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U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K/A

|/x/ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2000

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File No. 333-12570

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

British Columbia, Canada(State or Other Jurisdiction of
Incorporation or Organization)

N/A(IRS Employer Identification No.)4445 Eastgate Mall, San Diego, California(Address of Principal Executive Offices)

92121(Zip Code)


Registrant's Telephone Number, including area code:  (858) 812-5616

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

Securities Registered pursuant to Section 12(g) of the Act: None(Title of Class)

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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 /x/  No / /

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. /x/

As
of February 28, 2001, the aggregate market value of the Common Shares held by non-affiliates of the Registrant (based on the last reported sales price of the
Common Shares of Cdn. $4.73, as reported on The Toronto Stock Exchange) was approximately U.S. $154,583,000 (approximately Cdn. $236,759,000). As of February 28, 2001, the Registrant had
50,055,000 outstanding Common Shares.

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                                                                            |  | 23
|Item 3.  |  | LEGAL PROCEEDINGS                                                                     |  | 24
|Item 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 24
|Item 5.  |  | MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 |  | 24
|Item 6.  |  | SELECTED FINANCIAL DATA                                                               |  | 31
|Item 7.  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 34
|Item 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 39
|Item 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |  | 39
|Item 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 63
|Item 10. |  | OUR DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES                                   |  | 63
|Item 11. |  | COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS                                      |  | 67
|Item 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 72
|Item 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 74
|Item 14. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                       |  | 74

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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. Such forward-looking statements
are characterized by future and conditional verbs and include statements regarding the results of product development efforts, the expansion of particular programs, the results of clinical trials, the
approval of applications for marketing of pharmaceutical products, our ability to enter into licensing and corporate partnering arrangements and the scope and success of operations. Such statements
describe only our current expectations; our actual results may differ materially from those anticipated in the forward-looking statements. Factors that may cause such differences include the
uncertainties associated with early product development, the risk that products that appeared promising in early clinical trials do not demonstrate efficacy or cause significant
side-effects in larger-scale clinical trials, the risk that we will not obtain regulatory approvals necessary to market our products, our need for additional financing and our need to
maintain, protect and expand our intellectual property position. We are not undertaking any obligation to update forward-looking statements as circumstances change.

Item 1.  BUSINESS

Overview

Our focus is the development and commercialization of novel products directed at stimulating or enhancing immune responses for the treatment of infectious and
other diseases. We are using a specific and unique class of proteins, called stress proteins, to regulate immune responses for therapeutic applications. We believe that the role that stress proteins
play in regulating or stimulating the immune system will be important in medical research and therapeutic development. In effect, stress proteins may be able to harness the body's own immune system to
treat and prevent disease. We believe that the use of stress proteins to stimulate the immune system, principally for the purpose of treating infectious disease, will likely yield novel therapeutic
products. Our primary focus is the development of immunotherapeutics based on stress proteins that are genetically combined with various antigens derived from disease-causing organisms.

Our
lead product candidate, HspE7, is currently being evaluated in several phase II clinical trials and one phase III clinical trial. HspE7 is a novel immunotherapeutic for the
treatment of diseases, including precancerous and cancerous conditions, caused by the human papillomavirus, or HPV. HPV is one of the most prevalent sexually transmitted diseases, estimated to infect
approximately 30 to 50 percent of the sexually active population. According to the National Institute of Allergy and Infectious Diseases Fact Sheet dated December 1998, there are
approximately 5.5 million new genital HPV infections each year with more than 20 million people in the United States currently infected. Healthcare costs associated with sexually
transmitted diseases caused by HPV rank second only to those associated with sexually transmitted diseases caused by human immunodeficiency virus, or HIV, according to the U.S. Department of Health
and Human Services Centers for Disease Control and Prevention.

We
have begun evaluating HspE7 as follows:



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To
date we have made several presentations and announcements regarding our HspE7 clinical programs. We presented clinical data at HPV2000, the international HPV conference held in
Barcelona, Spain in July 2000, then at Cancer Vaccines 2000, a scientific conference held in New York City in October 2000, and finally at the Second International Conference on Heat
Shock Proteins held in Connecticut in October 2000.

In
these presentations, we reported that treatment with HspE7 resulted in the improvement of most patients with AIN. More importantly, 75% of the patients under study and evaluated at
the primary six month evaluation point responded to HspE7. Response determined by a standard pathological diagnosis, required a downgraded or less severe AIN. This phase II trial is currently ongoing.
New patients and patients previously reported upon continue to be evaluated. To date, clinical data suggest that HspE7 given in the proper dose and schedule is active in AIN. The data suggest that
HspE7 may be active against multiple types of HPV. Potentially, HspE7 may be active against the full range of diseases caused by HPV. The predominant adverse experience noted from HspE7 treatment is
injection site reaction, mild to moderate in severity, clearing in hours to days without treatment.

As
part of a multi-faceted preclinical development program for stress proteins we are also developing immunotherapeutics to target other infectious diseases, such as hepatitis B and
HIV. We are also evaluating the use of stress proteins as a novel immunoregulatory strategy to treat asthma and allergy, and for cellular protection, also known as cytoprotection. Through our
bioreagent business, we are also a global supplier of stress proteins and other bioreagents for use in academic, medical and commercial research. 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.

Business Strategy

Our business objective is to be the leader in the development and commercialization of novel products for the treatment of disease. Our business strategy
includes the following elements:

Commercialize HspE7.We intend to commercialize our lead product, HspE7, either independently or by establishing
appropriate partnerships with pharmaceutical and/or biotechnology companies.

Apply Platform Technology to Additional Disease Targets.We intend to use our intellectual property to take product
candidates through the development process. We will balance the advantages of corporate partnering with our objectives of retaining a significant proprietary and financial interest in our products.
Since our technology may potentially be applicable to the treatment of a number of different infectious diseases, as well as other diseases including asthma and allergy, we believe it will be possible
to partner specific products while still retaining rights to technology that has significant commercial potential for other applications.

Use Our Platform Technology to Develop New Product Opportunities.We produce and sell compounds used in biotechnology
research, also known as bioreagents, to generate revenue while building our market presence in stress proteins by establishing strategic relationships with companies,

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academic institutions and stress response researchers for product discovery, development, acquisition, distribution and marketing.

Overview of Research and Development Programs

The following table summarizes the programs currently under development. Additional programs are underway to evaluate stress proteins in a number of other
indications. We have several phase II trials and one phase III trial to evaluate HspE7 in a variety of HPV related diseases. These clinical trials may not result in any commercial products for all the
reasons set forth below in the Risk Factors section. Our research and development expenditures are discussed further in Note 8 to our Consolidated Financial Statements.

|Program                          |  | Indication                                                                                            |  | R&D Stage                                                    
|-------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------
|HspE7 Fusion Protein             |  | HPV-related AIN
HPV-related Genital Warts
HPV-related Cervical Cancer
HPV-related CIN
HPV-related RRP |  | Phase III and Phase II
Phase II
Phase II
Phase II
Development
|Hsp-Viral Antigen Fusion Protein |  | Hepatitis B
HIV                                                                                       |  | Research
Research                                            
|Hsp Alone & Hsp-Allergen Fusions |  | Asthma/Allergy                                                                                        |  | Research                                                     
|Hsp & Cellular Protection        |  | Surgery/Transplants                                                                                   |  | Research                                                     

Infectious DiseaseOverview

The term "infectious diseases" refers to diseases caused by a diverse group of agents, or pathogens, including both viral and microbial, i.e. bacteria,
parasite and fungi. Disease-causing pathogens attack the body by invading and multiplying. Infection occurs when pathogens penetrate the body's physical barriers, such as skin. Infectious diseases
that spread from person to person are often referred to as communicable, or contagious, diseases. Most pathogens that cause communicable diseases leave the body the same way they entered, usually
through the eyes, nose, mouth, skin, or genitals. Sexually transmitted pathogens commonly leave the body through genital secretions and excretions during sexual intercourse. Viruses that are
transmitted during intercourse include the human papillomavirus, or HPV, and the human immunodeficiency virus, or HIV.

After
entering the body, pathogens use various means to infect different kinds of cells. Many bacteria stick to a cell's outer surface using specialized structures. Others produce
toxins or poisons that damage or kill the host cells. Unlike bacteria, viruses need to enter the host's cells to cause disease. Different viruses have different host cell targets. However, once inside
the cell, the virus may take over cellular activity to produce new viruses, which then invade other cells, or to transform the infected cell. This cycle repeats itself, in some cases resulting in
serious illness or causing cells to become cancerous. In other cases, people who themselves show no symptoms of viral infection or disease, known as carriers, can transmit the pathogen to others.

Once
a pathogen is inside the body, the immune system attempts to destroy the pathogen, stop further infection and prevent subsequent disease caused by the infection. However,
pathogens often evade the immune system resulting in persistent or chronic infection and serious diseases, including cancer. Researchers seek to identify new ways to work with or trigger the immune
system to potentially prevent and treat infectious disease.

Our
approach to treating infectious diseases involves the stimulation of the immune system using novel stress protein-based therapeutics. This method may succeed in treating a broad
range of infectious diseases.

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The Immune SystemOverview

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. This recognition function relies on the immune system's ability to identify pathogens when they invade the body. More specifically, the
immune system must recognize foreign antigens. Antigens are components of pathogens, which the immune system can use to detect and identify foreign invaders. These antigens are often present in cells
containing pathogens including cells that have become diseased due to viral infection. A competent immune system has the ability to recognize antigens made by infectious agents and abnormal cells and
to react to them.

The
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's surface. Another type of cell, known as a
T-cell, continually scans 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 other diseased cells containing those
same peptides.

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 T helper cells and also known as Th1 or Th2, respectively. Activated Th1 and Th2 cells in turn release molecules
known as cytokines, which act as mobile messenger molecules to trigger other immune cells to produce either a cellular, Th1, or antibody-mediated, Th2, response to the invading pathogen.

Immune
responses mediated by the cellular side of the immune system are characterized by the induction of cytotoxic T lymphocytes, also known as CTLs or killer T-cells.
Killer T cells are capable of directly killing pathogen-infected cells and cancerous cells. Antibody-mediated responses are characterized by the production of antibodies from immune cells known as
B-cells. Antibodies function by binding to pathogens circulating in the blood, such as viruses and bacteria, and blocking their ability to infect cells. Antibodies are an effective defense
against some infectious diseases, including certain bacteria. However, antibodies are largely ineffective against many other pathogens, particularly certain viruses, and are also ineffective in
dealing with cells already infected by viruses.

In
the case of virally-infected cells, killer T cells are thought to be an important mechanism for the destruction of the diseased tissue itself. The ability of a therapeutic product
to generate either cellular or antibody-mediated immune responses dictates the type of diseases that can potentially be treated.

Vaccines and Immunotherapeutics

The majority of existing vaccines are designed to trigger a protective antibody-mediated immune response in a patient. Vaccination acts much like a "dress
rehearsal" to prepare the body's immune system to protect against and to fight an actual infection. Prophylactic vaccines are usually composed of either a complete version of the pathogen that has
been altered to reduce its ability to cause disease (i.e. killed or attenuated) or are composed of non-infectious components, termed subunits, isolated from the pathogen that serve as an
effective substitute.

On
administration, a vaccine may stimulate an antibody-mediated immune response, which provides lasting protection against, and in some cases may treat, the infection caused by the
same pathogen. However, most prophylactic vaccines are not able to eliminate disease in infected individuals. As a result, researchers continually look for novel approaches to generate potent cellular
or CTL

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responses in order to develop products to treat individuals who are already infected with disease-causing pathogens.

We
believe that novel approaches to activating CTL responses may form the basis of a new class of therapeutic products, or immunotherapeutics, useful for the treatment of infectious
diseases and related cancers, specifically those caused by the viral infection, in infected individuals. We have demonstrated that stress proteins are effective at generating CTL responses to viral
antigens and to certain antigens expressed by cancer cells. Our primary focus is the development of novel stress-protein based immunotherapeutics for infectious disease. In addition we are evaluating
the use of stress proteins as immunoregulators in the treatment of asthma and allergy, and the use of small molecule inducers of the cellular stress response for cytoprotection.

Stress Proteins

Stress proteins, also referred to as heat shock proteins or Hsp, play a fundamental role in life-essential processes and are associated with many
areas of biology and medicine. Present in cells of all organisms from bacteria to mammals, their structure and function are similar across these diverse life forms. Stress proteins play a major role
in transporting peptides, including antigens, within a cell and are thus often called molecular chaperones.

Published
research suggests that stress proteins play a central role in the generation of immune responses. This research was reviewed by Lee Mizzen in "Immune Response to Stress
Proteins: Applications to Infectious Disease and Cancer", Biotherapy Volume 10, pages 173-189. This role includes coordinating the breakdown and transport of peptides from the point of
their generation inside cells to their ultimate display on the cell surface for recognition by T-cells. Dendritic cells express receptors that specifically recognize stress proteins and,
therefore, we expect they will be able to efficiently capture and process our immunotherapeutics, which consist of stress proteins linked to antigens. Once inside dendritic cells, this stress
protein-antigen complex can be broken down into small peptide fragments and the peptides presented on the dendritic cell surface where they can be recognized by T-cells. Dendritic cells
displaying pathogen-specific peptides activate T-cells that are capable of specifically targeting and killing diseased cells throughout the body that express those same peptides. The
interaction of stress proteins with their receptors on dendritic cells may also lead to secretion of cytokines by the dendritic cell that further stimulate the immune system.

Our
primary focus is the development of immunotherapeutics based on stress proteins that are genetically combined with various antigens derived from organisms that can cause
infectious diseases.
The genetic combination of antigens with stress proteins is referred to as fusion technology. This technology provides a reusable platform for the development of treatments for disease. Once the
technology is shown to work for one infectious disease, it becomes likely to be applicable to other diseases.

A
related focus of ours is the development of products that rely on the immunoregulatory properties of stress proteins without linkage to particular antigens. For example, to treat
asthma, we are investigating stress proteins alone, while for atopic disease we are testing stress protein fusions with known allergens. In other secondary development programs, we are evaluating the
use of small molecule inducers of the stress response to reduce tissue damage incurred during surgery or to safeguard and preserve isolated organs to be used for transplantation.

Description of Research and Development Programs

Human Papillomavirus and HspE7

We are developing HspE7, a unique immunotherapeutic product candidate, for the treatment of HPV-related diseases. HPV is one of the most prevalent
sexually transmitted viruses, estimated to

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infect approximately 30 to 50 percent of the sexually active population. More than 80 types of HPV have been identified. About one-third of the HPV types are spread through sexual
contact and live only in genital epithelial tissue. Low-risk types of HPV cause genital warts, the most recognizable sign of genital HPV infection. Other, high-risk, types of
HPV cause cervical and anal dysplasia, which are premalignant conditions, and cervical and anal cancer. The dysplasias caused by HPV infection are graded into two main categories, Low Grade Squamous
Intraepithelial Lesions, or LSIL, and High Grade Squamous Intraepithelial Lesions, or HSIL, with HSIL being a later progression of the disease relative to LSIL. HPV infection may also be latent, in
that there are no visible symptoms. In this case, individuals may not be aware that they have a persistent viral infection, increasing their risk of developing complications related to infection and
transmission of the virus to others.

HspE7
is a recombinant fusion product, composed of heat shock protein 65, or Hsp65, from particular bacteria, and the HPV-encoded protein E7. The E7 protein is involved in
the malignant transformation of anal and cervical epithelial cells infected by HPV. Because E7 is a foreign, viral protein it represents a precise target for the immune system to attack infected
cells. In our preclinical studies, conducted
using an animal model representing cervical cancer, HspE7 treatment has been shown to protect against the development of tumors and to eliminate existing tumors, thus providing a long-term
survival benefit. HspE7 treatment has also been shown in these preclinical studies to activate killer T cells, also known as CTLs, which are known to be capable of destroying HPV infected cells,
including those that are cancerous.

Potential Applications for HspE7

HspE7 is currently being evaluated in phase II clinical trials for AIN, CIN, cervical cancer and genital warts, and also in a phase III clinical trial for AIN.
A phase I/II trial is planned in recurrent respiratory papillomatosis, or RRP.

HspE7
was originally developed as a therapeutic to treat HPV-related CIN and cervical cancer. Additional clinical trials were initiated to test HspE7 in
HPV-related AIN, which is similar pathologically to cervical dysplasia. Preliminary analysis and subsequent data presented from our phase II clinical trial in anal dysplasia demonstrate
that HspE7 may have broader therapeutic potential for the treatment of HPV-related diseases, such as genital warts and RRP.

Anal Intraepithelial Neoplasia

AIN is characterized by the presence of abnormal cells that may precede anal cancer. High grade AIN is principally caused by HPV. Unlike CIN, which is
described below, AIN is not readily treatable with a surgical approach. In addition, neither radiotherapy nor chemotherapy are currently effective treatments for AIN. We believe that HspE7 could offer
an alternative form of treatment for AIN.

Due
to the increase in awareness and improved detection of HPV and HIV infections over the past 10 years, the incidence rates of AIN and anal cancer have increased in both the
general and HIV-positive populations. AIN has an incidence of at least 35 per 100,000 men who engage in sex with men. The incidence is rapidly rising with the prolongation of life
occurring as a consequence of effective therapy for AIDS. At least 60 per cent of men who engage in sex with men are HPV-positive and at high risk for AIN. Essentially all
HIV-positive men who engage in sex with men are similarly at risk as reported in the Journal of Acquired Immune Deficiency Syndromes and Human Retrovirology, April 1, 1998. We plan
to target HspE7 as a product candidate for the treatment of men and women diagnosed with AIN. HspE7 potentially offers a non-surgical approach to reducing the risk of progression to anal
cancer.

