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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|(Mark One)                               |                                                                                         
|---------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                        | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the Quarter Ended September 30, 2002
|or                                      
|o                                        | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 333-12570

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STRESSGEN BIOTECHNOLOGIES CORPORATION(Exact name of registrant as specified in its charter)

|Yukon Territory, Canada(State of incorporation)
350-4243 Glanford Avenue
Victoria, British Columbia V8Z 4B9 Parent of Stressgen Biotechnologies, Inc.
10241 Wateridge Circle, Suite C200
San Diego, CA(Address of principal executive offices) | N/A(IRS Employer Identification No.) 92121(zip code)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------

(250) 744-2811 (858) 202-4900(Registrant's telephone number, including area code)

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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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o

As
of October 18, 2002, the registrant had approximately 60,210,000 shares of Common Stock, no par value, outstanding.

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Stressgen Biotechnologies Corporation and Subsidiaries  INDEX

|                               |         |                                                                                                                                  |                                                                                       | Page
|------------------------------ | ------- | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----
|Part I  Financial Information |         |                                                                                                                                 
|                               | Item 1. |                                                                                                                                  | Financial Statements                                                                  |     
|                               |         | Consolidated Balance Sheet
September 30, 2002 (Unaudited) and December 31, 2001                                                  |                                                                                       | 1   
|                               |         | Consolidated Statement of Operations and Accumulated Deficit
Three and Nine Months Ended September 30, 2002 and 2001 (Unaudited) |                                                                                       | 2   
|                               |         | Consolidated Statement of Cash Flows
Three and Nine Months Ended September 30, 2002 and 2001 (Unaudited)                         |                                                                                       | 3   
|                               |         | Notes to Consolidated Financial Statements (Unaudited)                                                                           |                                                                                       | 4   
|                               | Item 2. |                                                                                                                                  | Management's Discussion and Analysis of Financial Condition and Results of Operations |     
|                               |         | Factors That Could Affect Future Performance                                                                                     |                                                                                       | 17  
|                               | Item 3. |                                                                                                                                  | Quantitative and Qualitative Disclosures About Market Risk                            |     
|                               | Item 4. |                                                                                                                                  | Controls and Procedures                                                               |     
|Part IIOther Information      |         |                                                                                                                                 
|Items 1 through 6              |         | 23                                                                                                                              
|SIGNATURE                      |         | 24                                                                                                                              

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CONSOLIDATED BALANCE SHEET

Stressgen Biotechnologies Corporation and Subsidiaries
(Canadian Dollars In Thousands)

|                                          |                                                                                                                                                                                             | September 30,
2002          |        | December 31,
2001 |       
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------ | ----------------- | ------
|
|Assets                                    |                                                                                                                                                                                             |                             |        |                   |       
|Current assets:                           |                                                                                                                                                                                             |                             |        |                   |       
|                                          | Cash and cash equivalents                                                                                                                                                                   |                             | $      | 19,476            |       
|                                          | Short-term investments                                                                                                                                                                      |                             |        | 30,101            |       
|                                          | Accounts receivable                                                                                                                                                                         |                             |        | 4,364             |       
|                                          | Inventories                                                                                                                                                                                 |                             |        | 959               |       
|                                          | Other current assets                                                                                                                                                                        |                             |        | 767               |       
|                                          |                                                                                                                                                                                             |                             |        |                   |       
|                                          |                                                                                                                                                                                             | Total current assets        |        |                   | 55,667
|Capital assets                            |                                                                                                                                                                                             |                             | 2,896  |                   |       
|Deferred expenses, net of current portion |                                                                                                                                                                                             |                             | 459    |                   |       
|                                          |                                                                                                                                                                                             |                             |        |                   |       
|                                          |                                                                                                                                                                                             | $                           | 59,022 |                   | $     
|                                          |                                                                                                                                                                                             |                             |        |                   |       
|Liabilities and Stockholders' Equity      |                                                                                                                                                                                             |                             |        |                   |       
|Current liabilities:                      |                                                                                                                                                                                             |                             |        |                   |       
|                                          | Accounts payable and accrued liabilities                                                                                                                                                    |                             | $      | 8,659             |       
|                                          | Current portion of deferred revenue                                                                                                                                                         |                             |        | 1,119             |       
|                                          | Current portion of capital lease obligations                                                                                                                                                |                             |        | 319               |       
|                                          |                                                                                                                                                                                             |                             |        |                   |       
|                                          |                                                                                                                                                                                             | Total current liabilities   |        |                   | 10,097
|Long tem liabilities                      |                                                                                                                                                                                             |                             |        |                   |       
|                                          | Deferred revenue, net of current portion                                                                                                                                                    |                             |        | 3,636             |       
|                                          | Capital lease obligations, net of current portion                                                                                                                                           |                             |        | 338               |       
|                                          |                                                                                                                                                                                             |                             |        |                   |       
|                                          |                                                                                                                                                                                             | Total long term liabilities |        |                   | 3,974 
|                                          |                                                                                                                                                                                             |                             |        |                   |       
|                                          |                                                                                                                                                                                             | Total liabilities           |        |                   | 14,071
|Stockholders' equity:                     |                                                                                                                                                                                             |                             |        |                   |       
|                                          | Common shares and other equityno par value; unlimited shares authorized, 60,209,989 and 57,591,888 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively |                             |        | 175,385           |       
|                                          | Deferred stock compensation                                                                                                                                                                 |                             |        | (444              | )     
|                                          | Accumulated deficit                                                                                                                                                                         |                             |        | (129,990          | )     
|                                          |                                                                                                                                                                                             |                             |        |                   |       
|                                          |                                                                                                                                                                                             | Total stockholders' equity  |        |                   | 44,951
|                                          |                                                                                                                                                                                             |                             |        |                   |       
|                                          |                                                                                                                                                                                             | $                           | 59,022 |                   | $     
|                                          |                                                                                                                                                                                             |                             |        |                   |       

