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U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20594

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FORM 10-K

|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|------------------------------------------- | ------------------------------------------------------------------------------------
|For the fiscal year ended December 31, 2002
|Commission File No. 333-12570              

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STRESSGEN BIOTECHNOLOGIES CORPORATION(Exact Name of Registrant as Specified in its Charter)

|Yukon Territory, Canada(State or Other Jurisdiction of Incorporation or Organization)                                                       |  | N/A(IRS Employer Identification No.)
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|350-4243 Glanford Avenue
Victoria, British Columbia V8Z 4B9                                                                                 |  |                                     
|Parent of Stressgen Biotechnologies, Inc.
10241 Wateridge Circle, Suite C-200
San Diego, California(Address of Principal Executive Offices) |  | 92121(Zip Code)                     

| |  | Registrant's Telephone Number, including area code: |  | (250) 744-2811
(858) 202-4900 |  | 
| |  | --------------------------------------------------- |  | ----------------------------- |  | 

Securities Registered pursuant to Section 12(b) of the Act:NoneSecurities Registered pursuant to Section 12(g) of the Act:None

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Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
Yes  ý    No  o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the
Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    ý

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes  ý    No  o

As
of June 30, 2002 and February 5, 2003, the common shares held by non-affiliates of the Registrant had an aggregate market value of approximately U.S.
$148,535,255 and $68,829,330, respectively. These amounts respectively represented approximately Cdn. $225,506,250 (based on the June 30, 2002 closing price of Cdn. $3.75 per common share, as
reported on The Toronto Stock Exchange, and approximately 60,135,000 outstanding common shares) and $104,222,120 (based on the February 5, 2003 closing price of Cdn. $1.73 per common shares as
reported on The Toronto Stock Exchange and approximately 60,244,000 outstanding common shares). These numbers are provided only for the purposes of this report and do not represent an admission by
either the Registrant or any non-affiliate as to the status of any person.

The
Company's accounts are maintained in Canadian dollars. In this Annual Report on Form 10-K, all dollar amounts are stated in Canadian dollars except where otherwise
indicated.

Documents
incorporated by reference: None.

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TABLE OF CONTENTS

|Item 1.  |  | BUSINESS                                                                              |  | 1 
|-------- |  | ------------------------------------------------------------------------------------- |  | --
|Item 2.  |  | PROPERTIES                                                                            |  | 20
|Item 3.  |  | LEGAL PROCEEDINGS                                                                     |  | 20
|Item 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 20
|Item 5.  |  | MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 |  | 21
|Item 6.  |  | SELECTED FINANCIAL DATA                                                               |  | 27
|Item 7.  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 30
|Item 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 35
|Item 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |  | 36
|Item 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 57
|Item 10. |  | OUR DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES                                   |  | 57
|Item 11. |  | COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS                                      |  | 62
|Item 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 67
|Item 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 68
|Item 14. |  | CONTROLS AND PROCEDURES                                                               |  | 69
|Item 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                       |  | 69

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PART I        FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our
forward-looking statements, which are typically indicated by words such as "intend," "plan," "anticipate" and "expect," include statements regarding the results of on-going research,
development efforts and the scope of future operations. Such statements are only predictions. Actual results may differ materially from those implied by our forward-looking statements, due to factors
including uncertainties associated with product development, the risk that products do not demonstrate statistically significant results in clinical trials, our dependence upon collaborative partners,
our need for additional financing and the risk that we will not obtain approval to market our products. These and other risks are discussed in this Form 10-K, including under the
caption "Factors that May Affect Future Performance." We disclaim any obligation to update forward-looking statements as circumstances change.

Item 1. BUSINESS

Overview

We are a biopharmaceutical company focused on the commercialization, development and research of proprietary immunotherapeutics to treat human diseases. Our
platform technology involves using recombinant DNA methods to covalently link together heat shock proteins (Hsp), also known as stress proteins, to proteins such as viral or cancer antigens. The
resulting CoVal fusion proteins are designed to stimulate immune responses to the disease-specific antigen present in the fusion. By targeting immune responses to a specific antigen,
CoVal fusions use the body's immune system to combat infectious diseases or cancer.

Most
of our resources are devoted to developing our lead product candidate, which we call HspE7. HspE7 is a fusion between a Hsp and a human papillomavirus (HPV) antigen called E7. The
product is in development for indications caused by HPV including genital warts, recurrent respiratory papillomatosis (RRP), cervical intraepithelial neoplasia (CIN), cervical cancer and anal
intraepithelial neoplasia (AIN). In June 2002 we entered into a collaboration agreement with F.Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc. (together,
Roche) to develop HspE7.

If
HspE7 is approved, it could be useful to treat a large number of patients and a broad spectrum of HPV diseases. There are approximately 5.5 million new genital HPV infections
each year. More than 20 million people in the U.S. are currently infected with the virus. An analysis of healthcare costs associated with sexually transmitted diseases showed that the costs of
HPV-related diseases ranked second only to the costs of HIV. Unlike currently available topical and surgical treatments, HspE7 has the potential to reduce or eliminate recurrence, treat
chronic conditions in people already infected with HPV, and address multiple types of HPV.

HspE7
is important not only as a potential treatment for HPV-related indications but also as a demonstration of the efficacy of CoVal fusions. We believe that
clinical results will show that fusions developed with our proprietary technology safely and effectively stimulate the immune system to recognize and fight specific diseases. The type of immune
responses induced by CoVal fusions, as demonstrated in preclinical research, indicates that the Hsp fusion platform technology may apply to the immunotherapy of a wide spectrum of
diseases, including cancer and bacterial, fungal and parasitic infections. Robust preclinical and encouraging clinical data from the HspE7 program has led us to concentrate our current efforts on the
treatment of viral diseases. We are performing research studies on potential treatments for hepatitis B (HBV) and herpes simplex and are evaluating fusion proteins to treat infections caused by
hepatitis C (HCV) and the human immunodeficiency virus (HIV).

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In
addition to our biopharmaceutical business, we have a profitable bioreagent business. We supply stress proteins, antibodies and other bioreagents globally for use in academic, medical
and commercial research. The production and sale of bioreagents enhances our business strategy by building a market presence in stress proteins and strengthening strategic relationships with other
companies, academic institutions and stress response researchers.

Business Strategy

Our business objective is to be a leader in the development and commercialization of novel immunotherapeutics for the treatment of virally-induced human disease.
Our strategy includes the following elements:



Scientific Overview

Our technology uses Hsp covalently fused to antigens to activate the immune system.

The Immune System

The human immune system is the body's natural defense mechanism to prevent and combat disease. The immune system protects the body by specifically recognizing and
destroying invading viruses, bacteria and other pathogens. In addition, the immune system is capable of recognizing and eliminating abnormal cells from the body, such as cells infected with viruses
and to some degree precancerous and cancerous cells.

Scientists
currently describe the human immune system as using two complementary mechanisms to respond to pathogens, labeled innate and adaptive immunity. Innate immunity, which is a
"front-line" defense, includes dendritic cells, macrophages, natural killer cells and gamma delta T cells. These cells typically recognize structural components, including antigens, common
to disease-causing organisms and generate a prompt, but relatively non-specific response. Adaptive or acquired immunity, which can be triggered by an innate immune response or operate
independently, involves B cells and T cells. Adaptive immunity generates a "tailor-made" or antigen-specific response.

B
cells make antibodies that prevent infection by attaching to invading pathogens and aiding in their disposal before they can infect cells. T cell responses are useful not only for
helping antibody production, but also for eradicating existing infected or diseased cells. These two types of immune defenses are called humoral (B cell) and cellular (T cell) immunity. While both
types of immune defenses may cooperate to defend against infection, scientists believe that once infection has been established, cellular immunity is required to eradicate such diseased cells.

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Induction
of a cellular immune response begins with the processing and presentation of antigens by specialized immune system cells called antigen presenting cells, such as dendritic
cells. Once inside dendritic cells, protein antigens are broken down into small fragments, called peptides. These peptides are then presented on the dendritic cell surface. T cells continually scan
the surface of dendritic cells for these peptides. When T cells recognize displayed peptides as being foreign, they replicate rapidly and then search for and kill diseased cells displaying those same
peptides on their surface.

Peptides
are presented to T cells through two distinct pathways designated as the class I and class II pathways. Presentation of such peptides by the class I and
class II pathways activate different T cell subsets referred to as CD8+ T cells and CD4+ T cells. CD4+ T cells, which are also known as T helper (Th) cells, are further subdivided into Th1 and
Th2 cells. Activated Th1 and Th2 cells release molecules known as cytokines, which trigger other immune cells to produce either a predominantly cellular (Th1) or antibody-mediated (Th2) immune
response. Immune responses mediated by the cellular side of the immune system are characterized by the induction of CD8+ T cells called cytotoxic T lymphocytes (CTLs) or killer T-cells.
Killer T cells are capable of directly killing pathogen-infected cells and cancerous cells.

Stress or Heat Shock Proteins

Hsp are present in cells of all organisms from bacteria to mammals. The structure and function of Hsp are similar across these diverse life forms. Hsp play a
major role in the generation of immune responses and appear to activate both innate and adaptive immunity. Some scientists refer to Hsp as molecular chaperones due to their role in transporting
peptides within intracellular compartments. Hsp appear to activate both innate and adaptive immunity by interacting with newly identified Hsp receptors on antigen presenting cells such as dendritic
cells. Interaction of Hsp with such receptors may have at least two important consequences: cytokine secretion by the dendritic cell that promotes cellular immunity and internalization of the Hsp and
bound polypeptides by the dendritic cell into the class I pathway of antigen presentation.

Scientific Foundation of Stressgen Technology

Dendritic cells express receptors that specifically recognize Hsp. As a result, they can capture and process Hsp fusions, which are Hsp covalently linked to
antigens. The Hsp fusions then induce cellular immune responses to the antigen present in the fusions, such as a viral protein. Preclinical data from both in vitro and in vivo models demonstrate that
Hsp fusions trigger innate immune responses; the cells from the innate response signal the adaptive immune system to use its protection mechanisms. Stressgen seeks to develop a new class of
therapeutic products based on this ability of Hsp fusions to induce antigen-specific CTL responses.

We
call Hsp fusions "immunotherapeutics" based on their ability to stimulate the body's own immune system to attack a pathogen, as does a vaccine. Unlike existing preventative vaccines,
Hsp fusions trigger the immune system to respond to infected cells and cancers already present in the body. Since preclinical research has shown that Hsp fusions induce CD8+ CTL responses in
CD4+-deficient animals, even immunosuppressed individuals such as HIV+ patients and transplant recipients, may be treated effectively with our platform technology.

Potentially,
Hsp fusions can be created with any number of disease-specific protein antigens. Our most developed product, HspE7, is a recombinant fusion protein composed of the HPV
protein E7 and a bacterial Hsp. In all types of HPV infection, whether "low risk," including warts or "high risk," including pre-cancer and cancer, the E7 protein theoretically provides a
precise target by which the immune system can recognize and attack HPV-infected cells. Induction of E7-specific cellular immunity by Hsp fusions offers a new approach to the
immunotherapy of HPV-associated diseases.

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In
pre-clinical studies conducted using an animal model, administration of HspE7 has been shown to prevent the growth of, and cause the destruction of, tumors that express
the HPV E7 protein. Only the fusion protein induces significant tumor regression and long-term survival in these studies. Neither the E7 antigen nor the Hsp alone, nor a mixture of the
two, is effective. The requirement for a covalent attachment between the Hsp and the E7 protein may be explained by the presence of Hsp receptors on dendritic cells. By virtue of its covalent
attachment to the Hsp, the E7 protein is targeted to the dendritic cell, internalized and presented as E7 peptides by the class I pathway to activate killer T cells. These
E7-specific killer T cells may then be able to survey for and destroy E7 containing cancer cells.

Clinical
observations made in phase II trials for AIN and genital warts indicate that treatment with HspE7 leads to disease improvement or clearance that is not restricted to lesions
containing a specific type of HPV. These original and surprising findings demonstrate the potential for HspE7 to treat diseases caused by multiple HPV types. Although the E7 protein present in HspE7
was derived from HPV type 16, which is known to be associated with about half of all cervical cancers and about 20% of pre-cancerous lesions known as anogenital dysplasias, our clinical
data strongly suggests that HspE7 can
induce cross-reactive T cell responses in genital warts, which primarily are caused by HPV types 6 and 11.

Human Papillomavirus Indications

HPV indications can be easily recognizable, like genital warts, or latent. Infected individuals with no visible symptoms may not be aware that they have a
persistent viral infection, increasing their risk of developing complications and of transmitting the virus to others. HPV is highly contagious and can be spread even when condoms are used. Fifty to
75% of sexually active men and women acquire genital HPV infection at some point in their lives.

Although
there are over 100 different types of HPV, most research focuses on the approximately one-third infecting genital epithelial tissue and primarily spread through
sexual contact. Researchers differentiate among the HPV types using letter and number designations. The E7 protein from high-risk HPV types (associated with a high risk of cancer) is
involved in the malignant transformation of infected epithelial cells. These HPV types cause premalignant and cancerous cervical and anal conditions, including high-grade and
low-grade dysplasias and cancer. Low-risk types of HPV typically cause internal and external genital warts.

Genital Warts

Approximately two-thirds of people who have sexual contact with a partner with genital warts develop warts themselves, usually within three months of
contact, according to the U.S. National Institute of Allergy and Infectious Diseases (the NIAID). The incidence of genital warts is an estimated 1 million new cases in the U.S. each year,
according to a July 1999 NIAID Fact Sheet. Of those patients, an estimated 67% are women. Although the lesions may spontaneously regress, recurrence is typical. The lesions also frequently
reappear after treatment.

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Recurrent Respiratory Papillomatosis

Recurrent Respiratory Papillomatosis is caused by the same types of papillomavirus that cause genital warts. In fact, the term papilloma means wart. Rather than
infecting genital tissue, the papillomas in RRP occur primarily on the vocal cords of children born to mothers infected with HPV. The papillomas can spread into the trachea and lungs. Over 2,000 new
cases of pediatric RRP and over 3,500 new cases of adult RRP are diagnosed annually in the U.S., according to a study published in 1995 based upon a survey of members of the American Society of
Pediatric Otolaryngology, members of the American Bronchoesophagological Association and certified U.S. otolaryngologists. Patients with RRP can die from airway obstruction, cancerous transformation,
overwhelming spread of the disease, growth of papillomas in the lungs or complications of surgical treatments. There are no drugs or immunotherapies approved for RRP in the U.S. Pediatric patients
tend to have about 5 surgeries per year and some children have hundreds of procedures during their lifetime.

Cervical Intraepithelial Neoplasia and Cervical Cancer

Cervical Intraepithelial Neoplasia, also known as cervical dysplasia, is characterized by the presence in the cervix of abnormal cells that often precede cervical
cancer. The abnormal cells are associated with the malignant transformation of epithelial cells infected with HPV virus. Such cells can be detected through regular Pap smear screening. In the U.S.
more than 1.2 million women a year are diagnosed with low-grade cervical dysplasia, according to National Cancer Institute estimates. Another 200,000 to 300,000 are diagnosed with
high-grade cervical dysplasia in the U.S. each year, according to a December 1999 report of the Centers for Disease Control. Worldwide, the incidence is much larger. The current
treatment for CIN, which involves local surgical techniques, is not always effective because it may not remove all dysplastic cells and does not treat the underlying viral infection. In addition,
surgical treatments can result in complications such as reduced fertility.

CIN
often precedes cervical cancer, a worldwide public health problem particularly in countries where routine Pap smears are not practiced. American Cancer Society estimates for 2002
predicted that approximately 13,000 women in the U.S. would be diagnosed with invasive cervical cancer and that about 4,100 patients would die from the disease. Globally there are approximately
500,000 new cases of cervical cancer identified each year, resulting in nearly 300,000 deaths. Cervical cancer is the second most important cancer in women after breast cancer, according to a World
Health Organization February 1999 press release. Although death rates from cervical cancer have been decreasing, invasive cervical cancer continues to be associated with extreme morbidity.

Anal Intraepithelial Neoplasia

Anal Intraepithelial Neoplasia is characterized by the presence of abnormal cells that may precede anal cancer. Data extrapolated from studies of homosexual and
bisexual men and the anal cancer population suggests that there may be 500,000 new cases per year in the U.S. Patients are not commonly screened for AIN; however, there is increasing awareness of the
condition. Current treatments for AIN, including surgical approaches, radiotherapy and chemotherapy, are ineffective.

Indications Targeted in Early Stage Development and Research Programs

All of the indications described above are associated with HPV, so are candidates for treatment with HspE7. We are also using our platform technology to create
fusions of heat shock proteins with antigens from other sources. We are testing CoVal fusions of heat shock proteins with antigens from the viruses described below to determine whether to
advance treatments for those indications into pre-clinical testing and clinical trials.

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Hepatitis B

Chronic hepatitis B is a disease of the liver caused by the hepatitis B virus. Infection with HBV is characterized by jaundice, fatigue, abdominal pain and other
symptoms, with many patients developing liver cirrhosis and cancer. Although safe and effective preventative vaccines exist, there are estimated to be 1,000,000 to 1,250,000 cases of chronic hepatitis
B in the U.S., according to the Centers for Disease Control and Prevention. In addition, there are between 140,000 and 320,000 new cases of hepatitis B in the U.S. each year, resulting in 4,000 to
5,000 deaths according to the American Social Health Association. Worldwide, about 1,000,000 deaths are attributable to HBV infection and its complications annually, according to the World Health
Organization. Due to the large infected population and small percentage of the public being vaccinated for the disease, the need for new and effective therapies for chronic hepatitis B virus infection
remains great.

Hepatitis C

Hepatitis C causes symptoms similar to those of hepatitis B, but is caused by the hepatitis C virus. Chronic hepatitis C can cause cirrhosis, liver failure, and
liver cancer. HCV is spread through contact with blood and other bodily fluids. Currently, there are six known hepatitis C genotypes, and more than
50 subtypes. The relative prevalence of different genotypes differs by geographic region. It is estimated that 3.9 million people in the U.S. (1.8% of the population) have been infected with
HCV and that 2.7 million are chronically infected. Worldwide there is an estimated 200 million cases. In the U.S. 8,000 to 10,000 deaths each year are currently attributed to HCV.
Although about 80% of patients are currently asymptomatic, researchers predict that over the next 10 to 20 years chronic hepatitis C will become a major burden on the health care system as
patients progress to end-stage liver disease. The efficacy of current treatments varies depending upon the genotype of the virus, but no currently available therapy can eradicate the virus
or do more than delay the progression of the disease. No vaccine is available.

Herpes Simplex Virus

Herpes Simplex Virus causes genital herpes. The prevalence of herpes simplex type-2 (HSV-2) has increased by 30% since the late 1970s and
is now detectable in about one in five persons 12 years of age or older in the US, according to the NIAID. An estimated 45 million Americans are already infected with genital herpes, and
there are an additional 500,000 to 1,000,000 new cases each year, the NIAID has written. Since HSV remains dormant in infected persons for their lifetime, genital herpes is a recurrent disease,
consisting of alternating episodes of virus reactivation with virus shedding, followed by resolution of the outbreak and return to virus dormancy. Some episodes of reactivation are associated with
skin blistering in the genital region, causing physical and psychological discomfort. Because most episodes of the infection are asymptomatic, people having an outbreak may not be aware that they are
transmitting herpes. As a result, HSV-2 is expected to continue to spread rapidly. Except in newborns, genital herpes is not life-threatening. Nonetheless, it is distressing
and can contribute to the spread of other sexually transmitted diseases, including HIV.

HIV

An estimated 850,000 to 950,000 people are infected with the Human Immunodeficiency Virus in the U.S. alone, according to Centers for Disease Control and
Prevention estimates. There are approximately 40,000 new U.S. cases each year, according to the National Institutes of Health. Although there has been substantial progress in the management of HIV in
recent years, significant issues remain regarding viral resistance to current drug therapies and drug toxicity. As a result, researchers and physicians are actively seeking novel therapeutics to
manage this disease.

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HspE7 Development Program

We are dedicating most of our resources to our HPV program to commercialize HspE7 as quickly as we can. The focus of our HspE7 development program has evolved
over time to take advantage of the
results from clinical trials, to ensure we are addressing the broadest potential market for the product, and to capitalize upon the resources of third-parties interested in using HspE7 to treat
specific indications. We originally tested HspE7 as a non-surgical approach to reducing the risk of progression of CIN to cervical cancer. Because surgical treatments exist for CIN and
cervical cancer, we realized that it would be easier to obtain regulatory approval for other HPV indications. We began focusing on AIN and anal cancer based on the advice of scientific advisors, the
similarities of those conditions to CIN and cervical cancer, the clear unmet medical needs for the conditions and the lack of widely accepted standard treatments for them. The U.S. National Cancer
Institute recognized the potential of HspE7 to prevent cancers caused by HPV. As a result, in 1999 its Division of Cancer Treatment and Diagnosis signed a Clinical Trials Agreement with us to sponsor
clinical trials using HspE7.

