ANNUAL
INFORMATION FORM
  YEAR
ENDED JUNE 30, 2010
  September
23, 2010
  
  TABLE OF
CONTENTS
  DOCUMENTS
      INCORPORATED BY REFERENCE
                iBASIS
      OF PRESENTATION
                iFORWARD-LOOKING
      STATEMENTS
                iGLOSSARY
      OF TERMS AND PROPER NAMES
                ivCORPORATE
      STRUCTURE
                1GENERAL
      DEVELOPMENT OF THE BUSINESS
                2RISK
      FACTORS
                24DIRECTORS
      AND SENIOR MANAGEMENT
                35MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
                44AUDIT
      FEES
                51INDEPENDENCE
      OF EXPERTS
                52LEGAL
      PROCEEDINGS
                52TRANSFER
      AGENT AND REGISTRAR
                52MATERIAL
      CONTRACTS
                52ADDITIONAL
      INFORMATION
                53
  
  DOCUMENTS
INCORPORATED BY REFERENCE
  The
following documents are incorporated by reference in, and form part of, this
Annual Information Form (“AIF”):
  ·
              the
      audited consolidated balance sheets as at June 30, 2009 and June 30, 2010
      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, 2010 (collectively, the “Financial
      Statements”);
  ·
              management’s
      discussion and analysis of financial condition and results of operations
      for the year ended June 30, 2010 (the “MD&A”);
  and
  ·
              the
      business acquisition report dated February 12, 2010 in respect of the
      acquisition by the Corporation of Cytopia Limited on January 29, 2010 (the
      “BAR”).
  All of
the documents referred to above have been filed on SEDAR (System for Electronic
Document Analysis and Retrieval) and are available to the public at
www.sedar.com. Further information may also be found on the Company’s website at
www.ymbiosciences.com.
  BASIS
OF PRESENTATION
  Except
where the context otherwise requires, all references in this AIF to the
“Company”, “YM”, “we”, “us”, “our” or similar words or phrases are to YM
Biosciences Inc. and its subsidiaries, taken together.  In this AIF,
references to “US$” are to US dollars and references to “C$” or “$” are to
Canadian dollars. Unless otherwise indicated, the statistical and financial data
contained in this AIF are presented as at June 30, 2010.
  FORWARD-LOOKING
STATEMENTS
  This AIF,
including any documents incorporated by reference, contains “forward-looking
statements” within the meaning of the United States federal securities
laws.  The words “may”, “believe”, “will”, “anticipate”, “expect”,
“estimate”, “project”, “future” and other expressions that are predictions of or
indicate future events and trends and that do not relate to historical matters
identify forward-looking statements.  The forward-looking statements
in this AIF, including any documents incorporated by reference, include, among
others, statements with respect to:
  ·
              our
      expected expenditure and accumulated deficit
  levels;
  ·
              our
      intentions with respect to acquiring or investing in production
      facilities;
  ·
              production
      quantities;
  ·
              our
      ability to obtain sufficient supplies of our
  products;
  ·
              our
      ability to identify licensable products or research suitable for licensing
      and commercialization;
  ·
              the
      locations of our clinical trials;
  ·
              our
      intention to license products from multiple
  jurisdictions;
  ·
              our
      ability to obtain necessary funding on favorable terms or at
      all;
  ·
              our
      potential sources of funding;
  ·
              our
      business strategy;
  ·
              our
      drug development plans;
   - i
-
  ·
              our
      ability to obtain licenses on commercially reasonable
    terms;
  ·
              the
      effect of third party patents on our commercial
  activities;
  ·
              our
      intentions with respect to developing manufacturing, marketing or
      distribution programs;
  ·
              our
      expectations with respect to the views toward our products held by
      potential partners;
  ·
              our
      plans for generating revenue;
  ·
              our
      plans for increasing expenditures for the development of certain
      products;
  ·
              our
      strategy for protecting our intellectual
  property;
  ·
              the
      sufficiency of our financial resources to support our activities and our
      prospective pivotal trials; and
  ·
              our
      plans for future clinical trials and for seeking clinical
      clearance.
  Reliance
should not be placed on forward-looking statements, as they involve known and
unknown risks, uncertainties and other factors that may cause the actual results
to differ materially from the anticipated future results expressed or implied by
such forward-looking statements.  Factors that could cause actual
results to differ materially from those set forward in the forward-looking
statements include, but are not limited to:
  ·
              our
      ability to obtain, on satisfactory terms or at all, the capital required
      for research, operations and
marketing;
  ·
              general
      economic, business and market
conditions;
  ·
              our
      ability to successfully and timely complete clinical
    studies;
  ·
              product
      development delays and other uncertainties related to new product
      development;
  ·
              our
      ability to attract and retain business partners and key
      personnel;
  ·
              the
      risk of our inability to profitably commercialize our
      products;
  ·
              the
      extent of any future losses;
  ·
              the
      risk of our inability to establish or manage manufacturing, development or
      marketing collaborations;
  ·
              the
      risk of delay of, or failure to obtain, necessary regulatory approvals
      and, ultimately, product launches;
  ·
              dependence
      on third parties for successful commercialization of our
      products;
  ·
              inability
      to obtain development product in sufficient quantity or at standards
      acceptable to health regulatory authorities to complete clinical trials or
      to meet commercial demand;
  ·
              the
      risk of the termination or conversion to non-exclusive licenses or our
      inability to enforce our rights under our
  licenses;
  ·
              our
      ability to obtain patent protection and protect our intellectual property
      rights;
  ·
              commercialization
      limitations imposed by intellectual property rights owned or controlled by
      third parties;
  ·
              uncertainty
      related to intellectual property liability rights and liability claims
      asserted against us;
  ·
              the
      uncertainty of recovery of advances to
  subsidiaries;
  - ii
-
  ·
              the
      impact of competitive products and
pricing;
  ·
              future
      levels of government funding; and
  ·
              additional
      risks and uncertainties, many of which are beyond our control, referred to
      elsewhere in this AIF and our other filings on
  SEDAR.
  Except as
required by law, we undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
  - iii
-
  GLOSSARY
OF TERMS AND PROPER NAMES
  This
glossary contains general terms used in the discussion of the biopharmaceutical
industry, as well as specific technical terms used in the descriptions of our
technology and business.
  Adjuvant: Substance added to a
vaccine to enhance its immunogenicity (i.e. its ability to stimulate an immune
response). May also mean “at the time of surgery” as in “treatment with another
agent of its type at, or close to, the time of surgery”.
  Amgen: Amgen
Incorporated
  ASCO: The American Society of
Clinical Oncology
  AstraZeneca: AstraZeneca
PLC
  Board: board of directors of
YM
  BMS: Bristol Myers
Squibb
  Cancer Vaccine: Vaccines or
candidate vaccines designed to treat cancer. Active immunotherapy
  CIMAB: CIMAB S.A., a Cuban
company responsible for commercializing products developed at CIM
  CIMYMandCIMYM BioSciences: CIMYM
BioSciences Inc., an 80% owned joint venture subsidiary of YM
  CIMYM (Barbados): CIMYM Inc.,
a predecessor company to CIMYM BioSciences, incorporated under the laws of
Barbados
  CR: Complete Response, the
disappearance of a tumor
  CRO: contract research
organization
  Clinical Trial Application
(“CTA”): previously
known as an Investigational New Drug application which must be filed and
accepted by the regulatory agency, Health Canada, before each phase of human
clinical trials may begin
  Cytoprotective: Having the
capacity to protect cells
  Cytotoxic: Having capacity to
kill cells
  Daiichi: Daiichi
Pharmaceutical Co. Ltd. or Daiichi Sankyo Co., Ltd.
  DELEX: Delex Therapeutics
Inc., a wholly-owned subsidiary of YM which was wound up on April 30, 2006 into
the Corporation
  EGFR: A protein known as
Epidermal Growth Factor Receptor
  EMA (formerly EMEA): The
European Medicines Agency - 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
  Eximias: Eximias
Pharmaceutical Corporation
  FAK: Focal Adhesion Kinase – a
kinase target in cancer drug development
  FDA: US Food and Drug
Administration
  FMS: Feline McDonough Strain –
a kinase target in cancer in other disease conditions
  - iv
-
  Genentech: Genentech
Incorporated
  Genmab: Genmab
A/S
  Glioma: A form of brain cancer
involving the malignant transformation of a glial cell
  GMP: good manufacturing
practices, i.e. guidelines established by the governments of various countries,
including Canada and the US, to be used as a standard in accordance with the
World Health Organization’s Certification Scheme on the quality of
pharmaceutical products
  HER-1: Tumors
expressing/producing the EGF receptor
  Humanized: The process whereby
an antibody derived from murine cells is altered to resemble a human
antibody
  ImClone: ImClone Systems
Incorporated
  Incyte: Incyte
Corporation
  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
  JAK: Janus Kinase –
therapeutic targets for drugs known as JAK1, 2 or 3 inhibitors, specific kinases
on the kinome
  K: thousand
  Ligand: Used herein to
describe a protein or peptide that binds to a particular receptor
  M: million
  M&A: mergers and
acquisitions
  Merck: Merck KGaA
  Metastatic: A term used to
describe a cancer where tumor cells have migrated from the primary tumor to a
secondary site (e.g. from prostate to bone)
  MD&A: Management’s
discussion and analysis of financial condition and results of operations for the
year ended June 30, 2010
  MPN: Myeloproliferative
neoplasm-tumors – tumor-precursors deriving from disease of the bone
marrow
  MTD: Maximum tolerated
dose
  Monoclonal antibody (“MAb”): Antibodies of
exceptional purity and specificity derived from hybridoma cells
  Murine: adjective for
mouse
  Neoplastic: New and abnormal
growth of tissue (neoplasm), which may be benign or cancerous
  Novartis: Novartis
International AG and subsidiaries
  NSCLC: Non-small-cell lung
cancer
  OFAC: Office of Foreign Assets
Control of the US Department of the Treasury
  - v
-
  Oncoscience: Oncoscience AG of
Germany
  Orphan Drug: A drug aimed at
treating a condition with an incidence of less than 200,000 per year in the US
(often given a seven year market exclusivity by the FDA)
  OSI: OSI Pharmaceuticals,
Inc.
  Overall Survival: For patients
who have died, overall survival is calculated in months from the day of
randomization to date of death. Otherwise, survival is censored at the last day
the patient is known alive
  PD: Pharmacodynamics - studies
the actions of drugs within the body - the routes and mechanisms of absorption
and excretion, the rate at which a drug action begins and the duration of the
effect, the biotransformation of the substance in the body and the effects and
routes of excretion of the metabolites of the drugs.
  PK:Pharmacokinetics – the
study of the process by which a drug is absorbed, distributed, metabolized and
eliminated by the body
  PR: Partial Response, the
shrinkage of a tumor measured by decrease by at least 30% as measured by a
decrease in the sums of the longest diameter according to RECIST
criteria
  Passive Immunotherapy:
Immunologically active material transferred into the patient as a passive
recipient. Monoclonal antibodies are considered Passive Immunotherapy since
antibodies are generated outside the body and given to the patient
  Phosphorylation:
Addition/donation of a phosphate group to a particular amino acid which can lead
to tumor growth
  Qualified Person(s)orQP:A technical term used
in European Union pharmaceutical regulation (Directive 2001/83/EC
for Medicinal products for human use); the regulations specify that no batch of
medicinal product can be released for sale or supply prior to certification by a
QP that the batch is in accordance with the relevant requirements (EudraLex,
Volume 4, Chapter 1). The QP is typically a licensed pharmacist, biologist or
chemist (or a person with another permitted academic qualification) who has
several years experience working in pharmaceutical manufacturing operations and
has passed examinations attesting to his or her knowledge.
  RECIST: Response Evaluation
Criteria in Solid Tumors, a US standard
  Roche: F.Hoffmann-LaRoche
Ltd.
  SAE:Serious Adverse Event – a
term from clinical trials referring to untoward medical occurrence that results
in hospitalization or death, or is life-threatening
  SD: Stable
Disease
  TGFα:
Transforming growth factor alpha
  Therapeutic cancer vaccine: An
approach to the treatment of cancer utilizing “active
immunotherapy”
  Tyrosine kinase: An enzyme
that catalyzes the phosphorylation of tyrosine residues in proteins with
nucleotides as phosphate donors
  US: United States of
America
  VDA: Vascular Disrupting Agent
– a molecule that impedes or reverses the formulation of capillaries that
provide blood flow to tumors
  YM Australia: YM BioSciences
Australia Pty Ltd. (formerly Cytopia Limited) acquired by YM effective January
29, 2010
  - vi
-
  YM USA: YM BioSciences USA
Inc., a wholly-owned subsidiary of YM
  - vii
-
  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 Companies Act (Nova
Scotia).
  Our head
office and principal place of business is 5045 Orbitor Drive, Building 11, Suite
400, Mississauga, Ontario, L4W 4Y4; telephone (905) 629-9761. Our registered
head office is 1959 Upper Water Street, Suite 900, Halifax, Nova Scotia, B3J
2X2; telephone: (902) 420-3200.
  We
currently have the following material subsidiaries:
  