See accompanying notes to consolidated financial statements.

1

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CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT  (Unaudited)

Stressgen Biotechnologies Corporation and Subsidiaries
(Canadian Dollars In Thousands, Except Per Share Amounts)

|                                                                                               |                                     | Three months ended
September 30, |          | Nine months ended
September 30, |  
|---------------------------------------------------------------------------------------------- | ----------------------------------- | -------------------------------- | -------- | ------------------------------- | -
|
|Revenue:                                                                                       |                                     |                                  |          |                                 |  
|                                                                                               | Collaborative R&D revenue           |                                  | $        | 4,332                           |  
|                                                                                               | Bioreagent sales                    |                                  |          | 1,494                           |  
|                                                                                               |                                     |                                  |          |                                 |  
|Total revenue                                                                                  |                                     |                                  | 5,826    |                                 |  
|Operating expenses:                                                                            |                                     |                                  |          |                                 |  
|                                                                                               | Research and development            |                                  |          | 7,447                           |  
|                                                                                               | Selling, general and administrative |                                  |          | 1,904                           |  
|                                                                                               | Cost of bioreagent sales            |                                  |          | 419                             |  
|                                                                                               |                                     |                                  |          |                                 |  
|                                                                                               |                                     |                                  | 9,770    |                                 |  
|                                                                                               |                                     |                                  |          |                                 |  
|Operating loss                                                                                 |                                     |                                  | (3,944   | )                               |  
|                                                                                               |                                     |                                  |          |                                 |  
|Other income (expenses):                                                                       |                                     |                                  |          |                                 |  
|                                                                                               | Interest and other income, net      |                                  |          | 1,679                           |  
|                                                                                               | Interest expense                    |                                  |          | (15                             | )
|                                                                                               |                                     |                                  |          |                                 |  
|                                                                                               |                                     |                                  | 1,664    |                                 |  
|                                                                                               |                                     |                                  |          |                                 |  
|Net loss                                                                                       |                                     |                                  | (2,280   | )                               |  
|Accumulated deficit, beginning of period                                                       |                                     |                                  | (127,710 | )                               |  
|                                                                                               |                                     |                                  |          |                                 |  
|Accumulated deficit, end of period                                                             |                                     | $                                | (129,990 | )                               | $
|                                                                                               |                                     |                                  |          |                                 |  
|Basic and diluted loss per common share                                                        |                                     | $                                | (0.04    | )                               | $
|                                                                                               |                                     |                                  |          |                                 |  
|Weighted average shares used to compute basic and diluted loss per common share (in thousands) |                                     |                                  | 60,179   |                                 |  
|                                                                                               |                                     |                                  |          |                                 |  

See accompanying notes to consolidated financial statements.

2

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CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

Stressgen Biotechnologies Corporation and Subsidiaries
(Canadian Dollars In Thousands)