In
addition, as there is no standard therapy and HIV-positive men were not initially expected to respond well to an immunostimulatory treatment, the initial target of our
clinical trial was HIV-negative men and women with AIN. However, preclinical data now indicates that Hsp fusion proteins are

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effective in the absence of CD4 lymphocytes. This raises the possibility that Hsp fusions may be effective in HIV-positive patients. As a result, we may also evaluate, or support the
evaluation of, HspE7 in HIV-positive patients with HPV-related AIN.

Genital Warts

Genital warts are spread by sexual contact and are very contagious. According to the NIAID in a July 1998 Fact Sheet, in the United States approximately
one million new diagnoses of anogenital warts are made each year. Approximately two-thirds of people who have sexual contact with a partner with genital warts will develop warts
themselves, usually within three months of contact. Spontaneous regressions are common, as the lesions wax and wane, but recurrence is usual. Doctors can normally diagnose genital warts by direct
visual examination. Although current treatments sometimes suppress the warts, the lesions often reappear after treatment. Depending on factors such as their size and location, genital warts are
treated in several ways.

Various
creams and ointments have been approved as topical treatments for genital warts. According to the NIAID, the success rate for wart removal is approximately 50 per cent;
however, the relapse rate within three to six months is estimated to be 25 to 50 percent. The relapse rate is believed to be even higher over a longer period of time. Pregnant women generally
cannot use topical treatments because they are absorbed by the skin and may cause birth defects. In addition, some smaller warts can be removed by cryosurgery, freezing, electro cauterization, or
burning the warts, or laser treatment. Cases of larger warts often require extensive surgery, in some cases under general anesthesia. In an attempt to remove the underlying virus, some doctors use the
antiviral drug alpha interferon, which they inject directly into the warts that have recurred after removal by traditional means. The drug is expensive, however, and does not appear to reduce the rate
of recurrence. We are developing HspE7 as an alternative therapeutic for the treatment of genital warts.

Invasive Cervical Cancer

According to a World Health Organization February 1999 press release, invasive cervical cancer is second only to breast cancer as the most common cancer
in women worldwide. Beyond initial surgery
and radiotherapy, no therapy is highly effective and there is no approved chemotherapy or immunotherapy. The disease is associated with extreme morbidity and is typically fatal when surgery and
radiotherapy fail.

Cervical
cancer is a global public health problem, particularly in countries where routine Pap smears are not practiced. Globally there are approximately 500,000 new cases of cervical
cancer identified each year resulting in nearly 300,000 deaths. Each year in the United States approximately 15,000 women are diagnosed with cervical cancer and approximately 5,000 die from cervical
cancer.

Our
initial target in developing product candidates to treat cervical cancer will be women with advanced carcinoma of the cervix who are not candidates for curative surgery or
radiotherapy.

Cervical Dysplasia

Cervical dysplasia, historically known as cervical intraepithelial neoplasia, so abbreviated as CIN, is characterized by the presence in the cervix of abnormal
cells that often precede cervical cancer. These abnormal cells are usually detected in women through regular Pap smear screening. The National Cancer Institute estimates that in the United States more
than 1.2 million women are diagnosed with low grade cervical dysplasia and, according to a December 1999 report of the Centers for Disease Control, another 200,000 to 300,000 are
diagnosed with high grade cervical dysplasia each year. Worldwide, the incidence is much larger. Currently, treatment for CIN is limited to local surgical techniques, an approach not always effective
as malignant cells may be missed and the underlying infection is not treated. In addition, surgical treatments can result in complications. HspE7 treatment

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for CIN may offer a non-surgical approach to reducing the risk of progression to cervical cancer and could potentially be a replacement for surgery, an adjunct to surgery or a backup for
those who fail surgery.

Recurrent Respiratory Papillomatosis

RRP is caused by HPV types six and eleventhe same types of HPV that cause genital warts. In a small subset of susceptible individuals, HPV causes
tumor-like lesions to grow on the larynx and, in some cases, in the trachea and lungs. Left untreated, these tumors can cause suffocation and death. In
March 2001 the United States Food and Drug Administration granted orphan drug status for HspE7 for the treatment of RRP.

Description of Results of HspE7 Clinical Trials

In October 1999, we initiated patient treatment in a phase II clinical trial with HspE7 in male and female patients with AIN. The primary goal of the
phase II clinical trial is to determine whether HspE7 is more effective than placebo in inducing complete regression of abnormal cells in subjects with AIN. The phase II AIN program involves two
trials: the first is a randomized, double-blind placebo-controlled study in patients diagnosed with AIN and the second is an open-label trial. Patients enrolled in the first trial were
permitted to cross-over into the second trial. These studies are currently ongoing at a number of centers in the United States. All clinical data described below are from patients who
crossed over into the open-label phase II AIN trial. Data from the first trial currently remains blinded.

A
preliminary analysis of ten patients enrolled in the phase II AIN open label trial confirmed clinical proof of principle for the use of HspE7 in the treatment of AIN. The data were
presented in July 2000 at HPV2000, the International Human Papillomavirus Congress in Barcelona. All ten patients improved when administered HspE7 once per month for three months, according to
the investigator and the pathologist working at separate locations. The global physicians' assessment improved between 50 and 95 per cent compared to baseline for all ten patients. In addition, serial
review of biopsies taken over the course of the study from each patient, from the same location, revealed improvement in all patients. At three months, each of the ten patients showed clinical benefit
represented by a reduction in the invasiveness or extent of the surgical procedure that would have been recommended had the HspE7 treatment not been available. In October 2000, at the Cancer
Vaccines Conference in New York, we announced that six of eight patients in this trial evaluated at six months converted from high-grade AIN to low-grade AIN. The conversion
from high-grade to low-grade AIN potentially eliminates the need for surgery in these patients to treat the disease. In addition, responses were observed in patients infected
with different types of HPV (including those that cause genital warts), indicating that HspE7 activity was not limited to a specific type of HPV.

Safety

In the approximately 153 subjects and patients studied in our clinical trials as of November 2000, safety data for treatment with HspE7 are available in
various states of validation. At various doses and schedules, the predominant adverse experience noted from HspE7 treatment is injection site reaction, mild to moderate in severity, clearing in hours
to days without treatment.

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Ongoing HspE7 Clinical Trials

HspE7 is currently being evaluated in clinical trials for the following HPV-related diseases:

AINPhase
II trials, including a double-blind placebo controlled study and an open label study. Phase III double-blind placebo-controlled clinical trial. These studies are
being conducted at multiple study centers in the United States. Clinical efficacy will be measured using standard pathological criteria.

CINPhase
II open label, multi-dose study in women with high-grade CIN. This trial is being conducted at several study centers. Patients are
evaluated for regression of cervical lesions. Following a monitoring period, all patients receive the standard surgical treatment, which involves the removal and examination of abnormal tissue.

Cervical
cancerPhase II open label study. Clinical efficacy will be measured by conventional oncologic criteria.

Genital
wartsPhase II double-blind placebo-controlled study. The study is being conducted at multiple study centers in the United States and requires each patient to
receive multiple injections of HspE7. Clinical efficacy will be assessed by measured regression of warts.

Other Product Candidates in Development

HspViral Antigen Fusion Proteins

Based on our proprietary fusion protein technology, we have developed a number of Hsp fusions using various antigens, including those from the Hepatitis B
virus and HIV.

Hepatitis B

Hepatitis B is a disease caused by infection with the Hepatitis B virus and is characterized by jaundice, fatigue, abdominal pain and other symptoms. According
to current statistics from the Centers for Disease Control, there are between 140,000 and 320,000 new cases of Hepatitis B each year and it is estimated that up to 1,250,000 people in the United
States are chronically infected. These infections result in health care and other costs that are estimated to be U.S. $700 million per year in the United States. We are currently conducting
animal studies, as well as carrying out laboratory testing of potential fusion product candidates and based on these tests will determine if a candidate should be advanced into
pre-clinical testing and clinical trials.

HIV

In 1996, researchers at MIT demonstrated that a fusion protein composed of a particular stress protein called Hsp71 and an HIV antigen known as p24 could be
used to generate an immune response to p24 in mice. Investigators at MIT and Harvard University working on this approach applied for and received funding from the United States National Institutes of
Allergy and Infectious Disease to conduct advanced animal or human studies of this therapeutic. Before continuing with this program, we plan to seek appropriate collaborations or partnerships to
assist with the development work.

Hsp Alone & HspAllergen Fusion Proteins

We have developed proprietary technology based upon the use of stress proteins to reduce the morbidity associated with the exposure to various agents that
cause allergic and certain inflammatory reactions. To complement and strengthen our existing technology positions, we entered into a licensing agreement with the National Jewish Medical and Research
Center in Denver, Colorado, for exclusive rights to National Jewish's patent estate involving the use of stress proteins in the treatment of various

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allergic and inflammatory disorders. We are currently investigating the immunomodulatory effects of stress proteins in animal models of allergy and asthma.

Recent
estimates indicate that approximately 20 percent of the United States population, which is approximately 40 to 50 million individuals, have allergies. The most
prevalent in the United States are allergies to ragweed and grass with approximately nine million affected individuals for each. There are varying degrees of symptoms to allergic response, mostly
runny noses, sneezing and congestion. However, severe forms of allergy can affect patients' lungs leading to asthma, a potentially life threatening illness that can lead to permanent airway damage.
Since 1980, the prevalence of asthma has almost doubled. There are approximately 17 million people in the United States with asthma according to a National Institute of Allergy and Infectious
Disease Fact Sheet dated January 2000.

Allergies
result when the immune system overreacts to foreign proteins known as allergens that are innocuous to non-allergic individuals. These inappropriate responses
occur in humans and other animals. In allergic individuals, these allergens trigger a strong Th2 immune response, resulting in the production of IgE. This antibody attaches to receptors on certain
cells (mast cells and basophils) that line or are attracted to the surface of the lung, nose and other mucosal surfaces. Certain mediators of inflammation are released when these
cell-bound IgE bind a particular allergen such as ragweed. These cause congestion, itchy eyes, and in the case of asthma, bronchoconstriction and pulmonary inflammation.

Current
treatments for allergies are focused on treating the symptoms. Use of antihistamines alone or in combination with decongestants addresses the nasal and ocular symptoms. For
more severe forms, topical steroids are used. For asthma, acute symptomatic therapy uses bronchodilators, with inhaled steroids recognized as the standard of care for first line therapy to suppress
the chronic inflammation. With more severe forms or when acute crises occur, systemic steroids are used as well. However, these approaches do not address the immune system anomaly that is the root
cause of disease. Instead they block the downstream cellular mechanisms that produce the symptoms after the immune response has occurred.

A
second approach aims to reduce or eliminate the initial response upon exposure to allergen. The process takes months or years, and the aim is to "tolerize" the patient to future
exposures. Traditionally, this approach has involved exposing the patient to increasing doses of extracts derived from the offending allergen through injection. These allergen extracts have been the
subject of much debate in the context of standardization. However, results with this approach have been quite variable and patient treatment is customized. Also, there is a risk of anaphylaxis and
even death in this procedure. Furthermore, most patients are allergic to more than one allergen, thereby requiring multiple injections at each physician visit.

The
ability of stress proteins to elicit a Th1 type immune response, compared to a Th2 type response, is being investigated in allergen-specific and non-specific models.
We have embarked upon a program using stress proteins or stress protein fusions with appropriate allergens to investigate their ability to cause the immune system to shift from a Th2 response thereby
reducing the production of IgE, and diminishing subsequent allergic inflammatory symptoms mediated by this antibody. In addition, this
shift away from a Th2 response is believed to reduce the later onset T-cell mediated inflammation responsible for the chronic lung damage associated with asthma.

The
use of stress proteins alone or fused to selected allergens may be envisioned as potential product candidates for the prevention or treatment of allergy and asthma. Based on our
current investigations of the immunomodulatory effects of stress proteins in models of allergy and asthma, we are currently evaluating whether to advance a product candidate into
pre-clinical testing and clinical trials.

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Hsp & Cellular Protection

Another potential application for stress protein based technologies is in the arena of cellular protection or cytoprotection. When cells, tissues and whole
organisms are exposed to damaging or life-threatening conditions or stimuli, a cellular "stress response" can be induced. This response culminates in the increased production of stress
proteins, which may help repair damage that has occurred and protect against future damage. This cellular defense mechanism can be exploited to protect cells and tissues against the deleterious
effects of "stressful" stimuli, which range from exposure to noxious substances to abrupt changes in metabolism or physiological state. We are conducting research examining the ability of small
molecule inducers of the stress response to protect cells and tissue against injuries experienced as a result of surgery and in the field of organ transplantation.

Collaboration

National Cancer Institute

In November 1999, we entered into a clinical trials agreement (a CTA) with the National Cancer Institute, or the NCI, in the United States for the
co-development of our lead product, HspE7, in the treatment of CIN caused by HPV. The NCI is the United States Government's principal institute for cancer research and training. It
conducts and supports research, training, health information dissemination and other programs focused on the cause, diagnosis, prevention and treatment of cancer. Over 80% of all agents approved for
the treatment of cancer by the FDA have been tested or developed under a NCI-sponsored program. Under the terms of this agreement, the NCI's Division of Cancer Treatment and Diagnosis will
work collaboratively with us to develop a general plan for clinical
development of HspE7. Additional clinical research protocols may be solicited from independent investigators and cooperative research groups affiliated with NCI. The NCI will sponsor and fund these
studies; we are expected to provide clinical grade HspE7 for the investigators to use in their studies. The general plan and clinical protocols developed under the CTA are independent of our
developmental plans for studies under our own sponsorship. We are currently discussing protocols with the NCI. The NCI intends to initiate the first protocol under the CTA in 2001. The collaboration
with the NCI allows us to test HspE7 in more clinical settings than we would be able to do independently.

Research Agreements

In addition to our internal research initiatives, we have a number of research agreements which we believe provide us with important sources of research data
and could lead to technology development opportunities. In April 1999 we entered into a research agreement with National Jewish Research and Medical Center in Denver, Colorado to perform work
regarding the use of heat shock proteins and their potential to inhibit allergic inflammation and airway hyper-responsiveness. In November 1998 we entered into a sponsored research agreement
with MIT. Under the agreement we agreed to fund certain research and place one of our employees at MIT. The work being conducted at MIT involves the examination of the mechanism by which stress
proteins participate in regulating the immune system. We have the right to license intellectual property arising from this collaboration. We have also entered into an agreement with the National
Institute of Allergy and Infectious Diseases to test our Hepatitis B candidate in preclinical models.

Intellectual Property Licenses

Certain key technologies that we use have been obtained under license from certain academic institutions that are described below.

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National Jewish Medical and Research Center

In July 1998, we entered into an exclusive license agreement with National Jewish Research and Medical Center to license certain technology and
intellectual property relating to methods for treating inflammatory diseases using heat shock proteins. Under the agreement, we agreed to use our best efforts to bring to market a product or products
based on the intellectual property. We are obligated to pay National Jewish certain milestone payments related to the clinical development of products,
including an annual license maintenance fee, and are required to pay certain royalties on net sales of any products developed using the licensed technology.

Whitehead/MIT License

Under a November 1992 license agreement, as amended, among ourselves, the Whitehead Institute for Biomedical Research and MIT, and consented to by the
MRC, as co-owner of the technology, we were granted an exclusive worldwide license to make, use and sell products based upon certain discoveries related to stress proteins made by
researchers at Whitehead and to use the processes related thereto, subject to the filing for patent protection in each jurisdiction in which a product is to be made, used or sold. The processes
licensed are the subject of certain patents granted or applied for by the Whitehead Institute and MIT. The Whitehead Institute is obligated under the agreement to seek prompt issuance of, and maintain
during the term of the agreement, all applicable patent rights, with all fees and costs relating thereto being our responsibility. The Whitehead Institute has been granted a Canadian patent and has
filed patent applications in the United States and Europe relating to the use of the licensed technology.

The
license is exclusive until the earlier of 15 years after the first commercial sale of a product derived from, or the first commercial use of the process derived from, the
licensed technology, or December, 2012. Thereafter, the License will become non-exclusive and will expire at the end of the term of each applicable patent. Under certain conditions, MIT or
we may grant sublicenses of the licensed technology. If we do not grant a sublicense within a reasonable period, MIT will be permitted to grant a non-exclusive,
non-transferable sublicense to a third party. Any revenue received by MIT from the sublicense will be shared equally with us.

Under
the agreement, we are required to pay an annual license maintenance fee and are required to pay royalties on net sales of our products that use the licensed technology. License
maintenance fees are credited against any required royalty payments. All licensed products leased or sold in the United States are required to be manufactured substantially in the United States.

One
of the European patents licensed to us by Whitehead and MIT was challenged by BioChem Vaccines Inc. and Antigenics Inc. Oral proceedings took place on
November 14, 2000. At the conclusion of the hearing, the European patent office revoked the patent in its entirety. We have only recently received the final written decision, so still may
consider whether to appeal this decision. This ruling has no impact on our core intellectual property filings on stress protein fusion technology and specific fusions such as HspE7, as well as other
applications of stress proteins and does not prevent us from commercializing or further expanding our intellectual property position around the key stress protein fusion technology. In essence, the
ruling places the subject matter covered by the patent into the public domain in Europe. This means that the use of stress proteins alone, but not stress protein fusions, to
treat diseases caused by a pathogen are now in the public domain in Europe, absent a successful appeal of this ruling.