Our
cancer-related research indirectly led us to explore HspE7 for the treatment of genital warts. In the course of an AIN clinical trial, we discovered that genital warts regressed in
patients with both AIN and genital warts. The size of the genital warts market made it more attractive commercially than AIN or CIN. To further accelerate the time to market, we sought a location in
the body in which genital warts occurred for which we could receive orphan drug status. Since RRP is essentially genital warts of the upper airways, we evaluated the use of HspE7 for this
life-threatening condition. As we had hoped, the U.S. Food and Drug Administration granted orphan drug status for HspE7 for the treatment of RRP. We continued to accrue clinical trials
data regarding AIN and genital warts while we began an RRP trial.

Our
AIN and genital warts data drew the interest of potential collaborators. In June 2002 we signed a collaboration agreement with Roche for the development of HspE7. We also
signed a second agreement with the U.S. National Cancer Institute, in this case with the Division of Cancer Prevention, to sponsor additional clinical trials.

Currently,
we are running an open-label RRP trial in pediatric patients requiring frequent surgery, Roche is designing additional genital warts trials, and the AIDS
Malignancy Consortium of the National Cancer Institute is evaluating HspE7 in HIV-positive patients with high-grade anal dysplasia. Several other trials with HspE7 are planned.
Based on our findings from the clinical trials we have run to date, advice from a Clinical Advisory Board, market research, and our experience with the regulatory approval process, we are targeting
genital warts and RRP, as the first major markets for HspE7. We hope to expand the indications for HspE7 to AIN, anal cancer, CIN, and cervical cancer after the product is approved for genital warts.

Data from HspE7 Clinical Trials

Our clinical trials are conducted in the U.S., with the exception of a now discontinued trial in 14 patients with advanced cervical cancer that we began in
Brazil. Our trials have generally used a 500 ug dose of HspE7 given once a month for three months. A low 3x100 ug dose was used in some early clinical trials. Various trials are on-going.
We have released findings based on data from clinical trials including:



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The
results suggest that the 3x500 ug dose of HspE7 is active against multiple types of HPV. Data from these studies showed that:



Results
from a double blind placebo controlled phase II trial in measurable external warts showed that, at six months:



Observations
of complete response in genital warts patients during the time period 12 to 24 months from treatment, and of few or no recurrences to date, contrasts with the data
for treatment of warts with surgery or topical therapy in which rapid recurrence is common.

Safety
data for treatment with HspE7 continue to be accumulated. The predominant adverse experience noted from HspE7 treatment at various doses and schedules is injection site reaction,
mild to moderate in severity, clearing in hours to days without treatment. Mild to moderate flu-like symptoms are also observed in some patients.

Status of Early Stage Research Programs

We are using our proprietary technology of fusing heat shock proteins to antigens to create Hsp fusions with antigens other than E7. Our most active early stage
programs involve therapies for chronic hepatitis B infection and herpes simplex virus. We are compiling preclinical data to support an Investigational New Drug filing for a fusion of an Hsp and a
selected HBV antigen. In mice our HBV fusions have been shown to elicit cytotoxic T lymphocytes (CTL) that recognize the HBV antigen, suggesting such T cells would be capable of killing
HBV-infected cells. The T cells have also shown to produce the cytokine interferon gamma, which is known to have anti-viral activity. The results of these preclinical studies
demonstrate the potential efficacy of Hsp-HBV antigen fusions in the immunotherapy of chronic HBV infection. We believe that our HBV program could offer hope in countering the disease's
significant worldwide impact on human health.

We
are assessing the development of Hsp fusion proteins for the immunotherapy of genital herpes. Presently, we are including a number of HSV-2 proteins in Hsp fusions. We
will then test the Hsp-HSV antigen fusions in animal models for induction of immune responses to the HSV antigens. An immunotherapy that can induce cellular immunity specific for
HSV-2 antigens may lead to a treatment for genital herpes to reduce the number or duration of reactivation episodes or prevent them entirely.

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Compounds
made with our fusion technology, which we have exclusively licensed from the Whitehead Institute for Biomedical Research, are also being tested for its potential to treat HIV.
Whitehead scientists have demonstrated that an Hsp-HIV antigen fusion generates a humoral and cellular immune
response to the specific HIV antigen in mice. Investigators at Whitehead Institute, the Massachusetts Institute of Technology (MIT) and Harvard University have applied for and received funding from
the U.S. National Institute of Health to conduct further animal studies of this therapeutic.

Intellectual Property

Our intellectual property protection policy is to file and prosecute patent applications relevant to the inventions that we consider meaningful to our business.
We also rely upon unpatented trade secrets, know-how and continuing technological innovation to develop and maintain a competitive position. We devote substantial management attention and
resources to maintaining patents and licenses and conducting an assertive patent prosecution strategy.

We
have a worldwide, exclusive license agreement with the Whitehead Institute for our core fusion technology, giving us rights to various patents, pending applications,
continuation-in-part applications and their foreign counterparts. Pursuant to the license agreement we fund the prosecution of the patent applications, which currently include
applications in the U.S., Canada, Europe and Japan. Two U.S. patents and a European patent based on these Whitehead applications were granted in January 2002; we are vigorously defending
challenges to these patents, which cover Hsp fusions with viral (such as HIV) or cancer-associated antigens and their use as immunotherapeutics. Independently, we have filed additional patent
applications directed to Hsp fusions with other viral antigens, including HPV E6 and E7, and their use as immunotherapeutics. We also hold issued U.S. patents related to the detection of elevated
levels of Hsp expression. Our issued and exclusively licensed patents will expire on various dates between 2007 and 2020. Some of the U.S. patent applications received pre-GATT filing
status, meaning that their terms extend for 17 years after the date of grant, rather than 20 years from the earliest date of filing.

Interpretation
and evaluation of biopharmaceutical or biotechnology patent claims present complex and often novel legal and factual questions. We cannot be sure that our pending
applications will result in issued patents, that the issued patents will be held valid and enforceable if challenged, or that a competitor will not be able to circumvent an issued patent by the
development or adoption of a competitive non-infringing product or process.

Research and Development Collaborations

We have two clinical trials agreements with the U.S. National Cancer Institute for the co-development of our lead product, HspE7, in the treatment of
cancer. The NCI is the U.S. Government's principal institute for cancer research and training. Over 80% of all agents approved for the treatment of cancer by the FDA have been tested or developed
under an NCI-sponsored program. The clinical trials agreements allow the NCI to collaborate with us to develop a general plan for clinical development of HspE7 for cancer-related
indications, solicit clinical research protocols from independent investigators and cooperative research groups, and sponsor and fund their studies. The first clinical trial sponsored by the NCI,
testing HspE7 in HIV-positive patients with high-grade anal dysplasia, began in
December 2002. We are expected to provide clinical grade HspE7 for the investigators to use in their studies but do not provide funding. The collaboration with the NCI enables studies of HspE7
for the treatment of dysplasias and cancer to progress, while Roche and we focus on genital warts and RRP.

A
third-party investigator from a university is running a phase I/II trial of HspE7 in cervical dysplasia. As with the NCI trials, we have access to data from the trial in return for
providing HspE7.

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We have a number of collaborative or sponsored research agreements that we believe provide us with important sources of research data and could lead to technology development
opportunities. We have entered into an agreement with the National Institute of Allergy and Infectious Diseases to test our hepatitis B candidate in preclinical models. We are also sponsoring academic
institutions to evaluate our hepatitis B candidate in animal models and to perform herpes simplex research with our CoVal fusions.

Manufacturing

Roche has undertaken to provide clinical trial supplies of HspE7. In addition, we have a quantity of HspE7 that is sufficient to complete our on-going
clinical trials. We are currently transferring process development and related manufacturing responsibilities to Roche from various independent contractors, in accordance with our HspE7 collaboration
agreement. A quality controlled and quality assured process for producing HspE7, based on a set of standard operating procedures, analytical methods and specifications, will allow HspE7 to be
manufactured in commercial quantities in accordance with current good manufacturing practice and other regulations. We expect to contract with third-parties for the process development and manufacture
of additional heat shock proteins that we develop.

Bioreagent Business

Our bioreagent business supplies biomedical research reagents to researchers in not-for-profit research organizations and commercial
institutions worldwide. The primary products of the business involve antibodies, proteins, DNA products, ELISA kits, lysates and extracts, for use in studying cellular stress response pathways,
including oxidative stress, apoptosis, neurobiology and more. Although we contract with third-party distributors in thirty-five countries, our primary markets are in North America, Europe
and Asia. Sales have been approximately 65% from the U.S., 5% from Canada, 20% from Europe and 10% from the rest of the world, in each of the last three years. We do not believe that any single
customer is material to our bioreagent business. Demand for our products tends to increase slightly when academic institutions in the Northern Hemisphere are in session.

We
manufacture products for inventory and ship products shortly after the receipt of orders, and anticipate that we will continue to do so in the future. Accordingly, we currently do not
have a significant backlog and do not anticipate that we will develop a material backlog in the future. We believe the quantity of inventory we maintain is adequate to ensure reasonable customer
service while
limiting the volatility of inventory levels. Inventory quantities can fluctuate significantly as we balance varying customer demand against fluctuating supplies of reagents available to us. We buy
materials for our products from many suppliers, and we are not dependent on any one supplier or group of suppliers. Raw materials are generally readily available at competitive prices from a number of
suppliers. We believe that we will be able to continue to acquire and produce our products in quantities sufficient to meet our customers' current requirements.

We
require patent licenses to sell many of our products. Because our sales are spread over more than 400 products, with no class of products accounting for more than 10% of consolidated
revenues in the last three years, we believe that no individual patent or license is material to our bioreagent business.

Government Regulation and Product Approval Process

In the U.S. the Food and Drug Administration (FDA) regulates drugs and biological products. In Canada theFood and Drug
Act(Canada), and the rules and regulations promulgated thereunder, govern the production and manufacturing of our products and our research and development activities; the
Health Products and Food Branch (HPFB) Inspectorate enforces these rules and regulations. In

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these and other jurisdictions, applicable drug licensing laws require carefully controlled research and testing of products, governmental review and approval of results prior to marketing therapeutic
products, licensure of manufacturing facilities and adherence to good manufacturing practices during production.

The
principal activities which must be completed before obtaining approval for marketing in the U.S. and Canada are the completion of (1) development of a
well-controlled process of manufacturing, (2) preclinical studies of safety and pharmacology, and (3) studies of safety and efficacy in humans. Pre-clinical
studies are conducted to test chemistry, pharmacology and efficacy. Successful pre-clinical results, which entail achieving potentially valuable pharmacological activity combined with an
acceptably low level of toxicity, enable the manufacturer of the new drug to file an investigational new drug application to begin clinical trials involving humans. An investigational new drug
application must be filed with and accepted by the FDA or HPFB, as applicable, before human clinical trials may begin.

Phase
I clinical trials consist of testing a product in a small number of humans for its safety (toxicity), dose tolerance and pharmacokinetic properties including absorption,
distribution, metabolism and elimination. Phase II clinical trials usually involve a larger patient population than is required for phase I trials and are conducted to evaluate the effectiveness of a
product in patients having the disease or medical condition for which the product is indicated. These trials also serve to identify possible common short-term side effects and risks in a
larger group of patients. Potential dosing regimens may also be evaluated during Phase II trials. Phase III clinical trials involve conducting tests in an expanded patient population at geographically
dispersed sites to establish clinical safety and effectiveness. These trials usually involve comparison to a standard treatment or to no treatment. These trials also generate
information from which the overall benefit-risk relationship relating to the drug can be determined and provide a basis for drug labeling.

Two
key factors influencing the rate of progression of clinical trials are the rate at which patients can be accrued to participate in the research program and whether effective
treatments are currently available for the disease the drug is intended to treat. Patient accrual is largely dependent upon the incidence and severity of the disease and the alternative treatments
available.

Upon
completion of all clinical studies, the results of these studies are submitted to the U.S. FDA as part of a biologics license application, in the case of a biological product, or to
Canada's HPFB as part of a new drug submission, to obtain approval to commence marketing the product. In addition, we will need to file an application for an establishment license application for
approval by the FDA or HPFB to produce a product. Preparing any of these regulatory submissions involves considerable data collection, verification and analysis. There can be no assurances that any
submissions or applications will be approved on a timely basis or at all.

Even
after a marketing approval is obtained, further studies, including post-market studies, may be required to provide additional data on safety and efficacy necessary to
gain approval for the use of a product as a treatment for clinical indications other than those for which the product was initially tested. Also, the FDA or HPFB may require 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 problem with the safety or
effectiveness of an approved drug or medical device may result in FDA or HPFB action requiring withdrawal of the product from the market and possible civil action. If we sought to have our product
candidates approved as human prophylactic vaccines, the requirements would be even more onerous.

As
well as receiving pre-licensing approval, manufacturing facilities must conform on an ongoing basis with Good Manufacturing Practices, or GMP. In complying with GMP,
manufacturers must continue to expend time, money and effort in the area of production and quality control to ensure full compliance. After the establishment is licensed for the manufacture of any
product, manufacturers are subject to periodic inspections by regulatory authorities.

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Whether
or not FDA or HPFB approval has been obtained, approval of a product by comparable regulatory authorities in Europe and other countries will likely be necessary prior to
commencement of marketing the product in such countries. Regulatory authorities in each country may impose their own requirements and may refuse to grant, or may require additional data before
granting, an approval even though the relevant product has been approved by another authority. The regulatory authorities in developed countries have lengthy approval processes for pharmaceutical
products. There can be no assurance that approvals will be granted on a timely basis, if at all, for any of our products.

We
are also subject to various federal, state, local and international laws, regulations and recommendations relating to safe working conditions, laboratory manufacturing practices and
the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research work. We cannot predict
whether additional government regulations material to our business might result from future legislation or administrative action.

Competition

We are subject to competition from products that use a different approach or means of accomplishing a therapeutic effect than our CoVal fusion
products. Many, if not all, major pharmaceutical companies have research and product development programs targeting HPV, hepatitis B virus, herpex simplex virus or HIV. Many pharmaceutical companies
are developing vaccines or immunotherapies that seek to stimulate the body's immune system to prevent or treat infectious disease or cancer. For example, in November 2002 Merck published
positive results from a clinical trial for a vaccine against HPV type 16 and indicated it is working on a preventative vaccine against four strains of HPV. In the same month GlaxoSmithKline published
positive results from a clinical trial for a herpes simplex vaccine for use in women who did not have antibodies to either HSV-1 and HSV-2the vaccine did not work
in women who had antibodies to HSV-1 or in men.

Various
potential competitors are performing research and developing therapeutic products based on the intrinsic nature of stress proteins to assist the body in fighting infection and
related cancers. While our technology focuses on heat shock proteins covalently fused to antigens, there are other ways to use heat shock proteins. Companies including Antigenics Inc.,
Peptor Ltd. and Mojave Therapeutics, Inc. are using stress protein-related approaches to stimulate or modulate the body's immune system. For example, Antigenics is injecting
non-covalent Hsp-peptide complexes that have been isolated from individual patient's cancer cells to treat the specific cancer of that patient. In addition, Antigenics has
initiated a phase I clinical trial to treat genital herpes with non-covalent complexes of a synthetic herpes virus peptide and a recombinant heat shock protein. Peptor is testing peptide
fragments of the Hsp60 molecule to suppress T cells that are involved with autoimmune diseases like rheumatoid arthritis. Mojave is using complexes of antigens and recombinant heat shock proteins; its
current clinical trials involve skin cancer and prostate cancer.

The
competition in our industry may increase over time due to rapid and substantial change. Many of our competitors have greater human and financial resources dedicated to product
development and human clinical testing than we do, as well as substantial marketing and financial resources. Acquisitions of, or investments in, competing biotechnology companies by large
pharmaceutical companies could increase such competitors' financial, marketing and other resources. Technological developments could render our proposed products or technologies
non-competitive.

To
win market share our therapeutic products need to perform better than existing and new alternatives. The diseases we are targeting are currently managed through a variety of
approaches. For
example, genital warts are treated by topical creams and ointments, cryosurgery, freezing, electro-cauterization and laser treatment. Papillomas and cancers caused by RRP, AIN and CIN are treated with
surgeries.

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In
the stress protein bioreagent market current competition is limited. A few companies have a broad line of competing products, such as Affinity Bioreagents Inc.; several larger
companies have introduced a limited range of competing products. Many of our product licenses are non-exclusive, so competition from other suppliers could increase in the future.

Human Resources

As of January 31, 2003 we employed approximately 90 personnel, of which over 50 were engaged in, directly or indirectly, research and development efforts.
Of the scientific persons employed, two hold an M.D., thirteen hold Ph.D.s, and the balance hold either M.Sc. or B.Sc. degrees or other diplomas. Our employees are not covered by any collective
bargaining agreement. All employees are required to execute confidentiality and assignment of invention agreements as a condition of their employment.

Availability of Information

Our annual report on Form 10-K and quarterly reports on Form 10-Q are available on our website, www.stressgen.com, free of
charge, as soon as reasonably practicable after such material is filed with the U.S. and Canadian securities regulatory
authorities. Our website also provides links for users to find our filings on the websites maintained by the U.S. and Canadian securities regulatory authorities. We consider those sites to be the
appropriate sources for reports that are filed with the securities regulatory authorities of only the U.S. or only Canada, rather than with both countries. Paper copies of our most recent filings are
available from our Investor Relations department free of charge upon request.

FACTORS THAT MAY AFFECT FUTURE PERFORMANCE

Before investing in our common stock you should carefully consider the following risk factors, the other information included herein and
the information included in our other reports and filings. Our business, financial condition, and the trading price of our common stock could be adversely affected by these and other
risks.

We Are At an Early Stage of Development

Our biotechnology business is still at an early stage of development. Significant additional research and development and clinical trials must be completed before
our technology can be commercialized. We have not completed the development of any therapeutic products and, therefore, have not begun to market or generate revenues from the commercialization of any
therapeutic products. We have undertaken only limited human clinical trials for some of our product candidates and we cannot assure you that the results obtained from laboratory or research studies
will be replicated in human studies or that such human studies will not identify undesirable side effects. We cannot assure you that any of our products will meet applicable health regulatory
standards, obtain required regulatory approvals or clearances, be produced in commercial quantities at reasonable costs, be successfully marketed or be profitable enough that we will recoup the
investment made in such product candidates. None of our therapeutic product candidates are expected to be commercially available for several years. There is no precedent for the successful
commercialization of products based on our CoVal fusion technology. It is possible that we will not successfully develop any therapeutic products.

We Have a History of Operating Losses and We May Never Become Profitable

We have not recorded any revenues from the sale of therapeutic products and have accumulated substantial net losses. We expect to incur continued losses for at
least the next several years as we continue research and development, and clinical trials. To become profitable, we, either alone or with one or more partners, must develop, manufacture and
successfully market our product candidates.

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We Must Obtain Additional Financing To Execute Our Business Plan

Our revenues from the production and sale of bioreagents, and the projected revenues and expense reimbursements from our HspE7 collaboration are not adequate to
support all of the therapeutic product development programs in our business plan. We will need substantial additional funds to pursue further research and development; carry out clinical trials;
obtain regulatory approvals; file, prosecute, defend and enforce our intellectual property rights and market our products. We will seek additional funds through public or private equity or debt
financing, strategic transactions and/or from other sources. We could enter into collaborative arrangements for the development of particular products that would lead to our relinquishing some or all
of our rights to the related technology or products.

Although
we expect to seek additional funding when there are market opportunities, future funding may not be available on favorable terms or at all. If additional funding were not
obtained, we would
reduce, defer or cancel development programs, planned initiatives or overhead expenditures, to the extent necessary. The failure to fund our capital requirements would have a material adverse effect
on its business, financial condition and results of operations.

Our Success Depends On Collaborative Partners, Licensees and Other Third Parties Over Whom We Have Limited Control

Due to the complexity of the process of developing therapeutics, our core business depends on our arrangements with pharmaceutical companies, corporate and
academic collaborators, licensors, licensees and others for the research, development, clinical testing, manufacturing, marketing and commercialization of our products. We are transitioning a number
of functions to Roche as a result of our June 2002 collaboration for the development and commercialization of HspE7. In addition, we have various research collaborations and outsource many
other business functions such as clinical trials and manufacturing. We may not be able to establish or maintain collaborations that are important to our business on favorable terms, if at all, and
such collaborations may not be successful.

There
are a number of risks associated with our dependence on collaborative agreements with third parties. Our product development and commercialization efforts could be adversely
affected if any collaborative partner terminates its agreement with us, causes delays, fails to timely develop or manufacture in adequate quantities a substance we need in order to conduct clinical
trials, fails to adequately perform clinical trials, determines not to develop, manufacture or commercialize an end product to which it has or we have rights, or otherwise fails to meet its
contractual obligations. Our collaborative partners could pursue other technologies or develop alternative products that could compete with our future products.

In
both our therapeutic and our bioreagent businesses, we hold licenses from third parties for technologies and materials. We plan to acquire additional licenses from other companies and
academic institutions. Pursuant to the terms of our license agreements, we could be obligated to diligently bring potential products to market, make milestone payments that, in some instances, could
be substantial, and incur the costs of filing and prosecuting patent applications. We cannot assure you that these licenses will not terminate or that they will be renewed. In addition, we cannot
assure you that these licenses will remain in good standing. Our licensors may attempt to terminate our licenses for their own business reasons.

