**UNITED        STATES**

**SECURITIES AND        EXCHANGE COMMISSION**

**Washington D.C. 20549**

**FORM 10-Q**

 

|  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE                    SECURITIES EXCHANGE ACT OF 1934 |
|--|------------------------------------------------------------------------------------------------------------|

         

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008

 

or

 

|  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE                    SECURITIES EXCHANGE ACT OF 1934 |
|--|-------------------------------------------------------------------------------------------------------------|

         

|   | FOR THE TRANSITION PERIOD FROM ______________ TO                    ____________. |  |
|--------|-----------------------------------------------------------------------------------|--|

 

Commission file number**000-21243**

 

**OncoGenex Pharmaceuticals, Inc.**

(Exact        Name of Registrant as Specified in Its Charter)

 

| **Delaware**                                                  | **95-4343413**                          |
|---------------------------------------------------------------|-----------------------------------------|
| (State or Other Jurisdiction ofIncorporation or Organization) | (I.R.S. Employer Identification Number) |

 

 

**1522        217th Place SE, Suite 100, Bothell, Washington 98021**

(Address        of Principal Executive Offices)

 

**(425)        686-1500**

(Registrant’s telephone number, including area code)

 

Indicate by        check 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             No   

         

Indicate by        check mark whether the registrant is a large accelerated filer, an accelerated filer, or a        non-accelerated filer. See definition of “accelerated filer and large accelerated        filer” in Rule 12b-2 of the Exchange Act.

         

| Large accelerated filer                                                | Accelerated filer                                   |
|-----------------------------------------------------------------------------|-----------------------------------------------------|
| Non-accelerated filer  

(Do not check if a smaller reporting company) | Smaller reporting company                      |

         

Indicate by        check mark whether the registrant is a shell company (as defined in Exchange Act Rule        12b-2).    Yes      No         

 

Indicate        the number of shares outstanding of each of the issuer’s classes of common stock, as        of the latest practicable date.

 

| **Class**                      | **Outstanding at November 6, 2008** |
|--------------------------------|-------------------------------------|
| Common Stock, $0.001 par value | 5,513,643                           |

 

 

 

----

**OncoGenex Pharmaceuticals, Inc.**

**Index        to Form 10-Q**

 

|   | Page                    Number |
|--------|--------------------------------|

**Part I.   Financial Information**

| Item 1.   Consolidated Financial Statements | 1 |
|-------------------------------------------------------|---|

 

|   | Consolidated Balance Sheets as of September 30, 2008 (unaudited)                    and December 31, 2007                                                                                                                                 | 1 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---|
|   | Consolidated Statements of Operations (unaudited) for the three and nine months                    ended September 30, 2008 and September 30, 2007, and the period from May 26,                    2000 (inception) to September 30, 2008 | 2 |
|   | Consolidated Statements of Cash Flows (unaudited) for the nine months ended                    September 30, 2008 and September 30, 2007, and the period from May 26, 2000                    (inception) to September 30, 2008           | 3 |
|   | Notes to Consolidated Financial Statements (unaudited)                                                                                                                                                                                    | 4 |

         

| Item 2.   Management’s Discussion and Analysis                    of Financial Condition and Results of Operations | 18     |
|------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                               |   |
| Item 3.   Quantitative and Qualitative Disclosures                    About Market Risk                                  | 29     |
|                                                                                                                               |   |
| Item 4.   Controls and Procedures                                                                                        | 29     |

**Part        II.   Other Information**

 

| Item 1A.   Risk Factors                                                          | 30 |
|--------------------------------------------------------------------------------------------|----|
| Item 4.   Submission of Matters to a Vote of Security                    Holders | 42 |
| Item 6.   Exhibits                                                               | 44 |
| Signatures                                                                                 | 47 |

 

 

 

 

----

 

**PART        I.****   FINANCIAL INFORMATION**

**Item        1.****   Consolidated Financial Statements**

 

**OncoGenex Pharmaceuticals, Inc.**

**Consolidated Balance Sheets**

**(Unaudited)**

(in        thousands)

 

|                                                                                                                         | September 30,                2008 | December 31,                2007 |
|-------------------------------------------------------------------------------------------------------------------------|-----------------------------------|----------------------------------|
|                                                                                                                         |                                   |                                  |
||
||
| **ASSETS**                                                                                                              |                              |                             |   |  |   |   |  |   |
| **Current**                                                                                                             |                              |                             |  |  |  |  |  |  |
| Cash and cash                equivalents                                                                                |                              |                             |   | 6,048 |   |   | 4,626 |   |
| Short-term investments                *[note 4]*                                                                   |                              |                             |   | 11,130 |   |   | 505 |   |
| Amounts                receivable                                                                                       |                              |                             |   | 160 |   |   | 77 |   |
| Investment tax credit                recoverable                                                                        |                              |                             |   | 1,215 |   |   | 1,736 |   |
| Prepaid expenses                                                                                                        |                              |                             |   | 583 |   |   | 295 |   |
| Other current                assets                                                                                     |                              |                             |   | 546 |   |   | — |   |
|                                                                                                                         |                                   |                                  |
| **Total current                assets**                                                                                 |                              |                             |   | 19,682 |   |   | 7,239 |   |
|                                                                                                                         |                                   |                                  |
| Property and equipment,                net                                                                              |                              |                             |   | 58 |   |   | 99 |   |
| Other assets                                                                                                            |                              |                             |   | 508 |   |   | 12 |   |
|                                                                                                                         |                                   |                                  |
| **Total assets**                                                                                                        |                              |                             |   | 20,248 |   |   | 7,350 |   |
|                                                                                                                         |                                   |                                  |
| **LIABILITIES AND                SHAREHOLDERS’ EQUITY (DEFICIENCY)**                                              |                              |                             |  |  |  |  |  |  |
| **Current**                                                                                                             |                              |                             |  |  |  |  |  |  |
| Accounts payable and accrued                liabilities *[note 12]*                                                |                              |                             |   | 2,700 |   |   | 1,048 |   |
| Convertible debentures                *[note 5]*                                                                   |                              |                             |   | — |   |   | 4,665 |   |
| Current portion of long-term                obligations                                                                 |                              |                             |   | 905 |   |   | — |   |
|                                                                                                                         |                                   |                                  |
| **Total current                liabilities**                                                                            |                              |                             |   | 3,605 |   |   | 5,713 |   |
|                                                                                                                         |                                   |                                  |
| Taxes payable                                                                                                           |                              |                             |   | — |   |   | 2,487 |   |
| Long-term obligation, less                current portion                                                               |                              |                             |   | 1,163 |   |   | — |   |
|                                                                                                                         |                                   |                                  |
| **Total                liabilities**                                                                                    |                              |                             |   | 4,768 |   |   | 8,200 |   |
|                                                                                                                         |                                   |                                  |
| Commitments and                contingencies *[note 10]*                                                           |                              |                             |  |  |  |  |  |  |
| Class A redeemable                convertible preferred shares:                                                    |                              |                             |  |  |  |  |  |  |
|      no par value;                unlimited number authorized; nil shares issued and           |                              |                             |  |  |  |  |  |  |
|      outstanding at                September 30, 2008 and 848,805 at December 31, 2007    |                              |                             |  |  |  |  |  |  |
|      (aggregate                retraction amount of nil at September 30, 2008, and $5,720      |                              |                             |  |  |  |  |  |  |
|      at                December 31, 2007) *[note 6]*                                 |                              |                             |   | — |   |   | 4,329 |   |
| Class B redeemable                convertible preferred shares:                                                    |                              |                             |  |  |  |  |  |  |
|      no par value;                unlimited number authorized; nil shares issued and           |                              |                             |  |  |  |  |  |  |
|      outstanding at                September 30, 2008, and 8,945,448 at December 31, 2007 |                              |                             |  |  |  |  |  |  |
|      (aggregate                retraction amount of nil at September 30, 2008, and             |                              |                             |  |  |  |  |  |  |
|      $33,432 at                December 31, 2007) *[note 6]*                         |                              |                             |   | — |   |   | 33,044 |   |
| **Shareholders’                equity (deficiency):**                                                             |                              |                             |  |  |  |  |  |  |
| Common shares:                                                                                                          |                              |                             |  |  |  |  |  |  |
|      no par value;                unlimited number authorized; 118,801 shares issued and       |                              |                             |  |  |  |  |  |  |
|      outstanding at                December 31, 2007 *[note 7]*                           |                              |                             |   | — |   |   | 399 |   |
| Common Shares:                                                                                                          |                              |                             |  |  |  |  |  |  |
| $0.001 par value 11,019,930                shares authorized and 5,513,643 issued and                                   |                              |                             |  |  |  |  |  |  |
|      outstanding at                September 30, 2008                                          |                              |                             |   | 6 |   |   | — |   |
| Additional paid-in                capital                                                                               |                              |                             |   | 55,920 |   |   | 567 |   |
| Deficit accumulated during                the development stage                                                         |                              |                             |   | (43,054 | ) |   | (41,832 | )  |
| Accumulated other                comprehensive income                                                                   |                              |                             |   | 2,608 |   |   | 2,643 |   |
|                                                                                                                         |                                   |                                  |
| **Total shareholders’                equity (deficiency)**                                                        |                              |                             |   | 15,480 |   |   | (38,223 | )  |
|                                                                                                                         |                                   |                                  |
| **Total liabilities and                shareholders’ equity (deficiency)**                                        |                              |                             |   | 20,248 |   |   | 7,350 |   |
|                                                                                                                         |                                   |                                  |
|  Subsequent events                *[note 14]*                                                                 |                              |                             |  |  |  |  |  |  |

 

See        accompanying notes.

 

1

 

----

**OncoGenex Pharmaceuticals, Inc.**

**Consolidated Statements of Operations**

**(Unaudited)**

(in        thousands, except per share and share amounts)

 

 

|                                                                             | Three months                Ended September 30, | Nine months                Ended September 30, | Period from                May 26, 2000                (inception)                to September 30, |           |
|-----------------------------------------------------------------------------|-------------------------------------------------|------------------------------------------------|----------------------------------------------------------------------------------------------------|-----------|
|                                                                             |                                                 |                                                |                                                                                               |           |
|                                                                             |
|                                                                             |                                                 |                                                |                                                                                                    |           |  |  |
|                                                                             |
| **EXPENSES**                                                                |                                            |                                           |                                                                                               |           |   |   |  |   |   |  |   |   |  |   |   |  |   |  |
| Research and                development                                     |                                            |                                           |                                                                                               | 1,639     |   |   | 1,094 |   |   | 3,621 |   |   | 3,075 |   |   | 24,410 |   |  |
|                                                                             |                                                 |                                                |                                                                                                    |           |  |  |
| General and                administrative                                   |                                            |                                           |                                                                                               | 1,024     |   |   | 609 |   |   | 2,243 |   |   | 2,709 |   |   | 12,372 |   |  |
|                                                                             |                                                 |                                                |                                                                                                    |           |  |  |
| Total expenses                                                              |                                            |                                           |                                                                                               | 2,663     |   |   | 1,703 |   |   | 5,864 |   |   | 5,784 |   |   | 36,782 |   |  |
|                                                                             |                                                 |                                                |                                                                                                    |           |  |  |
| **OTHER INCOME                (EXPENSE)**                                   |                                            |                                           |                                                                                                    |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Interest income                                                             |                                            |                                           |                                                                                               | 51        |   |   | 33 |   |   | 142 |   |   | 138 |   |   | 1,343 |   |  |
| Other                                                                       |                                            |                                           |                                                                                               | 246       |   |   | (60 | ) |   | (54 | ) |   | (94 | )  |   | (848 | ) |  |
|                                                                             |                                                 |                                                |                                                                                                    |           |  |  |
| Total other income                (expense)                                 |                                            |                                           |                                                                                               | 297       |   |   | (27 | ) |   | 88 |   |   | 44 |   |   | 495 |   |  |
|                                                                             |                                                 |                                                |                                                                                                    |           |  |  |
| **Loss for the period                before taxes**                         |                                            |                                           |                                                                                               | (2,366    | ) |   | (1,730 | ) |   | (5,776 | )  |   | (5,740 | ) |   | (36,287 | ) |  |
| Income tax expense                (recovery) *[note 9]*                |                                            |                                           |                                                                                               | (2,515    | ) |   | 200 |   |   | (2,100 | ) |   | 573 |   |   | 66 |   |  |
|                                                                             |                                                 |                                                |                                                                                                    |           |  |  |
| **Operating income (loss)                before extraordinary gain**        |                                            |                                           |                                                                                               | 149       |   |   | (1,930 | ) |   | (3,676 | )  |   | (6,313 | ) |   | (36,353 | ) |  |
| Extraordinary gain                *[note 2]*                           |                                            |                                           |                                                                                               | 4,428     |   |   | — |   |   | 4,428 |   |   | — |   |   | 4,428 |   |  |
|                                                                             |                                                 |                                                |                                                                                                    |           |  |  |
| **Net income                (loss)**                                        |                                            |                                           |                                                                                               | 4,577     |   |   | (1,930 | ) |   | 752 |   |   | (6,313 | ) |   | (31,925 | ) |  |
| Redeemable convertible                preferred share accretion             |                                            |                                           |                                                                                               | 417       |   |   | 735 |   |   | 1,973 |   |   | 2,156 |   |   | 11,129 |   |  |
|                                                                             |                                                 |                                                |                                                                                                    |           |  |  |
| (Loss) income attributable                to common shareholders            |                                            |                                           |                                                                                               | 4,160     |   |   | (2,665 | ) |   | (1,221 | )  |   | (8,469 | ) |   | (43,054 | ) |  |
|                                                                             |                                                 |                                                |                                                                                                    |           |  |  |
| Basic and diluted                income(loss) per common share              |                                            |                                           |                                                                                                    |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| *[note 7[d]]*                                                          |                                            |                                           | $                                                                                                  | 2.02      |   | $ | (22.43 | ) | $ | (1.59 | ) | $ | (71.29 | ) |   |  |   |  |
|                                                                             |                                                 |                                                |                                                                                                    |           |   |  |
| Weighted average number of                common shares *[notes 7[d]]* |                                            |                                           |                                                                                               | 2,056,876 |   |   | 118,801 |   |   | 769,843 |   |   | 118,801 |   |   |  |   |  |
|                                                                             |                                                 |                                                |                                                                                                    |           |   |  |

 

See        accompanying notes.

 

2

 

----

**OncoGenex Pharmaceuticals, Inc.**

**Consolidated Statements of Cash Flows**

**(Unaudited)**

(in        thousands)

 

|                                                                                                  | Nine months ended                September 30, | Period from                May 26, 2000                (inception) to |
|--------------------------------------------------------------------------------------------------|------------------------------------------------|-----------------------------------------------------------------------|
|                                                                                                  |                                                |                                                                       |
||
|                                                                                                  |                                                |                                                                       |  |
||
| **OPERATING                ACTIVITIES**                                                          |                                           |                                                                  |   |  |   |   |  |   |   |  |   |
| Income (loss) for the                period                                                      |                                           |                                                                  |   | 752 |   |   | (6,313 | ) |   | (31,925 | ) |
| Add items not involving                cash                                                      |                                           |                                                                  |  |  |  |  |  |  |  |  |  |
|     Extraordinary                gain                                        |                                           |                                                                  |   | (4,428 | ) |   | — |   |   | (4,428 | ) |
|     Depreciation and                amortization                             |                                           |                                                                  |   | 49 |   |   | 65 |   |   | 386 |   |
|     Stock-based                collaboration expense                         |                                           |                                                                  |   | — |   |   | — |   |   | 1,758 |   |
|     Stock-based                compensation *[note 7[c]]*               |                                           |                                                                  |   | 144 |   |   | 174 |   |   | 704 |   |
|     Accrued interest on                convertible debenture *[note 5]* |                                           |                                                                  |   | 319 |   |   | 22 |   |   | 512 |   |
| Changes in non-cash working                capital items                                         |                                           |                                                                  |   |  |   |   |  |   |  |  |  |
|     Amounts                receivable                                        |                                           |                                                                  |   | 197 |   |   | 97 |   |   | 119 |   |
|     Investment tax credit                recoverable                         |                                           |                                                                  |   | 521 |   |   | (750 | ) |   | (1,215 | ) |
|     Prepaid                expenses                                          |                                           |                                                                  |   | 75 |   |   | (68 | ) |   | (220 | ) |
|     Other                assets                                              |                                           |                                                                  |   | (734 | ) |   | (1 | ) |   | (746 | ) |
|     Accounts payable and                accrued liabilities                  |                                           |                                                                  |   | (1,797 | ) |   | 186 |   |   | (749 | ) |
|     Lease                obligation                                          |                                           |                                                                  |   | (17 | ) |   | — |   |   | (17 | ) |
|    Taxes                payable on preferred shares                               |                                           |                                                                  |   | (2,487 | ) |   | 796 |   |  | — |  |
|                                                                                                  |                                                |                                                                       |  |
| Cash used in operating                activities                                                 |                                           |                                                                  |   | (7,406 | ) |   | (5,792 | ) |   | (35,821 | ) |
|                                                                                                  |                                                |                                                                       |  |
| **FINANCING                ACTIVITIES**                                                          |                                           |                                                                  |  |  |  |  |  |  |  |  |  |
| Cash paid on fractional                shares eliminated on reverse share split                  |                                           |                                                                  |   | (3 | ) |   | — |   |   | (3 | ) |
| Proceeds from issuance of                common stock under employee benefit plans               |                                           |                                                                  |  | 6 |  |  | — |  |  | 6 |  |
| Issuance of preferred                shares, net of share issue costs                            |                                           |                                                                  |   | — |   |   | — |   |   | 26,719 |   |
| Issuance of common shares,                net of share issue costs                               |                                           |                                                                  |   | — |   |   | — |   |   | 146 |   |
| Issuance of convertible                debentures net of issue costs                             |                                           |                                                                  |   | — |   |   | 4,442 |   |   | 4,442 |   |
|                                                                                                  |                                                |                                                                       |  |
| Cash provided by financing                activities                                             |                                           |                                                                  |   | 3 |   |   | 4,442 |   |   | 31,310 |   |
|                                                                                                  |                                                |                                                                       |  |
| **INVESTING                ACTIVITIES**                                                          |                                           |                                                                  |  |  |  |  |  |  |  |  |  |
| Purchase of                investments                                                           |                                           |                                                                  |   | (4,343 | ) |   | (6,146 | ) |   | (88,520 | ) |
| Proceeds from sale of                investments                                                 |                                           |                                                                  |   | 8,473 |   |   | 8,351 |   |   | 94,781 |   |
| Purchase of property and                equipment                                                |                                           |                                                                  |   | (4 | ) |   | (12 | ) |   | (392 | ) |
| Cash received on investment                in Sonus                                              |                                           |                                                                  |   | 5,464 |   |   | — |   |   | 5,464 |   |
| Transaction fees on reverse                takeover of Sonus                                     |                                           |                                                                  |   | (807 | ) |   | — |   |   | (807 | ) |
|                                                                                                  |                                                |                                                                       |  |
| Cash provided by investing                activities                                             |                                           |                                                                  |   | 8,783 |   |   | 2,193 |   |   | 10,526 |   |
|                                                                                                  |                                                |                                                                       |  |
| Effect of exchange rate                changes on cash                                           |                                           |                                                                  |   | 42 |   |   | (325 | )  |   | 33 |   |
| Increase in cash and cash                equivalents during the period                           |                                           |                                                                  |   | 1,422 |   |   | 518 |   |   | 6,048 |   |
| Cash and cash equivalents,                beginning of the period                                |                                           |                                                                  |   | 4,626 |   |   | 1,853 |   |   | — |   |
|                                                                                                  |                                                |                                                                       |  |
| **Cash and cash                equivalents, end of the period**                                  |                                           |                                                                  |   | 6,048 |   |   | 2,371 |   |   | 6,048 |   |
|                                                                                                  |                                                |                                                                       |  |