Intellectual PropertyPatents

We, and technology licensors who have granted us commercial rights, have a number of patent applications pending in the United States and have similar pending
patent applications in multiple jurisdictions including Europe and Japan. We own or have rights under nine issued patents, including a

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granted Canadian patent directed to the use of stress proteins for vaccine and therapeutic applications licensed from the Whitehead Institute and MIT. Other pending applications and their
continuation-in-part applications relating to the use of stress proteins, including members of the Hsp60 and Hsp70 gene families, for therapeutic and vaccine developments are
on file in the United States Patent and Trademark Office and foreign counterparts have been filed in various countries throughout the world. Certain of these patent applications and
continuation-in part applications have been exclusively licensed by us from the Whitehead Institute and are being prosecuted by the Whitehead Institute and MIT. We are funding the
prosecution of all such applications and continuation-in part applications which were filed in multiple jurisdictions, including the United States, Canada, and, through the European Patent
Office, several European countries.

While
none of our patent claims or pending applications are considered by us to be absolutely essential to our operations, we believe that they will contribute to the development and
maintenance of a competitive position with respect to one or more of our stress protein based products under development. However, as is the nature of many biotechnology and pharmaceutical patents, we
cannot assure you that our pending applications will result in issued patents, or 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 noninfringing product or process. Interpretation and evaluation of biopharmaceutical or biotechnology patent claims present
complex and often novel legal and factual questions.

In
the fields of biotechnology and biopharmaceuticals, others may obtain patents that conflict with patents we own or have rights to. In addition, we may be required to obtain
licenses to use the technology covered by any such third-party patents and we cannot assure you that we will be able to obtain such licenses or otherwise circumvent, through a reasonable investment of
time and money, such third-party patents. The owners of these patents could commence patent litigation against us alleging infringement of the patent. If the outcome of any such litigation were to be
adverse, our business could be materially affected. Furthermore, others may independently develop substantially equivalent proprietary information and technology, or otherwise gain access to our
proprietary information and
technology or disclose such proprietary information and technology, and we may not be able to meaningfully protect our rights to such unpatented trade secrets.

Our
intellectual property protection policy is to file and actively prosecute patent applications relevant to the inventions that we consider meaningful to our business. We will also
rely upon unpatented trade secrets, know-how and continuing technological innovation to develop and maintain a competitive position. To this end, all of our employees, consultants and
advisors enter into confidentiality agreements with us, under which they agree not to disclose proprietary information relating to our activities.

Manufacturing

We contract with others for process development and manufacture of HspE7. We currently rely on one manufacturer for bulk HspE7 and two manufacturers for dosage
forms in vials. Collectively, these manufacturers have agreed to supply quantities of HspE7 that are sufficient to complete our current and future phase II and phase III clinical studies. We are in
the process of establishing a quality control and quality assurance program, including a set of standard operating procedures, analytical methods and specifications, designed to ensure that HspE7 will
continue to be manufactured in accordance with current good manufacturing practice and other regulations.

Government Regulation/Product Approval Process

The production and manufacturing our products and our research and development activities are subject to regulation for safety and efficacy by applicable
governmental authorities. In Canada, these

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activities are regulated by theFood and Drug Act(Canada) and the rules and regulations promulgated thereunder, which are enforced by the Health
Protection Branch, or HPB, of the Department of Health and Welfare Canada. In the United States, drugs and biological products are subject to regulation by the Food and Drug Administration, or FDA.
Drug licensing laws require licensing of manufacturing facilities, carefully controlled research and testing of products, governmental review and approval of results prior to marketing therapeutic
products, and adherence to Canadian and United States good manufacturing practices during production.

The
principal activities which must be completed before obtaining approval for marketing in Canada and the United States 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. 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.

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
HPB or FDA, as applicable, before each phase of human clinical trials may begin. The investigational new drug application must contain specified information including the results of the preclinical or
clinical tests completed at the time of the investigational new drug application. In addition, since the method of manufacture may affect the efficacy and safety of a drug, information on
manufacturing methods and standards and the stability of the drug substance and dosage form must be presented so that the FDA and other regulatory authorities can ensure that the product that may
eventually be sold to the public has the same composition as that determined to be effective and safe in the clinical trials. Production methods and quality control procedures must be in place to
ensure a relatively pure compound, essentially free of contamination and uniform with respect to all quality aspects.

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 HPB as part of a new drug submission or to the FDA as part of a biologics license
application, in the case of a biological product, to obtain approval to commence marketing the product. We anticipate that HPB and FDA marketing approval for the majority of our proposed products will
take between 12 and 24 months from the date we submit an new drug submission in Canada or a biologics license application in the United States. In addition, an establishment license application
must be filed and approved by the HPB or FDA for the production of a product, and test sites must demonstrate that good laboratory practices and good clinical practices have been maintained during
pre-clinical and clinical evaluation.
Even after marketing approval has been obtained, further studies, including post-market studies, may be required to provide additional data on safety and efficacy necessary to gain

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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 HPB and FDA 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 safety or effectiveness
problem involving an approved drug or medical device may result in HPB or FDA action requiring withdrawal of the product from the market and possible civil action.

For
the purposes of FDA regulatory approval, a vaccine is considered to be a biologic. FDA regulations describe a biologic as "any virus, therapeutic serum, toxin, antitoxin, vaccine,
blood, blood component or derivative, allergenic product or analogous product for prevention, treatment or cure of diseases or injuries of man, including its use as an aid in the diagnosis or
evaluation of susceptibility or immunity." In addition, biological products may be defined as drugs and, as such, are subject to all of the adulteration, misbranding and registration provisions of the
United States Food, Drug and Cosmetic Act. A biologic agent will only be approved by the HPB and FDA upon demonstration of compliance with standards that are designed to assure the safety, purity,
potency and efficacy of the product.

Vaccines
are regulated in the United States by the Office of Vaccines within the Center for Biologics Evaluation and Research, which is a division of the FDA. Vaccines developed for
human use must follow all of the pre-clinical and clinical testing described above. In Canada, the HPB, through the Bureau of Biologics, oversees the regulations applicable to the
development of vaccine products.

On
the basis of the requirements for clinical trials for human vaccines, large numbers of persons must be recruited for clinical studies and their medical histories tracked for a
number of years. The length of time and cost of completing vaccine clinical trials, as well as the ongoing monitoring of the immunized population, is significant.

Our
success in ultimately obtaining marketing approval and clearance for product candidates currently under development will depend on our ability to comply with worldwide regulations
governing the manufacturing, quality control, pre-clinical evaluation and clinical testing of investigational new drugs. The regulatory approval and clearance requirements for new drugs
outlined above for Canada and the United States are similar to those of other foreign jurisdictions. While testing carried out in Canada or the United States is often acceptable for the purposes of
regulatory submissions in other countries, supplementary testing may be requested by individual regulatory authorities during their assessment of any submission. Data obtained from clinical trials
performed under the authorization of a particular country's regulatory body may not be accepted by the regulatory bodies in other countries.

Competition

We are focused on the research and development of therapeutic products based on the intrinsic nature of stress proteins to assist the body in fighting
infection, related cancers and other diseases including asthma and allergy. Most, if not all, of the major pharmaceutical companies have significant research and product development programs in these
areas. These programs use approaches not employing stress proteins to achieve the same effect of stimulating the body's immune system to recognize and to fight cancer and infection. Certain other
companies, such as Antigenics Inc., are investigating an autologous approach employing stress proteins, which involves extracting certain stress proteins from diseased tissue such as tumors,
and re-administering it to the same person for potential therapeutic benefit. In addition, Antigenics recently announced that it was studying the use of a non-covalent complex
composed of an Hsp and a viral peptide for the treatment of herpes simplex viral infections.

A
variety of other approaches are being developed or have already been adopted and are routinely used for the management of diseases targeted by us. We expect to encounter significant
competition in Canada, the United States and foreign countries for each of the products we seek to develop. Many of

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our competitors have greater human and financial resources dedicated to product development and human clinical testing than we do. While there is no current commercial product in use that utilizes
stress proteins as the recognized key component in a treatment, established treatments such as conventional drug therapy and surgery, and existing and other experimental vaccines, will offer
competition to our proposed products.

The
pharmaceutical industry is subject to rapid and substantial technological change. Technological competition from pharmaceutical and biotechnology companies, which have
significantly greater research and development capabilities, as well as substantial marketing, financial, and managerial resources, represent significant competition to us. Acquisitions of, or
investments in, competing biotechnology companies by large pharmaceutical companies could increase such competitors' financial, marketing and other resources. We cannot assure you that developments by
others will not render our proposed products or technologies non-competitive, or that we will be able to keep pace with technological developments. Competitors may have developed or may be
in the process of developing technologies that are, or in the future may be, the basis for competitive products. Some of these products may have an entirely different approach or means of
accomplishing the therapeutic effect than the products being developed by us.

Current
competition in the stress protein bioreagent market is limited but there are a few companies that have competing products. Affinity Bioreagents Inc. is a key competitor
in the stress protein bioreagent market. Several larger companies such as Amersham Life Sciences Inc., Oncor Incorporated and Santa Cruz Biotechnology Inc. have introduced competing
products. We anticipate additional competition from other suppliers in the future but the effect on our competitive position is not yet determinable.

Human Resources

As of February 28, 2001 we employed 78 full time equivalent personnel, of which 47.5 were engaged in, directly or indirectly, research and development
efforts. Of the scientific persons employed, one holds an M.D., ten 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.

RISK FACTORS

In addition to the other information contained in this Annual Report on Form 10-K, the following factors should be considered carefully by
potential purchasers when evaluating our products and our business.

We Are At An Early Stage Of Development

We are still at an early stage of development. 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 must make significant additional investment in research and development and clinical trials prior to the commercialization
of any of our technology. We have only undertaken limited human clinical trials of 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 unwanted side effects. We cannot assure you that any of our products will meet applicable health regulatory standards,
obtain required regulatory approvals or clearances, be capable of being produced in commercial quantities at reasonable costs, be successfully marketed or that the investment made in such product
candidates will be recouped through

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sales. None of our therapeutic product candidates are expected to be commercially available for a number of years.

We Have A History Of Operating Losses And We May Never Become Profitable

To date, we have not recorded any revenues from the sale of therapeutic products. From our date of incorporation to December 31, 2000, we have
accumulated net losses of approximately $69,308,000 and expect such losses to increase as we continue our research and development and clinical trials. We expect to continue to incur substantial
operating losses for at least the next several years. To become profitable, we, either alone or with one or more partners, must develop, manufacture and successfully market product candidates.

Our Product Development Programs Are Novel And, Thus, Inherently Risky

Our business is subject to the risks of failure inherent in the development of product candidates based on new technology. These risks include the possibility
that:



Consequently,
there is no precedent for the successful commercialization of products based on our technologies. It is possible that none of our therapeutic products will be
successfully developed.

Our Clinical Trials Could Take Longer To Complete Than Expected

Although for planning purposes we forecast the commencement and completion of clinical trials, the actual timing of these events can vary dramatically due to
factors such as scheduling delays or conflicts with the schedules of participating clinicians and clinical institutions and the rate of patient accruals. Our most advanced product candidate, HspE7, is
intended for treating patients with relatively early stage cancer and is designed to delay or prevent the recurrence of disease. As a consequence, clinical trials involving these product candidates
are likely to take longer to complete than clinical trials involving other types of therapeutics. Clinical trials involving our product candidates may not commence or be completed as forecasted.

We
have limited experience in conducting clinical trials. We rely on corporate collaborators, academic institutions or clinical research organizations to conduct, supervise or monitor
some or all aspects of clinical trials involving our products. In addition, certain clinical trials for our products will be conducted by government-sponsored agencies and consequently will be
dependent on governmental participation and funding. We will have less control over the timing and other aspects of these clinical trials than if it conducted them entirely on our own. These trials
may not commence or be completed as we expect and may not be conducted successfully. Failure to commence or complete, or delays in, any planned clinical trials could reduce investors' confidence in
our ability to develop products which would likely cause our stock price to decrease.

We Must Obtain Additional Financing To Execute Our Business Plan

Currently, revenues from the production and sale of bioreagents are not adequate to support our therapeutic product development programs. As a result, we will
require substantial additional funds for

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further research and development, planned clinical trials, regulatory approvals, establishment of pilot-scale manufacturing capabilities and, possibly, the marketing of our products. We do not have
committed sources of funding. We will seek to obtain those additional funds through public or private equity or debt financing, collaborative arrangements with pharmaceutical companies and/or from
other sources. Any collaborative arrangements will likely require us to relinquish some or all of our rights to our technology or products.

We
believe that we have adequate funding for our operations and capital requirements until approximately the end of 2002. Additional funding may not be available at all or on
acceptable terms.

Our Success Depends On Our Ability To Protect Our Proprietary Rights And Operate Without Infringing The Proprietary Rights Of Others

Our success will depend, in part, on our ability to obtain patents, maintain trade secret protection and operate without infringing on the proprietary rights
of third parties or having third parties circumvent our rights. We have filed and are actively pursuing applications for United States and non-United States patents. The patent positions
of pharmaceutical and biotechnology firms, 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 United States Patent and Trademark Office or enforced by the United States 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 United
States is even more uncertain and is currently undergoing review and revision in many countries. The laws of certain non-United States countries may not protect our intellectual property
rights to the same extent as the laws of the United States. Thus, we cannot assure you that any of our patent applications will result in the issuance of patents, that we will develop additional
proprietary products that are patentable, that any patents issued to us will provide us with any competitive advantages or that such patents will not be challenged by any third parties, 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. Furthermore, others may independently develop similar products that
duplicate one or more of our products and, if patents are issued to us, others may design around the patented products we develop.

A
number of pharmaceutical and biotechnology companies and research and academic institutions have developed technologies, filed patent applications or received patents on various
technologies that may be related to our business. Some of these technologies, applications or patents may conflict with our technologies, patent applications or patents. Such conflict could limit the
scope of our current patents or the patents, if any, that we may be able to obtain or result in the denial of our patent applications. In addition, if patents that cover our activities are issued to
other companies, we cannot assure you that we would be able to obtain licenses to these patents at a reasonable cost, or at all, or be able to develop or obtain alternative technology. If we do not
obtain such licenses, we could encounter delays in the introduction of products, or could find that the development, manufacture or sale of products requiring such licenses is prohibited. In addition,
we could incur substantial costs in defending our patent position in suits brought against us or in prosecuting suits against others to have third-party patents declared invalid.

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. If we become involved in patent litigation, it could consume a substantial portion of our financial and human resources. If
the outcome of any such litigation were to be adverse, our business could be materially affected.

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Since
patent applications in the United States are maintained in secrecy until the patents issue or non-United States counterparts, if any, publish and since publication
of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we or any licensor was the first creator of inventions described in our pending
patent applications or patents or that we or such licensor was the first to file patent applications for such inventions. Moreover, we might have to participate in interference proceedings declared by
the United States Patent and Trademark Office to determine priority of invention, which could result in substantial cost to us, even if the eventual outcome were in our favor. An adverse outcome could
subject us to significant liabilities to third parties and require us to license disputed rights from third parties or cease using the technology. We cannot assure you that our patents, if issued,
would be held valid or enforceable by a court or that a competitor's technology or product would be found to infringe our patents. Furthermore, substantial costs can be incurred due to the filing of
lawsuits to enforce our patent rights against apparent infringers, even if we are successful in the lawsuits.

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. In addition, to the extent that collaborators, advisors or consultants apply
technological information developed independently by them or by others to our projects or apply our technology to other projects, disputes may arise as to the ownership of proprietary rights to such
technology. Further, our business may be adversely affected by competitors who independently develop competing technologies, especially if we do not obtain, or only obtain narrow, patent protection.

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

Our strategy is to enter into various arrangements with corporate and academic collaborators, licensors, licensees and others for the research, development,
clinical testing, manufacturing, marketing and commercialization of our products. In addition, the nature of clinical trials requires us to rely on outside parties to conduct clinical testing. While
we have several research collaborations, we currently do not have any corporate partners or licensees involved in the development and eventual commercialization of our product candidates. We may not
be able to establish collaborations on favorable terms, if at all, and our current or future collaborations may not be successful.

There
are a number of risks associated with our dependence on collaborative agreements with third parties. Should any collaborative partner fail to develop or manufacture in adequate
quantities a substance we need in order to conduct clinical trials, fail to adequately perform clinical trials or fail to develop, manufacture or commercialize an end product to which it has rights,
or a partner's product to which we have the rights, our business may be adversely affected. Failure of a collaborative partner to continue to participate in any particular program could delay or halt
the development or commercialization of products generated from that program. In addition, we cannot assure you that our collaborative partners will not pursue other technologies or develop
alternative products that could compete with our future products.

We
currently hold licenses from third parties for certain technologies. 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 and, in the event of a breach of the terms of any license, the licensor may attempt to terminate the license.

We
also plan to acquire additional licenses to technologies developed by other companies and academic institutions. Pursuant to the terms of these license agreements, we could be
obligated to

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exercise diligence in bringing potential products to market and to make certain milestone payments that, in some instances, could be substantial. We also are obligated to make royalty payments on the
sales, if any, of products resulting from licensed technology and, in some instances, are responsible for the costs of filing and prosecuting patent applications.