The Profitability of Our Products Will Depend On Our Ability to Protect Our Proprietary Rights and Operate Without Infringing The Proprietary Rights of Others

The profitability of our products will depend in part on our ability to obtain and maintain patents and licenses, and preserve trade secrets, and the period our
intellectual property remains exclusive. We must also operate without infringing the proprietary rights of third parties and without third parties

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circumventing our rights. We have received U.S. and European patents and have filed and are actively pursuing applications for additional U.S. and other patents. The patent positions of
pharmaceutical and biotechnology enterprises, including ours, are uncertain and involve complex legal and factual questions for which important legal principles are largely unresolved. For example, no
consistent policy has emerged regarding the breadth of biotechnology patent claims that are granted by the U.S. Patent and Trademark Office or enforced by the U.S. federal courts. In addition, the
scope of the originally claimed subject matter in a patent application can be significantly reduced before a patent is issued. The biotechnology patent situation outside the U.S. is even more
uncertain, is currently undergoing review and revision in many countries, and may not protect our intellectual property rights to the same extent as the laws of the U.S. Because patent applications
are maintained in secrecy in some cases, we cannot be certain that we or our licensors are the first creators of inventions described in our pending patent applications or patents or the first to file
patent applications for such inventions.

Other
companies may independently develop similar products and design around any patented products we develop. We cannot assure you that any of our patent applications will result in the
issuance of patents, that we will develop additional patentable products, that the patents we have been issued 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 our patents. On October 22, 2002 Antigenics Inc. announced that it had filed an opposition in the
European Patent Office to a European patent and requests for re-examination in the U.S. Patent Office of two U.S. patents we have licensed. Until we receive final results from the
opposition and re-examination processes, we will not be able to assure you of the success of our planned vigorous defense of these patents.

A
number of pharmaceutical, biotechnology, research and academic companies and institutions have developed technologies, filed patent applications or received patents on technologies
that may relate to our business. If these technologies, applications or patents conflict with ours, the scope of our current or future patents could be limited or our patent applications could be
denied. Our business may be adversely affected if competitors independently develop competing technologies, especially if we do not obtain, or only obtain narrow, patent protection. If patents that
cover our activities are issued to other companies, we may not be able to obtain licenses at a reasonable cost, or at all, or develop alternative technology. If we are blocked from using our current
technologies we may not be able to introduce, manufacture or sell our planned products.

Patent
litigation is becoming widespread in the biotechnology industry. Such litigation may affect our efforts to form collaborations, to conduct research or development, to conduct
clinical testing or to manufacture or market any products under development. We cannot assure you that our patents would be held valid or enforceable by a court or that competitor's technology or
product would be found to infringe our patents. Our business could be materially affected by an adverse outcome to such litigation. Similarly, we may participate in interference proceedings declared
by the U.S. Patent and Trademark Office or equivalent international authorities to determine priority of invention. We could incur substantial costs and devote significant management resources to
defend our patent position or seek a declaration that the patents of others are invalid.

Much
of our know-how and technology may not be patentable, though it may constitute trade secrets. We cannot assure you that we will be able to meaningfully protect our trade
secrets. We cannot assure you that any of the existing confidentiality agreements with our employees, consultants, advisors or collaborators will provide meaningful protection for our trade secrets,
know-how or other proprietary information in the event of any unauthorized use or disclosure. Collaborators, advisors or consultants may dispute the ownership of proprietary rights to our
technology, for example by asserting that they developed it independently.

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We Could Need to Conduct More Clinical Trials or Take More Time to Complete Our Clinical Trials Than We Originally Plan

Clinical trials vary in design by factors including their dosage, end points, length, controls, and numbers and types of patients enrolled. We may need to conduct
a series of trials to demonstrate the safety and efficacy of our products. In addition, we may be required to determine whether our products delay or prevent disease recurrence. Clinical trials to
show that a disease does not recur take longer to complete than clinical trials that end when patients stop having specific symptoms. The actual schedules for our clinical trials could vary
dramatically from the forecasted schedules due to factors including conflicts with the schedules of participating clinicians and clinical institutions, delayed patient accrual and changes affecting
supplies for clinical trials.

We
have limited experience in conducting clinical trials. We rely on corporate collaborators, academic institutions and clinical research organizations to conduct, supervise, monitor and
design some or all aspects of clinical trials involving our products. In addition, the NCI is sponsoring some HspE7 clinical trials. Since these trials depend on governmental participation and
funding, we have less control over their timing and design. Delays in or failure to commence or complete any planned clinical trials could delay the ultimate timelines for product release. In
addition, such delays could reduce investors' confidence in our ability to develop products, likely causing our stock price to decrease.

We May Not Be Able to Obtain the Regulatory Approvals or Clearances That Are Necessary to Commercialize Our Products

The U.S., Canada and other countries impose significant statutory and regulatory obligations upon the manufacture and sale of human therapeutic products. In order
for our products to obtain marketing approval and clearance for each indication, our preclinical and clinical data and manufacturing facilities will need to meet complex criteria establishing the
safety and efficacy of the ultimate products.

Our
product candidates, some of which are currently in the early stages of development, will require significant additional development and pre-clinical and clinical testing
prior to their commercialization.
These steps and the process of obtaining required approvals and clearances can be costly and time-consuming. If our potential products are not successfully developed, do not prove to be
safe and effective in clinical trials, or do not receive applicable regulatory approvals and clearances, or if there are delays in the process:



Governmental
and regulatory authorities may approve a product candidate for fewer indications or narrower circumstances than we request or may condition approval on the performance of
post-marketing studies for a product candidate. Even if we receive regulatory approval and clearance, our product candidates may later exhibit adverse side effects that limit or prevent
their widespread use or that force us to withdraw those product candidates from the market. In addition, any marketed product and its manufacturer will continue to be subject to strict regulation
after approval. Any unforeseen problems with an approved product or any violation of regulations could result in restrictions on the product, including its withdrawal from the market.

If
we fail to comply with applicable regulatory requirements at any stage during the regulatory process, we or our contract manufacturers may be subject to sanctions, including fines,
product recalls or seizures, injunctions, refusal of regulatory agencies to review pending market approval applications

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or supplements to approval applications, total or partial suspension of production, civil penalties, withdrawals of previously approved marketing applications and criminal prosecution.

The
manufacturers of our products will be required to comply with applicable good manufacturing practices regulations, which include requirements relating to quality control and quality
assurance as well as the corresponding maintenance records and documentation. If the manufacturers cannot comply with regulatory requirements including applicable good manufacturing practice
requirements, we may not be allowed to develop or market product candidates.

Competitors May Develop and Market Drugs That Are Less Expensive, More Effective or Safer, Making Our Products Obsolete or Uncompetitive

Many of our competitors and potential competitors have substantially greater product development capabilities and financial, scientific, marketing and human
resources than ours. Technological competition from pharmaceutical companies and biotechnology companies is intense and is expected to increase. Other companies have developed technologies that could
be the basis for competitive products. Some of these products have an entirely different approach or means of accomplishing the desired therapeutic effect than products being developed by us and may
be more effective and less costly than the products developed by us. Competitors may succeed in developing products earlier than us, obtaining approvals and clearances for such products more rapidly
than us, or developing products that are more effective than ours. In addition, other forms of medical treatment may be competitive with our products. Our technology or products may become obsolete or
uncompetitive.

Our Products May Not Gain Market Acceptance

Our products may not gain market acceptance among physicians, patients, healthcare payors and the medical community. The degree of market acceptance of any
product that we may develop will depend on a number of factors, including establishment and demonstration of clinical efficacy and safety, cost effectiveness of the products, their potential advantage
over alternative products and marketing and distribution support for the products.

Our
sales experience is limited to the sale of our bioreagents. To directly market and distribute any pharmaceutical products we may develop, we or our collaborators, will need a
substantial marketing and sales force with appropriate technical expertise and supporting distribution capabilities. We may not be able to establish sales, marketing and distribution capabilities of
our own or enter into arrangements with third parties on terms that are acceptable to us. If marketing and sales through partnering arrangements is not successful and we do not successfully develop
internal marketing and sales expertise, our ability to generate revenue from product sales will be limited.

We May Encounter Difficulties in Developing Manufacturing Capabilities and Facilities or Entering into Contracts for Manufacturing with Third Parties

Our manufacturing experience in bioreagents is not directly applicable to the manufacture of therapeutic products. We have not yet introduced any therapeutic
products and have no manufacturing experience for immunotherapies. Before our products can be profitable, they need to be produced in commercial quantities in a cost-effective
manufacturing process that complies with regulatory requirements. We do not have facilities for the production of the products we are developing so depend on the manufacturing capabilities of
collaborators. Currently, we anticipate that Roche will manufacture our HspE7 product. If this situation changes and we cannot contract for large-scale manufacturing capabilities on acceptable terms,
or if there are delays or difficulties in manufacturing, we may not obtain regulatory approval or there may be shortages of our products.

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If we chose to develop our own commercial manufacturing facilities, we would need substantial more funds than we currently have. We would also need to hire additional management and
technical personnel with experience conducting manufacturing in accordance with applicable regulations of the U.S. Food and Drug Administration and Health Canada's Health Products and Food Branch
Inspectorate. Efforts to develop facilities for commercial production might not be successful.

Production
of our products could require raw materials which are scarce or which can be obtained from a limited number of sources. If our manufacturers were unable to obtain adequate
supplies of such raw materials, the development, regulatory approval and marketing of our products could be delayed.

Our Operations Involve Risks Which Could Subject Us to Damages Resulting from Accidental Contamination or Injury

We conduct human clinical trials, including trials in children, which may have unforeseen long-term health implications. We have only limited amounts
of product liability insurance for our clinical trials. We may not correctly anticipate or be able to maintain on acceptable terms the level of insurance coverage that would adequately cover potential
liabilities from proposed clinical trials. This type of insurance is expensive, difficult to obtain and may not be available in the future. If we cannot obtain sufficient insurance coverage or other
protection against potential product liability claims, we may not be able to commercialize potential products. If any liabilities from a claim exceed the limit of our insurance coverage, we may not
have the resources to pay them.

Our
research and development processes involve the controlled use of hazardous and radioactive materials. We are subject to federal, provincial and local laws and regulations governing
the use, manufacture, storage, handling and disposal of such materials and certain waste products. The risk of accidental contamination or injury from handling and disposing of such materials cannot
be completely eliminated. In the event of or an accident involving hazardous or radioactive materials, we could be held liable for any damages that result. We are not insured with respect to this
liability. Such liability could exceed our resources. In the future we may be required to incur significant costs to comply with environmental laws and regulations.

Our Success Depends On Our Ability To Attract and Retain Qualified Personnel

We depend on a core management and scientific team. The loss of any of these individuals may prevent us from achieving our business objective of commercializing
our product candidates. Our future success will also depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and management personnel, as well
as personnel with expertise in clinical testing and government regulation. We face competition for personnel from other companies, universities, public and private research institutions, government
entities and other organizations. If we are unsuccessful in our recruitment and retention efforts, our business operations will suffer.

We Will Depend Upon the Availability of Reimbursement From Third-Party Payors Who Are Increasingly Challenging the Price and Examining the Cost Effectiveness of Medical
Products and Services

Sales of our products will depend in part upon the availability of reimbursement from third-party payors, including government health administration authorities,
managed care providers, private health insurers and other organizations. These third-party payors increasingly attempt to contain costs by challenging the price of products and services and limiting
the coverage and level of reimbursement for pharmaceutical products. Third-party reimbursement for our products may be inadequate to enable us to maintain prices that provide a return on our product
development investment. Governments continue to propose and pass legislation designed to reduce healthcare costs. This legislation could

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further limit reimbursement. If government and third-party payors do not adequately reimburse patients for our products, there may not be a market for the products.

Our Share Price Has Been and Is Likely to Continue to Be Highly Volatile

As is typical for biotechnology companies without a Food and Drug Administration approved product on the market, our share price has been highly volatile in the
past and is likely to continue to be volatile. The price of our shares could be materially affected by factors including the announcement of technological innovations, the release of publications, the
announcement of clinical trials results by us or our competitors, the development of new commercial products, changes affecting patents or exclusive licenses, changes in regulations, the release of
financial results, public concerns over risks relating to biotechnology, future issuances of shares by us, sales of shares by our shareholders and changes in analyst recommendations.

The
volatility of our stock may be heightened while it is traded primarily on the Toronto Stock Exchange, which attracts primarily Canadian shareholders. Because some institutional
investors invest in Toronto Stock Exchange companies in proportion to their weight on that index, changes within the S&P/TSX Composite Index may also increase volatility in our share price. We
continue to explore a
cross-listing on the Nasdaq or a U.S. exchange, but can provide no assurances regarding the timing or ultimate results of such a transaction.

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Item 2. PROPERTIES

Most of our executive, clinical research, development, regulatory affairs and financial functions are provided by our subsidiary, Stressgen
Biotechnologies, Inc., which has offices in San Diego, California and Collegeville, Pennsylvania. Our principal research facilities are in Victoria, British Columbia, together with our
Stressgen Bioreagents Limited Partnership operations. We lease approximately 5,500 square feet of office space in San Diego under a lease that expires in January 2004. Our Collegeville lease
approximates 5,000 square feet and expires in December 2004. In Victoria we have approximately 25,000 square feet of office, research and manufacturing space under a lease that expires at the
end of 2005.

Item 3. LEGAL PROCEEDINGS

As of the date hereof, we are not a party to any material legal proceedings. From time to time we are involved in certain litigation arising out of our
operations.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We did not submit any matters to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 2002.

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PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Common Share Information

Our common shares are listed and posted for trading in Canada on The Toronto Stock Exchange under the symbol "SSB". The following table sets forth, for the
periods indicated, the high and low sales prices of the common shares, as reported. All amounts following are expressed in Canadian dollars unless otherwise indicated.

High

Low2002Fourth Quarter

2.75

1.25Third Quarter

4.05

2.26Second Quarter

4.59

3.25First Quarter

5.79

3.922001Fourth Quarter

4.85

3.15Third Quarter

5.80

2.77Second Quarter

6.92

4.55First Quarter

7.19

4.30


On
January 31, 2003, the closing price of the Company's common shares as reported by The Toronto Stock Exchange was $1.71 per share. We had 113 registered holders, 25 of whom were
residents of the U.S. Of the approximately 60,244,000 common shares outstanding, the portion held by registered holders in the U.S. was approximately 6,417,000 or 11%.

There
were approximately 9,000 holders of our common shares as of the most recent annual general meeting of shareholders in June 2002.

Dividend Policy

We have not declared or paid any dividends on our common shares since inception. We anticipate that all available cash will be needed to finance the expansion of
our business and have no plans to pay dividends in the foreseeable future.

Equity Compensation Plans

As of December 31, 2002 we had two equity compensation plans, a 1996 Share Incentive Plan and a 2001 Equity Incentive Plan. Both plans were approved by our
shareholders. The following table aggregates the data from the two plans:

Number of securities to be issued upon exercise of outstanding options
(a)

Weighted-average exercise price of outstanding options
(b)

Number of securities
remaining available for future issuance under equity
compensation plans (excluding securities reflected
in column (a))
(c)4,304,563

$4.69

1,385,167


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Exchange Controls and Other Limitations Affecting Holders of Common Shares

There is no law, governmental decree or regulation in Canada that restricts the export or import of capital, or which would affect our remittance of dividends or
other payments to non-resident holders of our common shares, other than withholding tax requirements.

There
is no limitation imposed by Canadian law or the charter or other constituent documents of Stressgen on the right of non-residents to hold or vote our common shares,
other than those imposed by theInvestment Canada Act(Canada), or the ICA.

The
ICA requires each individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a "Canadian" as defined in the ICA who commences a new
business activity in Canada or acquires control of an existing Canadian business, where the establishment or acquisition of control is not a reviewable transaction, to file a notification with
Industry Canada. The ICA generally prohibits implementation of a reviewable transaction by a non-Canadian unless after review the minister responsible for the ICA is satisfied that the
investment is likely to be of net benefit to Canada. An investment in our common shares by a non-Canadian would be reviewable under the ICA if it were an investment to acquire control of
Stressgen and the value of our assets of was $5 million or more. Higher limits apply for acquisitions by or from World Trade Organization member country investors.

The
acquisition of a majority of the voting interests of an entity or of a majority of the undivided ownership interests in the voting shares of an entity that is a corporation is deemed
to be acquisition of control of that entity. The acquisition of less than a majority but one-third or more of the voting shares of a corporation or of an equivalent undivided ownership
interest in the voting shares of the corporation is presumed to be acquisition of control of that corporation unless it can be established that, upon the acquisition, the corporation is not controlled
in fact by the acquiror through the ownership of voting shares. The acquisition of less than one-third of the voting shares of a corporation or of an equivalent undivided ownership
interest in the voting shares of the corporation is deemed not to be acquisition of control of that corporation. Certain transactions in relation to our common shares would be exempt from review from
the ICA, including an:



The
ICA was amended with theAct to Implement the Agreement Establishing the World Trade Organization(Canada) to provide for special
review thresholds for World Trade Organization member country investors. Under the ICA, as amended, an investment in our common shares by an investor from a country which is a member of the WTO would
be reviewable only if it were an investment to acquire control of the company and the value of the assets of the company was equal to or greater than a specified amount, which increases in stages. As
at December 31, 2002, the review threshold was $218,000,000. This amount is subject to an annual adjustment on the basis of a prescribed formula in the ICA to reflect inflation and real growth
within Canada.

Certain Canadian Federal Income Tax Information for United States Residents

The following is a summary of certain Canadian federal income tax considerations generally applicable to holders of common shares who, for purposes of the Income
Tax Act (Canada) (the

22

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"Canadian Tax Act"), deal at arm's length and are not affiliated with Stressgen, hold such shares as capital property, do not use or hold, and are not deemed to use or hold, the common shares in
connection with a trade or business carried on, or deemed to be carried on, in Canada at any time, have not been at any time residents of Canada for purposes of the Canadian Tax Act and are residents
of the United States of America ("U.S. Residents") under the Canada-U.S. Income Tax Convention (1980) (the "Convention"). The common shares will generally be considered to be capital
property of holders unless such shares are held in the course of carrying on a business, or in an adventure or concern in the nature of trade. Furthermore, this summary does not apply to any holder
which carries on an insurance business in Canada and elsewhere, in respect of the common shares that are effectively connected with the holder's Canadian insurance business or that are "designated
insurance property" as defined in the Canadian Tax Act.

This
summary is of a general nature only and is not intended to be, and should not be construed to be, legal, business or tax advice to any holder of common shares or prospective holder
of common shares and no opinion or representation with respect to any tax consequences, including, but not limited to, Canadian federal, Canadian provincial or U.S. tax consequences, is made to any
particular holder of common shares or prospective holder of common shares. Accordingly, holders of common shares and prospective holders of common shares should consult with their own tax advisers for
advice with respect to the tax consequences to them having regard to their own particular circumstances, including any consequences of purchasing, owning or disposing of common shares arising under
Canadian federal, Canadian provincial, U.S. Federal, U.S. state or local tax laws or tax laws of jurisdictions outside the U.S. or Canada. No advance income tax ruling has been requested or obtained
from the Canada Customs and Revenue Agency to confirm the tax consequences of any of the transactions described herein.

This
summary is based on the current provisions of the Canadian Tax Act and the regulations thereunder (the "Regulations"), proposed amendments to the Canadian Tax Act and/or Regulations
publicly announced by the Minister of Finance (Canada) prior to the date hereof (the "Proposed Amendments"), and the provisions of the Convention as in effect on the date hereof. No assurance can be
given that the Proposed Amendments will be entered into law in the manner proposed, or at all.

This
summary is not exhaustive of all possible Canadian federal income tax consequences for U.S. Residents and does not take into account or anticipate any changes in law, whether by
legislative, administrative, governmental or judicial decision or action, nor does it take into account Canadian provincial, U.S. or foreign tax considerations which may differ significantly from
those discussed herein. No assurances can be given that subsequent changes in law or administrative policy will not affect or modify the opinions expressed herein.

A
holder will not be subject to tax under the Canadian Tax Act in respect of any capital gain on a disposition or deemed disposition of common shares (including the death of the holder)
unless at the time of such disposition such shares constitute taxable Canadian property of the holder for purposes of the Canadian Tax Act and such holder is not entitled to relief under an applicable
tax treaty. The common shares will generally not constitute taxable Canadian property of a holder at the time of a disposition of such shares provided (1) such shares are listed on a prescribed
stock exchange (which includes the Toronto Stock Exchange and would currently include the American Stock Exchange or Nasdaq), (2) the holder does not use or hold or is not deemed to use or
hold, such shares in connection with carrying on a business in Canada, and (3) the holder, persons with whom such holder does not deal at arm's length, or the holder and such persons, has not
owned (taking into account any interest in or option in respect of the shares) 25% or more of the issued shares of any class or series of our share capital at any time within the 5 years
preceding the date of disposition. In any event, under the Convention, gains derived by a holder who is a resident of the U.S. (within the meaning of the Convention) from the disposition of common
shares will generally not be taxable in Canada unless the value of the common shares is derived principally from real property situated in Canada. If the

23

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common shares held by a holder do not constitute taxable Canadian property or if a capital gain in respect of the common shares would because of a tax treaty be exempt from tax under the Canadian Tax
Act, any capital loss arising upon the disposition of the common shares will not be available to be used to offset a capital gain realized in respect of another property, which may be subject to tax
under the Canadian Tax Act. To the extent the common shares disposed of constitute taxable Canadian property, the holder will be required to file a Canadian tax return, even if the gain arising
from such a disposition is exempt from tax because of a tax treaty.