 

See        accompanying notes.

 

3

 

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**OncoGenex Pharmaceuticals, Inc.**

**Notes        to Consolidated Financial Statements**

**(Unaudited)**

         

| **1.** | **NATURE OF BUSINESS AND BASIS OF PRESENTATION** |
|--------|--------------------------------------------------|

OncoGenex Pharmaceuticals, Inc. (the “Company” or        “OncoGenex”) is a development stage enterprise committed to the development and        commercialization of new cancer therapies. The Company was incorporated in the state of        Delaware and, together with its subsidiaries, has a facility in Bothell, Washington for        administrative, clinical and regulatory operations and an office in Vancouver, BC for        administrative, pre-clinical and manufacturing-related operations.

On August 21, 2008, Sonus Pharmaceuticals, Inc. (“Sonus”)        completed an arrangement with OncoGenex Technologies Inc., (“OncoGenex        Technologies”) whereby Sonus acquired all of the outstanding preferred shares, common        shares and convertible debentures of OncoGenex Technologies. Sonus changed its name to        OncoGenex Pharmaceuticals, Inc. and was listed on the Nasdaq Capital Market under the        ticker symbol OGXI. These consolidated financial statements account for the arrangement        between Sonus and OncoGenex Technologies as a reverse acquisition, whereby OncoGenex        Technologies is deemed to be the acquiring entity from an accounting        perspective.

         

The unaudited financial statements have been prepared in accordance with        generally accepted accounting principles for interim financial information and with the        instructions to Form 10-Q. Accordingly, they do not include all of the information and        footnotes required to be presented for complete financial statements. The accompanying        financial statements reflect all adjustments (consisting only of normal recurring items)        which are, in the opinion of management, necessary for a fair presentation of the results        for the interim periods presented. The accompanying Balance Sheet at December 31, 2007        has been derived from the audited financial statements of OncoGenex Technologies included        in the Company’s Proxy Statement on Schedule 14A filed with the Securities and        Exchange Commission (“SEC”) on July 3, 2008. The financial statements and        related disclosures have been prepared with the assumption that users of the interim        financial information have read or have access to the audited financial statements for the        preceding fiscal year. Accordingly, these financial statements should be read in        conjunction with the audited financial statements of OncoGenex Technologies for the year        ended December 31, 2007 and the related notes thereto included in the Company’s Proxy        Statement as noted above.

         

These consolidated financial statements include the accounts of the Company        and its wholly owned subsidiaries, OncoGenex Technologies and OncoGenex, Inc.        Inter-company accounts and transactions have been eliminated.

 

| **2.** | **REVERSE TAKEOVER** |
|--------|----------------------|

 

The consolidated financial statements account for the transaction between        Sonus and OncoGenex Technologies, whereby Sonus acquired all of the outstanding preferred        shares, common shares and convertible debentures of OncoGenex Technologies, as a reverse        takeover wherein OncoGenex Technologies is deemed to be the acquiring entity from an        accounting perspective. The consolidated results of operations of the Company include the        results of operations of OncoGenex Technologies for the full three and nine month periods        ended September 30, 2008 and the results of OncoGenex Pharmaceuticals, Inc. following the        completion of the transaction on August 21, 2008. The consolidated results of operations        for the three and nine month periods ended September 30, 2007 include only the consolidated        results of operations of OncoGenex Technologies and do not include historical results of        Sonus.

         

On August 12, 2008, OncoGenex Technologies’ stockholders approved the        transaction described above and on August 19, 2008, Sonus stockholders approved both the        transaction and a one-for-eighteen reverse stock split of its common stock. The reverse        stock split occurred immediately prior to the completion of the Arrangement Agreement.        Resulting fractional shares were eliminated. All information in this report relating to the        number of shares, price per share, and per share amounts of common stock are presented on a        post-split basis.

4

 

----

 

         

Under the purchase method of accounting, Sonus’ outstanding shares of        common stock were valued using the average closing price on Nasdaq of $5.04 for the two        days prior through to the two days subsequent to the announcement of the transaction on May        27, 2008. There were 2,059,898 shares of common stock outstanding, as adjusted for the        reverse stock split, on August 20, 2008, immediately prior to closing. The fair value of        the Sonus outstanding stock options were determined using the Black-Scholes option pricing        model with the following assumptions: stock price of $4.86, volatility of 57.67% to 89.48%,        risk-free interest rate of 1.73% to 3.89%, and expected lives ranging from 0.05 to 4.79        years. The fair value of the Sonus outstanding warrants were determined using the        Black-Scholes option pricing model with the following assumptions: stock price of $4.86,        volatility of 58.71%, risk-free interest rate 3.89%, and expected lives ranging from 0.99        to 1.08 years.

 

The preliminary purchase price is summarized as follows (in        thousands):

 

| Sonus common stock                         |   | 10,385 |
|--------------------------------------------|--------|--------|
| Fair value of options and warrants assumed |   | 71     |
| Transaction costs of OncoGenex             |   | 807    |
| Total purchase price                       |   | 11,263 |

 

Under the purchase method of accounting, the total purchase price as shown        in the table above is allocated to the Sonus net tangible and identifiable intangible        assets acquired and liabilities assumed based on their fair values as of the date of the        completion of the transaction. The preliminary purchase price allocation is as        follows:

         

|                                                                        |        |
|------------------------------------------------------------------------|--------|
| Cash                                                                   |   | 5,464 |   |
| Marketable                securities                                   |   | 14,808 |   |
| Accounts                receivable                                     |   | 6 |   |
| Interest                receivable                                     |   | 273 |   |
| Other current                assets                                    |   | 175 |   |
| Furniture and                equipment                                 |   | 1,186 |   |
| Other long term                assets                                  |   | 497 |   |
| Intangible                assets                                       |   | 280 |   |
| Accounts payable                                                       |   | (35 | ) |
| Accrued expenses excluding                severance payable            |   | (652 | ) |
| Severance payable to                employees as part of restructuring |   | (1,322 | ) |
| Severance payable to senior                executives                  |   | (1,440 | ) |
| Excess facility                loss                                    |   | (2,083 | ) |
| Negative                goodwill                                       |   | (5,894 | ) |
|                                                                        |        |   |
| Total purchase                price                                    |   | 11,263 |   |

In accordance with Statements of Financial Accounting Standards        (“SFAS”) SFAS 141, “Business Combinations” any excess of fair value        of acquired net assets over purchase price (negative goodwill) has been recognized as an        extraordinary gain in the period the transaction was completed. The excess has been        allocated as a pro rata reduction of the amounts that otherwise would have been assigned to        the non-current acquired assets. Prior to allocation of the excess negative goodwill        OncoGenex has reassessed whether all acquired assets and assumed liabilities have been        identified and recognized and performed remeasurements to verify that the consideration        paid, assets acquired, and liabilities assumed have been properly valued. The remaining        excess has been recognized as an extraordinary gain. Any subsequent adjustments to the        extraordinary gain resulting from the changes to the purchase price allocation shall be        recognized as an extraordinary item. The allocation of the purchase price of the net assets        acquired is preliminary and may vary based upon finalization of additional valuation        procedures.

 

The preliminary pro rata reduction of non-current and intangible assets        acquired is as follows (in thousands):

 

| Negative goodwill        |   | (5,894)     |
|--------------------------|--------|-------------|
| Furniture and equipment  |   | 1,186  |
| Intangible assets        |   | 280    |
| Excess negative goodwill |   | (4,428)     |

 

5

         

----

 

 

*Pro        Forma Results of Operations*

 

The results of operations of Sonus are included in OncoGenex’        consolidated financial statements from the date of the completion of the transaction on        August 21, 2008. The following table presents pro forma results of operations and gives        effect to the business combination transaction as if the transaction was consummated at the        beginning of the period presented. The unaudited pro forma results of operations are not        necessarily indicative of what would have occurred had the business combination been        completed at the beginning of the retrospective periods or of the results that may occur in        the future.

         

|                                                                 | For the three                months ended                September 30,                2008 | For the nine                months ended                September 30,                2008 | For the three                months ended                September 30,                2007 | For the nine                months ended                September 30,                2007 |
|-----------------------------------------------------------------|--------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------|
|                                                                 |                                                                                            |                                                                                           |                                                                                            |                                                                                           |
| (in thousands, except shares                and loss per share) |
| Revenue                                                         |                                                                                       |                                                                                      |                                                                                  | —                                                                                   |   |   | — |   |   | 4,079 |   |   | 12,401 |   |
| Net loss applicable to                common shareholders       |                                                                                       |                                                                                      |                                                                                            | (9,716                                                                                    | ) |  | (21,241 | ) |  | (7,723 | ) |  | (21,262 | ) |
| Net loss per share-basic and                diluted             |                                                                                       |                                                                                      |                                                                                       | (4.72                                                                                     | ) |   | (27.59 | ) |   | (65.01 | ) |   | (178.97 | ) |
| Weighted average                shares                          |                                                                                       |                                                                                      |                                                                                       | 2,056,876                                                                                 |   |   | 769,843 |   |   | 118,801 |   |   | 118,801 |   |

| **3.** | **ACCOUNTING POLICIES** |
|--------|-------------------------|

         

The accompanying consolidated financial statements have been prepared in        accordance with United States generally accepted accounting principles and are expressed in        U.S. dollars unless otherwise noted.

         

**Significant Accounting Policies**

 

*Use of        Estimates*

 

The preparation of consolidated financial statements in conformity with        United States generally accepted accounting principles requires management to make        estimates and assumptions that affect the amounts reported in the consolidated financial        statements and notes thereto. Actual results could differ from those estimates.

         

*Cash and        Cash Equivalents*

         

The Company considers all highly liquid investments with an original        maturity of three months or less to be cash equivalents, which the Company considers as        available for sale and are carried at market value with unrealized gains and losses, if        any, reported as accumulated other comprehensive income or loss, which is a separate        component of shareholders’ equity (deficiency).

         

*Short-Term Investments*

         

Short-term investments consist of financial instruments purchased with an        original maturity of greater than three months and less than one year. The Company        considers its short-term investments as available-for-sale and they are carried at market        value with unrealized gains and losses, if any, reported as accumulated other comprehensive        income or loss, which is a separate component of shareholders’ equity (deficiency).        Realized gains and losses on the sale of these securities are recognized in net income or        loss. The cost of investments sold is based on the specific identification        method.

*Property and Equipment*

Property and equipment assets are recorded at cost less accumulated        amortization. Amortization is provided on a straight-line basis over the following        periods:

 

| Computer equipment     |   | 3 years               |
|------------------------|--------|----------------------------|
| Computer software      |   | 3 years               |
| Furniture and fixtures |   | 5 years               |
| Leasehold improvements |   | Over the term of the lease |

6

 

----

 

 

*Reporting Currency and Foreign Currency Translation*

 

Effective August 21, 2008, the Company changed its functional currency from        the Canadian dollar to the U.S. dollar. With the acquisition of Sonus (Note 2), the        Company’s primary economic environment has now changed from Canada to the United        States. This has resulted in significant changes in economic facts and circumstances that        clearly indicate that the functional currency has changed. The Company accounted for the        change in functional currency prospectively.

         

The financial statements of the Company for the year ended December 31, 2007        which is based on the Canadian functional currency, has been translated into the U.S.        reporting currency using the current rate method as allowed by SFAS No.52, “Foreign        Currency Translation”, (“SFAS 52”) as follows:  assets and        liabilities using the rate of exchange prevailing at the balance sheet date;        stockholders’ deficiency using the applicable historic rate; and revenue and expenses        using the monthly average rate of exchange. Translation adjustments have been included as        part of the accumulated other comprehensive income.

         

*Income        Taxes*

 

Income taxes are accounted for under the liability method. Deferred tax        assets and liabilities are recognized for the differences between the carrying values of        assets and liabilities and their respective income tax bases and for operating losses and        tax credit carry forwards. A valuation allowance is provided for the portion of deferred        tax assets that is more likely than not to be unrealized. Deferred tax assets and        liabilities are measured using the enacted tax rates and laws.

 

*Scientific Research and Development Tax Credits*

 

The benefits of tax credits for scientific research and development        expenditures are recognized in the year the qualifying expenditure is made providing there        is reasonable assurance of recoverability. The tax credits recorded are based on        management’s estimates of amounts expected to be recovered and are subject to audit        by taxation authorities. The refundable tax credit reduces the carrying cost of        expenditures for research and development expenses to which it relates. The non-refundable        tax credit reduces the tax provision.

         

*Research        and Development Costs*

 

Research and development costs are expensed as incurred, net of related        refundable investment tax credits, with the exception of non-refundable advanced payments        for goods or services to be used in future research and development, which are capitalized        in accordance with Emerging Issues Task Force (“EITF”) issued EITF Issue 07-03,        “Accounting for Advance Payments for Goods or Services to Be Used in Future Research        and Development” and included within Other Assets.

         

Clinical trial expenses are a component of research and development costs.        These expenses include fees paid to contract research organizations and investigators and        other service providers, which conduct certain product development activities on our        behalf. The Company uses an accrual basis of accounting, based upon estimates of the amount        of service completed. In the event payments differ from the amount of service completed,        prepaid expense or accrued liabilities amounts are adjusted on the balance sheet. These        expenses are based on estimates of the work performed under service agreements, milestones        achieved, patient enrolment and experience with similar contracts. The Company monitors        each of these factors to the extent possible and adjusts estimates accordingly.

         

*Stock-Based Compensation*

 

Effective January 1, 2006, the Company adopted the fair value        recognition provisions of the Financial Accounting Standards Board (“FASB”)        Statement No. 123(R) (or SFAS 123(R)), “Share-Based Payment”, using        the modified prospective method with respect to options granted to employees and directors.        Under this transition method, compensation cost is recognized in the financial statements        beginning with the effective date for all share-based payments granted after        January 1, 2006 and for all awards granted prior to but not yet vested as of        January 1, 2006. The expense is amortized on a straight-line basis over the vesting        period. Accordingly, prior period amounts have not been restated.

7

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*Comprehensive Income (Loss)*

 

Comprehensive income (loss) is comprised of net income (loss) and other        comprehensive income (loss). Other comprehensive income (loss) consists of translation        adjustments from the application of U.S. dollar reporting and unrealized gains and losses        on the Company’s available-for-sale marketable securities. The Company has reported        the components of comprehensive loss in the statement of shareholders’        deficiency.