|                                                                            |                                                 | Three months ended
September 30, |        | Nine months ended
September 30, |  
|--------------------------------------------------------------------------- | ----------------------------------------------- | -------------------------------- | ------ | ------------------------------- | -
|
|Cash flows from operating activities:                                       |                                                 |                                  |        |                                 |  
|Net loss                                                                    |                                                 | $                                | (2,280 | )                               | $
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                 |                                  |        |                                 |  
|                                                                            | Depreciation and amortization of capital assets |                                  |        | 204                             |  
|                                                                            | Amortization of deferred stock compensation     |                                  |        | 57                              |  
|                                                                            | Unrealized foreign exchange loss (gain)         |                                  |        | (1,235                          | )
|                                                                            | Loss on market value of investments             |                                  |        | (498                            | )
|                                                                            | Change in deferred revenue                      |                                  |        | 4,755                           |  
|                                                                            | Changes in operating assets and liabilities     |                                  |        | (6,074                          | )
|                                                                            |                                                 |                                  |        |                                 |  
|Net cash used in operating activities                                       |                                                 |                                  | (5,071 | )                               |  
|                                                                            |                                                 |                                  |        |                                 |  
|Cash flows from investing activities:                                       |                                                 |                                  |        |                                 |  
|                                                                            | Purchase of short-term investments              |                                  |        | (13,975                         | )
|                                                                            | Sales and maturities of short-term investments  |                                  |        | 24,342                          |  
|                                                                            | Purchase of capital assets                      |                                  |        | (151                            | )
|                                                                            |                                                 |                                  |        |                                 |  
|Net cash provided by (used in) investing activities                         |                                                 |                                  | 10,216 |                                 |  
|                                                                            |                                                 |                                  |        |                                 |  
|Cash flows from financing activities:                                       |                                                 |                                  |        |                                 |  
|                                                                            | Proceeds on issue of common shares              |                                  |        | 1,498                           |  
|                                                                            | Proceeds from borrowings                        |                                  |        |                                |  
|                                                                            | Repayment of borrowings                         |                                  |        | (211                            | )
|                                                                            | Stock subscription receivable                   |                                  |        | 480                             |  
|                                                                            |                                                 |                                  |        |                                 |  
|Net cash provided by financing activities                                   |                                                 |                                  | 1,767  |                                 |  
|                                                                            |                                                 |                                  |        |                                 |  
|Effect of exchange rate changes on cash and cash equivalents                |                                                 |                                  | 345    |                                 |  
|                                                                            |                                                 |                                  |        |                                 |  
|Increase (decrease) in cash                                                 |                                                 |                                  | 7,257  |                                 |  
|Cash and cash equivalents, beginning of period                              |                                                 |                                  | 12,219 |                                 |  
|                                                                            |                                                 |                                  |        |                                 |  
|Cash and cash equivalents, end of period                                    |                                                 | $                                | 19,476 |                                 | $
|                                                                            |                                                 |                                  |        |                                 |  

See accompanying notes to consolidated financial statements.

3

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

1.    THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES



4

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5

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2.    COLLABORATIVE AGREEMENT



6

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3.    BALANCE SHEET DETAILS



(In thousands)

September 30,
2002

December 31,
2001Inventories:Raw materials and work in progress, net

$
674

$
584Finished goods


285


331$
959

$
915Accounts receivable:Collaborative receivable

$
3,673

$
Trade receivables, net


691


609$
4,364

$
609Accounts payable and accrued liabilities:Clinical trial accruals


4,969

$
3,466Other accrued liabilities


1,921


1,099Trade accounts payable


1,769


3,192$
8,659

$
7,757




7

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8

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4.    SEGMENT INFORMATION



|                 |                           | Three months ended
September 30,    |        | Nine months ended
September 30, |      
|---------------- | ------------------------- | ----------------------------------- | ------ | ------------------------------- | -----
|
|Bioreagents      |                           |                                     |        |                                 |      
|                 | Sales:                    |                                     |        |                                 |      
|                 |                           | U.S.                                |        | $                               | 1,030
|                 |                           | Canada                              |        |                                 | 75   
|                 |                           | Other                               |        |                                 | 389  
|                 |                           |                                     |        |                                 |      
|                 |                           |                                     | 1,494  |                                 |      
|                 |                           |                                     |        |                                 |      
|                 | Expenses:                 |                                     |        |                                 |      
|                 |                           | Research and development            |        |                                 | 288  
|                 |                           | Selling, general and administrative |        |                                 | 368  
|                 |                           | Cost of bioreagent sales            |        |                                 | 419  
|                 |                           |                                     |        |                                 |      
|                 |                           |                                     | 1,075  |                                 |      
|                 |                           |                                     |        |                                 |      
|Operating income |                           | $                                   | 419    |                                 | $    
|                 |                           |                                     |        |                                 |      
|Biotechnology    |                           |                                     |        |                                 |      
|                 | Collaborative R&D revenue |                                     | $      | 4,332                           |      
|                 | Expenses:                 |                                     |        |                                 |      
|                 |                           | Research and development            |        |                                 | 7,159
|                 |                           | Selling, general and administrative |        |                                 | 1,536
|                 |                           |                                     |        |                                 |      
|                 |                           |                                     | 8,695  |                                 |      
|                 |                           |                                     |        |                                 |      
|Operating loss   |                           | $                                   | (4,363 | )                               | $    
|                 |                           |                                     |        |                                 |      
|Totals           |                           |                                     |        |                                 |      
|                 | Revenue:                  |                                     |        |                                 |      
|                 |                           | Collaborative R&D revenue           |        | $                               | 4,332
|                 |                           | Bioreagent sales                    |        |                                 | 1,494
|                 |                           |                                     |        |                                 |      
|                 | Total revenue             |                                     |        | 5,826                           |      
|                 | Expenses:                 |                                     |        |                                 |      
|                 |                           | Research and development            |        |                                 | 7,447
|                 |                           | Selling, general and administrative |        |                                 | 1,904
|                 |                           | Cost of bioreagent sales            |        |                                 | 419  
|                 |                           |                                     |        |                                 |      
|                 |                           |                                     | 9,770  |                                 |      
|                 |                           |                                     |        |                                 |      
|Operating Loss   |                           | $                                   | (3,944 | )                               | $    
|                 |                           |                                     |        |                                 |      