Amounts
in respect of common shares paid or credited or deemed to be paid or credited as, on account or in lieu of payment of, or in satisfaction of, dividends to a U.S. Resident will
generally be subject to Canadian non-resident withholding tax at the rate of 25%. Currently, under the Convention the rate of Canadian non-resident withholding tax will
generally be reduced to: (i) 5% of the gross amount of dividends if the beneficial owner is a company (other than a limited liability company) that is resident in the U.S. and that owns at
least 10% of our voting stock; or (ii) 15% of the gross amount of dividends if the beneficial owner is a resident of the U.S. but does not qualify for the 5% withholding rate.

United States Federal Income Tax Considerations

The following summary is a general description of the material United States federal income tax consequences of the purchase, ownership and disposition of common
shares by U.S. Holders (as defined below). The tax consequences of an investment in the common shares by persons who are not U.S. Holders may be expected to differ substantially from the tax
consequences discussed herein. This summary does not address all potentially relevant U.S. federal income tax matters. This description is intended for general information purposes only and is based
on the United States Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect on
the date hereof and all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax considerations discussed herein. This summary does not consider the
potential effects, both adverse and beneficial, of any recently proposed legislation, which, if enacted, could be applied, possibly on a retroactive basis, at any time. The tax treatment of a holder
of common shares may vary depending upon his particular situation. Certain holders (including, but not limited to, persons that are not U.S. Holders, banks, insurance companies, tax-exempt
organizations, financial institutions, persons subject to the alternative minimum tax, real estate investment trusts, regulated investment companies, persons or entities that have a "functional
currency" other than the U.S. dollar, shareholders who acquired their stock through the exercise of employer stock options, and broker-dealers) may be subject to special rules not discussed below. The
following summary is limited to U.S. Holders who will hold the common shares as "capital assets" within the meaning of Section 1221 of the Code, and do not actually or constructively own 10% or
more of our voting stock. The discussion below does not address the effect of any state, local or foreign tax law on a holder of the common shares.

This
summary is for general information only and it is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder of common shares. No
opinion or representation with respect to the United States federal income tax consequences to any such U.S. Holder is made. Accordingly, prospective investors should consult their own tax advisors
about the federal, state, local, and foreign tax consequences of purchasing, owning and disposing of common shares.

24

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As used herein, the term "U.S. Holder" means (i) an individual who is a citizen or resident of the United States, (ii) a partnership, corporation or other entity organized
in or under (or treated for federal income tax purposes as organized in or under) the laws of the United States or any state thereof, (iii) an estate subject to United States federal income
taxation without regard to the source of its income, and (iv) a trust if (a) a U.S. court is able to exercise primary supervision over the trust's administration and (b) one or
more U.S. fiduciaries have the authority to control all of the trust's substantial decisions. The term "Non-U.S. Holder" shall mean the beneficial owner of common shares other than a U.S.
Holder.

Subject
to the discussion of the "passive foreign investment company" rules below, for United States federal income tax purposes, the gross amount of a distribution with respect to
common shares will include the amount of any Canadian federal income tax withheld, and will be treated as a taxable dividend to the extent of our current and accumulated earnings and profits. For U.S.
foreign tax credit purposes, the source of the dividends will be based in general on the source of the earnings that give rise to the distributions. See Code Section 861(a)(2). U.S. source
income can adversely affect a U.S. Holders' ability to utilize foreign tax credits. U.S. corporate holders generally will not be allowed a deduction for dividends received in respect of distributions
on common shares. To the extent that distributions exceed our current or accumulated earnings and profits, they will be treated first as a return of capital up to the U.S. Holder's adjusted basis in
the common shares and thereafter as gain from the sale or exchange of the common shares.

If
a dividend distribution is paid in Canadian dollars, the amounts includable in income will be the U.S. dollar value, on the date of receipt, of the Canadian dollar amount distributed.
Any subsequent gain or loss in respect of such Canadian dollars arising from exchange rate fluctuations will be ordinary income or loss.

Subject
to the limitations set forth in the Code, as modified by the United States-Canada income tax treaty, U.S. Holders may elect to claim a credit against their United States federal
income tax liability for Canadian income tax withheld from dividends received in respect of common shares. U.S. Holders should be aware that any dividends we pay generally would constitute "passive
income" for purposes of the foreign tax credit, which could reduce the amount of foreign tax credit available to a U.S. Holder. The rules relating to the determination of the foreign tax credit are
complex. U.S. Holders should consult their personal tax advisors to determine whether and to what extent they would be entitled to such credit. U.S. Holders that do not elect to claim foreign tax
credits may instead claim a deduction for Canadian income tax withheld.

Subject
to the discussion of the "passive foreign investment company" rules below, the sale of common shares will generally result in the recognition of gain or loss in an amount equal
to the difference between the amount realized on the sale and the holder's adjusted basis in such common shares. Gain or loss upon the sale of the common shares will be long-term or
short-term capital gain or loss, depending on whether or not the common shares were held for more than one year prior to the sale. Preferential tax rates for long-term net
capital gains are applicable to a U.S. Holder that is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder that is a
corporation. Short-term capital gains, however, are generally taxed at ordinary income tax rates. Gain realized by a U.S. Holder that is a United States resident as defined in
Section 865 of the Code on the sale or other disposition of common shares generally will be treated as U.S. source and, under Treasury Regulations adopted on January 8, 1999 and amended
on December 27, 2001, any loss will also generally be treated as U.S. source, subject to exceptions relating to unamortized bond premium, accrued interest, offsetting positions and other
situations.

Deductions
for net capital losses are subject to significant limitations. For U.S. Holders that are individuals, any unused portion of such net capital loss may be carried over to be
used in later tax years until such net capital loss is thereby exhausted. For U.S. Holders that are corporations (other

25

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than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward for the five years succeeding from the loss
year to be offset against capital gains.

Special
rules are applicable to U.S. Holders that hold stock of a "passive foreign investment company" ("PFIC"). A foreign corporation is a PFIC if at least 75% of its gross income for
the taxable year is passive income or if at least 50% by value of the assets it holds during the taxable year produce or are held for the production of passive income. For publicly traded corporations
such as Stressgen, the asset test is met if the fair market value of passive income-producing assets equals or exceeds 50% of the sum of the corporation's liabilities plus the value of its outstanding
stock. U.S. Holders of common shares can be adversely affected by the PFIC rules if they hold or have held our common shares in a year in which we have or had PFIC status.

In
general, a U.S. Holder of common shares in a PFIC is required to prorate all gains realized on the disposition of such U.S. Holder's common shares and all "excess distributions" (as
such term is defined by Section 1291) over the entire holding period for the common shares (excluding any period prior to the first year during which we were a PFIC). All gains or excess
distributions allocated to such prior years are taxed at the highest tax rate for each such prior year applicable to ordinary income. The U.S. Holder also would be liable for interest on the foregoing
tax liability for each such prior year calculated as if such tax liability had come due in each such prior year. However, if the U.S. Holder makes a timely election to treat a PFIC as a qualified
electing fund ("QEF") with respect to such holder's interest therein, the above-described rules generally will not apply. Instead, the electing U.S. Holder would include annually in his gross income
his pro rata share of the PFIC's ordinary earnings and net capital gain regardless of whether such income or gain was actually distributed. A U.S. Holder of a QEF can, however, elect to defer the
payment of U.S. federal income tax on such income inclusions, but would then be obligated to interest to the government on the deferred payment. In addition, subject to certain limitations, U.S.
Holders owning marketable stock in a PFIC are permitted to elect to mark that stock to market annually. Amounts included in or deducted from income under the mark
to market alternative (and actual gains and losses realized upon disposition, subject to certain limitations) will be treated as ordinary gains or losses.

We
believe that Stressgen was not a PFIC for the year 2002 or prior years. However, because PFIC status depends on the character of our income and assets in each year, there can be no
assurance with respect to whether we will qualify as a PFIC in future years. Further, there can be no assurance that our determination concerning our PFIC status will not be challenged by the IRS. If
we determine that Stressgen is a PFIC we will determine at that time whether we will provide sufficient information for a U.S. Holder to make the QEF election. Therefore, each prospective investor is
urged to consult with a tax advisor with respect to how the PFIC rules would affect its tax situation.

If
more than 50% of the voting power of all classes of stock or the total value of our stock is owned, directly or indirectly, by citizens or residents of the United States, United
States domestic partnerships and corporations or estates or trusts other than foreign estates or trusts, each of whom own 10% or more of the total combined voting power of all classes of stock of the
Company ("10% U.S. Shareholders"), Stressgen could be treated as a CFC under Subpart F of the Code. If in 1998 or thereafter Stressgen qualifies as a CFC, 10% U.S. Shareholders are generally not
required to apply the PFIC rules, provided that, in some cases, complex tax elections are made. The classification of Stressgen as a CFC would effect many complex results including the required
inclusion by 10% of U.S. Shareholders' in income of their pro rata shares of our Subpart F income. In addition, under Section 1248 of the Code, gain from the sale or exchange of stock by a
holder of our shares who is or was a 10% U.S. Shareholder at any time during the five-year period ending with the sale or exchange is treated as ordinary dividend income to the extent of
our earnings and profits attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because it is not clear that Subpart F

26

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would apply to the holders of our shares, taxpayers that may be 10% U.S. Holders are urged to consult with their tax advisors to determine the applicable rules.

The
foregoing discussion is based on currently effective provisions of the Code, existing and proposed regulations thereunder, and current administrative rulings and court decisions, all
of which are subject to change. Any such change could affect the validity of this discussion. In addition, the implementation of certain aspects of the PFIC rules requires the issuance of regulations
which in some instances have not been promulgated and which may have retroactive effect. There can be no assurance that any of these regulations will be enacted or promulgated, and if so, the form
they will take or the effect that they may have on this discussion. Accordingly, and due to the complexity of the PFIC rules, U.S. persons who are shareholders of Stressgen are strongly urged to
consult their own tax advisors concerning the impact of these rules on their investment in our shares.

Item 6. SELECTED FINANCIAL DATA

Annual Financial Data

Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada ("Canadian GAAP"). These principles
differ in certain respects from generally accepted accounting principles in the United States of America ("U.S. GAAP"). The differences as they affect our financial statements are described in
Note 11 to our audited consolidated financial statements filed as part of Item 8 hereof. Because we report on a consolidated basis, our results include those of our subsidiaries, including a
U.S. subsidiary, which provides management, research and development services, and a Barbados subsidiary, which is becoming increasingly responsible for product development.

Consolidated Statement of Operations Data

|                                        |                        | Year ended December 31 |  
|--------------------------------------- | ---------------------- | ---------------------- | -
|
|
|Net revenues                            |                        |                        |  
|                                        | Canadian and U.S. GAAP |                        | $
|Research and development expenses       |                        |                        |  
|                                        | Canadian and U.S. GAAP |                        |  
|Net loss(1)                             |                        |                        |  
|                                        | Canadian GAAP          |                        |  
|                                        | U.S. GAAP              |                        |  
|Basic and diluted loss per common share |                        |                        |  
|                                        | Canadian GAAP          |                        |  
|                                        | U.S. GAAP              |                        |  

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Consolidated Balance Sheet Data

|                                |               | As of December 31
|------------------------------- | ------------- | -----------------
|
|
|Cash and short-term investments |               |                  
|                                | Canadian GAAP |                  
|                                | U.S. GAAP     |                  
|Total assets(2)                 |               |                  
|                                | Canadian GAAP |                  
|                                | U.S. GAAP     |                  
|Long-term obligations(3)        |               |                  
|                                | Canadian GAAP |                  
|                                | U.S. GAAP     |                  

The
information set forth above is not necessarily indicative of the results of future operations and should be read in conjunction with the consolidated financial statements and related
notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included as part of this Form 10-K.



Currency Exchange Rates

Our accounts are maintained in Canadian dollars. In this Annual Report on Form 10-K, all dollar amounts are stated in Canadian dollars except
where otherwise indicated.

The
table below shows relevant exchange rates which approximate the noon buying rates in New York City as reported by the Federal Reserve Bank of New York for cable transfers expressed
in

28

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Canadian dollars for our five most recent fiscal years. The average rate means the average of the exchange rates on the last day of each month during a year.

Fiscal Year Ended December 31,2002

2001

2000

1999

1998High

$
1.6128

$
1.6023

$
1.5600

$
1.5302

$
1.5770Low


1.5108


1.4933


1.4350


1.4440


1.4075Average


1.5702


1.5518


1.4855


1.4858


1.4836Period End


1.5800


1.5925


1.4995


1.4440


1.5375


As
of January 31, 2003, the noon buying rate in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York was
U.S.$0.6542 = Cdn.$1.00 (equivalent to U.S.$1.00 = Cdn.$1.5286).

29

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risk and uncertainties.
The predictions described in these statements may not materialize if management's current expectations regarding our future performance prove incorrect. Our results could also be affected by factors
including, but not limited to, our reliance on collaborative partners and other risks described above under "Factors That May Affect Future Performance." The forward-looking statements are based on
currently available information; we disclaim any obligation to update them.

The
following information should be read in conjunction with our 2002 consolidated financial statements and related notes therein, which are prepared in accordance with Canadian GAAP.
These principles differ in certain respects from U.S. GAAP. The differences, as they affect our consolidated financial statements, are described in Note 11 to our consolidated financial
statements. All amounts following are expressed in Canadian dollars unless otherwise indicated.

Overview

From our inception in 1990 to 1993, our core business involved the sale of bioreagents. Although we have retained and expanded our bioreagent business worldwide,
our primary focus since 1993 has been the research and development of innovative stress protein-based fusion products that will stimulate the body's immune system to combat viral infections and
related cancers. Our core, exclusively licensed technology involves the fusion of heat shock proteins with viral or cancer-associated antigens. The lead product candidate developed with this
technology, HspE7, targets a variety of human papillomavirus-related diseases. We are also performing research studies on potential treatments for hepatitis B and herpes simplex and are evaluating
fusion proteins to treat infections caused by hepatitis C and the human immunodeficiency virus.

We
have incurred significant losses since our inception and expect to incur substantial losses for the foreseeable future as we invest in our research and product development programs,
including manufacturing, pre-clinical studies and clinical trials, and regulatory activities. At December 31, 2002, our accumulated deficit was $134,049,000. Historically, we have
depended principally on equity financings to
fund our business activities. We intend to pursue additional equity financings to fund our business activities, markets permitting.

In
June 2002, we entered into a strategic collaboration with F. Hoffmann-La Roche and Hoffmann-La Roche Inc. (collectively, "Roche") for the
development of HspE7. Under terms of the agreement, we could receive up to an aggregate of $300,000,000 comprised of upfront license fees, development and commercial milestones, and equity
investments. In addition, we will receive tiered, progressive sales-based payments at varying rates upon commercialization of HspE7. We may further reduce product development risk in the future by
seeking partners for additional product candidates. Such collaborations could enable us to develop additional product candidates and exploit new applications for our technology, resulting in
additional product opportunities.

Our
success depends upon the safety and efficacy of our products in pre-clinical studies and clinical trials, and also on obtaining the necessary regulatory approvals to
market our products. The marketability of our products will be influenced by competition from alternative therapies and the degree of protection our intellectual property provides. We will also need
to recruit and retain personnel skilled in the product development process to obtain our objectives. We believe there will be significant markets for our therapeutic products should these products
prove to be effective in human clinical trials.

During
the period encompassed herein, we have devoted substantially all of our resources to our HspE7 product development program. HspE7 is being developed as a treatment for genital
warts,

30

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recurrent respiratory papillomatosis, anal intraepithelial neoplasia, cervical intraepithelial neoplasia and cervical cancer.

Liquidity and Capital Resources

Since inception we have relied principally on equity financings to fund our research and development programs, operations and capital expenditures, coupled with
cash flows generated from our bioreagent business. To date, we have raised net equity proceeds of $175,384,000, principally through our public issuances of stock, the exercise of warrants and stock
options issued since 1996 and, more recently, the issuance of stock and warrants to Roche in connection with the collaboration transaction. We employ a financial performance measurement system
designed to ensure our revenues and expenses are consistent with management's operational objectives and budgetary constraints. We believe that our current capital resources are sufficient to maintain
our current and planned operations beyond 2004. This belief is based on current research and clinical development plans, the current regulatory environment, historical industry experience in the
development of therapeutics and general economic conditions.

At
December 31, 2002, we had $46,013,000 of cash and short-term investments, which decreased during 2002 by $16,669,000 due principally to net losses of $28,802,000,
partially offset by $13,700,000 in proceeds from Roche for a combination of an initial equity investment, issuance of warrants and an upfront license fee. At December 31, 2002, approximately
13% of cash, cash equivalents and short-term investments were held in U.S. dollars.

Under
terms of the collaboration agreement, we could receive up to an aggregate of approximately $300,000,000 comprised of upfront license fees, development and commercial milestones,
and equity investments. The agreement was structured to enable us to realize up to 20% of this aggregate value by the end of 2004. The remainder of the equity and milestones, which are payable
depending on factors such as development events and indications launched, could be realized approximately one-half in the remaining development periods as therapeutic indications are
launched, and up to 30% within five years thereafter, based upon commercial success. The terms of the agreement increased our financial flexibility since we have transferred responsibility for
significant HspE7 product commercialization expenditures to Roche. Further, we are not obligated to any particular level of spending under the agreement.

During
2002, capital expenditures totaled $380,000 compared with $1,783,000 and $394,000 during 2001 and 2000 respectively. The 2002 reduction in capital expenditures compared to 2001 is
due to the completion of significant improvements to our laboratory facilities and additional purchases of laboratory equipment to support our ongoing research and bioreagent manufacturing activities
in 2001. Capital expenditures during 2003 are expected to remain consistent at 2002 levels that reflect strategic investments in laboratory equipment needed to preserve our current level of
manufacturing and research capabilities.

We
have a credit facility for $2,000,000 with a Canadian chartered bank. At December 31, 2002, $541,000 were used and outstanding under this facility in the form of fixed rate
capital leases.

We
will require additional capital to fund future research and product development activities. We expect to seek additional funds from various sources, including research and development
collaborations with corporate partners, and public and private equity financing. We cannot assure you that additional financing will be available when needed or on satisfactory terms. If we raise
additional funds by issuing equity securities, substantial dilution to our existing shareholders may result. If adequate funds are not available, we may be required to delay, reduce the scope of, or
eliminate one or more of our research or development programs. We may need to obtain funds through collaborative arrangements with others that are on unfavorable terms. We may also have to relinquish
rights to certain of our technologies, product candidates or products that we would otherwise seek to develop ourselves.

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Results of Operations

During 2002, we realized a net loss of $28,802,000 or $0.49 per common share. These results compare with a net loss of $35,939,000 in 2001 and $25,407,000 in 2000
($0.70 and $0.63 per share, respectively). The $7,137,000 decrease in net loss during 2002 is due principally to the recognition of collaborative R&D revenue from Roche, which totaled $8,370,000
during the second half of 2002.

Collaborative R&D revenue

Collaborative R&D revenue was $8,370,000 in 2002. Collaborative R&D revenue includes $7,815,000 for development activities in support of Roche and $555,000 from
the amortization of up-front license fees in accordance with SAB No 101 "Revenue Recognition in Financial Statements."

Bioreagent sales

The production and sale of bioreagents supports our business strategy by building our market presence in stress proteins and strengthening our strategic
relationships with companies, academic institutions and stress response researchers. Our products are sold directly to end-users and through third party distributors. Consistent with an
overall economic slowdown in North America, industry-wide demand for bioreagents slowed during 2002. Product pricing in 2002 was generally consistent with 2001. Despite the difficult
market, our bioreagent sales increased by 5% to $5,672,000 in 2002, compared to 30% and 27% growth in 2001 and 2000, respectively. Prior years' growth is attributed to increased demand for stress
protein and antibody bioreagents, increased prices and complementary new product introductions.

Research and development

Research and development, or R&D, includes costs associated with clinical studies, product development, and ongoing exploratory research. In order to optimize our
financial flexibility, we employ clinical research organizations to conduct our clinical trials and engage contract manufacturers to assist us with our product development and manufacturing.

R&D
spending decreased by approximately 6% to $33,675,000 in 2002 compared with $35,906,000 in 2001. The 2002 decrease reflects the mid-2002 cost shift of HspE7 manufacturing
scale-up costs and other product development efforts to Roche. During 2001, R&D spending increased by approximately 50% from $23,961,000 in 2000, due largely to increased expenditures for
human clinical trial activities and manufacturing scale-up associated with HspE7 and increased staffing to support our expanded business activities.

In
2002 we fully enrolled patients in our RRP phase II clinical trial. We also completed the additional enrollment of patients for our phase III AIN rollover trial. Final data for both
of these trials is expected in 2003. During 2002, over 80% of our R&D spending related to efforts developing HspE7, while the remaining spending related to exploratory research, including our
follow-on CoVal fusion product candidates. Our accomplishments in 2002 were consistent with our 2002 objectives. During 2003, approximately 50% of planned R&D spending is
expected to support HspE7 development. We anticipate that R&D spending will decrease in 2003 due to Roche's increased involvement in HspE7 development activities.

Selling, general and administrative expenses

Selling, general and administrative expenses, or SG&A, includes executive management, business development, investor relations, legal support and general
administration.