         

*Income        (Loss) per Common Share*

 

Basic loss per common share is computed using the weighted average number of        common shares outstanding during the period adjusted to reflect the equivalent OncoGenex        Pharmaceuticals shares and equity structure, excluding shares held in escrow, if any. Prior        to the completion of the transaction on August 21, 2008 the weighted average number of        common shares represents OncoGenex Technologies only. Diluted loss per common share is        computed in accordance with the treasury stock method which uses the weighted average        number of common shares outstanding during the period and includes the dilutive effect of        potentially issuable common shares from outstanding stock options and convertible preferred        shares and debentures. Diluted loss per common share is equivalent to basic loss per common        share for all periods presented as the outstanding stock options and convertible preferred        shares and debentures are anti-dilutive.

         

**Recently        Adopted Accounting Policies**

 

Effective January 1, 2008, the Company adopted SFAS No. 157        “Fair Value Measurements”. In February 2008, the FASB issued FASB Staff        Position No. FAS 157-2, “Effective Date of FASB Statement No. 157 , which        provides a one year deferral of the effective date of SFAS No. 157 for non-financial        assets and non-financial liabilities, except those that are recognized or disclosed in the        financial statements at fair value at least annually. In October 2008, the FASB issued FASB        Staff Position No. SFAS 157-3, “Determining the Fair Value of a Financial Asset        When the Market for That Asset Is Not Active,” which clarifies the application of        SFAS 157 for markets that are not active and illustrates key considerations in determining        the fair value of a financial asset when the market for that financial asset is not active.        The Company adopted the provisions of SFAS No. 157 on a prospective basis for        financial assets and liabilities which require that the Company determine the fair value of        financial assets and liabilities using the fair value hierarchy established in SFAS        No. 157. The adoption of SFAS No. 157 did not have a material impact on the        Company’s results of operations and financial condition as of and for the three and        nine months ended September 30, 2008 however, this change may have an impact on financial        condition and the results of operations in future periods.

         

Effective January 1, 2008 the Company adopted SFAS No. 159,        “The Fair Value Option for Financial Assets and Financial Liabilities.” The        fair value option established by SFAS 159 permits, but does not require, all entities        to choose to measure eligible items at fair value at specified election dates. An entity        would report unrealized gains and losses on items for which the fair value option has been        elected in earnings at each subsequent reporting date. The adoption of SFAS 159        effective January 1, 2008 has not impacted the Company’s financial position and        results of operations.

         

In June 2007, the Emerging Issues Task Force issued EITF Issue 07-03,        “Accounting for Advance Payments for Goods or Services to Be Used in Future Research        and Development,” or EITF No. 07-03. EITF No. 07-03 addresses the diversity        which exists with respect to the accounting for the non-refundable portion of a payment        made by a research and development entity for future research and development activities.        Under EITF No. 07-03, an entity would defer and capitalize non-refundable advance        payments made for research and development activities until the related goods are delivered        or the related services are performed. EITF No. 07-03 is effective for fiscal years        beginning after December 15, 2007 and interim periods within those years. Adoption of        EITF No. 07-03 effective January 1, 2008 on a prospective basis has not resulted        in an adjustment to the Company’s financial statements.

         

**Recent        Accounting Pronouncements**

 

In November 2007, the Emerging Issues Task Force issued EITF Issue 07-01,        “Accounting for Collaborative Arrangements,” or EITF No. 07-01. EITF        No. 07-01 requires collaborators to present the results of activities for which they        act as the principal on a gross basis and report any payments received from (made to) other        collaborators based on other applicable GAAP or, in the absence of other applicable GAAP,        based on analogy to authoritative accounting literature or a reasonable, rational, and        consistently applied accounting policy election.

8

----

                     Further,        EITF No. 07-01 clarified that the determination of whether transactions within a        collaborative arrangement are part of a vendor-customer (or analogous) relationship subject        to Issue 01-9, Accounting for Consideration Given by a Vendor to a Customer. EITF        No. 07-01 is effective for fiscal years beginning December 15, 2008. The Company        has not yet completed its evaluation of EITF 07-01, but does not currently believe        that it will have a material impact on the consolidated financial position, results of        operations or cash flows.

         

In December 2007, the FASB issued SFAS No. 141 (Revised 2007),        “Business Combinations,” or SFAS No. 141R. SFAS No. 141R will change        the accounting for business combinations. Under SFAS No. 141R, an acquiring entity        will be required to recognize all the assets acquired and liabilities assumed in a        transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R        will change the accounting treatment and disclosure for certain specific items in a        business combination. SFAS No. 141R applies prospectively to business combinations for        which the acquisition date is on or after the beginning of the first annual reporting        period beginning on or after December 15, 2008. The Company has not yet completed its        evaluation of the potential impact, if any, of the adoption of SFAS No. 141R but does        not currently believe that it will have a material impact on the consolidated financial        position, results of operations or cash flows.

         

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling        Interests in Consolidated Financial Statements - An Amendment of ARB No. 51,” or        SFAS No. 160. SFAS No. 160 establishes new accounting and reporting standards for        the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.        SFAS No. 160 is effective for fiscal years beginning on or after December 15,        2008. The Company has not yet completed its evaluation of the potential impact, if any, of        the adoption of SFAS No. 160, but does not currently believe that it will have a        material impact on the consolidated financial position, results of operations or cash        flows.

         

In March 2008, the FASB issued SFAS No. 161, “Disclosures about        Derivative Instruments and Hedging Activities.” SFAS No. 161 amends and expands        the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and        Hedging Activities. It requires qualitative disclosures about objectives and strategies for        using derivatives, quantitative disclosures about fair value amounts of gains and losses on        derivative instruments, and disclosures about credit-risk-related contingent features in        derivative agreements. In September 2008, the FASB issued FASB Staff Position        (“FSP”) FSP FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives        and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No.        45; and Clarification of the Effective Date of FASB Statement No. 161”. This FSP        amends FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging        Activities”, to require disclosures by sellers of credit derivatives, including        credit derivatives embedded in a hybrid instrument. This FSP also amends FASB        Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for        Guarantees, Including Indirect Guarantees of indebtedness of Others”, to require an        additional disclosure about the current status of the payment/performance risk of a        guarantee. Further, this FSP clarifies the Board’s intent about the effective date of        FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging        Activities”. This statement is effective for financial statements issued for fiscal        years beginning after November 15, 2008. The Company has not yet completed its        evaluation of the impact of this pronouncement, but does not currently believe that it will        have a material impact on the consolidated financial position, results of operations or        cash flows.

         

In May 2008, the FASB issued FASB FSB Accounting Principles Board        (“APB”) Opinion No. 14-1, “Accounting for Convertible Debt        Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash        Settlement)” (“FSB APB 14-1”). The FSP will require cash settled        convertible debt to be separated into debt and equity components at issuance and a value to        be assigned to each. The value assigned to the debt component will be the estimated fair        value, as of the issuance date, of a similar bond without the conversion feature. The        difference between the bond cash proceeds and this estimated fair value will be recorded as        a debt discount and amortized to interest expense over the life of the bond. FSP        APB 14-1 will become effective January 1, 2009. The Company has not yet completed        its evaluation of the impact of this pronouncement, but does not currently believe that it        will have a material impact on the consolidated financial position, results of operations        or cash flows.

         

In May 2008, the FASB issued SFAS No. 162 “The Hierarchy of        Generally Accepted Accounting Principles” (“SFAS 162”).        SFAS 162 identifies the sources of accounting principles and the framework for        selecting the principles to be used in the preparation of financial statements of        nongovernmental entities that are presented in conformity with generally accepted        accounting principles in the United States. SFAS 162 is effective sixty days following        the SEC’s approval of PCAOB amendments to AU Section 411, “The Meaning of        ‘Present fairly in conformity with generally accepted accounting        principles.’ ” The Company is currently evaluating the potential impact,        if any, of the adoption of SFAS 162 on its consolidated financial        statements.

         

9

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| **4.** | **FAIR VALUE MEASUREMENTS** |
|--------|-----------------------------|

         

With the adoption of SFAS No. 157, beginning January 1, 2008,        assets and liabilities recorded at fair value in the balance sheets are categorized based        upon the level of judgment associated with the inputs used to measure their fair value. For        certain of the Company’s financial instruments including cash and cash equivalents,        amounts receivable, and accounts payable the carrying values approximate fair value due to        their short-term nature.

         

SFAS No. 157 specifies a hierarchy of valuation techniques based on        whether the inputs to those valuation techniques are observable or unobservable. In        accordance with SFAS No. 157, these inputs are summarized in the three broad levels        listed below:

         

|   | **•** | Level 1 – | Quoted prices in active markets for identical                    securities; |
|--------|------------|-----------------|------------------------------------------------------------------------------|

         

|   | **•** | Level 2 – | Other significant observable inputs that are observable through                    corroboration with market data (including quoted prices in active markets for                    similar securities); |
|--------|------------|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | Level 3 – | Significant unobservable inputs that reflect management’s                    best estimate of what market participants would use in pricing the asset or                    liability. |
|--------|------------|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

In determining the appropriate levels, the Company performed a detailed        analysis of the assets and liabilities that are subject to SFAS No. 157. The following        table presents information about our assets and liabilities that are measured at fair value        on a recurring basis as of September 30, 2008, and indicates the fair value hierarchy        of the valuation techniques we utilized to determine such fair value:

         

|                                           | Level 1  | Level 2 | Level 3  |
|-------------------------------------------|---------------|---------|---------------|
|                                           |               |         |               |
| Corporate debt                securities  |          |    | $             | — |   | $ | 8,149,253 |   | $ | — |   |
| Government debt                securities |          |    | $             | — |   | $ | 2,981,091 |   | $ | — |   |
| Asset-backed                securities    |          |    | $             | — |   | $ | — |   | $ | — |   |
|                                           |               |         |               |
|                                      |          |    | $             | — |   | $ | 11,130,344 |   | $ | — |   |

 

| **5.** | **CONVERTIBLE DEBENTURES** |
|--------|----------------------------|

         

On September 19, 2007, OncoGenex Technologies issued $4,500,000 in        convertible debentures to certain existing shareholders bearing interest at an average rate        of 14.9% per annum and maturing on March 31, 2008. On March 6, 2008 the maturity date        was extended to June 30, 2008 and on June 10, 2008 the maturity date was extended to        September 30, 2008. The extensions did not have a material impact on the fair value of the        debentures. The convertible debentures were collateralized by a general security agreement        on all the assets of OncoGenex Technologies.

         

As at August 20, 2008, the OncoGenex Technologies convertible debenture        outstanding balance of principal and accrued interest was $5,011,706. As part of the        reverse takeover transaction (Note 2), Sonus agreed to issue shares of common stock in        exchange for the common stock, preferred shares and convertible debentures of OncoGenex        Technologies. As a result, all convertible debentures of OncoGenex Technologies are now        held by OncoGenex Pharmaceuticals, Inc. and have been eliminated on        consolidation.

         

| **6.** | **REDEEMABLE CONVERTIBLE PREFERRED SHARES** |
|--------|---------------------------------------------|

 

| **[a]** | **Authorized** |
|---------|----------------|

 

Unlimited number of Class A preferred voting shares, issuable in        series, no par value

Unlimited number of Class B preferred voting shares, issuable in        series, no par value

         

| **[b]** | **Issued and Outstanding Shares** |
|---------|-----------------------------------|

         

From December 2001 through October 2002, the Company issued        848,805 Class A Series 1 and 2 Redeemable Convertible Preferred Shares for net        proceeds of $2,488,000. From September 2003 through August 2005, the Company        issued 8,945,448 Class B Series 1 and 2 Redeemable Convertible Preferred Shares        for net proceeds of $25,729,000, consisting of cash of $24,231,000 and payment of        collaboration expenses of $1,498,000.

10

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The Class A preferred shares, Series 1 and Series 2, are retractable at the        option of the holder behind the Class B preferred shares with such right becoming effective        after August 10, 2010 and on not less than 120 days notice by holders of not less than 50%        of the outstanding respective Class A preferred shares, Series 1 or Series 2, and provided        that no Class B preferred shares, Series 1 and Series 2, are then outstanding.

         

The retraction price for the Class A preferred shares, Series 1 and Series        2, and the Class B preferred shares, Series 1 and Series 2 is equal to the issue price for        such shares plus a preferred return adjustment (being an amount required to generate an 8%        annual cumulative return for the holder of such shares). In the event that holders of Class        A and Class B preferred shares are paid the cumulative preferred return adjustment referred        to above, the Company would become liable for payment of taxes under Part VI.1 of the        Income Tax Act (Canada) which is calculated at 25% of the amount paid in excess of CAD        $500,000. Consequently, OncoGenex recordedan income tax expense to reflect the potential        tax liability in the event that a preferred return adjustment is required to be paid        out.

         

As at August 20, 2008, the OncoGenex Technologies Class A balance of        principal and accretion was $4,634,319 and the Class B balance of principal and accretion        was $34,710,910, while tax payable in relation to the potential Part VI.1 tax was        $2,628,384. As part of the arrangement (Note 2), Sonus agreed to issue shares of common        stock in exchange for all the outstanding securities of OncoGenex Technologies, including        common stock, preferred shares and convertible debentures. On September 19, 2008, all        preferred shares of OncoGenex Technologies then held by OncoGenex Pharmaceuticals, Inc.        were converted into common shares of OncoGenex Technologies and eliminated on        consolidation. As there are no longer any preferred shares outstanding of OncoGenex        Technologies, there is no longer a risk that the Company will have to pay Part VI.1 tax;        therefore, the payable has been eliminated, resulting in a non-cash income tax expense        recovery of $2,628,384.

 

| **7.** | **COMMON SHARES** |
|--------|-------------------|

 

| **[a]** | **Authorized** |
|---------|----------------|

         

Unlimited number of common voting shares, no par value.

         

| **[b]** | **Issued and Outstanding Shares** |
|---------|-----------------------------------|

         

As at August 20, 2008, there were 118,801 common shares of OncoGenex        Technologies (on a post-conversion basis) and 2,059,898 shares of common stock of Sonus        outstanding. As part of the arrangement (Note 2), Sonus agreed to issue 3,449,393 shares of        common stock, before accounting for the elimination of resulting fractional shares, in        exchange for all the common shares, preferred shares and convertible debentures. As a        result, all common shares of OncoGenex Technologies are now held by OncoGenex        Pharmaceuticals, Inc. and have been eliminated on consolidation.

         

*Escrow        Shares*

 

As part of the transaction (Note 2), 1,388,875 of the shares of common stock        issued to the holders of OncoGenex Technologies securities were placed into escrow at the        closing of the transaction and are to be released from escrow upon the achievement of        certain agreed-upon milestones relating to OncoGenex product candidates OGX-011, OGX-427        and OGX-225 and the future price of our common stock. The milestone shares were issued and        placed into escrow at the closing of the transaction. If the milestone shares are not        earned within six (6) years after the closing of the arrangement, they will be returned for        cancellation.

         

On July 24, 2008, the Company announced the completion of a Special Protocol        Assessment on the patient population, study design, trial endpoints, statistical analyses        and size of a registration clinical trial with OGX-011. The achievement of this milestone        resulted in the release of 25% (347,237) of the shares held in escrow.

         

11

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| **[c]** | **Stock options**  |
|---------|-------------------------|

 

*OncoGenex Technologies Inc. Stock Option Plan*

         

In September 2003, the Board of Directors of OncoGenex Technologies        approved an amended stock option plan (the “OncoGenex Technologies Plan”),        which was an amendment of the stock option plan first established in October 2001.        This plan was subsequently approved by shareholders on August 12, 2008. Under this plan,        the Company may grant options to purchase common shares in the Company to employees,        directors, officers, and consultants of the Company. The exercise price of the options is        determined by the Board but generally will be at least equal to the fair value of the        shares at the grant date.

         

The options vest in accordance with terms as determined by the Board,        typically over three years for options issued to employees. The expiry date for each option        is set by the Board with a maximum expiry date of seven years and a minimum expiry of five        years from the date of grant.

         

On August 21, 2008, under the arrangement (Note 2), each option to purchase        shares of OncoGenex Technologies common stock (“OncoGenex Technologies Option”)        was exchanged for an option to purchase shares of OncoGenex Pharmaceuticals, Inc. common        stock. Specifically, each OncoGenex Technologies Option was exchanged for an option to        purchase the amount of shares of common stock of OncoGenex Pharmaceuticals, Inc. equal to        the product of (a) the share exchange ratio of the arrangement (“Share Exchange        Ratio”), as adjusted by the one-for-eighteen reverse stock split, (b) multiplied by        the number of OncoGenex Technologies shares of common stock subject to each OncoGenex        Technologies Option. The exercise price of each OncoGenex Technologies Option was also        adjusted to an amount equal to the product of (x) the exercise price per share of each        OncoGenex Technologies Option immediately prior to the effective time of the arrangement,        (y) divided by the Share Exchange Ratio, as adjusted by the one-for-eighteen reverse stock        split, (z) multiplied by the noon buying rate of exchange for one U.S. dollar in Canadian        dollars as published by the Federal Reserve Bank of New York on the date immediately prior        to the arrangement.

         

*Sonus        Option Plans*

         

Prior to the reverse takeover, Sonus had options outstanding under a number        of share option plans that had been approved by shareholders, (a) the Incentive Stock        Option, Nonqualified Stock Option and Restricted Stock Purchase Plan – 1991        (‘‘1991 Plan’’), (b) the 1999 Nonqualified Stock Incentive Plan        (‘‘1999 Plan’’), (c) the 2000 Stock Incentive Plan        (‘‘2000 Plan’’), and (d) the 2007 Performance Incentive Plan        (“2007 Plan”) (collectively referred to as the ‘‘Sonus        Plans’’).