We May Not Be Able To Obtain The Regulatory Approvals Or Clearances That Are Necessary To Commercialize Our Products

The manufacture and sale of human therapeutic products in the United States and Canada is governed by a variety of statutes and regulations in both countries.
These laws require approval of manufacturing facilities, controlled research and testing of products and government review and approval and clearance of a submission containing manufacturing,
preclinical and clinical data in order to obtain marketing approval and clearance based on establishing the safety and efficacy of the product for each use sought.

Our
product candidates are currently in the early stages of development and will require significant development, pre-clinical and clinical testing and investment of
significant funds prior to their commercialization. The process of obtaining required approvals and clearances can be costly and
time-consuming and our potential products may not be successfully developed, prove to be safe and effective in clinical trials or receive applicable regulatory approvals and clearances.
Any delay in obtaining such approvals and clearances may:



Government
regulatory authorities may approve a product candidate for fewer indications than requested 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.

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

We
and our contract manufacturers 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. Manufacturing facilities must be approved before we can use them in commercial manufacturing of our products and
are subject to inspection by regulatory agencies. Our contract manufacturers and we may not be able to comply with the applicable good manufacturing practice requirements and other regulatory
requirements, which could prevent us from developing any of our product candidates.

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Even If We Obtain All Necessary Regulatory Approvals, Our Products May Not Gain Market Acceptance

Even if our product candidates receive all necessary regulatory approvals and clearances, they 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 products we may develop, we must build a substantial marketing and sales force
with appropriate technical expertise and supporting distribution capabilities. Alternatively, we may obtain the assistance of a more experienced pharamaceutical company or other entity. 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. To the extent that we do enter into
co-promotion or other licensing arrangements with respect to any products that we may develop, our product revenues will be lower than if we directly marketed and sold our products and any
revenues that we receive will depend on the efforts of third parties, which efforts may not be successful.

Our Operations Involve Hazardous Materials Which Require Us To Comply With Regulatory Requirements And Which Could Subject Us To Damages Resulting From Accidental Contamination
Or Injury

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. Although we believe that our safety procedures for handling and disposing
of such materials comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event
of an accident involving these materials, we could be held liable for any damages that result and any such liability could exceed our resources. We are not insured with respect to this liability.
Although we believe that we are in compliance in all material respects with applicable environmental laws and regulations and currently do not expect to make material capital expenditures for
environmental control facilities in the near-term, we may be required to incur significant costs to comply with environmental laws and regulations in the future.

Our Competitors May Develop And Market Drugs That Are Less Expensive, More Effective Or Safer Which May Diminish Or Eliminate The Commercial Success Of Any Products We May
Commercialize Or Render Our Products Obsolete

Technological competition from pharmaceutical companies and biotechnology companies is intense and is expected to increase. Many of our competitors and
potential competitors have substantially greater product development capabilities and financial, scientific, marketing and human resources than ours. Other companies may succeed in developing products
earlier than us, obtaining HPB and FDA approvals and clearances for such products more rapidly than us, or in developing products that are more effective than those ultimately developed by us, if any.
While we will seek to expand our technological capabilities in order to remain competitive, we cannot assure you that research and development by others will not render our technology or products
obsolete or non-competitive or result in treatments or cures superior to any therapy developed by us, or that any therapy we develop will be preferred to any existing or newly developed
technologies.

The
biotechnology and pharmaceutical industries are subject to rapid and substantial technological change. We cannot assure you that developments by others will not render our
products or technologies

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non-competitive or that we will be able to keep pace with technological developments. 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. In addition, other forms of medical treatment may be competitive with our products.

Our Lack Of Manufacturing Experience For Therapeutic Products Means That We Will Have To Incur Substantial Costs To Develop Manufacturing Facilities Or Contract With Third
Parties Over Whom We Will Have Limited Control

While we have manufacturing experience in bioreagents, this experience is not directly applicable to the manufacture of therapeutic products. We have not yet
introduced any therapeutic products and have no manufacturing experience for therapeutic products. To be successful, our products must be manufactured in commercial quantities in compliance with
regulatory requirements and at acceptable costs. We do not currently have facilities for the production of our products under development and will initially obtain the small amount of products we
requires for clinical trials from contract manufacturing companies. In order to manufacture our products in commercial quantities, we will need to develop our own manufacturing facilities or contract
with third parties to manufacture our products, as is currently the case for HspE7. We may not be able to reach satisfactory arrangements with any third party manufacturers in the future. Currently,
Covance is the sole supplier of our HspE7 product
candidate. If for any reason Covance delays the supply of our HspE7 product candidate, we may have to delay clinical trials. If we cannot contract for large-scale manufacturing capabilities on
acceptable terms, or if we encounter delays or difficulties with manufacturers, we may not be able to conduct clinical trials as planned.

If
we were to develop our own commercial manufacturing facilities, substantial additional funds beyond what it has currently available would be required. Additional management and
technical personnel who have manufacturing experience would also have to be retained. All manufacturing facilities must comply with applicable regulations of the HPB and FDA. We may not be able to
make the transition to commercial production. In addition, production of our products may require raw materials for which the sources and amount of supply are limited. An inability to obtain adequate
supplies of such raw materials could significantly delay the development, regulatory approval and marketing of our products.

We Have Yet To Market Or Sell Any Pharmaceutical Products

Our pharmaceutical products have not been approved for sale by any regulatory agencies. Although we sell bioreagents, we have never marketed or sold any
pharmaceutical product. In order to market or co-market our product candidates, we will need to hire a significant number of people with relevant pharmaceutical experience to staff our
sales force and marketing group, or possibly obtain such capabilities through arrangements with strategic partners. If we cannot develop the required marketing and sales expertise internally or
through our partnering arrangements, our ability to generate revenue from product sales will be limited. We cannot guarantee that we will be able to enter into marketing or sales arrangements with
strategic partners on terms favorable to us, or at all. If we are able to enter into marketing and selling arrangements with collaborative partners, we cannot assure you that such marketing
collaborators will apply adequate resources and skills to their responsibilities, or that their marketing efforts will be successful.

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

We depend on certain members of our 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

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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 are increasingly attempting to contain costs by challenging the price and examining the
cost effectiveness of products and services and limiting the coverage and level of reimbursement for new pharmaceutical products. Adequate third-party reimbursement may not be available to enable us
to maintain price levels sufficient to realize an appropriate return on our investment in product development. Governments continue to propose and pass legislation designed to reduce the cost of
healthcare. This legislation could further limit reimbursement. If the government and third-party payors fail to provide adequate coverage for our products, the market acceptance of our products may
be adversely affected.

Our Product Candidates Subject Us To The Risk Of Product Liability Claims For Which We May Not Be Able To Obtain Adequate Insurance Coverage

Since we conduct clinical trials on humans, we fact the risk that use of our product candidates could result in harm to the test subjects. We have only limited
amounts of product liability insurance for our clinical trials and we may not be able to maintain sufficient insurance coverage for any of our proposed clinical trials. We may not be able to obtain or
maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. This type of insurance is expensive, difficult to obtain and may not be available in
the future on acceptable terms, or at all. If we cannot obtain sufficient insurance coverage on reasonable terms, or otherwise protect ourselves against potential product liability claims, the
commercialization of our potential products could be inhibited or prevented. We may not have sufficient resources to pay for any liabilities resulting from a claim beyond the limit of our insurance
coverage.

Our Share Price Has Been And Is Likely To Continue To Be Highly Volatile

Our share price has been highly volatile in the past and is likely to continue to be volatile. In general, the share price of biotechnology companies tends to
be volatile. Factors such as the announcement of technological innovations, new commercial products, patents, securing exclusive rights to certain
technologies, the announcement of results of clinical tests by us or our competitors, regulations, publications, financial results, public concerns over the risks of biotechnology, future sales of
shares by us or our shareholders and many other elements could materially affect the price of our shares.

Item 2.  PROPERTIES

We currently maintain our principal executive offices in San Diego, California, research facilities and bioreagent business in Victoria, British Columbia and
clinical development offices in Collegeville, Pennsylvania. We lease approximately 1,100 square feet of office space in San Diego under a lease that expires in December 2001. Our Victoria
facilities comprises 25,000 square feet of office, research and manufacturing space under a lease that expires at the end of 2005. Our Collegeville, Pennsylvania lease approximates 5,000 square feet
and expires in April 2002.

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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,
2000.

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 and trading volume of the Common Shares, as reported. All amounts following are expressed in Canadian dollars unless otherwise indicated.

High

Low2000Fourth Quarter

7.85

6.65Third Quarter

10.00

7.10Second Quarter

7.60

4.35First Quarter

13.35

2.551999Fourth Quarter

2.80

1.81Third Quarter

2.24

1.50Second Quarter

1.65

1.22First Quarter

2.15

1.35


The
last reported sale price of our Common Shares on The Toronto Stock Exchange on February 28, 2001 was $4.73.

As
of February 28, 2001, we had 82 registered holders of our Common Shares, 24 of whom were residents of the United States. This number of holders does not include shareholders
holding their shares in street name. Of the total 50,054,758 Common Shares outstanding, the portion held by registered holders resident in the US was 4,068,749 or 12.12%.

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.

Changes in Securities

On February 2, 2000, we issued a total of 7,449,000 special warrants of which 130,000 special warrants were issued to "Qualified Institutional Buyers"
as defined in Rule 144A under the Securities Act of 1933, as amended. The special warrants were issued at the price of $3.40 each, for gross proceeds of $25,326,600.

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Each special warrant, upon the exercise or deemed exercise thereof, entitled the holder to receive one Common Share. Pursuant to a Canadian prospectus dated April 26, 2000, all
special warrants were deemed to be exercised and the holders thereof received Common Shares. All such Common Shares issued to Qualified Institutional Buyers as described above may be transferred only:
(a) to Stressgen; (b) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act of 1933, as amended; or (c) inside the United
States in accordance with (1) Rule 144 to a person the seller reasonably believes is a Qualified Institutional Buyer that is purchasing for its own account or for the account of a
Qualified Institutional Buyer to whom notice is given that the offer, sale or transfer is being made in reliance on Rule 144A, or (2) the exemption from registration under the Securities
Act of 1933, as amended, provided by Rule 144, if applicable.

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 the remittance of dividends
or other payments by the Company to non-resident holders of Common Shares in the Company, other than withholding tax requirements.

There
is no limitation imposed by Canadian law or the charter or other constituent documents of the Company on the right of non-residents to hold or vote Common Shares in
the Company, 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
the company and the value of the assets of the company was $5,000,000 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 Common Shares in the Company would be
exempt from review from the ICA, including:



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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. The
review threshold is currently $192 million. 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 "Canadian Tax Act"), deal at arm's length with the Company, hold such shares as capital property, do not carry on business
in Canada, have not been at any time residents of Canada for purposes of the Canadian Tax Act and are residents of the United States ("U.S. Residents") under the Canada-United States Income Tax
Convention (1980) (the "Convention").

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 United States or Canada. No advance income tax ruling has been
requested or obtained from 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
U.S. Resident will not be subject to tax under the Canadian Tax Act in respect of any capital gain on a disposition of Common Shares unless such shares derive their value
principally from real property situated in Canada or constitute taxable Canadian property, as defined in the Canadian Tax Act, of the U.S. Resident. Common Shares will constitute taxable Canadian
property if at any time during the 60-month period immediately preceding the disposition of the Common Shares the U.S. Resident, persons with whom the U.S. Resident did not deal at arm's
length, or the U.S. Resident together with all such persons owned 25% or more of the issued shares of any class of the capital stock of the Company.

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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 that is resident in the United States and that owns at least 10% of the voting stock of the
Company; or (ii) 15% of the gross amount of dividends if the beneficial owner is some other resident of the United States.

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 the voting stock of
the Company. 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.

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 the Company's 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

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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 current or accumulated earnings and profits of the Company,
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 dividends paid by the Company generally will
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 temporary Treasury Regulations issued (and effective) on
January 11, 1999, 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 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 holding stock in a so-called "passive foreign investment company" ("PFIC"), which is any foreign corporation 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. A publicly traded corporation is a PFIC if the fair market value of its passive income-producing assets equals or exceeds 50% of the sum of its
outstanding stock plus its liabilities. The PFIC rules can have significant effects on U.S. Holders of Common Shares.

The
Company believes that it qualified as a PFIC in at least one year prior to 2000. The Company is uncertain if it will qualify as a PFIC in 2000, the determination of which will be
based on fiscal 2000

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results and the occurrence of certain economic events. Therefore, each prospective investor is urged to consult a tax advisor with respect to how the PFIC rules affect its tax situation.

A
U.S. Holder of PFIC shares is subject to United States federal income taxation under one of three alternative tax regimes at the election of each such U.S. Holder. Under the first
alternative tax regime, a U.S. Holder who elects, in a timely manner (an "Electing U.S. Holder"), to treat the Company as a qualified electing fund (a "QEF") will be subject to current federal income
tax for any taxable year in which the Company qualifies as a PFIC on his pro rata share of the Company's (i) "net capital gain" (the excess of net long-term capital gain over net
short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder and (ii) "ordinary earnings" (the excess of earnings and profits over
net capital gain), which will be taxed as ordinary income to the Electing U.S. Holder, regardless of whether such amounts are actually distributed.

An
effective QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of its Common Shares (or deemed to be realized on the
pledge of his shares) as capital gain; (ii) treat its share of the Company's net capital gain, if any, as long-term capital gain instead of ordinary income; and (iii) make an
annual election, subject to certain limitations, to defer payment of current taxes on its share of the Company's undistributed annual realized net capital gain and ordinary earnings subject, however,
to an interest charge. If the Electing U.S. Holder is not a corporation, such an interest charge would be treated as "personal interest" that is not deductible at all in taxable years beginning after
1990.

The
procedure a U.S. Holder must comply with in making an effective QEF election will depend on whether the year of the election is the first year in the U.S. Holder's holding period
in which the Company is a PFIC. If the U.S. Holder makes a QEF election in such first year, i.e., (currently on Internal Revenue Service Form 8621) a timely QEF election, then the U.S. Holder
may make the QEF election by simply filing the appropriate documents at the time the U.S. Holder files his tax return for such first year. If, however, the Company qualifies as a PFIC in a prior year,
then in addition to filing documents, a U.S. Holder who has not made such a timely election must elect to recognize (i) under the rules of Section 1291 of the Code (discussed below) any
gain that he would otherwise recognize if
the U.S. Holder sold his stock on the application date or (ii) if the Company is a controlled foreign corporation (a "CFC"), the U.S. Holder's pro rata share of the Company's earnings and
profits as of the application date. By electing to recognize such gain or earnings and profits, the U.S. Holder will be deemed to have made a timely QEF election.

When
a timely QEF election is made, if the Company no longer qualifies as a PFIC in a subsequent year, normal Code rules will apply.

The
Company intends to (i) provide its U.S. Holders with timely and accurate information as to its status as a PFIC and the manner in which the QEF election can be made and
(ii) comply with all record-keeping, reporting and other requirements so that U.S. Holders, at their option, may make and maintain a QEF election; provided that if meeting those record-keeping
and reporting requirements becomes onerous, the Company may decide, in its sole discretion, that such compliance is impractical and will so notify U.S. Holders.

Under
the second alternative tax regime, special taxation rules apply to a U.S. Holder who does not make a timely QEF election during a year in which it holds (or is deemed to have
held) Common Shares and the Company is a PFIC (a "Non-electing U.S. Holder"). A Non-electing U.S. Holder generally would be required to prorate all gains realized on the
disposition of his Common Shares and all "excess distributions" (as such term is defined by Section 1291) over the entire holding period for the Common Shares. All gains or excess distributions
allocated to prior years of the U.S. Holder (other than years prior to the first taxable year of the Company during such U.S. Holder's holding period and beginning after January 1, 1987 for
which it was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-electing U.S. Holder also would be liable

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for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-electing U.S. Holder that is
not a corporation must treat this interest charge as "personal interest" which is wholly non-deductible. The balance of the gain or the excess distribution will be treated as ordinary
income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance. In addition, the tax basis of the Common Shares held by a
Non-electing U.S. Holder who is an individual would not be stepped-up to fair market value upon his death. If the Company is a PFIC for any taxable year during which a
Non-electing U.S. Holder holds the Common Shares, then the Company will continue to be treated as a PFIC with respect to such U.S. Holder, even if it is no longer definitionally a PFIC
unless the Non-electing U.S. Holder makes a "deemed disposition" election under Section 1298(b)(1) of the Code.

Under
the third alternative tax regime, a U.S. shareholder of a PFIC may make a mark-to-market election with respect to the stock of the PFIC if such stock is
"marketable" as defined below. This regime is designed to provide a current inclusion system for persons that are Non-electing U.S. Holders. Under the election, any excess of the fair
market value of the PFIC stock at the close of the tax year over the shareholder's adjusted basis in the stock is included in the shareholder's income. The shareholder may deduct any excess of the
adjusted basis of the PFIC stock over its fair market value at the close of the tax year. However, deductions are limited to the net mark-to-market gains on the stock that the
shareholder included in income in prior tax years, or so called "unreversed inclusions." For purposes of the election, PFIC stock is marketable if it is regularly traded on (i) a national
securities exchange that is registered with the Securities and Exchange Commission, (ii) the national market system established under Section 11A of the Securities and Exchange Act of
1934, as amended, or (iii) an exchange or market that the IRS determines has rules sufficient to ensure that the market price represents legitimate and sound fair market value. The Common
Shares should be considered marketable securities under this test.