SG&A
represented approximately 19% of total operating expenses in 2002, compared with 17% in 2001 and 21% in 2000, respectively. SG&A expenses increased by 8% to $8,409,000 in 2002,
compared with $7,782,000 in 2001 and $6,538,000 in 2000. The 2002 increase in SG&A was due principally to

32

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business development activities associated with consummating our collaboration agreement with Roche. The increase in SG&A in 2001 from 2000 was due principally to enhanced business activities, costs
associated with our expanded North American operations, and the addition of key executive personnel. We anticipate that 2003 SG&A spending will decrease from 2002, due to completion of HspE7 business
development activities in 2002.

Cost of bioreagent sales

The aggregate cost of bioreagent sales as a percentage of bioreagent sales was approximately 29% in 2002 and 2001, and 21% in 2000, resulting in gross margins of
71% in 2002 and 2001, and 79% in 2000. The 71% 2002 and 2001 gross margins were lower than in 2000 due to write-offs of obsolete and slow moving inventory. We reviewed sales trends in
determining the realizable value of inventories. In 2003, we believe the gross margin will be between 70% and 74%.

Interest and other income

Interest and other income decreased by 76% to $944,000 compared with $4,009,000 in 2001. This change is principally due to a $1,825,000 decrease in foreign
exchange gains due to less favorable
foreign currency rates on U.S. investments, coupled with a $1,240,000 reduction in interest income. Volatility and weakening of the U.S. dollar during 2002 resulted in foreign exchange loss. Further,
our reduced cash and short term investment balances and lower interest rates available in 2002, compared to 2001, resulted in less interest income.

Interest
and other income increased by 105% to $4,009,000 in 2001 compared with $1,953,000 in 2000. The increased interest and other income levels in 2001 were due principally to a
significant foreign exchange rate impact accounting for $1,808,000 of the increase in 2001 over 2000. Volatility and strengthening of the U.S. dollar during 2001 resulted in foreign exchange gain.

Basic and diluted loss per share

The 20% decrease in net loss to $28,802,000 in 2002, compared with $35,939,000 in 2001, was diluted by a 15% increase in the weighted average number of common
shares outstanding, resulting in basic and diluted loss per share of $0.49 in 2002, compared with $0.70 in 2001.

The
41% increase in net loss to $35,939,000 in 2001 compared with $25,407,000 in 2000, was diluted by a 26% increase in the weighted average number of common shares outstanding,
resulting in basic and diluted loss per share of $0.70 in 2001 and $0.63 in 2000.

Differences between Canadian and U.S. generally accepted accounting principles

Our financial statements have been prepared in accordance with Canadian GAAP. Certain adjustments would be required if these statements were to be prepared in all
material respects, in accordance with U.S. GAAP.

To
conform to U.S. GAAP, our net loss would increase by $120,000 in 2002, $402,000 in 2001 and $10,359,000 in 2000. In 2002, the principal difference in our net loss using U.S. GAAP
rather than Canadian GAAP is due to the reversal of $69,000 in unrealized foreign exchange gain on available for sale securities and a $51,000 reversal of adjustments previously made to short term
investments recorded under Canadian GAAP. In 2001, the principal difference in our net loss using U.S. GAAP rather than Canadian GAAP is due to the reversal of $541,000 in unrealized foreign exchange
gain recorded under Canadian GAAP. In 2000, the release of escrow shares resulting in stock based compensation expense of $9,093,000, combined with a $372,000 in unrealized foreign exchange loss on
available-for-sale securities, caused the principal differences between U.S. GAAP and Canadian GAAP. A complete discussion of these and other less significant differences
between U.S. GAAP and Canadian GAAP are described in Note 11 to our consolidated financial statements.

33

---

Net
loss per common share under U.S. GAAP would have been $0.49, $0.71 and $0.88 in 2002, 2001 and 2000, respectively. There are no differences under Canadian and U.S. GAAP with respect
to our current assets and our stockholders' equity at December 31, 2002 and 2001.

Critical Accounting Policies

Our significant accounting policies are disclosed in Note 1 to our consolidated financial statements. Certain of our policies require the application of
management judgment in making estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes. Those estimates and
assumptions are based on historical experience and various other factors deemed applicable and reasonable under the circumstances. The use of judgment in determining such estimates and assumptions is,
by nature, subject to a degree of uncertainty. Accordingly, actual results could differ from the estimates made. Our significant accounting policies include:

Revenue recognition

Revenue from collaborative R&D arrangements may include multiple elements within a single contract. Our accounting policy complies with the revenue determination
requirements set forth in EITF-0021 "Accounting for Revenue Arrangements with Multiple Deliverables," relating to the separation of multiple deliverables into individual accounting units
with determinable fair values. Under the guidance of EITF-0021, we have estimated the fair value of deliverables in the Roche agreement using standard industry techniques. Changes in the
determination of fair values or performance periods relating to certain deliverables, and associated milestones, could impact the timing of future revenue streams.

Clinical trial accruals

The Company recognizes expenses related to its ongoing clinical trials using a methodology designed to accrue estimated costs in the appropriate accounting
periods. The Company recognizes clinical trial costs in three distinct phases: start-up phase, patient accrual phase, and close-out phase. Our expenses related to clinical
trials could vary based on patient availability, additional statistical analysis requirements, and decisions to extend the patient evaluation period.

Stock-based compensation

The Company has adopted the recommendations of the CICA Handbook section 3870,Stock-Based Compensation and Other Stock-Based
Payments, effective January 1, 2002, and has elected to recognize stock compensation expense in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25,Accounting for Stock Issued to Employees. Refer to Note 1 for our pro forma financial results using the fair value method
of accounting for stock based compensation.

Allocation of Costs

We allocate certain indirect costs associated with support activities such as the rent and utilities for facilities, information technology, finance and human
resources. These costs are allocated to R&D, SG&A and cost of goods sold based on headcount and square footage.

34

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to foreign currency fluctuations through our operations in the U.S. since a substantial amount of our contract research and development spending is
transacted in U.S. dollars. However, since approximately 95% of our bioreagent product sales are in U.S. dollars, there is partial matching of U.S. currency expenses and revenues. We use the Canadian
dollar as our measurement and functional currency. As a result, we translate monetary assets and liabilities into Canadian dollars at the rate of exchange prevailing at our balance sheet date and
include resulting exchange gains and losses in other income. We do not currently engage in hedging or other activities to reduce foreign currency risk, beyond matching investments proportionately with
anticipated spending, but may do so in the future under certain conditions. A substantial amount of our receivables and payables are denominated in U.S. dollars. We include resulting exchange gains
and losses in operations.

Our
sales and contract research and development expenses are denominated in U.S. dollars and produce a price risk from exposure to fluctuations in the U.S. exchange rate. We do not
believe this will have a material impact on our results of operations in the foreseeable future. We maintain cash equivalent and short-term investment portfolio holdings of various
issuers, types, and maturity dates with large banks and investment banking institutions. Typically, 75% of our investments are in government bonds rated AAA. We occasionally hold
short-term investments beyond 120 days, and the market value of these investments on any day during the investment term may vary as a result of market interest rate fluctuations.

We
maintain a non-trading investment portfolio. Our market risk exposure is limited to interest rate risk and foreign exchange rate risk. We computed a hypothetical change in
interest rates by applying a 10% change to our average rate of return, resulting in a $101,000 impact. If interest rates were to increase by 10%, our net loss would decrease by $101,000. Further, if
interest rates were to decrease by 10%, our net loss would increase by $101,000. In addition, we computed a hypothetical change in foreign exchange rates by applying a 10% change to our
year-end foreign exchange rate and then applied that rate to our average level of U.S. investments during the year, resulting in a $116,000 impact. If the value of the Canadian dollar
relative to the U.S. dollar were to increase by 10%, our net loss would decrease by $116,000. Further, if the value of the Canadian dollar relative to the U.S. dollar were to decrease by 10%, our net
loss would increase by $116,000. We have not used derivative financial instruments in our investment portfolio. We classify our investments as available-for-sale or
held-to-maturity at the time of purchase and re-evaluate this designation as of each balance sheet date. We had $46,013,000 in cash, cash equivalents and
short-term investments as of December 31, 2002.

35

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF MANAGEMENT

Management is responsible for the preparation of the consolidated financial statements and all related information appearing in this Annual Report. The
consolidated financial statements and notes have been prepared in conformity with Canadian generally accepted accounting principles and include certain amounts that are estimates based upon currently
available information and management's judgment of current conditions and circumstances.

To
provide reasonable assurance that assets are safeguarded against losses from unauthorized use or disposition and that accounting records are reliable for preparing financial
statements, management maintains a system of accounting and other controls. Even an effective internal control system, no matter how well designed, has inherent limitationsincluding the
possibility of circumvention or overriding of controlsand therefore can provide only reasonable assurance with respect to financial statement presentation. The system of accounting and
other controls is improved and modified in response to changes in business conditions and operations and recommendations made by the independent auditors.

The
Audit Committee of the board of directors, which is composed of independent directors, meets periodically with management, and the independent auditors to review auditing, internal
controls and financial reporting matters. The independent auditors periodically meet with the Audit Committee and have access to its individual members.

The
Company engaged Deloitte & Touche LLP, independent accountants, to audit the consolidated financial statements in accordance with auditing standards generally accepted in
Canada and the United States of America, which includes consideration of the internal control structure.

|/s/ Daniel L. Korpolinski
      President and Chief Executive Officer |  | /s/ Donald D. Tartre
      Vice President and Chief Financial Officer
|--------------------------------------------------------------------- |  | ---------------------------------------------------------------------

36

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INDEPENDENT AUDITORS' REPORT

To
the Stockholders of Stressgen Biotechnologies Corporation:

We
have audited the accompanying consolidated balance sheets of Stressgen Biotechnologies Corporation and subsidiaries (the "Company") as of December 31, 2002 and 2001 and the
related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in Canada and in the United States of America. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Stressgen Biotechnologies Corporation and subsidiaries as of
December 31, 2002 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in accordance with accounting
principles generally accepted in Canada.

/s/
Deloitte & Touche LLP

January 28,
2003
San Diego, California

37

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STRESSGEN BIOTECHNOLOGIES CORPORATION  CONSOLIDATED BALANCE SHEET        (Canadian dollars in thousands, except share amounts)

|                                                  |                                                                                                                                                                               | December 31,               |       
|------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------
|
|Assets                                            |                                                                                                                                                                               |                            |       
|Current assets:                                   |                                                                                                                                                                               |                            |       
|                                                  | Cash and cash equivalents                                                                                                                                                     |                            | $     
|                                                  | Short-term investments                                                                                                                                                        |                            |       
|                                                  | Accounts receivable, net                                                                                                                                                      |                            |       
|                                                  | Inventories                                                                                                                                                                   |                            |       
|                                                  | Other current assets                                                                                                                                                          |                            |       
|                                                  |                                                                                                                                                                               |                            |       
|                                                  |                                                                                                                                                                               | Total current assets       |       
|Capital assets, net                               |                                                                                                                                                                               |                            | 2,746 
|Deferred expenses, net of current portion         |                                                                                                                                                                               |                            | 421   
|                                                  |                                                                                                                                                                               |                            |       
|                                                  |                                                                                                                                                                               | $                          | 54,815
|                                                  |                                                                                                                                                                               |                            |       
|Liabilities and Stockholders' Equity              |                                                                                                                                                                               |                            |       
|Current liabilities:                              |                                                                                                                                                                               |                            |       
|                                                  | Accounts payable and accrued liabilities                                                                                                                                      |                            | $     
|                                                  | Current portion of deferred revenue                                                                                                                                           |                            |       
|                                                  | Current portion of capital lease obligations                                                                                                                                  |                            |       
|                                                  |                                                                                                                                                                               |                            |       
|                                                  |                                                                                                                                                                               | Total current liabilities  |       
|Deferred revenue, net of current portion          |                                                                                                                                                                               |                            | 3,344 
|Capital lease obligations, net of current portion |                                                                                                                                                                               |                            | 262   
|                                                  |                                                                                                                                                                               |                            |       
|Total liabilities                                 |                                                                                                                                                                               |                            | 13,872
|                                                  |                                                                                                                                                                               |                            |       
|Stockholders' equity:                             |                                                                                                                                                                               |                            |       
|                                                  | Common shares and other equityno par value; unlimited shares authorized, 60,209,989 and 57,591,888 shares issued and outstanding at December 31, 2002 and 2001, respectively |                            |       
|                                                  | Deferred stock compensation                                                                                                                                                   |                            |       
|                                                  | Accumulated deficit                                                                                                                                                           |                            |       
|                                                  |                                                                                                                                                                               |                            |       
|                                                  |                                                                                                                                                                               | Total stockholders' equity |       
|                                                  |                                                                                                                                                                               |                            |       
|                                                  |                                                                                                                                                                               | $                          | 54,815
|                                                  |                                                                                                                                                                               |                            |       

See
accompanying notes to consolidated financial statements.

38

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STRESSGEN BIOTECHNOLOGIES CORPORATION  CONSOLIDATED STATEMENT OF OPERATIONS        (Canadian dollars in thousands, except per share amounts)

|                                                                                               |                                     | Years ended December 31, |        
|---------------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------ | -------
|
|Revenues:                                                                                      |                                     |                          |        
|                                                                                               | Collaborative R&D revenue           |                          | $      
|                                                                                               | Bioreagent sales                    |                          |        
|                                                                                               |                                     |                          |        
|Total revenue                                                                                  |                                     |                          | 14,042 
|                                                                                               |                                     |                          |        
|Operating expenses:                                                                            |                                     |                          |        
|                                                                                               | Research and development            |                          |        
|                                                                                               | Selling, general and administrative |                          |        
|                                                                                               | Cost of bioreagent sales            |                          |        
|                                                                                               |                                     |                          |        
|                                                                                               |                                     |                          | 43,719 
|                                                                                               |                                     |                          |        
|Operating loss                                                                                 |                                     |                          | (29,677
|Other income (expenses):                                                                       |                                     |                          |        
|                                                                                               | Interest and other income, net      |                          |        
|                                                                                               | Interest expense                    |                          |        
|                                                                                               |                                     |                          |        
|                                                                                               |                                     |                          | 875    
|                                                                                               |                                     |                          |        
|Net loss                                                                                       |                                     | $                        | (28,802
|                                                                                               |                                     |                          |        
|Basic and diluted loss per common share                                                        |                                     | $                        | (0.49  
|                                                                                               |                                     |                          |        
|Weighted average shares used to compute basic and diluted loss per common share (in thousands) |                                     |                          | 58,986 
|                                                                                               |                                     |                          |        

See
accompanying notes to consolidated financial statements.

39

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STRESSGEN BIOTECHNOLOGIES CORPORATION  CONSOLIDATED STATEMENT OF CASH FLOWS        (Canadian dollars in thousands)

|                                                             |                                                                             | Years ended December 31,                            |        
|------------------------------------------------------------ | --------------------------------------------------------------------------- | --------------------------------------------------- | -------
|
|Cash flows from operating activities:                        |                                                                             |                                                     |        
|                                                             | Net loss                                                                    |                                                     | $      
|                                                             | Adjustments to reconcile net loss to net cash used in operating activities: |                                                     |        
|                                                             |                                                                             | Depreciation and amortization of capital assets     |        
|                                                             |                                                                             | Compensation expense related to stock option grants |        
|                                                             |                                                                             | Unrealized foreign exchange (gain) loss             |        
|                                                             |                                                                             | Gain on market value of investments                 |        
|                                                             | Changes in operating assets and liabilities                                 |                                                     |        
|                                                             |                                                                             |                                                     |        
|Net cash used in operating activities                        |                                                                             |                                                     | (26,523
|                                                             |                                                                             |                                                     |        
|Cash flows from investing activities:                        |                                                                             |                                                     |        
|                                                             | Purchase of short-term investments                                          |                                                     |        
|                                                             | Sales and maturities of short-term investments                              |                                                     |        
|                                                             | Purchase of capital assets                                                  |                                                     |        
|                                                             |                                                                             |                                                     |        
|Net cash provided by (used in) investing activities          |                                                                             |                                                     | 14,367 
|                                                             |                                                                             |                                                     |        
|Cash flows from financing activities:                        |                                                                             |                                                     |        
|                                                             | Proceeds on issuance of common shares                                       |                                                     |        
|                                                             | Proceeds on issuance of special warrants                                    |                                                     |        
|                                                             | Proceeds from borrowings                                                    |                                                     |        
|                                                             | Repayment of borrowings                                                     |                                                     |        
|                                                             |                                                                             |                                                     |        
|Net cash provided by financing activities                    |                                                                             |                                                     | 10,069 
|                                                             |                                                                             |                                                     |        
|Effect of exchange rate changes on cash and cash equivalents |                                                                             |                                                     | (49    
|                                                             |                                                                             |                                                     |        
|Increase (decrease) in cash and cash equivalents             |                                                                             |                                                     | (2,136 
|Cash and cash equivalents, beginning of year                 |                                                                             |                                                     | 33,338 
|                                                             |                                                                             |                                                     |        
|Cash and cash equivalents, end of year                       |                                                                             | $                                                   | 31,202 
|                                                             |                                                                             |                                                     |        

See
accompanying notes to consolidated financial statements.

40

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STRESSGEN BIOTECHNOLOGIES CORPORATION  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY        (Canadian dollars in thousands, except share data)

|                             |                                                        | Common shares
and other equity |           |   |         |        |           |            |   |   |         |   |     
|---------------------------- | ------------------------------------------------------ | ------------------------------ | --------- | - | ------- | ------ | --------- | ---------- | - | - | ------- | - | ----
|
|
|
|Balance at January 1, 2000   |                                                        | 32,775,894                     |           | $ | 58,864  |        | 5,272,728 |            | $ |  |         | $ |    
|                             | Issued for cash on exercise of stock options           |                                | 593,550   |   |         | 1,010  |           |           |   |   |        |   |     
|                             | Special Warrants issued for cash, net of issue costs   |                                |          |   |         |       |           | 7,449,000  |   |   | 23,112  |   |     
|                             | Issued on Special Warrants offering                    |                                |          |   |         |       |           | 744,900    |   |   |        |   |     
|                             | Issued on exercise of Special Warrants                 |                                | 7,449,000 |   |         | 23,112 |           | (7,449,000 | ) |   | (23,112 | ) |     
|                             | Issued for cash on exercise of Warrants                |                                | 2,169,727 |   |         | 7,254  |           | (2,169,727 | ) |   |        |   |     
|                             | Expiration of Class A Warrants                         |                                |          |   |         |       |           | (14,401    | ) |   |        |   |     
|                             | Issued for cash, net of issue costs                    |                                | 6,904,100 |   |         | 44,499 |           |           |   |   |        |   |     
|                             | Net loss                                               |                                |          |   |         |       |           |           |   |   |        |   |     
|                             |                                                        |                                |           |   |         |        |           |            |   |   |         |   |     
|Balance at December 31, 2000 |                                                        | 49,892,271                     |           |   | 134,739 |        | 3,833,500 |            |   |  |         |   |    
|                             | Issued for cash on exercise of stock options           |                                | 423,219   |   |         | 973    |           |           |   |   |        |   |     
|                             | Issued for cash on exercise of Warrants                |                                | 577,298   |   |         | 2,119  |           | (577,298   | ) |   |        |   |     
|                             | Issued for cash, net of issue costs                    |                                | 6,699,100 |   |         | 26,156 |           |           |   |   |        |   |     
|                             | Deferred stock compensation                            |                                |          |   |         | 807    |           |           |   |   |        |   |     
|                             | Compensation expense related to stock option grants    |                                |          |   |         |       |           |           |   |   |        |   |     
|                             | Net loss                                               |                                |          |   |         |       |           |           |   |   |        |   |     
|                             |                                                        |                                |           |   |         |        |           |            |   |   |         |   |     
|Balance at December 31, 2001 |                                                        | 57,591,888                     |           |   | 164,794 |        | 3,256,202 |            |   |  |         |   | (630
|                             | Issued for cash on exercise of stock options           |                                | 575,902   |   |         | 1,706  |           |           |   |   |        |   |     
|                             | Conversion of warrants to common shares                |                                | 3,963     |   |         |       |           | (25,057    | ) |   |        |   |     
|                             | Warrants issued in connection with Roche Collaboration |                                |          |   |         | 1,264  |           | 2,036,435  |   |   |        |   |     
|                             | Issued for cash in connection with Roche Collaboration |                                | 2,036,436 |   |         | 7,657  |           |           |   |   |        |   |     
|                             | Other, net                                             |                                | 1,800     |   |         | (37    | )         |           |   |   |        |   |     
|                             | Compensation expense related to stock option grants    |                                |          |   |         |       |           |           |   |   |        |   |     
|                             | Net loss                                               |                                |          |   |         |       |           |           |   |   |        |   |     
|                             |                                                        |                                |           |   |         |        |           |            |   |   |         |   |     
|Balance at December 31, 2002 |                                                        | 60,209,989                     |           | $ | 175,384 |        | 5,267,580 |            | $ |  |         | $ | (392
|                             |                                                        |                                |           |   |         |        |           |            |   |   |         |   |     

41

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STRESSGEN BIOTECHNOLOGIES CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (Canadian dollars)

1.    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Stressgen Biotechnologies Corporation (with its subsidiaries, "Stressgen" or the "Company") is a biopharmaceutical company focused on the development and
commercialization of innovative stress protein-based immunotherapeutics. The Company is developing a broad range of products for the treatment of viral infections and related cancers. Its lead product
is HspE7, which targets a broad spectrum of human papillomavirus ("HPV") related diseases. The Company has also initiated research studies to evaluate stress protein (also known as heat shock protein)
fusions, made through its proprietary CoVal technology, for the treatment of hepatitis B and herpes simplex. It is evaluating the use of CoVal fusions for the treatment of
hepatitis C and HIV. Further, Stressgen is an internationally recognized supplier of research products used by scientists worldwide for the study of cellular stress, apoptosis, oxidative stress and
neurobiology.



