Russia and the United States and 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 business internationally in that we currently 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 an academic
      institute in Cuba. The United States has maintained an embargo against Cuba,
      administered by the United States 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 Bill"). The embargo applies to almost all transactions involving
      Cuba or Cuban enterprises, and it bars from such transactions any U.S. persons
      unless such persons obtain specific licenses from the United States 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
      Bill
      will not be enforced in Canada. The U.S. embargo could have the effect of
      limiting our access to U.S. capital, U.S. financing, U.S. customers and U.S.
      suppliers. In particular, our products licensed from Cuban sources, noted above,
      are likely to be prohibited from sale in the United States unless the United
      States Department of Treasury issues a license or the embargo is lifted.




The
      Helms-Burton Bill 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
      United States. 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




-
          15 -




from
      where 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 United States. However, there can be no assurance
      that this is correct.




Risks
      Related To Our Financial Results And Need For Financing




**We
      may be a "passive foreign investment company" which could result in adverse
      U.S.
      tax consequences for U.S. investors.**




We
      may be deemed to be a "passive foreign investment company" ("PFIC"). A PFIC
      is a
      non-U.S. corporation that meets an income test and/or an asset test. The income
      test is met if 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. The asset test is met if at
      least
      50% of the average value of our assets produce, or are held for the production
      of, passive income. Based on our current income, assets and activities, we
      may
      be a PFIC. As a result, a U.S. holder of our common shares could be subject
      to
      increased tax liability, possibly including an interest charge, upon the sale
      or
      other disposition of the U.S. holder's common shares or upon the receipt of
      "excess distributions".




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




We
      may 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 rights to promising drug products, further develop those products
      by
      progressing the products toward regulatory approval by conducting and managing
      clinical trials, and finally to out-license rights to manufacture and/or market
      resulting drug products to other pharmaceutical firms 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, 2006 we had cash and short-term
      deposits totalling $ 88,241,434 and
      payables of $ 3,717,963 .




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 may be necessary to reconsider whether
      to
      continue existing projects or enter into new projects, or it may be necessary
      to
      access either the public markets or private financings whenever 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 emerging biopharmaceutical
      companies, is likely to be highly volatile. Factors such as the efficacy 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, our common shares are highly volatile since it
      may
      take years before any of our licensed products will receive final regulatory
      approval to be marketed in Canada, the United States or other
      territories.




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






-
          16
          -




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




Risks
      Related To Our Industry




**If
      our pre-clinical and 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 pre-clinical
      and/or 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 pre-clinical and clinical trials and subsequent
      pre-clinical and clinical trials that have not yet begun.




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. 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 it 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: Genentech Inc.
      (“Genentech”), Lorus Therapeutics Inc., ISIS Pharmaceuticals and Eli Lilly and
      Company with respect to tesmilifene; Aphton Corporation (“Aphton”), TAP
      Pharmaceuticals and AstraZeneca PLC with respect to NorelinTM; and Abgenix Inc.,
      Amgen Inc., Genmab A/S, ImClone Systems Inc. ("ImClone"), Bristol-Myers Squibb
      Company, Merck KGaA, OSI Pharmaceuticals, Inc., F.Hoffmann-LaRoche Ltd.,
      Genentech and AstraZeneca with respect to nimotuzumab. The main competitors
      for
      the AeroLEFTM product are Cephalon, Inc., Endo Pharmaceuticals Holdings Inc., LAB
      International Inc., Alexza Molecular Delivery Corporation, Javelin
      Pharmaceuticals, Inc. (formerly IDDS, Inc.), Barr Pharmaceuticals, Inc., CeNeS
      Pharmaceuticals plc and Alza Corporation.




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.






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          17 -




**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 United States, 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,
      and in the United States it is the FDA. Other national regulatory agencies
      have
      similar regulatory approval processes, but each is slightly different. Approval
      in either Canada or the United States 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.




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 approvals to develop
      and
      test our products. Currently we are conducting an international Phase III trial
      of tesmilifene in metastatic and recurrent breast cancer in over 700 patients.
      We have received regulatory approvals for conducting the tesmilifene trials
      in
      several countries, including Canada and the United States. In addition,
      nimotuzumab has been approved for testing in Canada and Europe, has been
      designated as an orphan drug in Europe and the United States and is in Phase
      II
      and III trials. Finally, DELEX has conducted Phase I and II trials in Canada
      of
      AeroLEFTM and is currently conducting a further Phase III trial.




Nimotuzumab,
      which is being developed in Canada and Europe, is also being separately
      developed or tested in Cuba. Cuba is among several nations which have been
      identified by the U.S. Department of State as being a state sponsoring terrorism
      and as such the U.S. Government has put in place certain anti-terrorism controls
      against Cuba. Although as of the date of this filing such anti-terrorism
      controls have not had any adverse affect on our operations, because of the
      anti-terrorism controls and the Helms-Burton Bill there is no assurance that
      the
      Corporation will be able to initiate or complete clinical testing in the United
      States and obtain final regulatory approval in order to successfully
      commercialize our Cuban sourced products in the United States. 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, Italy, the United States
      and the United Kingdom and numerous 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.




-
          18 -




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




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, important legal principles
      are
      largely unresolved. There can be no assurance that the patent applications
      made
      in respect of the 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 tesmilifene, NorelinTM, nimotuzumab and
      AeroLEFTM. The following is a description of our key current and pending patents
      in connection with these drug products.




***Tesmilifene***




We
      are the exclusive licensee to patents and patent applications from the
      University of Manitoba for tesmilifene. Patents that claim the use of
      tesmilifene in combination with chemotherapeutic agents have been issued in
      the
      United States, Europe, Japan, Canada and Australia. U.S. patent 5,859,065
      broadly claims the use of tesmilifene and structurally related analogs in
      combination with any chemotherapeutic for the treatment of any cancer. Although
      the twenty-year term of this patent expires in December 2010, we plan to take
      full advantage of patent terms extensions of up to five additional years granted
      under the Patent Term Restoration Act in the United States. Other issued patents
      U.S. 6,284,799 and U.S. 5,747,543 expire in 2014 and 2015 respectively.




In
      addition to these granted patents, we are also exclusively licensed to patent
      applications relevant to the current clinical development program. Patent
      applications, based upon WO 03/039526 and WO 03/037318, have been nationalized
      not only in the United States, Western Europe, and Japan but also in emerging
      markets, including China, India, Asia, and Eastern Europe. These international
      patent applications claim the use of tesmilifene in patient subpopulations
      that
      benefit from the chemopotentiating and cytoprotective properties of the drug.
      Patents resulting from these patent filings will expire in November
      2022.




In
      addition to patent protection, we intend to rely upon the available term of
      data
      exclusivity in the U.S. and other countries for NCE. Furthermore, full advantage
      will be taken of the Orange Book provisions in the United States and equivalent
      provision in Canada and other countries, as a means for delaying generic
      competition.






-
          19 -




***NorelinTM***




We
      have a license to human therapeutic applications of this GnRH vaccine based
      on a
      leukotoxin-derived but non-leukotoxic carrier protein, to which multimeric
      units
      of GnRH are coupled at each flank. By eliciting an antibody response to GnRH,
      NorelinTM is designed to block GnRH from reaching its receptors in the pituitary
      gland.




The
      NorelinTM patent estate is extensive, and includes four key U.S. patents covering
      various aspects of NorelinTM as a composition of matter, the carrier component of
      the NorelinTM vaccine, as well as production of NorelinTM as a recombinant
      product. A key U.S. patent is U.S. 5,837,268, which covers the particular
      NorelinTM sequence, its formulation as a vaccine, and its end-use, and subject to
      any term restoration, will expire in 2012. Other key U.S. patents are U.S.
      5,422,110; U.S. 5,708,155; and U.S. 5,837,268. All of the key patents are owned
      by the University of Saskatchewan and licensed to us, through
      Biostar.




In
      addition, we have more recently applied for our own patents covering the
      NorelinTM formulation and dosing regimen that is the subject of current clinical
      trials. Patents resulting from these applications will not expire until
      2024.




We
      are aware of U.S. patent U.S. 6,303,123 owned by Aphton relating to the use
      of
      GnRH immunogenic conjugates to treat GnRH-dependent diseases, including
      prostatic hypertrophy, and we are developing a strategy for addressing this
      patent should it prove relevant to our commercial activities with
      NorelinTM.




There
      can be no assurance that litigation or other proceedings will not be commenced
      seeking to challenge patent protection or patent applications of our licensors,
      or that any such challenges will not be successful. The cost of litigation
      to
      uphold the validity and prevent infringement of patents related to our licensed
      drug products may be significant. In addition, it is possible that others may
      claim rights in our licensed drug products, patents or patent applications.
      These other persons could bring legal actions against us, our licensors or
      our
      customers or licensees claiming damages and seeking to enjoin them from using,
      manufacturing and marketing the affected products or processes. If any such
      action were successful, in addition to any potential liability for damages,
      we
      could be required to obtain a license in order to continue to develop, use,
      license or market the affected product or process. There can be no assurance
      that we would prevail in any such action or that any required license would
      be
      made available or, if available, would be available on acceptable
      terms. ****




***Nimotuzumab***




CIMYM
      is the exclusive licensee for particular territories including the United States
      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. The
      composition-of-matter patents are granted in the United States, in Europe,
      are
      allowable in Japan, and are pending in Canada.




CIMYM's
      key U.S. patent, U.S. 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.




We
        are aware of U.S. 5,770,195, a patent granted to Genentech, for the anti-cancer
        use of EGFr MAbs in combination with a cytotoxic agent. We are also aware
        of
        U.S. patents granted to others in this field. In April 2001 Rorer International
        (Overseas) ("Rorer") was issued the U.S. 6,217,866 which includes claims
        to any
        antibody targeting the EGFr administered with any anti-neoplastic agent.
        We
        believe that the Rorer patents are exclusively licensed to ImClone 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 have been 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”). A
        September 19, 2006 decision in the United States 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 non-exclusive licenses in the United States. In addition,
        we are
        aware of a separate series of national patent applications filed by ImClone,
        and
        represented by EP1080113, claiming the anti-
   -
            20 -
  cancer
        use of radiation in combination with any inhibitor of any receptor tyrosine
        kinase that is involved in the genesis of tumours. ImClone has also filed
        a U.S.
        and PCT applications covering the use of EGFr MAbs to treat patients having
        tumors that do not respond to treatment with conventional therapies. We plan
        on
        virgorously challenging ImClone’s ImClone's claims in respect of the
        radiation-related patent applications and by having filed additional prior
        art
        in the EU and Japan. 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. The manufacturing of nimotuzumab may fall within the scope of process
        patents owned by Protein Design Labs 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.




There
      may also be risks related to nimotuzumab as our license originates from Cuba.
      Cuba is a 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 with
      respect to nimotuzumab. There is no guarantee that in the event of a change
      in
      the political regime, the Cuban government will continue to honour such license
      agreement.




***AeroLEFTM***




The
      AeroLEFTM 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 U.S. patent and a Canadian patent. We own two
      U.S.
      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 the onset of side effects. A pending PCT
      application entitled "Stable Compositions" claims the manufacturing method
      and
      other physical characteristics of the formulation.




We
      are aware of U.S. patents owned by Phares Pharmaceutical Research NV related
      to
      a method of manufacturing liposome compositions. These patents expire in 2008
      and are not expected to adversely affect our commercial activities.




**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 $5 million per claim and
      a
      policy aggregate of $10 million. We currently have no other product liability
      insurance and there can be no






-
          21 -




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,
      United States.**




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.




**Business
      Overview**




Overview




We
      are a biopharmaceutical company engaged in the development of products primarily
      for the treatment of patients with cancer. We generally in-license substances
      designed for anti-cancer use in order to advance them along the regulatory
      and
      clinical pathways toward commercial approval. Our licenses generally cover
      the
      major market countries of the developed world (including Canada, the United
      States, Japan and Europe) or are world-wide. We use our expertise to manage
      and
      perform 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 significant investment of time and capital that is
      generally required before a compound is identified in clinical trials. We have
      in-licensed certain preclinical products which have been related to our clinical
      programs. We both conduct and out-source clinical trials, and out-source the
      manufacture of clinical materials to third parties.