  (1)
                Subject
      to current negotiations, ownership may become 70% mitigated by additional
      revenues to YM from a manufacturing
royalty
  On June
30, 2006 CIMYM Inc., an Ontario corporation, was amalgamated under the laws of
Ontario, Canada with CIMYM Inc., a Barbados corporation, to form CIMYM
BioSciences Inc (CIMYM). CIMYM is 80% owned by the Company and 20% owned by
CIMAB.
  YM
BioSciences USA Inc. (YM USA) was incorporated on November 23, 2005 under the
laws of Delaware. YM US Operations Inc. was incorporated on April 10, 2006 under
the laws of Delaware. On May 9, 2006 YM US Operations Inc. was merged with
Eximias Pharmaceutical Corporation.  On March 6, 2008 YM US Operations
Inc. was merged into YM USA.  YM USA is 100% owned by the
Company.
  On
January 29, 2010 we acquired all of the issued and outstanding ordinary shares
of Cytopia Limited, an Australian company listed on the Australian Stock
Exchange. As part of the same transaction, we also acquired Cytopia Inc., an
Australian company that is a wholly-owned subsidiary of Cytopia
Limited.  YM issued to the Cytopia shareholders common shares of YM in
consideration for their Cytopia shares. On March 9, 2010, Cytopia Limited
changed its name to YM BioSciences Australia Pty Ltd.
  1
  GENERAL
DEVELOPMENT OF THE BUSINESS
  Business
Overview
  We are a
biopharmaceutical company engaged in the development of products primarily for
the treatment of patients with cancer. We own or in-license substances or
products in order to advance them along the regulatory and clinical pathways
toward commercial approval. Our rights generally cover the major market
countries of the developed world (including Canada, the US, Japan and Europe) or
are world-wide. We use our expertise to manage and perform, within our means,
what we believe are the most critical aspects of the drug development process
which include the design and conduct of clinical trials, the development and
execution of strategies for the protection and maintenance of intellectual
property rights and the interaction with drug regulatory authorities
internationally. We concentrate on drug development and do not engage in drug
discovery, avoiding the earlier risk and investment of time and capital that is
generally required before a compound is identified as appropriate for clinical
trials. We have previously in-licensed certain preclinical products which have
been relevant to our clinical programs. We both conduct and out-source clinical
trials and we out-source the manufacture of clinical materials to third
parties.
  Our
current portfolio of products in active clinical development includes three
anti-cancer agents in numerous clinical trials. Our small molecule JAK1/2
inhibitor, CYT387, is in clinical development for MPNs and may have applications
in solid tumors as well as inflammatory disease. Our monoclonal antibody,
nimotuzumab, is being developed in 11 clinical trials by YM and its licensees in
numerous solid tumor indications including adjuvant head and neck cancer, adult
glioma (Phase III), advanced pancreatic cancer (Phase II/III), and various
levels of NSCLC and gastric cancer, and pediatric glioma (Phase II). CYT997, a
small molecule known as a VDA, is currently in a Phase II trial in patients with
glioma in which it is added to treatment with chemotherapy. We also have
approximately 4,000 molecules in a library of pre-clincial compounds that may be
developed into clinically relevant products either internally or through
research collaborations. We principally intend to license the rights to
manufacture and/or market our products in development to other pharmaceutical
companies in exchange for license fees and royalty payments and to continue to
seek other in-licensing opportunities in pursuing our business strategy. We do
not currently intend to manufacture or market products although we may, if the
opportunity is available on terms that are considered attractive, participate in
ownership of manufacturing facilities or retain marketing or co-development
rights to specific products. We intend to continue to seek other in-licensing
opportunities in pursuing our business strategy.
  We have
three product candidates currently in the clinical stage of
development:
  ·
              CYT387,
      a small molecule pyrimidine kinase inhibitor is used to develop drugs for
      the inhibition of the JAK2 enzyme. Overactive JAK2 has been implicated in
      a number of diseases, including cancers such as leukemia and lymphoma, and
      a variety of autoimmune diseases. CYT387, has recently progressed through
      FDA review and has completed the Phase I tranche of a Phase I/II trial in
      sufferers of myelofibrosis, a scarring of the bone marrow which can be
      debilitating. This trial, the first international clinical study for the
      company, is being conducted at Mayo Clinic in Rochester, Minnesota and
      will be expanded to other sites
internationally.
  ·
              NIMOTUZUMAB,
      a humanized monoclonal antibody, targeting the protein known as Epidermal
      Growth Factor Receptor (“EGFR”), is designed to treat epithelial cancers
      and to be administered prior to, simultaneously with, or subsequent to,
      chemotherapy and radiotherapy. In various Phase II trials, the drug has,
      inter alia,
      improved the reported response rate to radiation in head-and-neck tumors,
      demonstrated advantages in survival of patients over radiation or
      chemo-radiation alone, and demonstrated clinical benefit in adult and
      pediatric glioma.  The drug has reportedly been approved for
      sale in 20 countries including the People’s Republic of China (PRC),
      Brazil, Argentina, India and Mexico, variously for head and neck cancer,
      adult and pediatric glioma and nasopharangeal cancer. Certain of our
      rights to nimotuzumab have been sub-licensed to Daiichi-Sankyo Co. Ltd in
      Japan, Oncoscience AG in Europe, to Kuhnil Pharmaceutical Company for
      Korea and to Innogene Kalbiotech Ltd. of Singapore for certain Pacific-rim
      countries and certain African countries. As at June 30, 2010, there were
      eleven Phase II nimotuzumab trials being conducted by YM and these four
      licensees. In August 2009, we received an expected but important clearance
      from the US Treasury department to extend our US clinical program for
      nimotuzumab, permitting us to conduct trials in any solid tumour
      indication in the US.
  2
  ·
              CYT997,
      a small molecule microtubule polymerisation inhibitor, is being developed
      for the treatment of solid and other tumours in cancer patients. As well
      as being cytotoxic, it also acts as a vascular disrupting agent and is
      able to be administered orally as well as intravenously to patients. This
      potentially confers a competitive advantage to CYT997, allowing greater
      flexibility in dosing and patient convenience. The drug has FDA clearance
      for conducting clinical trials and in the last four years has been
      administered to approximately 60 patients in four clinical trials and
      reports on trials have been presented at ASCO 2008 and 2009. CYT997 is now
      being studied in a Phase I/II trial in patients with glioblastoma
      multiforme (advanced brain tumour).
  We also
own AeroLEF®, a
proprietary formulation of both free and liposome-encapsulated fentanyl
administered by pulmonary inhalation, that was being developed for the treatment
of severe and moderate acute pain including cancer pain.  On August 4,
2010, we announced the discontinuation of further expenditures on
AeroLEF-related activities.
  We have
three additional products licensed that are not in clinical
development. Tesmilifene, for which all development activities were terminated
in 2007, and two anti-cancer vaccines, a “TGFα vaccine” and a “HER1-targeting
vaccine” which are both licensed by CIMYM. In addition we own approximately
4,000 pre-clinical molecules resulting from our acquisition of Cytopia
and our own sponsored research. The 4,000 molecules are at different stages of
development. Certain of these have been commercialised, with Cytopia in 2006
having entered into a global joint research and licensing collaboration with
Novartis for the development of JAK3 inhibitors and in 2008 having entered into
another early stage collaboration with Cancer Therapeutics CRC Pty Ltd to
develop FAK inhibitors for the treatment of cancer. Following internal research
work by Cytopia scientists, including a three-year funded scientific project at
Cytopia for the JAK3 inhibitors, both of these programs are now primarily the
responsibility of the respective partner to take through to
evaluation.
  Another
program, designed for inhibition of the FMS kinase and the treatment of
particular tumour types including metastatic cancers, has been progressed to a
point where a partner is being sought for further development and
commercialisation.
  There are
no proposed undisclosed material transactions that have progressed to a state
where the Company believes that the likelihood of the Company completing such a
transaction is high. We continue to evaluate opportunities to amplify and
diversify our development portfolio through potential licensing,
acquisition or M&A activity.
  A
description of our principal capital expenditures and divestitures and a
description of acquisitions of material assets is found in our MD&A and in
the notes to our Financial Statements incorporated herein by
reference.
  Business
Strategy
  We are
principally focused on development of products for the treatment of cancer or
cancer-related conditions. Our strategy is to in-license rights to promising
products or acquire such products, further develop those products by conducting
and managing clinical research trials and progressing the products toward
regulatory approval and, generally, sub-license or out-license rights to
manufacture and/or market resulting drug products to other pharmaceutical firms
in exchange for royalties and license fees. We seek to use our product
development capabilities to bridge discoveries and research from
scientific/academic institutions or other biopharmaceutical companies, on the
one hand, with commercial manufacturing and marketing of biopharmaceutical
products, on the other hand.
  3
  The main
elements of our business strategy are described below:
  Identification of
Product Candidates: We directly perform scientific evaluation and market
assessment of biopharmaceutical products and research developed by
scientific/academic institutions and other biopharmaceutical companies. As part
of this process, we evaluate the related scientific research and pre-clinical
and clinical research, if any, and the intellectual property rights in such
products and research, with a view to determining the therapeutic and commercial
potential of the applicable product candidates.
  In-Licensing or
Acquisition: Upon identifying a promising biopharmaceutical product, we
seek to negotiate the acquisition of the product or the company owning the
product or license 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 or acquiring a 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, formulating or reformulating drug products, making regulatory
submissions, performing or managing clinical trials in target jurisdictions and
undertaking or managing the collection, collation and interpretation of clinical
and field data and the submission of such data to the relevant regulatory
authorities in compliance with applicable protocols and standards.
  Out-Licensing:
We generally plan to further license manufacturing and marketing rights to our
licensed products to other pharmaceutical firms. This is commonly known as
“out-licensing”. Under our business model, licensees would be expected, to the
extent necessary, to participate in the remaining clinical development required
to obtain final regulatory approval for the product. We expect that
out-licensing would result in a pharmaceutical company or other licensee
marketing or manufacturing the product in return for licensing fees in addition
to royalties on any sales of the product. Management believes this model is
consistent with current biotechnology and pharmaceutical industry licensing
practices. In addition, although out-licensing is a primary strategy of ours, we
may retain co-development or marketing rights to particular products or
territories. To date, we have out-licensed one of our products in certain
European countries, two anti-cancer pre-clinical products to two wholly-owned
subsidiaries of a US corporation, one product in Japan, one product in several
jurisdictions in South East Asia and Africa and two products in South Korea. See
“Business Overview - Licensing Arrangements - Out-Licensing”.
  We
actively search for new product opportunities using the relationships of our
management, board and advisory team and continuous monitoring of the academic
and biotechnology environment in cancer treatment developments. Our staff
analyses and evaluates opportunities and continuously reviews them. In addition,
we have rights of first refusal in one of our existing license agreements for
certain additional products and extensions to existing products. We intend to
seek other in-licensing opportunities in pursuing our business
strategy.
  Cancer And Cancer
Therapeutic Market
  According
to the International Agency for Research on Cancer (IARC), cancer remains the
leading cause of death worldwide. There were approximately 12 million new cancer
cases and seven million cancer deaths worldwide in 2008, with 20-26 million new
cases and 13-17 million deaths projected for 2030 (World Cancer Report
2008).
  Globally,
according to the World Health Organization, the cancers which cause the most
deaths are lung (1.4 million), stomach (866,000), liver (653,000), colon
(677,000) and breast (548,000). According to the American Cancer Society, it is
estimated that 1.53 million new cancer cases will be diagnosed in the US in 2010
and 569,400 will die from the disease, while in Canada, according to the
Canadian Cancer Society, there will be an estimated 173,800 new cases of cancer
and 76,200 deaths from cancer in 2010. Cancer is the second leading cause of
disease-related death in North America behind cardiovascular disease which it is
predicted to surpass in the next few years. The principal reasons for this
projection appear to be the aging population, environmental issues related to
industrial development and improvements in the treatment of cardiovascular
disease. North America, Europe and Japan are currently the principal markets for
cancer therapies because of the established healthcare and payer
systems.
  4
  Surgery,
radiation and chemotherapy remain the principal effective treatments for
cancer.  Although the reason is not clearly understood, current
chemotherapy is generally effective in a subpopulation of individuals with the
same disease.  Notwithstanding this, revenues across 15 major oncology
markets were reported by IMS Health to be approximately US$ 48.2 billion in 2008
and increased by 15-16% in 2009, and remain the largest therapeutic class by
market size. The use of cancer therapies is forecast to increase due to earlier
use in the disease process as diagnostic methods improve and as more effective
treatments are developed.
  Numerous
new approaches to cancer are currently in clinical trials. As targets become
validated and technologies improve, research is beginning to yield therapeutic
approaches that appear to be more effective than existing ones. Monoclonal
antibodies were first described in 1978 and have now become the largest market
segment within oncology with estimated global sales of US$33 billion in 2008.
The first approved (1998) in this category was Rituxan®. The Company is aware of
only six naked monoclonal antibodies approved in the US for the treatment
of cancer, Rituxan®, Campath®, Herceptin®, Avastin®, Erbitux® and Vectibix®
although many more are in development and three (Bexxar®, Zevalin® and
Mylotarg®) are immunoconjugates. A second approach to cancer treatment,
therapeutic cancer vaccines, has been under development for many years, and the
first such vaccine, Melacine®, was approved in 1999 in Canada. The first such
product to be approved in the USA, Provenge, occurred in 2010.
  Product
Portfolio
  CYT387
  Overview
  CYT387 is
a dual inhibitor of the kinases JAK1 and JAK2 in clinical development for the
treatment of myeloproliferative disorders and prospectively other diseases where
over-activity of JAK1 and JAK2 occur, such as various cancers.  See
“General Development of the Business – Intellectual Property” for a list of our
CYT patent claims.
  Product
      type
                Small
      molecule pyrimidine kinase inhibitorInitial
      Indication
                Treatment
      of myeloproliferative neoplasmsDevelopment
      Status
                International
      (PCT ) patent application filed March 2008. Patent application is in
      regional/national phase in various jurisdictions.  Maximum
      patent term ends March 2028 (subject to possible
    extension).Project
      Status
                Dosing
      in Phase I/II clinical studies commenced in November 2009; Phase I
      recruitment completion in July
2010
  Preclinical
data
  CYT387 is
a small molecule based on a pyrimidine scaffold that belongs to the class of
drugs known as kinase inhibitors. These drugs inhibit the action of enzymes
called kinases, which are known to be over-active in certain
diseases.  CYT387 selectively inhibits the kinases JAK1 and JAK2, two
kinases which are excessively active in a number of diseases including certain
cancers and myeloproliferative neoplasms (or myeloproliferative disorders) such
as polycythemia vera (PV), essential thrombocythemia (ET) and myelofibrosis
(MF).  The selectivity and potency profile of CYT387 is a clear
advantage over other JAK inhibitors currently in development.
  In
preclinical studies CYT387 has been shown to possess a favourable selectivity
and potency profile in a range of in vitro screens using both isolated enzyme
and cell-based assay systems.  In particular, using cells isolated
from patients with myeloproliferative neoplasms, CYT387 was shown to block the
action of the hyperactive JAK2 mutant enzyme present in patients with this
disease, leading to a decrease in cells possessing the disease-driving
mutation.
  5
  In an in
vivo model of myeloproliferative disorders, CYT387 was shown to effect
significant disease reversal as observed by a reduction in spleen size and a
decrease in red-blood cell production, both back to normal
levels.  Furthermore, the compound caused a return of blood cell
production to the bone marrow as well as leading to a decrease in systemic
inflammation, as measured by the decrease of certain markers (cytokines) in the
circulation.  In preclinical cancer studies, CYT387 has been shown to
decrease the proliferation of certain cancer cells and to block the action of
signalling molecules known to drive cancer cell growth.
  Clinical
Development
  CYT387
has undergone rigorous preclinical safety studies in preparation for clinical
studies in patients.  The complete preclinical data has been reviewed
by the FDA, which permitted commencement of the our clinical study in patients
with myelofibrosis.  This study is being conducted at the Mayo Clinic,
Rochester MN, USA, with Dr. Ayalew Tefferi, a recognized key opinion leader in
myeloproliferative neoplasms, as study chair.  Dosing in this study
commenced in November 2009.
  Intended
Market
  There is
an unmet medical need in the treatment of myeloproliferative neoplasms, with no
targeted therapies currently approved.  The prevalence of
myelofibrosis in the US alone is around 15,000 and with each of polycythemia
vera and essential thrombocythemia, US prevalence is close to
100,000.  This equates to a market value of US$0.5 billion but it is
now recognised as being very much a nascent market with considerable
potential.  There are only a small number of competitive JAK2/JAK1
inhibitor compounds in clinical development, and comparative preclinical studies
at Cytopia indicated that CYT387 has a competitive pharmacological
profile.
  Commercialization
Status
  Considerable
interest has been shown by pharmaceutical companies in JAK inhibitors,
particularly with their broader potential applicability for cancer and other
indications. A significant arrangement reported in November 2009 was the
out-licensing of ex-US rights by Incyte to Novartis of a JAK/12 inhibitor for
myelofibrosis and other cancers. Deal terms, which embraced a preclinical
molecule knows as a C-MET, were reportedly US$150 million up-front, US$60
million as the first milestone and further contingent development and
commercialization milestones up to a total of US$1.1 billion plus double-digit
royalties. In December 2009, Incyte reportedly licensed worldwide rights to
another JAK1/2 inhibitor for inflammatory disease indications to Eli Lilly
Corporation for US$90 million up-front and up to US$665 million in additional
development and regulatory milestones plus tiered, double-digit royalties. Onyx
Pharmaceuticals and Singapore based S*Bio announced an agreement to develop and
commercialise the S*Bio JAK2 inhibitors and in June 2010 Sanofi-Aventis acquired
TargeGen, Inc. for US$75 million up-front for a possible total of US$560 million
and double digit royalties reportedly principally for TargeGen’s JAK2
molecule.
  CYT997
  Overview
  CYT997 is
a novel, anticancer agent that belongs to the class of anticancer agents known
as the vascular disrupting agents (VDAs) which are designed to destroy
pathological blood vessels created by growing tumours.  The compound
causes these blood vessels to collapse, thereby starving the tumour mass of
oxygen and nutrients leading to tumour regression.
  Unlike
most other VDAs, CYT997 can be administered both intravenously as well as by
oral capsule or tablet doses, greatly increasing its ease of use for patients
and doctors.   The oral form of CYT997 will also allow innovative
dosing regimes whereby CYT997 may be given at a chronic, low dose to inhibit the
tumour regrowth seen post-treatment with other agents.
  Cytopia
completed a Phase I intravenous infusion study for CYT997 in September 2007 and
a Phase I oral study in December 2008.  A single-arm Phase Ib/II study
in patients with relapsed glioblastoma multiforme is currently ongoing at three
trial sites in Australia.
  6
  See
“General Development of the Business – Intellectual Property” for a list of our
CYT 997 patent claims.
  Product
      type
                Small
      molecule microtubule polymerisation inhibitor and vascular disrupting
      agentInitial
      Indication
                Treatment
      of solid tumoursDevelopment
      Status
                International
      (PCT) patent application filed December 2004. Patent granted in South
      Africa and Australia. Under examination/awaiting examination in various
      jurisdictions.  Maximum patent term ends December 2024 (subject
      to possible extension).Project
      Status
                Ph
      II
  Clinical Experience and
Development Pathway
  A variety
of cancer models have been used in order to evaluate the mechanism of action and
vascular-disrupting activity of CYT997.
  CYT997
has shown potent activity against a diverse panel of 21 different human, mouse
and rat cancer cell lines including cancer cell lines with over-expressed
resistance mechanisms.  CYT997 was shown to dose-dependently inhibit
the polymerisation of tubulin and block cancer cell division, confirming that
this molecule targeted microtubules.
  The
compound significantly reduced primary tumour burden in a number of engrafted
cancer models in mice.  Importantly, CYT997 exerted a significant
antivascular effect in tumours resulting in decreased blood flow and damage to
tumour blood vessels.  Tumour death was subsequently
observed.  The compound acts synergistically with other anticancer
agents including 5-flurouracil and cisplatin.
  CYT997
entered a formal clinical-trial enabling toxicology programme in