         

As a result of certain change of control provisions in the 1999 Plan and the        2000 Plan, all outstanding options granted under those plans were cancelled immediately        prior to the reverse takeover. Similarly, as a result of a change of control provision in        the 2007 Plan, vesting of options granted under that plan was accelerated and all        outstanding options granted under that plan became fully vested immediately prior to the        reverse takeover. No changes were made to the 1991 Plan. All outstanding options issued        under the 1991 Plan were fully vested prior to the transaction.

         

All options to purchase common shares under the Sonus Plans have been        adjusted to reflect the one-for-eighteen reverse stock split.Because        this modification was designed to equalize the fair value of an award before and after an        equity restructuring, no incremental compensation cost is recognized.

         

*Stock        Option Summary*

         

As at September 30, 2008 the Company has reserved, pursuant to various        plans, 925,124 common shares for issuance of stock options to employees, directors,        officers and consultants of the Company of which 524,137 [December 31, 2007 - 90,683]        are available for future issuance.

Stock option transactions and the number of share options outstanding, after        giving effect to the adjustments made to the OncoGenex Technologies Plan options and Sonus        Plans options described above, are summarized below:

 

12

 

----

 

 

|                                                     | Shares Available                for Grant | Number of                Optioned                Common Shares | Weighted Average                Exercise Price |
|-----------------------------------------------------|-------------------------------------------|----------------------------------------------------------------|------------------------------------------------|
|                                                     |                                           |                                                                |                                                |
|                                                     |                                           | #                                               |                                      | #    |  | $    |  |
| **Balance,                December 31, 2007**  |                                      | 90,683                                                         |                                           | 324,026 |   | 4.63 |   |
| Additions from Sonus Option                Plans    |                                      | 427,906                                                        |                                           | 97,972 |   | 27.57 |   |
| Option exercises                                    |                                      | —                                                        |                                           | (4,352 | ) | 1.30 |   |
| Option cancellations and                expirations |                                      | 5,548                                                          |                                           | (16,659 | ) | 82.33 |   |
|                                                     |                                           |                                                                |                                                |
| **Balance, September 30,                2008**      |                                      | 524,137                                                        |                                           | 400,987 |   | 7.04 |   |
|                                                     |                                           |                                                                |                                                |

There were no options granted during the three and nine months ending        September 30, 2008.

The results for the periods set forth below included share-based        compensation expense in the following expense categories of the consolidated statements of        operations:

         

|                                               | Three Months Ended                September 30, | Nine Months Ended                September 30, |
|-----------------------------------------------|-------------------------------------------------|------------------------------------------------|
|                                               |                                                 |                                                |
||
| Research and                development       |                                            | 19,686                                         |   |      22,207 |   |   61,382 |   | 79,392 |   |
| General and                administrative     |                                            |   15,216                             |   | 54,615 |   |  82,557 |   | 95,884 |   |
|                                               |                                                 |                                                |  |  |
| Total share-based                compensation |                                            |   34,902                             |   | 76,822 |   | 143,939 |   | 175,276 |   |
|                                               |                                                 |                                                |  |  |

 

As at September 30, 2008 and December 31, 2007 the total unrecognized        compensation expense related to stock options granted is $48,700 and $195,000 respectively,        which is expected to be recognized into expense over a period of approximately three        years.

         

| **[d]** | **Loss per Common Share** |
|---------|---------------------------|

 

Weighted average common shares outstanding for prior periods have been        restated to reflect the change in capital structure resulting from the transaction with        Sonus.

 

|                                                                                 | Three Months Ended                September 30, | Nine Months Ended                September 30, |
|---------------------------------------------------------------------------------|-------------------------------------------------|------------------------------------------------|
||
| **Numerator**                                                                   |                                            |                                           |   |  |   |   |  |   |   |  |   |   |  |   |
| Income (loss) attributable                to common shareholders as reported    |                                            |                                           | $ | 4,160,000 |   | $ | (2,665,000 | ) | $ | (1,221,000 | ) | $ | (8,469,000 | ) |
| **Denominator**                                                                 |                                            |                                           |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                            |                                            |                                           |  |  |  |  |  |  |  |  |  |  |  |  |
| Weighted average number of                common shares outstanding             |                                            |                                           |   | 2,056,876 |   |   | 118,801 |   |   | 769,843 |   |   | 118,801 |   |
|                                                                            |                                            |                                           |  |  |  |  |  |  |  |  |  |  |  |  |
| **Basic and diluted income                (loss) per common share**             |                                            |                                           | **$** | **2.02** | ** ** | **$** | **(22.43** | **)** | **$** | **(1.59** | **)** | **$** | **(71.29** | **)** |
|                                                                            |                                            |                                           |  |  |  |  |  |  |  |  |  |  |  |  |
| Earnings per share                associated with $4,428,000 extraordinary gain |                                            |                                           | $ | 2.15 |   | $ | — |   | $  | 5.75 |  | $  | — |   |
|                                                                            |                                            |                                           |  |  |  |  |  |  |  |  |  |  |  |  |
| **Basic and diluted income                (loss) per common share excluding**   |                                            |                                           | **$** | **(0.13** | **)** | **$** | **(22.43** | **)** | **$** | **(7.34** | **)** | **$** | **(71.29** | **)** |
| **extraordinary                gain**                                           |                                            |                                           |  |  |  |  |  |  |  |  |  |  |  |  |

 

13

----

| **8.** | **SEVERANCE CHARGES AND OTHER RESTRUCTURING                    ACTIVITIES** |
|--------|-----------------------------------------------------------------------------|

 

As a requirement for the closing of the transaction, Sonus terminated the        employment of two senior executives. Severance payable at the date of the transaction was        $1,439,319 and has been accounted for in accordance with EITF No.        95-3*, “Recognition of Liabilities in Connection with a        Purchase Business Combination”*as part of the purchase        price allocation (Note 2). The severance payable was settled following the completion of        the transaction and the amount owing at September 30, 2008 was nil.

         

On August 21, 2008, immediately following the completion of the transaction        (Note 2), the Company reduced workforce by approximately 49% in order to implement        cost-savings measures to preserve cash while focusing on its highest potential product        development programs. The Company estimates that all severance liabilities relating to        transaction-related workforce reductions will be paid out by February 2009. Severance        payable at the date of the restructuring in connection with former employees of Sonus was        $1,322,296 and has been accounted for in accordance with EITF No.        95-3*, “Recognition of Liabilities in Connection with a        Purchase Business Combination”*as part of the purchase        price allocation (Note 2).

         

Prior to the Arrangement, Sonus entered into a non-cancellable lease        arrangement for office space located in Bothell, Washington, which is considered to be in        excess of the Company’s current requirements. The final plan for this space has not        yet been determined by management, but will likely involve a sublease arrangement or exit        of lease space. The Company has recognized a restructuring charge of $2,039,156 in relation        to the estimated fair value of the liability remaining with respect to excess facilities.        The liability is computed as the present value of the difference between the remaining        lease payments due less the estimate of net sublease income and expenses and has been        accounted for in accordance with EITF No. 95-3*, “Recognition        of Liabilities in Connection with a Purchase Business Combination”*as part of the purchase price allocation (Note 2). This represents the        Company’s best estimate of the fair value of the liability. Subsequent changes in the        liability due to accretion, or changes in estimates of sublease assumptions, etc. will be        recognized as adjustments to restructuring charges in future periods.

         

| **9.** | **INCOME TAXES** |
|--------|------------------|

         

The Company accounts for income taxes under the liability method. Under this        method, deferred tax assets and liabilities are determined based on the difference between        the financial statement and tax bases of assets and liabilities using enacted tax rates in        effect for the year in which the differences are expected to affect taxable income.        Valuation allowances are established when necessary to reduce deferred tax assets to the        amounts expected to be realized.

         

The Company applies FASB Interpretation No. 48 “Accounting for        Uncertainty in Income Taxes “ (“FIN 48”) in accounting for uncertainty in        income taxes recognized in a company’s financial statements. FIN 48 prescribes a        minimum probability threshold a tax position is required to meet before being recognized in        the financial statements. It also provides guidance on derecognition, measurement,        classification, interest and penalties, accounting in interim periods as well as disclosure        and transition.

         

For the three and nine month periods ended September 30, 2008 we recorded an        income tax expense (recovery) of $(2.5) million and $(2.1) million compared to an income        tax expense (recovery) of $0.2 million and $0.6 million for the three and nine month        periods ended September 30, 2007. The income tax recovery for the three and nine months        ended September 30, 2008 is due to the reversal of $2.6 million of Part VI.1        taxes.

         

Under FIN 48, the benefit of an uncertain tax position that is more        likely than not of being sustained upon audit by the relevant taxing authority must be        recognized at the largest amount that is more likely than not to be sustained. No portion        of the benefit of an uncertain tax position may be recognized if the position has less than        a 50% likelihood of being sustained.

 

A reconciliation of the unrecognized tax benefits of uncertain tax positions        for the year ended December 31, 2007 is as follows:

 

|                                                                               |   | **                      $** |
|------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
| Balance as of January 1, 2007                                                 |   | 398,000                                                                                                                                   |
| Additions based on tax positions related to the current                    year    |   | 216,000                                                                                                                                   |
|                                                                               |   |                                                                                                                                           |
| Balance as of December 31, 2007                                               |   | 614,000                                                                                                                                   |
| Reductions based on tax positions concluded in the current                    year |   | (270,000)                                                                                                                                 |
|                                                                               |   |                                                                                                                                           |
| Balance as of September 30, 2008                                              |   | 344,000                                                                                                                                   |
|                                                                               |   |                                                                                                                                           |

 

14

----

As of December 31, 2007, unrecognized benefits of approximately        $614,000, if recognized, would affect the Company’s effective tax rate. Subsequent to        December 31, 2007, an audit of the eligibility of expenditures claimed for Canadian        scientific research and development tax credits for the year ended December 31, 2006        was concluded. As a result, the balance of unrecognized tax benefits for uncertain tax        positions decreased by $270,000.

         

| **10.** | **COMMITMENTS AND CONTINGENCIES** |
|---------|-----------------------------------|

 

*Bayer        HealthCare LLC*

         

On August 7, 2008, Sonus completed an exclusive in-licensing agreement with        Bayer HealthCare LLC for development of a family of compounds known as caspase activators        presently in preclinical research.Under terms of the agreement,        Sonus was granted exclusive rights to develop two core compounds for all prophylactic and        therapeutic uses in humans. Additionally, Sonus was granted rights to all other non-core        compounds covered under the patents for use in oncology.

         

Under the terms of the agreement, Bayer received an upfront license fee of        $450,000. OncoGenex will make annual payments to Bayer on the anniversary date        (“Anniversary Payments”), with an initial payment of $100,000. The payments        will increase by $25,000 each year until the initiation of the first Phase 3 clinical        trial, at which point the Anniversary Payments reset to $100,000 each year and increase by        $25,000 until the Company achieves either the first New Drug Application filing in the        United States or the European Union. OncoGenex is obligated to pay royalties ranging from        3.5% to 7.5% of net future product sales and aggregate payments of up to $14,000,000 for        clinical development and regulatory milestones. No milestone payments are triggered prior        to the initiation of a Phase 3 clinical trial.

         

*Lease        Arrangements*

         

The Company has an operating lease agreement for office space in Vancouver,        Canada, which expires in September 2009, with an option for the Company to terminate        the lease at any point after September 2007, subject to a declining termination fee        which is limited to a maximum of $34,000, and with an option to renew through 2014 at the        then fair market value.

         

In addition, the Company has an operating lease agreement for office space        in Seattle, Washington, which expires in November 2008, with an option for the Company        to renew the lease for an additional three years at the then fair market value.

         

Future minimum annual lease payments under these are as follows:

 

|                     |   | **$****(in thousands)** |
|--------------------------|--------|-------------------------|
| 2008 (remainder of year) |   | 32                      |
| 2009                     |   | 111                     |
|                          |        |
| Total                    |   | 143                     |
|                     |   |                    |

 

Rent expense for the three and nine month periods ended September 30, 2008        was $315,000 and $436,000 respectively. Rent expense for the three and nine month periods        ended September 30, 2007 was $60,000 and $174,000 respectively.

         

In November 2006, prior to the transaction (Note 2), Sonus entered into a        non-cancelable operating lease agreement for office space in Bothell, Washington, expiring        in 2017 and office equipment under two non-cancelable operating leases which expire in 2009        and 2010. The Company is currently in the process of evaluating opportunities to exit        portions of the leased space and has recorded a liability in the excess facilities lease        charge of $2,039,156 as at September 30, 2008 (Note 8).

If the Company is unable to exit portions of this leased space, the future        minimum annual lease payments are as follows:

15

----

 

|                     |   | **$****(in thousands)** |
|--------------------------|--------|-------------------------|
| 2008 (remainder of year) |   | 482                     |
| 2009                     |   | 1,982                   |
| 2010                     |   | 1,997                   |
| 2011                     |   | 2,055                   |
| 2012                     |   | 2,117                   |
| 2013                     |   | 2,180                   |
| remainder                |   | 9,396                   |
|                          |        |
| Total                    |   | 20,209                  |

 

| **11.** | **RELATED PARTY TRANSACTIONS** |
|---------|--------------------------------|

         

The Company incurred consulting fees of $74,000 and $98,000 for the period        ended September 30, 2008 and 2007 respectively, payable to a former director. No amounts        were included in accounts payable and accrued liabilities as at September 30, 2008. All        transactions were recorded at their exchange amounts.

         

| **12.** | **ACCOUNTS PAYABLE AND ACCRUED LIABILITIES** |
|---------|----------------------------------------------|

 

|                                                          | September 30,                2008                                                                         | December 31,                2007                                                                                                |
|----------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|
|                                                          |                                   $ |                      $ |
| (in thousands)                                           |                                                                                                           |                                                                                                                                 |  |  |  |  |  |  |
| Trade accounts                payable                    |                                                                                                      |                                                                                                                            |  | 365 |   |  | 309 |   |
| Employee related                accruals                 |                                                                                                      |                                                                                                                            |   | 1,136 |   |   | 87 |   |
| Accrued research and                development expenses |                                                                                                      |                                                                                                                            |   | 512 |   |   | 365 |   |
| Other                                                    |                                                                                                      |                                                                                                                            |   | 687 |   |   | 287 |   |
|                                                     |                                                                                                           |                                                                                                                                 |
|                                                     |                                                                                                      |                                                                                                                            |  | 2,700 |   |  | 1,048 |   |
|                                                     |                                                                                                           |                                                                                                                                 |

| **13.** | **COMPREHENSIVE INCOME (LOSS)** |
|---------|---------------------------------|

 

|                                                                                     | Three Months Ended                September 30, | Nine Months Ended                September 30, |
|-------------------------------------------------------------------------------------|-------------------------------------------------|------------------------------------------------|
|                                                                                     |                                                 |                                                |
||
|                                                                                     |                                                 |                                                |  |  |
| (in                thousands)                                                       |                                            |                                           |   |  |   |   |  |   |   |  |   |   |  |   |
| Income (loss) attributable                to common shareholders                    |                                            |                                           |  | 4,160 |   |   | (2,665 | ) |   | (1,221 | ) |   | (8,469 | ) |
| Unrealized gain (loss) on                cash equivalents and marketable securities |                                            |                                           |   | (30 | ) |   | 1 |   |   | (31 | ) |   | 2 |   |
| Unrealized gain (loss) on                foreign exchange                           |                                            |                                           |   | 67 |   |   | 143 |   |   | (3 | ) |   | 496 |   |
|                                                                                     |                                                 |                                                |  |  |
| Comprehensive income                (loss)                                          |                                            |                                           |   | (4,197 | ) |   | (2,521 | ) |   | (1,255 | ) |   | (7,971 | ) |
|                                                                                     |                                                 |                                                |  |  |

| **14.** | **SUBSEQUENT EVENTS** |
|---------|-----------------------|

 

On October 7, 2008 the Company concluded a meeting with the U.S. Food and        Drug Administration (FDA), at which the FDA agreed that “durable pain palliation is        an acceptable and desirable study endpoint” to support product marketing approval for        OGX-011 as a treatment for hormone refractory prostate cancer (HRPC). In addition,        OncoGenex reported that the FDA provided guidance on the submitted protocol including        recommendations on study endpoints, the appropriate patient population, entry criteria and        study conduct.

         

Based on the results of this meeting, the Board of Directors of OncoGenex        Pharmaceuticals has approved the release of 25% (347,207) of the shares held in escrow        pursuant to agreements related to Sonus Pharmaceuticals’ merger with OncoGenex        Technologies described in its Proxy Statement filed with the SEC on July 3, 2008. The        escrow agreements provided for the release of 25% of the shares held in escrow following        the occurrence of a meeting with the FDA to confirm that pain palliation is an appropriate        primary endpoint to support a product marketing approval in prostate cancer. A total of        694,431 milestone shares remain in escrow.