Our
      current portfolio of products in clinical development includes three anti-cancer
      agents (a small molecule, a vaccine and a monoclonal antibody) in a number
      of
      formulations currently targeting more than ten different tumors and/or stages
      of
      cancer as well as a proprietary opioid inhalation delivery system initially
      treating acute pain that would include cancer pain with fentanyl. We also have
      a
      financial interest in two additional anti-cancer immunotherapies in pre-clinical
      development. We intend to generally license the rights to manufacture and 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. 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.






-
          22 -




Business
      Strategy




We
      are principally focused on development of products for the treatment of cancer
      or cancer-related conditions. Our strategy is to license rights to promising
      products, further develop those products by conducting and managing clinical
      research and 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 performs 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".




***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 United States corporation, one product in Japan, one product
      in several jurisdictions in South East Asia and Africa and two products in
      South
      Korea. See "Business - Licensing Arrangements - Out-Licensing".




We
      actively search for new product opportunities using the relationships of our
      management 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
      existing rights of first refusal in certain 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 World Health Organization (April 2003) more than 10 million people are
      diagnosed with cancer every year. The organization projects a 50% increase
      in
      cancer rates from year 2000 to 2020 to reach 15 million new cases






-
          23 -




being
      diagnosed annually. According to the American Cancer Society, there were
      approximately 1.4 million new cancer cases diagnosed in the United States in
      2005. 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 in more developed countries, environmental issues related to
      industrial development, and improvements in the treatment of cardiovascular
      disease. North America, Europe and Japan are the principal markets for cancer
      therapies because of the established healthcare and payor systems.




The
      principal types of cancer in the United States, accounting for approximately
      57%
      of the incidence of all cancers, based on management's analysis, are prostate
      (17%), breast (16%), lung (13%) and colorectal (11%). These four types of cancer
      are also responsible for the highest combined mortality, accounting for
      approximately 50% of all cancer deaths in the United States. Bladder, ovarian,
      brain and oral cancer, as well as lymphoma, leukemia and melanoma account for
      the majority of the balance of cancer deaths. The incidence of a particular
      cancer varies greatly between continents, principally because of diet and habit.




Surgery,
      radiation and chemotherapy remain the principal effective treatments for cancer.
      Although there is an ongoing debate about the value of chemotherapeutics with
      regards to prolongation of life, their palliative value has resulted in
      significant improvements in quality of life for cancer sufferers. In addition,
      although the reason is not clearly understood, current cancer drugs are
      effective in only a subpopulation of individuals with the same disease.
      Notwithstanding this, revenues across seven major oncology markets were reported
      to be approximately US$34.6 billion in 2005 (Datamonitor, 2006) and are expected
      to increase to over US$45 billion by 2011. The use of cancer therapies is
      forecast to increase as diagnostic methods improve (as already demonstrated
      in
      prostate cancer) and, particularly, 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 are now beginning to yield
      commercially viable therapeutic products, such as Rituxan(R), the first
      monoclonal treatment for cancer, approved by the FDA in 1998. The Corporation
      is
      aware of only five naked monoclonal antibodies approved in the United States
      for
      the treatment of cancer, Rituxan(R), Campath(R), Herceptin(R), Avastin(R) and
      Erbitux(R) 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(R), was approved in 1999 in Canada.




We
      are also developing a novel formulation of the opioid, fentanyl, for the
      treatment of severe and moderate pain, including cancer pain. In the United
      States cancer pain is suffered by more than 1.5 million patients. We are aware
      of numerous other companies that are pursuing approaches to the delivery of
      fentanyl including Cephalon, Inc. (“Cephalon”), Endo Pharmaceuticals Holdings
      Inc. (“Endo”), LAB International Inc. (“LAB”), Alexza Molecular Delivery
      Corporation (“Alexza”), Aradigm Corporation (“Aradigm”), Barr Pharmaceuticals,
      Inc. (“Barr”), CeNeS Pharmaceuticals plc (“CeNeS”) and Alza Corporation
      (“Alza”).




Products
      In Clinical Development




Our
      current portfolio of products in clinical development includes three anti-cancer
      agents (a small molecule, a vaccine and a monoclonal antibody) in a number
      of
      formulations targeting eight different tumors and/or stages of cancer as well
      as
      product for the treatment of pain, including cancer pain (AeroLEF TM ).
      The Corporation has also out-licensed two additional anti-cancer immunotherapies
      in pre-clinical development. A number of the Corporation’s products involve
      newer approaches to the treatment of cancer and include a formulation of a
      monoclonal antibody, TheraCIM. Our lead product, tesmilifene, is a chemical
      that
      has been clinically reported to enhance the activity of certain known
      chemotherapeutics. Our drug products target some of the most common cancer
      indications, including breast, prostate (early-stage as well as metastatic
      disease), and non-small cell lung cancer. We are also pursuing several smaller
      cancer indications including head-and-neck cancer, brain cancers and certain
      indications with orphan drug designations. We expect, based on clinical trials
      done to date, to develop all of our clinical stage candidates beyond their
      respective initial indications.






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          24 -




***Tesmilifene***




Background:




Tesmilifene
      is a small molecule anti-cancer 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.




Clinical
      Experience And Development Plans:




Tesmilifene
      has been administered to more than 700 cancer patients and demonstrated to
      be
      well tolerated. The product has been approved by either or both of the FDA
      and
      Health Canada for use in numerous clinical trials including:




(e)
            Phase
                I/II study of tesmilifene alone and in combination with doxorubicin
                in
                patients with metastatic and recurrent breast cancer;




(f)
            Phase
                I/II study of tesmilifene in combination with various anti-neoplastic
                agents;




(g)
            Phase
                I/ II study of tesmilifene in combination with cyclophosphamide in
                patients with hormone-refractory prostate cancer;




(h)
            Phase
                II trial of tesmilifene plus doxorubicin in patients with metastatic
                and
                recurrent breast cancer;




(i)
            Phase
                II pilot study of mitoxantrone/prednisone plus tesmilifene in patients
                with symptomatic hormone-refractory metastatic prostate cancer;




(j)
            Phase
                II combination study of tesmilifene with doxorubicin and taxol in
                advanced
                breast cancer;




(k)
            Randomized
                Phase III trial of tesmilifene plus doxorubicin in patients with
                metastatic and recurrent breast cancer;




(l)
            Phase
                II combination study of tesmilifene with various taxanes in first-line
                metastatic and recurrent breast cancer;




(m)
            A
                randomized Phase II trial of cyclophosphamide plus BMS-217380-01
                (DPPE or
                cyclophosphamide alone in patients with metastatic hormone-refractory
                prostate cancer;




(n)
            Randomized
                Phase III trial of tesmilifene plus epirubicin and cyclophosphamide
                in
                patients with metastatic and recurrent breast
                cancer;




(k)
            A randomized
                Phase II study of epirubicin, cisplatin and 5-fluorouracil (ECF) plus
                or minus tesmilifene in patients with locally advanced or metastatic
                adenocarcinoma of the   gastroesophageal junction or
                stomach.





In
      October 2003 the FDA provided us clearance to initiate a Phase III trial,
      patient events design and endpoints of which were subject to a positive review
      by the FDA in March 2003 under a process known as Special Protocol Assessment
      ("SPA"). An SPA is intended to provide official evaluation of, and agreement
      with, a protocol and endpoints to form the basis of a new drug application.
      In
      November 2003 we received approval, from the FDA to apply an "adaptive design"
      to the pivotal trial for which the SPA had approved the protocol. This adaptive
      design, which in the case of our pivotal trial provides for "sequential
      analysis", permits the independent Data Safety Monitoring Board ("DSMB") to
      review the status of the patients in the trial and to conclude, at any point
      during the






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          25 -




trial,
      whether the trial should be stopped because of sufficient evidence of the effect
      of tesmilifene; continued for the purpose of increasing the numbers of the
      patients in the trial; or stopped because of the absence of any effect
      (futility) of the drug in patients with metastatic and recurrent breast cancer.
      This sequential analysis can be applied at any point during the trial. The
      FDA
      has advised us that the first interim analysis of the data generated under
      this
      process that it is prepared to review to satisfy its requirements for approval
      may take place only after 192 patient events (deaths) have occurred in the
      patient population of the trial. Sequential analysis differs significantly
      from
      the classical trial design which requires enrollment of the full number of
      patients contemplated in the original protocol prior to which no review of
      the
      patients may take place except with a considerable statistical penalty being
      paid by the sponsor for the trial results. Under a sequential analysis a
      positive outcome would permit shortened time to approval, and thus to market.




We
      have initiated and completed recruitment in the above-mentioned international
      Phase III trial of tesmilifene in metastatic and recurrent breast cancer in
      723
      patients and patients are being followed for survival.




In
      March 2004, we entered into a Clinical Research Services Agreement with
      Pharm-Olam International (“POI”), a clinical research organization ("CRO"), to
      conduct this Phase III trial internationally. POI in turn is contracting with
      others to perform services and to recruit and treat patients. The contract
      with
      POI is payable over the next few years and payments due are dependent on the
      number of patients recruited, number of countries trials are conducted in,
      the
      length of time over which particular clinical trials are to be conducted and
      the
      time for completion of all Phase III clinical trials. We are liable for certain
      payment of clinical services costs, data management costs and pass through
      costs. The agreement will terminate after POI has completed all services
      thereunder, if the parties mutually consent, or may be terminated by either
      party in the event of certain defaults by the other party. In the event we
      terminate the agreement without cause and prior to the study under the agreement
      being completed, then we must pay POI a termination fee of 10% of the remaining
      compensation, if any is still owed for clinical services costs and data
      management costs under the agreement at the time of the termination.




In
      January 2005, we formed a joint development team with Shin Poong Pharmaceutical
      Company of Seoul, Korea (“Shin Poong”) to oversee the expansion of the
      development program for tesmilifene into gastric cancer. Shin Poong will fully
      fund development costs in its market territory and will provide up-front,
      milestone and royalty payments. In addition, Shin Poong expects to launch a
      bridging study in the local population in order to allow the breast cancer
      indication currently under study by us to be launched in Korea and other Asian
      countries.




We
      completed a U.S./Canadian Phase II trial of tesmilifene in 29 patients in
      combination with mitoxantrone (Novantrone(R))/prednisone for the treatment
      of
      metastatic, hormone-refractory prostate cancer. Preliminary results from this
      trial were presented at the annual meeting of the American Society of Clinical
      Oncology ("ASCO") in May 2002 and a manuscript with final results was
      subsequently published in JCO vol. 174, pp. 1808-1813, 2005. Those data
      demonstrated an objective reduction in pain in 75% of patients receiving
      tesmilifene/mitoxantrone/prednisone compared with 29% in previous studies who
      received mitoxantrone/prednisone alone and a decrease in PSA in 59% of patients
      compared with 33% in previous studies. Objective pain reduction is measured
      using a specific pain-related questionnaire and by discontinuance or reduction
      of treatment with analgesics.




The
      National Cancer Institute of Canada ("NCIC") and BMS, the then-licensee of
      tesmilifene, designed and conducted a global, open-label, randomized Phase
      III
      study of tesmilifene/doxorubicin versus doxorubicin alone in metastatic and
      recurrent breast cancer with tumor response and progression-free-survival as
      primary endpoints and overall survival as a secondary endpoint. A planned
      interim analysis failed to demonstrate improvement in tumor response and
      progression-free-survival and BMS terminated all clinical development. However,
      the 305 patients then enrolled in the study were followed by NCIC for analysis
      of the secondary endpoint, overall survival.




At
      the 2001 ASCO meeting, approximately two years after the decision by BMS to
      terminate development, the NCIC reported that an increase in overall survival
      of
      greater than 50% was seen in those patients who had received the
      tesmilifene/doxorubicin combination compared with patients receiving doxorubicin
      alone (23.6 months vs. 15.6 months; p<0.03, as adjusted). Results of the
      trial have been published in a major oncology journal (JCO, vol. 22, pp.
      269-276, 2004).






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          26 -


Manufacturing:




Tesmilifene
      is a small molecule that is manufactured using a relatively simple two step
      synthesis. Clinical supplies of tesmilifene active drug substance and final
      drug
      product are currently being manufactured by two third-party manufacturers
      located in Ontario, Canada. Activities are on-going to qualify the Canadian
      manufacturer as the commercial supplier of tesmilifene active drug substance,
      while another manufacturer located in the United States will
      begin qualification activities in preparation for producing commercial supply
      of
      the final drug product. Both manufacturers hold establishment licenses from
      the
      FDA and have recently passed FDA inspections. Additionally, both are well suited
      to supply commercial quantities and are in a position to provide additional
      capacity as the market for tesmilifene drug product grows.