9

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



|(In thousands)                                                                                        |  | September 30
2002 |        | December 31
2001
|----------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | ----------------
|Current assets under Canadian GAAP                                                                    |  | $                 | 55,667 |                 
|Adjustment to carrying value of short-term investments classified as available-for-sale securities(a) |  |                   |       |                 
|                                                                                                      |  |                   |        |                 
|Current assets under U.S. GAAP                                                                        |  | $                 | 55,667 |                 
|                                                                                                      |  |                   |        |                 
|Stockholders' equity under Canadian GAAP                                                              |  | $                 | 44,951 |                 
|Unrealized holding gains on available-for-sale securities(a)                                          |  |                   |       |                 
|                                                                                                      |  |                   |        |                 
|Stockholders' equity under U.S. GAAP                                                                  |  | $                 | 44,951 |                 
|                                                                                                      |  |                   |        |                 



|                                                                                   |  | Three months ended
September 30, |        | Nine months ended
September 30, |  
|---------------------------------------------------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | -
|
|Net loss under Canadian GAAP                                                       |  | $                                | (2,280 | )                               | $
|Reversal of unrealized foreign exchange (gain) on available-for-sale securities(a) |  |                                  | (890   | )                               |  
|Reversal of write-(up)down of short term investments(a)                            |  |                                  | (498   | )                               |  
|Stock-based compensation expense on stock options(b)                               |  |                                  |       |                                 |  
|                                                                                   |  |                                  |        |                                 |  
|Net loss under U.S. GAAP                                                           |  | $                                | (3,668 | )                               | $
|                                                                                   |  |                                  |        |                                 |  
|Basic loss per common share under Canadian GAAP                                    |  | $                                | (0.04  | )                               | $
|                                                                                   |  |                                  |        |                                 |  
|Basic loss per common share under U.S. GAAP                                        |  | $                                | (0.06  | )                               | $
|                                                                                   |  |                                  |        |                                 |  
|Common shares used to compute basic loss per share under Canadian and U.S. GAAP    |  |                                  | 60,179 |                                 |  
|                                                                                   |  |                                  |        |                                 |  



10

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|                                             |                                                                                                       | Three months ended
September 30, |        | Nine months ended
September 30, |  
|-------------------------------------------- | ----------------------------------------------------------------------------------------------------- | -------------------------------- | ------ | ------------------------------- | -
|
|Net loss under U.S. GAAP                     |                                                                                                       | $                                | (3,668 | )                               | $
|Other comprehensive income                   |                                                                                                       |                                  |        |                                 |  
|                                             | Adjustment to unrealized foreign exchange and market gains (losses) on available-for-sale investments |                                  |        | 1,388                           |  
|                                             |                                                                                                       |                                  |        |                                 |  
|Comprehensive net loss under U.S. GAAP       |                                                                                                       | $                                | (2,280 | )                               | $
|                                             |                                                                                                       |                                  |        |                                 |  
|Comprehensive loss per share Under U.S. GAAP |                                                                                                       | $                                | (0.04  | )                               | $
|                                             |                                                                                                       |                                  |        |                                 |  



11

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6.    SUPPLEMENTAL CASH FLOW INFORMATION



|                                                                           |                                                                   | Three months ended
September 30, |        | Nine months ended
September 30, |  
|-------------------------------------------------------------------------- | ----------------------------------------------------------------- | -------------------------------- | ------ | ------------------------------- | -
|
|Collaborative receivable                                                   |                                                                   | $                                | (3,673 | )                               | $
|Trade receivables                                                          |                                                                   |                                  | 24     |                                 |  
|Inventories                                                                |                                                                   |                                  | (15    | )                               |  
|Other current assets                                                       |                                                                   |                                  | (121   | )                               |  
|Deferred expenses, net of current portion                                  |                                                                   |                                  | (459   | )                               |  
|Accounts payable and accrued liabilities                                   |                                                                   |                                  | (1,830 | )                               |  
|                                                                           |                                                                   |                                  |        |                                 |  
|                                                                           |                                                                   | $                                | (6,074 | )                               | $
|                                                                           |                                                                   |                                  |        |                                 |  
|Supplemental disclosures of cash flows:                                    |                                                                   |                                  |        |                                 |  
|                                                                           | Interest paid                                                     |                                  | $      | 15                              |  
|                                                                           |                                                                   |                                  |        |                                 |  
|Supplemental disclosures of non-cash investing and financing transactions: |                                                                   |                                  |        |                                 |  
|                                                                           | Reversal of deferred compensation related to terminated employees |                                  |        |                                |  
|                                                                           |                                                                   |                                  |        |                                 |  

12

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The
following information should be read in conjunction with our September 30, 2002 consolidated financial statements and related notes therein, which include adjustments
necessary for fair presentation 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 5 to our September 30, 2002 consolidated
financial statements. All amounts following are expressed in Canadian dollars unless otherwise indicated.