 

16

----

 

         

On October 28, 2008, 17,000 stock options to purchase common shares of        the Company were granted to each of the five non-management members of the board of        directors for a total grant of 85,000. The options vest quarterly over one year. The total        estimated fair value of these awards is $129,753 using the following        assumptions:

 

| Risk-free interest rates |   | 2.3%    |
|--------------------------|--------|---------|
| Expected dividend yield  |   | 0%      |
| Expected life            |   | 4 years |
| Expected volatility      |   | 75%     |

 

The expected life was calculated based on the simplified method as permitted        by the SEC’s Staff Accounting Bulletin 110,*Share-Based        Payment*. The Company considers the use of the simplified method        appropriate because of the lack of sufficient historical exercise data following the        reverse takeover of Sonus. The computation of expected volatility was based on the        historical volatility of comparable companies from a representative peer group selected        based on industry and market capitalization. The risk-free interest rate was based on a        U.S. Treasury instrument whose term is consistent with the expected life of the stock        options. In addition to the assumptions above, as required under SFAS 123R, management        made an estimate of expected forfeitures and is recognizing compensation costs only for        those equity awards expected to vest.

         

 

17

----

 

**Item        2.  Management’s Discussion and Analysis of Financial Condition and Results        of Operations**

 

**INFORMATION REGARDING FORWARD LOOKING STATEMENTS**

         

This document contains “forward-looking statements” within the        meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking        statements involve a number of risks and uncertainties. We caution readers that any        forward-looking statement is not a guarantee of future performance and that actual results        could differ materially from those contained in the forward-looking statement. These        statements are based on current expectations of future events. Such statements include, but        are not limited to, statements about the anticipated benefits of the Arrangement completed        on August 21, 2008 between Sonus and OncoGenex Technologies, including future financial and        operating results, the combined company’s plans, objectives, expectations and        intentions, costs and expenses, interest rates, outcome of contingencies, financial        condition, results of operations, liquidity, business strategies, cost savings, objectives        of management and other statements that are not historical facts. You can find many of        these statements by looking for words like “believes,” “expects,”        “anticipates,” “estimates,” “may,”        “should,” “will,” “could,” “plan,”        “intend,” or similar expressions in this document or in documents incorporated        by reference in this document. We intend that such forward-looking statements be        subject to the safe harbors created thereby. Examples of these forward-looking statements        include, but are not limited to:

         

|   | **•** | our anticipated future capital requirements and the terms of any                    capital financing agreements; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | progress and preliminary and future results of clinical                    trials; |
|--------|------------|------------------------------------------------------------------------------------|

         

|   | **•** | anticipated regulatory filings, requirements and future clinical                    trials; |
|--------|------------|---------------------------------------------------------------------------------------------|

         

|   | **•** | timing and amount of future contractual payments, product                    revenue and operating expenses; and |
|--------|------------|------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | market acceptance of our products and the estimated potential                    size of these markets. |
|--------|------------|---------------------------------------------------------------------------------------------------------|

 

These forward-looking statements are based on the current beliefs and        expectations of our management and are subject to significant risks and uncertainties. If        underlying assumptions prove inaccurate or unknown risks or uncertainties materialize,        actual results may differ materially from current expectations and projections. The        following factors, among others, could cause actual results to differ from those set forth        in the forward-looking statements:

         

|   | **•** | future capital requirements and uncertainty of obtaining                    additional funding through corporate partnerships, debt or equity                    financings; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | dependence on the development and commercialization of                    products; |
|--------|------------|-------------------------------------------------------------------------------------|

         

|   | **•** | the risk that results in humans may not be indicative of results                    in future studies; |
|--------|------------|--------------------------------------------------------------------------------------------------------|

         

|   | **•** | the risk that results of research and preclinical studies may                    not be indicative of results in humans; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | uncertainty relating to the timing and results of clinical                    trials; |
|--------|------------|---------------------------------------------------------------------------------------|

 

|   | **•** | uncertainties regarding the safety and effectiveness of the                    Company’s products and technologies; |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | the timing, expense and uncertainty associated with the                    development and regulatory approval process for products; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | uncertainties regarding the Company’s future operating                    results, and the risk that the Company’s products will not obtain the                    requisite regulatory approvals to commercialize its products or that the future                    sales of the Company’s products may be less                    than expected; |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | acceptance of our products by the medical community; |
|--------|------------|------------------------------------------------------|

 

18

----

|   | **•** | our ability to build out our product candidate pipeline through                    product in-licensing or acquisition activities; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | the Company’s dependence on key employees; |
|--------|------------|--------------------------------------------------|

         

|   | **•** | the uncertainty associated with exiting or subleasing our excess                    office and laboratory space; |
|--------|------------|------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | general competitive conditions within the drug development and                    pharmaceutical industry; |
|--------|------------|------------------------------------------------------------------------------------------------------------|

 

|   | **•** | the potential inability to integrate and realize benefits from                    the Arrangement; |
|--------|------------|----------------------------------------------------------------------------------------------------|

         

|   | **•** | the reliance on third parties who license intellectual property                    rights to the Company to comply with the terms of such agreements and to                    enforce, prosecute and defend such intellectual property rights; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | the potential for product liability issues and related                    litigation; |
|--------|------------|---------------------------------------------------------------------------------------|

         

|   | **•** | the potential for claims arising from the use of hazardous                    materials in our business; |
|--------|------------|---------------------------------------------------------------------------------------------------------------|

         

|   | **•** | proper management of our operations will be critical to the                    success of the Company; |
|--------|------------|--------------------------------------------------------------------------------------------------------|

         

|   | **•** | the potential inability to successfully protect and enforce our                    intellectual property rights; |
|--------|------------|------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | the impact of current, pending or future legislation,                    regulations and legal actions in the United States, Canada and elsewhere                    affecting the pharmaceutical and healthcare industries; |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | currency fluctuation in the Company’s primary                    markets; |
|--------|------------|---------------------------------------------------------------------------------|

         

|   | **•** | volatility in the value of our common stock; |
|--------|------------|----------------------------------------------|

         

|   | **•** | fluctuations in our operating results; |
|--------|------------|----------------------------------------|

         

|   | **•** | history of operating losses and uncertainty of future financial                    results; and |
|--------|------------|-------------------------------------------------------------------------------------------------|

         

|   | **•** | general economic conditions. |
|--------|------------|------------------------------|

         

You are cautioned not to place undue reliance on these forward-looking        statements, which speak only as of the date of this document or, in the case of documents        referred to or incorporated by reference, the date of those documents.

         

All subsequent written or oral forward-looking statements attributable to us        or any person acting on our behalf are expressly qualified in their entirety by the        cautionary statements contained or referred to in this section. We do not undertake any        obligation to release publicly any revisions to these forward-looking statements to reflect        events or circumstances after the date of this document or to reflect the occurrence of        unanticipated events, except as may be required under applicable        U.S. securities law.

 

**MD&A        Overview**

         

In Management’s Discussion and Analysis of Financial Condition and        Results of Operations we explain the general financial condition and the results of        operations for our Company, including:

         

|   | **•** | an overview of our business; |
|--------|------------|------------------------------|

         

|   | **•** | results of operations and why those results are different from                    the prior year; and |
|--------|------------|-------------------------------------------------------------------------------------------------------|

 

|   | **•** | capital resources we currently have and possible sources of                    additional funding for future capital requirements. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------|

19

----

         

**Arrangement Agreement**

         

On August 21, 2008, Sonus completed its acquisition (the        “Arrangement”) of OncoGenex Technologies, a Canadian corporation, as        contemplated by the arrangement agreement between Sonus and OncoGenex Technologies dated        May 27, 2008. Pursuant to the Arrangement, the Company acquired all of the outstanding        preferred shares, common shares and convertible debentures of OncoGenex Technologies, which        became a wholly-owned subsidiary of Sonus, which was renamed OncoGenex Pharmaceuticals,        Inc. OncoGenex Technologies securityholders now hold more than 50% of the outstanding        shares of common stock of the Company. Effective at the market opening on August 21, 2008,        the Company commenced trading on the Nasdaq Capital Market under the symbol        “OGXI”. More information concerning the Arrangement is contained in our Current        Report on Form 8-K filed on August 21, 2008 and our Definitive Proxy Statement on Schedule        14A filed on July 3, 2008.

         

In connection with the Arrangement, the Company appointed new executive        officers, as follows: Scott Cormack was appointed Chief Executive Officer and President,        Stephen Anderson was appointed Chief Financial Officer and Secretary and Cindy Jacobs,        Ph.D, M.D., was appointed Executive Vice President and Chief Medical Officer. As a        requirement of the Arrangement, Michael Martino, Sonus’ former Chief Executive        Officer and President, and Alan Fuhrman, Sonus’ former Senior Vice President and        Chief Financial Officer, were terminated. The Company made termination payments to        Mr. Martino of approximately $1,163,000 and to Mr. Fuhrman of approximately        $277,000, which includes accrued vacation payments and executive life and disability        premium reimbursement to both former officers. Mr. Martino continues to serve as a        director of the Company.

         

Pursuant to the terms of the arrangement agreement, the Company has filed an        application to list its common shares on the Toronto Stock Exchange (“the        TSX”). Listing of common shares on the TSX will be subject to the Company fulfilling        all applicable listing requirements. Subsequent to a TSX listing, the Company intends to        maintain its listing on the Nasdaq Capital Market.

         

The consolidated financial statements account for the Arrangement as a        reverse acquisition, whereby OncoGenex Technologies is deemed to be the acquiring entity        from an accounting perspective. The consolidated results of operations of the Company        include the results of operations of OncoGenex Technologies for the full three and nine        month periods ended September 30, 2008 and the results of OncoGenex Pharmaceuticals, Inc.        following the completion of the transaction on August 21, 2008. The consolidated results of        operations for the three and nine month periods ended September 30, 2007 include only the        consolidated results of operations of OncoGenex Technologies and do not include historical        results of Sonus. This treatment and presentation is in accordance with SFAS 141. Proforma        results are included in note 2 to the financial statements. Information in this quarterly        report relating to the number of shares, price per share and per share amounts of common        stock are presented on a post- reverse stock split basis, which reverse stock split in the        ratio of one-for-eighteen was effected in connection with the Arrangement.

         

This Management Discussion and Analysis of Financial Condition and Results        of Operations corresponds to the consolidated financial statements. Accordingly, unless        otherwise indicated, the discussion herein reflects the condition and results of operations        only of OncoGenex Technologies, prior to the Arrangement, and the condition and results of        operations of OncoGenex Pharmaceuticals, Inc., subsequent to the Arrangement.

 

Under the purchase method of accounting, Sonus’ outstanding shares of        common stock were valued using the average closing price on Nasdaq of $5.04 for the two        days prior through to the two days subsequent to the announcement of the transaction on May        27, 2008. There were 2,059,898 shares of common stock outstanding, as adjusted for the        reverse stock split, on August 20, 2008, immediately prior to closing. The fair value of        the Sonus outstanding stock options were determined using the Black-Scholes option pricing        model with the following assumptions: stock price of $4.86, volatility of 57.67% to 89.48%,        risk-free interest rate of 1.73% to 3.89%, and expected lives ranging from 0.05 to 4.79        years. The fair value of the Sonus outstanding warrants were determined using the        Black-Scholes option pricing model with the following assumptions: stock price of $4.86,        volatility of 58.71%, risk-free interest rate 3.89%, and expected lives ranging from 0.99        to 1.08 years.

 

The preliminary purchase price is summarized as follows (in        thousands):

 

| Sonus common stock                         |   | 10,385 |
|--------------------------------------------|--------|--------|
| Fair value of options and warrants assumed |   | 71     |
| Transaction costs of OncoGenex             |   | 807    |
| Total purchase price                       |   | 11,263 |

20

----

 

Under the purchase method of accounting, the total purchase price as shown        in the table above is allocated to the Sonus net tangible and identifiable intangible        assets acquired and liabilities assumed based on their fair values as of the date of the        completion of the transaction. The preliminary purchase price allocation is as        follows:

         

|                                                                        |        |
|------------------------------------------------------------------------|--------|
| Cash                                                                   |   | 5,464 |   |
| Marketable                securities                                   |   | 14,808 |   |
| Accounts                receivable                                     |   | 6 |   |
| Interest                receivable                                     |   | 273 |   |
| Other current                assets                                    |   | 175 |   |
| Furniture and                equipment                                 |   | 1,186 |   |
| Other long term                assets                                  |   | 497 |   |
| Intangible                assets                                       |   | 280 |   |
| Accounts payable                                                       |   | (35 | ) |
| Accrued expenses excluding                severance payable            |   | (652 | ) |
| Severance payable to                employees as part of restructuring |   | (1,322 | ) |
| Severance payable to senior                executives                  |   | (1,440 | ) |
| Excess facility                loss                                    |   | (2,083 | ) |
| Negative                goodwill                                       |   | (5,894 | ) |
|                                                                        |        |  |
| Total purchase                price                                    |   | 11,263 |   |

In accordance with SFAS 141 “Business        Combinations*”*any excess of fair        value of acquired net assets over purchase price (negative goodwill) has been recognized as        an extraordinary gain in the period the transaction was completed. The excess has been        allocated as a pro rata reduction of the amounts that otherwise would have been assigned to        the non-current acquired assets. Prior to allocation of the excess negative goodwill        OncoGenex has reassessed whether all acquired assets and assumed liabilities have been        identified and recognized and performed remeasurements to verify that the consideration        paid, assets acquired, and liabilities assumed have been properly valued. The remaining        excess has been recognized as an extraordinary gain. Any subsequent adjustments to the        extraordinary gain resulting from the changes to the purchase price allocation shall be        recognized as an extraordinary item. The allocation of the purchase price of the net assets        acquired is preliminary and may vary based upon finalization of additional valuation        procedures.

 

The preliminary pro rata reduction of non-current and intangible assets        acquired is as follows (in thousands):

 

| Negative goodwill        |   | (5,894) |
|--------------------------|--------|---------|
| Furniture and equipment  |   | 1,186   |
| Intangible assets        |   | 280     |
| Excess negative goodwill |   | (4,428) |

 

*Pro        Forma Results of Operations*

 

The results of operations of Sonus are included in OncoGenex’        consolidated financial statements from the date of the completion of the transaction on        August 21, 2008. The following table presents pro forma results of operations and gives        effect to the business combination transaction as if the transaction was consummated at the        beginning of the period presented. The unaudited pro forma results of operations are not        necessarily indicative of what would have occurred had the business combination been        completed at the beginning of the retrospective periods or of the results that may occur in        the future.

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|                                                                 | For the three                months ended                September 30,                2008 | For the nine                months ended                September 30,                2008 | For the three                months ended                September 30,                2007 | For the nine                months ended                September 30,                2007 |
|-----------------------------------------------------------------|--------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------|
|                                                                 |                                                                                            |                                                                                           |                                                                                            |                                                                                           |
| (in thousands, except shares and loss per                share) |
| Revenue                                                         |                                                                                       |                                                                                      |                                                                                       | —                                                                                   |   |   | — |   |   | 4,079 |   |   | 12,401 |   |
| Net loss applicable to                common shareholders       |                                                                                       |                                                                                      |                                                                                            | (9,716                                                                                    | ) |  | (21,241 | ) |  | (7,723 | ) |  | (21,262 | ) |
| Net loss per share-basic and                diluted             |                                                                                       |                                                                                      |                                                                                       | (4.72                                                                                     | ) |   | (27.59 | ) |   | (65.01 | ) |   | (178.97 | ) |
| Weighted average                shares                          |                                                                                       |                                                                                      |                                                                                       | 2,056,876                                                                                 |   |   | 769,843 |   |   | 118,801 |   |   | 118,801 |   |

**Overview        of the Company**

         

OncoGenex is a biopharmaceutical company committed to the development and        commercialization of new cancer therapies. OncoGenex’ product candidates OGX-011,        OGX-427 and OGX-225 focus on mechanisms of treatment resistance in cancer patients and        address treatment resistance by blocking the production of specific proteins which it        believes promote survival of tumor cells and are over-produced in response to a variety of        cancer treatments. OncoGenex’ aim in targeting these particular proteins is to        disable the tumor cell’s adaptive defenses and thereby render the tumor cells more        susceptible to attack with a variety of cancer therapies, including chemotherapy, which        OncoGenex believes will increase survival time and improve the quality of life for cancer        patients. Product candidate SN2310 is a novel camptothecin for the treatment of cancer.        Camptothecins are potent anticancer agents that belong to the family of drugs called        topoisomerase I inhibitors that bind reversibly to the TOPO-I-DNA complex causing breaks in        the DNA strands during replication resulting in cell death. Product candidate CSP-9222 is        the lead compound from a family of caspase activators that have been in-licensed from Bayer        Healthcare LLC. These novel, small molecules have been identified as activators of        programmed cell death.