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 United
      States, Europe, Japan, Canada and Australia.




The
      patent estate comprises numerous layers of patent protection. A key patent
      among
      these is U.S. 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 '065 expires in 2010.
      Still
      other issued patents U.S. 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.




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 trail
      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 U.S. and other major
      markets.




In
      addition to patents, we intend to rely on the available term of data exclusivity
      in the U.S. and other countries given that tesmilifene qualifies as a NCE.
      Furthermore, full advantage will be taken of the Orange book provisions in
      the
      United States and equivalent provision in Canada and other countries, as a
      means
      for delaying generic competition.




Competitive
      Position:




The
      primary competition for tesmilifene is other enhancers of standard
      chemotherapies and possibly the market reduction for those chemotherapies from
      the introduction of new drugs for tesmilifene's target conditions. Competition
      appears to be principally from antisense drugs and pGp inhibitors.




Avastin
      from Genentech is being developed as an inhibitor of vascular endothelial growth
      factor (VEGF) and its activity, while a different approach, could be competitive
      with tesmilifene.




Antisense
      drugs (including Genasense from Genta Incorporated, GTI 2501 from Lorus
      Therapeutics Inc. and ISIS 2503 from ISIS Pharmaceuticals) have the potential
      to
      become competitive for tesmilifene as a novel, MDR-targeting agent.




To
      our knowledge only one pGp inhibitor, Zosuquidar-LY335979 from Kanisa
      Pharmaceuticals continues in clinical development. This compound was discovered
      by Syntex Corporation (now Roche) and was licensed to Eli Lilly & Co. before
      Kanisa.




The
      development of new drugs for metastatic and recurrent breast cancer could reduce
      the size of the market for currently used chemotherapeutics which tesmilifene
      is
      demonstrated to enhance. To our knowledge there are more than 300 studies in
      breast cancer currently underway.






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          27 -




***Nimotuzumab
      (THERACIM h-R3)***




Background :




Nimotuzumab
      is a humanized MAb targeting EGF Receptor (EGF-R). The EGF-R 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 have been reported when EGF-R targeting
      agents are combined with other anti-cancer treatments. Our EGF-R MAb is being
      developed to be administered alone, or in combination with other anti-cancer
      treatments.




Clinical
      Experience And Development Plans :




Nimotuzumab
      has been administered to more than 500 cancer patients and shown to be well
      tolerated. The product hase been approved for use in numerous clinical trials
      by
      various regulatory agencies including the EMEA and Health Canada. Trials that
      were conducted with the drug include:




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




(b)
            A
                Phase II clinical trial in patients with locally advanced head-and-neck
                cancer designed to evaluate safety and efficacy in this indication.
                Complete tumour response was observed in 17 out of 24 evaluable patients
                and 14 patients are still alive more than 5.5 years after the start
                of the
                study, conducted by CIMYM;




(c)
            A
                Phase II trial designed to evaluate safety and efficacy in 29 patients
                with gliomas conducted by CIMAB;




(d)
            A
                Phase II randomized trial of nimotuzumab + radiation vs. radiation
                alone
                designed to evaluate efficacy and safety in 78 patients with prostate
                cancers, conducted by CIMAB;




(e)
            A
                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




(f)
            A
                Phase I safety, PK/PD and MTD trial in 15 patients with breast cancer
                receiving nimotuzumab + chemotherapy conducted by
                CIMAB;




(g)
            A
                Phase I PK/PD trial in 10 patients with head-and neck cancers receiving
                nimotuzumab + radiation conducted by
                CIMAB;




(h)
            A
                Phase II/III randomized trial in patients with uterine cervix cancers
                conducted by CIMAB. The study is designed to assess survival, response
                rate time to progression and safety in 148 patients receiving either
                nimotuzumab + radiation + chemotherapy or radiation +
                chemotherapy;




(i)
            A
                Phase II/III randomized trial in patients with head-and-neck cancers
                conducted by CIMAB. The study is designed to assess local control,
                safety
                and survival in 112 patients receiving either nimotuzumab + radiation
                or
                radiation alone;




(j)
            A
                Phase II randomized trial of nimotuzumab + radiation vs. radiation
                alone
                in 30 patients with brain metastases from NSCLC conducted by
                CIMAB;




(k)
            A
                Phase III randomized trial of nimotuzumab + radiation vs. radiation
                alone
                in 80 patients with gliomas conducted by CIMAB. The study is designed
                to
                assess survival, local control and
                safety;






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          28 -




(l)
            A
                Phase I/II trial in patients with head-and-neck cancers conducted
                by CIMAB
                enrolled 24 fully evaluable patients receiving nimotuzumab with radiation.
                This trial demonstrated a greater than 60% complete response rate
                compared
                to approximately 30% complete response rate expected with radiation
                alone;




(m)
            Phase
                II study in pediatric patients with high grade gliomas conducted
                by
                Oncoscience AG in Germany*(to
                be updated with the latest results);*




(n)
            Phase
                II trial in Europe in patients with metastatic pancreatic cancer,
                refractory to first line treatment conducted by Oncoscience AG. The
                study
                designed to assess safety and response rate in these
                patients;




(o)
            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. Of the
                130
                patients in the intent-to-treat analysis, those in the combination
                arm had
                a 90.6% complete response rate compared to 51.5% in the radiation-alone
                group;




(p)
            Phase
                I pharmaco-dynamic study by CIMYM in patients with solid tumors.
                The study
                is investigating EGFR-related signaling in tumor and skin biopsies
                before
                and after treatment with 100, 200, 400 and 800 mg doses of
                nimotuzumab;




(q)
            Phase
                I/II trial in Canada and Korea in patients with stage IIB, III and
                IV
                NSCLC, who are not sufficiently fit to be able to tolerate the standard
                chemotherapy regimen, conducted by CIMYM. Study designed to assess
                safety
                response rate and survival in these
                patients;




(r)
            Phase
                III single arm trial of nimotuzumab in combination with radiation
                in
                children newly diagnosed with diffuse brain stem glioma. The trial
                is
                conducted by Oncoscience AG in several European countries and intended
                to
                serve as a registration trial in EMEA
                countries;




(s)
            A
                Phase II randomized 4-arm safety and efficacy trial in 92 patients
                with
                head-and-neck cancers comparing nimotuzumab + chemotherapy + radiation
                to
                chemotherapy + radiation and nimotuzumab + radiation to + radiation
                conducted by Biocon Biopharm Pvt.
                Ltd.;




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




July
                2004
            Nimotuzumab
                was designated an orphan drug by EMEA.November
                2004
            Nimotuzumab
                was designated an orphan drug by the FDA in the United
                States.January
                2005
            Oncoscience
                announced that the Phase II trial of nimotuzumab in children with
                high-grade glioma, as a monotherapy achieved its clinical endpoint
                and
                that six of 17  evaluable patients (35.3%) demonstrated a clinical
                benefit. Data from that trial were presented at the European High-Grade
                Glioma Meeting in February 2005.April
                2005
            We
                were advised that nimotuzumab was approved for sale in China.May
                2005
            Study
                results on 24 evaluable adult patients treated with antibody and
                radiation
                for high-grade malignant gliomas were presented at the 2005 Annual
                Meeting
                of the American Society of Clinical Oncology (ASCO). Reported complete
                response was achieved by 16.7% and partial response by 20.8% of patients.
                66.8% of patients were reported to have achieved disease stabilization
                for
                a total 87.5% clinical benefit
                rate.






-
          29 -




In
      August 2005, Health Canada approved a Clinical Trial Application (CTA) for
      a
      multi-center Phase I/II trial with nimotuzumab. The randomized NSCLC trial
      will
      compare the effects of the combination of nimotuzumab with radiation against
      radiation alone in patients with stage IIB, III and IV disease, who are not
      sufficiently fit to be able to tolerate the standard chemotherapy regimen.
      The
      lead-in dose escalation part of this study was initiated in Canada and will
      be
      extended to Korea, where YM’s partner Kuhnil Pharmaceutical Co. will fund the
      development of nimotuzumab for this territory. The randomized phase of the
      trial
      is expected to enroll approximately 100 patients and complete recruitment in
      approximately 20 months with the prospect of a final report before the end
      of
      2008. The endpoint of the Phase II trial is an increase in local tumor control.
      First patient of the lead-in part of this study was enrolled in March
      2006.




In
      September 2005, updated data from a Phase II monotherapy trial of nimotuzumab
      in
      children with resistant or relapsed high-grade gliomas were reported in a poster
      presented at the 37th Congress of The International Society of Paediatric
      Oncology in Vancouver, Canada. Nimotuzumab demonstrated tumor shrinkage and
      evidence of survival benefit in children with heavily pretreated relapsed high
      grade gliomas, especially those with diffuse intrinsic pontine (brain stem)
      glioma. The presentation data contained in a press release by YM BioSciences
      issued on February 28th, 2005 originally described results in 17 evaluable
      children. The data now includes results from 47 children of which 45 were
      evaluable at an eight week assessment time point. The trial design evaluates
      the
      children after eight weeks (induction) of therapy and after week 21
      (consolidation) of therapy. Twenty one of the 45 patients evaluable following
      induction had brain-stem (diffuse intrinsic pontine) glioma, a tumor that is
      highly treatment-resistant. In the 21 evaluable patients with pontine glioma,
      ten demonstrated clinical benefit at week eight, nine with Stable Disease (SD)
      and one with Partial Response (PR). At the same time-point, seven of the 24
      remaining patients diagnosed with high grade gliomas (grades III/IV) were
      assessed as having clinical benefit, 1 PR and 6 SD.




In
      March 2006, the FDA approved the use of nimotuzumab as a monotherapy in the
      treatment of a child with advanced glioma under an investigator-initiated IND..




In
      March 2006, our partner, Oncoscience AG, was cleared by the German regulatory
      authority for biological products, the Paul Ehrlich Institute, to initiate
      a
      Phase III single arm trial of nimotuzumab in combination with radiation in
      children with diffuse pontine glioma. The clinical trial was also reviewed
      by
      the EMEA and is designed as a prospectively registrable study on the basis
      of a
      single arm trial, because of the absence of treatment options for children
      suffering from pontine glioma. It is anticipated that marketing authorization
      subsequent to a successful trial would be sought under the EMEA centralized
      procedure.




The
      trial will enroll 40 children with diffuse pontine glioma who will be treated
      concomitantly with radiation and nimotuzumab. The primary clinical endpoints
      in
      the trial will be Progression-Free Survival at 6 months with Median Survival
      as
      secondary endpoint. Clinical sites will be located in Germany, Italy, Belarus
      and Russia and it is anticipated that recruitment could be completed within
      approximately 12 months after the start of patient enrolment. Based on the
      historical median survival for this form of cancer of approximately 8.5 months,
      the trial could be completed in the third quarter of 2007. First patient was
      enrolled in this study on April 2006.




Oncoscience
      is planning to start a pivotal trial in glioma in adults in the fourth quarter
      of 2006. This trial is expected to enroll between 110 and 150
      patients.




In
      June 2006, we reported that India’s health regulatory body, The Drug Control
      General, had granted initial marketing approval to nimotuzumab for the treatment
      of head-and-neck cancers. Biocon Biopharmaceuticals Ltd, a joint venture between
      Biocon (NSE:BIOCON) and CIMAB, has rights to the drug from CIMAB for the Indian
      sub-continent.




Manufacturing:




Currently,
      CIMAB supplies nimotuzumab in quantities sufficient to facilitate the clinical
      development of these products. The license agreement with CIMAB requires that
      CIMAB will manufacture and supply, or will contract for the manufacture and
      supply of, commercial quantities of TheraCIM 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 obtaining or producing commercially viable quantities
      of




-
          30 -




these
      products. Product from CIMAB's manufacturing plant has been approved for use
      in
      a clinical trial in Canada and Europe. The plant operates according to GMP
      principles and its cGMP compliance status has been reviewed on behalf of the
      Corporation by industry experts. However, the facility has not been validated
      by
      a non-Cuban regulatory agency and the Corporation recognizes that the
      manufacturing facility has to continue to meet GMP standards in order to supply
      product for commercial use. Consequently, in 1999, we entered into a
      collaboration with the Biotechnology Research Institute ("BRI") of the National
      Research Council of Canada in order to fund the development of a manufacturing
      process to produce clinical grade material on a commercial scale. This
      collaboration yielded promising results, and CIMAB’s scale-up process was
      accepted by Health Canada for commercial scale manufacturing, which is now
      required to provide data required to satisfy applicable regulatory
      requirements.