2004.  These studies indicated that the drug is generally well
tolerated with anticancer activity evident at doses below a maximum tolerated
dose.
  (a)
              Phase I intravenous infusion
      study
  Dosing in
this study concluded in September 2007.
  The
primary objectives of this study were to investigate the safety and tolerability
of CYT997 when administered as a 24 hour infusion every three weeks to advanced
cancer patients with a diverse range of solid tumours.  Secondary
objectives included the determination of CYT997 pharmacokinetics; the
determination of dose-limiting toxicities (DLTs) and the recommended dose for
future studies.
  In total,
31 patients with diverse advanced solid tumours were treated in this
study.  A total of 98 cycles of CYT997 were administered over 12 dose
levels (7 - 358 mg/m2).
  Approximately
80% of patients achieved stable disease of six or more weeks' duration as a best
response.  However, there were no complete or partial responses in
tumour size for the 22 evaluable study participants.  Seven patients
completed six cycles (approximately 4.5 months) of CYT997 therapy and two
patients continued to receive CYT997 after leaving the clinical
study.  These patients experienced disease stabilisation for a period
in excess of five months.
  CYT997
dihydrochloride doses up to 202 mg/m2 were generally well tolerated.
Dose-limiting toxicities observed at higher doses included two Grade 3 QTc
prolongation events in two patients and a Grade 4 dyspnoea in one other
patient.  All toxicities were reversible.
  7
  Magnetic
resonance imaging (MRI) of patient tumours was conducted in 11
patients.  Seven of these subjects experienced significant alterations
in tumour blood perfusion suggestive of an antivascular effect by
CYT997.  Other markers of antivascular activity were also
significantly altered in some patients.
  CYT997
pharmacokinetic parameters were dose-linear across the thirty-fold dosing
range.
  Data from
this study therefore suggests that CYT997 disrupted tumour vasculature and
showed preliminary evidence of anti-tumour activity at doses that were well
tolerated by patients. The recommended dose for further clinical evaluation was
202mg/m2.
  (b)
              Phase I oral capsule
      study
  Dosing in
this study concluded in December 2008.
  The
primary objectives of the study were to establish the dose-limiting toxicities
(DLTs) and maximum tolerated dose (MTD) of CYT997 given as an oral capsule
dose.  Secondary objectives included the determination of CYT997
pharmacokinetics; the determination of dose-limiting toxicities (DLTs) and the
recommended dose for future studies.
  In total,
21 patients were treated with a total of 56 cycles of CYT997 over 8 dose levels
(15 - 164 mg/m2).   No objective responses were observed however
extended disease stabilisation of greater than six weeks was noted in 12
patients.  Dose-limiting toxicities of a Grade 4 pulmonary sepsis
resulting in patient death in one patient and two Grade 3/4 asthenic (fatigue)
events in two other patients were observed.
  Significant
alterations in tumour blood perfusion were observed by MRI in eight of the nine
patients evaluated by this method.  Further pharmacodynamic analysis
is currently ongoing.
  Pharmacokinetic
analysis suggested that maximal plasma concentrations following oral
administration of CYT997 exceeded those observed at comparable doses following
intravenous infusion.
  The
findings of this clinical trial suggest that CYT997 exerts an antivascular
effect when administered orally.  Data from this study will be used to
guide future clinical development of the oral form of the compound.
  (c)
              Phase Ib/II single-arm study
      in relapsed glioblastoma
multiforme
  The
primary objectives of the study are to assess the safety and tolerability of
escalating doses of CYT997 when given in combination with standard carboplatin
therapy (Phase Ib component) and estimate the progression-free survival at 6
months (PFS-6) utilising the dose of CYT997 identified in the Phase Ib component
of this study (Phase II component).
  Dosing in
this study is currently ongoing at three clinical centres in Australia, with a
fourth Australian centre also having opened for enrolment.  The
company is currently finalising regulatory documentation to support the addition
of one or more clinical centres in the United Kingdom early in
2010.
  Data from
the Phase Ib portion of the study is expected in the first half of 2010, with
Phase II data following in the first half of 2011.
  (d)
              Phase II single-arm study in
      relapsed multiple myeloma
  Dosing in
this study has been suspended in Australia pending review of foreign clinical
sites.
  The
primary objective of this study was to determine the overall response rate to
CYT997 therapy using World Health Organisation (WHO) criteria. Secondary
objectives include estimation of the time-to-progression, number of cycles of
CYT997 required to achieve maximal response, overall survival and safety and
tolerability.
  8
  Potential
market
  Cytotoxic
agents and hormonal therapies are among the recognised treatments for
cancer.  The identification of effective therapeutics to treat cancer
continues to be challenging.  Over the next decade however, it is
expected that advances in pharmacotherapy of cancer will come not only from
improvements in the traditional classes of therapies, but also from the
introduction of innovative therapies that display improved efficacy and toxicity
through a more targeted and innovative approach to tumour ablation.
  VDAs such
as CYT997 have conceptual applicability in any tumour mass which has established
its own vascular system for continued growth.   Using
antiangiogenesis agents such as Avastin as a guide would suggest that VDAs could
capture a market worth many billions of dollars annually.
  Commercial
interest by pharmaceutical companies for VDAs can also be drawn from the 2007
license by Novartis for Antisoma’s intravenous VDA, vadimezan (ASA404;
DMXAA).  Reportedly, this license, which included an upfront payment
of US$75 million, would total approximately US$890 million upon
commercialization.  In 2010, vadimezan, with a materially different
mode of action to CYT997, failed in a pivotal Phase III trial in NSCLC with
intravenous administration but vascular disruption remains of high investigative
interest.
  CYT997
has the potential for broader utility and market penetration than the VDAs
currently in development given its oral availability which is absent in the
majority of other antivascular compounds.
  Nimotuzumab
  Overview
  Nimotuzumab
is a humanized MAb targeting the EGF receptor (EGFR). The EGFR is present in
high concentrations on the surface of many cancer cells and it is postulated
that the binding of ligands to this receptor is important in the continuing
growth of cancer cells. Nimotuzumab appears to block this binding resulting in
the potential for inhibition of cell growth or, possibly, cell destruction by
the immune system. Improved tumor responses or clinical benefit have been
reported when EGFR targeting agents are combined with other anti-cancer
treatments. Our EGFR MAb is being developed to be administered alone, or in
combination with other anti-cancer treatments.
  Clinical Experience and
Development Pathway
  Nimotuzumab
is reported to have been administered to approximately 11,000 cancer patients
worldwide and shown to be well tolerated. The product has been cleared for use
in numerous clinical trials by various regulatory agencies including the EMA,
Health Canada and the FDA. Nimotuzumab has reportedly been approved for sale for
the treatment of certain cancers in 20 countries including Argentina, Brazil,
China, India, Mexico and the Philippines. Trials that were or are being
conducted with the drug include:
  (a)
              Phase
      I safety and PK/PD trial in 12 patients with epithelial-derived cancers
      conducted by CIMAB and completed in
2004.
  (b)
              Phase
      I PK/PD trial in 10 patients with locally advanced, unresectable head and
      neck cancers receiving nimotuzumab + radiation, conducted by CIMAB. The
      study was completed in 2005
  (c)
              Phase
      I PD study by CIMYM in heavily pre-treated patients with solid tumors. The
      study investigated EGFR-related signalling in tumor and skin biopsies
      before and after treatment with 100, 200, 400 and 800 mg doses of
      nimotuzumab. Of the 16 evaluable patients enrolled in the trial, confirmed
      stable disease was reported in six patients, a confirmed partial response
      in one patient and prolonged progression-free status observed in three
      patients. The study was completed in
2006.
  (d)
              Phase
      I clinical trial of nimotuzumab monotherapy for the treatment of solid
      tumors conducted by Daiichi Sankyo Inc. in Japan, in 13 patients with
      various solid tumors to evaluate the safety of nimotuzumab in the Japanese
      population. The best response was stable disease in 11 of the 13 patients.
      There were no SAEs. The study was completed in
  2007.
  9
  (e)
              Phase
      I trial in metastatic pancreatic cancer in combination with chemotherapy
      to study PD conducted by Oncoscience. The study included six patients. The
      study was completed in 2007.
  (f)
              Phase
      I safety, PK/PD and MTD trial in 13 patients with stage III breast cancer
      receiving nimotuzumab and chemotherapy, conducted by CIMAB. The study was
      completed in 2008.
  (g)
              Phase
      I safety, PK/PD and MTD trial of nimotuzumab + chemotherapy in up to 15
      patients with transarterial immunochemoembolization in hepatocellular
      carcinoma conducted by CIMAB; enrolment has
  completed.
  (h)
              Phase
      I/II trial in patients with locally advanced, unresectable head and neck
      cancers conducted by CIMAB enrolled 24 fully evaluable patients receiving
      nimotuzumab with radiation. This trial demonstrated a greater than 60%
      response rate compared to approximately 30% response rate historically
      expected with radiation alone. The study was completed in
      2004.
  (i)
              Phase
      I/II trial in Canada and Korea in patients with stage IIb, III and IV
      NSCLC, who are not sufficiently fit to tolerate the standard chemotherapy
      regimen, conducted by CIMYM and Kuhnil Pharmaceutical Co., Ltd. The study
      was designed to assess safety, response rate and survival in these
      patients.  The study was completed in 2008 with 18 and 16
      patients enrolled in Canada and Korea
  respectively.
  (j)
              Phase
      I/II safety, PK/PD and MTD trial of nimotuzumab plus chemotherapy in up to
      15 patients with liver metastasis from colorectal cancer conducted by
      CIMAB. The study is ongoing, with two patients included up to June
      2010.
  (k)
              Phase
      II clinical trial in patients with locally advanced head and neck cancer
      conducted by CIMYM, designed to evaluate safety and efficacy in this
      indication. The study was completed in 2003. Complete tumor response was
      observed in 17 out of 24 evaluable patients. In 2008 12 patients were
      still alive.
  (l)
              Phase
      II pivotal trial conducted by CIMAB and Biotech Pharmaceuticals Limited
      (China) assessing efficacy and safety of nimotuzumab combined with
      radiation compared to radiation alone in locally advanced Stage III-IV
      nasopharyngeal carcinoma, a subset of head-and-neck cancer.  The
      study of 137 patients was completed in 2005 and showed a 90.6 % response
      rate in the combination arm versus a 51.5% in the radiation-alone
      group.
  (m)
              Phase
      II randomized, four-arm safety and efficacy trial in 92 patients with
      locally advanced head and neck cancers comparing nimotuzumab +
      chemotherapy + radiation to chemotherapy + radiation and nimotuzumab +
      radiation to radiation alone, conducted by Biocon Ltd. The study was
      completed in 2005 and demonstrated a 90 % response rate in 76 evaluable
      patients.
  (n)
              Phase
      II study in first-line high grade gliomas of 24 adult patients, to
      evaluate efficacy and safety of nimotuzumab in combination with
      radiotherapy. This study was conducted by CIMAB and completed in 2005,
      demonstrating an objective response-rate of
  37.9%.
  (o)
              Phase
      II study in pediatric patients with progressive high grade gliomas
      conducted by Oncoscience. The trial demonstrated a 38% clinical benefit
      rate in 45 evaluable patients. This included two partial responses in a
      patient population where no such responses had previously been
      documented.  The study was completed in
  2006.
  (p)
              Phase
      II, randomized clinical trial in metastatic pancreatic cancer in
      combination with chemotherapy for evaluating dose escalation, PK, safety,
      conducted by Oncoscience. The study was completed in 2006 with 56
      patients.
  10
  (q)
              Phase
      II/III randomized trial in patients with locally advanced head and neck
      cancers conducted by CIMAB. The study was designed to assess local
      control, safety and survival in 112 patients receiving either nimotuzumab
      + radiation or radiation alone. The study was completed in 2007 and ITT
      results showed a CR of 59.5 % and median survival time of 12.5
      months.
  (r)
              Phase
      II randomized trial of nimotuzumab + radiation vs. radiation alone in 30
      patients with brain metastases from NSCLC, to evaluate efficacy and
      quality of life, conducted by CIMAB. The study is ongoing with 31 patients
      included up to July 2009. As of June 2010, enrolment is complete and
      patients are in follow-up.
  (s)
              Phase
      II trial investigating nimotuzumab in colorectal cancer patients who have
      failed previous irinotecan-containing regimens. The single-arm trial
      conducted by CIMYM enrolled 61 patients in Canada who were treated with
      irinotecan plus nimotuzumab. The study was completed in
      2008.  There were fifty-eight evaluable patients. Results were
      ITT populations (n=61), ORR 1.6%, PFS 2.3 months, median OS 6.1
      months.
  (t)
              Phase
      II randomized trial of nimotuzumab + chemotherapy vs. chemotherapy alone
      designed to evaluate efficacy and safety in 70 patients with hormone
      refractory prostate cancers, conducted by CIMAB.  The enrolment
      was completed by July 2009. As of July 2009 there were 56/70 evaluable
      patients. The median survival time was 14 months in the nimotuzumab arm vs
      8.77 months in the control arm. Survival rate at 12 months was 55% in the
      nimotuzumab arm vs 39% in the control
arm.
  (u)
              Phase
      II randomized trial of nimotuzumab + radiation + chemotherapy vs.
      radiation + chemotherapy designed to evaluate efficacy and safety in 68
      patients with esophageal cancers, conducted by CIMAB.  Enrolment
      in this study was completed in 2008 with 68
  patients.
  (v)
              Phase
      II randomized trial of nimotuzumab + radiation vs. radiation alone in 80
      patients with high grade malignancy astrocytic tumors conducted by CIMAB.
      The study is designed to assess survival, local control and safety. The
      study is ongoing, with 74 patients included up to June
    2010.
  (w)
              Phase
      II trial investigating nimotuzumab in pediatric patients with recurrent
      diffuse intrinsic pontine glioma (DIPG), a form of inoperable,
      treatment-resistant brain cancer. This study is being conducted by YM
      BioSciences USA Inc. and includes leading US pediatric clinical centers.
      The single-arm trial will enrol 44 patients with DIPG who will be treated
      with nimotuzumab as monotherapy.  The study is ongoing and
      enrolment is complete with 46 patients (44 evaluable) include up to June
      2010 (35 US, 7 Canada, 4 Israel).
  (x)
              Phase
      II pediatric trial with first-line brain stem glioma conducted by CIMAB
      using monotherapy with nimotuzumab to evaluate survival, local control and
      safety. The study is ongoing. The study will enrol 40 patients and has 15
      patients included up to June 2010.
  (y)
              Phase
      II/III trial, induction and maintenance therapy in combination with
      radiotherapy and temozolomide in 58 patients with glioblastoma multiforme
      (Grade 4 astrocytoma). It is an evaluation of efficacy and safety. The
      study is complete with 56 patients enrolled (51 evaluable). Concomitant
      phase (34): 11 PR, 34 SD, 3 PD. Adjuvant phase: 5 PR, 20 SD,
      3PD.
  (z)
              Phase
      II study in 37 patients with locally advanced, non-resectable
      SCCHN.  The study is ongoing. The study is being conducted by
      the National Cancer Center of Singapore and supported by Innogene
      Kalbiotech. It is non-randomised, nimotuzumab plus
      chemoradiation.  The study will evaluate response rates as
      primary endpoint and progression-free
      survival and toxicity as secondaries. There were 20 patients included up
      to June 2010.
  (aa)
              Phase II randomized trial,
      utilizing nimotuzumab in combination with chemotherapy
      in  patients with Stage IIIb/IV non-small cell lung cancer
      (NSCLC), conducted by Biocon Ltd., to evaluate efficacy and safety. The
      enrolment in this study is completed with 110 patients. Follow-up for
      survival will continue until the end of two
  years.
  11
  (bb)
              Phase
      II double-blinded, randomized study in brain metastases from
      non-small-cell lung cancer conducted by CIMYM. The study is due to include
      88 patients and was initiated in March 2009. As of August 2010, 17
      patients have been enrolled.
  (cc)
              Phase
      II double-blinded, randomized study on non-small-cell lung cancer
      ineligible for radical chemotherapy conducted by CIMYM. The study will
      enrol was 128 patients and was initiated in March 2009. As of August 2010,
      45 patients have been enrolled.
  (dd)
              Phase
      II study in Stage III uterine cervix initiated in April 2009 by Innogene
      Kalbiotech with 39/71 patients included up to June
  2010.
  (ee)
              Phase
      II clinical trial of advanced recurrent gastric cancer refractory to 5FU
      (2nd line) being conducted by Daiichi Sankyo in Japan and Kuhnil in Korea.
      The study is ongoing, enrolment is complete in Korea and Japan with 40 and
      43 patients respectively as of June
2010.
  (ff)
              Phase
      II trial evaluating nimotuzumab in combination with radiation
      therapy/cisplatin/vinorelbine in patients with Stage III non-small-cell
      lung cancer (NSCLC) conducted by Daiichi Sankyo in Japan was initiated in
      June 2009. As of June 2010 enrolment is complete with 39
      patients.
  (gg)
              Phase
      II study in esophageal tumors for the use of nimotuzumab in combination
      with chemoradiotherapy initiated enrolment in 2009 by Eurofarma in Brazil
      and has 21 patients enrolled up to June
2010.
  (hh)
              Phase
      IIb/IIIa study in 188 patients with locally advanced or metastatic
      pancreatic cancer treated with either gemcitabine plus nimotuzumab or
      gemcitabine plus placebo conducted by Oncoscience.  The primary
      end-points for this trial are time to tumor progression and overall
      survival with quality of life and response rate among the secondary
      endpoints. There were 98 patients included up to June
  2010.
  (ii)
              Phase
      III single arm first line pediatric trial of nimotuzumab in combination
      with radiation in 40 patients newly diagnosed with DIPG. The trial was
      conducted by Oncoscience in several European countries and intended to
      serve as a registration trial in EMA countries. Enrolment was completed in
      2007.  Median progression free survival was reported as 5.9
      months, median overall survival was 9.7
months.
  (jj)
              Phase
      III study in which nimotuzumab and the current standard of care is
      compared to the current standard of care in 148 patients with glioblastoma
      multiforme (GBM), conducted by Oncoscience. The primary end-point for this
      first-line trial is progression-free survival with response rate and
      symptom control among the secondary endpoints. The study is ongoing,
      enrolment is comlete with 149 patients as of June
  2010.
  (kk)
              Phase
      III trial of post-operative adjuvant concurrent chemoradiotherapy (CTRT)
      with or without nimotuzumab in SCCHN is being conducted by the National
      Cancer Center of Singapore and supported by Innogene Kalbiotech and is
      planning to enrol 710 patients. As of June 2010 nine patients have been
      enrolled.
  (ll)
              Phase
      III study in 168 patients with cervical cancer, combining nimotuzumab and
      Cisplatin + vinorelbine to placebo was initiated in Mexico by Laboratorios
      PISA in 2009. As of June 2010 five patients have been
      enrolled.
  (mm)
              Phase
      IV study in head and neck cancers. Post-marketing study conducted by
      Biocon Biopharm Pvt.Ltd. on the use of nimotuzumab plus chemoradiotherapy.
      Enrolment was completed in 2009 with 150 patients. The study is complete
      and only two patients (1.3%) developed rash related to the
      antibody.
  12
  (nn)
              Phase
      IV study in advanced stage SCCHN in combination with radiochemotherapy
      conducted by CIMAB to enrol 300 patients, 221 patients enrolled up to June
      2010.
  (oo)
              Phase
      IVstudy  in glioma patients in combination with radiotherapy
      conducted by CIMAB to enrol 100 patients, 80 patients enrolled up to June
      2010.
  (pp)
              Eight
      investigator-sponsored clinical trials in India in several applications
      including head and neck, NSCLC, prostate, gliomas, cervix, CRC and other
      tumors with 190 patients treated up to July
  2009.
  (qq)
              An
      Expanded Access Program in Cuba, managed by CIMAB with 1029 patients
      treated up to July 2009.
  (rr)
              Expanded
      Access or equivalent programs are underway in Europe, Australia and
      Canada. Three patients have been treated in investigator-initiated or
      compassionate trials in Australia, 42 under the Expanded Access protocol
      in the US. An Expanded Access Program was launched during 2008 in Canada
      with seven patients treated up to August 2010. Also three patients have
      been treated under a similar program in
Israel.
  Several
more trials are in planning stage but have not yet received regulatory
clearances.
  Regulatory
Matters
  In July
2004, nimotuzumab was designated an orphan drug for glioma by EMA.
  In
November 2004, nimotuzumab was designated an orphan drug for glioma by the FDA
in the US.
  In
September 2006, YM USA received a Special License from OFAC for the importation
of nimotuzumab for a US trial in pediatric pontine glioma.
  In
October 2007, we were advised that an application for marketing approval for
nimotuzumab was submitted to EMA.
  In March
2008, a Withdrawal Assessment Report on the withdrawal by the applicant of an
application for marketing approval for nimotuzumab to the EMA was published by
the EMA citing that the benefit/risk balance for the drug in that application
was negative.
  In June
2008, we were advised that nimotuzumab was designated an orphan drug for
pancreatic cancer by EMA.
  In August
2009, we received an expected but important clearance from the US Treasury
Department to extend our US clinical program for nimotuzumab, permitting us to
conduct trials in any solid tumor indication.
  13
 Dates on
which we are informed nimotuzumab received marketing approval in various
jurisdictions:
 Date
                