The consolidated financial statements include the assets, liabilities and operating results of the Company and its wholly-owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.



The financial statements, in the opinion of management, include all adjustments necessary for their fair presentation in conformity with Canadian generally
accepted accounting principles ("Canadian GAAP"), and conform in all material respects with accounting principles generally accepted in the United States of America ("U.S. GAAP"), except as discussed
in Note 11.

The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue and expenses and related disclosures as of the date of the financial statements. Significant estimates are used for, but not limited to, reporting revenue recognition,
clinical trial costs, stock based compensation and the allocation of indirect costs. Actual results could differ from such estimates.



The Company and its subsidiaries use the Canadian dollar as their functional currency. Monetary assets and liabilities that are denominated in U.S. dollars are
translated into Canadian dollars at the rate of exchange prevailing at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses
are translated at the average rate of exchange for the month of such transactions. Foreign exchange losses of $323,000 and $306,000 are included other income at December 31, 2002 and 2000,
respectively. Foreign exchange gains of $1,502,000 are included in other income at December 31, 2001.



Revenue from product sales is recognized upon delivery to customers when persuasive evidence of an arrangement exists, the price is fixed or determinable and
collection is reasonably assured. Revenue also includes amounts charged for shipping and handling costs.

42

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Revenue
from collaborative research and development ("R&D") arrangements may include multiple elements within a single contract. Our accounting policy complies with the revenue
determination requirements set forth in EITF-0021 "Accounting for Revenue Arrangements with Multiple
Deliverables," relating to the separation of multiple deliverables into individual accounting units with determinable fair values. Payments received under collaborative arrangements may include the
following: non-refundable fees at inception of contract for technology rights; funding for services performed; milestone payments for specific achievements; and payments based upon
resulting sales of products.

The
Company recognizes collaborative research and development revenues as services are performed consistent with the performance requirements of the contract. Revenue from
non-refundable contract fees where the Company has continuing involvement though research and development collaborations or other contractual obligations, less the fair market value of any
related warrants, is deferred and recognized ratably over the development period or the period for which Stressgen continues to have a performance obligation. The period of development is evaluated on
a regular basis. Revenue from performance milestones is recognized upon the achievement of the milestones as specified in the agreement, provided payment is proportionate to the effort expended.
Payments received in advance of performance or delivery are recorded as deferred revenue.



The Company recognizes expenses related to its ongoing clinical trials using a methodology designed to accrue estimated costs in the appropriate accounting
periods. The Company recognizes clinical trial costs in three distinct phases: the start-up phase, the patient accrual phase, and the close-out phase. The total estimated trial
cost is divided into these three phases based the tasks involved in conducting the trial. Upon start of the trial, the start-up portion of the trial contract is accrued. As patients enter
the trial, the patient accrual cost is ratably recognized. Once the study is complete and analysis of the patient data has been initiated, the close-out portion of the trial is recognized.



The Company has adopted the recommendations of the CICA Handbook section 3870,Stock-Based Compensation and Other Stock-Based
Payments, effective January 1, 2002. This section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based
payments made in exchange for goods and services. The standard requires that all stock-based awards made to non-employees be measured and recognized using a fair value based method. The
standard encourages the use of a fair value based method for all awards granted to employees, but only requires the use of a fair value based method for direct awards of stock, stock appreciation
rights, and awards that call for settlement in cash or other assets. Awards that a company has the ability to settle in stock are recorded as equity, whereas awards that the entity is required to or
has a practice of settling in cash are recorded as liabilities.

The
Company has two stock-based compensation plans, which are described in Note 5. New option grants are made with an exercise price equal to the fair market value of the
underlying common stock. Deferred stock compensation charges arise where stock options are granted at exercise prices less than the fair value of the underlying stock and are amortized to expense over
the vesting period of the option. Any consideration paid by directors, employees and others on exercise of stock options is credited to share capital.

SFAS
No. 123 "Accounting for Stock-Based Compensation" requires presentation of pro forma information as if the Company had accounted for its employee stock option grants under
the fair value method. For purposes of pro forma disclosure, the estimated fair value of the options at the date of the

43

---

grant is amortized to expense over the vesting period. Under the fair value method, the Company's net loss and loss per share would have increased as follows:

|                                                                               |  | Years ended December 31, |        
|------------------------------------------------------------------------------ |  | ------------------------ | -------
|
|
|Net loss under Canadian GAAP                                                   |  | $                        | (28,802
|                                                                               |  |                          |        
|Net loss under U.S. GAAP (See Note 11 for reconciliation to Canadian GAAP)     |  | $                        | (28,922
|                                                                               |  |                          |        
|Employee stock compensation expense included in net income under Canadian GAAP |  |                          | 224    
|Employee stock compensation expense included in net income under U.S. GAAP     |  |                          | 224    
|Additional employee compensation expense under the fair value method           |  |                          | (2,850 
|                                                                               |  |                          |        
|Pro forma net loss under Canadian GAAP                                         |  | $                        | (31,428
|                                                                               |  |                          |        
|Pro forma net loss under U.S. GAAP                                             |  | $                        | (31,548
|                                                                               |  |                          |        
|Pro forma basic loss per common share under Canadian GAAP                      |  | $                        | (0.53  
|                                                                               |  |                          |        
|Pro forma basic loss per common share under U.S. GAAP                          |  | $                        | (0.53  
|                                                                               |  |                          |        

The
weighted-average per-share fair values of the individual options granted during 2002, 2001, and 2000 were as follows on the date of grant:

| |  | Years ended December 31,
| |  | ------------------------
|
| |  | $                       
| |  |                         

The
fair values of the options were determined using a Black-Scholes option-pricing model with the following assumptions:

|                        |  | Years ended December 31, |  
|----------------------- |  | ------------------------ | -
|
|Dividend yield          |  | 0                        | %
|Volatility              |  | 78                       | %
|Risk-free interest rate |  | 3.50                     | %
|Expected life           |  | 4 years                  |  



Cash and cash equivalents consist of cash and highly liquid investments which include investment grade corporate debt securities with original maturities when
acquired of three months or less. Short-term investments consist of investment grade securities, which are capable of prompt liquidation and are carried at the lower of cost plus accrued
interest or quoted market value.



Inventories are valued at the lower of average cost or net realizable value.

44

---



Capital assets are recorded at cost and depreciated over their estimated useful lives on a declining-balance basis, except for leasehold improvements, which are
amortized on a straight-line basis over the lesser of the lease term or the estimated useful life. The approximate annual depreciation and amortization rates are as follows:

Laboratory equipment

20%Equipment under capital lease

20 - 30%Computer equipment

30%Leasehold improvements

the lesser of the lease term or the estimated useful lifeFurniture and equipment

20%




The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances exist. The
recoverability of long-lived assets is determined by evaluating whether the carrying value of such assets can be recovered from estimated undiscounted future operating cash flows. Should
an impairment exist, the impairment loss would be measured based on the excess of the carrying value of the assets over the present value of the future operating cash flows. The Company has not
identified any such impairment losses to date.



Management believes that the carrying values of financial instruments, including cash and cash equivalents, short-term investments, accounts
receivable, accounts payable, and accrued liabilities approximate fair value as a result of the short-term maturities of these instruments. The carrying value
of the capital lease obligations approximate fair value, as the imputed interest rate is approximately equivalent to the market rates charged on similar arrangements.



The Company invests its excess cash principally in investment grade government and corporate debt securities. The Company has established guidelines relative to
diversification and maturities that maintain safety and liquidity. These guidelines are periodically reviewed and modified to reflect changes in market conditions. The Company has not experienced any
significant losses on its cash equivalents or short-term investments.

The
Company extends credit on an uncollateralized basis primarily to its customers in the U.S. The Company has not experienced significant credit losses on customer's accounts. The
Company derives 100% of its collaboration revenue from Roche.



Research and development costs consist of direct and indirect expenditures, including a reasonable allocation of overhead expenses, associated with the Company's
various research and development programs. Overhead expenses are comprised of general and administrative support provided to the research and development programs. These expenses include costs
associated with support activities such as the rent and utilities for facilities, information technology, finance and human resources. Research and development costs are expensed as incurred, unless
they meet generally accepted accounting criteria for deferral and amortization. The Company reassesses whether it has met the relevant criteria for deferral and amortization at each reporting date. To
date, no research and development costs have been deferred.

45

---





Future income tax assets and liabilities relate to the expected future tax consequences of differences between the carrying amount of balance sheet items and
their corresponding tax values, and for loss carry-forwards and other deductions. Future tax assets, if any, are recognized only to the extent that, in the opinion of management, it is more likely
than not that the future income tax assets will be realized. Future income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment or
substantive enactment.



Net loss per share is computed using the weighted average number of common shares outstanding. Basic and diluted net loss per common share amounts are equivalent
for the periods presented as the inclusion of common stock equivalents (options and warrants) in the number of shares used for the diluted computation would be anti-dilutive.

2.    COLLABORATIVE AGREEMENT

In June 2002, the Company entered into a collaborative agreement for the co-development and global commercialization of the Company's
innovative proprietary CoVal fusion product candidate, HspE7, with F. Hoffmann-La Roche and Hoffmann-La Roche Inc. (collectively, "Roche"). Under the terms
of the agreement, Roche has the worldwide exclusive right to manufacture, market and sell the HspE7 product and the Company has the right to co-promote the product in the U.S. to certain
physician specialties. The terms of the collaborative agreement provide for an initial equity investment, issuance of warrants (see Note 5) and an upfront license fee payment aggregating
approximately $13,700,000. For the year ended December 31, 2002, the Company recognized revenue of $8,370,000 related to this collaborative research and development arrangement.

3.    BALANCE SHEET DETAILS

At December 31, 2002 and 2001, short-term investments consisted entirely of corporate debt securities, which had a net book value and market
value of $14,811,000 and $29,344,000, respectively.

The
MIT/Whitehead license agreement discussed in Note 4 requires certain license maintenance fees and royalty payments. Upon receiving the upfront payment from Roche, the Company
recorded a $634,320 payable due to MIT/Whitehead. The Company recognizes the expense over the development period. At December 31, 2002 the Company had a total of $561,778 of deferred expense
related to this payment.

46

---

The
following tables provide details of selected balance sheet items:

|                                         |                                       | December 31, |      
|---------------------------------------- | ------------------------------------- | ------------ | -----
|
|
|Accounts receivable:                     |                                       |              |      
|                                         | Collaborative receivable              |              | $    
|                                         | Trade accounts receivable             |              |      
|                                         | Less: allowance for doubtful accounts |              |      
|                                         |                                       |              |      
|                                         |                                       | $            | 4,279
|                                         |                                       |              |      
|Inventories:                             |                                       |              |      
|                                         | Raw materials and work in process     |              | $    
|                                         | Finished goods                        |              |      
|                                         |                                       |              |      
|                                         |                                       | $            | 838  
|                                         |                                       |              |      
|Accounts payable and accrued liabilites: |                                       |              |      
|                                         | Trade accounts payable                |              | $    
|                                         | Clinical trial accruals               |              |      
|                                         | Accrued compensation and benefits     |              |      
|                                         | Royalty payable                       |              |      
|                                         | Other accrued liabilities             |              |      
|                                         |                                       |              |      
|                                         |                                       | $            | 8,833
|                                         |                                       |              |      

|                |                               | December 31,
|--------------- | ----------------------------- | ------------
|
|
|Capital assets: |                               |             
|                | Laboratory equipment          |             
|                | Equipment under capital lease |             
|                | Computer equipment            |             
|                | Leasehold improvements        |             
|                | Furniture and fixtures        |             
|                |                               |             
|                |                               | $           
|                |                               |             

4.    COMMITMENTS AND CONTINGENCIES



The Company has entered into operating lease agreements expiring at various times through 2005 for office and laboratory space, which require the Company to make
minimum lease payments, plus a share of operating costs, taxes, insurance and maintenance.

The
Company has a credit facility for $2,000,000 with a Canadian chartered bank and also leases certain equipment under capital lease agreements. At December 31, 2002, $580,000
was outstanding under these agreements in the form of fixed rate capital leases. Capital lease obligations during 2002 and 2001 are repayable in monthly instalments of $48,000 including interest at
rates that vary from 6.25% to 8.45% and are secured by specific equipment. At December 31, 2002 and 2001, equipment under capital lease had a carrying value of $903,000 and $1,192,000 net of
accumulated amortization of $1,769,000 and $1,480,000, respectively.

47

---

At
December 31, 2002 total future minimum lease commitments under operating and capital leases are as follows:

|                         |                                         | Operating |   | Capital | 
|------------------------ | --------------------------------------- | --------- | - | ------- | 
|
|Year ending December 31, |                                         |           |   |         | 
|                         | 2003                                    |           | $ | 718     | 
|                         | 2004                                    |           |   | 561     | 
|                         | 2005                                    |           |   | 397     | 
|                         |                                         |           |   |         | 
|                         | Total                                   |           | $ | 1,676   | 
|                         |                                         |           |   |         | 
|                         | Less: amount representing interest      |           |   |         | 
|                         |                                         |           |   |         | 
|                         | Present value of minimum lease payments |           |   |         | 
|                         | Less: current portion                   |           |   |         | 
|                         |                                         |           |   |         | 
|                         | Long term capital lease obligations     |           |   |         | 
|                         |                                         |           |   |         | 



The Company has a worldwide, exclusive license agreement with Massachusetts Institute of Technology and the Whitehead Institute for Biomedical Research. The
patents and patent applications covered by this license agreement include various pending applications and continuation-in-part applications and their foreign counterparts,
including patent applications filed in the U.S., Canada and Japan in 1994 for the use of Hsp fusions with viral or cancer-associated antigens as immunotherapeutics. Historically, the Company's
patent-related costs are related to therapeutic products that have not obtained regulatory approval and are not marketable. As a result, the Company has treated such costs as costs for which
recoverability cannot be determined, and has expensed them as they are incurred.

5.    STOCKHOLDERS' EQUITY



In June 2002, the Company issued 2,036,436 common shares for $7,657,000 pursuant to the collaborative agreement with Roche (see Note 2). The equity
was issued at a per share price determined by the weighted average price of common shares of the Company in the ten business days prior to the Roche transaction. The Company also issued two warrants
to exercise between 2,036,435 and 2,356,000 additional common shares through June 28, 2007. Upon the completion of certain milestones established in the agreement, the Company has the option to
call the warrants. The Company allocated $1,264,000 as the fair value of the warrants, as determined by an independent valuation expert. In the event the holder is obligated to exercise a warrant and
the current per share price of common shares of the Company is less than initial per share exercise price of $3.76 (as adjusted for events described in the agreement such as stock splits), then the
per share exercise price will be amended to equal the greater of $3.25 or the then-current per share market price, and the number of common shares issuable pursuant to the terms of the
warrant will be equal to the initial aggregate exercise price of such warrant divided by the amended per share exercise price.

In
2001, the stockholders resolved to continue the Company under the laws of the Yukon Territory and, as a result, the authorized common share capital of the Company became unlimited.

48

---





In 2001, the Company completed an offering for 6,699,100 common shares at $4.15 per share for gross proceeds of $27,801,000. The Company incurred total share
issue costs on the offering of $1,645,000.

In
2000, the Company completed an offering for 6,904,100 common shares at $7.00 per share for gross proceeds of $48,329,000. The Company incurred total share issue costs on the offering
of $3,830,000.



In 1998, the Company issued Class B Warrants to purchase 4,000,000 common shares for $3.30 per share on or before September 11, 2003. At the option
of the holder, the Class B Warrants may be exercised through cashless exercise, which permits the warrant holder to deduct the strike price of the warrant from the market price of the common
shares at the time of exercise, and to receive the difference in common shares valued at the market price at the time of exercise. There were 3,231,145 Class B Warrants outstanding at
December 31, 2002.

Stockholders'
equity at December 31, 2002 includes $2,179,000 of contributed surplus.



In 2001, the Company issued out-of-plan stock options prior to stockholder approval of the 2001 Equity Incentive Plan (the "2001 Plan").
Between the date of grant and stockholder approval, the market price of the Company's common stock increased, resulting in deferred compensation of $807,000 associated with these options. The deferred
compensation will be amortized to expense over the vesting period of the granted options. The stockholders approved adoption of the 2001 Plan, reserving an additional 3,500,000 new common shares for
issuance pursuant to the grant of stock options. Once the 2001 Plan
was approved, the grants ceased to be considered out-of-plan. At that time, the Company stopped granting options under its pre-existing 1996 Share Incentive Plan.
At December 31, 2002, there were 4,304,563 total options issued and outstanding under the two plans, at exercise prices ranging from $1.22 to $8.00 per share with remaining weighted average
contractual lives of 4 years to 8 years, and 1,385,167 options available for future grant under the 2001 Plan.

The
following table summarizes stock option activity under the Plans:

|                             |           | Number of
Shares |           | Weighted
Average
Exercise Price
|---------------------------- | --------- | ---------------- | --------- | -------------------------------
|Balance at January 1, 2000   |           | 2,512,300        |           | $                              
|                             | Granted   |                  | 1,556,500 |                                
|                             | Exercised |                  | (593,550  | )                              
|                             | Cancelled |                  | (101,073  | )                              
|                             |           |                  |           |                                
|Balance at December 31, 2000 |           | 3,374,177        |           |                                
|                             | Granted   |                  | 1,415,000 |                                
|                             | Exercised |                  | (423,219  | )                              
|                             | Cancelled |                  | (190,375  | )                              
|                             |           |                  |           |                                
|Balance at December 31, 2001 |           | 4,175,583        |           |                                
|                             | Granted   |                  | 1,092,250 |                                
|                             | Exercised |                  | (575,902  | )                              
|                             | Cancelled |                  | (387,368  | )                              
|                             |           |                  |           |                                
|Balance at December 31, 2002 |           | 4,304,563        |           | $                              
|                             |           |                  |           |                                

49

---

The
following table summarizes information related to all stock options outstanding and exercisable at December 31, 2002:

|              |  | Options
Outstanding |  | Options
Exercisable
|------------- |  | ------------------- |  | -------------------
|
|$1.22 - $1.97 |  | 666,320             |  | 5.1                
|$2.30 - $2.85 |  | 110,810             |  | 4.3                
|$3.01 - $3.65 |  | 411,500             |  | 6.9                
|$4.10 - $5.85 |  | 1,551,833           |  | 8.4                
|$6.00 - $8.00 |  | 1,564,100           |  | 7.4                
|              |  |                     |  |                    
|              |  | 4,304,563           |  |                    
|              |  |                     |  |                    

6.    INCOME TAXES

The reported income tax recovery differs from the amount computed by applying the Canadian basic statutory rates to the net loss. The reasons for this difference
and the related tax effects are as follows:

|                                                             |  | Years ended December 31, |        
|------------------------------------------------------------ |  | ------------------------ | -------
|
|
|Canadian basic statutory tax rates                           |  |                          | 39.6   
|                                                             |  |                          |        
|Expected income tax recovery                                 |  | $                        | (11,411
|Foreign tax rate differences                                 |  |                          | (2,080 
|Prior year losses producing current benefit                  |  |                          | (125   
|Losses producing no current tax benefit                      |  |                          | 13,682 
|Non-deductible expenses and other deductions                 |  |                          | (54    
|Research and development tax credits                         |  |                          | 900    
|Benefit of temporary differences (recognized) not recognized |  |                          | (912   
|                                                             |  |                          |        
|                                                             |  | $                        |       
|                                                             |  |                          |        

50

---

Future
income taxes result principally from temporary differences in the recognition of certain revenue and expense items for financial and income tax reporting purposes. Significant
components of the Company's future tax assets and liabilities are as follows:

|                                                 |                                                         | December 31, |        
|------------------------------------------------ | ------------------------------------------------------- | ------------ | -------
|
|
|Future income tax assets:                        |                                                         |              |        
|                                                 | Tax loss carry-forwards                                 |              | $      
|                                                 | Research and development expenses                       |              |        
|                                                 | Book and tax base differences on assets and liabilities |              |        
|                                                 |                                                         |              |        
|Total future income tax assets                   |                                                         |              | 34,384 
|Valuation allowance for future income tax assets |                                                         |              | (34,384
|                                                 |                                                         |              |        
|Net future income tax assets                     |                                                         | $            |       
|                                                 |                                                         |              |        
|Future income tax liabilities:                   |                                                         |              |        
|                                                 | Book and tax base differences on assets and liabilities |              | $      
|                                                 |                                                         |              |        
|Net future income tax liabilities                |                                                         | $            |       
|                                                 |                                                         |              |        

Due
to the uncertainty surrounding the realization of the future income tax assets, the Company has a 100% valuation allowance against its future income tax assets. The valuation
allowance increased by $13,545,000 during the year 2002.