Our
      license agreement for nimotuzumab contemplates manufacturing of the product
      by
      CIMAB or a supplier contracted by CIMAB. 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 United States unless OFAC issues a license or the
      U.S. embargo against Cuba is lifted.




Intellectual
      Property:




CIMYM
      is the exclusive licensee for the major market territories, including the United
      States. The patent estate include coverage for the composition of matter,
      claiming the amino acid sequence of the nimotuzumab and variants thereof, and
      end-uses in the treatment of EGFR-dependent cancers. These patents are granted
      in the United States, Europe, Canada, and Japan. The patents U.S. 5,891,966
      and
      U.S. 6,506,883 expire November 2015.




We
      are aware of the patent U.S. 5,770,195, a patent granted to Genentech, for
      the
      anti-cancer use antibodies directed toward the her1 receptor in combination
      with
      cytotoxic factors. We are also aware of other U.S. patents granted to others
      in
      this field. In April 2001, Rhone-Poulenc Rorer International ("Rorer") was
      issued U.S. patent 6,217,866 claiming any antibody targeting the EGFr
      administered in combination with any anti-neoplastic agent. A counterpart
      application was granted in Europe. We have filed an opposition to the grant
      of
      the European patent citing prior art and other factors related to the lack
      of
      written description for the claimed subject matter. The opposition proceedings
      have been suspended pending the outcome of court cases filed by Yeda Research
      and Development Corp. in multiple jurisdictions claiming ownership of the Rorer
      patent. A September 19, 2006 decision in the United States District Court of
      Southern New York granted sole inventorship of the patent to scientists from
      Weizmann Institute of Science (Rehovet, Israel) represented by Yeda. Yeda now
      has the right to grant non-exclusive licenses to patent 6,217,866 in the United
      States. We are aware of national patent applications filed by Imclone claiming
      the use of tyrosine kinase receptor inhibitors in combination with radiation.
      The European application EP1080113 was recently withdrawn due to prior art.
      We
      plan on taking appropriate actions in additional jurisdictions as needed.
      Imclone has also filed patent applications claiming the use of EGFr antibodies
      to treat refractory tumors. We are monitoring these applications and will take
      the appropriate actions as needed. 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
      application.




We
      are aware of certain patents and patent applications related to the manufacture
      of humanized monoclonal antibodies owned by Genentech, Protein Design Lab,
      and
      Medical Research Council. Several of these patents expire prior to our
      anticipated market entry. In addition, certain of these process patents are
      currently being challenged by companies other than us. In the event that any
      of
      the applicable product by process claims are upheld, we believe that
      non-exclusive licenses under such patents can be obtained on commercially
      reasonable terms, though there can be no assurance of this.






-
          31 -


Competitive
      Position:




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




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(R), from AstraZeneca, has been approved in thirty-five
      countries, including Japan and the United States for third line monotherapy
      of
      NSCLC. OSI reported that it has positive survival data in a Phase III
      monotherapy study in treatment refractory NSCLC.




OSI's
      product, Tarceva TM ,
      is reported to be in co-development with Roche and Genentech and is reported
      to
      be in numerous trials in various indications including Phase III registration
      studies. Tarceva TM has been approved in the United States for NSCLC. See "-- Competition".




Erbitux(R),
      developed by ImClone/BMS and Merck, is approved in the United States, Canada,
      Germany, Austria and Switzerland for metastatic colorectal cancer in combination
      with irinotecan in irinotecan-refractory patients. Management understands that
      Erbitux(R) is under review by other regulatory agencies including EMEA, the
      European regulatory agency.




***Norelin*** ***TM*** ******




Background:




Originally
      developed by Biostar Inc. ("Biostar"), Norelin TM is an active specific immunotherapy agent that harnesses the immune system
      to
      block the activity of the master hormone GnRH, which controls the production
      of
      both male and female sex hormones. These hormones bind to receptors in malignant
      cancer cells and promote the growth and spread of cancer. By eliciting an
      antibody response to GnRH, Norelin TM is designed to block GnRH from reaching its receptors in the pituitary gland,
      intending to reduce the amount of sex hormones in circulation and is expected
      to
      reduce their effect on tumor growth. Norelin TM consists of an adjuvant combined with the immunogen, the drug substance IPS-21,
      a proprietary carrier protein that is a non-toxic fragment of P. haemolytica,
      flanked by eight copies of GnRH on both ends. Extensive testing by Biostar
      of
      IPS-21 and product formulations was carried out in numerous domestic and
      laboratory species, using a range of adjuvants and doses. In pre-clinical
      testing, Norelin TM has been effective in inducing an antibody response to GnRH, which in turn
      reduced sex hormones to sterilization levels in the pre-clinical animal models
      assessed. In addition, a significant anti-tumor effect has been demonstrated
      in
      several animal models.




Clinical
      Experience:




In
      2002, YM obtained a “No Objection” for a CTA for Norelin TM and a safety and immunogenicity study in patients with hormone-sensitive
      prostate cancer was initiated in the third quarter of calendar 2002.
      Hormone-dependent prostate cancer is characterized by elevated levels of
      testosterone, which fuels tumor growth, and elevated levels of PSA. The disease
      is currently managed by lowering the testosterone and PSA with pharmaceuticals
      or surgery. The trial enrolled patients in two stages. In the first stage
      (results reported in June 2003), 12 patients were enrolled and treated with
      our
      proprietary formulation of Norelin TM and were followed for 90 days. In the second stage, four patients were enrolled
      starting in mid-2004 and followed for 180 days before determining whether or
      not
      they responded to the treatment. YM originally planned to enroll a total of
      12
      patients in the second stage, but voluntarily terminated enrollment of the
      trial
      when delays in trial implementation resulted in clinical supplies of the drug
      exceeding stability time-limits. The drug substance demonstrated excellent
      stability for four years, more than sufficient to consider it commercializable.




Patients
      from the first stage whose testosterone dropped significantly at 90 days were
      advanced into a long-term booster program. Seven of the 12 enrolled patients
      developed anti-GnRH antibodies and two went on to achieve castrate levels of
      testosterone by day 120. Those two patients received booster doses for
      approximately two years. They remain at castration levels with normalized PSA
      and have not demonstrated any sign of disease progression at >2.5 years as at
      June 30, 2005.






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          32 -




Three
      patients from the first stage and three patients from the second stage received
      at least five doses of the vaccine and these patients were followed for 120
      days. All responded to the vaccine, developing antibodies and achieving
      testosterone suppression. Three of these patients achieved complete reduction
      of
      testosterone to castration levels.




Adverse
      events reported included injection site pain in 8/16 (50%) patients, hot flashes
      3/16 (19%), nausea 2/16 (13%), decreased libido 1/16 (6%) and headache 1/16
      (6%). There was no testosterone flare and no bone pain or worsening of symptoms
      reported.




Manufacturing:




Unlike
      MAbs, Norelin TM is produced in a bacterial host such as E. coli. Numerous production facilities
      are available in North America and elsewhere. We do not have a supply agreement
      with any particular supplier, but this drug has been produced in suitable
      quantities for us to specification on a purchase order basis. The drug substance
      was originally manufactured by Diosynth Inc. and the current drug product has
      been manufactured under cGMP conditions by the University of Iowa's
      Pharmaceutical Services Division, located in Iowa, U.S.




Intellectual
      Property:




Aspects
      of Norelin TM ,
      including claims to the fusion protein, its synthesis and its formulation,
      are
      the subject of patents that have issued in the United States, and patent
      applications are pending in a number of other major markets. The
      Norelin TM patent estate is extensive, and includes four key U.S. patents covering various
      aspects of Norelin TM as a composition of matter, the carrier component of the Norelin TM vaccine, as well as production of Norelin TM as a recombinant product. A key U.S. patent is U.S. 5,837,268, which covers
      the
      particular Norelin TM sequence, its formulation as a vaccine, and its end-use, and subject to any
      term
      restoration, will expire in 2012.




We
      are aware of patent U.S. 6,303,123 owned by Aphton relating to the use of GnRH
      immunogenic conjugates to treat GnRH-dependent diseases, including prostatic
      hypertrophy, and is developing a strategy for addressing this patent should
      it
      prove relevant to the Corporation's commercial activities with
      Norelin TM .




We
      obtained our rights to such patents under a license agreement with Biostar.
      See
      "Business - Licensing Arrangements".




Competitive
      Position:




Although
      we are aware of numerous products in development for prostate cancer, we are
      aware of only three competing products in the GnRH vaccine field. Of the four
      products in development (including our product), to our knowledge, a product
      by
      Aphton appears to be the most advanced, having reportedly completed Phase
      I testing and having reportedly commenced Phase II testing .
      We believe that the competitive vaccines are based on chemical synthesis and/or
      classical conjugation techniques, unlike Norelin TM which is produced in a bacterial host. As a result, we believe those competitive
      vaccines are complex mixtures of proteins that would be expected to be more
      difficult and expensive to produce than Norelin TM .




These
      vaccine products will seek to compete with existing treatments. Two existing
      products designed to induce chemical castration in the treatment of prostate
      cancer have been approved for marketing and have been in use for a number of
      years. These products, Lupron by TAP Pharmaceuticals and Zoladex by AstraZeneca,
      have a strong market presence.






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          33 -




***Aero*** ***LEF*** ***TM***




Background:




AeroLEF TM is a proprietary formulation of fentanyl, an opioid analgesic, that is
      administered by inhalation and permits self-titration by patients. The
      development of AeroLEF TM 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 TM is being developed to provide both rapid and extended opioid analgesic levels
      for patients with severe and moderate acute pain and breakthrough cancer
      pain.




Clinical
      Experience:




The
      clinical experience with AeroLEF TM includes two Phase I studies with healthy volunteers, one completed and one
      on-going Phase II acute pain study in post-surgical patients carried out in
      Canada under IND submissions approved by Health Canada.




In
      the first Phase I study, both single and multi-dose regimens of
      AeroLEF TM dosing with nebulization resulted in therapeutic plasma concentrations detected
      during the dosing session and peak plasma fentanyl concentrations recorded
      at
      approximately the end of the 10-15 minute dosing session. Following inhalation
      of the maximum available dose, mean peak plasma fentanyl concentrations of
      2.53
      and 2.23 ng/ml were observed in the single dose and multi-dose arms,
      respectively. The mean plasma concentration of fentanyl was maintained within
      the target therapeutic range (0.5-2.0 ng/ml) for just over four hours in the
      AeroLEF TM treatments groups. By comparison, in the intravenous fentanyl arm of the study,
      the mean peak plasma fentanyl concentration was 2.80 ng/ml at about 5 minutes
      but the duration above 0.5 ng/ml was only until one hour
      post-dosing.




In
      a second Phase I study involving healthy volunteer subjects, multiple doses
      (up
      to 4 doses) of AeroLEF TM were administered with various commercially available nebulizer devices. The
      most favorable pharmacokinetic-pharmacodynamic profile was achieved following
      delivery of AeroLEF TM with the breath-actuated AeroEclipse® nebulizer from Trudell Medical. Based on
      these results, the AeroEclipse® device was selected for delivery of
      AeroLEF TM in the Phase II study.




The
      preliminary results of a Phase II acute pain study using AeroLEF TM 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 TM as the primary analgesic treatment in adult patients experiencing severe and
      moderate pain following elective knee surgery. This Phase II study demonstrated
      that 95% of patients successfully achieved analgesia via self-titration with
      AeroLEF TM 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.




On
      August 30, 2005 YM received permission from Health Canada to initiate a
      randomized Phase IIb study with AeroLEF and the first patient was recruited
      in January ,
      2006.




Manufacturing:




The
      AeroLEF TM formulation is manufactured through a controlled process that has been developed
      to produce a targeted ratio of liposome encapsulated fentanyl along with free
      fentanyl. AeroLEF TM 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 TM drug product produced at the Canadian manufacturer will be used to support
      the
      ongoing Phase IIb trial, future clinical trials, and other development
      activities. As AeroLEF TM advances to Phase III trials, we are seeking a second manufacturing source
      in
      the United States to provide pivotal trial material and future commercial
      supply. Fentanyl,




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          34 -




the
      active pharmaceutical ingredient in the AeroLEF TM formulation, is commercially available from multiple vendors holding Drug Master
      Files (DMF) with the FDA, and licensed to synthesize controlled substances.