                Country
                
                IndicationFebruary
      2002
                
                Cuba
                
                Head
      and neckApril
      2005
                
                China
                
                Nasopharyngeal
      carcinomasApril
      2005
                
                Colombia
                
                Head
      and neckMay
      2006
                
                Argentina
                
                Head
      and neck and gliomaJune
      2006
                
                India
                
                Head
      and neckApril
      2007
                
                Cuba
                
                Refractory
      pediatric gliomaJuly
      2007
                
                Peru
                
                Head
      and neckSeptember
      2007
                
                Ukraine
                
                Head
      and neck, refractory pediatric glioma and adult gliomaOctober
      2007
                
                Cuba
                
                Adult
      gliomaOctober
      2007
                
                Ivory
      Coast
                
                Head
      and neckNovember
      2007
                
                Gabon
                
                Head
      and neckJune
      2008
                
                Guinea
      Conakry
                
                Head
      and neckJuly
      2008
                
                Paraguay
                
                Head
      and neckAugust
      2008
                
                Philippines
                
                Head
      and neck, refractory pediatric glioma and adult gliomaSeptember
      2008
                
                Sri
      Lanka
                
                Head
      and neckNovember
      2008
                
                Indonesia
                
                Refractory
      pediatric glioma and adult gliomaNovember
      2008
                
                Mauritania
                
                GliomaJanuary
      2009
                
                Cambodia
                
                Head
      and neckMarch
      2009
                
                Brazil
                
                Refractory
      pediatric gliomaMay
      2009
                
                Vietnam
                
                Head
      and neckJuly
      2009
                
                Algeria
                
                Head
      and neckJuly
      2009
                
                Venezuela
                
                Head
      and neckSeptember
      2009
                
                Mexico
                
                Head
      and neck, refractory pediatric glioma and adult gliomaOctober
      2010
                
                Cuba
                
                Esophageal
 
 Manufacturing
  CIMAB
supplies nimotuzumab to facilitate the clinical development of these products
and manufactures product for commercialization in certain countries in which it
is approved for sale. Other manufacturing occurs at BBPL, a subsidiary of Biocon
in Bangalore, India and at Biotech Biopharmaceuticals in Beijing, China. The
latter sites do not supply CIMYM. The CIMYM license agreement with CIMAB
requires that CIMAB will manufacture and supply, or will contract for the
manufacture and supply of, commercial quantities of nimotuzumab in accordance
with the then-current licensing agreements at such time and stage of product
development as commercial quantities of these products are required. There is a
risk that CIMAB may experience difficulties producing or obtaining commercially
viable quantities of these products. Product from CIMAB’s manufacturing plant
has been cleared for use in clinical trials in Canada, Europe, the USA and Japan
amongst others. Recent reports on inspections of the manufacturing plant by
Qualified Persons confirmed that the plant operates according to GMP
principles.  In addition the facility was inspected and approved by
the Paul Erlich Institute (PEI) that is responsible for approvals of biological
manufacturing facilities in Germany. The PEI approval included 300, 500 and 1000
litre fermenters and covered a period of two years that expired in January 2009,
following which two inspections by Qualified Persons declared the facilities to
be in accordance with GMP principles. In 2007, CIMAB’s manufacturing process was
accepted by Health Canada as a suitable scale for commercial manufacturing.
Manufacturing is being scaled up to support expansion of clinical activity and
processes being improved to support commercial supplies in CIMYM’s
territory.
  CIMAB, or
a supplier contracted by CIMAB, manufactures and supplies the product to CIMYM .
Should CIMAB agree to alternative manufacturing arrangements, such as a
sub-licensee of CIMYM manufacturing the product, the loss of manufacturing
benefits to CIMAB may be reflected in a lower license fee and royalty payable to
CIMYM than if manufacturing remains with CIMAB. See “Business - Licensing
Arrangements”.
  Marketing
  Nimotuzumab
is licensed by us from a Cuban source, CIMAB, and as such is likely to be
prohibited from sale in the US unless OFAC issues a license or the US embargo
against Cuba is lifted. YM USA has received a Special License from OFAC to
import nimotuzumab for clinical trials, three of which have been cleared by the
FDA and are ongoing. YM USA made an application to OFAC for a license to
commercialize nimotuzumab in the US and the proposed terms are under review by
the relevant agencies of both the US and Cuban governments.
  14
  Intellectual
Property
  CIMYM is
the exclusive licensee for a number of territories, including the
US.  The patent estate includes coverage for the composition of
matter, claiming the amino acid sequence of nimotuzumab and variants thereof and
end-uses in the treatment of EGFR-dependent cancers.  Patents are
granted in the US, Europe, Canada and Japan. The patents US5,891,966 and
US6,506,883 expire November 2015, and term extensions of up to five years may be
available under the Patent Term Restoration Act. The same term and extension
apply also to the key European patent, EP712863.
  We are
aware of US5,770,195, a patent granted to Genentech, for the anti-cancer use of
EGFR MAbs in combination with a cytotoxic agent. We are also aware of US patents
granted to others in this field. In April 2001 Rorer International (Overseas)
(“Rorer”) was issued US6,217,866 (the “866 patent”) which includes claims to any
antibody targeting the EGFR administered with any anti-neoplastic agent. We
believe that the Rorer patents were exclusively licensed to ImClone (now Eli
Lilly and Company). A counterpart patent has been granted in Europe. We have
filed an opposition to the grant of the European patent. The opposition
proceedings in Europe were suspended pending the outcome of cases in the U.K.
and Germany related to inventorship claims filed by Yeda Research and
Development Corporation, Ltd. (“Yeda”). Those cases have culminated in a title
transfer to the current co-owners, Yeda and Aventis (the successor of Rorer). We
do not know when the opposition proceedings against that European patent will
resume. On the related US patent a September 19, 2006 decision in the US
District Court of Southern New York granted sole inventorship of the 866 patent
to scientists from Weizmann Institute of Science (Rehovet, Israel) represented
by Yeda.  Yeda now has the right to grant, and has granted,
non-exclusive licenses in the US.  In addition, we are aware of a
separate series of national patent applications filed by ImClone, and
represented by EP1080113, claiming the anti-cancer use of radiation in
combination with any inhibitor of any receptor tyrosine kinase that is involved
in the genesis of tumors.  In Europe and Canada, this ImClone
application has been withdrawn in response to prior art brought to the attention
of the respective patent examiners by YM.  YM continues to monitor
counterpart applications filed in Japan and in the United States. ImClone also
filed US and PCT applications covering the use of EGFR MAbs to treat patients
having tumors that are refractory to treatment with conventional therapies. We
continue to monitor ImClone’s pending patent applications.  We plan on
vigorously challenging ImClone’s claims in respect of any patent applications
that are material to our business.  The outcome of these challenges cannot
be predicted and there can be no assurance that we will succeed in challenging
the validity or scope of patent claims by ImClone or any other patent
applicant.   If our challenges are not successful, this may have a
material adverse effect on our business. We are also aware of a European patent,
EP1058562, granted to the University of Pennsylvania and relating to
compositions and methods for treating tumors. YM’s European licensee,
OncoScience, and others have filed oppositions to the grant of this
patent.  The European opposition board has recently provided the
preliminary view that the Pennsylvania claims are patentable in amended
form.  YM believes that OncoScience intends to file objections to this
position and to attend an oral hearing on the matter to be held in November of
2010.
  The
manufacturing of nimotuzumab may fall within the scope of process patents owned
by PDL BioPharma Inc., Genentech and the Medical Research Council of the United
Kingdom.  We are aware that some of these process patents are
currently being challenged by companies other than us. In the event any of the
applicable process patents are upheld, we believe we will be able to obtain
licenses under such patents on commercially reasonable terms, though there can
be no assurance of this.
  Certain
of the US patents for nimotuzumab licensed to CIMYM have become subject to a
lien in the United States, pursuant to a court order, to a third party. The lien
is a consequence of a dispute unrelated to either YM or CIM.  Counsel
has advised the Company that the lien does not affect the exclusive,
royalty-free license for nimotuzumab issued by CIMAB to CIMYM for numerous
territories, including the United States. None of the international patents for
nimotuzumab for which YM is licensed are affected. The lien against the two
patents, which were issued by the US Patent and Trademark Office to CIM, appear
to form part of an award resulting in liens against approximately 60 patents
from a number of scientific institutes assigned to that third party by a court
in Miami, Florida. The liens have no relation to the US embargo against Cuba and
result specifically from a civil suit brought to seek compensation for a
plaintiff in a matter unrelated to these patents. The lien is against the
patents which are already subject to the license to YM's subsidiary, may solely
affect the rights of CIMAB to benefit from the patents, and, consequently, this
situation is not expected to be material to us. We are advised that CIM has
mounted a vigorous defence against its patents being the subject of an award for
matters unrelated to CIM.
  15
  Competitive
Position
  To our
knowledge, other companies that are involved in the development of monoclonal
antibody cancer therapeutics directly related to our efforts include Amgen,
Genmab, ImClone/BMS and Merck KGaA, amongst others.
  We
understand that OSI, in concert with Genentech, Roche and AstraZeneca, have
small molecules designed to target the tyrosine kinase domains of EGF
receptors.
  We
understand that Iressa®, previously approved as third line monotherapy in
locally advanced or metastatic NSCLC, is undergoing a revision of registration
in various countries. In Europe, the EMA recently approved Iressa® for the
treatment of locally advanced or metastatic NSCLC with activating mutations of
EGFR across all lines of therapy. The situation is the US is unclear, but
management believes it is likely that Iressa® will be/has been refiled in the US
for use in patients with the activating mutation. Since 2005, the FDA has
severely restricted access to Iressa® due to failure to show survival
improvements following the drug’s registration under accelerated
approval.
  OSI
reported that it has positive survival data in a Phase III monotherapy study in
refractory lung cancer. Tarceva® monotherapy is now approved for the
treatment of patients with locally advanced or metastatic NSCLC. In
addition, Tarceva® in combination with gemcitabine is approved for the
first-line treatment of patients with locally advanced, unresectable or
metastatic pancreatic cancer. Tarceva® also recently won FDA and European Union
approval as a monotherapy maintenance treatment in patients with advanced NSCLC
with stable disease after platinum-based initial chemotherapy.
  OSI’s
product, Tarceva®, is in co-development with Roche and Genentech and is reported
to be in numerous trials in various indications, including Phase III trials
in ovarian cancer, colorectal cancer, hepatocellular cancer, head and neck
cancer, NSCLC (1st line and adjuvant) and metastasis of the brain. See
“Competition”.
  We
understand that Erbitux®, developed by ImClone/BMS and Merck, is approved in the
US, Canada, Japan, Germany, Austria, Australia, Switzerland and numerous other
jurisdictions for metastatic colorectal cancer in combination with irinotecan in
irinotecan-refractory patients, in locally or regionally advanced squamous cell
carcinoma of the head and neck in combination with radiation therapy, and in the
US for secondline therapy in squamous cell carcinoma of the head and neck
progressing after platinum-based therapy. Erbitux® is approved in the US for
advanced NSCLC but the marketing application was rejected by the EMA. In a
recent study in patients with earlier stage colorectal cancer, Erbitux® failed
to prevent cancer recurrence compared with chemotherapy alone. Erbitux® is being
further developed in other indications, and management believes it is reasonable
to expect that the drug will be registered for additional indications in the
future.
  We
understand that Vectibix®, developed by Amgen, is approved for third line
monotherapy in colorectal cancer in irinotecan-refractory patients, and in
Europe for the same indication but restricted to patients with the wild-type
KRAS gene.
  We
understand that the market for Erbitux® and Vectibix® has recently been further
restricted in the US in colorectal cancer to patients with the wild-type KRAS
gene.
  16
  Licensing
Arrangements
  In-Licensing
  Licenses for CYT997 and
CYT387
  The
principal intellectual property claims for CYT997 and CYT387 are owned, not
licensed, although patent families have been in-licensed from the Research
Foundation of State University of New York (“SUNY”) relating to the use of JAK2
inhibitors to treat cardiovascular conditions, and from the Ludwig Institute for
Cancer Research relating to the JAK2 enzyme and gene, and JAK2 antibodies. The
Ludwig license is exclusive and was subject to cash payments that have already
been made. The SUNY license also is exclusive, and worldwide, and is subject to
certain payments based on achievement of clinical milestones, and a royalty on
net sales of product in the field covered by the SUNY patients. See “General
Development of the Business – Intellectual property”.
  Licenses for
Nimotuzumab
  In May
1995, YM acquired an exclusive, sub-licensable license (as amended, the “1995
CIMYM License”) from CIMAB, acting on behalf of CIM, to products for passive
immunotherapy of cancer directed toward EGF and EGFR as targets, including hR3,
a humanized MAb targeting the EGFR. CIMAB is the company responsible for the
commercialization of products developed at CIM. The 1995 CIMYM License is in
respect of Europe, Canada, the US, Japan, Australia, Taiwan, Singapore,
Thailand, Hong Kong, South Korea, Malaysia, Indonesia and the Philippines. As a
term of the 1995 CIMYM License, YM has a right of first refusal with respect to
licensing any other products derived from the EGF and EGFR programs of CIMAB
except its anti-EGFR monoclonal antibody for psoriasis in Europe.
  Pursuant
to the 1995 CIMYM License, in 1995 we incorporated CIMYM and assigned the 1995
CIMYM License to CIMYM. Pursuant to the terms of the 1995 CIMYM License, CIMAB
acquired a 20% equity interest in CIMYM as partial consideration for the 1995
CIMYM License. In addition, YM and CIMYM, pursuant to the terms of the 1995
CIMYM License, paid US$2,750,000 for certain product development costs for
nimotuzumab and US$330,000 for certain product development costs for
RadioTheraCIM.
  The terms
of the 1995 CIMYM License provide for CIMYM to conduct or cause to be conducted
pre-clinical and clinical trials to evaluate the licensed products and to work
with CIMAB to select sites, develop protocols and instruct investigators for
pre-clinical and clinical trials. CIMYM is to decide after the end of each stage
of trials whether to proceed with further development or to terminate the 1995
CIMYM License with respect to that product. In addition, the 1995 CIMYM License
provides that, where commercially reasonable, CIMYM shall file applications for
regulatory approval to market the licensed products in the applicable territory.
Pursuant to the 1995 CIMYM License, CIMAB has the right, subject to certain
terms and conditions, to supply the related drug substances (i.e., nimotuzumab)
for commercial sale. CIMAB shall sell the product manufactured by it in Cuba to
CIMYM at 85% of the sales price that CIMYM sets for the sale of the product to
sub-licensees, thereby entitling CIMYM to the 15% difference. CIMYM shall use
its best efforts to obtain a sub-license agreement in which CIMAB retains the
right to manufacture the product. YM will be responsible for any failure of
CIMYM to fulfill its obligations under the 1995 CIMYM License. This license
agreement shall be in force as long as any patents thereunder are valid, or
until such time as the license agreement is terminated by either party because
of a default by the other party, or by CIMYM with written notice within 90 days
after the end of a stage of pre-clinical trials or after each stage of clinical
trials.
  As at
June 30, 2010 we had advanced $69 million to CIMYM for the licensing and
development of the products licensed by CIMYM. We have the right to recover all
funds advanced to CIMYM. To the extent that the net revenues of CIMYM are less
than or equal to the advanced amounts, we are entitled to recover such advances
from 30% of the net revenues. These advances have been repaid from license fees
paid by the licensees in Japan, Indonesia and Korea.
  17
  On June
30, 2006 CIMYM amalgamated with CIMYM (Barbados) to form CIMYM BioSciences Inc.,
an Ontario company. CIMAB owns a 20% equity interest in CIMYM BioSciences and is
entitled to receive 10% of net revenues received by CIMYM.  We have
agreed to negotiate in good faith a further 10% equity interest in CIMYM
BioSciences to CIMAB such that we would then own a 70% equity interest and CIMAB
would own a 30% equity interest in CIMYM BioSciences. Such a change in the
equity holdings would not affect the current economics of the
license.
  Nimotuzumab
  On
November 12, 2003, our subsidiary, CIMYM, licensed the rights for nimotuzumab
(known as “Theraloc” in Europe) in most of Europe to
Oncoscience.  Under the terms of the agreement, CIMYM is entitled to
receive up to US$30 million as a share of any amounts received by Oncoscience in
relation to development or sublicensing of the product and as a royalty on
initial net sales. After CIMYM has received US$30 million, CIMYM continues to
receive royalties on net sales but at a lesser percentage. Oncoscience has
agreed to use diligent and reasonable efforts to develop and commercially
exploit nimotuzumab in the licensed territory. A non-material amount of
royalties have been received as of the date hereof by CIMYM from Oncoscience
from its Special Access Program but no sublicensing fees have been received by
Oncoscience. This license agreement may be terminated by either party in the
event of specified breaches and insolvency events.  In addition,
Oncoscience may terminate the agreement at any time on 90 days
notice.
  On August
23, 2005 CIMYM and CIMAB licensed development and marketing rights to Kuhnil
Pharmaceutical Co., Ltd. for Korea. There was an initial fee to CIMYM on signing
and it is entitled to receive additional milestone payments and royalties. The
maximum aggregate amount of milestone payments payable under the Kuhnil license
agreement is US$700,000.
  On
October 31, 2005 CIMYM and CIMAB licensed development and marketing rights to
Innogene Kalbiotech Private Limited (a wholly owned subsidiary of P.T. Kalbe
Farma Tbk, Indonesia) for Indonesia, Malaysia, the Philippines and Singapore and
certain African countries including South Africa. The initial fee to CIMYM
BioSciences on signing was U$1,000,000 and it is entitled to receive additional
milestone payments and royalties. The maximum aggregate amount of milestone
payments payable under the Innogene license agreement is
US$3,800,000.
  In July
2006, CIMYM licensed development and marketing rights for nimotuzumab in Japan
to Daiichi Pharmaceutical Co., Ltd., a wholly owned subsidiary of Daiichi Sankyo
Co., Ltd., one of Japan’s largest pharmaceutical companies. Under the agreement,
CIMYM received an up-front payment of US$14.5 million and significant milestone
payments at certain states of development for each of a number of indications as
well as payments based on supply of nimotuzumab and sales performance in the
territory. The maximum aggregate amount of milestone payments payable under the
Daiichi license agreement is US$21,400,000. Daiichi is developing nimotuzumab
for the Japanese market in several cancer indications.
  Out-Licensing
  We
generally plan to out-license our drugs in development to pharmaceutical
companies for manufacturing and marketing under license, although we may retain
co-development or marketing rights if management considers it appropriate to do
so. Under our business model, licensees would be expected, to the extent
necessary, to participate in the remaining clinical development required to
obtain final regulatory approval for the product. We expect that out-licensing
would result in a pharmaceutical company or other licensee marketing or
manufacturing the product in return for licensing fees and royalties on the sale
of the product. We believe this model is consistent with current biotechnology
and pharmaceutical industry licensing practices.
  Our
objectives in seeking to out-license products include:
  ·
              obtaining
      long term revenue streams from royalty payments on the sale of the
      products;
  ·
              providing
      access to the resources and experience of large pharmaceutical
      companies;
  ·
              obtaining
      up-front payments for product sub-licensing rights;
  and
  18




·
            minimizing
      our development expenditures through cost sharing programs (especially
      late-stage clinical trials and regulatory approval
      applications).




We
believe that out-licensing arrangements could be attractive to pharmaceutical
corporations because they would provide the prospective partner with access to
new products without the initial research risk or earlier clinical development
costs. Since partners are expected to be sought only at the later stages of a
product’s development, we anticipate that prospective licensees would view our
products as having a reduced risk of failure to achieve regulatory
approval.




We do not
intend to develop our own manufacturing, marketing or distribution programs
although we may wish to participate in ownership of manufacturing facilities if
appropriate opportunities become available. We intend to remain principally
focused on the identification, further development and commercialization of
in-licensed products.