A
shareholder's adjusted basis of PFIC stock is increased by the income recognized under the mark-to-market election and decreased by the deductions allowed
under the election. If a U.S. shareholder owns PFIC stock indirectly through a foreign entity, the basis adjustments apply to the basis of the PFIC stock in the hands of the foreign entity for the
purpose of applying the PFIC rules to the tax treatment of the U.S. owner. Similar basis adjustments are made to the basis of the property through which the U.S. persons hold the PFIC stock.

Income
recognized under the mark-to-market election and gain on the sale of PFIC stock with respect to which an election is made is treated as ordinary income.
Deductions allowed under the election and loss on the sale of PFIC stock with respect to which an election is made, to the extent that the amount of loss does not exceed the net
mark-to-market gains previously included, are treated as ordinary losses. The United States or foreign source of any income or losses is determined as if the amount were a gain
or loss from the sale of stock in the PFIC.

The
rules of Section 1291 of the Code applicable to nonqualified funds generally do not apply to a shareholder for tax years for which a mark-to-market
election is in effect. If Section 1291 is applied and a mark-to-market election was in effect for any prior tax year, the shareholder's holding period for the PFIC stock
is treated as beginning immediately after the last tax year of the election. However, if a taxpayer makes a mark-to-market election for PFIC stock that is a nonqualified fund
after the beginning of a taxpayer's holding period for such stock, a coordination rule applies to ensure that the taxpayer does not avoid the interest charge with respect to amounts attributable to
periods before the election.

The
above mark-to-market provisions apply to tax years of U.S. persons beginning after December 31, 1997, and to tax years of foreign corporations
ending with or within such tax years.

30

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Under Section 1291(f) of the Code, the Internal Revenue Service has issued proposed regulations that, subject to certain exceptions, would treat as taxable certain transfers of
PFIC stock by Non-electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death.

Certain
special, generally adverse, rules will apply with respect to the Common Shares while the Company is a PFIC whether or not it is treated as a QEF. For example, under
Section 1298(b)(6) of the Code, a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in the regulations, be treated as having made
a taxable disposition of such stock.

If
more than 50% of the voting power of all classes of stock or the total value of the stock of the Company 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"), the Company could be treated as a CFC under Subpart F of the Code. For tax years of U.S. persons beginning after 1997, if the Company qualifies as a
CFC, the PFIC rules generally will not apply to those United States persons that are 10% U.S. Shareholders. The classification of the Company 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 Subpart F income of the Company. In addition, under Section 1248 of the Code, gain from the sale or
exchange of stock by a holder of the Company's 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 earnings and profits of the Company attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because it is not clear that Subpart F
would apply to the holders of the Company's shares, a more detailed review of these rules is outside the scope of this discussion.

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 the Company are strongly
urged to consult their own tax advisors concerning the impact of these rules on their investment in the Company.

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 ("U.S. GAAP"). The differences as they affect our financial statements are described in
Note 12 to our audited consolidated financial statements filed as part of Item 8 hereof.

31

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Consolidated Statement of Operations Data

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

Consolidated Balance Sheet Data

|                                |               | At 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.

32

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Currency Exchange Rates

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.

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 Canadian dollars for the five most recent fiscal years of the Company.

|           |  | Fiscal Year Ended December 31,
|---------- |  | ------------------------------
|
|High       |  | $                             
|Low        |  | $                             
|Average    |  | $                             
|Period End |  | $                             

As
at February 28, 2001, 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.$0.6527 = Cdn.$1.00 (equivalent to U.S.$1.00 = Cdn.$1.5320).

33

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

The following information should be read in conjunction with our 2000 consolidated financial statements and related notes therein, which are prepared in
accordance with Canadian generally accepted accounting principles or Canadian GAAP. These principles differ in certain respects from accounting principles generally accepted in the United States or
U.S. GAAP. The differences, as they affect our consolidated financial statements, are described in Note 12 to our 2000 consolidated financial statements. All amounts following are expressed in
Canadian dollars unless otherwise indicated.

Overview

Since our inception in 1990, our activities have primarily been focused on the research and development of innovative stress protein-based immunotherapeutics
for the treatment of viral infections and related cancers. Our core technology capitalizes on the ability of stress proteins to activate the body's immune system to recognize and fight disease. Our
lead product candidate, HspE7, targets a variety of human papillomavirus-related diseases. We have also initiated research studies to evaluate technology to treat asthma and allergy, as well as
Hepatitis B. Through our bioreagent business, we also supply research products to scientists worldwide for the study of cellular stress, apoptosis, oxidative stress and neurobiology.

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, 2000, our accumulated deficit was $69,308,000. We have been
dependent principally from equity financings to fund our business activities.

34

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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. The recruitment and
retention of personnel skilled in the product development process are also critical for us to achieve our objectives. We believe there will be significant markets for our therapeutic products should
these products prove to be effective in human clinical trials.

We
plan to reduce product development risk by seeking partners to assist in the development, funding and marketing of our products. We anticipate that future collaborations will
enable us to develop additional product candidates and exploit new applications for our technology, resulting in greater product opportunities.

Our
lead product, HspE7, is currently being evaluated in one phase III clinical trial and several phase II clinical trials. HspE7 is being tested as a treatment for precancerous and
cancerous conditions caused by the human papillomavirus as well as genital warts.

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. We have raised net equity proceeds of $134,739,000 as at December 31, 2000, principally through our public issuance of stock and exercise
of warrants since 1996. We believe that our current capital resources are sufficient to maintain our current and planned operations through 2002. 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, 2000, we had $70,567,000 of cash and short-term investments, which increased by $54,090,000 during 2000 due principally to equity financings of
$75,875,000, partially offset by a net loss of $25,407,000. Net proceeds from 2000 equity financings were principally attributed to issuance and exercise of a special warrants financing ($23,112,000),
public share offering of Common Shares ($44,999,000), and exercise of Class A and B common share purchase warrants ($7,254,000). At December 31, 2000, approximately 35% of cash and
short-term investments were held in U.S. dollars.

During
2000, capital expenditures totalled $394,000 compared with $571,000 and $774,000 during 1999 and 1998 respectively, of which $529,000 and $774,000 were financed through capital
lease obligations. In 2000, we made limited improvements to our laboratory facilities and purchased additional laboratory equipment to support our ongoing research and bioreagent manufacturing
activities. Capital expenditures during 2001 are expected to increase due to acquisition of new laboratory equipment and expansion of our research facilities in Victoria, British Columbia.

We
have in place credit facilities with two major Canadian chartered banks aggregating $2,000,000. At December 31, 2000, $1,461,000 of this facility was outstanding in the form
of fixed rate capital leases. Security has been provided in the form of a charge over the specific equipment as well as security interests in certain of our short-term investments.

We
will require additional capital to fund future research and product development activities beyond 2002. 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 issuing equity securities raises additional funds, 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 or to obtain funds through collaborative

35

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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.

Results of Operations

During 2000, we realized a net loss of $25,407,000 or $0.63 per common share. These results compare with a net loss of $16,738,000 in 1999 and $14,209,000 in
1998 ($0.58 and $0.63 per common share, respectively).

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. Bioreagent sales
increased by approximately 27% to $4,156,000 in 2000 due to growing demand for stress protein bioreagents and complementary new product introductions. These results compare with sales of $3,274,000 in
1999 and $2,626,000 in 1998.

Research and development

Research and development, or R&D, spending increased by approximately 68% to $22,379,000 in 2000 compared with $13,351,000 in 1999 and $13,600,000 in 1998. The
2000 spending increase was largely attributed to increased expenditures for human clinical trial activities and manufacturing scale-up associated with our leading product candidate, HspE7,
and an increase in staff to support our expanded business activities. R&D expenses consist of employee labor costs, outside services in support of our HspE7 clinical trials, and spending on contracts
with universities for our programs of cytoprotection, hepatitis B, asthma, allergy and prostate cancer research. During 1999, we opened an office near Philadelphia, Pennsylvania to oversee clinical
research and development, and conduct project management. The increased costs associated with this new facility were more than offset by savings generated by having in-house clinical and
project management capabilities. We anticipate that R&D spending will increase in 2001 in response to expanding research and product development programs, including manufacturing,
pre-clinical studies and clinical trials, and regulatory activities.

During
2000, we focused on the manufacturing of catalogue bioreagent products resulting in a 52% reduction in new bioreagent product development activities. Further, late in the year
we integrated the efforts of our bioreagent manufacturing and biotech research and development staff. During 1999, we focused on marketing and new product development activities, with bioreagent R&D
increasing by approximately 24% during 1999, although they remained at less than 5% of total R&D spending.

Selling, general and administration expenses

Selling, general and administration, or SG&A, expenses represented approximately 25% of total operating expenses in 2000 and 1999 and 22% in 1998. SG&A costs
increased by approximately 63% from 1999 to 2000 due principally to costs associated with our expanded phase III clinical trials and the addition of executive and corporate development personnel.
During 1999, SG&A costs increased by
approximately 17% from 1998 due principally to increased average staff levels. We anticipate that 2001 SG&A costs as a percentage of total operating expenses will approximate recent years.

Cost of bioreagent sales

The aggregate cost of bioreagent sales as a percentage of bioreagent sales was approximately 19% in 2000, 17% in 1999 and 12% in 1998. During 2000, we
increased the future profitability of our

36

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product line by eliminating approximately 300 products. Our catalogue currently lists over 400 products, a decrease from 726 in 1999 and 530 in 1998.

Amortization

Amortization expense decreased by 17% to $517,000 in 2000 compared with $625,000 in 1999 and $715,000 in 1998. Amortization expense relates to the amortization
of office, laboratory and bioreagent manufacturing equipment.

Interest and other income

Interest and other income increased by 150% to $1,953,000 in 2000 compared with $782,000 in 1999 and $1,912,000 in 1998. The 2000 and 1998 interest and other
income levels were due principally to a higher average investment portfolio balance resulting from the public issuance of stock and exercise of warrants in 2000 and 1998.

Loss on joint venture

In 1997, the Canadian Medical Discoveries Fund, or CMDF, provided $10,000,000 through a loan and equity investment to finance a joint venture that we formed
with Genzyme Molecular Oncology, a division of Genzyme Corporation. We proportionately consolidated the financial position and results of operations of the joint venture until the joint venture was
dissolved in December 1999. During 1999, our
portion of the joint venture's R&D expenses decreased by 62% to $908,000 from $2,380,000 in 1998 due to a reduced level of research activity. In 1999, we redeemed our portion of CMDF's investment by
issuing 3,015,187 Common Shares to CMDF at a value of $5,000,000 and canceling certain warrants held by CMDF. We realized a loss of $1,400,000 from this transaction, which was also recorded as
contributed surplus to stockholders' equity (see Note 9 to our audited consolidated financial statements).

Basic and diluted loss per share

The 52% increase in net loss to $25,407,000 in 2000 compared with $16,738,000 in 1999 and $14,209,000 in 1998 was diluted by increases in the weighted average
number of Common Shares outstanding in each year, resulting in basic and diluted loss per share of $0.63 in 2000 compared with $0.58 in 1999 and $0.63 in 1998. In 2000, we adopted the recommendations
of the Canadian Institute of Chartered Accountants Handbook Section 3500,Earnings per Share. Under this method, basic loss per share is computed
using the weighted average number of Common Shares outstanding during the period and excluding commitments to issue Common Shares. The net effect of the retroactive restatement of prior years' results
due to the adoption was to increase the basic and diluted loss per share by $0.03 in 1999 and $0.06 per share in 1998.

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 $10,731,000 in 2000, $2,774,000 in 1999 and $2,448,000 in 1998. The principal difference in our net loss under U.S. versus
Canadian GAAP is due to the release of escrow shares resulting in stock based compensation expense of $9,093,000 in 2000, $2,061,000 in 1999 and $3,225,000 in 1998. Since all remaining escrow shares
were released in 2000 due to completion of certain milestones, the 2001 effect of stock compensation accounting differences is expected to be significantly reduced. A complete discussion of these and
other less significant differences are noted in Note 12 to our consolidated financial statements.

37

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Net loss per Common Share under U.S. GAAP would have been $0.89, $0.67 and $0.74 in 2000, 1999, and 1998, respectively. In addition, our current assets under U.S. GAAP would have been
$72,467,000 and $17,728,000 at December 31, 2000 and 1999, respectively, and our stockholders' equity under U.S. GAAP would have been $65,574,000 and $14,963,000 at December 31, 2000 and
1999, respectively.

38

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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 United States since a substantial amount of our contract research and development
spending is transacted in United States 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 operations. We do not currently engage in other hedging or other activities to reduce exchange rate risk, 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 various banks and investment banking institutions. 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 do not hedge this exposure because short-term fluctuations in interest rates
would not likely have a material impact on interest earnings. 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 $70,567,000 in cash and short-term investments as of December 31, 2000.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information begins on following page.

39

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CONSOLIDATED FINANCIAL STATEMENTS    STRESSGEN BIOTECHNOLOGIES CORPORATION    December 31, 2000

40

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MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The financial statements contained herein have been prepared by management in accordance with generally accepted accounting principles and have been approved
by the board of directors. The integrity and objectivity of these financial statements are the responsibility of management. In addition, management is responsible for all other information contained
herein and for ensuring that this information is consistent, where appropriate, with the information contained in the financial statements.

In
support of this responsibility, management maintains a system of internal controls to provide reasonable assurance as to the reliability of financial information and the
safeguarding of assets. The financial statements include amounts that are based on the best estimates and judgements of management. The board of directors is responsible for ensuring that management
fulfils its responsibility for financial reporting and internal control and exercises this responsibility principally through the audit committee. The audit committee consists of three directors not
involved in the daily operation of Stressgen. The audit committee meets with management and the external auditors to satisfy it that management's responsibilities are properly discharged and to review
the financial statements prior to their presentation to the board of directors for approval.

The
auditors, Deloitte & Touche LLP, have conducted an independent examination of the financial statements. Their examination includes a review of Stressgen's system of
internal controls and appropriate tests and procedures to provide reasonable assurance that the financial statements are, in all material respects, presented fairly in accordance with Canadian
generally accepted accounting principles.

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

AUDITORS' REPORT

To
the Stockholders of
Stressgen Biotechnologies Corporation

We
have audited the consolidated balance sheets of Stressgen Biotechnologies Corporation as at December 31, 2000 and 1999 and the consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. 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 Canadian generally accepted auditing standards and United States generally accepted auditing standards. Those standards require that we plan
and perform an audit to obtain reasonable assurance 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, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2000 and 1999 and the
results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2000 in accordance with Canadian generally accepted accounting
principles.

/s/
Deloitte & Touche LLP
Chartered Accountants
Vancouver, British Columbia
February 9, 2001

41

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STRESSGEN BIOTECHNOLOGIES CORPORATION        CONSOLIDATED BALANCE SHEET        (Canadian dollars in thousands)

|                                                                                                                                    |  | December 31, |        
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------
|
|Assets                                                                                                                              |  |              |        
|Current assets:                                                                                                                     |  |              |        
|Cash                                                                                                                                |  | $            | 513    
|Short-term investments                                                                                                              |  |              | 70,054 
|Accounts receivable                                                                                                                 |  |              | 1,024  
|Inventories                                                                                                                         |  |              | 733    
|                                                                                                                                    |  |              |        
|Total current assets                                                                                                                |  |              | 72,324 
|Capital assets                                                                                                                      |  |              | 2,001  
|                                                                                                                                    |  |              |        
|                                                                                                                                    |  | $            | 74,325 
|                                                                                                                                    |  |              |        
|Liabilities and Stockholders' Equity                                                                                                |  |              |        
|Current liabilities:                                                                                                                |  |              |        
|Accounts payable and accrued liabilities                                                                                            |  | $            | 7,427  
|Current portion of capital lease obligations                                                                                        |  |              | 431    
|                                                                                                                                    |  |              |        
|Total current liabilities                                                                                                           |  |              | 7,858  
|Capital lease obligations, net of current portion                                                                                   |  |              | 1,036  
|                                                                                                                                    |  |              |        
|                                                                                                                                    |  |              | 8,894  
|                                                                                                                                    |  |              |        
|Commitments (Note 11)                                                                                                               |  |              |        
|Stockholders' equity                                                                                                                |  |              |        
|Common shares and other equityno par value; 100,000,000 shares authorized, 49,892,271 and 32,775,894 shares issued and outstanding |  |              | 134,739
|Accumulated deficit                                                                                                                 |  |              | (69,308
|                                                                                                                                    |  |              |        
|Total stockholders' equity                                                                                                          |  |              | 65,431 
|                                                                                                                                    |  |              |        
|                                                                                                                                    |  | $            | 74,325 
|                                                                                                                                    |  |              |        

See accompanying notes to consolidated financial statements.