Overview

Our activities are focused primarily on the research and development of a unique class of proteins, called stress proteins or heat shock proteins, to regulate the
body's own immune response to combat infectious diseases. We believe that the use of stress proteins, genetically combined with various antigens derived from disease-causing organisms, will likely
yield novel therapeutic products.

In
June 2002, we entered into a strategic collaboration with F. Hoffmann-La Roche and Hoffmann-La Roche Inc. (collectively, "Roche") for the
development of HspE7, which improved the Company's net cash used in operating activities for the quarter ended September 30, 2002 by 51% from the immediately preceding quarter. Under terms of
the agreement, the Company could receive up to an aggregate of $300,000,000 comprised of upfront license fees, development and commercial milestones, and equity investments. In addition, the Company
will receive tiered, progressive sales-based payments at favorable varying rates upon commercialization of HspE7.

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 September 30, 2002, our accumulated deficit was $129,990,000. We have been dependent
principally upon equity financings to fund our business activities.

Results of Operations

For the three and nine months ended September 30, 2002, our net loss was $2,280,000 and $24,743,000, respectively. This represents a 69% decrease from the
three month period in the prior year and no change from the nine month period in the prior year. The current quarter decrease is due principally to collaborative R&D revenue, the reversal of a
temporary write-down on the market value of investments and favorable foreign exchange rate fluctuations. Collaborative R&D revenue totaled $4,332,000 for the three and nine months ended
September 30, 2002. Interest income for the three month period increased by $306,000 due to a $498,000 reversal of prior period write-downs on the market value of investments and for the nine
month period decreased by $1,138,000 due to lower market interest rates on short term investments compared to the same period in the prior year. While a net foreign exchange rate gain was recorded
during the current quarter, compared to the three and nine month periods in the prior year, foreign exchange gain decreased $218,000 and $1,556,000, respectively.

13

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In
order to achieve financial reporting comparability to peer companies within the biotechnology and pharmaceutical industries, the Company performed a review of the classification of
its operating costs during 2001. As a result of this review, certain costs were reclassified from selling, general and administrative expenses to research and development and cost of bioreagent sales.
Prior period balances have been reclassified to conform to the current periods' presentation.

Collaborative R&D revenue

Collaborative R&D revenue was $4,332,000 for the three and nine months ended September 30, 2002. Collaborative R&D revenue includes $4,054,000 of
reimbursement for R&D activities and $278,000 for SAB No. 101 recognition of up-front fees and was recorded for the first time during the current three month period.

Bioreagent sales

Bioreagent sales for the three and nine months ended September 30, 2002 increased by 19% and 10% to $1,494,000 and $4,390,000, compared to $1,256,000 and
$3,985,000 during the same periods in the prior year. The higher values for the three and nine months ended September 30, 2002, were principally attributed to higher average selling prices and
increased demand. We anticipate that bioreagent sales will grow by approximately 10% during 2002.

Research and development

Research and development, or R&D, spending for the three months ended September 30, 2002 decreased by 8% to $7,447,000 compared to the same period in the
prior year. This spending pattern reflects the maturation of our clinical program and shifting of certain product development efforts on HspE7 to Roche during the current three and nine month periods,
in contrast to increasing the clinical and development efforts during the three and nine month periods in the prior year. R&D spending for the nine months ended September 30, 2002 increased 4%
to $26,508,000 compared to the corresponding period in the prior year.

Selling, general and administrative expenses

Selling, general and administrative, or SG&A, expenses represented approximately 19% of total operating expenses during the three and nine months ended
September 30, 2002, compared with 15% and 17% over the same periods in the prior year. SG&A spending increased by approximately 25% and 22% to $1,904,000 and $6,570,000 for the three and nine
months ended September 30, 2002 compared to the same periods in the prior year, due principally to increased business development activities, costs associated with our expanded North American
operations and the addition of key executive personnel.

Cost of bioreagent sales

The aggregate cost of bioreagent sales as a percentage of bioreagent sales was approximately 28%, resulting in gross margins of 72%, for both the three and nine
months ended September 30, 2002 compared with gross margins of 60% and 71% during the same periods in 2001. In the prior year, a provision for obsolete/overstock inventory was recorded
affecting the three and nine month period gross margins. The increase in the current year gross margin reflects the net impact of inventory provisions.