Regulatory
Approval




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




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




None of
our products has been completely developed or tested and, therefore, we are not
yet in a position to seek final regulatory approval to market any of our
in-licensed products. To date we have obtained various regulatory approvals to
develop and test our in-licensed products. Nimotuzumab has been designated an
orphan drug in Europe and by the FDA in the US. See “Products in Clinical
Development”.




Canadian
Approval Process




The
manufacture, distribution and consumption of medical products, drugs and
equipment is regulated by a variety of industry-specific statutes and
regulations in Canada and the countries to which YM has rights for the licensed
products. Drugs sold in Canada are regulated by the Food and Drugs Act (Canada)
and the regulations made under that Act.




Even
though a drug, medical product or device may be approved for use in another
jurisdiction, it may not be sold in Canada until approved by Health Canada.
Outside Canada, the regulatory approval process for the manufacture and sale of
pharmaceuticals varies from country to country and the time required may be
longer or shorter than that required by Health Canada.




The
Canadian Food and Drug Regulations require licensing of manufacturing
facilities, carefully controlled research and testing of products, governmental
review and approval of test results prior to marketing of therapeutic products,
and adherence to GMP, as defined by each licensing jurisdiction, during
production.




The
principal activities which must be completed prior to obtaining approval for
marketing of a therapeutic drug product are essentially the same in Canada as in
most major markets of the world and are as follows:


19




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.




A
Clinical Trial Application must be filed and accepted by either the Therapeutic
Products Directorate (“TPD”) or the Biologics and Genetic Therapies Directorate
(“BGTD”) of Health Canada before each phase of human clinical trials may begin.
The CTA application must contain specified information including the results of
the pre-clinical or clinical tests completed at the time of the CTA application.
In addition, since the method of manufacture may affect the efficacy and safety
of a drug, information on chemistry and manufacturing methods must be presented.
Health Canada conducts inspections to determine compliance with GMP. Good
manufacturing practices and quality control procedures must be in
place.




Upon
completion of all clinical studies, the results are submitted to the TPD or BGTD
as part of a New Drug Submission (“NDS”). A notice of compliance (“NOC”) which
permits marketing of the product typically takes between 12 and 24 months from
the date a NDS is submitted.




Even
after marketing approval has been obtained, further studies may be required to
provide additional data on safety and efficacy in order to gain approval for the
use of a drug as a treatment for clinical indications other than those for which
the product was initially tested. Also, Health Canada conducts post-market
surveillance programs to monitor a product’s side effects. Results of
post-marketing programs may limit or expand the further marketing of products. A
serious safety or efficacy problem involving an approved drug or medical device
may result in Health Canada action requiring withdrawal of the product from the
market.




US
Approval Process




In the
US, the FDA, a federal government agency, is responsible for the drug approval
process. The FDA’s mission is to ensure that all medications on the market are
safe and are effective. The FDA’s approval process examines potential drugs;
only those that meet strict requirements are approved.




The US
food and drug regulations require licensing of manufacturing facilities,
carefully controlled research and testing of products, governmental review and
approval of test results prior to marketing of therapeutic products, and
adherence to GMP, as defined by each licensing jurisdiction, during
production.




The drug
approval process begins with the discovery of a potential drug. Pharmaceutical
companies then test the drug extensively. A description of the different stages
in the drug approval process in the US follows.




Stage 1:
Preclinical 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.


20




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 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.
These trials differ from Phase II trials because a larger number of patients are
studied (sometimes in the thousands) and because the studies are usually of
longer duration. As well, Phase III studies can include patients who have more
than one illness and are taking medications in addition to the experimental drug
used in the study. Therefore, the patients in Phase III studies more closely
reflect the general population. The information from Phase III forms the basis
for most of the drug’s initial labeling, which will guide physicians on how to
use the drug.




Phase IV Clinical Studies.
Phase IV clinical studies are conducted after a drug is approved. Companies
often conduct Phase IV studies to more fully understand how their drug compares
to other drugs. Also, the FDA may require additional studies after the drug is
approved. FDA-required Phase IV studies often investigate the drug in specific
types of patients that may not have been included in the Phase III studies.
FDA-required Phase IV studies can also involve very large numbers of patients to
further assess the drug’s safety.




Stage 3: FDA
Review for Approval.Following Phase III, the pharmaceutical company
prepares reports of all studies conducted on the drug and a complete dossier on
the manufacturing of the product and submits the reports to the FDA in a New
Drug Application (“NDA”). The FDA reviews the information in the NDA to
determine if the drug is safe and effective for its intended use. Occasionally,
the FDA will ask experts for their opinion of the drug; this occurs at advisory
committee meetings. If the FDA determines that the drug is safe and effective,
the drug will be approved.




Stage 4:
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, at YM’s sole discretion, 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 adequate generation of revenue.


21




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 board of directors of CIMYM will consist of five directors, three of
whom are nominees of YM and two of whom are nominees of CIMAB. All material and
out-of-the-ordinary-course-of-business contracts of CIMYM, including those
relating to the borrowing of money, issuing guarantees, entering into non
arm’s-length agreements, paying dividends and pledging of property, must be
approved by four-fifths of the Board of Directors.




CIMYM
(Barbados) was incorporated in Barbados in May 1996 to market the licensed
products under the 1995 CIMYM License outside of Canada. On June 30, 2006, CIMYM
(Barbados) was amalgamated with CIMYM to form CIMYM BioSciences
Inc.




Intellectual
Property




The
following is a description of our key current and pending patents in connection
with CYT387, CYT997 and nimotuzumab.




CYT387
and CYT997




Program
                                        
                                        International #
                                        
                                        Type of IP
                                        
                                        Pending
                                        
                                        GrantedCYT997
                                        
                                        WO2005/054199
                                        
                                        New
      chemical entity
                                        
                                        Brazil,
      Canada, China, Europe, India, Israel, Japan, South Korea, Mexico, New
      Zealand, USA
                                        
                                        Australia,
      South AfricaCYT997
                                        
                                        WO2006/133498
                                        
                                        Salt
      form of CYT997
                                        
                                        Europe,
      USACYT387
                                        
                                        WO2008/109943
                                        
                                        New
      Chemical entity
                                        
                                        Australia,
      Brazil, China, Europe, India, Indonesia, Japan, South Korea, Mexico,
      Russia, South Africa, USAJAK2
      inhibitor
                                        
                                        WO2002/060927
                                        
                                        Mechanism
      of action
                                        
                                        USA,
      Canada
                                        
                                        AustraliaJAK2
      inhibitor
                                        
                                        WO2006/119542
                                        
                                        Design
      of compounds
                                        
                                        Europe
                                        
                                        USAJAK2
      inhibitor
                                        
                                        WO2009/029998
                                        
                                        New
      Chemicals entities
                                        
                                        PCT
      stageJAK2
      inhibitor
                                        
                                        WO2007/101232
                                        
                                        Method
      of treatment
                                        
                                        Australia,
      Brazil, Europe, USAJAK2
      inhibitor
                                        
                                        WO2003/020202
                                        
                                        In licensed
      Method of Treatment
                                        
                                        Brazil,
      Canada, Europe, Hong Kong, Japan, USA
                                        
                                        Australia,
      India, Mexico, New Zealand, South
Africa




22




JAK2
      inhibitor
                              
                              WO1992/10519
                              
                              In
      licensed Target Patents
                              
                              
                              
                              Australia,
      Canada, Europe, Japan, USAJAK3
      inhibitor
                              
                              WO2005/054230
                              
                              New
      Chemical entities
                              
                              Australia,
      Brazil, Canada, China, Europe, Israel, Japan, South Korea, Mexico, New
      Zealand, USA
                              
                              India,
      South Africa, UKJAK3
      inhibitor
                              
                              WO2005/066156
                              
                              New
      Chemical entities
                              
                              Australia,
      Brazil, Canada, Europe, India, Israel, Japan, South Korea, Mexico, New
      Zealand, USA
                              
                              China,
      South Africa, UKJAK3
      inhibitor
                              
                              WO2008/092199
                              
                              New
      Chemical entities
                              
                              Australia,
      Europe, Japan, USAFMS
      inhibitor
                              
                              WO2008/058341
                              
                              New
      Chemical entities
                              
                              Australia,
      Europe, Japan, USAKinase
      inhibitors
                              
                              WO2003/099811
                              
                              New
      Chemical entities
                              
                              Canada,
      China, Israel, Japan, South Korea
                              
                              Australia,
      Europe, India, New Zealand, South Africa, UK, USAKinase
      inhibitors
                              
                              WO2003/099796
                              
                              New
      Chemical entities
                              
                              Canada,
      Israel, Japan, South Korea
                              
                              Australia,
      China, Europe, India, New Zealand, South Africa, UK,
USATubulin
      inhibitors
                              
                              WO2004/052868
                              
                              New
      Chemical entities
                              
                              Canada,
      China, Europe, Israel, Japan, South Korea, USA
                              
                              Australia,
      India, New Zealand, South Africa,
UK




Nimotuzumab




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




CIMYM’s
key US patent, US5,891,996 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 also apply to the key European patent, EP712863.




Property,
Plant and Equipment




Facilities




We
currently occupy 7,070 square feet of space in Mississauga, Ontario pursuant to
a sub-lease agreement dated July 31, 1997 (the “Sub-Lease”) and a lease amending
and extension agreement dated February 1, 2008 (the “Lease Amending Agreement”),
such Lease Amending Agreement extended the initial terms of the Sub-Lease for a
term of five years commencing on February 1, 2008 and expiring on January 31,
2013. Average annual fixed rent, excluding operating costs, is approximately
$75,000.




YM USA
currently occupies 9,000 square feet of space in Wayne, Pennsylvania pursuant to
a lease agreement dated July 27, 2006 that expires on February 15, 2012. Average
annual fixed rent, excluding operating costs is approximately US
$218,000.  Effective February 3, 2010, we sublet the space and expect
our net cost until the expiry of the lease to be approximately US
$155,300.




23




YM
Australia currently occupies 160 square metres of space in Melbourne, Australia
pursuant to a lease agreement dated November 1, 2009 that expires on October 31,
2010.  Average annual fixed rent, excluding operating costs is
approximately AUS$46,400.




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




Employees




As of
June 30, 2010, we employed 32 permanent employees: 25 employees located in
Mississauga, Ontario and seven employees in Melbourne, Australia. Other than
administrative staff, our employees conduct our licensing and product
development activities.  None of our employees are represented by
labour unions.




RISK
FACTORS




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




Risks Related To Our
Business




We are susceptible to general economic
conditions




The past
two years have been marked by global economic turmoil.  Economic
conditions worsened over the course of 2008 and 2009.  These negative
conditions have extended into 2010. General economic conditions may have a
significant impact on YM, including our commercialization opportunities, our
ability to raise financing and our ability to work with others upon whom we rely
for basic research, manufacture, development and sale of our
products.




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




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




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




As at
June 30, 2010, we have an accumulated deficit of $167.245 million. We expect
expenditures and the accumulated deficit to increase as we proceed with our
commercialization programs until such time as sales, license fees and royalty
payments, if any, may generate sufficient revenues to fund our continuing
operations. There can be no assurance that the revenues from the
commercialization of our products will be sufficient to support required
expenditures and therefore there can be no assurance of when or if we will
become profitable.




24




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




We do not
conduct basic research of our own.  Basic research on a particular
drug product is conducted by other biopharmaceutical companies, scientific and
academic institutions and hospitals, or scientists affiliated with those
institutions. Generally, once the basic research is complete, we enter into
agreements to in-license the right to develop and market the products or acquire
them.




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




We enter
into arrangements with and are dependent on others with respect to the
manufacture, development and sale of our in-licensed products. Product
development includes, but is not limited to, pre-clinical testing, regulatory
approval processes, clinical testing and the development of additional
regulatory and marketing information. Our ability to successfully develop and
commercialize our in-licensed products is dependent on our ability to make
arrangements with others on commercially acceptable terms and subject to our
depending upon them to meet regulatory quality standards. The product
development process may be delayed or terminated if we cannot secure or maintain
such arrangements on terms acceptable to us or at all. We do not have long-term,
material, third party manufacturing, formulation or supply agreements, except
with respect to one of our licensed products, nimotuzumab, which is manufactured
in quantities sufficient for clinical testing by CIMAB or a related party,
subject to certain terms and conditions of the licensing agreements between us
and CIMAB and CIMAB has contracted to supply commercial quantities or will
source such supply if, as and when approval for sale has been granted. Should
CIMAB be unable to supply us, we have no readily available alternative source
for the product.




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.




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 over which we
have no control. We do not have, and do not intend to acquire, facilities for
the production of our products, although we may invest in the ownership of
production facilities, or parts of the production process, if appropriate
opportunities are available.




Nimotuzumab
is required to be manufactured in quantities sufficient for clinical testing by
CIMAB or a related party, subject to certain terms and conditions of the
licensing agreements between us and CIMAB. Currently these expectations are
being met. There can be no assurance, however, that such entities will be able
to develop adequate manufacturing capabilities for sufficient commercial scale
quantities in a commercially reasonable manner.  In addition, there
are risks that we cannot control regarding the CIMAB manufacturing plant,
including amongst others, events such as weather, fire and other natural
disasters.  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.




25




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




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




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




(b)
            License Agreement
      betweenCIMYMand us dated
      January 24, 2001 with respect to TGFα vaccine and HER-1
      vaccine.




As we own
CYT997 and CYT387, there are no license terms.




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




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




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




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




26




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




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




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




As at
June 30, 2010, we had advanced $69 million to CIMYM BioSciences. Since we have
expensed the total amount no further accounting for those advances would affect
our balance sheet or income statement and any reimbursement of such advances
would be considered to be income by us.




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




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




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




Clinical
trials on our development products have been conducted by us and our
sub-licensees in more than 20 jurisdictions including Canada, the United
Kingdom, the European Union, Japan, India, Indonesia, Korea, Russia and the US,
and we intend to, and may, conduct future clinical trials in these and other
jurisdictions. There can be no assurance that any sovereign government,
including Canada’s, will not establish laws or regulations that will be
deleterious to our interests. There is no assurance that we, as a Canadian
corporation, will continue to have access to the regulatory agencies in any
jurisdiction where we might want to conduct clinical trials or obtain final
regulatory approval, and there can be no assurance that we will be able to
enforce our licenses in foreign jurisdictions. Governments have, from time to
time, established foreign exchange controls which could have a material adverse
effect on our business and financial condition, since such controls may limit
our ability to flow funds into a particular country to meet our obligations
under in-licensing agreements, and to flow funds which we may be entitled to, in
the form of royalty and milestone payments, under out-licensing agreements out
of a particular country  In addition, the value of our licenses will
depend upon the absence of punitive or prohibitive legislation in respect of
biological materials.




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




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




27


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




The
United States has imposed economic sanctions against Cuba. These sanctions apply
to certain transactions from the United States or activities by a person subject
to US jurisdiction. Among other things, the sanctions prohibit transactions that
involve property in which Cuba or any Cuban national has or has had any interest
whatsoever, direct or indirect.




For
purposes of interpreting the sanctions, ‘‘person subject to US jurisdiction’’
means any US citizen, any US permanent resident alien, any entity organized
under the laws of the United States or any jurisdiction within the United States
(including foreign branches and subsidiaries) or any person in the United
States. We (other than our subsidiary YM USA) are not a person subject to US
jurisdiction for purposes of the sanctions and are not subject to the sanctions
with respect to our activities outside of the United States.




Nevertheless,
we cannot assure you that the Office of Foreign Assets Control (“OFAC”) of the
US Department of the Treasury, which administers the US government’s Cuba
sanctions, would agree that the measures we have taken and will take are
sufficient to comply with the sanctions described above.




We are
the exclusive licensee of US, European and other patents related to nimotuzumab
owned by CIMAB, a Cuban company responsible for commercializing products
developed at Cuba’s Centro de Immunologia Molecular, a research institute formed
by the government of Cuba.  In connection with a default judgment
obtained from a US federal court in Miami, Florida by an individual claimant
against the Republic of Cuba, the Cuban government and a number of other
parties, including CIMAB, the claimant has recorded a lien against the US
patents that are licensed by us from CIMAB. These are patents US5,891,996 and
US6,506,883, each of which expires in November 2015. The claimant also has
commenced an action to enforce that default judgment.  If the claimant
succeeds in its action to enforce the judgment, ownership of the licensed US
patents could be transferred from CIMAB to the claimant or sold to a third
party. Based on the advice of our counsel, we believe that any transfer of the
US patents will be subject to our existing license from CIMAB and that any such
transfer should have no bearing on our rights under the license
agreement.  However, there can be no assurance that any subsequent
owner of the US patents will fully cooperate with us in connection with our
efforts to continue the development of nimotuzumab in the United States, will
not attempt to invalidate our license agreement, or will not attempt to take any
other action that could potentially impact our license to the US
patents.




The
acquisition of YM BioSciences Australia Pty Ltd. (formerly Cytopia Limited) will
result in increased expenditures.




The
acquisition of YM BioSciences Australia Pty Ltd. (formerly Cytopia Limited) will
result in an increase of expenditures for the additional staff and resources, as
well as the advancement of the YM BioSciences Australia Pty Ltd. products in
clinical development. This will result in the reduction of our previously
anticipated duration of our cash assets. If we are unsuccessful in our financing
efforts, we may have insufficient funds to complete our clinical development
plans as originally anticipated.




28




Risks Related To Our
Financial Results And Need For Financing




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




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




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




We will
require additional funding for the commercialization of our products, licensed
and owned, and if new products are licensed or acquired and put into
development. The amount of additional funding required depends on the status of
each project or new opportunity at any given time. Our business strategy is to
in-license or acquire rights to promising products, further develop those
products by progressing the products toward regulatory approval by conducting
and managing clinical trials, and finally, generally, to out-license rights to
manufacture and/or market resulting products to other pharmaceutical firms
generally in exchange for royalties and license fees. Due to the in- and
out-licensing arrangements and our dependence on others for the manufacture,
development and sale of our in-licensed products, we do not have consistent
monthly or quarterly expenditures and cannot determine the amount and timing of
required additional funding with any certainty. As at June 30, 2010 we had cash
and short-term deposits totalling $45,645 million and accounts payables and
accrued liabilities of $2,785.




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




Our
operating results and stock price may fluctuate significantly.




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




29




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




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




Our
share price is volatile.