42

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

|                                                                                     |  | Years ended December 31, |        
|------------------------------------------------------------------------------------ |  | ------------------------ | -------
|
|Revenue:                                                                             |  |                          |        
|Bioreagent sales                                                                     |  | $                        | 4,156  
|                                                                                     |  |                          |        
|Operating expenses:                                                                  |  |                          |        
|Research and development                                                             |  |                          | 22,379 
|Selling, general and administration                                                  |  |                          | 7,696  
|Cost of bioreagent sales                                                             |  |                          | 792    
|Amortization                                                                         |  |                          | 517    
|                                                                                     |  |                          |        
|                                                                                     |  |                          | 31,384 
|                                                                                     |  |                          |        
|Operating loss                                                                       |  |                          | (27,228
|                                                                                     |  |                          |        
|Other income (expenses):                                                             |  |                          |        
|Interest and other income                                                            |  |                          | 1,953  
|Interest on capital lease obligations                                                |  |                          | (132   
|Loss on joint venture (Note 9)                                                       |  |                          |       
|                                                                                     |  |                          |        
|                                                                                     |  |                          | 1,821  
|                                                                                     |  |                          |        
|Net loss                                                                             |  | $                        | (25,407
|                                                                                     |  |                          |        
|Basic and diluted loss per common share                                              |  | $                        | (0.63  
|                                                                                     |  |                          |        
|Common shares used to compute basic and diluted loss per common share (in thousands) |  |                          | 40,621 
|                                                                                     |  |                          |        

See accompanying notes to consolidated financial statements.

43

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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                                                                    |  | $                        | (25,407
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                          |        
|Amortization                                                                |  |                          | 517    
|Loss on sale and leaseback of capital assets                                |  |                          |       
|Loss on joint venture                                                       |  |                          |       
|Changes in operating assets and liabilities (Note 10)                       |  |                          | 3,896  
|                                                                            |  |                          |        
|Net cash used in operating activities                                       |  |                          | (20,994
|                                                                            |  |                          |        
|Cash flows from investing activities:                                       |  |                          |        
|Purchase of securities                                                      |  |                          | (72,976
|Sales and maturities of securities                                          |  |                          | 17,690 
|Acquisition of capital assets                                               |  |                          | (394   
|Foreign currency translation adjustment                                     |  |                          |       
|                                                                            |  |                          |        
|Net cash (used in) provided by investing activities                         |  |                          | (55,680
|                                                                            |  |                          |        
|Cash flows from financing activities:                                       |  |                          |        
|Proceeds on issue of common shares                                          |  |                          | 52,763 
|Proceeds on issue of special warrants                                       |  |                          | 23,112 
|Proceeds from capital lease obligations                                     |  |                          |       
|Repayment of capital lease obligations                                      |  |                          | (397   
|                                                                            |  |                          |        
|Net cash provided by financing activities                                   |  |                          | 75,478 
|                                                                            |  |                          |        
|Effect of exchange rate changes on cash                                     |  |                          |       
|Decrease in cash                                                            |  |                          | (1,196 
|Cash, beginning of year                                                     |  |                          | 1,709  
|                                                                            |  |                          |        
|Cash, end of year                                                           |  | $                        | 513    
|                                                                            |  |                          |        

See
Note 10 for supplemental cash flow information.

See
accompanying notes to consolidated financial statements.

44

---



STRESSGEN BIOTECHNOLOGIES CORPORATION        CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY        (Canadian dollars in thousands)

|                                                     |  |          |   |   |      | Common shares
and other equity |            |  |   |         |  |            |   |   |        
|---------------------------------------------------- |  | -------- | - | - | ---- | ------------------------------ | ---------- |  | - | ------- |  | ---------- | - | - | -------
|
|
|
|Balance at December 31, 1997                         |  | 300,000  |   | $ | 900  |                                | 22,646,237 |  | $ | 30,265  |  | 300,000    |   | $ | 500    
|Issued for cash on exercise of stock options         |  |         |   |   |     |                                | 80,000     |  |   | 138     |  |           |   |   |       
|Special Warrants issued for cash, net of issue costs |  |         |   |   |     |                                |           |  |   |        |  | 7,030,303  |   |   | 22,057 
|Issued on Special Warrants offering                  |  |         |   |   |     |                                |           |  |   |        |  | 5,272,728  |   |   |       
|Issued on exercise of Special Warrants               |  |         |   |   |     |                                | 7,030,303  |  |   | 22,057  |  | (7,030,303 | ) |   | (22,057
|Net loss                                             |  |         |   |   |     |                                |           |  |   |        |  |           |   |   |       
|                                                     |  |          |   |   |      |                                |            |  |   |         |  |            |   |   |        
|Balance at December 31, 1998                         |  | 300,000  |   |   | 900  |                                | 29,756,540 |  |   | 52,460  |  | 5,572,728  |   |   | 500    
|Issued for cash on exercise of stock options         |  |         |   |   |     |                                | 3,667      |  |   | 4       |  |           |   |   |       
|Issued on buyout of joint venture                    |  |         |   |   |     |                                | 3,015,687  |  |   | 5,000   |  |           |   |   |       
|Redeemed or cancelled for nominal consideration      |  | (300,000 | ) |   | (900 | )                              |           |  |   | 1,400   |  | (300,000   | ) |   | (500   
|Net loss                                             |  |         |   |   |     |                                |           |  |   |        |  |           |   |   |       
|                                                     |  |          |   |   |      |                                |            |  |   |         |  |            |   |   |        
|Balance at December 31, 1999                         |  |         |   |   |     |                                | 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 | ) |   |       
|Expired 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  |   | $ |       
|                                                     |  |          |   |   |      |                                |            |  |   |         |  |            |   |   |        

See
accompanying notes to consolidated financial statements.

45

---



Stressgen Biotechnologies Corporation    Notes to Consolidated Financial Statements    (Canadian dollars)

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Stressgen Biotechnologies Corporation is a biopharmaceutical company focused on the development and commercialisation of innovative stress protein-based
immunotherapeutics. The Company is developing a broad range of products for the treatment of viral infections and related cancers. Stressgen's lead product HspE7 targets a variety of
HPV-related diseases. Stressgen has also initiated research studies to evaluate the technology in the treatment of asthma and allergy as well as Hepatitis. Stressgen is also a supplier of
research products for the study of cellular stress, apoptosis oxidative stress and neurobiology.

These
consolidated financial statements of Stressgen Biotechnologies Corporation ("Stressgen" or the "Company") have been prepared in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP"), and reflect the policies outlined below. These policies conform, in all material respects, with accounting principles generally accepted in the United States
of America ("U.S. GAAP"), except as discussed in Note 12.



These consolidated financial statements include the assets, liabilities and operating results of the Company and its wholly-owned subsidiaries and, until
December 1999, its participation in the Stressgen/Genzyme LLC joint venture.



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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Significant estimates are made for, but not limited to, the allowance for doubtful accounts, amortization, income taxes and contingencies. Actual results may differ from
those estimates.



The Company and its subsidiaries use the Canadian dollar as their functional currency. Monetary assets and liabilities 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. Exchange gains and losses are included in operations.



The Company used the proportionate consolidation method in accounting for its investment in a joint venture, which conducted research and development
activities until it was dissolved in December 1999.



Cash consists of cash on hand and balances with banks. Short-term investments consist of investment grade securities, which are capable of prompt
liquidation and are carried at the lower

46

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)

of
cost plus accrued interest and quoted market value. Included in short-term investments at December 31, 2000 and 1999 are $2,000,000 of investments pledged as security for capital
lease financing.



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



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

Equipment under capital lease

20 - 30%Furniture and equipment

20%Computer equipment

30%Leasehold improvements

the lesser of the lease term and the estimated useful life




The Company periodically assesses the recoverability of its long-lived assets by determining whether the carrying value of such assets can be
recovered from estimated undiscounted future operating cash flows. If impairment is indicated, the Company measures the amount of such impairment by comparing the carrying value of the asset to the
estimated recoverable amount of the asset. While the Company's current and historical operating and cash flow losses are indicators of impairment, the Company believes the future cash flows to be
received from the long-lived assets will exceed the assets' carrying value and accordingly, the Company has not recognized any impairment losses through December 31, 2000.



The carrying values of financial instruments, including cash, short-term investments, accounts receivable, accounts payable and accrued
liabilities, are carried at cost, which management believes approximates fair value because of the short-term maturity of these instruments. The fair value of the capital lease obligations
approximate fair value as the imputed interest rate is equivalent to the market rates charged on similar arrangements.



The Company invests its excess cash principally in government debt securities and investment grade 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 take advantage of trends in yields and interest
rates. 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 accounts.

47

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)



Revenues from product sales are recognized upon delivery to customers when persuasive evidence of an arrangement exists, the price is fixed or determinable and
collection is reasonably assured.



The Company has a stock-based compensation plan, which is described in Note 5. Under the plan, options are granted at fair value. No compensation
expense is recognized for options granted under the plan when stock options are issued to directors, employees and others. Any consideration paid by directors and employees on exercise of stock
options is credited to share capital.



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 development costs have been deferred.



Future income taxes 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.



In 2000, the Company early adopted the accounting recommendations of the CICA HandbookSection 3500,Earnings per
Share. Under this method, basic loss per share is computed using the weighted average number of common shares outstanding during the period. Contingently issuable (escrow)
shares of common stock of 2,424,598, and 1,212,301 have been excluded from the calculation of basic loss per share for the years ended December 31, 1998 and 1999, respectively. Diluted loss per
share is computed using the weighted average number of common and common equivalent shares outstanding during the period using the "treasury stock" method. Common equivalent shares consist of the
incremental common shares issuable upon the exercise of stock options and warrants unless their effect is antidilutive. The Company had a net loss for all periods presented herein; therefore, none of
the options and warrants outstanding during each of the periods presented were included in the computation of diluted loss per share as they were antidilutive. There is no net effect of the early
adoption in 2000. The net effect of the early adoption in 1999 and 1998 was $0.03 and $0.06 per share, respectively.

48

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)

2.  SHORT-TERM INVESTMENTS

|                                         |  | December 31, 2000 |        | December 31, 1999
|---------------------------------------- |  | ----------------- | ------ | -----------------
|
|
|Short-term investments:                  |  |                   |        |                  
|Certificate of deposits                  |  | $                 | 8,132  |                  
|Corporate debt securities                |  |                   | 52,588 |                  
|U.S. government agencies debt securities |  |                   | 9,334  |                  
|                                         |  |                   |        |                  
|                                         |  | $                 | 70,054 |                  
|                                         |  |                   |        |                  

3.  BALANCE SHEET DETAILS

The following tables provide details of selected balance sheet items:

December 31,2000

1999(in thousands)Accounts receivable:Trade accounts receivable, net of allowance for doubtful accounts of $39 (1999$13)

$
627

$
611Other receivables


397


142$
1,024

$
753Inventories:Work in process

$
359

$
343Finished goods


374


155$
733

$
498Capital assets:Equipment under capital lease

$
2,570

$
2,570Furniture and equipment


1,224


898Computer equipment


359


293Leasehold improvements


330


3284,483


4,089Less accumulated depreciation and amortization


(2,482
)

(1,965
)$
2,001

$
2,124Accounts payable and accrued liabilites:Trade accounts payable

$
3,547

$
2,586Accrued liabilities


3,693


287Other payables


187


152$
7,427

$
3,025


49

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)

4.  CAPITAL LEASE OBLIGATIONS

December 31,2000

1999(in thousands)Capital lease repayable in monthly installments of $44 (1999$44) including interest at rates that vary from 7.50% to 8.45% (19997.50% to 8.45%) and secured by specific equipment and certain short-term
investments

$
1,467

$
1,864Less: current portion


(431
)

(397
)$
1,036

$
1,467


Minimum
future payments under capital leases are as follows:

(in thousands)2001

$
5342002


5602003


3202004


2122005


55Total minimum lease payments


1,681Amount representing interest


(214
)Present value of capital lease obligations

$
1,467


At
December 31, 2000, equipment under capital lease had a net book value of $1,404,000
(1999$1,769,000) net of accumulated amortization of $1,166,000 (1999$801,000).

5.  STOCKHOLDERS' EQUITY



In 1997, the Company issued 300,000 Series 1 non-voting convertible redeemable Preference shares to the Canadian Medical Discoveries Fund
("CMDF") for $900,000. In October 1999, CMDF exercised its Repayment Right, with the result that the joint venturers bought out CMDF's investment in the Stressgen/Genzyme LLC joint venture and
the Company redeemed the Series I Preference Shares for nominal consideration (see Note 9).



In 1997, the Company issued 300,000 Common Share Purchase Warrants to CMDF for $500,000. The CMDF warrants were exercisable into an equal number of common
shares of the Company at an exercise price of $5.98 per share on or before July 31, 2002. The Company cancelled these warrants in conjunction with the CMDF buyout (see Note 9).

50

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)



In 1998, the Company completed an offering of 4,000,000 Special Warrants at a price of $3.30 each for gross proceeds of $13,200,000; the Company also completed
the sale of 3,030,303 Special Warrants at a price of U.S. $2.27 each for gross proceeds of $10,000,000 (U.S.$6,878,000). The Company incurred total share issue costs of $1,143,000 on the offerings.
Each Special Warrant was converted into one fully paid common share of the Company, 0.25 of a Class A Warrant and 0.5 of a Class B Warrant.

Each
whole Class A Warrant entitled the holder to acquire one additional common share on or before June 11, 2000, unless accelerated. The exercise price for each
Class A Warrant was $3.30 (or U.S. $2.27). In June 2000, the Company received approximately $5,750,000 on the exercise of 1,743,175 Class A Warrants.

Each
whole Class B Warrant entitles the holder to acquire one additional common share on or before June 11, 2003. The exercise price is $3.30 for each Class B
Warrant (or U.S. $2.27). 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. At December 31, 2000,
3,256,202 Class B Warrants remained outstanding.



In 2000, the Company completed an offering of 7,449,000 Special Warrants at a price of $3.40 per Warrant for gross proceeds of $25,327,000.The Company incurred
total share issue costs on the offering of $2,215,000. Each Special Warrant was converted into one common share of the Company without additional payment.

In
connection with the offering, the Company issued 744,900 underwriters' special warrants, exercisable at $3.68 per warrant into 744,900 common shares on or before August 2,
2001. At December 31, 2000, 577,298 underwriters' special warrants remained outstanding.



In 2000, the Company completed an offering for 6,500,000 common shares for gross proceeds of $45,500,000. The Company incurred total share issue costs on the
offering of $3,330,000. In connection with the offering, the Company granted the underwriters an option, exercisable at any time on or before November 16, 2000, to purchase up to an additional
975,000 common shares at $7.00 per share. Prior to November 16, 2000, the underwriters purchased 404,100 common shares for proceeds of $2,828,700 under this option.



Included in the issued share capital at December 31, 1999 was 1,212,301 common shares, which were held in trust pursuant to an escrow agreement. The
relevant regulatory authorities approved the release of these escrowed common shares during 2000 as the Company initiated a Phase II clinical trial for one of its product candidates.

51

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)



Other paid-in capital includes $1,400,000 of contributed surplus resulting from the cancellation of CMDF warrants and redemption of Series 1
Preference shares for nominal consideration (Note 9).



Under the 1996 Incentive Stock Option Plan (the "Plan"), the Company may grant options to directors and employees. Under the initial terms of the Plan, the
number of common shares reserved for issuance pursuant to the grant of options may not exceed the lesser of 2,000,000 common shares and 10% of the outstanding common shares. At December 31,
2000, 45,000 options granted before adoption of the Plan remained outstanding. The stockholders of the Company resolved to increase the number reserved to 4,000,000 common shares in May 1999.
At December 31, 2000, the Company had available an aggregate of 114,106 shares for future grants of stock options under the Plan.

The
Directors have authorized the granting of stock options, outside of those covered by the Plan, to acquire 185,500 common shares. These options are subject to receiving stockholder
approval, and will be priced once approved.

The
following table summarizes the activity of the Company's stock options for each of the years in the three-year period ended December 31, 2000:

Number of Shares

Weighted Average Exercise PriceBalance at December 31, 1997

1,288,125

$
2.52Granted

917,885


2.17Exercised

(80,000
)

1.71Cancelled

(116,850
)

1.51Balance at December 31, 1998

2,009,160


2.45Granted

916,400


1.78Exercised

(3,667
)

1.12Cancelled

(409,593
)

2.75Balance at December 31, 1999

2,512,300


2.16Granted

1,556,500


6.05Exercised

(593,550
)

1.70Cancelled

(101,073
)

1.63Balance at December 31, 2000

3,374,177


4.05


52

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)

The
following table summarizes information about stock options outstanding at December 31, 2000:

|  |              | Options Outstanding |           | Options Exercisable
|- | ------------ | ------------------- | --------- | -------------------
|
|$ | 1.22 - $1.97 |                     | 889,307   |                    
|$ | 2.08 - $2.85 |                     | 401,995   |                    
|$ | 3.01 - $3.85 |                     | 424,075   |                    
|$ | 4.10 - $5.85 |                     | 299,667   |                    
|$ | 6.00 - $9.00 |                     | 1,359,133 |                    
|  |              |                     |           |                    
|  |              |                     | 3,374,177 |                    
|  |              |                     |           |                    

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 31,2000

1999

1998(in thousands)Canadian basic statutory tax rates


45%


45%


45%Expected income tax recovery

$
(11,433
)
$
(7,633
)
$
(6,479
)Foreign tax rate differences


252


627


599Losses producing no current tax benefit


5,922


6,459


5,463Non-deductible expenses and other deductions


685


655


41Research and development tax credits


1,892





Benefit of temporary differences (recognized) not recognized


2,682


(108
)

376$


$


$



53

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)

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 31,2000

1999(in thousands)Future income tax assetsTax loss carry-forwards

$
20,910

$
14,988Research and development expenses


5,151


3,259Book and tax base differences on assets and liabilities


3,269


587Total future income tax assets


29,330


18,834Valuation allowance for future income tax assets


(29,330
)

(18,834
)Net future income tax assets

$


$
Future income tax liabilitiesBook 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 $10,496,000 during the year 2000.