Interest and other income, net

Interest and other income, net increased by 6% to $1,679,000 for the three months ended September 30, 2002 compared to the same period in the prior year.
For the nine months ended September 30, 2002, interest and other income, net decreased by $2,694,000 principally due to a

14

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$1,138,000 reduction in interest income caused by fluctuating market rates from the same period in the prior year and changes in foreign exchange gain of $1,556,000 due to less favorable currency
exchange rates on U.S. investments.

Basic and diluted loss per share

The basic and diluted loss per share was $0.04 and $0.42 for the three and nine months ended September 30, 2002, compared to $0.14 and $0.49 during the
same periods in the prior year. The difference reflects impact of changes in net losses diluted by increases in the weighted average number of common shares outstanding.

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

Our consolidated financial statements include adjustments necessary for their fair presentation 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 $1,388,000 and $198,000 for the three and nine months ended September 30, 2002, respectively. The principal differences
under U.S. GAAP as opposed to Canadian GAAP for the current quarter were the reversal of a write-up of $498,000 on U.S. investments, coupled with an $890,000 reversal of unrealized foreign
exchange gain on available-for-sale securities.

Basic
net loss per common share under U.S. GAAP would have been $0.06 and $0.43 in the three and nine months ended September 30, 2002, compared to $0.17 and $0.52 during the same
periods in the prior year. Our current assets and stockholders' equity under U.S. GAAP would have been the same as the $55,667,000 and $44,951,000 reported under Canadian GAAP at September 30,
2002. Our current assets and stockholders' equity under U.S. GAAP would have been the same under Canadian GAAP at December 31, 2001.

Liquidity and Capital Resources

At September 30, 2002, we had cash, cash equivalents and short-term investments of $49,577,000, a decrease of $13,105,000 from
December 31, 2001. During the three and nine months ended September 30, 2002, we used cash and cash equivalents primarily to finance development activities associated with our lead
product candidate, HspE7. At September 30, 2002, approximately 48% of cash, cash equivalents and short-term investments were held in U.S. dollars. The collaborative development
funding from Roche reduced our current quarter net cash used in operating activities by 51% compared to the prior quarter. We anticipate that fourth quarter net cash used in operating activities will
approximate the current quarter results. The variability of anticipated burn is dependent upon several factors, including the timing of clinical development of recurrent respiratory papillomatosis, or
RRP, and pre-clinical activities supporting a future IND for our hepatitis B fusion product candidate. Considering the Roche funding and currently anticipated spending, at
September 30, 2002, we had cash, cash equivalents and short-term investments on hand to support operations in excess of two years.

Under
terms of the collaboration agreement, the Company could receive up to an aggregate of $300,000,000 comprised of upfront license fees, development and commercial milestones, and
equity investments. The agreement was structured to enable the Company to realize 20% of the value of the milestones by the end of 2004. The remainder of the milestones, which are payable depending on
factors such as development events and indications launched, could be realized approximately one-half in the remaining development period before launch, and 30% within five years after
launch.

During
the three and nine months ended September 30, 2002, capital expenditures decreased by 18% and 75% to $151,000 and $319,000 compared with $184,000 and $1,249,000 for the
same periods

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in 2001, during which we were completing a significant laboratory expansion in our Victoria, B.C. location.

The
Company's cash requirements may vary materially from anticipated amounts because of its collaborative development and marketing arrangements, the results and scope of clinical trials
and other research and development activities, the time required to obtain regulatory approvals and the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual
property rights. As a result of these factors, it is difficult to predict accurately the times additional cash will be needed and the amounts of future cash required.

The
Company is likely to pursue the issuance of additional equity securities, and strategic transactions, to meet its cash requirements. The issuance of additional equity securities, if
any, could result in substantial dilution to the Company's stockholders. There can be no assurance that additional funding will be available on terms acceptable to the Company, if at all. If the
additional funding is not obtained, the Company will seek alternative sources of debt and/or equity financing and, to the extent necessary, will consider deferring, canceling or reducing planned
initiatives or overhead expenditures.

The
Company has never paid a cash dividend on its common stock and does not contemplate the payment of cash dividends on its common stock in the foreseeable future.

Critical Accounting Policies

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

Revenue Recognition

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

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

Clinical Trial Accruals

The Company recognizes expenses related to its ongoing clinical trials using a methodology designed to accrue estimated costs in the appropriate accounting
periods. The Company recognizes clinical trial costs in three distinct phases: the start-up phase, the patient accrual phase, and the close-out phase. The total estimated trial
cost is divided into these three phases based on historical contract costs. Upon start of the trial, the start-up portion of the trial contract is accrued. As patients

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enter the trial, the patient accrual cost is ratably recognized. Once the study is completed and analysis of the patient data has been initiated, the close-out portion of the trial is
recognized.