The
market price of our common shares, like that of the securities of many other
biotechnology companies in the development stage, has been, and is likely to
continue to be, highly volatile. This increases the risk of securities
litigation related to such volatility. Factors such as the results of our
preclinical studies and clinical trials, as well as those of our collaborators
or our competitors other evidence of the safety or effectiveness of our products
or those of our competitors, announcements of technological innovations or new
products by us or our competitors, governmental regulatory actions, developments
with our collaborators, developments (including litigation) concerning patent or
other proprietary rights of our company or our competitors, concern as to the
safety of our products, period-to-period fluctuations in operating results,
changes in estimates of our performance by securities analysts, market
conditions for biotechnology stocks in general and other factors not within the
control of our company could have a significant adverse effect on the market
price of our common shares.




We
have not paid dividends.




We have
never paid cash dividends on our common shares and do not anticipate paying any
cash dividends in the foreseeable future.  We currently intend to
retain our future earnings, if any, to finance further research and the
expansion of our business.




Our
outstanding common shares could be subject to dilution.




The
exercise of stock options and warrants already issued by us and the issuance of
other additional securities in the future, including upon the exercise of the
warrants offered hereby could result in dilution in the value of our common
shares and the voting power represented by the common
shares.  Furthermore, to the extent holders of our stock options or
other securities exercise their securities and then sell the common shares they
receive, our share price may decrease due to the additional amount of our common
shares available in the market.




It
may be difficult for non-Canadian investors to obtain and enforce judgments
against us because of our Canadian incorporation and presence.




We are a
corporation existing under the laws of Nova Scotia, Canada.  Most of
our directors and officers, and certain of the experts named herein, are
residents of Canada or otherwise reside outside the United States, and all or a
substantial portion of their assets, and a substantial portion of our assets,
are located outside the United States. Consequently, although we have appointed
an agent for service of process in the United States, it may be difficult for
holders of these securities who reside in the United States to effect service
within the United States upon those directors and officers and the experts who
are not residents of the United States. It may also be difficult for holders of
these securities who reside in the United States to realize in the United States
upon judgments of courts of the United States predicated upon our civil
liability and the civil liability of our directors, officers and experts under
the United States federal securities laws.  Investors should not
assume that Canadian courts (1) would enforce judgments of US courts obtained in
actions against us or such directors, officers or experts predicated upon the
civil liability provisions of the US federal securities laws or the securities
or “blue sky” laws of any state within the United States or (2) would enforce,
in original actions, liabilities against us or such directors, officers or
experts predicated upon the US federal securities laws or any such state
securities or “blue sky” laws. In addition, we have been advised by our Canadian
counsel that in normal circumstances, only civil judgments and not other rights
arising from United States securities legislation are enforceable in Canada and
that the protections afforded by Canadian securities laws may not be available
to investors in the United States.




30




If
there are substantial sales of our common shares, the market price of our common
shares could decline.




Sales of
substantial numbers of our common shares could cause a decline in the market
price of our common shares. Any sales by existing shareholders or holders of
options may have an adverse effect on our ability to raise capital and may
adversely affect the market price of our common shares.




We
have adopted a shareholder rights plan which could make it more difficult for a
third party to acquire us, thus potentially depriving our shareholders of a
control premium.




We have
adopted a shareholder rights plan. The provisions of such plan could make it
more difficult for a third party to acquire a majority of our outstanding common
shares, the effect of which may be to deprive our shareholders of a control
premium that might otherwise be realized in connection with an acquisition of
our common shares. See “Description of Share Capital, Common Shares and Related
Information”.




Risks Related To Our
Industry




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




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




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




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




Technological
competition from pharmaceutical companies, biotechnology companies and
universities is intense and is expected to increase. Many of our competitors and
potential competitors have substantially greater product development
capabilities and financial, scientific, marketing and human resources than we
have. Our future success depends in part on our ability to maintain a
competitive position, including our ability to further progress our products,
licensed or owned, through the necessary pre-clinical and clinical trials
towards regulatory approval for sale and commercialization. Other companies may
succeed in commercializing products earlier than we are able to commercialize
our products or they may succeed in developing products that are more effective
than our products. With respect to nimotuzamab, we consider our main competitors
to be Amgen, AstraZeneca, BMS, Roche, Eli Lilly, Genentech, Genmab, Merck KGaA
and OSI. With respect to CYT387, we consider our main competitors to be
Novartis, Eli Lilly, Incyte, S*Bio, Onyx and Sanofi-Aventis. With respect to
CYT997 we consider our main competitors to be Oxigene, Antisoma and
Novartis.




31


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




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




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




Prior to
obtaining final regulatory approval to market a drug product, every national
regulatory agency has a variety of statutes and regulations which govern the
principal development activities. These laws require controlled research and
testing of products, government review and approval of a submission containing
pre-clinical and clinical data establishing the safety and efficacy of the
product for each use sought, approval of manufacturing facilities including
adherence to GMP 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 clearances to develop and
test our products. CYT387 has been cleared for trial by the FDA, Health Canada
and the Australian Regulatory Authority and CYT997 by the latter. CYT387 has
been designated an orphan drug by the FDA for myelofibrosis. Nimotuzumab has
been cleared for testing in the US, Canada, Europe, Japan, Korea and
Indonesia/Malaysia/Singapore and has been designated as an orphan drug for
certain indications in Europe and the US. It is in Phase II and III trials in
certain of those territories.




Nimotuzumab,
which is being developed in Canada, the US, Europe, Japan, Korea, certain
African countries and Southeast Asian countries sub-licensed by YM, is also
being separately developed, tested or marketed in Argentina, Brazil, China,
Cuba, India and Mexico, amongst others. The US established an embargo against
Cuba in 1961, reinforced by the Helms-Burton Act in 1996, and Cuba is among
several nations which have been identified by the US Department of State as
being a state sponsoring terrorism. As such the US Government has put in place
certain limitations on conduct of business with Cuba and anti-terrorism
legislation against Cuba. Although as of the date of this filing such
anti-terrorism controls have not had any adverse effect on our operations,
because of the anti-terrorism controls and the Helms-Burton Act, there is no
assurance that the Company will be able to complete clinical testing in the US
or obtain OFAC or final regulatory approval in order to successfully
commercialize our nimotuzumab in the US. We were successful in September 2006 in
our application for a Special License to import nimotuzumab for a clinical trial
in the US, received clearance for this trial from the FDA following the fiscal
2007 year end and subsequently received a Special License in 209 to treat any
solid tumors with further FDA clearances in 2010.




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.




32




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




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




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




Risks Related To
Intellectual Property And Litigation




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




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




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




We
maintain patents in connection with CYT387, CYT997 and nimotuzumab. See “General
Development of the Business – Intellectual Property” for a list of our key
current and pending patents in connection with these products.




33


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




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




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




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




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




Risks Related To Being A
Canadian Entity




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




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




34




DIRECTORS
AND SENIOR MANAGEMENT




Directors




The name,
municipality of residence, age as of September 23, 2010 and position with us of
each of the current directors are set forth below.  The term of each
director of the Company expires as of the next annual general meeting of the
Company, which is expected to be held in November 2010.




Name
            
            Age
            
            Position
            
            Period
      ServedDavid
      G.P. Allan
              Toronto,
      Canada
            
            68
            
            Chairman,
      Chief Executive Officer and Director
            
            Since
      1994Thomas
      I.A. Allen, Q.C. (1)(2)(3)
              Toronto,
      Canada
            
            70
            
            Director
            
            Since
      1996Mark
      Entwistle, M.A. (3)
              Ottawa,
      Canada
            
            54
            
            Director
            
            Since
      1997Henry
      Friesen, C.C., M.D. (1)
              Winnipeg,
      Canada
            
            76
            
            Director
            
            Since
      2001Philip
      Frost, M.D., Ph.D. (2)
              Morristown,
      New Jersey
            
            69
            
            Director
            
            Since
      2007Francois
      Thomas, M.D. (3)
              Brussels,
      Belgium
            
            51
            
            Director
            
            Since
      2007Robert
      Watson
              Melbourne,
      Australia
            
            54
            
            Director
            
            Since
      2010Gilbert
      Wenzel, Ph.D. (1)
              Zurich,
      Switzerland
            
            54
            
            Director
            
            Since
      2001Tryon
      M. Williams, B.Sc. (1)(2)
              The
      Valley, Anguilla
            
            69
            
            Director
            
            Since
      1995





Notes:


(1)           Member
of Audit Committee.


(2)           Member
of Corporate Governance and Nominating Committee.


(3)           Member
of Compensation Committee.




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




Mr. Allan
has been Chief Executive Officer of the Company since April 1998 and Chairman of
the board of directors of the Company since 1994.  In addition, Mr.
Allan is a Director of Synthemed Inc. (medical devices), USA and DiaMedica Inc.
(diabetes therapeutics), Canada. Mr. Allan was formerly a governor of The
Toronto Stock Exchange, a member, and working group Chair, of the Ontario
Biotechnology Advisory Board, a member of the Awards Selection Committee for the
Networks of Centres of Excellence in Canada and a member of the Board of
Trustees for the Ontario College of Art and Design. Mr. Allan is currently a
member of BIOTECanada’s Emerging Companies Advisory Board.




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




Mr. Allen
is counsel to Ogilvy Renault LLP, a Canadian law firm. Mr. Allen was the initial
Chairman of the Accounting Standards Oversight Council of Canada and was a
member of the Advisory Board of the Office of the Superintendent of Financial
Institutions of Canada. He is currently a director of a number of public
companies including Mundoro Capital Inc., Middlefield Bancorp Limited and Forsys
Metals Corp.  Mr. Allen recently acted as Chairman of the Task Force
to Modernize Securities Legislation in Canada.  Mr Allen has been a
director of the Company since 1996.




35




Mark
Entwistle, M.A. - Director




Prior to
founding his own consulting practice in 1997 in international trade, political
business intelligence and strategic communications, Mr. Entwistle was Ambassador
for Canada to Cuba from 1993 to 1997. Mr. Entwistle was previously a career
diplomat with the Canadian Department of Foreign Affairs and International Trade
in a variety of embassy positions from 1982 to 1997, and served as Press
Secretary and Director of Communications to the Prime Minister of Canada from
1991-1993. He is a Fellow of the Canadian Defence and Foreign Affairs Institute.
Mr. Entwistle has been a director of the Company since October
1997.




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




Dr.
Friesen served from 2002-2009 as Chair of the Gairdner Foundation whose
international awards are Canada’s most prestigious prizes in the biomedical
sciences. He was Founding Chair, Genome Canada, 2000-2005, a $600 million budget
non-profit organization that supports genomics/proteomics programs to position
Canada as a world leader in selected areas in this important sector. From 1991
to 2000 Dr. Friesen was President of the Medical Research Council of Canada and
was instrumental in transforming it into the Canadian Institutes of Health
Research, an organization with an annual budget in 2008 of over $900 million
dedicated to supporting Canadian researchers as well as industry participants.
Dr. Friesen is noted for his discoveries of the human hormone prolactin. For 19
years he was Head of the Department of Physiology at the University of Manitoba
and now is Distinguished University Professor Emeritus. Dr. Friesen is a Fellow
of the Royal Society of Canada, a Companion of the Order of Canada, recipient of
8 honorary degrees and also sits on the board of directors of Sanofi Pasteur
Canada .Dr. Friesen has been a director of the Company since November
2001.




Philip
Frost, M.D., Ph.D. - Director




Dr. Frost
is the founder and Chief Scientific Officer of Primrose Therapeutics Inc.. In
2005, Dr. Frost was appointed Executive Vice-President and Chief Scientific
Officer at ImClone where he oversaw the company’s research, clinical and
regulatory departments.  He subsequently held the post of Interim
Chief Executive Officer until December 2006.  Prior to ImClone, Dr.
Frost served as Vice President of Oncology and Co-Director of the Oncology
Therapeutic Area Leadership Team at Wyeth, where he was responsible for the
development of various oncology compounds and contributed to the approval and
commercialization of Mylotarg® for the treatment of a specific form of acute
myeloid leukemia.  Dr. Frost has held the positions of Adjunct
Professor of Cell Biology and Adjunct Professor of Medicine at The University of
Texas M.D. Anderson Cancer Center.  He is also a Director of Innovive
Pharmaceuticals, a New York-based oncology company and a Director of Avalon
Pharmaceuticals.  Dr. Frost has been a director of the Company since
2007.




François
Thomas, M.D. - Director




Dr.Thomas, a board
certified medical oncologist, is a former member of the Board of Directors of
Eurogentec, and formerly was a Director of DNA Therapeutics, Entomed, Neurotech,
Newron, Novexel, Unibioscreen and CropDesign.  Dr. Thomas is currently
General Manager at Bioserve Ltd. (Cambridge, UK), a consultancy for the life
sciences arena. Dr Thomas has been a Senior Advisor at Bryan Garnier, a
Paris-based investment bank, and a Venture Partner at Atlas Venture, a venture
capital firm in London (UK).  He was previously Vice President
Licensing, Medical Affairs and Pharmacogenomics at Genset (Paris, France), Vice
President, Clinical Development at Ipsen (Paris, France) and Assistant Professor
of Medical Oncology at Institut Gustave Roussy (Paris, France).  Dr.
Thomas has been a director of the Company since 2007.




Robert
Watson – Director




Mr.
Watson has over 20 years experience at the chief executive officer and board
level of large, profitable technology businesses. He has been the Chief
Executive Officer of several corporations including Mayne
Nickless  Computer Services, Data Sciences International (U.K.) and
Lend Lease Employer Systems. In addition, he has founded and developed several
successful businesses in the information technology industry, including ICON,
which was twice recognized as one of the two fastest growing private companies
in Australia. Mr. Watson is a director of the on-line employment classified
business SEEK Limited (listed on the Australian Stock Exchange) and several
private companies. Mr. Watson served as the executive chair of Cytopia Limited
from November 23, 2004 to November 22, 2006 and thereafter served as Cytopia’s
non-executive chairman until the acquisition of Cytopia by YM in January 2010.
Mr. Watson was also chair of Cytopia’s nomination and remuneration committees
and a member of its audit and risk committee.




36




Gilbert
Wenzel, Ph.D. - Director




Dr.
Wenzel is currently Chairman and Chief Executive Officer of Wenzel Healthcare
Services AG, an investment company focused on investing in innovative healthcare
delivery models in Europe. He is also the founder of QUISISANA AG, which
imports, registers and commercializes generics for private label use by pharmacy
chains and insurance companies in Europe. Dr. Wenzel joined Novartis Group, a
global pharmaceutical manufacturer, in November 2000 where he served as Head of
Strategic Planning and a Member of its Executive Committee until January 2003.
Prior to joining Novartis in November 2000, Dr. Wenzel spent 15 years with
McKinsey & Co., an international management consulting firm, and was a
member of the European Leadership Group of its Pharma/Healthcare Sector and of
the European New Venture Initiative. From 1981 to 1985, Dr. Wenzel was at
Hoechst AG in Germany and developed global strategies for generics and
over-the-counter medicines. Dr. Wenzel has been a director of the Company since
March 2001.




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




Mr.
Williams is the Chairman, CEO and director of Bingo.com, Ltd., an internet
technology company and Chairman and director of CellStop International Ltd., an
automobile security device manufacturer.  From 1993 to 2007, Mr.
Williams was Adjunct Professor, Sauder School of Business, The University of
British Columbia.  Mr. Williams is also a director of several other
private corporations. Mr. Williams has been a director of the Company since
November 1995.




Officers




The name,
municipality of residence, age as of September 23, 2010 and position with us of
each of the current officers are set forth below.




Name
            
            Age
            
            PositionDavid
      G.P. Allan
              Toronto,
      Ontario
            
            68
            
            Chairman
      and Chief Executive Officer, YM BioSciences Inc.
              President,
      YM BioSciences USA Inc.Nick
      Glover
              Salt
      Springs Island, British Columbia
            
            41
            
            President
      and Chief Operating OfficerGary
      Floyd
              Berwyn,
      USA
            
            64
            
            Vice
      President, Operations
              YM
      BioSciences USA Inc.Vincent
      Salvatori
              Victoria,
      British Columbia
            
            58
            
            President
      and Chief Operating Officer, CIMYM BioSciences Inc.Leonard
      Vernon
              Nobleton,
      Ontario
            
            66
            
            Vice
      President, Finance &
Administration





Nick
Glover – President and Chief Operating Officer




Dr.
Glover joined YM as President and Chief Operating Officer in June 2010. Prior to
this, he was providing life sciences consultancy services to the industry. From
January 2004 until June 2008, Dr. Glover was President and Chief Executive
Officer of Viventia Biotech Inc., having previously held the position of Vice
President, Corporate Development and Product Operations. Dr. Glover was formerly
an investment manager at MDS Capital, a life sciences venture capital funds. He
holds a Ph.D. in chemistry from Simon Fraser University, British
Columbia.




37




Gary
Floyd – Vice-President Of Operations




Mr. Floyd
is a seasoned executive with an extensive background and 36 years of experience
in the global pharmaceutical industry. Prior to joining Eximias in February 2005
as Vice-President, Operations, Mr. Floyd served as President of Pharmavene LLC,
a pharmaceutical consulting firm. Prior to this, he was Senior Vice President,
Worldwide Logistics and Procurement at Aventis Behring where he was responsible
for Supply Chain Management of the company’s global business. He has also held
senior positions in manufacturing, information systems and sales and marketing
at Aventis Behring and its predecessor companies. Mr. Floyd holds a Bachelors
degree in Zoology and Chemistry from Olivet Nazarene University.  Mr.
Floyd has been an officer of the Company since 2006.




Vincent
Salvatori, Ph.D. - President and Chief Operating Officer, CIMYM Biosciences
Inc.




Dr.
Salvatori is an experienced drug development executive with an accomplished
background in the pharmaceutical and biotechnology industry. He has more than 27
years of experience in all aspects of drug development, corporate operations and
external collaborations. Dr. Salvatori most recently held the position of Senior
Vice President of Clinical Operations for Bioniche Life Sciences Inc. from May
1998 to July 2002. He was previously at StressGen Biotechnologies Corporation
from January 1995 to April 1998 where he held the positions of Chief Operating
Officer and Vice President of Research and Development, subsequently appointed
to Senior Vice President. In this capacity, Dr. Salvatori was responsible for
corporate operations, strategic management and clinical/regulatory development.
Prior to joining StressGen, Dr. Salvatori was the Senior Director of Program
Management at QLT PhotoTherapeutics Inc. from June 1990 to December 1994 and
held various positions at Boehringer Ingelheim (Canada) Ltd. from April 1982 to
June 1990.  Dr. Salvatori has been an officer of the Company since
2002.