At
December 31, 2000, subject to approval of Canada Customs and Revenue Agency, the Company has approximately $11,291,000 of scientific research and experimental development
expenditures available for unlimited carry forward, $48,300,000 of non-capital losses expiring between 2001 and 2007, and $5,672,000 of unclaimed investment tax credits expiring between
2002 and 2009, all of which may be used to reduce future Canadian income taxes otherwise payable. In addition, the Company has U.S.
$1,500,000 of net operating losses expiring between 2010 and 2015, which may be used to reduce future U.S. income taxes otherwise payable.

7.  RELATED PARTY TRANSACTIONS

In 2000, the Company paid to certain directors consulting fees of $70,833 (1999$100,000; 1998$100,000) and paid a bonus of $327,000
(1999$0; 1998$0) to certain members of management in connection with the completion of a special warrants financing.

54

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)

8.  SEGMENTED 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,            |        
|--------------------------------------------------------------------------------- | -------- | ----------------------------------- | -------
|
|
|Biotechnology                                                                     |          |                                     |        
|                                                                                  | Expenses |                                     |        
|                                                                                  |          | Research and development            |        
|                                                                                  |          | Selling, general and administration |        
|                                                                                  |          |                                     |        
|                                                                                  |          |                                     | 28,137 
|                                                                                  |          |                                     |        
|Segment loss                                                                      |          | $                                   | (28,137
|                                                                                  |          |                                     |        
|Bioreagents                                                                       |          |                                     |        
|                                                                                  | Sales    |                                     |        
|                                                                                  |          | U.S.                                |        
|                                                                                  |          | Canada                              |        
|                                                                                  |          | Other                               |        
|                                                                                  |          |                                     |        
|                                                                                  |          | $                                   | 4,156  
|                                                                                  |          |                                     |        
|                                                                                  | Expenses |                                     |        
|                                                                                  |          | Research and development            |        
|                                                                                  |          | Selling, general and administration |        
|                                                                                  |          | Cost of bioreagent sales            |        
|                                                                                  |          |                                     |        
|                                                                                  |          |                                     | 2,730  
|                                                                                  |          |                                     |        
|Segment income                                                                    |          | $                                   | 1,426  
|                                                                                  |          |                                     |        
|Totals                                                                            |          |                                     |        
|                                                                                  | Expenses |                                     |        
|                                                                                  |          | Research and development            |        
|                                                                                  |          | Selling, general and administration |        
|                                                                                  |          | Cost of bioreagent sales            |        
|                                                                                  |          |                                     |        
|                                                                                  |          |                                     | 30,867 
|                                                                                  |          |                                     |        
|Loss excluding amortization, interest and other income, and loss on joint venture |          | $                                   | (26,711
|                                                                                  |          |                                     |        

The
Company does not allocate amortization, interest and other income, and interest on capital lease obligations, nor does it allocate capital assets, to each segment.

55

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)

Long-lived
capital assets are allocated geographically as follows:

December 31,2000

1999(in thousands)U.S.

$
95

$
106Canada


1,906


2,018$
2,001

$
2,124


9.  JOINT VENTURE

In 1997, CMDF provided initial financing of $10,000,000 for the Stressgen/Genzyme LLC joint venture (the "JV") through a loan (the "Company loan") and equity
investment. A portion of CMDF's investment was made through a debenture, bearing interest at 0.0125%, secured by a floating charge over assets of the Company and repayable upon termination of CMDF's
involvement in the JV.

Under
the terms of the agreement, CMDF had the right (the "Repayment Right") to require the Company and Genzyme (the "joint venturers") to repay the CMDF investment plus interest at
bank prime rate plus 1%. Such repayments could be made at the Company's option, in cash, shares or both. If CMDF exercised its Repayment Right, the CMDF Warrants would be cancelled and the
Series I Preference shares would be redeemed for nominal consideration.

The
joint venturers had the right to call CMDF's interest in the JV under terms that included a 25% annual return on CMDF's investment. In the event the call was not exercised, CMDF
had a Put right to require the Company loan to be settled for $4,000,000 payable in cash or shares in equal portions by the Company and Genzyme.

In
October 1999, CMDF exercised its Repayment Right and the joint venturers acquired CMDF's investment in the JV including the debenture previously issued to CMDF. The Company
paid for its share of CMDF's investment plus interest thereon by issuing 3,015,687 common shares at a value of $5,000,000 resulting in a loss of $1,400,000. In addition, the Company cancelled the CMDF
warrants and redeemed the Series 1 Preference shares for nominal consideration, and recorded contributed surplus of $1,400,000.

In
December 1999, the joint venturers dissolved the JV and distributed its net assets. The Company's proportionate share of the operating results of the JV to the date of
dissolution has been included in the consolidated statements of operations and cash flows.

56

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)

Condensed
financial information of the JV included in these consolidated financial statements is summarized below:

Years ended December 31,2000

1999

1998(in thousands)Revenues

$


$


$
Total operating expenses





908


2,380Net loss

$


$
(908
)
$
(2,380
)


Years ended December 31,2000

1999

1998Cash flows for operating activities

$


$
(1,101
)
$
(2,772
)Cash flows from investing activities








244Cash flows from financing activities





24


$


$
(1,077
)
$
(2,528
)


10. SUPPLEMENTAL CASH FLOW INFORMATION

The change in operating assets and liabilities:

December 31,2000

1999

1998(in thousands)Accounts receivable

$
(271
)
$
35

$
(74
)Inventories


(235
)

(109
)

(109
)Accounts payable and accrued liabilities


4,402


1,349


172$
3,896

$
1,275

$
(11
)


Years ended December 31,2000

1999

1998(in thousands)Supplemental disclosures of cash flows:Interest paid

$
132

$
113

$
74Supplemental disclosures of non-cash investing and financing transactions:Common shares issued on acquisition of investment in joint venture

$


$
5,000

$
Redemption of Series I Preference shares





(900
)

Cancellation of warrants





(500
)

Common shares issued on conversion of special warrants


23,112





22,057


57

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)

11. COMMITMENTS



The Company has entered into operating lease agreements expiring at various times to 2002 for office and laboratory space, which require the Company to pay
minimum lease payments, plus a share of operating costs, including profit, taxes, insurance and maintenance. Future minimum operating annual lease payments for the years ending December 31 are
due as follows:

(in thousands)2001

$
7952002


51$
846


12. 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.

Effect
on the consolidated financial statements:



December 31,2000

1999(in thousands)Current assets under Canadian GAAP

$
72,324

$
17,728Adjustment to carrying value of short-term investments classified as available-for-sale securities (b)


143


Current assets under U.S. GAAP

$
72,467

$
17,728Stockholders' equity under Canadian GAAP

$
65,431

$
14,963Unrealized holding gains on available-for-sale securities (b)


143


Stockholders' equity under U.S. GAAP

$
65,574

$
14,963


58

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)



Years ended December 31,2000

1999

1998(in thousands, except per share amounts)Net loss under Canadian GAAP

$
(25,407
)
$
(16,738
)
$
(14,209
)Adjustment to equity loss of joint venture (a)





(881
)

777Dissolution of joint venture (a)





(787
)

Reversal of write-down of short-term investments (b)


36


55


Stock-based compensation expense on escrow shares (c)


(9,093
)

(2,061
)

(3,225
)Gain on redemption of preference shares (d)





900


Stock-based compensation expense on stock options (e)


(1,674
)




Net loss under U.S. GAAP

$
(36,138
)
$
(19,512
)
$
(16,657
)Basic loss per common share under Canadian GAAP

$
(0.63
)
$
(0.58
)
$
(0.63
)Basic loss per common share under U.S. GAAP

$
(0.89
)
$
(0.67
)
$
(0.74
)Common shares used to compute basic loss per share under Canadian and U.S. GAAP


40,621


29,013


22,488




Years ended December 31,2000

1999

1998(in thousands)Net cash used in operating activities under Canadian GAAP

$
(20,994
)
$
(13,360
)
$
(13,505
)Equity interest in joint venture (a)





(904
)

(2,838
)Net cash used in operating activities under U.S. GAAP

$
(20,994
)
$
(12,456
)
$
(10,667
)Net cash (used in) provided by investing activities under Canadian GAAP

$
(55,680
)
$
11,672

$
(10,116
)Equity interest in joint venture (a)





(1,048
)

1,776Net cash (used in) provided by investing activities under U.S. GAAP

$
(55,680
)
$
12,720

$
(11,892
)Net cash provided by financing activities under Canadian and U.S. GAAP

$
75,478

$
466

$
22,649


59

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)





Years ended December 31,2000

1999

1998Net loss under U.S. GAAP

$
(36,138
)
$
(19,512
)
$
(16,657
)Other comprehensive incomeAdjustment to unrealized gains (losses) on available-for-sale investments


198


(242
)

187Comprehensive net loss under U.S. GAAP

$
(35,940
)
$
(19,754
)
$
(16,470
)Comprehensive loss per share under U.S. GAAP

$
(0.88
)
$
(0.68
)
$
(0.73
)


60

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)



Years ended December 31,2000

1999

1998(in thousands, except per share amounts)Net loss under U.S. GAAP

$
(36,138
)
$
(19,512
)
$
(16,657
)Pro forma net loss

$
(39,293
)
$
(20,775
)
$
(18,009
)Basic loss per common share under U.S. GAAP

$
(0.89
)
$
(0.67
)
$
(0.74
)Pro forma basic loss per common share under U.S. GAAP

$
(0.97
)
$
(0.72
)
$
(0.80
)


The
weighted-average per-share fair value of the individual options granted during 2000, 1999, and 1998 were as follows on the date of grant:

Years ended December 31,2000

1999

1998$
6.09

$
1.30

$
1.32


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              |  | 108%                    
|Risk-free interest rate |  | 5.91%                   
|Expected life           |  | 10 years                

61

---

Stressgen Biotechnologies Corporation
Notes to Consolidated Financial Statements (Continued)
(Canadian dollars)

62

---



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

Our directors, executive officers and key employees, the positions held by them and their ages as of March 27, 2001 are as follows:

|Name                              |  | Age |  | Position                                                
|--------------------------------- |  | --- |  | --------------------------------------------------------
|Daniel L. Korpolinski             |  | 58  |  | Director, President and Chief Executive Officer         
|William A. Cochrane, M.D., (1)(2) |  | 75  |  | Director and Chairman of the Board of Directors         
|Darrell Elliott (3)               |  | 54  |  | Director                                                
|Kenneth Galbraith (3)             |  | 38  |  | Director                                                
|Yad Garcha (3)                    |  | 42  |  | Director                                                
|Richard M. Glickman (1)           |  | 42  |  | Director and Vice-Chairman of the Board of Directors    
|Steven C. Mendell (2)             |  | 59  |  | Director                                                
|Jay M. Short, Ph.D. (1)           |  | 43  |  | Director                                                
|Richard A. Young, Ph.D. (2)       |  | 59  |  | Director                                                
|John R. Neefe, M.D.               |  | 57  |  | Vice President, Clinical Research and Regulatory Affairs
|Marvin I. Siegel, Ph.D.           |  | 54  |  | Executive Vice President, Research and Development      
|Donald D. Tartre                  |  | 40  |  | Vice President & Chief Financial Officer                
|Lee Mizzen, Ph.D.                 |  | 42  |  | Vice President, Scientific Affairs                      

---

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, and was one of the directors of Copley
from August 1998 until it was acquired. Mr. Korpolinski served as President and Chief Executive Officer of Prodromics On Line, a software company, from June 1997 until
August 1998. Mr. Korpolinski served as the President and Chief Executive Officer of CoCensys Inc., a biotechnology company, from October 1991 to October 1996. From
1988 to 1991, Mr. Korpolinski was President of Adria Laboratories North America, an oncology company. Mr. Korpolinski received his B.S. from Niagra Falls College in New York.

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

63

---

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.

DARRELL ELLIOTThas served as one of our directors since December 1999. Since August 1999, he has
been Senior Vice President for MDS Capital Corp., a health care venture capital organization. He has extensive board experience and has served on the board of directors of several Canadian public and
private companies, including Inex Pharmaceuticals Corp. since August 1995, Star Biotech Inc. since January 1998, Nortran Pharmaceuticals Inc. since January 1999,
Chromos Molecular Systems Inc. since
July 1999, GenSci Regeneration Sciences Inc. since December 1999, and Neuromed Technologies Inc. since December 2000. Mr. Elliott was Regional Vice President
of Royal Bank Capital Corporation (RBCC) from December 1989 to January 1994 and from August 1994 to August 1998. He was also founder and Managing Director of RBCCs Life
Sciences fund in 1994. Mr. Elliott received his BA Economics degree from the University of South Africa (Pretoria).

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
and Active Pass Pharmaceuticals since October 1999. He has been Chair of one of Canada's Centres of Excellence Networks, the Canadian Bacterial Diseases Network, since May 1997. Since
February 1988, he has served as an advisor to QLT Inc., a biotechnology company where, in April 2000, he was appointed Executive Vice President and Chief Financial Officer. From
September 1995 to February 1988, Mr. Galbraith was a Chartered Accountant with Thorne Riddell, Chartered Accountants, predecessor firm to KPMG LLP. Mr. Galbraith was
founding Director and Chairman of the B.C. Biotechnology Alliance from 1992 to 1995. He received his B.Com. (Honours) degree from the University of British Columbia and was admitted in Canada as a
Chartered Accountant.

YAD GARCHAhas served as one of our directors since June 1995. Since January 2000, he has been a
Senior Vice President with GrowthWorks Capital Ltd., which is the manager of the Working Opportunity Fund (EVCC) Ltd., a Labor-sponsored venture capital fund. Mr. Garcha has also
managed investments in Angiotech Pharmaceuticals since September 1996, Synapse Technologies since March 1998 and Active Pass Pharmaceuticals since July 1998. He received his MBA
from the University of Western Ontario.

RICHARD M. GLICKMAN,one of our co-founders, has served as one of our directors since
April 1990 and has been Vice-Chairman of our Board of Directors since May 2000. Mr. Glickman has been Chairman of Vigil Health Management, a behavior informatics,
since June 2000 and has been a Director of Epic Biosonics Incorporated, a medical device company, since Fall 2000. He has served as a member of the Board of Directors of the Genetic Diseases
Network, a Canadian National Centre of Excellence since Spring 2000 and has served on the British Columbia Knowledge Development Fund, a government granting agent, since Spring 2000.
Mr. Glickman was our President and Chief Executive Officer from April 1990 to May 2000. Mr. Glickman was also a founder of Probtec Corporation, a national drug design and
molecular genetics company, where he served as Vice-President of Corporate Development from the Fall of 1986 to Fall 1989. Additional experience of Mr. Glickman includes his service
as the Chairman of the British Columbia Biotechnology Alliance and as a member of the Canadian federal government's National Biotechnology Advisory Committee. Mr. Glickman graduated from the
Department of Immunology and Microbiology at McGill University, Montreal.

64

---

STEVEN C. MENDELLhas served as one of our directors since December 1996. Since June 1999,
Mr. Mendell has been President and Chief Executive Officer of LMA North America Inc. and since December 2000, he has served in the same capacity with LMA International N.V., both
of which are leaders in the marketing and sale of devices for anesthesia and airway management. 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, a company where he has served as a director since 1984. Mr. Mendell also 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 previous 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.

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 microbiology 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.

RICHARD A. YOUNG, PH.D.has served as one of our directors since June 1995. Dr. Young has been a
Professor in the Department of Biology, MIT and a member of the Whitehead Institute since September 1984. Dr. Young is an expert in recombinant vaccine development and a researcher in
the immunology of stress proteins and their uses in vaccine preparation and therapy. Dr. Young received his Ph.D. in molecular biophysics and biochemistry from Yale University and conducted
extensive post-doctoral research at the Swiss Institute for Experimental Cancer Research and at Stanford University.

JOHN R. NEEFE, M.D.has served as our Vice President, Clinical Research and Regulatory Affairs since
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 has been a director of Delta Pharmaceuticals, Inc., a Chapel Hill, North Carolina pharmaceutical company from the first quarter of 1997 through the first
quarter of 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. Dr. Siegel received his Ph.D. from The Johns Hopkins University School of Medicine in 1973.

65

---

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 1997 to 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 biopharmaceutical/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.

LEE MIZZEN, PH.D.has served as our Vice President, Scientific Affairs since November 2000.
Dr. Mizzen previously served as Director of Research, Therapeutics Division, working on clinical applications of the stress response since joining Stressgen in 1992. His previous experience
includes two years working with Dr. Tony Pawson at the Samuel Lunenfeld Research Institute, University of Toronto, on signal transduction pathways and four years with Dr. William Welch,
at Cold Spring Harbor Laboratories, New York and the University of California, San Francisco on mammalian stress proteins. Dr. Mizzen received his Ph.D. from the University of Western Ontario
in 1986.

Each
officer serves at the discretion of our Board of Directors. Our Articles permit the authorized number of directors to be established by ordinary or special resolution passed by
members of the Company. We currently have nine directors authorized.

Board Committees

Our Board of Directors has established three 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 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.