At
December 31, 2002, the Company has approximately $16,444,000 of scientific research and experimental development expenditures available for unlimited carry forward, $46,807,000
of non-capital losses expiring between 2006 and 2008 and $4,570,000 of unclaimed investment tax credits expiring between 2003 and 2010, all of which may be used to reduce future Canadian
income taxes otherwise payable. In addition, the Company has U.S. $17,964,000 of net operating losses expiring between 2011 and 2022, which may be used to reduce future U.S. income taxes otherwise
payable. Approximately $50,000,000 of Canadian non-capital loss carry forwards were utilized in 2001 due to a license of intellectual property to a new wholly-owned subsidiary, which falls
outside the Canadian tax jurisdiction. Through the operations of this new subsidiary, the Company is expected to further the commercialization of HspE7 and other potential future products.

7.    RELATED PARTY TRANSACTIONS

In 2002, 2001 and 2000, the Company paid consulting fees of $50,000 to an independent contractor who is a researcher in the area of heat shock proteins and who
was a director until the annual meeting in 2002.

51

---

8.    SEGMENT INFORMATION

The Company manages its operations in two reportable segments, Biotechnology and Bioreagents. Revenues are allocated to the countries based on customer locations.

|                 |                           | Years ended December 31,            |        
|---------------- | ------------------------- | ----------------------------------- | -------
|
|
|Bioreagents      |                           |                                     |        
|                 | Revenues:                 |                                     |        
|                 |                           | U.S.                                |        
|                 |                           | Canada                              |        
|                 |                           | Other                               |        
|                 |                           |                                     |        
|                 |                           |                                     | 5,672  
|                 |                           |                                     |        
|                 | Operating expenses:       |                                     |        
|                 |                           | Research and development            |        
|                 |                           | Selling, general and administrative |        
|                 |                           | Cost of bioreagent sales            |        
|                 |                           |                                     |        
|                 |                           |                                     | 4,710  
|                 |                           |                                     |        
|Operating income |                           | $                                   | 962    
|                 |                           |                                     |        
|Biotechnology    |                           |                                     |        
|                 | Collaborative R&D revenue |                                     | $      
|                 | Operating expenses:       |                                     |        
|                 |                           | Research and development            |        
|                 |                           | Selling, general and administrative |        
|                 |                           |                                     |        
|                 |                           |                                     | 39,009 
|                 |                           |                                     |        
|Operating loss   |                           | $                                   | (30,639
|                 |                           |                                     |        
|Totals           |                           |                                     |        
|                 | Revenue:                  |                                     |        
|                 |                           | Collaborative R&D revenue           |        
|                 |                           | Bioreagent sales                    |        
|                 |                           |                                     |        
|                 | Total revenue             |                                     |        
|                 | Operating expenses:       |                                     |        
|                 |                           | Research and development            |        
|                 |                           | Selling, general and administrative |        
|                 |                           | Cost of bioreagent sales            |        
|                 |                           |                                     |        
|                 |                           |                                     | 43,719 
|                 |                           |                                     |        
|Operating loss   |                           | $                                   | (29,677
|                 |                           |                                     |        

The
Company does not allocate interest and other income, and interest on capital lease obligations to each segment.

52

---

Long-lived
capital assets are allocated geographically as follows:

December 31,2002

2001(In thousands)Canada

$
2,432

$
2,889US


314


274$
2,746

$
3,163


At
December 31, 2002, substantially all of the capital assets support the Biotechnology operating segment.

9.    SUPPLEMENTAL CASH FLOW INFORMATION

The change in operating assets and liabilities:

|                                          |  | December 31, |       
|----------------------------------------- |  | ------------ | ------
|
|
|Collaborative receivable                  |  | $            | (3,790
|Trade receivables                         |  |              | 120   
|Inventories                               |  |              | 77    
|Other current assets                      |  |              | (98   
|Deferred revenue                          |  |              | 4,459 
|Deferred expenses, net of current portion |  |              | (421  
|Accounts payable and accrued liabilities  |  |              | 1,076 
|                                          |  |              |       
|                                          |  | $            | 1,423 
|                                          |  |              |       

|                                                                           |                                                                   | Years ended December 31,
|-------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------
|
|
|Supplemental disclosures of cash flows:                                    |                                                                   |                         
|                                                                           | Interest paid                                                     |                         
|                                                                           |                                                                   |                         
|Supplemental disclosures of non-cash investing and financing transactions: |                                                                   |                         
|                                                                           | Reversal of deferred compensation related to terminated employees |                         
|                                                                           | Deferred stock compensation                                       |                         
|                                                                           | Common shares issued on conversion of Special Warrants            |                         

53

---

10.  INTERIM FINANCIAL INFORMATION (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2002 and 2001.

|                                  |                        | Quarter ended |  
|--------------------------------- | ---------------------- | ------------- | -
|
|
|2002                              |                        |               |  
|Net Revenues                      |                        |               |  
|                                  | Canadian and U.S. GAAP |               | $
|Research and development expenses |                        |               |  
|                                  | Canadian and U.S. GAAP |               |  
|Net Loss                          |                        |               |  
|                                  | Canadian GAAP          |               |  
|                                  | U.S. GAAP              |               |  
|Basic loss per common share       |                        |               |  
|                                  | Canadian GAAP          |               | $
|                                  | U.S. GAAP              |               | $

|                                  |                        | Quarter ended |  
|--------------------------------- | ---------------------- | ------------- | -
|
|
|2001                              |                        |               |  
|Net Revenues                      |                        |               |  
|                                  | Canadian and U.S. GAAP |               | $
|Research and development expenses |                        |               |  
|                                  | Canadian and U.S. GAAP |               |  
|Net Loss                          |                        |               |  
|                                  | Canadian GAAP          |               |  
|                                  | U.S. GAAP              |               |  
|Basic loss per common share       |                        |               |  
|                                  | Canadian GAAP          |               | $
|                                  | U.S. GAAP              |               | $

11.  THE EFFECT OF APPLYING ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE U.S.

These financial statements have been prepared in accordance with Canadian GAAP which, except as set out below, conform, in all material respects, to U.S. GAAP.

54

---

Effect
on the consolidated financial statements:



|                                                                                                      |  | December 31,
|----------------------------------------------------------------------------------------------------- |  | ------------
|
|
|Current assets under Canadian GAAP                                                                    |  | $           
|Adjustment to carrying value of short-term investments classified as available-for-sale securities(a) |  |             
|                                                                                                      |  |             
|Current assets under U.S. GAAP                                                                        |  | $           
|                                                                                                      |  |             
|Stockholders' equity under Canadian GAAP                                                              |  | $           
|Unrealized holding gains on available-for-sale securities(a)                                          |  |             
|                                                                                                      |  |             
|Stockholders' equity under U.S. GAAP                                                                  |  | $           
|                                                                                                      |  |             



|                                                                                        |  | Years ended December 31, |        
|--------------------------------------------------------------------------------------- |  | ------------------------ | -------
|
|
|Net loss under Canadian GAAP                                                            |  | $                        | (28,802
|Reversal of unrealized foreign exchange (gain) loss on available-for-sale securities(a) |  |                          | (69    
|Reversal of previous adjustment to short-term investments(a)                            |  |                          | (51    
|Stock-based compensation expense on escrow shares(b)                                    |  |                          |       
|Stock-based compensation expense on stock options(c)                                    |  |                          |       
|                                                                                        |  |                          |        
|Net loss under U.S. GAAP                                                                |  | $                        | (28,922
|                                                                                        |  |                          |        
|Basic loss per common share under Canadian GAAP                                         |  | $                        | (0.49  
|                                                                                        |  |                          |        
|Basic loss per common share under U.S. GAAP                                             |  | $                        | (0.49  
|                                                                                        |  |                          |        
|Common shares used to compute basic loss per share under Canadian and U.S. GAAP         |  |                          | 58,986 
|                                                                                        |  |                          |        



|                                                                                 |  | Years ended December 31, |        
|-------------------------------------------------------------------------------- |  | ------------------------ | -------
|
|
|Net cash used in operating activities under Canadian and U.S. GAAP               |  | $                        | (26,523
|                                                                                 |  |                          |        
|Net cash provided by (used in) investing activities under Canadian and U.S. GAAP |  | $                        | 14,367 
|                                                                                 |  |                          |        
|Net cash provided by financing activities under Canadian and U.S. GAAP           |  | $                        | 10,069 
|                                                                                 |  |                          |        

55

---





|                                             |                                                                                                       | Years ended December 31, |        
|-------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------------------------ | -------
|
|
|Net loss under U.S. GAAP                     |                                                                                                       | $                        | (28,922
|Other comprehensive income                   |                                                                                                       |                          |        
|                                             | Adjustment to unrealized foreign exchange and market gains (losses) on available-for-sale investments |                          |        
|                                             |                                                                                                       |                          |        
|Comprehensive net loss under U.S. GAAP       |                                                                                                       | $                        | (28,802
|                                             |                                                                                                       |                          |        
|Comprehensive loss per share under U.S. GAAP |                                                                                                       | $                        | (0.49  
|                                             |                                                                                                       |                          |        





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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

Item 10. OUR DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

Certain information about our directors and executive officers, the positions held by them and their ages as of March 1, 2003 are as follows:

|Name                             |  | Age |  | Position                                          
|-------------------------------- |  | --- |  | --------------------------------------------------
|William A. Cochrane, M.D.,(1)(2) |  | 76  |  | Director and Chairman of the Board of Directors   
|Joann Data, M.D., Ph.D.(1)       |  | 58  |  | Director                                          
|Kenneth Galbraith(3)             |  | 40  |  | Director                                          
|Elizabeth M. Greetham            |  | 53  |  | Director                                          
|Ian Lennox(2)(3)                 |  | 50  |  | Director                                          
|Steven C. Mendell(2)(3)          |  | 61  |  | Director                                          
|Margot Northey, Ph.D.(1)         |  | 63  |  | Director                                          
|Jay M. Short, Ph.D.(1)           |  | 44  |  | Director                                          
|Daniel L. Korpolinski            |  | 60  |  | Director, President and Chief Executive Officer   
|Howard T. Holden, Ph.D.          |  | 58  |  | Vice President, Regulatory Affairs and Compliance 
|John R. Neefe, M.D.              |  | 59  |  | Senior Vice President, Clinical Research          
|Marvin I. Siegel, Ph.D.          |  | 56  |  | Executive Vice President, Research and Development
|Donald D. Tartre                 |  | 42  |  | Vice President & Chief Financial Officer          

---

WILLIAM A. COCHRANE, M.D.has served as one of our directors since March 1994. Dr. Cochrane has been President of W.A.
Cochrane & Associates Inc., a company specializing in health products investment consulting, since June 1989. He is an Officer of the Order of Canada and a recipient of the Queens
Jubilee Medal. From September 1978 to December 1988, Dr. Cochrane was the Chief Executive Officer and Chairman of Connaught Laboratories Ltd., a vaccine developer and
manufacturer. His previous experience includes serving as the Deputy Minister of Health Services for the Province of Alberta, as President and Vice-Chancellor of the University of Calgary
and as the Dean of Medicine at the University of Calgary. He has also served on the board of directors of a number of companies
including Connaught Laboratories Ltd., Monsanto Canada Inc. and Fluor/Daniel Canada Inc. Dr. Cochrane received his M.D. from the University of Toronto.

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JOANN L. DATA, M.D., PH.D.joined the Stressgen board of directors effective October 1, 2001. She has served at Amylin
Pharmaceuticals, Inc. as Senior Vice President of Regulatory Affairs and Quality Assurance since August 1999. From May 2002 to December 2002, while at Amylin, she spent 20%
of her time as Senior Vice President of Clinical and Regulatory Affairs for Cortex Pharmaceuticals, Inc. Dr. Data previously served as Executive Vice President, Product Development and
Regulatory Affairs for CoCensys. Her prior experience includes several positions at the Upjohn Company, including Corporate Vice President for Pharmaceutical Regulatory Affairs and Project Management,
and a number of positions at Hoffmann-La Roche, including Vice President of Clinical Research and Development. Dr. Data has been an adjunct assistant professor in medicine and
pharmacology at Duke University Medical Center since 1982 and at Cornell Medical Center since 1986. She earned her M.D. from Washington University School of Medicine and her Ph.D. in Pharmacology from
Vanderbilt University.

KENNETH GALBRAITHhas served as one of our directors since May 2000. Mr. Galbraith has been the President of Gigha
Consulting Ltd., a technology consulting and investment management company, since October 2000. Mr. Galbraith has served as a director of several private and public biotechnology
companies, including Micrologix Biotech Inc. since March 2001, Angiotech Pharmaceuticals since March 2000, Kinetek Pharmaceuticals since October 2000, Active Pass
Pharmaceuticals since October 1999 and Neuro Discovery Inc. since November 2001. From February 1988 to October 2000 he was employed by QLT Inc., a
biotechnology company, where he progressed to the position of Executive Vice President and Chief Financial Officer. Mr. Galbraith was a founding Director and Chairman of the B.C. Biotechnology
Alliance and a former Chair of one of Canada's Centres of Excellence Networks, the Canadian Bacterial Diseases Network. He is also a director of the Michael Smith Foundation for Health Research.
Mr. Galbriath received his B.Com.(Honours) degree from the University of British Columbia and was admitted in British Columbia as a Chartered Accountant in 1988.

ELIZABETH M. GREETHAMhas served as a Stressgen director since September 2002. Since August 2000 she has been Chief
Executive Officer of DrugAbuse Sciences, Inc., a private biopharmaceutical company in Hayward, California, where she served as Chief Financial Officer and Senior Vice President, Business
Development beginning in March 1999. Before joining DrugAbuse Sciences, Ms. Greetham spent nearly a decade as a portfolio manager for Weiss, Peck & Greer, an institutional
investment management firm. She managed the WPG Life Sciences Funds, L.P., which invests in select biotechnology stocks. She has over 25 years of investment experience as a portfolio manager
and healthcare analyst in the U.S. and Europe. Ms. Greetham also serves as the Chairman of the Board of DrugAbuse Sciences, Inc. and as a member of the Board of Directors of Guilford
Pharmaceuticals. She previously served on the boards of directors of Sangstat Medical Corporation, PathoGenesis Corporation and CliniChem Development Inc. Ms. Greetham earned a BSc and a
MA (Hons.) from the University of Edinburgh, Scotland.

IAN R. LENNOXhas served as one of our directors since May 2002. He is President and Chief Executive Officer of
Pharmaceutical & Biotechnology Markets, MDS Inc., where he has served since April 2000. Prior to joining MDS Inc., Mr. Lennox was President and Chief Executive
Officer of Phoenix International Life Sciences from 1999 to 2000, and President and Chief Executive Officer of Drug Royalty Corporation Inc. from 1997 to 1999. Mr. Lennox also held many
positions with Monsanto Company beginning in 1978, including President and Chief Executive Officer of Monsanto Company (Canada) Inc. from 1991-1997. Mr. Lennox currently
serves on the board of directors and audit committee of KBSH Capital Management Inc., on the board of directors of Hemosol Inc. and as the Chairman of the Board and on the audit
committee of MDS Proteomics. In the past he served on various boards of directors, including as the Chairman of the Board of Drug Royalty Corporation Inc. from 1996 to 2002, as a director of
GenSci Regeneration Sciences Inc. and Marsulex Inc. from 1997 to 2001, as a director of the Mississauga Hospital and as the Chairman of the Board of the Mississauga

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Hospital Foundation from 1994 to 1995. Mr. Lennox attended the Columbia University School of Business and received his Masters of Business and HSBc. in Physiology and Pharmacology from the
University of Western Ontario.

STEVEN C. MENDELLhas served as one of our directors since December 1996. Mr. Mendell has been President and Chief Executive
Officer of LMA North America Inc. and LMA International N.V., leaders in the marketing and sale of devices for anesthesia and airway management, since June 1999 and December 2000,
respectively. From February 1998 to June 1999, Mr. Mendell served as Chairman and President of Selective Genetics, Inc. From April 1993 to July 1998, he was
President and Chief Executive Officer of Prizm Pharmaceuticals, Inc., a private company engaged in the development of gene therapy products for tissue regeneration and repair which became
Selective Genetics, Inc. through a merger. From 1986 to April 1992 Mr. Mendell was Chief Executive Officer and Chairman of Xoma Corporation, a biopharmaceutical company. He has
served on the Xoma board of directors since 1984, and also serves on its audit committee. Mr. Mendell previously served as a director of Ciblex Corporation, a private company engaged in the
development of small molecules to block the release of disease-causing proteins. His other prior experience includes senior domestic and international positions with Becton Dickinson and Co., a public
medical supply and device company. Mr. Mendell graduated from the University of California, Santa Barbara, is a member of the Foundation Board of Directors, and received a graduate degree from
the American Graduate School of International Management.

MARGOT NORTHEY, M.A., PH.D.joined the Stressgen board of directors in June 2002. Dr. Northey was a professor and the dean
of Queen's School of Business, Queen's University in Kingston, Ontario, from September 1995 to June 2002. She is also the author of several best-selling books on
communications. Dr. Northey currently serves on diverse corporate boards, including the boards of public companies Laurentian Bank of Canada, B2B Trust, Aliant Inc., Nexfor Inc.
and Alliance Atlantis, and privately held Wawanesa Insurance. She is a graduate of University of Toronto, with a M.A. and Ph.D. from York University.

JAY M. SHORT, PH.D.has served as one of our directors since March 1994. Dr. Short has been President, Chief Executive
Officer, Chief Technology Officer, and a director for Diversa Corporation, a biotechnology company, since September 1994. Since February 1995 Dr. Short has also served as a
director for Invitrogen Corporation, a biotechnology company. He previously served at biotechnology companies Stratacyte, Inc., as President and Strategene Cloning Systems from
September 1985 to
September 1994 as Vice President of Research and Development and Operations. Dr. Short received a Ph.D. in biochemistry from Case Western Reserve University and his B.A. in chemistry
from Taylor University.

DANIEL L. KORPOLINSKIhas served as our President and Chief Executive Officer, U.S. Operations, since March 2000, and as one of our
directors and our President and Chief Executive Officer since May 2000. Mr. Korpolinski was President and CEO of Copley Pharmaceutical Inc., a generic pharmaceutical company, from
September 1998 until the company was acquired by Teva Pharmaceutical Industries Ltd. in September 1999. He was also a director of Copley from August 1998 until its
acquisition. Mr. Korpolinski served as President and Chief Executive Officer of Prodromics On Line, a software company, from June 1997 until August 1998. Between 1991 and 1996
Mr. Korpolinski served as the President and Chief Executive Officer of CoCensys Inc., a biotechnology company specializing in the development of therapeutics for the central nervous
system. From 1988 to 1991, Mr. Korpolinski was President of Adria Laboratories North America, an oncology company. Mr. Korpolinski started his career in the pharmaceutical industry with
the Upjohn Company, where he spent 24 years, ultimately in the capacity as an Executive Director of several pharmaceutical business groups. He received his B.S. from Niagra University in New
York.

HOWARD T. HOLDEN, PH.D.has served as Vice President, Regulatory Affairs and Compliance since July 1, 2002. He served as Vice
President, Regulatory Affairs and Compliance with Ligand

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Pharmaceuticals from September 1992 until he joined Stressgen. Prior to his employment with Ligand, Dr. Holden was Senior Director, Worldwide Regulatory Affairs at Parke-Davis
Pharmaceutical Research Division of the Warner-Lambert Company (now Pfizer, Inc.). Dr. Holden also spent 14 years at the National Cancer Institute as Section Head/Senior Investigator in
the Cancer Therapy Evaluation Program and the Biological Response Modifiers Program. He received a Ph.D. in microbiology from the University of Miami and a B.A. in zoology from Drew University.

JOHN R. NEEFE, M.D.became our Senior Vice President Clinical Research in mid-2002, after serving as our
Vice-President, Clinical Research and Regulatory Affairs starting in December 1998. Prior to joining Stressgen in 1998 Dr. Neefe served as Vice President, Clinical Oncology
and International Director of Clinical Oncology at Sanofi Research Division, Sanofi Pharmaceuticals from mid-1995 to December 1998. From 1993 until its acquisition by Sanofi in
1995, Dr. Neefe was Senior Director of Sterling-Winthrop, leading the company's clinical oncology drug development unit. Dr. Neefe has also held a position as director of Clinical
Research at Centocor, has attained academic appointments at the University of Kentucky and at Georgetown University and held a research position at the National Cancer Institute. Dr. Neefe
received his B.A. from Harvard University and his M.D. from the University of Pennsylvania School of Medicine.

MARVIN I. SIEGEL, PH.D.has served as our Executive Vice President, Research & Development since March 1997.
Dr. Siegel was a director of Delta Pharmaceuticals, Inc., a Chapel Hill, North Carolina pharmaceutical company between 1997 and 1999. From February 1995 to February 1997,
Dr. Siegel was Vice President in charge of science and research and development, Terrapin Technologies Inc., a South San Francisco, California private company specializing in drugs for
allergy, oncology and diabetes,
which is now a public company known as Telik Inc. Dr. Siegel was a senior executive with Schering-Plough Research Institute in Kenilworth, N.J., from May 1982 to
February 1994 where he was responsible for biological research in immunology and allergy. From August 1975 to May 1982 Dr. Siegel was a research scientist at Burroughs
Wellcome Company in Research Triangle Park, NC. He has attained academic appointments at Rutgers University and at the School of Medicine of the University of North Carolina at Chapel Hill.
Dr. Siegel received his B.S. from Lafayette College, his M.A. from Columbia University and his Ph.D. from The Johns Hopkins University School of Medicine in 1973. He is a Fellow of the American
Academy of Asthma, Allergy and Immunology and of the American Institute of Chemists.