Leonard
Vernon, B.Sc., C.A. – Vice-President, Finance And Administration




Mr.
Vernon earned a B.Sc. in 1968 and was awarded his C.A. in 1972 with Clarkson
Gordon & Co. (now Ernst & Young llp).
He has held senior financial positions with a number of organizations both
public and private. Prior to joining YM as an officer in July 1997, Mr. Vernon
was an independent consultant working with senior management in a variety of
industries. Prior to 1992 he was Vice-President, Finance and Administration of
Unitel Inc., now Allstream Inc., a major Canadian telecommunications
company.   Mr. Vernon has been an officer of the Company since
1997.




Clinical
And Scientific Consultation Committee




We
maintain a Clinical and Scientific Consultative Committee (“CSCC”) composed of
internationally recognized clinicians and scientists. Management meets with
members of the CSCC 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 CSCC has signed a confidentiality
agreement with us. CSCC members receive honoraria paid by us of varying amounts
per year. The current composition of the CSCC is as follows:




Robert
S. Kerbel, Ph.D.




Professor
of Medical Biophysics, University of Toronto, Toronto, Ontario, Canada; Canada
Research Chair in Molecular Medicine; Director, Molecular and Cell Biology
Research, Sunnybrook and Women’s College Health Science Centre, Toronto,
Ontario, Canada. Dr. Kerbel has been an advisor since April 1999.




Rogerio
C. Lilenbaum, M.D., M.Sc.




Dr.
Lilenbaum is the Director of Cancer Research and Director of the Thoracic
Oncology Program at the Mt. Sinai Comprehensive Cancer Center in Miami Beach,
Florida. He is also Professor of Medicine at the Voluntary Faculty of the
University of Miami Miller School of Medicine in Miami, Florida. Dr. Lilenbaum
has been an advisor since January 2010.




38




Roman Perez-Soler,
M.D.


Dr.
Perez-Soler  is the Chairman of the Department of Oncology at Montefiore
Medical Center in New York and serves as Director of the Division of Medical
Oncology and Professor of Medicine and Molecular Pharmacology at the Albert
Einstein College of Medicine. Dr. Perez-Soler has been an advisor since January
2010.




Nicolas
Stiernholm, Ph.D.




Chief
Executive Officer, Trillium Therapeutics Inc., Toronto, Ontario, Canada. Dr.
Stiernholm was an executive vice-president of the Company until he resigned in
December 2002, at which time he became an advisor.




Mark
Vincent, M.D., M.R.C.P., F.R.C.P.C. - Chair




Associate
Professor, Department of Oncology, University of Western Ontario, London,
Ontario, Canada; Staff Medical Oncologist, London Regional Cancer Centre,
London, Ontario, Canada. Dr. Vincent has been an advisor since October
1998.




Board of Directors
Practices




The Board
of Directors has adopted corporate governance guidelines as well as written
charters to provide the framework for effective governance of our
company.  These guidelines and charters are reviewed annually by the
Nominating and Corporate Governance Committee and recommendations are made to
the Board of Directors, if necessary.




Role
of the Lead Director




The Board
of Directors appointed Thomas I.A. Allen as Lead Director. In this role, Mr.
Allen is responsible for providing leadership to the independent directors. Key
elements of Mr. Allen’s role include, but are not limited to:




·
            fostering
      processes to enable the Board to function effectively without
      management;




·
            providing
      input to the Chairman of the Board of Directors on behalf of the
      independent directors with respect to Board
  agendas;




·
            working
      with the Chairman of the Board of Directors to ensure adequate resources
      and timely and relevant information are available to the Board of
      Directors;




·
            chairing
      in camerameetings of the independent directors and communicating to the
      Chairman of the Board of Directors with regard to such discussions;
      and




·
            assisting
      the Board of Directors in satisfying itself as to the integrity of the
      Chief Executive Officer.




Mandate
of the Board of Directors




Our
directors are elected by the shareholders and are responsible for the
stewardship of the business and affairs of the Company.  The Board
seeks to discharge such responsibility by reviewing, discussing and approving
the Company’s strategic planning and organizational structure and supervising
management to oversee that the foregoing enhance and preserve the underlying
value of the Company.




Although
directors may be elected by the shareholders to bring special expertise or a
point of view to Board deliberations, they are not chosen to represent a
particular constituency.  The best interests of the Company as a whole
must be paramount at all times.




39




Duties
of Directors




The Board
discharges its responsibility for overseeing the management of our business and
delegates responsibility our senior officers for day-to-day management of the
Company. The Board discharges its responsibilities, including those listed
below, either directly or through one of its committees: the Audit Committee,
the Nominating and Corporate Governance and the Compensation Committee. In
addition to these regular committees, the Board may appoint ad hoc committees
periodically to address certain issues of a more short-term
nature.  In addition to the Board’s primary roles of overseeing
corporate performance and providing quality, depth and continuity of management
to meet our strategic objectives, principal duties include, but are not limited
to (i) appointment of management, (ii) Board organization, (iii) strategic
planning, (iv) monitoring of financial performance and other financial reporting
matters, (v) risk management, (vi) policies and procedures, (vii) communications
and reporting, (viii) position descriptions, (ix) orientation and continuing
education, (x) nomination of directors and (xi) Board evaluation.




Committees
of the Board of Directors




Our Board
currently has three committees: the Audit Committee, the Nominating and
Corporate Governance Committee and the Compensation Committee. Pursuant to its
written charter, each committee assists and provides advice and recommendations
to our Board of Directors.




Audit
Committee




The Audit
Committee is directly responsible for overseeing our accounting and financial
reporting processes and audits of our financial statements, and for the
appointment, compensation and oversight of the work of any registered external
auditor employed by us (including resolution of disagreements between management
of the Company and the external auditor regarding financial reporting) for the
purpose of preparing or issuing an audit report or related work. In so doing,
the Audit Committee will comply with all applicable Canadian and US securities
laws, rules and guidelines, any applicable stock exchange requirements or
guidelines and any other applicable regulatory rules.




The Audit
Committee is composed of a minimum of three members. Members of the Audit
Committee shall be appointed by the Board. Each member shall serve until such
member’s successor is appointed, unless that member resigns or is removed by the
Board or otherwise ceases to be a director of the Company. The Board shall fill
any vacancy if the membership of the Committee is less than three directors. The
Chair of the Committee may be designated by the Board or, if it does not do so,
the members of the Committee may elect a Chair by vote of a majority of the full
Committee membership. All members of the Audit Committee must satisfy the
independence, financial literacy and experience requirements of applicable
Canadian and US securities laws, rules and guidelines, any applicable stock
exchange requirements or guidelines and any other applicable regulatory rules.
In particular:




(a)
            each
      member shall be “independent” and “financially literate” within the
      meaning of Multilateral Instrument 52-110 “Audit
      Committees”;




(b)
            at
      least one member must be “financially sophisticated” under the rules of
      the American Stock Exchange; and




(c)
            at
      least one member must be an “audit committee financial expert” within the
      meaning of that term under the US Securities Exchange Act of 1934, as
      amended, and the rules adopted by the US Securities and Exchange
      Commission thereunder.




A
detailed description of the duties and responsibilities of the Audit Committee
can be found in the Audit Committee Mandate, which is attached as Schedule A to
this Annual Information Form.




The
members of the Company’s Audit Committee are Tryon M. Williams (Chair), Thomas
I.A. Allen, Henry Friesen and Gilbert Wenzel.




40




The Board
has determined that Mr. Williams qualifies as an “audit committee financial
expert” (as such term is defined in Form 40-F of the US Securities and Exchange
Commission (“Form 40-F”)) because of his experience as Chairman, CEO and
director of Bingo.com Ltd., Chairman and director of CellStop International Ltd.
and as an Adjunct Professor, Sauder School of Business, The University of
British Columbia.  Mr. Williams is “independent” within the meaning of
such term in the rules of the NYSE Amex.




Compensation
Committee




The
Compensation Committee is comprised of a minimum of three directors who, other
than a non-executive Chair, may not be executive officers or employees of the
Company or any of its affiliates.   The members of the Company’s
Compensation Committee are Mark Entwistle (Chair), Thomas I.A. Allen and
François Thomas.




The
mandate of the Compensation Committee is to establish and monitor our policies
for attracting, retaining, developing and motivating senior employees. The
compensation policies are designed to support our strategic objectives, ensure
that incentive programs are designed to motivate senior managers to achieve or
exceed corporate objectives and to enhance shareholder value and to ensure that
there is reasonable consistency in the application of the compensation
policies.




Compensation
Committee Authority and Responsibilities




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




(a)
            Review
      the compensation practices and policies of the Company to ensure that they
      are competitive and that they provide appropriate motivation for corporate
      performance and increased shareholder
value.




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




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




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




(e)
            Annually
      review and make recommendations to the Board regarding retainers and fees
      paid to members of the Board.




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




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




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




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




41




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




Nominating
and Corporate Governance Committee




Members




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




Committee
Authority and Responsibilities




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




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




(b)
            Recommend
      to the Board candidates for candidates for CEO, President and all other
      senior management positions and approve and recommend succession plan
      programs for such persons.




(c)
            Where
      appropriate, review the charters for the Board and Board committees and
      recommend any amendments to such
charters.




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




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




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




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




(h)
            Recommend
      to the Board the nominees for Chairman and, if applicable, lead
      director.




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




(j)
            Develop
      and recommend to the Board position descriptions and a description of the
      goals and objectives that the CEO is responsible for
    meeting.




(k)
            Develop
      and recommend to the Board a description of the expectations and
      responsibilities of directors.




42




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




(m)
            Establish
      a minimum attendance expectation for
directors.




(n)
            At
      intervals which the Committee considers appropriate, evaluate the
      performance of (i) individual directors, (ii) the Board, (iii) Board
      committees, and (v) executive management of the Company. The purpose of
      the evaluations is to assess and, where possible, increase the
      effectiveness of the Board and its committees. The Committee may make
      recommendations to the Board for improving the Board’s effectiveness and
      shall discuss annually with the full Board its
    effectiveness.




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




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




Share
Ownership




The
following table sets out details of our shares and options that are directly or
indirectly owned or controlled by directors and executive officers as at June
30, 2010, based on 80,359,623 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
                      
                      
                      1,135,492
                      (1)
                      
                      
                      1.41
                      %
                      
                      
                      1,799,502
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2010-2020Thomas
      I.A. Allen
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      224,135
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2010-2020Mark
      Entwistle
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      211,940
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2010-2020Gary
      Floyd
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      198,495
                      
                      
                      $0.50-$5.74
                      
                      
                      
                      2016—2020Henry
      Friesen
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      214,745
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2011-2020Philip
      Frost
                      
                      
                      1,000
                      
                      
                      
                      *
                      
                      
                      
                      116,585
                      
                      
                      $0.50-$1.53
                      
                      
                      
                      2017-2020Nick
      Glover
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      350,000
                      
                      
                      $1.39
                      
                      
                      2020Vincent
      Salvatori
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      436,626
                      
                      
                      $0.50-$4.36
                      
                      
                      
                      2013-2020Francois
      Thomas
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      116,585
                      
                      
                      $0.50-$1.53
                      
                      
                      
                      2017-2020Sean
      Thompson
                      
                      
                      23,000
                      
                      
                      
                      *
                      
                      
                      
                      295,575
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2010-2020Leonard
      Vernon
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      554,626
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2008-2020Robert
      Watson
                      
                      
                      903,914
                      (2)
                      
                      
                      1.12
                      %
                      
                      
                      -
                      
                      
                      -
                      
                      
                      
                      -Gilbert
      Wenzel
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      209,745
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2011-2020Tryon
      M. Williams
                      
                      
                      20,100
                      
                      
                      
                      *
                      
                      
                      
                      331,878
                      
                      
                      $0.50-$4.50
                      
                      
                      
                      2010-2020


* Less
than one percent




Note:


(1) Of
such shares, 70,000 common shares are held through private holding companies
over which Mr. Allan exercises direction and control.


(2) These
shares are held through private holding companies over which Mr. Watson
exercises direction and control.




43




As of the
date of hereof, the directors and senior officers of YM BioSciences as a group
beneficially owned or controlled, directly or indirectly, 2,060,506 common
shares of YM, representing approximately 2.56% of the issued and outstanding
voting shares of the Company.




MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS




Major
Shareholders




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




As at the
date hereof, to the knowledge of the directors and officers of the Corporation,
there are no persons or corporations who beneficially own, directly or
indirectly, or exercise control or direction over, our Common Shares carrying
more than 10% of the voting rights attached to all our outstanding Common
Shares.




Interests
of Management and Others in Material Transactions




Occasionally,
directors will provide assistance to management on a consulting basis to
evaluate new opportunities or provide guidance for drug development activities.
The fees incurred during the fiscal year ended June 30, 2010 totalled $36,000
(2009 - $66,000; 2008 – $92,000). The transactions occurred in the normal course
of operations and were measured at the exchange amount, which is the amount of
consideration established and agreed by the related parties.




Our
CommonShares are
traded on the NYSE Amex and the TSX under the symbols “YMI” and “YM”,
respectively. The last reported sales price of our Common Shares on September
22, 2010 on the NYSE Amex was US$1.66 and on the TSX was C$1.67.  Our
Common Shares were delisted from AIM effective October 26, 2009.  The
following table sets forth the high and low per share sales prices for our
Common Shares on the NYSE Amex and TSX for the periods indicated.




Market
Price




TSX (C$)
                
                
                NYSE Amex (US$)Calendar period
                
                High
                
                
                Low
                
                
                Daily
                  Avg.
                  Volume
                
                
                High
                
                
                Low
                
                
                Daily
                  Avg.
                  VolumeAugust
      2009
                
                $
                2.42
                
                
                $
                0.63
                
                
                
                339,875
                
                
                $
                2.24
                
                
                $
                0.57
                
                
                
                1,280,856September
      2009
                
                $
                2.14
                
                
                $
                1.51
                
                
                
                139,688
                
                
                $
                2.00
                
                
                $
                1.40
                
                
                
                638,972October
      2009
                
                $
                1.65
                
                
                $
                1.06
                
                
                
                61,770
                
                
                $
                1.53
                
                
                $
                1.03
                
                
                
                277,620November
      2009
                
                $
                1.76
                
                
                $
                1.20
                
                
                
                90,229
                
                
                $
                1.65
                
                
                $
                1.12
                
                
                
                300,907December
      2009
                
                $
                1.46
                
                
                $
                1.16
                
                
                
                25,410
                
                
                $
                1.41
                
                
                $
                1.11
                
                
                
                104,067January
      2010
                
                $
                1.99
                
                
                $
                1.35
                
                
                
                108,705
                
                
                $
                1.85
                
                
                $
                1.27
                
                
                
                341,618February  2010
                
                $
                1.85
                
                
                $
                1.50
                
                
                
                29,300
                
                
                $
                1.70
                
                
                $
                1.42
                
                
                
                140,775March
      2010
                
                $
                1.53
                
                
                $
                1.13
                
                
                
                149,155
                
                
                $
                1.57
                
                
                $
                1.10
                
                
                
                1,009,743April
      2010
                
                $
                1.79
                
                
                $
                1.17
                
                
                
                274,424
                
                
                $
                1.76
                
                
                $
                1.15
                
                
                
                1,629,707May
      2010
                
                $
                1.56
                
                
                $
                1.25
                
                
                
                81,734
                
                
                $
                1.54
                
                
                $
                1.16
                
                
                
                597,129June
      2010
                
                $
                1.42
                
                
                $
                1.00
                
                
                
                102,422
                
                
                $
                1.52
                
                
                $
                1.06
                
                
                
                394,400July
      2010
                
                $
                1.56
                
                
                $
                1.19
                
                
                
                36,092
                
                
                $
                1.38
                
                
                $
                1.12
                
                
                
                374,314August
      2010
                
                $
                1.58
                
                
                $
                1.29
                
                
                
                20,435
                
                
                $
                1.55
                
                
                $
                1.24
                
                
                
                418,794September
      1, 2010 to September 22, 2010
                
                $
                1.73
                
                
                $
                1.43
                
                
                
                34,723
                
                
                $
                1.68
                
                
                $
                1.32
                
                
                
                299,043




44


Volatility
of Common Shares




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




Share
Capital




Authorized
Capital




Our
authorized share capital consists of 500,000,000 common shares without nominal
or par value, 500,000,000 Class A non-voting common shares without nominal or
par value, 500,000,000 Class A preferred shares without nominal or par value and
500,000,000 Class B preferred shares, issuable in series, without nominal or par
value. As of September 22, 2010, there were 80,422,889 common shares, no Class A
non-voting common shares and no Class A or Class B preferred shares
outstanding.




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




Common
Shares




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




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




Class A Preferred Shares and
Class B Preferred Shares




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




Stock Option
Plan




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




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




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




45


·
              The
      maximum number of common shares available for issuance under the Option
      Plan is a rolling number equal to 15% of the number of common shares
      issued and outstanding on the particular date of
  grant.
  ·
              The
      number of common shares that may be reserved for issuance to our insiders
      (as defined in the Securities Act(Ontario)) and any affiliate and subsidiary thereof (collectively,
      “Insiders”) pursuant to the Plan, may not exceed 10% of the
      then-outstanding issue.
  ·
              In
      any one-year period, Options that may be granted to any Insider, and such
      Insider’s associates, shall not exceed 5% of the outstanding
      issue.
  ·
              The
      exercise price of an Option may not be less than the market price of the
      common shares on the date on which the grant of the Option is approved by
      the Board.  For this purpose the market price is the closing
      price of the common shares on the last trading day preceding the date of
      grant on which the common shares are traded on the TSX or another exchange
      on which the common shares are
listed.
  ·
              The
      term of an Option may not exceed 10 years from the date of
      grant.
  ·
              Once
      granted, the Options may only be transferred or assigned between an
      Eligible Person and a related “Employee Corporation” (as defined in the
      Option Plan) provided the assignor gives notice to the Company prior to
      assignment.
  ·
              The
      number of common shares that may be issued to any one person under the
      Option Plan shall not exceed 5% of the outstanding common
      shares.
  ·
              An
      Option and all rights to purchase common shares pursuant thereto shall
      expire and terminate immediately upon the optionee who holds such Option
      ceasing to be an Eligible Person, except in the following
      circumstances:
  o
              If,
      before the expiry of an Option in accordance with the terms thereof, an
      optionee shall cease to be an Eligible Person (an “Event of Termination”)
      for any reason other than his or her resignation or the termination for
      “cause” of his or her employment with the Company, or his or her
      resignation or failure to be re-elected as a director of the Company, then
      the optionee may:
 
 a)
              exercise
      the Option to the extent that he or she was entitled to do so at the time
      of such Event of Termination, at any time up to and including, but not
      after, a date that is three (3) months (or such other longer period as may
      be determined by the Board in its sole discretion) following the date of
      such Event of Termination, or prior to the close of business on the
      expiration date of the Option, whichever is earlier;
  and
 
 b)
              with
      the prior written consent of the Board or the compensation committee,
      which consent may be withheld in the Company’s sole discretion, exercise a
      further Option at any time up to and including, but not after, a date that
      is three (3) months (or such other longer period as may be determined by
      the Board in its sole discretion) following the date of such Event of
      Termination, or prior to the close of business on the expiration date of
      the Option, whichever is earlier, to purchase all or any of the optioned
      shares as the Board or the compensation committee may designate but not
      exceeding the number of optioned shares the optionee would have otherwise
      been entitled to purchase pursuant to the Option had the optionee’s status
      as an Eligible Person been maintained for the term of the
      Option.
 
 o
              If
      an optionee dies before the expiry of an Option in accordance with the
      terms thereof, the optionee’s legal representative(s) may, subject to the
      terms of the Option and the Option
Plan:
  46
 
 a)
              exercise
      the Option to the extent that the optionee was entitled to do so at the
      date of his or her death at any time up to and including, but not after, a
      date one year following the date of death of the optionee, or prior to the
      close of business on the expiration date of the Option, whichever is
      earlier; and
 
 b)
              with
      the prior written consent of the Board or the compensation committee,
      exercise at any time up to and including, but not after, a date one year
      following the date of death of the optionee, a further Option to purchase
      all or any of the optioned shares as the Board or the compensation
      committee may designate but not exceeding the number of optioned shares
      the optionee would have otherwise been entitled to purchase had the
      optionee survived.
 