The
Audit Committee meets with our financial officers 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 to our Board of Directors for approval of our annual financial statements and annual report and certain other documents required by the
regulatory authorities. The Audit Committee is also responsible for approving the policies under which our financial officers may invest the funds in excess of those required for current operations.
In 2000, the Audit Committee met five times. This Committee is composed of three directors: Yad Garcha, Kenneth Galbraith and Darrell Elliott, none of whom is one of our current or former officers.

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 under our 1996 Share Incentive Plan, or the 1996 Plan. In 2000, this Committee met three times. The Executive Compensation and Human Resources Committee is composed of three directors: Jay M.
Short, Ph.D., Richard M. Glickman and William A. Cochrane, M.D.

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.

66

---

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. The Governance Committee is composed of three directors: William A.
Cochrane, M.D., Steven C. Mendell and Richard A. Young, Ph.D.

Item 11.  COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Compensation of Directors

William A. Cochrane, M.D. is entitled to receive $15,000 annually per year for his service as the Chairman of our Board, and an additional fee of $2,000 per
meeting attended. Each of our other directors is entitled to receive $6,000 per year for such person's service as a director, and $1,500 per meeting attended. In addition, directors who serve on the
Audit and Compensation Committees receive one-half the normal meeting fee for each Committee meeting attended. We also reimburse directors for expenses incurred on our behalf, including
expenses associated with attendance at meetings of our Board of Directors. During the fiscal year ended December 31, 2000, we paid scientific consultant's fees of $20,833 to William Welch, who
was a director until May 2000, and $50,000 to Richard A. Young, Ph.D., who was a director throughout the year.

We
have not yet granted options to acquire stock covering service on the board of directors in 2000 because of the limited number of stock options remaining in our 1996 Plan. Upon the
approval by our shareholders of the 2001 Equity Incentive Plan, we expect to grant to most or all non-employee directors options to acquire 10,000 shares, to Mr. Cochrane, an option
to acquire 15,000 shares in consideration for his service as the Chairman of the Board, and to Mr. Galbraith, Mr. Garcha and Mr. Elliott, options to acquire 50,000 shares in
consideration for their initial year of service on the Board of Directors. The exercise price per share of any options granted for service in 2000 will be the fair market value of our common stock on
the date of grant (based on the closing sales price reported on the Toronto Stock Exchange for the day before the date of grant).

Compensation of Executive Officers

The following table sets forth, in Canadian dollars, all compensation awarded or paid to and earned by, our current and former Chief Executive Officer during
the fiscal years ended December 31, 2000, 1999 and 1998 as well as the three executive officers whose salary and bonus were in excess of U.S. $100,000 for services rendered to us during the
years ended December 31, 2000, 1999 and 1998.

67

---

Summary Compensation Table

|                                                                           |  | Annual Compensation
(Canadian dollars) |  | Long Term Compensation |                        
|-------------------------------------------------------------------------- |  | -------------------------------------- |  | ---------------------- | -----------------------
|
|                                                                           |  |                                        |  |                        |                        
|Daniel L. Korpolinski (1)
President and Chief Executive Officer            |  | 2000
1999
1998                         |  | $                      | 462,079

            
|Richard M. Glickman
Former President and Chief Executive Officer           |  | 2000
1999
1998                         |  |                        | 103,797
250,073
250,000
|David G. Matthews
Former Chief Financial Officer                           |  | 2000
1999
1998                         |  |                        | 175,125
175,073
168,750
|John R. Neefe, M.D. (5)
Vice President, Clinical and Regulatory Affairs    |  | 2000
1999
1998                         |  |                        | 376,507
352,142
19,773 
|Marvin I. Siegel, Ph.D.
Executive Vice President, Research and Development |  | 2000
1999
1998                         |  |                        | 349,069
303,473
308,333

---

68

---

Stock Option Grants And Exercises In Last Fiscal Year

We grant options to our executive officers to purchase our common stock under our 1996 Plan. As of December 31, 2000, options to purchase a total of
3,329,177 shares were outstanding under the 1996 Plan and options to purchase 114,106 shares remained available for grant thereunder. In addition, options to acquire 45,000 shares, granted outside of
the 1996 Plan, remained exercisable. The following table sets forth certain information regarding options granted during the fiscal year ended December 31, 2000 to our executive officers named
in the summary compensation table:

|                        |  | Individual Grants |     |       |   |   |      | 
|----------------------- |  | ----------------- | --- | ----- | - | - | ---- | 
|
|
|
|
|
|Daniel L. Korpolinski   |  | 1,000,000         | (3) | 64.24 | % | $ | 6.20 | 
|Marvin I. Siegel, Ph.D. |  | 45,000            | (4) | 2.89  | % | $ | 6.20 | 

---

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

The following table sets forth certain information as of December 31, 2000, regarding options held by our executive officers named in the summary
compensation table. There were no stock appreciation rights outstanding on December 31, 2000.

|                        |  |        |  |   |         | Number of Shares Underlying Unexercised Options at FY-End (#) |         |  |         | 
|----------------------- |  | ------ |  | - | ------- | ------------------------------------------------------------- | ------- |  | ------- | 
|
|
|
|Daniel L. Korpolinski   |  |       |  | $ |        |                                                               | 228,127 |  | 771,873 | 
|Richard M. Glickman     |  |       |  |   |        |                                                               | 220,000 |  |        | 
|David G. Matthews       |  | 60,000 |  |   | 464,400 |                                                               | 75,000  |  |        | 
|John R. Neefe, M.D.     |  | 33,333 |  |   | 176,182 |                                                               | 63,333  |  | 48,334  | 
|Marvin I. Siegel, Ph.D. |  | 50,000 |  |   | 173,750 |                                                               | 182,700 |  | 37,300  | 

69

---



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

We have entered into an employment agreement, dated March 8, 2000, with Daniel L. Korpolinski, our President and Chief Executive Officer.
Mr. Korpolinski's base salary was $462,079 for the portion of 2000 in which he worked for us. In addition to his base salary, on March 8, 2000, Mr. Korpolinski was granted an
option to purchase 1,000,000 shares of our common stock at an exercise price equal to $6.20 per share. As of February 12, 2001, options to purchase a total of 267,711 shares had vested. 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,
experiences a change in his title or responsibilities, or is required to relocate 30 miles or more from his home. 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.

Richard
M. Glickman, our former President and Chief Executive Officer, resigned in May 2000. During 2000 Mr. Glickman received $103,797 in base salary, a bonus of
$126,633 relating to his role in our February 2000 financing, and another bonus of $103,125 relating to his performance as an officer. Mr. Glickman also received a retirement package,
which included 18 months' salary, or $375,000, a vacation payout of $28,769, medical and long-term disability premiums, and a car allowance.

David
G. Matthews, our former Chief Financial Officer, resigned in December 2000. During 2000 Mr. Matthews received $175,125 in base salary, and bonuses of $200,000
relating to his role in the February and October 2000 financings. Mr. Matthews also received $14,135 relating to accrued vacation. A Consulting Agreement between Mr. Matthews and
us dated December 22, 2000, provides that Mr. Matthews will act as a consultant from January 1, 2001 to December 31, 2001 to assist us with the transition relating to the
cessation of his employment, in return for a salary of $175,000; this salary was accrued in 2000.

We
have entered into an employment agreement, dated December 14, 1998, and amended on January 11, 1999, with John R. Neefe, M.D. our Vice President, Clinical and
Regulatory Affairs. During the year 2000, Dr. Neefe received a base salary of $376,507 and a bonus of $29,708. As of February 12, 2001, options to purchase a total of 63,333 shares had
vested. 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.

We
have entered into an employment agreement, dated February 5, 1997, and amended on January 11, 1999, with Marvin I. Siegel, Ph.D. our Executive Vice President,
Research and Development. During the year 2000, Dr. Siegel received a base salary of $349,069 and a bonus of $66,286. In addition to his base salary and bonus, on March 31, 2000,
Dr. Siegel was granted an option to purchase 45,000 shares of our common stock at an exercise price equal to $6.20 per share. As of February 12, 2001, options to purchase a total of
190,000 shares had vested. 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 6 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.

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Report Of Compensation Committee

The Compensation Committee is currently composed of William A. Cochrane, M.D., Richard M. Glickman and Jay M. Short, Ph.D., directors who are not our
employees. The Compensation Committee is responsible for establishing and administering our executive compensation policies and programs as well as salary and benefit levels. The Committee makes
recommendations to our Board of Directors, which gives final approval in compensation matters. During 2000, the Compensation Committee met on three occasions.

Compensation Philosophy

We believe that a competitive, goal-oriented compensation policy is critically important to the creation of value for stockholders. To that end, we
have created an incentive compensation program intended to reward outstanding individual performance. The goals of the compensation program are to align compensation with business objectives and
performance to enable us to attract and retain the highest quality executive officers and other key employees, reward them for our progress and motivate them to enhance long-term
stockholder value. Our compensation program is intended to implement the following principles:



While
compensation opportunities are based in part upon individual contribution, the actual amounts earned by executives in variable compensation programs are also based upon how we
perform. The executive compensation for the Chief Executive Officer and all other executives is based upon three components, each of which is intended to serve our compensation principles.

Our
compensation policies and programs are designed to be competitive with similar biotechnology companies and to recognize and reward executive performance consistent with the
success of our business. These policies and programs are intended to attract and retain capable and experienced people.

Base Salary

Base salary is targeted at the competitive median for similar companies in the biotechnology industry. For the purpose of establishing these levels, the
Compensation Committee the Committee reviews competitive market data.

Based
upon its reviews of industry data, the Compensation Committee determined that the base salaries of the Chief Executive Officer and all other executive officers were appropriate
and necessary to attract individuals of such high caliber within the biotechnology industry. The Compensation Committee reviews the salaries of the Chief Executive Officer and other executive officers
each year and such salaries may be increased based upon (i) the individual's performance and contribution and (ii) increases in median competitive pay levels.

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Annual Incentives

We have a cash bonus program whereby bonus amounts are determined based upon the achievement of corporate goals and individual performance. Any bonus is based,
in part, upon our performance and in part on individual performance. The Compensation Committee believes bonus amounts are similar to those paid by other companies in the biotechnology industry.

Long-Term Incentives

Long-term incentive compensation is provided through grants of options to purchase shares of our common stock to the Chief Executive Officer, other
executive officers and other employees. The stock options are intended to retain and motivate all employees to improve our long-term performance. It is common in the biotechnology industry
to grant stock options to all employees. Stock options have been granted to all of our full-time employees. Executives and other employees receive value from these grants only if our
common stock appreciates over the long-term. The Compensation Committee believes the amount and value of such grants are based upon levels similar to other companies in the biotechnology
industry. Generally, stock options are granted with an exercise price equal to prevailing market value. The stock options generally vest in increments over a period of years.

Compensation of the Chief Executive Officer

Based on an evaluation of the salaries of Chief Executive Officers of comparable companies and Mr. Korpolinski's experience and in accordance with the
policies noted above, we agreed to pay Mr. Korpolinski, our President and Chief Executive Officer, U.S. Operations, since March 8, 2000, and our President and Chief Executive Officer,
North American Operations since May 23, 2000, a base salary in 2000 of U.S.$350,000 (effective on the date of his employment). In March 2001, the board of directors granted
Mr. Korpolinski a bonus of U.S.$140,000, which comprised 40% of his base salary, relating to his performance from March 2000 to March 2001.

In
accordance with the policies noted above, the Compensation Committee set the 2000 base salary of Richard M. Glickman, our former President and Chief Executive Officer, at $250,000,
the same amount as in the previous year. The Compensation Committee also awarded Mr. Glickman a $103,125
performance bonus in 2000, which comprised 30% of his salary for the 17 months in 1999 and 2000 the bonus covered, based upon factors including the company's level of operations, development of
HspE7, increased biochemical sales, and operations within budget.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of February 28, 2001 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 most highly compensated executive officers at February 28, 2001
and (iv) all of our directors and executive officers as a group.

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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) |   | Percent of Class of Common Stock(2) |  
|------------------------------------------------------------ |  | ------------------------------------------------------------ | - | ----------------------------------- | -
|Daniel L. Korpolinski                                        |  | 307,295                                                      |   | *                                   |  
|William A. Cochrane, M.D.                                    |  | 165,000(3                                                    | ) | *                                   |  
|Darrell Elliott                                              |  | 927,177(4                                                    | ) | 1.9                                 | %
|Kenneth Galbraith                                            |  |                                                             |   |                                    |  
|Yad Garcha                                                   |  | 1,998,190(5                                                  | ) | 4.0                                 | %
|Richard M. Glickman                                          |  | 241,600(6                                                    | ) | *                                   |  
|Steven C. Mendell                                            |  | 120,000(7                                                    | ) | *                                   |  
|Jay M. Short, Ph.D.                                          |  | 72,000(8                                                     | ) | *                                   |  
|Richard A. Young, Ph.D.                                      |  | 326,600(9                                                    | ) | *                                   |  
|John R. Neefe, M.D.                                          |  | 86,666(10                                                    | ) | *                                   |  
|Marvin I. Siegel, Ph.D                                       |  | 222,000(11                                                   | ) | *                                   |  
|All Directors and Executive Officers as a Group (11 persons) |  | 4,469,127                                                    |   | 8.8                                 | %

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Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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."

In
accordance with Section 128 of the Company Act (British Columbia) (the "BCCA"), our Articles provide that we will indemnify
every person who is or was one of our directors or, at our request, serving as a director of another corporation of which we are or were a shareholder. We may indemnify
every person who is or was one of our officers, employees or agents or, at our request, serving as an officer, employee or agent of another company or organization, a trust, joint venture or
partnership. Indemnification covers losses, charges and expenses incurred as a result of actions in such capacities. We are also empowered under our Articles and the BCCA 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 the opinion of the U.S. Securities
and Exchange Commission, any indemnification for liabilities arising under Securities Act of 1933 that our Articles may permit is against public policy and therefore unenforceable.

PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

Our
financial statements are included herein as required under Item 8 of this Annual Report on Form 10-K.

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

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|Exhibit No. |  | Description                                                                                              
|----------- |  | ---------------------------------------------------------------------------------------------------------
|3.1*        |  | Memorandum of the Company                                                                                
|3.2*        |  | Articles for StressGen Biotechnologies, Inc.                                                             
|3.3*        |  | Articles for StressGen Gene Therapies Inc.                                                               
|3.4*        |  | Memorandum for StressGen Gene Therapies Corp.                                                            
|3.5*        |  | Articles of the Company                                                                                  
|3.6*        |  | Bylaws for StressGen Biotechnologies Inc.                                                                
|3.7*        |  | Bylaws for StressGen Gene Therapies Inc.                                                                 
|3.8*        |  | Articles for StressGen Gene Therapies Corp.                                                              
|4.1*        |  | Form of Stock Certificate                                                                                
|4.2*        |  | Form of Class A Warrant                                                                                  
|4.3*        |  | Form of Class B Warrant                                                                                  
|10.1*       |  | License Agreement dated November 29, 1992 among Whitehead Institute, MIT and the Company, as amended     
|10.2*       |  | Lease for the property in Victoria, British Columbia                                                     
|10.3*       |  | Employment Agreement dated March 8, 2000 between the Company and Daniel Korpolinski                      
|10.4*       |  | Confidential Employment Agreement dated December 14, 1998 between the Company and John Neefe             
|10.5*       |  | Amendment to Confidential Employment Agreement dated December 16, 1999 between the Company and John Neefe
|10.6*       |  | Consulting Agreement dated December 22, 2000 between the Company and David Matthews and related Release  
|10.7*       |  | Retirement Agreement dated November 10, 1999 between the Company and Richard Glickman                    
|10.8*       |  | Confidential Employment Agreement dated February 5, 1997 between the Company and Marvin I. Siegel        
|10.9*       |  | Amendment and Assignment Agreement dated January 11, 1999 between the Company and Marvin I. Siegel       
|10.10*      |  | 1996 Share Incentive Plan                                                                                
|10.11*      |  | Stock Option Agreement for use with the 1996 Share Incentive Plan                                        
|21.1*       |  | List of Subsidiaries                                                                                     
|23.1        |  | Consent of Deloitte & Touche LLP                                                                         
|24.1*       |  | Power of Attorney                                                                                        

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None

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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.



Date:
April 9, 2001



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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         
|----------------------------------- |  | -------------------------------------------------------------------------------------- |  | -------------
|                                    |  |                                                                                        |  |              
|*Daniel L. Korpolinski              |  | Chief Executive Officer, President and Director(Principal Executive Officer)           |  | April 9, 2001
|/s/DONALD D. TARTREDonald D. Tartre |  | Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) |  | April 9, 2001
|*William A. Cochrane, M.D.          |  | Director, Chairman of the Board                                                        |  | April 9, 2001
|*Darrell Elliott                    |  | Director                                                                               |  | April 9, 2001
|*Kenneth Galbraith                  |  | Director                                                                               |  | April 9, 2001
|*Yad Garcha                         |  | Director                                                                               |  | April 9, 2001
|*Richard M. Glickman                |  | Director                                                                               |  | April 9, 2001
|*Steven C. Mendell                  |  | Director                                                                               |  | April 9, 2001
|*Richard A. Young, Ph.D.            |  | Director                                                                               |  | April 9, 2001

|*By: |  | /s/DONALD D. TARTRE
Donald D. Tartre, Attorney-In-Fact |  |  |  | 
|---- |  | ------------------------------------------------------ |  |  |  | 

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