         

OncoGenex has conducted five Phase 2 clinical trials to evaluate the        ability of our lead product candidate, OGX-011, to enhance the effects of therapy in        prostate, non-small cell lung and breast cancers. Interim data has been presented for each        of these Phase 2 studies. Complete Phase 2 data from all studies are expected in        2008-2009. Based on data collected to date from OncoGenex’ Phase 2 clinical        trials, we intend to initiate a Phase 3 clinical trial in patients with hormone refractory        prostate cancer, or HRPC, subject to obtaining additional funding. OncoGenex has already        reached an agreement with the FDA on the design of a Phase 3 registration trial for        evaluating a survival benefit for OGX-011 in combination with second-line chemotherapy in        men with HRPC. This agreement was achieved under the Special Protocol Assessment (SPA)        process. OncoGenex has also received Fast Track designation from the FDA for development of        OGX-011 in combination with docetaxel for progressive metastatic prostate cancer.        FastTrack designation was granted on the basis that OGX-011 may        provide a significant improvement in the treatment for a serious or life-threatening        disease. Recently OncoGenex had a meeting with FDA discussing the design of another Phase 3        trial evaluating additional of OGX-011 to second-line chemotherapy in HRPC with a primary        endpoint of durable pain palliation. FDA agreed that “durable pain palliation is an        acceptable and desirable study endpoint” to support a product marketing approval for        OGX-011 as a treatment for HRPC. In addition, the FDA provided detailed guidance on the        submitted protocol including recommendations on other study endpoints, the appropriate        patient population, entry criteria and study conduct. OncoGenex plans to revise and submit        this protocol for an SPA with FDA prior to initiating this registration trial.

         

Two other product candidates are being evaluated in Phase 1 clinical trials        as of September 30, 2008: OGX-427, an inhibitor of heat shock protein 27, and SN2310, a        novel camptothecin. The Phase 1 clinical trial for OGX-427 is evaluating safety for OGX-427        administered alone, as well as in combination with docetaxel, in patients with various        types of cancer. Enrollment in the OGX-427 Phase 1 clinical trial is ongoing, and        dose-limiting toxicity has not yet defined a maximum tolerated dose for OGX-427. The Phase        1 clinical trial for SN2310 is evaluating safety in patients with advanced cancer who have        received on average 3 to 5 prior chemotherapy treatments. Enrollment in the SN2310 Phase 1        clinical trial has recently been completed and the dose-limiting toxicity that defined a        maximum tolerated dose in this heavily pretreated patient population, as expected, was        significant neutropenia.

         

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OncoGenex has two product candidates in pre-clinical        development: OGX-225, an inhibitor of insulin growth factor binding proteins 2 and 5, and        CSP-9222, a caspase activator. CSP-9222 was in-licensed by Sonus onAugust 7, 2008 as part of an exclusive agreement with Bayer HealthCare LLC        for development of a family of compounds known as caspase activators presently in        preclinical research. Under terms of the agreement, Sonus was granted exclusive rights to        develop two core compounds for all prophylactic and therapeutic uses in humans.        Additionally, Sonus was granted rights to all other non-core compounds covered under the        patents for use in oncology.

         

Sonus was incorporated in October 1991 and OncoGenex Technologies was        incorporated in May 2000. OncoGenex has devoted substantially all of its resources to        the development of its product candidates. To date, OncoGenex Technologies has funded its        operations primarily through the private placements of equity securities, and Sonus has        funded its operations primarily through private and public placements of equity securities.        Neither company has ever been profitable. The Company incurred a loss for the nine months        ended September 30, 2008 of $1.2 million and has a cumulative loss of        $43.0 million since OncoGenex Technologies’ inception in 2000 through        September 30, 2008.

         

We require additional funding to support our planned operations, including        our planned Phase 3 clinical trial of OGX-011 in patients with hormone refractory prostate        cancer. We may seek such additional funding through private or public offerings of our        equity securities, debt financings, executing a partnership or collaboration agreement with        a third party that has sufficient resources to fund the development of our product        candidates or the licensing or sale of certain of our product candidates. There can be no        assurance that we will be able to obtain additional funding on terms favorable to us, or at        all. If we are successful in obtaining additional funding and initiating one or both of our        Phase 3 clinical trials, then, unless the costs of development are borne by a third party        pursuant to a partnership or collaboration agreement, we anticipate that our losses will        rapidly increase, due primarily to the costs associated with Phase 3 clinical        trials.

         

As noted earlier in this section, OncoGenex intends to initiate one of the        Phase 3 clinical trials in patients with hormone refractory prostate cancer, or HRPC,        subject to obtaining additional funding. Management believes that the Company’s        existing personnel and facilities are sufficient to carry on existing development        activities. OncoGenex is unable to predict when, if ever, it will be able to commence the        sale of any of its product candidates.

         

**Revenues**

         

OncoGenex has not generated any revenues from the sale of its products to        date, and it does not expect to generate any revenues from licensing or product sales until        it executes a partnership or collaboration arrangement or is able to commercialize its        product candidates itself.

         

**Research        and Development Expenses**

         

Research and development (“R&D”) expenses consist primarily        of costs for: clinical trials; materials and supplies; facilities; personnel, including        salaries and benefits; regulatory activities; pre-clinical studies; licensing and        intellectual property; and allocations of other research and development-related costs.        External research and development expenses include fees paid to universities, hospitals and        other entities that conduct certain research and development activities and that        manufacture OncoGenex’ product candidates for use in its clinical trials. OncoGenex        expects its research and development expenses to increase significantly in the future as it        continues to develop its product candidates. Currently, OncoGenex manages its clinical        trials through independent medical investigators at their sites and        at hospitals.

         

A majority of OncoGenex’ expenditures to date have been related to the        development of OGX-011.

         

Until July 2, 2008, OGX-011 was being co-developed with Isis        Pharmaceuticals, Inc., or Isis, and R&D expenses for OGX-011 were shared on        the basis of 65% OncoGenex and 35% Isis. On July 2, 2008, OncoGenex and Isis amended        their agreement to provide for unilateral development of OGX-011 by OncoGenex.

         

Several of OncoGenex’ clinical trials have been supported by grant        funding which was received directly by the hospitals and/or clinical investigators        conducting the clinical trials allowing OncoGenex to complete these clinical trials with        minimal expense.

23

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Since OncoGenex’ drug candidates are in the early stage of        development, we cannot estimate completion dates for development activities or when we        might receive material net cash inflows from our research and development        projects.

 

**General        and Administrative Expenses**

 

General and administrative (“G&A”) expenses consist        primarily of salaries and related costs for OncoGenex’ personnel in executive,        business development, human resources, external communications, finance and other        administrative functions, as well as consulting costs, including market research and        business consulting. Other costs include professional fees for legal and accounting        services, insurance and facility costs. OncoGenex believes that G&A resources are        sufficient to carry on existing development activities. If we are successful in obtaining        additional funding and initiating a Phase 3 clinical trial, OncoGenex anticipates that        G&A expenses will increase significantly in the future as it continues to expand its        operating activities.

 

**Restructuring Activities**

 

As discussed above, the Company terminated the employment of two senior        executives as a requirement of the Arrangement. Severance payable at the date of the        transaction was $1,439,319 and has been accounted for in accordance with EITF No. 95-3,        “Recognition of Liabilities in Connection with a Purchase Business Combination”        as part of the purchase price allocation. The severance payable was settled following the        completion of the transaction and the amount owing at September 30, 2008 was        nil.

 

On August 21, 2008, immediately following the completion of the Arrangement,        the Company reduced its workforce by approximately 49% in order to implement cost-savings        measures to preserve cash while focusing on its highest potential product development        programs. The Company estimates that all severance liabilities relating to        transaction-related workforce reductions will be paid out by February 2009. Severance        payable at the date of the restructuring in connection with former non-executive employees        of Sonus was $1,322,296 and has been accounted for in accordance with EITF No. 95-3,        “Recognition of Liabilities in Connection with a Purchase Business Combination”        as part of the purchase price allocation.

 

Prior to the Arrangement, Sonus entered into a non-cancellable lease        arrangement for office space located in Bothell, Washington, which is considered to be in        excess of the Company’s current requirements. The final plan for this space has not        yet been determined by management, but will likely involve a sublease arrangement or exit        of lease space. The Company has recognized a restructuring charge of $2,039,156 in relation        to the estimated fair value of the liability remaining with respect to excess facilities.        The liability is computed as the present value of the difference between the remaining        lease payments due less the estimate of net sublease income and expenses and has been        accounted for in accordance with EITF No. 95-3, “Recognition of Liabilities in        Connection with a Purchase Business Combination” as part of the purchase price        allocation. This represents the Company’s best estimate of the fair value of the        liability. Subsequent changes in the liability due to accretion, or changes in estimates of        sublease assumptions and related matters, will be recognized as adjustments to        restructuring charges in future periods.

         

**Results        of Operations**

         

As discussed above, on August 21, 2008, Sonus completed the Arrangement with        OncoGenex Technologies, whereby Sonus acquired all of the outstanding preferred shares,        common shares and convertible debentures of OncoGenex Technologies. The consolidated        financial statements reflect the Arrangement as a reverse acquisition, whereby OncoGenex        Technologies is deemed to be the acquiring entity from an accounting perspective. The        consolidated results of operations of the Company include the results of operations of        OncoGenex Technologies for the full three and nine month periods ended September 30, 2008        and the results of OncoGenex Pharmaceuticals, Inc. following the completion of the        Arrangement on August 21, 2008. The consolidated results of operations for the three and        nine month periods ended September 30, 2007 include only the consolidated results of        operations of OncoGenex Technologies and do not include historical results of Sonus. This        treatment and presentation is in accordance with SFAS 141, “Business        Combinations”. Proforma results are included in note 2 to the financial        statements.

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*Three        Months Ended September 30, 2008 Compared to the Three Months Ended September        30,* *2007*

         

R&D expenses for the three months ended September 30, 2008 were        $1.6 million compared to $1.1 million for the three months ended September 30,        2007, which reflects an increase of $0.5 million due mainly to costs associated with        the development of OGX-427, an increase in employee expenses and higher facility costs        resulting from the reverse takeover of Sonus.

         

G&A expenses for the three months ended September 30, 2008 were        $1.0 million compared to $0.6 million for the three months ended September 30,        2007, which reflects an increase of $0.4 million due mainly to higher employee        expenses and increased costs associated with operating as a public company.

         

Interest income for the three months ended September 30, 2008 was $51        thousand compared to $33 thousand for the three months ended September 30, 2007, which        reflects an increase of $18 thousand due mainly to an increase in cash equivalents and        short term investments.

         

Other for the three months ended September 30, 2008 was $246 thousand in        income compared to $60 thousand in expense for the three months ended September 30, 2007,        due to a foreign exchange gain and a reversal of convertible debenture interest in the 2008        period compared to convertible debenture interest expense in the 2007        period.               

         

*Nine        months Ended September 30, 2008 Compared to Nine months Ended September 30,        2007*

 

R&D expenses for the nine months ended September 30, 2008 were        $3.6 million compared to $3.1 million for the nine months ended September 30, 2007,        which reflects an increase of $0.5 million due mainly to an increase in employee        expenses and higher facility costs resulting from the reverse takeover of Sonus.

         

G&A expenses for the nine months ended September 30, 2008 were        $2.2 million compared to $2.7 million for the nine months ended September 30,        2007. The decrease of $0.5 million is due mainly to higher financing-related costs in        the 2007 period related to OncoGenex Technologies’ initial public offering efforts        that took place prior to the Arrangement, which were partly offset by higher employee        expenses and increased costs associated with operating as a public company in the 2008        period.

         

Interest income for the nine months ended September 30, 2008 was $142        thousand compared to $138 thousand for the nine months ended September 30, 2007, which        reflects an increase of $4 thousand as lower investment balances for most of the 2008        period were offset by the investments realized in the Arrangement.

         

Other income was a net expense amount of $54 thousand for the nine months        ended September 30, 2008 compared to a net expense amount of $94 thousand for the nine        months ended September 30, 2007. This decrease was due to unrealized foreign exchange gains        relating to the Company’s preferred shares and taxes payable on preferred shares,        partly offset by higher convertible debenture interest as compared to the prior        period.

         

**Liquidity and Capital Resources**

         

OncoGenex has incurred cumulative losses of $43 million since the        inception of OncoGenex Technologies through September 30, 2008. OncoGenex does not expect        to generate revenue from product candidates for several years. Prior to the Arrangement,        Sonus funded its operations through private and public offerings of common stock, and        OncoGenex Technologies funded its operations primarily through the private placement of its        preferred shares. OncoGenex Technologies raised net proceeds of $1.4 million through        the sale of its Series A preferred shares in 2001/2002, $1.2 million through the sale        of its Series A preferred shares in 2002, $5.7 million through the sale of its        Series 1 Class B preferred shares in 2003, $5.8 million through the sale of        its Series 1 Class B preferred shares in 2004 and $12.7 million through the        sale of its Series 2 Class B preferred shares in August 2005. OncoGenex        Technologies raised net proceeds of $4.4 million through the issuance of convertible        debentures in September 2007. Cash, cash equivalents and short term investments of        $20.3 million were realized in August 2008 as a result of the Arrangement.

         

As at September 30, 2008, OncoGenex had cash, cash equivalents and        short-term investments of $17.2 million in the aggregate as compared to        $5.1 million as at December 31, 2007. As at September 30, 2008, OncoGenex does not        have any borrowing or credit facilities available to it.

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**Cash        Flows**

 

*Cash        Used in Operations*

         

For the nine months ended September 30, 2008 and 2007, net cash used in        operations was $7.4 million and $5.8 million respectively. This increase in cash used        in operations in the nine months ended September 30, 2008 compared to the same period in        2007 was attributable primarily to increased R&D expenses associated with personnel and        facilities assumed in the Arrangement, cash used to reduce liabilities assumed in the        Arrangement and increased current assets associated with R&D activities. The increase        in cash used in operations in the nine months ended September 30, 2008 compared to the same        period in 2007 was partly offset by cash provided by income tax credits recoverable        recovered in 2008 compared to cash used in 2007 from an increase in that asset. For the        nine months ended September 30, 2007 the increase in income tax credits is a use of        cash.

         

*Cash        Provided by Financing Activities*

         

For the nine months ended September 30, 2008 and 2007, net cash provided by        financing activities was $3 thousand and $4.4 million respectively. All net cash provided        by financing activities in the nine months ended September 30, 2008 was due the result of        proceeds from the issuance of common shares on stock option exercises, offset by cash paid        on the elimination of fractional shares following the one-for-eighteen reverse stock split.        All net cash provided by financing activities in the nine months ended September 30, 2007        was due to the issuance of convertible debentures.

         

*Cash        Used/Provided by Investing Activities*

 

Net cash provided by investing activities for the nine months ended        September 30, 2008 and 2007 was $8.8 million and $2.2 million, respectively. Net cash        provided by investing activities in the nine months ended September 30, 2008 was due to the        reverse takeover of Sonus and transactions involving marketable securities in the normal        course of business. All net cash provided by investing activities in the nine months ended        September 30, 2007 was due to transactions involving marketable securities in the normal        course of business. The related maturities and sales of those investments provide working        capital on an as-needed basis.

         

**Operating Capital and Capital Expenditure Requirements**

         

OncoGenex believes that its cash, cash equivalents and short-term        investments will be sufficient to fund its currently planned operations through 2009,        including:

         

|   | **•** |   | completion to                final data of its ongoing Phase 2 clinical trials of OGX-011; |
|--------|------------|--------|-------------------------------------------------------------------------------------------------|

|   | **•** |   | completion of                its Phase 1 clinical trial of OGX-427; |
|--------|------------|--------|--------------------------------------------------------------------------|

|   | **•** |   | reaching an                agreement with the FDA on the design of an additional Phase 3 registration trial of                OGX-011 in patients with hormone refractory prostate cancer via the Special                Protocol Assessment (SPA) process; |
|--------|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** |   | completion of                pharmacology and formulation evaluations of CSP-9222; and |
|--------|------------|--------|----------------------------------------------------------------------------------------|

|   | **•** |   | working                capital, capital expenditures and general corporate purposes. |
|--------|------------|--------|--------------------------------------------------------------------------------------|

We will need additional funding to support the initiation of our planned        Phase 3 clinical trials, development of our other product candidates and other continuing        operations. We may seek such additional funding through private or public offerings of our        equity securities, debt financings, executing a partnership or collaboration agreement with        a third party that has sufficient resources to fund the development of our product        candidates or the licensing or sale of certain of our product candidates.

         

Our future capital requirements depend on many factors including:

         

26

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|   | **•** | our ability to obtain equity or debt financings, executing a                    partnership or collaboration agreement with a third party that has sufficient                    resources to fund the development of our product candidates or the licensing or                    sale of certain of our product candidates; |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | timing and costs of preclinical development, clinical trials and                    regulatory approvals; |
|--------|------------|-----------------------------------------------------------------------------------------------------------|

 

|   | **•** | timing and cost of drug discovery and research and                    development; |
|--------|------------|------------------------------------------------------------------------------------|

 

|   | **•** | entering into new collaborative or product license agreements                    for products in our pipeline; and |
|--------|------------|--------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | costs related to obtaining, defending and enforcing                    patents. |
|--------|------------|---------------------------------------------------------------------------------|

 

There can be no assurance that we will be able to obtain additional funding        on terms favorable to us, or at all. If we are unable to obtain sufficient funds to satisfy        our cash requirements within the required timeframe on terms favorable to us, we may be        forced to curtail development activities and other operations or dispose of assets. Such        events would materially and adversely affect our financial position and results of        operations. In the event that such steps are not sufficient, or we believe that they will        not be sufficient, we may be required to discontinue our operations.

         

**Off-Balance Sheet Arrangements**

         

We do not have any off-balance sheet financing arrangements at September 30,        2008.

         

**Inflation**

         

We not believe that inflation has had a material impact on our business and        operating results during the periods presented.