DONALD D. TARTREhas served as our Vice President and Chief Financial Officer since March 2001. Mr. Tartre previously served
as Vice President, Finance and Planning and Corporate Controller with Agouron Pharmaceuticals, Inc., formerly a public biotechnology company engaged in the discovery, development and marketing
of pharmaceutical products that became a subsidiary of Pfizer Inc. in 2000, from June 1997to March 2001. He served as Controller of Gen-Probe Incorporated, a
bioscience company in the medical diagnostics industry from February 1990 to June 1997. Before entering the pharmaceutical/biotechnology industry, Mr. Tartre provided accounting,
audit and consulting services to publicly traded healthcare and technology companies while serving with Ernst & Young for seven years. Mr. Tartre is a Certified Public Accountant and a
Certified Management Accountant, and received a B.S. in business administration from the University of Southern California.

Each
officer serves at the discretion of our Board of Directors. Our Articles permit the authorized number of directors to range from three to fifteen directors. We currently have nine
directors and no vacancies.

Board Committees

Our Board of Directors has established three standing committees, the Audit Committee, the Compensation Committee and our Governance Committee. Our Board of
Directors has delegated certain responsibilities to each of these Committees and has also instructed each of them to perform

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certain advisory functions and make recommendations and report to our Board of Directors. Where considered prudent, certain matters falling under the responsibility of these Committees are at times
dealt with at a meeting of the entire Board of Directors. Additional committees are established from time to time for particular purposes.

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The Audit Committee meets with our financial management and the independent auditors to review and inquire into matters affecting financial reporting matters, the system of internal
accounting and financial controls and procedures and audit procedures and plans. This Committee also makes recommendations to our Board of Directors regarding the appointment of independent auditors.
In addition, the Audit Committee reviews and recommends for approval to our Board of Directors our annual financial statements, annual report and certain other documents regulatory authorities
require. The Audit Committee is also responsible for approving the policies under which our financial management may invest the funds in excess of those required for current operations. In 2002, the
Audit Committee met five times. The current members of the committee are Kenneth Galbraith, Elizabeth Greetham, Ian Lennox and Steven Mendell, none of whom is one of our current or former officers.

The
Governance Committee is responsible for identifying, evaluating and recommending nominees for our Board of Directors and reviewing incumbent directors for re-election to
our Board of Directors. Incumbent and potential new directors are evaluated by this Committee with the objective of obtaining a balanced mix of Board members with the experience and expertise to
ensure that our Board of Directors is composed of individuals who will best serve our interests and assist management in reaching our strategic goals. This committee met once in 2002. The current
members of the Governance Committee are William Cochrane, Ian Lennox and Steven Mendell.

The
Compensation Committee is responsible for establishing and monitoring our long range plans and programs for attracting, training, developing and motivating employees. This Committee
reviews recommendations for the appointment of persons to senior executive positions, considers terms of employment, including succession planning and matters of compensation and recommends awards of
over 20,000 shares to one individual under our 2001 Equity Incentive Plan. In 2002, this committee met three times. The current members of the committee are Joann Data, William Cochrane, Margot
Northey and Jay Short.

Compensation Committee Interlocks and Insider Participation

Prior to the Annual General Meeting, Richard Glickman, our former Chief Executive Officer, served as one of three Compensation Committee members. He also had an
independent contractor agreement with Stressgen until July 31, 2002, however, he did not receive any cash compensation under this agreement in 2002. Our former director Richard A. Young, Ph.D.,
a biology professor at the Massachusetts Institute of Technology and Member of the Whitehead Institute, has a scientific advisory agreement with Stressgen. In 2002 he received $50,000 under this
agreement.

Item 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

We hold annual elections for the members of the Board of Directors. Each of our non-employee directors is entitled to receive $10,000 and an option to
acquire 15,000 shares for such person's service as a director, other than the Chairman of the Board, who is entitled to receive $25,000 and an option to acquire 25,000 shares annually. Option grants
are made annually after the annual general meeting of shareholders. In addition, the head of our Audit Committee receives $5,000, and the heads of our Compensation and Governance Committees receive
$2,500 annually. Each director receives $1,000 for board or committee meetings attended in person, or $500 for meetings attended by teleconference. We also reimburse directors for expenses incurred on
our behalf, including expenses associated with attendance at meetings of our Board of Directors.

Compensation of the Chief Executive Officer

Mr. Korpolinski's base salary of U.S. $380,000 in 2002 was determined based on an evaluation of the salaries of Chief Executive Officers of comparable
companies and Mr. Korpolinski's experience, in accordance with the policies noted above. His bonuses of U.S. $128,625 in January 2002 relating to his

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performance from March 2001 to December 31, 2001 and of $136,800 in February 2003 relating to his performance for calendar 2002 were determined based upon an evaluation of his
performance against criteria established after his first twelve months as an employee by the Compensation Committee, including the company's level of operations, development of HspE7, increased
biochemical sales, and operations within budget.

Compensation of Executive Officers

The following table sets forth, in U.S. dollars, all compensation awarded or paid to and earned by, our Chief Executive Officer during the fiscal years ended
December 31, 2002, 2001 and 2000 as well as our four most highly compensated executive officers for services rendered during the years ended December 31, 2002, 2001 and 2000.

Summary Compensation Table, in U.S. Dollars

|                                                                             |  |                |  | Annual compensation |                         | Long term
compensation |  
|---------------------------------------------------------------------------- |  | -------------- |  | ------------------- | ----------------------- | ---------------------- | -
|
|Daniel L. Korpolinski
President and Chief Executive Officer(1)               |  | 2002
2001
2000 |  | $                   | 380,000
364,583
277,083 |                        | $
|John R. Neefe, M.D.
Senior Vice President, Clinical Research                 |  | 2002
2001
2000 |  | $                   | 286,000
275,000
253,472 |                        | $
|Marvin I. Siegel, Ph.D.
Executive Vice President, Research and Development   |  | 2002
2001
2000 |  | $                   | 261,500
251,450
235,000 |                        | $
|Donald D. Tartre
Vice President and Chief Financial Officer(12)              |  | 2002
2001      |  | $                   | 232,500
185,795         |                        | $
|Howard T. Holden, Ph.D.(5)
Vice President, Regulatory Affairs and Compliance |  | 2002           |  | $                   | 132,500                 |                        | $

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Stock Option Grants And Exercises In Last Fiscal Year

We grant options to our executive officers to purchase our common stock under our 2001 Equity Incentive Plan. Once the 2001 Plan was approved by our shareholders
we ceased to grant options under our 1996 Share Incentive Plan. As of December 31, 2002, options to purchase a total of 2,114,833 shares were issued and outstanding under the 2001 Plan and
2,189,730 shares were outstanding under the 1996 Plan. Options to purchase 1,385,167 shares remained available for grant under the 2001 Plan. The following table sets forth certain information
regarding options granted during the fiscal year ended December 31, 2002 to our executive officers named in the summary compensation table:

|                        |  | Individual Grants |     |   |   |   |      | 
|----------------------- |  | ----------------- | --- | - | - | - | ---- | 
|
|
|
|
|
|Howard T. Holden, Ph.D. |  | 100,000           | (2) | 9 | % | $ | 3.75 | 
|Daniel Korpolinski      |  | 100,000           | (1) | 9 | % |   | 5.21 | 
|John Neefe, M.D.        |  | 50,000            | (1) | 5 | % |   | 5.21 | 
|Donald D. Tartre        |  | 40,000            | (1) | 4 | % |   | 5.21 | 
|Marvin I. Siegel, Ph.D. |  | 30,000            | (1) | 3 | % |   | 5.21 | 

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Aggregated Option Exercises In Last Fiscal Year  And Fiscal Year-End Option Values

The following table sets forth certain information as of December 31, 2002, regarding options held by our executive officers named in the summary
compensation table. There were no stock appreciation rights outstanding on December 31, 2002.

|                        |  |         |  |   |         | Number of Shares
Underlying Unexercised
Options
at FY-End (#) |         |  |         | 
|----------------------- |  | ------- |  | - | ------- | ------------------------------------------------------------- | ------- |  | ------- | 
|
|
|
|Daniel L. Korpolinski   |  |        |  | $ |        |                                                               | 733,860 |  | 366,320 | 
|John R. Neefe, M.D.     |  | 10,000  |  | $ | 16,500  |                                                               | 151,666 |  | 50,001  | 
|Marvin I. Siegel, Ph.D. |  | 175,000 |  | $ | 530,250 |                                                               | 88,888  |  | 36,112  | 
|Donald D. Tartre        |  |        |  |   |        |                                                               | 99,721  |  | 140,279 | 
|Howard T. Holden, Ph.D. |  |        |  |   |        |                                                               |        |  | 100,000 | 

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

Our President and Chief Executive Officer, Daniel L. Korpolinski, is employed under an employment agreement dated March 8, 2000. In addition to his 2002
base salary of U.S. $380,000, the agreement specifies that Mr. Korpolinski is eligible to receive additional incentive compensation of up to 40% of his base salary in any 12 month fiscal
year if he meets individual objectives established annually by the board of directors. In the event that Mr. Korpolinski is terminated without just cause, he is entitled to
severance payments equal to 12 months' base salary. Mr. Korpolinski is also entitled to severance payments equal to 12 months' base salary in the event that, within
12 months after an acquisition of more than 50% of our issued voting shares, Mr. Korpolinski is terminated or experiences a change in his title or responsibilities. Within
6 months after such a change in control, if Mr. Korpolinski terminates the employment agreement, he is entitled to severance payments equal to 12 months' of his current base
salary. Mr. Korpolinski's stock option agreement under the 2001 Plan provides that the vesting and exercisability of his options will accelerate in full in the event his employment is
involuntarily terminated without cause or voluntarily terminated for specified reasons within twenty-four (24) months after a specified change in control. Stock options granted
under the 1996 Plan become fully exercisable after a specified change in control. Stressgen rents a condominium in San Diego for Mr. Korpolinski for U.S. $2,600 per month and reimburses him
U.S. $5,000 per year for supplemental life insurance, together with income taxes on such amounts.

Dr. Howard
Holden, our Vice President, Regulatory Affairs and Compliance, is employed under an agreement dated May 8, 2002. In 2002, Dr. Holden received a
one-time sign-on bonus of U.S. $30,000 and a base salary of U.S. $265,000 under this agreement. He also is eligible for a bonus of up to 25% of his base salary, depending upon
the achievement of corporate goals and the measure of his individual performance. In the event that Dr. Holden is terminated without cause, he is entitled to 6 months of severance
payments. Dr. Holden is also entitled to 12 months of severance payments in the event of termination or significant change in title or responsibilities within 12 months after a
specified change in control. Dr. Holden's stock option agreements under the 2001 Plan provide that the vesting and exercisability of his options will accelerate in full in the event his
employment is involuntarily terminated without cause or voluntarily terminated for specified reasons within 24 months after a specified change in control.

Our
Senior Vice President, Clinical Research, John R. Neefe, M.D., is employed under an employment agreement dated December 14, 1998, as amended on December 16, 1999. In
2002 Dr. Neefe's base salary was U.S. $286,000 under this agreement; he also is eligible for a bonus of up to

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20% of his base salary based on performance. In order to terminate Dr. Neefe's employment for other than just cause, we must provide Dr. Neefe with 12 month' prior notice.
Dr. Neefe is also entitled to severance payments equal to his last two years' compensation in the event of termination within 12 months' after a change in ownership of our common stock
within any 3 month period of at least 50% which results in a change in the majority of the members of our Board. Dr. Neefe's stock option agreements under the 2001 Plan provide that the
vesting and exercisability of his options will accelerate in full in the event his employment is involuntarily terminated without cause or voluntarily terminated for specified reasons within
24 months after a specified change in control. Stock options granted under the 1996 Plan become fully exercisable after a specified change in control.

Marvin
I. Siegel, Ph.D., our Executive Vice President, Research and Development, is employed under an employment agreement dated February 5, 1997, as amended on January 11,
1999. In 2002 Dr. Siegel's base salary was U.S. $261,500 under this agreement; he also is eligible for a bonus based on exemplary service and supplemental disability insurance. In the event
that Dr. Siegel is terminated without cause, he is entitled to 12 months notice or severance payments. Dr. Siegel is also entitled to severance payments equal to 24 months
base salary in the event of termination within 12 months after an acquisition of more than 50% of our outstanding shares as a result of which a majority of the members
of our Board change within 3 months. Dr. Siegel's stock option agreements under the 2001 Plan provide that the vesting and exercisability of his options will accelerate in full in the
event his employment is involuntarily terminated without cause or voluntarily terminated for specified reasons within 24 months after a specified change in control. Stock options granted under
the 1996 Plan become fully exercisable after a specified change in control.

Our
Vice President and Chief Financial Officer, Donald D. Tartre, is employed under an employment agreement dated March 5, 2001. In 2001 Mr. Tartre's base salary was U.S.
$232,500 under this agreement; he is also eligible for a bonus of up to 25% of his base salary based upon pre-established objectives and exemplary performance. In the event that
Mr. Tartre is terminated without cause, he is entitled to 9 months notice or severance payments. Mr. Tartre is also entitled to severance payments equal to 9 months base
salary in the event of a termination or constructive termination within two years after a change in control. Mr. Tartre's stock option agreements under the 2001 Plan provide that the vesting
and exercisability of his options will accelerate in full in the event his employment is involuntarily terminated without cause or voluntarily terminated for specified reasons within 24 months
after a specified change in control.

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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of January 31, 2003 with respect to (i) each stockholder known to us to be the beneficial owner of
more than 5% of our outstanding common stock, (ii) each director, (iii) our Chief Executive Officer and our other executive officers and (iv) all of our directors and executive
officers as a group. Except as set forth below, each of the named persons and members of the group has sole voting and investment power with respect to the shares shown.

|Beneficial Owner of Common Stock(1)                                                                                   |  | Amount and Nature of
Beneficial Ownership of
Common Stock(2)(3) |     | Percent of Class of
Common Stock(2) |  
|--------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------- | --- | ----------------------------------- | -
|Roche Finance Ltd.
Grenzacherstrasse 124, CH-4070
Basel, Switzerland                                                  |  | 4,392,436                                                       | (4) | 7.3                                 | %
|FMR Corp.
82 Devonshire Street
Boston, MA 02109                                                                       |  | 4,481,070                                                       | (5) | 7.4                                 | %
|RBC Global Investment Management, Inc.
Royal Trust Tower
TD Centre
Suite 3800
P.O. Box 121
Toronto, ON M5K 1H4
Canada |  | 7,169,700                                                       |     | 11.9                                | %
|William A. Cochrane, M.D.                                                                                             |  | 210,000                                                         | (6) | *                                   |  
|Joann L. Data, M.D., Ph.D.                                                                                            |  | 34,166                                                          |     | *                                   |  
|Ian Lennox                                                                                                            |  | 18,333                                                          |     | *                                   |  
|Kenneth Galbraith                                                                                                     |  | 85,000                                                          | (7) | *                                   |  
|Elizabeth Greetham                                                                                                    |  | 15,000                                                          |     | *                                   |  
|Steven C. Mendell                                                                                                     |  | 100,000                                                         |     | *                                   |  
|Margot Northey                                                                                                        |  | 16,666                                                          |     | *                                   |  
|Jay M. Short, Ph.D.                                                                                                   |  | 102,000                                                         |     | *                                   |  
|Daniel L. Korpolinski                                                                                                 |  | 802,388                                                         |     | 1.3                                 | %
|John R. Neefe, M.D.                                                                                                   |  | 169,332                                                         |     | *                                   |  
|Marvin I. Siegel, Ph.D                                                                                                |  | 112,554                                                         |     | *                                   |  
|Donald D. Tartre                                                                                                      |  | 115,554                                                         |     | *                                   |  
|All Directors and Executive Officers as a Group (13 persons)                                                          |  | 1,780,993                                                       |     | 3.0                                 | %

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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

We have entered into an employment agreement with certain of our executive officers, as described under the caption "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements." We have granted stock options to certain of our executive officers, as described under the caption "Executive Compensation."

Subject
to theBusiness Corporations Act(Yukon Territory), if specific preconditions are met, we will indemnify persons including a
director, officer, former director or officer, person who has undertaken any liability on behalf of the corporation, and his or her heirs against losses reasonably incurred by reason of such status.
Indemnification covers losses, charges and expenses incurred as a result of actions in such capacities. We are also empowered under our By-laws and the BCA (Yukon Territory) to purchase
insurance on behalf of any person who we are required or permitted to indemnify. Pursuant to this provision, we currently maintain directors and officers insurance coverage. In addition, we have
entered into indemnity agreements with our directors and officers and intend to enter into similar agreements with future directors and officers. These agreements could require us to indemnify those
officers and directors against liabilities that arise by reason of their status or service as officers or directors. In certain circumstances the agreements would also require us to advance the
expenses an officer or director incurs in legal proceedings. We believe that the provisions in our

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By-laws and contractual indemnification are necessary to attract and retain qualified persons as directors and officers. At present, there is no pending litigation or proceeding involving
any of our directors, officers, employees or agents where indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that may result in a claim for
indemnification.

Item 14. CONTROLS AND PROCEDURES

(a)  Based
on their evaluation conducted within 90 days of filing this report on Form 10-K, our chief financial officer and chief executive officer
have concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934, as
amended) are effective and designed to alert them to material information relating to Stressgen and its consolidated subsidiaries.

(b)  There
were no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their most recent
evaluation.

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



Financial
statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.

Exhibit No.

Description3.9*

Articles of Continuance of the Company3.10*

By-Laws of the Company4.4*

Form of Stock Certificate10.1**

License Agreement dated November 29, 1992 among Whitehead Institute for Biomedical Research, MIT and the Company, as amended10.2**

Lease for the Company's offices in Victoria, British Columbia10.3**

Employment Agreement dated March 8, 2000 between the Company and Daniel Korpolinski10.10**

1996 Share Incentive Plan10.12***

2001 Equity Incentive Plan10.13+

Articles of Continuance of the Company10.14++

HspE7 Collaboration Agreement dated June 21, 2002 among the Company, Stressgen Development Corporation, F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc.21.3

List of Subsidiaries23.1

Independent Auditors' Consent


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24.1

Power of Attorney (Included on the signature page of this Annual Report on Form 10-K)99.1

Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002


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(b)  Reports
on Form 8-K



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

|                        |  | STRESSGEN BIOTECHNOLOGIES CORPORATION
|----------------------- |  | -------------------------------------
|                        |  |                                      
|Date: February 10, 2003 |  | BY:                                  

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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel L. Korpolinski and Donald D.
Tartre, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and full power and authority to do and performance each and every act and thing requisite
and necessary to be
done in connection therewith, as fully to intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or
any of them or their or his substitute or resubstitute, may lawfully do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following person on behalf of the Registrant and in the
capacities and on the dates indicated.

|Signature                                       |  | Title                                                                                   |  | Date             
|----------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | -----------------
|                                                |  |                                                                                         |  |                  
|/s/DANIEL L. KORPOLINSKIDaniel L. Korpolinski   |  | Chief Executive Officer, President and Director (Principal Executive Officer)           |  | February 10, 2003
|/s/DONALD D. TARTREDonald D. Tartre             |  | Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |  | February 10, 2003
|/s/WILLIAM A. COCHRANEWilliam A. Cochrane, M.D. |  | Director, Chairman of the Board                                                         |  | February 10, 2003
|/s/JOANN L. DATAJoann L. Data, M.D., Ph.D.      |  | Director                                                                                |  | February 10, 2003
|/s/KENNETH GALBRAITHKenneth Galbraith           |  | Director                                                                                |  | February 10, 2003
|/s/ELIZABETH GREETHAMElizabeth Greetham         |  | Director                                                                                |  | February 10, 2003
|/s/IAN LENNOXIan Lennox                         |  | Director                                                                                |  | February 10, 2003
|/s/STEVEN C. MENDELLSteven C. Mendell           |  | Director                                                                                |  | February 10, 2003
|/s/MARGOT NORTHEYMargot Northey                 |  | Director                                                                                |  | February 10, 2003
|/s/JAY SHORTJay Short                           |  | Director                                                                                |  | February 10, 2003

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CERTIFICATION

I,
Donald D. Tartre, certify that:

1.    I
have reviewed this annual report on Form 10-K of Stressgen Biotechnologies Corporation;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|                  |                                                                               
|----------------- | ------------------------------------------------------------------------------
|February 10, 2003 | /s/DONALD D. TARTREDonald D. Tartre Vice President and
Chief Financial Officer

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I, Daniel L. Korpolinski, certify that:

1.    I
have reviewed this annual report on Form 10-K of Stressgen Biotechnologies Corporation;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|                  |                                                                                    
|----------------- | -----------------------------------------------------------------------------------
|February 10, 2003 | /s/DANIEL L. KORPOLINSKIDaniel L. Korpolinski President
and Chief Executive Officer

Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.

Stressgen
management intends to furnish a 2002 annual report and a proxy circular to its shareholders on or about April 5, 2003.

|                                                                               | 
|------------------------------------------------------------------------------ | 
|/s/DONALD D. TARTREDonald D. Tartre Vice President and
Chief Financial Officer | 

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