Accounting Pronouncements

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

FACTORS THAT COULD AFFECT FUTURE PERFORMANCE

In addition to the other information in this report, the following factors (as well as other factors not listed) have the potential to
materially affect the Company's future operations.

We Are At an Early Stage of Development

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

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

To date, we have not recorded any revenues from the sale of therapeutic products. Since inception through September 30, 2002, we have accumulated net
losses of approximately $129,990,000; we expect to incur continued losses for at least the next several years as we continue research and development and clinical trials. To become profitable, we,
either alone or with one or more partners, must develop, manufacture and successfully market product candidates.

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

Our business depends on our entering into arrangements with corporate and academic collaborators, licensors, licensees and others for the research, development,
clinical testing, manufacturing, marketing and commercialization of our products. For example, we have a strategic collaboration with Roche for the development and commercialization of HspE7, and
several research collaborations. We outsource many of our business functions such as clinical trials and manufacturing.

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We may not be able to establish and maintain collaborations that are important to our business on favorable terms, if at all, and such collaborations may not be successful.

There
are a number of risks associated with our dependence on collaborative agreements with third parties. Our product development and commercialization efforts could be adversely
affected if any collaborative partner terminates its agreement with us, causes delays, fails to timely develop or manufacture in adequate quantities a substance we need in order to conduct clinical
trials, fails to adequately perform clinical trials, determines not to develop, manufacture or commercialize an end product to which it has or we have rights, or otherwise fails to meet its
contractual obligations. 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 and 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 diligently bring potential products to market, make milestone payments that, in some instances, could be substantial, and
incur the costs of filing and prosecuting patent applications. We cannot assure you that these licenses will not terminate or that they will be renewed. In addition, we cannot assure you that these
licenses will remain in good standing. In the event of a breach of the terms of any license, the licensor may attempt to terminate the license.

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

Our manufacturing experience in bioreagents is not directly applicable to the manufacture of therapeutic products. We have not yet introduced any therapeutic
products and have no manufacturing experience for immunotherapies. Before we can be profitable, we need a cost-effective manufacturing process that produces commercial quantities of our
products in compliance with regulatory requirements. We do not have facilities for the production of the products we are developing. In order to have our products manufactured in commercial
quantities, we will depend on the manufacturing capabilities of collaborators. Currently, we anticipate that Roche will manufacture our HspE7 product. If we cannot contract for large-scale
manufacturing capabilities on acceptable terms, or if we encounter delays or difficulties in manufacturing, we may not be able to conduct clinical trials as planned.

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

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

We Must Obtain Additional Financing To Execute Our Business Plan

Our revenues from the production and sale of bioreagents, and the projected revenues and expense reimbursements from our HspE7 collaboration are not adequate to
support all of the therapeutic product development programs in our business plan. We will require substantial additional funds to pursue further research and development, obtain regulatory approvals,
carry out clinical trials, market our products and file, prosecute, defend and enforce our intellectual property rights. We will seek additional funds through public or private equity or debt
financing, strategic transactions and/or

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from other sources. We could enter into collaborative arrangements for the development of particular products which would lead to our relinquishing some or all of our rights to the related technology
or products.

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

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

Clinical trials vary in design by factors including their dosage, end points, length, controls, and numbers and types of patients enrolled. We may need to conduct
a series of trials before we can demonstrate that our products are safe and effective. In addition, we may be required to determine whether our products delay or prevent disease recurrence. These
clinical trials are likely to take longer to complete than clinical trials involving other types of therapeutics. The schedule on which clinical trials will start and end can vary dramatically from
forecasted schedules due to factors including conflicts with the schedules of participating clinicians and clinical institutions, delayed patient accrual and changes affecting supplies for clinical
trials.

We
have limited experience in conducting clinical trials. We rely on corporate collaborators, academic institutions and clinical research organizations to conduct, supervise, monitor and
design some or all aspects of clinical trials involving our products. In addition, certain clinical trials for our products will be conducted by government-sponsored agencies and consequently will
depend on governmental participation and funding. We will have less control over the timing and other aspects of these clinical trials than if we conducted them entirely on our own. Delays in or
failure to commence or complete any planned clinical trials could delay the ultimate timelines for product release. In addition, such delays could reduce investors' confidence in our ability to
develop products, likely causing our stock price to decrease.

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

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

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



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

If
we fail to comply with applicable regulatory requirements at any stage during the regulatory process, we or our contract manufacturers may be subject to sanctions, including fines,
product recalls or seizures, injunctions, refusal of regulatory agencies to review pending market approval applications or supplements to approval applications, total or partial suspension of
production, civil penalties, withdrawals of previously approved marketing applications and criminal prosecution.