Intellectual
      Property:




The
      AeroLEF TM 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 U.S. patent and a granted patent in Canada. We own two U.S.
      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.




We
      are aware of U.S. patents owned by Phares Pharmaceutical Research NV related
      to
      liposome compositions. These patents expire in 2008 and are not expected to
      hamper our commercial activities.




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 PLC, Purdue Pharma L.P., Cephalon, Inc., and
      Endo Pharmaceutical Holdings Inc. 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




(c)
            transmucosal
                administration via the Actiq®
lollipop




Several
      competitors are developing non-invasive alternatives for enhanced delivery
      of
      fentanyl, including Alza Corporation (IONSYS for transdermal delivery), Cephalon
      (Oravescent Fentanyl for transmucosal delivery), Endo (Rapinyl for sublingual
      delivery), Alexza (pulmonary delivery) and LAB (pulmonary delivery). All the
      competitors, to our knowledge, will deliver fixed dosage forms of the
      drug.




Products
      In Pre-Clinical Development:




On
      July 13, 2005 we entered into an exclusive worldwide license agreement with
      the
      University of Saskatchewan pursuant to which we have licensed a portfolio of
      small molecule oncology compounds whose development as a new generation of
      combination drug treatments that enhance the cytotoxic activities of
      chemotherapeutic drugs is currently being evaluated. The lead licensed
      compounds, propargylamines, have demonstrated in-vivo biological activity,
      a
      favorable profile in pre-clinical toxicology studies, and enhancement of the
      effectiveness of cytotoxic agents in drug-resistant cells with cytoprotection
      of
      normal cells. The compounds are protected by three sets of intellectual property
      and have demonstrated preclinical activity in cancer, neurological and other
      degenerative diseases. It would be our intention to focus our resources on
      the
      oncology applications and seek partners in order to advance these compounds
      in
      neurological applications.




Competition:




The
      biopharmaceutical industry is intensely competitive. Many companies, including
      other biopharmaceutical companies and biotechnology companies, are actively
      engaged in activities similar to ours, including research and development of
      drugs for the treatment of cancer. More specifically, competitors for the
      development of new therapeutic products to treat cancer also focus on MAb-based
      cancer therapeutics, cancer vaccines and other approaches that are based on
      both
      active and passive immunotherapies and small molecule discovery and development.
      A 2001 survey by the Pharmaceutical Research and Manufacturers of America
      ("PhRMA") listed 399 new treatments for cancer that are currently being tested
      by researchers.






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          35 -




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, and Merck. 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. Iressa(R) has been approved in twenty
      countries, including Japan and the United States for third line monotherapy
      of
      NSCLC. OSI reported that is has positive survival data in a phase III
      monotherapy study in treatment refractory NSCLC. Tarceva TM has been approved in the United States for NSCLC. Erbitux(R) is approved in
      United States, Austria, Canada, Germany and Switzerland for metastatic
      colorectal in combination with irinotecan in irinotecan-refractory patients.
      Erbitux(R) is under review by other regulatory agencies including EMEA the
      European regulatory agency.




Several
      competitors are developing non-invasive alternatives for enhanced delivery
      of
      fentanyl, including Alza Corporation (IONSYS for transdermal delivery), Cephalon
      (Oravescent Fentanyl for transmucosal delivery), Endo (Rapinyl for sublingual
      delivery), Aradigm (pulmonary delivery), Alexza (pulmonary delivery) and LAB
      (pulmonary delivery).




We
      expect to encounter significant competition for the pharmaceutical products
      we
      are developing and plan to develop in future. Many of our competitors have
      substantially greater financial and other resources, larger research and
      development capabilities and more extensive marketing and manufacturing
      organizations than we have. In addition, some such companies have considerable
      experience in pre-clinical testing, clinical trials and other regulatory
      approval procedures. There are also academic institutions, governmental agencies
      and other research organizations which are conducting research in areas in
      which
      we are working and they may also market commercial products, either on their
      own
      or through collaborative efforts. If any of these competitors were to complete
      clinical trials, obtain required regulatory approvals and commence commercial
      sales of their products before us they may achieve a significant competitive
      advantage.




**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 conducts,
      or has 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 have
      received regulatory approvals for clinical trials in a number of countries,
      including in Canada, the United States, the United Kingdom, Europe and South
      Africa 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




***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 Corporation 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






-
          36 -




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. Under the terms of this license agreement, we
      have
      paid U.S.$300,000 over the years 2000, 2001 and 2002 for sponsored research.
      We
      must make reasonable efforts to ensure that the licensed product is efficiently
      marketed and distributed by November 2005. 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.




***License
      For Norelin*** TM





In
      October 2000, YM secured the exclusive, sub-licensable, worldwide license to
      the
      human therapeutic rights to Norelin TM from Biostar. The license is non-exclusive with respect to diagnostic
      applications for P. haemolytica antibodies and excludes applications related
      to
      infectious diseases. Pursuant to the license, we issued 75,000 of our common
      shares and 37,500 warrants were granted to purchase our common shares. The
      warrants granted to Biostar were granted at a price of U.S.$9.00 per common
      share and expired on October 11, 2004. Finally, pursuant to the license, we
      are
      required to pay Biostar an amount equal to the lesser of (a) either two or
      four
      percent (depending on the nature of the product) of net sales, and (b) 10
      percent of any sub-licensing revenue received by us. No such royalty payments
      have been paid to date, and future royalties cannot be quantified because they
      are dependent on net sales and sub-licensing arrangements that have not yet
      materialized. There can be no assurance as to if or when we may have net sales
      or enter into sub-licensing arrangements for the licensed products. 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. Notwithstanding
      the
      foregoing, any sub-license will be terminated upon the termination of the
      underlying license between Biostar and the University of Saskatchewan. We have
      been advised that certain rights to technology under the license depend on
      patents and patent applications, the prosecution and maintenance of which are
      funded by third parties pursuant to agreements with the Veterinary Infectious
      Disease Organization ("VIDO"), a division of the University of Saskatchewan.
      If
      such parties purport to abandon any such applications or patents, VIDO has
      the
      obligation to provide Biostar with the opportunity to fund the prosecution
      and
      maintenance of such applications and patents, if VIDO chooses not to do so
      itself. Similarly, Biostar has the obligation to provide YM with the opportunity
      to fund the prosecution and maintenance of such applications and patents, if
      Biostar chooses not to do so itself.




***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 United States, 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% 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. In addition, YM and CIMYM,
      pursuant to the terms of the 1995 CIMYM License, paid U.S.$2,750,000 for certain
      product development costs for TheraCIM and U.S.$330,000 for certain product
      development costs for RadioTheraCIM.






-
          37 -




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., TheraCIM) 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 September 30, 2004 we had advanced U.S.$24 million to CIMYM and CIMYM
      (Barbados), collectively, for the licensing and development of the products
      licensed by CIMYM. We were given the right to recover all funds advanced to
      CIMYM and CIMYM (Barbados), collectively, from either CIMYM and CIMYM
      (Barbados). To the extent that the net revenues of CIMYM are less than or equal
      to the advanced amounts, we are is only permitted to recover such advances
      from
      30% of the net revenues. At this time none of the advances have been repaid.
      There have been no revenues to date.




On
      June 30, 2006 CIMYM amalgamated with CIMYM (Barbados) to form CIMYM BioSciences
      Inc., an Ontario company. CIMAB owns a 20% interest in CIMYM
      BioSciences.




***Licenses
      For AeroLEF*** TM





The
      technology related to AeroLEF TM formulation and delivery is owned not licensed.




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:




o  obtaining
      long term revenue streams from royalty payments on the sale of the products;




o  providing
      access to the resources and experience of large pharmaceutical companies;




o  obtaining
      up-front payments for product sub-licensing rights; and




o  minimizing
      development expenditures through cost sharing programmes (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






-
          38 -




anticipate
      that prospective licensees would view our products as having a reduced risk
      of
      failure to achieve regulatory approval.




YM
      does 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.




***Tesmilifene***





In
      January 2005, we licensed the rights to tesmilifene to Shin Poong Pharmaceutical
      Company of Seoul, Korea (“Shin Poong”) and formed with Shin Poong a joint
      development team to oversee the expansion of the development program for
      tesmilifene into gastric cancer. Shin Poong will fully fund development costs
      and will provide up-front, milestone and royalty payments. In addition, Shin
      Poong expects to launch a bridging study in the local population in order to
      allow the breast cancer indication currently under study by us to be launched
      in
      South Korea.




***Nimotuzumab***





On
      November 12, 2003, our subsidiary, CIMYM (now CIMYM BioSciences), licensed
      the
      rights for TheraCIM (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 U.S.$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 U.S.$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 TheraCIM in the licensed territory. No
      amounts or royalties have been received as of the date hereof by CIMYM
      BioSciences from Oncoscience, since no sublicensing fees or net sales amounts
      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 TheraCIM has not commenced in Europe within two years of
      licensing, or if certain regulatory approvals for marketing TheraCIM in Europe
      have not been obtained within five years. In addition, Oncoscience may terminate
      the agreement at any time on 90 days notice.




In
      May 2005, we licensed the rights to nimotuzumab to Kuhnil. They formed a joint
      development team to oversee the expansion of the development program for
      nimotuzumab, its monoclonal antibody against the EGF receptor, for a specific
      population of patients with non-small cell lung cancer. Kuhnil will fully fund
      development costs and will provide up-front, milestone and royalty
      payments.




On
      October 31, 2005, IGK, a subsidiary of P.T. Kalbe Farma TBK of Jakarta Indonesia
      paid CIMYM BioSciences Inc. a license fee of US $1,000,000. The agreement also
      entitles the CIMYM BioSciences Inc. to receive milestone payments on the
      occurrence of regulatory approval and royalties on the commercial sale of the
      developed product.




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 Company, Limited, one of Japan’s largest
      pharmaceutical companies. Under the agreement, CIMYM BioSciences will receive
      an
      up-front payment of U.S.$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 will develop nimotuzumab for the Japanese market in several cancer
      indications.




Regulatory
      Approval





Securing
      final regulatory approval for the manufacture and sale of human therapeutic
      products in Canada and our other territories, including the United States,
      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 United States 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 United States 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.






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          39 -




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 labeling.




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. Currently we are conducting an
      international Phase III trial of tesmilifene in metastatic and recurrent breast
      cancer in 700 patients. We have received regulatory approvals for the
      tesmilifene study in several countries, including Canada and the United States,
      and approval is pending in a few other countries. In addition, TheraCIM has
      been
      designated an orphan drug in Europe and by the FDA in the United States. 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.




***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.






-
          40 -




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 programmes to monitor a product's side effects. Results of
      post-marketing programmes 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.




***United
      States Approval Process***




In
      the United States, 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
      U.S 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 U.S. follows.




***Stage
      1: Preclinical Research*** After
      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 Research*** In
      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.




*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




-
          41 -




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 and Approval*** Following
      Phase III, the pharmaceutical company prepares reports of all studies conducted
      on the drug 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: Marketing*** After
      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.




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. YM and CIMAB have
      entered into a joint-venture shareholder agreement (the "Barbados Shareholders
      Agreement") with CIMYM (Barbados) relating to its operation. The terms of the
      Barbados Shareholders Agreement are consistent with the Shareholders Agreements,
      except that the board of directors of CIMYM (Barbados) consists of a majority
      of
      directors nominated by YM. Material and out-of-the-ordinary-course-of-business
      contracts and approval for the strategic marketing plan and annual budget must
      be approved by a vote of






-
          42 -




the
      majority of directors, including the affirmative vote of at least one nominee
      of
      YM and one nominee of CIMAB. YM provides funding to CIMYM (Barbados) under
      similar terms and conditions as funding to CIMYM. All earnings of CIMYM
      (Barbados) are to be paid annually to the shareholders as dividends unless
      a
      change in such policy is approved by a majority of the directors, including
      one
      nominee of each of YM and CIMAB.




Pursuant
      to international sales, marketing, manufacturing and administrative agreements
      dated as of July 4, 1996, CIMYM sub-licensed certain of its respective rights
      to
      the licensed product under the 1995 CIMYM License to CIMYM (Barbados) in
      exchange for certain royalty payments.




Under
      the current arrangements, CIMYM (Barbados) will arrange for the out-licensing
      of
      the licensed products in all relevant territories except Canada. CIMYM remains
      responsible for all elements of commercializing the licensed products within
      Canada, and for the cost of commercializing the licensed products outside of
      Canada up to the point of out-licensing.