         

**Contingencies and Commitments**

         

We previously disclosed certain contractual obligations and contingencies        and commitments relevant to the Company within the financial statements and Management        Discussion and Analysis of Financial Condition and Results of Operations of both OncoGenex        Technologies and Sonus in the Company’s Proxy Statement on Schedule 14A filed on July        3, 2008. The contingencies and commitments described below are in addition to those        contractual obligations and contingencies and commitments previously disclosed, which are        incorporated herein by reference.

         

On August 7, 2008, Sonus completed an exclusive in-licensing agreement with        Bayer HealthCare LLC for development of a family of compounds known as caspase activators        presently in preclinical research. Under terms of the agreement, Sonus was granted        exclusive rights to develop two core compounds for all prophylactic and therapeutic uses in        humans. Additionally, Sonus was granted rights to all other non-core compounds covered        under the patents for use in oncology.

         

Under the terms of the agreement, Bayer received an upfront license fee of        $450,000. OncoGenex will make annual payments to Bayer on the anniversary date        (“Anniversary Payments”), with an initial payment of $100,000. The payments        will increase annually by $25,000 until the initiation of the first Phase 3 clinical trial,        at which point the Anniversary Payments reset to $100,000 each year and increase by $25,000        until the Company achieves either the first New Drug Application filing in the United        States or the European Union. OncoGenex is obligated to pay royalties ranging from 3.5% to        7.5% of net future product sales and aggregate payments of up to $14,000,000 for clinical        development and regulatory milestones. No milestone payments can be triggered prior to the        initiation of a Phase 3 clinical trial.

         

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**Material Changes in Financial Condition**

         

|                                           | September 30,                2008 | December 31,                2007 |
|-------------------------------------------|-----------------------------------|----------------------------------|
|                                           |                                   |                                  |
|                                           |
| (in thousands)                            |
| Total                assets               |                              |                             |  | 20,248 |   |  | 7,350 |   |
| Total                liabilities          |                              |                             |  | 4,768 |   |  | 45,573 |   |
| Shareholders’                equity |                              |                             |  | 15,480 |   |   | (38,223 | ) |

The increase in assets from December 31, 2007 primarily relates to increase        in cash, cash equivalents and marketable securities following the Arrangement. The decline        in liabilities from December 31, 2007 relates to generally lower accrued liabilities on        reduced clinical trial expense, and the extinguishment of the convertible debentures and        preferred shares upon completion of the Arrangement, which has resulted in the        corresponding increase in equity.

 

**Critical        Accounting Policies and Estimates**

 

**Recent        Accounting Pronouncements**

 

In November 2007, the Emerging Issues Task Force (“EITF”) issued        EITF Issue 07-01, “Accounting for Collaborative Arrangements,” or EITF        No. 07-01. EITF No. 07-01 requires collaborators to present the results of        activities for which they act as the principal on a gross basis and report any payments        received from (made to) other collaborators based on other applicable GAAP or, in the        absence of other applicable GAAP, based on analogy to authoritative accounting literature        or a reasonable, rational, and consistently applied accounting policy election. Further,        EITF No. 07-01 clarified that the determination of whether transactions within a        collaborative arrangement are part of a vendor-customer (or analogous) relationship subject        to Issue 01-9, Accounting for Consideration Given by a Vendor to a Customer. EITF        No. 07-01 is effective for fiscal years beginning December 15, 2008. The Company        has not yet completed its evaluation of EITF 07-01, but does not currently believe        that it will have a material impact on the consolidated financial position, results of        operations or cash flows.

         

In December 2007, the FASB issued SFAS No. 141 (Revised 2007),        “Business Combinations,” or SFAS No. 141R. SFAS No. 141R will change        the accounting for business combinations. Under SFAS No. 141R, an acquiring entity        will be required to recognize all the assets acquired and liabilities assumed in a        transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R        will change the accounting treatment and disclosure for certain specific items in a        business combination. SFAS No. 141R applies prospectively to business combinations for        which the acquisition date is on or after the beginning of the first annual reporting        period beginning on or after December 15, 2008. The Company has not yet completed its        evaluation of the potential impact, if any, of the adoption of SFAS No. 141R but does        not currently believe that it will have a material impact on the consolidated financial        position, results of operations or cash flows.

         

In December 2007, the Financial Accounting Standards Board        (“FASB”) issued SFAS No. 160, “Noncontrolling Interests in        Consolidated Financial Statements -An Amendment of ARB No. 51,” or SFAS        No. 160. SFAS No. 160 establishes new accounting and reporting standards for the        noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS        No. 160 is effective for fiscal years beginning on or after December 15, 2008.        The Company has not yet completed its evaluation of the potential impact, if any, of the        adoption of SFAS No. 160, but does not currently believe that it will have a material        impact on the consolidated financial position, results of operations or cash        flows.

         

In March 2008, the FASB issued SFAS No. 161, “Disclosures about        Derivative Instruments and Hedging Activities.” SFAS No. 161 amends and expands        the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and        Hedging Activities. It requires qualitative disclosures about objectives and strategies for        using derivatives, quantitative disclosures about fair value amounts of gains and losses on        derivative instruments, and disclosures about credit-risk-related contingent features in        derivative agreements. In September 2008, the FASB issued FASB Staff Position        (“FSP”) FSP FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives        and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No.        45; and Clarification of the Effective Date of FASB Statement No. 161”. This FSP        amends FASB Statement No. 133, Accounting for Derivative Instruments and Hedging        Activities, to require disclosures by sellers of credit derivatives, including credit        derivatives embedded in a hybrid instrument. This FSP also amends FASB Interpretation No.        45, Guarantor’s

 

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In March 2008, the FASB issued SFAS No. 161, “Disclosures about        Derivative Instruments and Hedging Activities.” SFAS No. 161 amends and expands        the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and        Hedging Activities. It requires qualitative disclosures about objectives and strategies for        using derivatives, quantitative disclosures about fair value amounts of gains and losses on        derivative instruments, and disclosures about credit-risk-related contingent features in        derivative agreements. In September 2008, the FASB issued FASB Staff Position        (“FSP”) FSP FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives        and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No.        45; and Clarification of the Effective Date of FASB Statement No. 161”. This FSP        amends FASB Statement No. 133, Accounting for Derivative Instruments and Hedging        Activities, to require disclosures by sellers of credit derivatives, including credit        derivatives embedded in a hybrid instrument. This FSP also amends FASB Interpretation No.        45, Guarantor’sAccounting and Disclosure Requirements for        Guarantees, Including Indirect Guarantees of indebtedness of Others, to require an        additional disclosure about the current status of the payment/performance risk of a        guarantee. Further, this FSP clarifies the Board’s intent about the effective date of        FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities.        This statement is effective for financial statements issued for fiscal years beginning        after November 15, 2008. The Company has not yet completed its evaluation of the        impact of this pronouncement, but does not currently believe that it will have a material        impact on the consolidated financial position, results of operations or cash        flows.

In May 2008, the FASB issued FASB FSB Accounting Principles Board        (“APB”) Opinion No. 14-1, “Accounting for Convertible Debt        Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash        Settlement)” (“FSB APB 14-1”). The FSP will require cash settled        convertible debt to be separated into debt and equity components at issuance and a value to        be assigned to each. The value assigned to the debt component will be the estimated fair        value, as of the issuance date, of a similar bond without the conversion feature. The        difference between the bond cash proceeds and this estimated fair value will be recorded as        a debt discount and amortized to interest expense over the life of the bond. FSP        APB 14-1 will become effective January 1, 2009. The Company has not yet completed        its evaluation of the impact of this pronouncement, but does not currently believe that it        will have a material impact on the consolidated financial position , results of operations        or cash flows.

         

In May 2008, the FASB issued SFAS No. 162 “The Hierarchy of        Generally Accepted Accounting Principles” (“SFAS 162”).        SFAS 162 identifies the sources of accounting principles and the framework for        selecting the principles to be used in the preparation of financial statements of        nongovernmental entities that are presented in conformity with generally accepted        accounting principles in the United States. SFAS 162 is effective sixty days following        the SEC’s approval of PCAOB amendments to AU Section 411, “The Meaning of        ‘Present fairly in conformity with generally accepted accounting        principles.’ ” The Company is currently evaluating the potential impact,        if any, of the adoption of SFAS 162 on its consolidated financial        statements.

         

| **Item 3.** | **Quantitative and Qualitative Disclosures About Market                    Risk** |
|-------------|-----------------------------------------------------------------------------------|

         

**Interest        Rate Risk**

         

The market risk inherent in our marketable securities portfolio represents        the potential loss arising from adverse changes in interest rates. If market rates        hypothetically increase immediately and uniformly by 100 basis points from levels at        December 31, 2007, the decline in the fair value of the investment portfolio would not be        material. Given the short-term nature of our investment portfolio, we do not expect our        operating results or cash flows to be affected to any significant degree by a sudden change        in market interest rates.

         

**Foreign        Currency Exchange Risk**

         

We are exposed to risks associated with foreign currency transactions on        certain contracts and payroll expenses related to our Canadian subsidiary, OncoGenex        Technologies, denominated in Canadian dollars and we have not hedged these amounts. As our        unhedged foreign currency transactions fluctuate, our earnings might be negatively        affected. Accordingly, changes in the value of the U.S. dollar relative to the Canadian        dollar might have an adverse effect on our reported results of operations and financial        condition, and fluctuations in exchange rates might harm our reported results and accounts        from period to period. The impact of foreign currency fluctuations related to realized        gains and losses during the nine month periods ended September 30, 2008 and 2007,        respectively, was not material.

         

| **Item 4.** | **Controls and Procedures** |
|-------------|-----------------------------|

         

**Evaluation of Disclosure Controls and Procedures**

         

Under the supervision and with the participation of our management, we        evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and        15d-15(e) of the Securities Exchange Act of 1934, or the “Exchange Act”) as of        September 30, 2008. On the basis of this review, our management concluded that our        disclosure controls and procedures are effective to give reasonable assurance that the        information we are required to disclose in reports that we file under the Exchange Act is        recorded, processed, summarized and reported within the time periods specified in the rules        and forms of the Securities Exchange Commission and to ensure that information required to        be disclosed in the reports filed or submitted under the Exchange Act is accumulated and        communicated to our management, including our Chief Executive Officer and        Chief Financial Officer, in a manner that allows timely decisions regarding required        disclosure. Additionally, our Chief Executive Officer and Chief Financial have concluded,        as of September 30, 2008, that our disclosure controls and procedures are effective in        achieving that level of reasonable assurance.

         

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**Changes        in Internal Control Over Financial Reporting**

         

As a result of the Arrangement, the Company has inherited two separate        systems of internal control over financial reporting, the system adopted by Sonus and the        system adopted by OncoGenex Technologies, which differin certain        respects, none of which we believe are material. Since the completion of the Arrangement,        the Company has undergone a thorough assessment of each company’s internal control        over financial reporting. Pending the completion of such assessment, the Company has        maintained certain separate procedures and internal controls for each company.

         

We have not made any changes to our internal control over financial        reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the        fiscal quarter ended September 30, 2008 that have materially affected, or are reasonably        likely to materially affect, our internal control over financial reporting.

         

**PART        II.**    **OTHER INFORMATION**

 

| **Item 1A.** | **Risk Factors** |
|--------------|------------------|

         

Other than the following update, there have been no material changes to the        risk factors set forth in our Annual Report on Form 10-K for the year ended December 31,        2007, as filed with the SEC on March 14, 2008. The risk factors disclosed here and in our        Annual Report on Form 10-K for the fiscal year ended December 31, 2007, in addition to the        other information set forth in this quarterly report, could materially affect our business,        financial condition or results of operations. You should carefully consider such risks in        addition to other information contained in this report before engaging in any transaction        involving shares of our common stock. Additional risks and uncertainties not currently        known to us or that we deem to be immaterial could also materially adversely affect our        business, financial condition or results of operations. We undertake no obligation to        publicly release the results of any revisions to any forward-looking statements to reflect        anticipated or unanticipated events or circumstances occurring after the date of such        statements.

         

The risk factor update is as follows:

         

**Risks        Related to the Company**

         

**If we        fail to obtain additional financing, we may be unable to complete or continue the        development and commercialization of OGX-011 and our other product candidates, or continue        our research and development programs.**

         

Our operations have consumed substantial amounts of cash since inception. We        expect to continue to spend substantial amounts to:

         

|   | **•** | continue and complete the clinical development of OGX-011,                    including initiation of our planned Phase 3 registration trial, and development                    of our other product candidates; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | develop, license or acquire additional product                    candidates; |
|--------|------------|-------------------------------------------------------------------------------|

 

|   | **•** | launch and commercialize any product candidates for which we                    receive regulatory approval; and |
|--------|------------|------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | continue our research and development programs. |
|--------|------------|-------------------------------------------------|

         

We will need additional funding to support these planned activities. We may        seek such additional funding through private or public offerings of our equity securities,        debt financings, executing a partnership or collaboration agreement with a third party that        has sufficient resources to fund the development of our product candidates or the licensing        or sale of certain of our product candidates.

         

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Many factors will affect our ability to develop our product candidates as        anticipated. We may be subject to unanticipated costs or delays that would accelerate our        need for additional capital or increase the costs of individual clinical trials.

         

If we are unable to raise additional capital when required or on acceptable        terms, we may have to significantly delay, scale back or discontinue the development and/or        commercialization of one or more of our product candidates. We also may be required to:        seek collaborators for our product candidates at an earlier stage than otherwise would be        desirable and on terms that are less favorable than might otherwise be available; and        relinquish or license on unfavorable terms our rights to technologies or product candidates        that we otherwise would seek to develop or commercialize ourselves. There can be no        assurance that we will be able to obtain additional funding on terms favorable to us, or at        all. In the event that such steps are not sufficient, or we believe that they will not be        sufficient, we may be required to discontinue our operations.

         

**We are        highly dependent on the success of our lead product candidate, OGX-011 (custirsen sodium),        and we cannot give any assurance that OGX-011 or any of our other product candidates will        receive regulatory approval.**

         

OGX-011 has been evaluated in five Phase 2 clinical trials, and preliminary        results for these trials were previously disclosed. The final results ultimately may vary        from such preliminary results. If any or all of these clinical trials generate safety        concerns or lack of efficacy, or competitive products developed by third parties show        significant benefit in the cancer indications in which we are developing our product        candidates, any planned supportive or primary registration trials may be delayed, altered        or not initiated and OGX-011 may never receive regulatory approval. In order to market        OGX-011, we must, among other things, conduct additional clinical trials, including Phase 3        or registration clinical trials, to demonstrate safety and efficacy. We have not initiated        any registration clinical trials with any of our product candidates. OGX-427 and SN2310 are        currently being evaluated in humans, and therefore, we have very limited safety data and        have not yet established efficacy in humans. We have completed enrollment in the Phase 1        clinical trial of SN2310 and the dose limiting toxicity that defined a maximum tolerated        dose in this heavily pretreated patient population, as expected, was significant        neutropenia. Additional clinical trials will be required to establish the safety and        efficacy. Neither OGX-225 nor CSP-9222 have yet been tested in humans. Our pre-clinical        testing of these product candidates may not be successful and we may be unable to initiate        clinical evaluation of them. Our clinical development programs for our product candidates        may not receive regulatory approval either if such product candidates fail to demonstrate        that they are safe and effective in clinical trials and consequently fail to obtain        necessary approvals from the FDA, or similar non-U.S. regulatory agencies, or if we have        inadequate financial or other resources to advance these product candidates through the        clinical trial process. Any failure to obtain regulatory approval of OGX-011 or our other        product candidates would have a material and adverse impact on our business.

         

**Clinical        trials may not demonstrate a clinical benefit of our product candidates.**

         

Positive results from pre-clinical studies and early clinical trials should        not be relied upon as evidence that later-stage or large-scale clinical trials will        succeed. We will be required to demonstrate with substantial evidence through        well-controlled clinical trials that our product candidates are safe and effective for use        in a diverse population before we can seek regulatory approvals for their commercial sale.        Later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the        satisfaction of the FDA and other non-U.S. regulatory authorities despite having progressed        through initial clinical trials.

         

Even after the completion of Phase 3 or registration clinical trials, the        FDA or other non-U.S. regulatory authorities may disagree with our clinical trial design or        our interpretation of data, and may require us to conduct additional clinical trials to        demonstrate the efficacy of our product candidates.

         

**Our        product candidates may cause undesirable and potentially serious side effects during        clinical trials that could delay or prevent their regulatory approval or        commercialization.**

 

OGX-011 has been administered to patients with various types of cancer. Some        of the patients experienced various adverse events, the majority of which are associated        with other treatments in the protocol and the disease. The majority of adverse events were        mild and the most common adverse events consisted of flu-like symptoms. Since patients in        our clinical trials have advanced stages of cancer, we expect that additional adverse        events, including serious adverse events, will occur.

         

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SN2310 has been administered to 26 patients with various types of cancer in        a Phase 1 clinical trial. Enrollment for this clinical trial has been completed. Some of        the patients experienced adverse events, which events were considered unrelated to study        drug and attributed to underlying disease. Of the adverse events associated with SN2310,        most were mild and the most common events were nausea, diarrhea, vomiting and fatigue. Mild        to moderate reactions (back/chest pain, flushing) have been observed during infusions.        Significant neutropenia has occurred in some patients and was the dose-limiting toxicity        observed, sometimes associated with fever or septicemia.