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

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

The profitability of our products will depend in part on our ability to obtain and maintain patents and licenses, and preserve trade secrets. We must also operate
without infringing the proprietary rights of third parties and without third parties circumventing our rights. We have received U.S. and European patents and have filed and are actively pursuing
applications for additional United States and other patents. The patent positions of pharmaceutical and biotechnology enterprises, including ours, are uncertain and involve complex legal and factual
questions for which important legal principles are largely unresolved. For example, no consistent policy has emerged regarding the breadth of biotechnology patent claims that are granted by the 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, is currently undergoing review and revision in many countries, and may not protect our
intellectual property rights to the same extent as the laws of the United States. Because patent applications are maintained in secrecy in some cases, we cannot be certain that we or our licensors are
the first creators of inventions described in our pending patent applications or patents or the first to file patent applications for such inventions.

Other
companies may independently develop similar products and design around any patented products we develop. We cannot assure you that any of our patent applications will result in the
issuance of patents, that we will develop additional patentable products, that the patents we have been issued will provide us with any competitive advantages, that the patents of others will not
impede our ability to do business or that third parties will not be able to circumvent our patents. On October 22, 2002 Antigenics Inc. announced that it had filed an opposition in the
European Patent Office to a European patent and requests for re-examination in the United States Patent Office of two United States patents we have licensed. Until we receive final results
from the opposition and re-examination processes, we will not be able to assure you of the likelihood of success of our planned vigorous defense of these patents.

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

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

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

Our Products May Not Gain Market Acceptance

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

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

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

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

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be able to commercialize potential products. If any liabilities from a claim exceed the limit of our insurance coverage, we may not have the resources to pay them.

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

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

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 have developed technologies that could be
the basis for competitive products. Some of these products have an entirely different approach or means of accomplishing the desired therapeutic effect than products being developed by us and may be
more effective and less costly than the products developed by us. Competitors may succeed in developing products earlier than us,
obtaining approvals and clearances for such products more rapidly than us, or developing products that are more effective than ours. In addition, other forms of medical treatment may be competitive
with our products. Our technology or products may become obsolete or uncompetitive.

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

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

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

Sales of our products will depend in part upon the availability of reimbursement from third-party payors, including government health administration authorities,
managed care providers, private health insurers and other organizations. These third-party payors increasingly attempt to contain costs by challenging the price of products and services and limiting
the coverage and level of reimbursement for pharmaceutical products. Third-party reimbursement for our products may be inadequate to enable us to maintain prices that provide a return on our product
development investment. Governments continue to propose and pass legislation designed to reduce healthcare costs. This legislation could further limit reimbursement. If government and third-party
payors do not adequately reimburse patients for purchasing our products, there may not be a market for the products.

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

As is typical for biotechnology companies without a Food and Drug Administration approved product on the market, our share price has been highly volatile in the
past and is likely to continue to be volatile. The volatility of our stock may be heightened because it is traded primarily on the Toronto Stock Exchange, which limits its attractiveness to investors
outside of Canada. Factors such as the announcement of technological innovations, the release of publications, the announcement of clinical trials results by us or our competitors, the development of
new commercial products, the granting of patents or exclusive licenses, changes in regulations, the release of financial results, public concerns
over risks relating to biotechnology, future issuances of shares by us or sales of shares by our shareholders and many other factors could materially affect the price of our shares.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk is principally confined to its cash and short-term investments. The Company maintains a non-trading
investment portfolio of investment grade, liquid debt securities that limits the amount of credit exposure to any one issue, issuer or type of instrument. The securities in the Company's portfolio, of
which approximately 48% are currently invested in the U.S., are not leveraged, are classified as available-for-sale and are therefore subject to foreign exchange and interest
rate risk. The Company currently does not hedge foreign exchange or interest rate exposure. A hypothetical 1% change in foreign currency exchange and interest rates during the three months ended
September 30, 2002 would have resulted in a change in net loss of approximately $130,000 and $122,000, respectively. The Company has not used derivative financial instruments in its investment
portfolio. There have been no significant changes in the types or maturities of investments held from December 31, 2001.

CONTROLS AND PROCEDURES

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

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

PART IIOTHER INFORMATION

Exhibits

| |  | Exhibit No. |  | Description                                                                
| |  | ----------- |  | ---------------------------------------------------------------------------
| |  | 99.1        |  | Form of Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

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SIGNATURES AND CERTIFICATIONS

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                       |  | Stressgen Biotechnologies Corporation                                                                                                                                                      
|---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date: October 25, 2002 |  | /s/DONALD D. TARTREDonald D. Tartre
Vice President and Chief Financial Officer (Principal Financial and Accounting Officer duly authorized to sign this report on behalf of the registrant)

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I, Donald D. Tartre, certify that:



Date:
October 25, 2002

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

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I,
Daniel L. Korpolinski, certify that:



Date:
October 25, 2002

| |  | /s/DANIEL L. KORPOLINSKIDaniel L. Korpolinski
President and Chief Executive Officer
| |  | -----------------------------------------------------------------------------------

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