On
      June 30, 2006, CIMYM (Barbados) was amalgamated with CIMYM to form CIMYM
      BioSciences Inc.




Property,
      Plants And Equipment




***Facilities***




We
      currently occupy 5,800 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, 2003 (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, 2003 and expiring on January 31,
      2008. The average annual costs, including operating expenses, are approximately
      $120,000.




We
      also occupy 7,200 square feet of space at 6535 Millcreek Drive in Mississauga,
      Ontario pursuant to a lease amending and extension agreement dated March 1,
      2005
      and expiring on the last day of April 2007 . Annual rent is approximately
      $71,000 under this lease.




YM
      USA currently occupies 20,706 square feet of space in Berwyn, Pennsylvania
      pursuant to a lease agreement dated June 13, 2001 and expiring on October 31,
      2006. The rent obligation from June 30, 2006 to the date of expiration is
      approximately $219,000.




YM
      USA will not renew their current lease and will relocate to another office
      facility in Wayne, Pennsylvania. The term of the lease will last 5 years, 4
      months beginning on the commencement date, yet to be determined. Annual fixed
      rent for the first year, excluding operating costs will be approximately
      US$155,625.




There
      are no environmental issues associated with any of our facilities and we
      currently have no plans to construct, expand or improve our facilities.




***Equipment
      And Other Property***





As
      at June 30, 2006, we owned tangible fixed assets with a book value of
      approximately $ 305,000 ,
      consisting primarily of office and lab equipment.




***Employees***





As
      of June 30, 2006, we employed 37 permanent employees (including 11 employees resulting from our acquisition of Eximias). 26 employees are currently located in Mississauga, Ontario and 11 employees are in Berwyn, Pennsylvania. Other than administrative staff, our
      employees conduct our licensing and product development activities.






-
          43 -




**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.




**CAPITAL
      STRUCTURE**




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 at June 30, 2006, there were 55,781,523 common shares, no Class A
      non-voting common shares and no preferred shares outstanding.




**Common
      Shares** ****




All
      of the common shares rank equally as to voting rights, participation in a
      distribution of our assets on a liquidation, dissolution or winding-up and
      the
      entitlement to dividends. The holders of the 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 the Corporation, 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 sinking or purchase funds.




**MARKET
      FOR SECURITIES**




Our
      common shares have been listed on the Toronto Stock Exchange (“TSX”) and the
      Alternative Investment Market (“AIM”) operated by the London Stock Exchange
      since June 11, 2002. Initially, we listed our Class B Preferred Shares, Series
      1
      on those stock exchanges. On June 12, 2003, the Class B Preferred Shares, Series
      1, were automatically converted on a one-for-one basis into our common shares,
      which became listed on the TSX and AIM on that date.




Our
      common shares have traded on the TSX since June 12, 2003 under the symbol “YM”,
      were admitted to trading on the AIM on June 12, 2003 under the symbol “YMBA” and
      have been traded on the American Stock and Options Exchange (“AMEX”) since
      October 1, 2004 under the symbol “YMI”.




**DIRECTORS
      AND OFFICERS**




Name
            Position
            Period
                ServedDavid
                G.P. Allan
              Toronto,
                Canada
            Chairman,
                Chief Executive Officer and Director
            Since
                1994Thomas
                I.A. Allen(1)(2)(3)
              Toronto,
                Canada
            Director
            Since
                1996James
                Barrett(3)
              Germantown,
                USA
            Director
            Since
                May 2006John
                Bennett
              Berwyn,
                USA
            Officer
            Since
                May 2006Lisa
                DeLuca
              Berwyn,
                USA
            Officer
            Since
                May 2006Mark
                Entwistle(3)
              Ottawa,
                Canada
            Director
            Since
                1997






-
          44 -




Gary
                Floyd
              Berwyn,
                USA
            Officer
            Since
                May 2006John
                Friedman(3)
              New
                York, USA
            Director
            Since
                2004Henry
                Friesen(1)
              Winnipeg,
                Manitoba
            Director
            Since
                2001Scott
                Jackson
              Berwyn,
                USA
            Officer
            Since
                May 2006Paul
                M. Keane
              Mississauga,
                Ontario
            Officer
            Since
                1996Diana
                Pliura
              Mississauga,
                Ontario
            Officer
            Since
                2005Vincent
                Salvatori
              Victoria,
                British Columbia
            Officer
            Since
                2002Gail
                Schulze
              Berwyn,
                USA
            President
                and Director
            Since
                May 2006Leonard
                Vernon
              Nobleton,
                Ontario
            Officer
            Since
                1997Julius
                Vida(2)
              Greenwich,
                USA
            Director
            Since
                2001Gilbert
                Wenzel
              Zurich,
                Switzerland
            Director
            Since
                2001Tryon
                M. Williams(1)(2)
              London,
                England
            Director
            Since
                1995




(1)  Member
      of Audit Committee.


(2)  Member
      of Corporate Governance and Nominating Committee.


(3)  Member
      of Compensation Committee.





**Share
      Ownership Of Directors And Executive Officers**




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, 2006, based on 55,781,523 common shares issued and outstanding on such date.




Name
            Number
                of
              Common
              Shares
            Percentage
                of
              Common
                Shares
              Outstanding
            Common
                Shares
              Held
                Under
              Option
            Exercise
                Price
            Expiration
                DateDavid
                G.P. Allan
            689,659
            1.2%
            996,250
            $1.75
                - $4.50
            2007
                - 2016Thomas
                I.A. Allen
            -
            -
            123,160
            $1.75
                - $4.50
            2007
                - 2016James
                Barrett
            1,349,1301
            2.4%1
            0John
                Bennett
            -
            -
            80,000
            U.S.$
                5.74
            2016Lisa
                DeLuca
            -
            -
            70,000
            U.S.$
                5.74
            2016Mark
                Entwistle
            -
            -
            98,160
            $1.75
                - $4.50
            2007
                - 2016Gary
                Clyde Floyd
            -
            -
            70,000
            U.S.$
                5.74
            2016






-
          45 -




Name
            Number
                of
              Common
              Shares
            Percentage
                of
              Common
                Shares
              Outstanding
            Common
                Shares
              Held
                Under
              Option
            Exercise
                Price
            Expiration
                DateJohn
                Friedman
            294,999
            *
            67,500
            $2.10
                - $3.15
            2014
                - 2016Henry
                Friesen
            -
            -
            98,160
            $1.75
                - $4.50
            2011
                - 2016Scott
                Jackson
            -
            -
            70,000
            U.S.$
                5.74
            2016Paul
                M. Keane
            72,500
            *
            178,100
            $1.75
                - $4.50
            2007
                - 2016Diana
                Pliura
            -
            -
            300,000
            $3.15
                - $4.36
            2016Vincent
                Salvatori
            -
            -
            220,000
            $1.75
                - $4.36
            2008
                - 2016Gail
                Schulze
            -
            -
            400,000
            U.S.$
                5.74
            2016Leonard
                Vernon
            -
            -
            243,000
            $1.75
                - $4.50
            2008
                - 2016Julius
                Vida
            -
            -
            93,160
            $1.75
                - $4.50
            2011
                - 2016Gilbert
                Wenzel
            -
            -
            93,160
            $1.75
                - $4.50
            2011
                - 2016Tryon
                M. Williams
            20,100
            *
            148,098
            $1.75
                - $4.50
            2007
                - 2016


*
      Less than one percent




Note
      1:  Shares
      are owned by New Enterprise Associates 11, Limited Partnership.  Dr.
      Barrett is a manager of NEA 11 GP, LLC which is the general partner of NEA
      Partners 11, Limited Partnership which is the general partner of New Enterprise
      Associates 11, Limited Partnership.




As
      of the
      date of hereof, the
      directors and senior officers of YM BioSciences as a group beneficially owned
      or
      controlled, directly or indirectly, 2,426,388 common shares of YM, representing
      approximately 4.35% of the issued and outstanding voting shares of the
      Corporation.




***David
      G.P. Allan - Chairman, Chief Executive Officer And Director***




Mr.
      Allan has been Chief Executive Officer of the Corporation since April 1998
      and
      Chairman of the Board of directors of the Corporation since August 1994. In
      1992
      Mr. Allan created the Knowledge-Based Industries Group for a Canadian investment
      bank where he was Executive Director until 1998. Mr. Allan is a former governor
      of The Toronto Stock Exchange, a former member of the Canadian Healthcare
      Licensing Association and of the Awards Selection Committee for the Networks
      of
      Centres of Excellence in Canada.




***Thomas
      I.A. Allen, Q.C., F.C.I.Arb - Director***




Mr.
      Allen is counsel to Ogilvy Renault, a Canadian law firm, and Chairman of
      Westwind Capital Corporation, the parent of an institutional investment dealer
      with offices in Canada and England. 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
      Bema Gold Corporation, Mundoro Mining Inc., Middlefield Bancorp Limited and
      Longview Strategies Incorporated. Mr. Allen has recently been acting as Chairman
      of the Task Force to Modernize Securities Legislation in Canada.







-
          46 -




***James
      Barrett - Director***




Dr.
      Barrett is a General Partner at New Enterprise Associates, a leading venture
      capital firm, where he specializes in biotechnology and other healthcare
      investments. Dr. Barrett is a director of GlycoMimetics, Inc., Inhibitex, Inc.,
      Iomai Corporation, MedImmune, Inc., Peptimmune, Pharmion, Inc. and Targacept,
      Inc.




*John
      Bennett - Vice-President Of Corporate Development*




Mr.
      Bennett has more than 19 years of business development and corporate finance
      experience in the pharmaceutical industry. Mr. Bennett joined Eximias
      Pharmaceutical Corporation as Vice President-Business Development in 2005.
      Mr.
      Bennett was Senior Vice President, Business Development at Aventis Behring
      from
      1999 to 2005 and held a similar position at Rhone-Poulenc Rorer. Mr. Bennett
      is
      a Certified Public Accountant and holds a Bachelor of Science degree in
      Accounting from St. Joseph’s University.




***Lisa
      Deluca - Vice-President Of Regulatory Affairs***




Dr.
      DeLuca has more than 15 years of experience in the pharmaceutical industry,
      including her roles as Vice President of Regulatory Affairs at Eximias (joining
      in 2004) and Director of Regulatory Affairs at AstraZeneca, from 1999 to 2004,
      where she was responsible for the regulatory launch of IRESSA(R). She has also
      held regulatory positions at Centocor and Wyeth (1993-1999) and drug discovery
      positions at SmithKline Beecham (now GlaxoSmithKline) and The Upjohn Company
      (now Pfizer, Inc.) (1990-1993). Dr. DeLuca received a PhD in biochemistry from
      the University of Toledo in 1988.




***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
      an Ambassador for Canada in the Caribbean 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 Corporation since
      October 1997.




***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, 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




***John
      Friedman - Director***




Mr.
      Friedman launched the Easton Capital Group (“Easton”) in 1993, with Easton
      Capital Corporation. In 1999, Easton Hunt Capital Partners was added to the
      Group. Prior to Easton, Mr. Friedman was a founder of Atrium Capital
      Corporation, which he helped manage from 1991-1993, and also the founder and
      Managing General Partner of Security Pacific Capital Investors from 1989 through
      1991. Security Pacific Capital Investors was a $200-million private equity
      fund
      geared towards expansion financings and recapitalizations. Prior to joining
      Security Pacific, Mr. Friedman was a Managing Director and Partner at E.M.
      Warburg, Pincus & Co., Inc., where he spent eight and a half years from
      1981-1989. Prior thereto, he worked at Shearson Loeb Rhoades and was an attorney
      with Sullivan and Cromwell from 1978 through 1980. He holds a JD degree from
      Yale Law School and a BA degree from Yale College. Mr. Friedman currently serves
      on the Boards of Conor Medsystems, Renovis, Comverse Technology,




-
          47 -




Trellis
      Bioscience, YM BioSciences Inc., Assistive Technology, and ModelWire, Inc.,
      and
      is on the President's Council at the Cold Spring Harbor Laboratory. Mr. Friedman
      has been a director of the Corporation since April 2004.