 ·
              The
      Company has no security purchase agreement or stock appreciation rights
      plan.  The Compensation Committee has authority to and may from
      time to time consider the implementation of such other equity incentive
      plans.
  ·
              By
      its terms, the Option Plan may be amended by the Board without the consent
      of the shareholders, for limited purposes such as amendments necessary to
      ensure that the Option Plan complies with the applicable regulatory
      requirements, including the rules of the TSX, in place from time to time;
      amendments respecting the administration of the Option Plan and
      eligibility for participation under the Option Plan; amendments respecting
      the terms and conditions on which Options may be granted pursuant to the
      Option Plan, including provisions relating to the option price, the option
      period and the vesting schedule; and amendments that are of a housekeeping
      nature.
  ·
              The
      Board may terminate the Option Plan at any
time.
  Shareholder Rights
Plan
  We
entered into a shareholder rights plan effective November 28, 2007, upon the
expiry of our previous shareholder rights plan (the “Rights
Plan”).  The Rights Plan was not implemented in response to, or in
anticipation of an acquisition or take-over bid of the Company.
  Many
Canadian public companies continue to have shareholders rights plans in
effect.  These plans have as their objectives provided shareholders of
the companies involved, and the board of directors of such companies, with the
time necessary to ensure that, in the event of a take-over bid for their
corporations, alternatives to the bid are explored and developed which may be in
the best interest of the particular corporation and its
shareholders.  Securities legislation in Canada currently permits a
take-over bid to expire in 35 days.  The Board of Directors is of the
view that this is not sufficient time to assess a take-over bid, were such a bid
to be made, and if the Board of Directors deems appropriate, to explore and
develop alternatives in the best interests of the Company and its
shareholders.  In the event that competing bids emerge, the Board of
Directors also believes that current securities legislation in Canada does not
provide a sufficient minimum period of time for a board of directors to assess a
competing offer or for shareholders to make a reasoned decision about the merits
of the competing bids.  The Rights Plan is not intended to prevent a
take-over bid or deter offers for the common shares or any other voting
securities of the Company that might be issued in the future.  It is
designed to encourage anyone seeking to acquire control of the Company to
proceed either by way of a “Permitted Bid” (as described below), which requires
a take-over bid to satisfy certain minimum standards designed to promote the
fair treatment of all holders of the voting shares, or with the concurrence of
the Board of Directors.
  The
following is a brief summary of the principal terms of our Rights Plan, which is
qualified in its entirety by reference to the text of the Rights Plan Agreement,
which is filed herewith as an Exhibit and incorporated by reference
herein.  All capitalized terms used but not defined herein are defined
in the Rights Plan Agreement.
  47
  Term
  The term
of the Rights Plan ends on the date of the Company’s Annual Meeting of
Shareholders to be held in 2017, subject to ratification by the Company’s
shareholders every three years, at which time the Rights (as defined below) will
expire unless they are earlier terminated, redeemed or exchanged by the Board of
Directors of the Company.
  Distribution
of Rights
  To
implement the Rights Plan, the Board of Directors authorized the issuance of
share purchase rights (the “Rights”) to the then-current shareholders of the
Company at the rate of one Right for each common share outstanding as of the
time of the termination of business at the Company’s annual and special meeting
of shareholders held on November 28, 2007 (the “Record Time”).  In
addition, one Right has been, and will continue to be, issued with each common
share issued after the Record Time and prior to the earlier of the Separation
Time (as defined below) and the redemption or expiration of the
Rights.  The Rights Plan Agreement provides for the exercise of the
Rights, the issue of certificates evidencing the Rights and other related
matters.
  Exercise
of Rights
  The
Rights will trigger (i.e. separate from the Company’s common shares) and will
become exercisable eight trading days (the “Separation Time”) after a person (an
“Acquiring Person”) has acquired 20% or more of, or commences or announces a
take-over bid for, the Company’s outstanding common shares (defined to include
the common shares and any other shares that the Company may issue that carry
voting rights relating to the election of directors), other than by an
acquisition pursuant to a Permitted Bid or a Competing Permitted Bid (each as
defined below).  The acquisition by an Acquiring Person of 20% or more
of the Company’s outstanding common shares is referred to as a “Flip-in
Event”.
  Any
Rights held by an Acquiring Person will become void upon the occurrence of the
Flip-in Event.  By making any take-over bid other than a Permitted Bid
or a Competing Permitted Bid prohibitively expensive for an Acquiring Person,
the Rights Plan is designed to require any person interested in acquiring more
than 20% of the Company’s common shares to do so by way of a Permitted Bid or a
Competing Permitted Bid, or to make a take-over bid that the Board of Directors
considers to represent the full and fair value of the Company’s common
shares.
  Prior to
the Rights being triggered, they will have no value and no dilutive effect on
the Company’s common shares.
  Certificates
and Transferability
  Prior to
separation, the Rights will be evidenced by a legend imprinted on the Company’s
common share certificates and will not be transferable separately from the
common shares.  Common share certificates are not required to be
exchanged in order for a shareholder to be entitled to the Rights.  A
legend will be imprinted on all new certificates issued by the
Company.  From and after separation, the Rights will be evidenced by
Rights certificates and will be transferable separately from the Company’s
common shares.
  Rights
of Rights Holders
  No holder
of Rights is entitled to vote, receive dividends or be deemed for any purpose
whatsoever the holder of any common share or other share or security of the
Company that may at any time be issuable on the exercise of the Rights
represented thereby, nor shall the holding of a Right be construed or deemed to
confer upon the holder of any Right any of the rights, titles, benefits or
privileges of a holder of common shares or any other shares or securities of the
Company, any right to vote at any meeting of shareholders of the Company, or any
right to consent or withhold consent to any action of the Company.
  48
  Flip-in
Event
  A
“Flip-in Event” will be triggered if a transaction occurs pursuant to which a
person becomes an Acquiring Person (as defined in the Rights
Plan).  Upon the occurrence of the Flip-in Event, each Right (except
for Rights Beneficially Owned (as defined in the Rights Plan) by the Acquiring
Person and certain other persons specified below) will provide the right to
purchase from the Company upon exercise of the Right, in accordance with the
terms of the Rights Plan, the number of common shares of the Company having an
aggregate Market Price (as calculated under the Rights Plan) on the date of the
consummation or occurrence of such Flip-in Event equal to twice the Exercise
Price (as defined below) for an amount in cash equal to the Exercise
Price.  Accordingly, if one assumes a market price of $10 per share,
then a shareholder could purchase for $50.00 ten shares, effectively acquiring
the shares at half of the current market price, with the effect that the
Acquiring Person may suffer substantial dilution of its interest in the
Company.
  The
Rights Plan provides that Rights that are Beneficially Owned by (i) an Acquiring
Person or any affiliate or associate of an Acquiring Person, or any person
acting jointly or in concert with an Acquiring Person, or any affiliate or
associate of such Acquiring Person; or (ii) a transferee or other successor in
title of Rights of an Acquiring Person (or of an affiliate or associate of an
Acquiring Person or of any person acting jointly or in concert with an Acquiring
Person or any associate or affiliate of an Acquiring Person) who becomes a
transferee or successor in title concurrently with or subsequent to the
Acquiring Person becoming an Acquiring Person, shall become null and void
without any further action, and any holder of such Rights (including transferees
or successors in title) shall not have any right whatsoever to exercise such
Rights under any provision of the Rights Plan.
  Beneficial
Ownership
  Beneficial
ownership is broadly defined in the Rights Plan, but certain exceptions from its
scope are provided, including an exception designed to avoid inadvertent
triggering of the dilutive effects of the Rights by portfolio managers acting
for pension funds and others who do not intend to make a take-over bid for the
Company’s common shares.
  Acquiring
Person
  An
“Acquiring Person” is a person who Beneficially Owns (as defined in the Rights
Plan) 20% or more of the outstanding voting shares of the Company.  An
Acquiring Person does not, however, include the Company or any subsidiary of the
Company, or any person who becomes the Beneficial Owner of 20% or more of the
outstanding voting shares of the Company as a result of Permitted Bids,
Competing Permitted Bids and certain other exempt transactions.
  Exercise
Price and Anti-Dilution Adjustments
  The
“Exercise Price” of a Right is, as of any date, the price at which a holder may
purchase the common shares issuable upon exercise of one whole
Right.  Until that price is adjusted under the terms of the Rights
Plan, the Exercise Price will be $200.00.
  The
Exercise Price of a Right, the number and kind of shares subject to purchase
upon exercise of a Right and the number of Rights outstanding are subject to
adjustment from time to time upon certain events, including:
  1.
              if
      there is a dividend paid or payable in common shares or securities
      exchangeable for or convertible into or giving a right to acquire common
      shares or other securities, other than the issue of common shares or such
      other securities to holders of common shares in lieu of, but not in an
      amount that exceeds the value of, regular periodic cash
      dividends;
  2.
              a
      subdivision or consolidation of the common shares into a greater or lesser
      number of common shares, as the case may
be;
  49
  3.
              the
      issuance of any common shares or securities exchangeable for or
      convertible into or giving a right to acquire common shares or other
      securities in respect of, in lieu of or in exchange for existing common
      shares, except as otherwise permitted under the Rights Plan;
      or
  4.
              if
      the Company fixes a record date for the distribution to all holders of
      common shares of evidences of indebtedness, cash (other than a regular
      periodic cash dividend paid in common shares, but including any dividend
      payable in securities other than common shares), assets or subscription
      rights, options or warrants (other than securities referred to in the
      following paragraph), at a price per common share that is less than 90% of
      the Market Price per common share on the second trading day immediately
      preceding such record date; and
  5.
              if
      the Company fixes a record date for the distribution to all holders of
      common shares of certain rights, options or warrants to acquire common
      shares or securities convertible into or exchangeable for or carrying a
      right to purchase common shares at a price per common share less than 90%
      of the Market Price per common share on such record
  date.
  No
adjustment to the Exercise Price is required unless the adjustment, together
with all other adjustments that have not been made as of such time as a result
of this de minimis
exception, would require an increase an increase or decrease in the Exercise
Price of at least 1%.
  Permitted
Bids and Competing Permitted Bids
  A
Permitted Bid or Competing Permitted Bid will not trigger the dilutive effects
of the Rights.  A “Permitted Bid” is a take-over bid made by take-over
bid circular in compliance with the following additional
provisions:
  1.
              the
      bid must be made to all holders of record of common
  shares;
  2.
              the
      bid must be open for a minimum of 60 days following the date of the bid,
      and no shares may be taken up prior to such
  time;
  3.
              take-up
      and payment for shares may not occur unless the bid is accepted by persons
      holding more than 50% of the outstanding common shares (excluding, among
      others, shares held by the person responsible for triggering the Flip-in
      Event or any person that has announced an intention to make, or who has
      made, a takeover bid for the shares of the Company and the respective
      affiliates and associates of such persons and persons acting jointly or in
      concert with such persons);
  4.
              shares
      may be deposited into or withdrawn from the bid at any time prior to the
      take-up date; and
  5.
              if
      the bid is accepted by the requisite percentage specified in clause (3)
      above, the bidder must extend the bid for a period of 10 business days to
      allow other shareholders to tender into the bid, should they so wish, and
      must make a public announcement to such
effect.
  A
“Competing Permitted Bid” is a take-over bid that satisfies all of the criteria
of a Permitted Bid except that since it is made after a Permitted Bid has been
made, the minimum deposit period and the time period for the take-up of and
payment for shares tendered under a Competing Bid is not 60 days, but is instead
the greater of 35 days (the minimum permitted by applicable law) and the 60th
day after the date on which the Permitted Bid then in existence was
made.
  Neither a
Permitted Bid nor a Competing Permitted Bid must be approved by the Board of
Directors and may be taken directly to the shareholders of the
Company.  Acquisitions of common shares made pursuant to a Permitted
Bid or a Competing Permitted Bid do not give rise to a Flip-in
Event.
  50
  Redemption
and Waiver
  The Board
of Directors may, at any time prior to the occurrence of a Flip-in Event, and
subject to shareholder approval, elect to redeem all, but not less than all, of
the Rights at a redemption price of C$0.0001 per Right (the “Redemption Price”),
appropriately adjusted in certain events.  Rights will be deemed to be
automatically redeemed at the Redemption Price where a person that has made a
Permitted Bid, a Competing Permitted Bid or a take-over bid otherwise exempted
by the Board of Directors takes up and pays for the Company’s shares under the
terms of the bid.  If the Board of Directors elects or is deemed to
have elected to redeem the Rights, the right to exercise the Rights will
terminate, and each Right will, after redemption, be null and void, and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price.  Under the Rights Plan, the Board of Directors has discretion
to waive application of the Rights Plan to a take-over bid, subject to an
automatic waiver with respect to all other take-over bids made while the waived
take-over bid is outstanding.  The Board of Directors may also waive
the application of the Rights Plan to a Flip-in Event that occurs through
inadvertence, subject to the “inadvertent” Acquiring Person reducing its holding
of the Company’s shares within an agreed time.  Other waivers of the
Rights Plan will require shareholder approval.
  Shareholder
Approval
  The
Rights Plan must be ratified by a majority of the votes cast at the Company’s
applicable shareholder meeting by shareholders present or voting by
proxy.  In addition, The Toronto Stock Exchange requires the Rights
Plan to be ratified by shareholders within six months of the date of adoption of
the Rights Plan by the Board of Directors. The Rights Plan will be subject to
further ratification by the Company’s shareholders every three
years
  Amendment
  Amendments
or supplements to the terms of the Rights Plan (other than to fix clerical
errors or to maintain the Rights Plan’s validity as a result of changes in
legislation) require shareholder approval.  Changes arising from
changes in applicable legislation will require subsequent shareholder
ratification.
  AUDIT
FEES
  During
the years ended June 30, 2010 and 2009, we were billed the following fees by our
external auditors, KPMG LLP:
  Fees IncurredService
                    
                    2010
                    
                    
                    2009Audit
      Fees
                    
                    $
                    612,500
                    
                    
                    $
                    250,000Audit-Related
      Fees
                    
                    Nil
                    
                    
                    NilTax
      Fees
                    
                    $
                    20,000
                    
                    
                    $
                    53,000All
      Other Fees
                    
                    Nil
                    
                    
                    NilTotal
      Fees Billed
                    
                    
                    632,500
                    
                    
                    $
                    303,000
  Audit
Fees.  Audit fees consist of fees for the audit of the
Company’s annual financial statements or services that are normally provided in
connection with statutory and regulatory filings or engagements.
  Audit-Related Fees.
Audit-related fees consist of the aggregate fees billed for assurance and
related services that are reasonably related to the performance of the audit or
review of the Company’s financial statements and are not disclosed in the “Audit
Fees” column.
  Tax
Fees.  Tax fees consist of fees for tax advisory services, such
as the preparation of income tax returns for the Company and its subsidiaries in
Canada and the United States and for services in regard to tax planning, tax
compliance, capital taxes and sales taxes.
  51
  Pre-Approval
Policies and Procedures
  The Board
of Directors has 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, which require Audit Committee
pre-approval of all permitted audit, audit-related, tax and non-audit
services.
  Under
these policies, all permitted services to be provided by our external auditors
must be pre-approved by the Audit Committee or a designated member of the Audit
Committee.  Any pre-approval granted by a designated member must be
reported to the Audit Committee at its next scheduled meeting.  The
pre-approval of services may be given at any time up to one year before
commencement of the specified service.
  Of the
fees reported above, none of the fees billed by our external auditors were
approved by the Audit Committee pursuant to the de minimis exception provided by
Section (c)(7)(i)(C) of Rule 2-01 of Regulation S-X of the U.S. Securities and
Exchange Commission.
  INDEPENDENCE
OF EXPERTS
  The
Company’s auditors are KPMG, who have prepared an independent auditors' report
in respect of the Company’s consolidated financial statements with accompanying
notes for the year ended June 30, 2010. KPMG has advised that they are
independent with respect to the Company within the meaning of the Rules of
Professional Conduct of the Institute of Chartered Accountants of
Ontario.
  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 Company has
not entered into any material contracts prior to the date hereof.
  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”.
  52
  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. Additional financial
information is provided in the Corporation’s comparative financial statements
for its most recently completed year.
  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
  53
  SCHEDULE
A
  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, the fraud programs and
controls, and audits of the financial statements of the Corporation. The Audit
Committee shall also 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.
  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.
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  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 contained in
      all public disclosure documents, including all press releases, annual
      reports, annual information forms, management’s discussion and analysis
      and offering documents containing such financial
  results.
  2.
              The
      Audit Committee shall review with management and the external auditor, and
      recommend to the Board for approval, any financial statements or results
      of the Corporation which have not previously been approved by the Board
      and which are to be included in a prospectus, press release 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.
  6.
              The
      Audit Committee shall oversee the assessment of fraud risk performed by
      management.
  External
Auditors
  7.
              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.
  8.
              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.
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  9.
              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.
  10.
              The
      Audit Committee will ensure the rotation of partners on the audit
      engagement team of the external auditor in accordance with applicable
      law.
  11.
              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.
  12.
              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)
              the
      potential for fraud
  (c)
              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
  (d)
              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
  13.
              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
  14.
              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.
  15.
              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
  16.
              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.
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  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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