***Henry
      Friesen, C.C., M.D., F.R.S.C. - Director***




Dr.
      Friesen was most recently Chair, Genome Canada, a $600 million budget non-profit
      organization that supports national genomics to benefit Canadian science and
      industry from 2000 until July 2005. Dr. Friesen was named Founding Chair
      Emeritus of Genome Canada. From 1991 to 2000 Dr. Friesen was President of the
      Medical Research Council of Canada and was instrumental in transforming it
      into
      the Canadian Institute of Health Research, an organization with an annual budget
      of over $650 million per year dedicated to supporting Canadian researchers
      as
      well as industry participants. Dr. Friesen is noted for his discoveries about
      the human hormone prolactin and as Head of the Department of Physiology and
      Distinguished Professor Emeritus of Medicine at the University of Manitoba.
      Dr.
      Friesen is a Fellow of the Royal Society of Canada, a Companion of the Order
      of
      Canada and also sits on the board of directors of Sanofi Pasteur Canada and
      Spectral Diagnostics Inc. Dr. Friesen has been a director of the Corporation
      since November 2001.




***Scott
      Jackson - Vice-President Of Marketing***




Mr.
      Jackson is the Vice-President of Marketing. Mr. Jackson has more than 17 years
      of marketing and sales experience in the pharmaceutical and biopharmaceutical
      industries. Mr. Jackson was Senior Director, Oncology and Infectious Diseases
      at
      Centocor (Johnson and Johnson) from 2002 to 2004 and held commercial positions
      of increasing responsibility at ImClone Systems Incorporated in 2001. He was
      also with SmithKline Beecham from 1999 to 2001 and previously with Eli Lilly
      & Co. Mr. Jackson holds a BS in Pharmacy from the Philadelphia College of
      Pharmacy and Science and an MBA from the University of Notre Dame.




*Paul
      M. Keane, M.D., F.R.C.P.C., F.A.C.P., F.R.C. Path - Director, Medical
      Affairs*




Dr.
      Keane has been an officer of the Corporation since January 1996. Dr. Keane
      was
      Director of Clinical Research at Miles Canada Inc. (now Bayer Canada) from
      1989
      to 1995, prior to which he was Professor of Medicine at University of Calgary
      and Professor of Pathology at McMaster University. Dr. Keane has authored
      numerous scientific publications in peer review journals, has acted as a
      reviewer of research proposals for the Medical Research Council of Canada and
      has acted in an editorial capacity for a number of scientific journals.




***Diana
      Pliura - President, DELEX Division***




Dr.
      Pliura has over 25 years of experience in the pharmaceutical, biopharmaceutical
      and venture capital sectors.  Since June 2001, she has served as the
      founding President and CEO of DELEX Therapeutics.  From 1998 through 2001,
      she served as Company Creator for the Eastern Technology Seed Investment Fund,
      responsible for assessment of biotechnology investment opportunities and serving
      in executive management roles for selected investments.  In 1997, she
      founded a consulting firm focused on providing scientific and management
      expertise to biotechnology companies and their investors.  Previously Dr.
      Pliura was a Scientific Advisor to MDS Health Ventures from 1996 to 1997 and
      Vice-President Research at Hemosol Inc. from 1992 through 1995.  Prior to
      that, she held various positions at Syntex (Canada) Inc. from 1981 to 1991
      including serving as Head of the Division of General Biochemistry in the drug
      discovery unit from 1989-1991.  Dr. Pliura is a co-inventor or co-author on
      numerous patents and peer-reviewed articles.  She received her doctoral
      degree in Chemistry from the University of Toronto and completed post-doctoral
      training at Harvard University.




***Vincent
      Salvatori, Ph.D. - Executive Vice President, President And CEO, CIMYM
      Biosciences***




Dr.
      Salvatori has been an officer of the Corporation since December 2002. Dr.
      Salvatori is an experienced drug development executive with an accomplished
      background in the pharmaceutical and biotechnology industry. He has more than
      24
      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




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          48 -




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.




***Gail
      Schulze - Director, President, YM BioSciences and Chief Executive Officer,
      YM
      USA***




Ms.
      Schulze has more than 25 years of pharmaceutical industry experience. Prior
      to
      joining Eximias in 2005, she was with Aventis Behring, one of the world’s
      leading pharmaceutical companies, from 1997 to 2004. She joined Aventis Behring
      as Senior Executive Vice President and Chief Marketing Officer in 1997 and
      became COO of one of its joint ventures in 2001. Ms. Schulze received a BS
      in
      Psychobiology from the University of California, was an NIH Fellow in
      Neurophysiology at the University of Wisconsin and received an MBA from
      Stanford’s Graduate School of Business.




***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.




***Julius
      Vida, Ph.D., M.B.A. - Director***




Dr.
      Vida has been the President of Vida International Pharmaceutical Consultants,
      a
      consulting firm advising pharmaceutical and biotechnology companies, since
      1993.
      Previously Dr. Vida was Director of Licensing and subsequently Vice President,
      Business Development, Licensing and Strategic Planning at Bristol-Myers Squibb,
      from 1975 to 1993. Dr. Vida is a director of a number of biotechnology firms
      including Medarex, Inc., FibroGen, Inc. and OsteoScreen, Inc., Spectrum
      Pharmaceuticals Inc. and CSS Albachem (UK). Dr. Vida has been a director of
      the
      Corporation since September 2001.




***Gilbert
      Wenzel, Ph.D. - Director***




Dr.
      Wenzel is currently President and Chief Executive Officer of Quisisana AG,
      a
      business development firm focused on pharmaceuticals. Prior to founding
      Quisisana in January 2003, 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 Corporation
      since March 2001.




***Tryon
      M. Williams, B.Sc. (Math) - Director***




Mr.
      Williams is the Chairman, CEO and director of CellStop Systems, Inc., an
      automobile security device manufacturer, and CEO and director of Bingo.com,
      Ltd., an internet technology company. Since 1993, Mr. Williams has been 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 Corporation since November
      1995.






-
          49 -


**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:




***Lorne
      J. Brandes, B.Sc., M.D., C.R.C.P.C.***




Professor,
      Departments of Medicine and Pharmacology/Therapeutics, University of Manitoba,
      Winnipeg, Manitoba, Canada; Section of Hematology/Oncology, CancerCare Manitoba,
      Winnipeg, Manitoba, Canada. Dr. Brandes has been an advisor since November
      2000.




***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.




***Agustin
      Lage Davila M.D. Ph.D.***




Director,
      Centro de Inmunologia Molecular, Havana, Cuba; Professor of Medicine, University
      of Havana. Dr. Davila was a director of the Corporation until his resignation
      on
      May 28, 2002 at which time he became an advisor.




***Raymond
      M. Reilly, Ph.D.***




Associate
      Professor, Departments of Medical Imaging and Pharmaceutical Sciences,
      University of Toronto, Toronto, Ontario, Canada; Associate Scientist, Department
      of Medical Imaging, University Health Network, Toronto, Ontario, Canada. Dr.
      Reilly has been an advisor since December 1998.




***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,
      United States; Attending Physician, Memorial Hospital for Cancer and Allied
      Diseases, New York, New York, United States. Dr. Saltz has been an advisor
      since
      March, 2006.




***Niclas
      Stiernholm, Ph.D.***




Chief
      Executive Officer, Trillium Therapeutics Inc., Toronto, Ontario, Canada. Dr.
      Stiernholm was an executive vice-president of the Corporation 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.




***Daniel
      D. Von Hoff, M.D., F.A.C.P.***




Professor
      of Medicine, University of Arizona and Executive Vice President, Translational
      Genomics Research Institute and Director, Translational Drug Development
      Program, Tucson, Arizona, United States. Dr. Von Hoff has been an advisor since
      July 2001.






-
          50 -


**Board
      Practices**




The
      directors of YM are elected and retired in rotation. The Board of Directors
      is
      divided into three equal classes (Class I, Class II and Class III) with the
      term
      of office of the directors of one class expiring each year. Each director holds
      office for a term ending on the date of the third annual general meeting of
      our
      shareholders following the annual general meeting of shareholders at which
      he or
      she was elected or until he or she resigns or is removed from office in
      accordance with our memorandum of association and articles of association.
      For
      the purposes of implementing this structure, the current Class I directors
      will
      hold office until the 2008 annual general meeting of our shareholders, the
      current Class II directors will hold office until the 2006 annual general
      shareholders meeting and the current Class III directors will hold office until
      the 2007 annual general shareholders meeting. Messrs. Barrett, Friedman and
      Vida
      are Class I directors; Messrs. Entwistle, Friesen and Wenzel and Ms. Schulze
      are
      Class II directors; and Messrs. Allen, Allan and Williams are Class III
      directors.




No
      director has a service contract with us. Each director has formally consented
      to
      serve as a director and signed a confidentiality agreement with us.




From
      time to time the Board appoints, and empowers, committees to carry out specific
      functions on behalf of the Board. The following describes the current committees
      of the Board and their members:




**Audit
      Committee**




The
      members of the Corporation's Audit Committee are Thomas I.A. Allen, Henry
      Friesen, and Tryon M. Williams.




The
      principal functions of the Audit Committee are to appoint, compensate and
      oversee the external auditors; to review and approve annual and quarterly
      financial statements and all legally required continuous and public disclosure
      documents containing financial information about the Corporation before they
      are
      submitted to the Board of Directors for approval; to review and approve the
      adequacy of internal accounting controls and the quality of financial reporting
      procedures and systems; to examine the presentation and impact of key financial
      and other significant risks that may be material to the Corporation's financial
      reporting; and to review and approve the nature and scope of the annual audit
      and review the results of the external auditor's examination. The Audit
      Committee reports its findings with respect to such matters to the Board of
      Directors.




**Corporate
      Governance And Nominating Committee**




The
      members of the Corporation's Corporate Governance and Nominating Committee
      are
      Thomas I.A. Allen, Julius Vida and Tryon M. Williams.




The
      mandate of the Corporation's Corporate Governance and Nominating Committee
      is to
      develop and monitor the Corporation's system of corporate governance in the
      context of the Toronto Stock Exchange Report on Corporate Governance, and the
      rules and regulations promulgated by the Ontario Securities Commission and
      the
      Securities and Exchange Commission, including reviewing the mandate of the
      Board
      of Directors and its committees; periodically reviewing and evaluating the
      performance of all directors, committees and the Board as a whole; selecting
      new
      candidates for Board memberships, making recommendations to the Board and
      ensuring that appropriate orientation and education programmes are available
      for
      new Board members; establishing procedures to ensure that the Board may meet
      independent of Management and reviewing annually the membership and chairs
      of
      all committees. All members of this Committee are unrelated and non-executive
      directors of the Corporation.




**Compensation
      Committee**




The
      members of the Corporation's Compensation Committee are Thomas I.A. Allen,
      James
      Barrett, John Friedman and Mark Entwistle.




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 programmes are designed to motivate senior managers to achieve
      or
      exceed




-
          51 -




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 Corporation on the recommendation of the Chief
      Executive Officer, establishing incentive compensation programmes and monitoring
      their effectiveness and developing and documenting the compensation policy
      and
      philosophy of the Corporation for approval by the Board of Directors. All
      members of this Committee are unrelated and non-executive directors of the
      Corporation.




**AUDIT
      FEES**




During
      the years ended June 30, 2005 and 2006, we were billed the following fees by
      our
      external auditors, KPMG LLP:




**Service**
            **Fees
                Incurred****2006**
            **2005**Audit
                and Audit-Related Fees
            $420,000
            $385,000Tax
                Fees
            $50,600
            $12,000All
                Other Fees
            Nil
            Nil**Total
                Fees Paid**
            **$****470,600**
            **$397,000**





The
      Board of Directors have established a written mandate for the audit committee,
      a
      copy of which is attached hereto as Schedule “A”. The Audit Committee follows
      the policies and procedures for the pre-approval of services to be provided
      by
      our external auditors set out in the mandate.




**LEGAL
      PROCEEDINGS**




We
      are not a party to any material pending legal or arbitration proceedings and
      is
      not aware of any material contemplated legal proceedings to which we may be
      a
      party.




**TRANSFER
      AGENT AND REGISTRAR**




The
      registrar and transfer agent for our common shares in Canada is CIBC Mellon
      Trust Company at its principal offices in Toronto, Canada and in the United
      States is Mellon Investor Services LLC at its principal offices in Ridgefield
      Park, New Jersey.




**MATERIAL
      CONTRACTS**




Except
      for contracts entered into in the ordinary course of business, the only material
      contracts which we entered into prior to the date hereof as
      follows:




(a)
            2005
                Amended and Restated Stock Option Plan. See “Share Ownership of Directors
                and Executive Officers - Stock Option
                Plan”.




(b)
            Merger
                Agreement dated as of April 12, 2005 among YM, 2069044 Ontario Limited
                (“2069044”), being a wholly-owned subsidiary of YM, DELEX, the Business
                Development Bank of Canada, New Generation Biotech (Equity) Fund
                Inc., and
                Eastern Technology Seed Investment Fund Limited Partnership, pursuant
                to
                which YM acquired DELEX. See “General Development of the
                Business”.




(c)
            Debt
                Assignment Agreements each dated as of May 2, 2005 between YM and
                each of
                the Business Development Bank of Canada, New Generation Biotech (Equity)
                Fund Inc., and Eastern Technology Seed Investment Fund Limited
                Partnership, pursuant to which YM acquired the outstanding debt of
                DELEX
                in connection with purchase of DELEX. See “General Development of the
                Business”.






-
          52 -




(d)
            Escrow
                Agreement dated as of May 2, 2005 among YM, the Business Development
                Bank
                of Canada, New Generation Biotech (Equity) Fund Inc., Eastern Technology
                Seed Investment Fund Limited Partnership and Equity Transfer Services
                Inc., pursuant to which certain common shares of YM are held in escrow
                for
                the benefit of the former DELEX shareholders to be released in tranches
                over time and upon completion of certain milestones. See “General
                Development of the Business”.




(e)
            Clinical
                Research Services Agreement between YM and Pharm-Olam International,
                Ltd.
                (“POI”), dated March 10, 2004. The Corporation has contracted with POI
                to
                do a Phase III clinical trial with tesmilifene in metastatic and
                recurrent
                breast cancer. POI in turn is contracting with others to perform
                services
                and to recruit and treat patients. The contract with POI is payable
                over
                the next few years depending on the recruitment of patients.




(f)
            Lease
                Amending and Extension Agreement between 1411029 Ontario Limited
                and YM
                BioSciences Inc. dated January 15, 2003. See “Property, Plants and
                Equipment - Facilities”.




(g)
            Development
                and License Agreement between CIMYM Inc., CIMAB SA and Oncoscience
                AG,
                dated November 5, 2003. See “Business - Licensing Arrangements -
                Out-Licensing - TheraCIM”.




(h)
            License,
                Development, Manufacturing and Supply Agreement between YM BioSciences
                Inc., CIMYM, Inc., Tarcanta, Inc., Tarcanta, Ltd. and CIMAB dated
                July 13,
                2004. “Business - Licensing Arrangements - Out-Licensing”.




(i)
            Clinical
                Research Services Agreement between YM and POI dated December 2004
                relating to a pharmacokinetics clinical trial of tesmilifene with
                an
                anthracycline, involving 30 patients at two sites, at an expected
                cost of
                £194,527 ($448,000). Either party may cancel the contract with 30
                days'
                notice; in which case, the Corporation would pay for the cost to
                date plus
                a penalty equal to 10% of the remainder of the contract price.




(j)
            Clinical
                Research Services Agreement between YM and POI dated June 2005 relating
                to
                a pharmacokinetics clinical trial of tesmilifene with a taxane, involving
                30 patients at two sites, at an expected cost of £344,000 ($756,000).
                Either party may cancel the contract with 30 days' notice; in which
                case,
                the Corporation would pay for the cost to date plus a penalty equal
                to 10%
                of the remainder of the contract
                price.




(k)
            Agreement
                and Plan of Merger dated April 13, 2006 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 relating to the acquisition of Eximias. See “General
                Development of the Business”.




In
      the ordinary course of our business, we enter into licenses for products which
      we develop, however, because of the immateriality of such licenses to us, they
      are not referenced here. The licenses for these products are more fully
      described in this annual information form under the heading “Business Overview -
      Licensing Arrangements”.




**ADDITIONAL
      INFORMATION**




Additional
      information, including directors’ remuneration and indebtedness, principal
      holders of the Corporation’s securities, options to purchase securities and
      interests of insiders in material transactions, if any, is contained in the
      Corporation’s information circular for its most recent annual meeting of
      shareholders that involved the election of directors and that additional
      financial information is provided in the Corporation’s comparative financial
      statements for its most recently completed year.






-
          53 -




When
      securities of the Corporation are in the course of distribution pursuant to
      a
      short form prospectus, or when a preliminary short form prospectus has been
      filed in respect of the Corporation’s securities, the Corporation will provide
      the following documents to any person or company upon request to the Corporate
      Secretary of the Corporation:




1.
            a
                copy of this annual information form, together with a copy of any
                document
                or the pertinent pages of any document incorporated by reference
                in this
                annual information form;




2.
            a
                copy of our Financial Statements, together with the accompanying
                auditors’
                report as well as copies of any subsequent interim financial statements
                that we have filed;




3.
            a
                copy of our information circular in respect of our most recent annual
                meeting of shareholders that involved the election of directors;
                and




4.
            a
                copy of any other document that is incorporated by reference into
                the
                preliminary short form prospectus or the short form
                prospectus.




At
      any other time, a copy of the documents referred to in subsections 1, 2, 3
      and 4
      above may be obtained from our Corporate Secretary, however, a reasonable fee
      may be charged if the request is made by a person or company who is not a
      shareholder of YM.




All
      requests for the above-mentioned documents must be addressed to:




YM
      BioSciences Inc.


5045
      Orbitor Drive


Building
      11, Suite 400


Mississauga,
      Ontario


L4W
      4Y4




Attention:
            SecretaryTelephone:
            (905) 629-9761Fax:
            (905) 629-4959e-mail:
            ir@ymbiosciences.comWeb Page:
            www.
              ymbiosciences.com











-
          54 -





Schedule
      “A”





**YM
      BIOSCIENCES INC.**





**AUDIT
      COMMITTEE MANDATE**





**1.**  **General**





The
      board of directors (the “Board”) of YM BioSciences Inc. (the “Corporation”) has
      delegated the responsibilities, authorities and duties described below to the
      audit committee (the “Audit Committee”). For the purpose of these terms of
      reference, the term “Corporation” shall include the Corporation and its
      subsidiaries.




The
      Audit Committee shall be directly responsible for overseeing the accounting
      and
      financial reporting processes of the Corporation and audits of the financial
      statements of the Corporation, and the Audit Committee shall be directly
      responsible for the appointment, compensation, and oversight of the work of
      any
      registered external auditor employed by the Corporation (including resolution
      of
      disagreements between management of the Corporation 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 United States securities laws, rules and guidelines,
      any
      applicable stock exchange requirements or guidelines and any other applicable
      regulatory rules.




**2.**  **Members**





The
      Audit Committee shall be 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 Corporation. 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 United States 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 United States Securities Exchange
                Act of
                1934, as amended, and the rules adopted by the United States Securities
                and Exchange Commission thereunder.




**3.**  **Meetings**





The
      Audit Committee shall meet at least quarterly at such times and at such
      locations as the Chair of the Audit Committee shall determine, provided that
      meetings shall be scheduled so as to permit the timely review of the
      Corporation’s quarterly and annual financial statements and related management
      discussion and analysis. The external auditor or any two members of the Audit
      Committee may also request a meeting of the Audit Committee. The Chair of the
      Audit Committee shall hold in camera sessions of the Audit Committee, without
      management present, at every meeting.






-
          55 -




The
      Audit Committee shall submit the minutes of all meetings to the Board, and
      when
      requested to, shall discuss the matters discussed at each Audit Committee
      meeting with the Board.




**4.**  **Committee
      Charter**





The
      Audit Committee shall have a written charter that sets out its mandate and
      responsibilities and the Audit Committee shall review and reassess the adequacy
      of such charter at least annually or otherwise, as it deems appropriate, and
      propose recommended changes to the Board.




**5.**  **Duties
      of the Audit Committee:**





The
      Audit Committee shall have the following duties:




***Financial
      Information and Reporting***





1.
            The
                Audit Committee shall review with management and the external auditor,
                and
                recommend to the Board for approval, the annual and interim financial
                statements of the Corporation and related financial reporting, including
                management’s discussion and analysis and earnings press
                releases.




2.
            The
                Audit Committee shall review with management and the external auditor,
                and
                recommend to the Board for approval, any financial statements of
                the
                Corporation which have not previously been approved by the Board
                and which
                are to be included in a prospectus or other public disclosure document
                of
                the Corporation.




3.
            The
                Audit Committee shall consider and be satisfied that adequate policies
                and
                procedures are in place for the review of the Corporation’s disclosure of
                financial information extracted or derived from the Corporation’s
                financial statements (other than disclosure referred to in clause
                (a)(i)
                above), and periodically assess the adequacy of such
                procedures.




***Internal
      Controls***





4.
            The
                Audit Committee shall review, as appropriate, the Corporation’s internal
                system of audit controls and the results of internal
                audits.




5.
            The
                Audit Committee shall establish procedures for the receipt, retention
                and
                treatment of any complaint regarding accounting, internal accounting
                controls or auditing matters; and the confidential, anonymous submissions
                by employees of concerns regarding questionable accounting or auditing
                matters.




***External
      Auditors***





6.
            The
                Audit Committee shall be directly responsible for overseeing the
                work of
                the external auditor engaged for the purpose of preparing or issuing
                an
                auditor’s report or performing other audit, review or attest services for
                the Corporation, including the resolution of disagreements between
                management and the external auditor regarding financial
                reporting.




7.
            The
                external auditor shall report directly to the Audit Committee and
                the
                Audit Committee should have a clear understanding with the external
                auditor that such external auditor must maintain an open and transparent
                relationship with the Audit Committee, and that the ultimate
                accountability of the external auditor is to the shareholders of
                the
                Corporation.




8.
            The
                Audit Committee shall recommend to the Board the external auditor
                to be
                nominated for the purpose of preparing or issuing an auditor’s report or
                performing other audit, review or attest services for the Corporation;
                and
                the compensation of the external
                auditor.






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9.
            The
                Audit Committee will ensure the rotation of partners on the audit
                engagement team of the external auditor in accordance with applicable
                law.




10.
            The
                Audit Committee shall meet with the external auditor, as the Audit
                Committee may deem appropriate, to consider any matter which the
                Audit
                Committee or external auditor believes should be brought to the attention
                of the Board or the shareholders of the
                Corporation.




11.
            The
                Audit Committee shall meet with the external auditor, as the Audit
                Committee may deem appropriate, to review and discuss a report from
                the
                external auditor at least quarterly
                regarding:




(a)
            all
                critical accounting policies and practices to be
                used




(b)
            all
                alternative treatments within generally accepted accounting principles
                for
                policies and practices related to material items that have been discussed
                with management, including the ramifications of the use of such
                alternative disclosures and treatments, and the treatment preferred
                by the
                external auditor, and




(c)
            other
                material written communications between the external auditor and
                management, such as any management letter or schedule of unadjusted
                differences.




***Pre
      Approval of Non-Audit Services***





12.
            The
                Audit Committee shall pre-approve all non-audit services to be provided
                to
                the Corporation or its subsidiary entities by the Corporation’s external
                auditor.




***Complaints
      procedure***





13.
            The
                Audit Committee shall establish procedures for the receipt, retention
                and
                treatment of complaints received by the Corporation regarding accounting,
                internal accounting controls, or auditing matters; and the confidential,
                anonymous submission by employees of the Corporation of concerns
                regarding
                questionable accounting or auditing
                matters.




14.
            The
                Audit Committee shall review and approve the Corporation’s hiring policies
                regarding partners, employees and former partners and employees of
                the
                present and former external auditor of the
                Corporation.




***Reporting***





15.
            The
                Audit Committee shall report regularly to the Board about any issues
                that
                arise with respect to the quality or integrity of the Corporation’s
                financial statements, the Corporation’s compliance with legal or
                regulatory requirements, the performance and independence of the
                external
                auditor, or the internal audit
                function.




**6.** **Authority
      to engage independent counsel and advisors**





The
      Audit Committee has the authority to engage independent counsel and other
      advisors as it determines necessary to carry out its duties, to set and pay
      the
      compensation for any advisors employed by the audit committee, and to
      communicate directly with the internal and external auditors.




The
      Corporation shall provide appropriate funding, as determined by the Audit
      Committee, in its capacity as a committee of the board of directors, for payment
      of compensation (a) to the external auditors employed by the issuer for the
      purpose of rendering or issuing an audit report, and (b) to any advisers
      employed by the Audit Committee.







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