         

OGX-427 has been administered to 34 patients with various types of        cancer in a Phase 1 clinical trial. This initial evaluation of OGX-427 is ongoing, and the        maximum tolerated dose has not yet been defined. All patients experienced adverse events,        the majority of which were attributed to underlying disease. The majority of adverse        events were mild and the most common adverse events consisted of flu-like symptoms, nausea,        vomiting and fatigue. Since patients in this Phase 1 study have advanced stages of cancer,        OncoGenex expects additional adverse events, possibly including serious adverse        events.

         

Undesirable side effects caused by any of our product candidates could cause        us or regulatory authorities to interrupt, delay or halt clinical trials and could result        in the denial of regulatory approval by the FDA or non-U.S. regulatory authorities for any        or all targeted indications. This, in turn, could prevent us from commercializing our        product candidates and generating revenues from their sale. In addition, if our product        candidates receive marketing approval and we or others later identify undesirable side        effects caused by the product:

         

|   | **•** | regulatory authorities may withdraw their approval of the                    product; |
|--------|------------|---------------------------------------------------------------------------------------|

         

|   | **•** | we may be required to recall the product, change the way the                    product is administered, conduct additional clinical trials or change the                    labeling of the product; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | a product may become less competitive and product sales may                    decrease; or |
|--------|------------|---------------------------------------------------------------------------------------------|

         

|   | **•** | our reputation may suffer. |
|--------|------------|----------------------------|

         

Any one or a combination of these events could prevent us from achieving or        maintaining market acceptance of the affected product or could substantially increase the        costs and expenses of commercializing the product, which in turn could delay or prevent us        from generating significant revenues from the sale of the product.

         

Recent events have raised questions about the safety of marketed drugs and        may result in increased cautiousness by the FDA in reviewing new drugs based on safety,        efficacy or other regulatory considerations and may result in significant delays in        obtaining regulatory approvals, additional clinical trials being required, or more        stringent product labeling requirements. Any delay in obtaining, or inability to obtain,        applicable regulatory approvals, would prevent us from commercializing its product        candidates.

         

**Our drug        development activities could be delayed or stopped.**

         

We do not know whether any of required future clinical trials for OGX-011        (custirsen sodium), OGX-427, SN2310, or pre-clinical studies or clinical trials for our        other product candidates, will proceed or be completed on schedule, or at all. The        commencement of required future clinical trials could be substantially delayed or prevented        by several factors, including:

         

|   | **•** | delay or failure to obtain required future additional funding                    through private or public offerings of our equity securities, debt financings,                    executing a partnership or collaboration agreement with a third party that has                    sufficient resources to fund the development of our product candidates or the                    licensing or sale of certain of our product candidates; |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | limited number of, and competition for, suitable patients with                    the particular types of cancer required for enrollment in our clinical                    trials; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | limited number of, and competition for, suitable sites to                    conduct our clinical trials; |
|--------|------------|-----------------------------------------------------------------------------------------------------------|

         

|   | **•** | delay or failure to obtain the FDA’s or non-U.S.                    regulatory agencies’ approval or agreement to commence a clinical trial,                    including our phase 3 or registration clinical trials under a Special Protocol                    Assessment; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

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|   | **•** | delay or failure to obtain sufficient supplies of the product                    candidate for its clinical trials; |
|--------|------------|---------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | delay or failure to reach agreement on acceptable clinical trial                    agreement terms or clinical trial protocols with prospective sites or                    investigators; and |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | delay or failure to obtain the approval of the Institutional                    Review Board (“IRB”) to conduct a clinical trial at a prospective                    site. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

The completion of our current clinical trials could also be substantially        delayed or prevented by several factors, including:

         

|   | **•** | slower than expected rates of patient recruitment and                    enrollment; |
|--------|------------|--------------------------------------------------------------------------------------|

         

|   | **•** | failure of patients to complete the clinical trial; |
|--------|------------|-----------------------------------------------------|

         

|   | **•** | unforeseen safety issues; |
|--------|------------|---------------------------|

         

|   | **•** | lack of efficacy evidenced during clinical trials; |
|--------|------------|----------------------------------------------------|

         

|   | **•** | termination of its clinical trials by one or more clinical trial                    sites; |
|--------|------------|--------------------------------------------------------------------------------------------|

         

|   | **•** | inability or unwillingness of patients or medical investigators                    to follow its clinical trial protocols; |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | inability to monitor patients adequately during or after                    treatment; and |
|--------|------------|--------------------------------------------------------------------------------------------|

         

|   | **•** | introduction of competitive products that may impede its ability                    to retain patients in its clinical trials. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------|

         

Our clinical trials may be suspended or terminated at any time by the FDA,        other regulatory authorities, the IRB overseeing the clinical trial at issue, any of our        clinical trial sites with respect to that site, or by us. Any failure or significant delay        in completing clinical trials for our product candidates could materially harm our        financial results and the commercial prospects for our product candidates.

         

**If we        fail to attract and retain key management and scientific personnel, we may be unable to        successfully develop or commercialize our product candidates.**

         

We will need to expand and effectively manage our managerial, operational,        financial, development and other resources in order to successfully pursue our research,        development and commercialization efforts for our existing and future product candidates.        Our success depends on our continued ability to attract, retain and motivate highly        qualified management, pre-clinical and clinical personnel, including our executive        officers, Scott Cormack, Cindy Jacobs and Stephen Anderson. The loss of the services of any        of our senior management could delay or prevent the commercialization of our product        candidates. Although we have entered into employment agreements with each of        Mr. Cormack, Dr. Jacobs and Mr. Anderson for an indefinite term, such        agreements permit the executive to terminate his or her employment with us at any time,        subject to providing us with advance written notice. We will need to hire additional        personnel as we continue to expand our development activities.

         

We have scientific and clinical advisors who assist us in formulating our        development and clinical strategies. These advisors are not employees of the Company and        may have commitments to, or consulting or advisory contracts with, other entities that may        limit their availability to us. In addition, our advisors may have arrangements with other        companies to assist those companies in developing products or technologies that may compete        with ours.

         

We may not be able to attract or retain qualified management and scientific        personnel in the future due to the intense competition for qualified personnel among        biotechnology, pharmaceutical and other businesses and our current financial position. If        we are not able to attract and retain the necessary personnel to accomplish our business        objectives, we may experience constraints that will impede significantly the achievement of        our development objectives, our ability to raise additional capital and its ability to        implement its business strategy. In particular, if we lose any members of our senior        management team, we may not be able to find suitable replacements in a timely fashion or at        all and our business may be harmed as a result.

         

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**We may        not be able to negotiate the exit or sublease of excess office and laboratory space        currently leased in Bothell Washington on terms acceptable to us or at all.**

         

Prior to the transaction, Sonus entered into a non-cancellable lease        arrangement for office and laboratory space located in Bothell, Washington, which is        considered to be in excess of the Company’s current requirements. We are in the        process of seeking the exit or sublease of this excess space. To date, we have not entered        into any agreement for the exit or sublease of this space, or identified which transactions        or transaction structures would most benefit shareholders. The goal of minimizing future        lease expenditures will impact any decisions we make regarding specific deal structures or        transactions into which we may enter. We can provide no assurances that we will be able to        negotiate the exit or sublease of this space, on terms acceptable to us or at all or on        terms which meet our or our shareholders’ expectations.

         

**If our        competitors develop and market products that are more effective, safer or less expensive        than our future product candidates, our clinical trials and commercial opportunities will        be negatively impacted.**

         

The life sciences industry is highly competitive, and we face significant        competition from many pharmaceutical, biopharmaceutical and biotechnology companies that        are researching and marketing products designed to address cancer indications for which we        are currently developing products or for which we may develop products in the future. We        are aware of several other companies which are developing therapeutics that seek to promote        tumor cell death by inhibiting proteins believed to promote cell survival. Any products we        may develop in the future are also likely to face competition from other drugs and        therapies. Many of our competitors have significantly greater financial, manufacturing,        marketing and drug development resources than we do. Large pharmaceutical companies, in        particular, have extensive experience in clinical testing and in obtaining regulatory        approvals for drugs. These companies also have significantly greater research and marketing        capabilities than we do. In addition, many universities and private and public research        institutes are, or may become, active in cancer research, the products of which may be in        direct competition with ours. If our competitors market products that are more effective,        safer or less expensive than our future product candidates, if any, or that reach the        market sooner than our future product candidates, if any, we may not achieve commercial        success.

         

**If new        therapies become broadly used, we may need to conduct clinical trials of our product        candidates in combination with these new therapies to demonstrate safety and efficacy of        the combination. Additional trials will delay the development of our product candidates and        increase our costs. The failure of certain of our product candidates to work in combination        with these new therapies would have an adverse effect on our business.**

         

Our intention is to combine certain of ourproduct candidates with therapies        that are broadly used by clinicians and considered highly effective. As new therapies are        developed, we will need to assess these therapies to determine whether to conduct clinical        trials of ourproduct candidates in combination with them to demonstrate safety and efficacy        of the combination. If we determine to conduct additional clinical trials of its product        candidates in combination with these new therapies, the development of our product        candidates will be delayed and its costs will be increased. If these clinical trials        generate safety concerns or lack of efficacy, our business would be adversely        affected.

         

If our product candidates become approved in combination with a specific        therapy that is broadly used and that therapy becomes displaced by another product, the        market for our product candidate may decrease.

         

**If the        costs associated with the Arrangement exceed the benefits, OncoGenex may experience adverse        financial results, including increased losses.**

 

We incurred significant transaction costs as a result of the Arrangement. In        addition, we expect that we will incur additional consolidation and integration expenses,        which cannot be fully estimated at this time and may affect our financial condition and        operating results negatively. If the benefits of the Arrangement do not exceed the costs        associated with it, including any dilution resulting from the issuance of shares in        connection with the Arrangement, the Company’s financial results could be adversely        affected, resulting in, among other things, increased losses, and decreased trading prices        for our common stock.

         

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**We rely,        in part, on third parties to conduct clinical trials for our product candidates and plan to        rely on third parties to conduct future clinical trials. If these third parties do not        successfully carry out their contractual duties or meet expected deadlines, we may be        unable to obtain regulatory approval for or commercialize**our**current and future product        candidates.**

         

To implement our product development strategies, we rely on third parties,        such as contract research organizations, medical institutions, clinical investigators and        contract laboratories, to conduct our clinical trials of our product candidates. Although        we rely on these third parties to conduct our clinical trials, we are responsible for        ensuring that each of our clinical trials is conducted in accordance with our        investigational plan and protocol. Moreover, the FDA and non-U.S. regulatory authorities        require us to comply with regulations and standards, commonly referred to as Good Clinical        Practices, or GCPs, for conducting, monitoring, recording and reporting the results of        clinical trials to ensure that the data and results are scientifically credible and        accurate and that the clinical trial subjects are adequately informed of the potential        risks of participating in clinical trials. Our reliance on third parties does not relieve        us of these responsibilities and requirements. If the third parties conducting our clinical        trials do not perform their contractual duties or obligations, do not meet expected        deadlines or need to be replaced, or if the quality or accuracy of the clinical data they        obtain is compromised due to the failure to adhere to GCPs or for any other reason, we may        need to enter into new arrangements with alternative third parties and our clinical trials        may be extended, delayed or terminated. In addition, a failure by such third parties to        perform their obligations in compliance with GCPs may cause our clinical trials to fail to        meet regulatory requirements, which may require us to repeat our clinical        trials.

         

**If we        were to be successfully sued related to our products or operations, we could face        substantial liabilities that may exceed our resources.**

         

We may be held liable if any of our products or operations cause injury or        death or are found otherwise unsuitable during product testing, manufacturing, marketing or        sale. These risks are inherent in the development of pharmaceutical products. We currently        maintain a $10 million general liability policy and a $10 million per occurrence and annual        aggregate product liability insurance policy related to our clinical trials consistent with        industry standards. When necessary for our products, we intend to obtain additional product        liability insurance. Insurance coverage may be prohibitively expensive, may not fully cover        potential liabilities or may not be available in the future. Inability to obtain sufficient        insurance coverage at an acceptable cost or otherwise to protect against potential product        liability claims could prevent or inhibit the commercialization of our products. If we were        to be sued for any injury caused by or associated with our products or operations, the        litigation could consume substantial time and attention of our management, and the        resulting liability could exceed our total assets.

         

**We may        encounter difficulties in managing our expected growth and in expanding our operations        successfully.**

         

As we advance our product candidates through development and clinical        trials, we will need to develop or expand our development, regulatory, manufacturing,        marketing and sales capabilities or contract with third parties to provide these        capabilities for us. Maintaining additional relationships and managing our future growth        will impose significant added responsibilities on members of our management. We must be        able to: manage our development efforts effectively; manage our clinical trials        effectively; hire, train and integrate additional management, development, administrative        and sales and marketing personnel; improve our managerial, development, operational and        finance systems; and expand our facilities, all of which may impose a strain on our        administrative and operational infrastructure.

         

Furthermore, we may acquire additional businesses, products or product        candidates that complement or augment our existing business. Integrating any newly acquired        business, product or product candidate could be expensive and time-consuming. We may not be        able to integrate any acquired business, product or product candidate successfully or        operate any acquired business profitably. Our future financial performance will depend, in        part, on our ability to manage any future growth effectively and our ability to integrate        any acquired businesses. We may not be able to accomplish these tasks, and our failure to        accomplish any of them could prevent us from successfully growing the Company.

         

**We need        to further develop our financial and reporting processes, procedures and controls to        support our anticipated growth.**

         

To manage the anticipated growth of our operations and personnel, we may be        required to improve existing, or implement new, operational and financial systems,        processes and procedures, and to expand, train and manage our employee base. Our current        and planned systems, procedures and controls may not be adequate to support our future        operations.

         

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The laws and regulations affecting public companies, including the        provisions of the Sarbanes-Oxley Act of 2002 and rules adopted or proposed by the SEC, will        result in increased costs to us. Additional costs may also be incurred as the Company        evaluates the implications of any new rules and responds to their requirements. New rules        could make it more difficult or more costly for us to obtain certain types of insurance,        including director and officer liability insurance, and we may be forced to accept reduced        policy limits and coverage or incur substantially higher costs to obtain the same or        similar coverage. We cannot predict or estimate the amount of the additional costs we may        incur or the timing of such costs to comply with any new rules and regulations, or if        compliance can be achieved.

         

**If we        fail to acquire and develop products or product candidates at all or on commercially        reasonable terms, we may be unable to grow our business.**

         

We currently do not have internal discovery capabilities and are dependent        upon pharmaceutical and biotechnology companies and other researchers to sell or license        products or product candidates to us. To date, three of our product candidates have been        derived from technologies discovered by the Prostate Centre at Vancouver General Hospital,        or the Prostate Centre, and licensed to us by the University of British Columbia, or UBC,        and one candidate has been in-licensed from Bayer HealthCare LLC. We intend to continue to        rely on the Prostate Centre, UBC and other research institutions and other biotechnology or        pharmaceutical companies as sources of product candidates. We cannot guarantee that the        Prostate Centre or UBC will continue to develop new product candidate opportunities, that        we will continue to have access to such opportunities or that we will be able to purchase        or license these product candidates on commercially reasonable terms, or at all. If we are        unable to purchase or license new product candidates from the Prostate Centre or UBC, we        will be required to identify alternative sources of product candidates.

         

The success of our product pipeline strategy depends upon our ability to        identify, select and acquire pharmaceutical product candidates. Proposing, negotiating and        implementing an economically viable product acquisition or license is a lengthy and complex        process. We compete for partnering arrangements and license agreements with pharmaceutical        and biotechnology companies and academic research institutions. Our competitors may have        stronger relationships with third parties with whom we are interested in collaborating        and/or may have more established histories of developing and commercializing products. As a        result, our competitors may have a competitive advantage in entering into partnering        arrangements with such third parties. In addition, even if we find promising product        candidates, and generate interest in a partnering or strategic arrangement to acquire such        product candidates, we may not be able to acquire rights to additional product candidates        or approved products on terms that we find acceptable, or at all. If we fail to acquire and        develop product candidates from others, we may be unable to grow our business.

         

We expect that any product candidate to which we acquire rights will require        additional development efforts prior to commercial sale, including extensive clinical        testing and approval by the FDA and non-U.S. regulatory authorities. All product candidates        are subject to the risks of failure inherent in pharmaceutical product development,        including the possibility that the product candidate will not be shown to be sufficiently        safe and effective for approval by regulatory authorities. Even if the product candidates        are approved, we cannot be sure that we would be capable of economically feasible        production or commercial success.

         

**If we        are unable to develop our sales and marketing and distribution capability on our own or        through collaborations with marketing partners, we will not be successful in        commercializing our product candidates. We currently do not have a marketing staff nor a        sales or distribution organization.**

         

We currently do not have marketing, sales or distribution capabilities. If        our product candidates are approved, we may establish a sales and marketing organization        with technical expertise and supporting distribution capabilities to commercialize our        product candidates, which will be expensive and time consuming. Any failure or delay in the        development of internal sales, marketing and distribution capabilities would adversely        impact the commercialization of these product candidates. We may choose to collaborate with        third parties that have direct sales forces and established distribution systems, either to        augment our own sales force and distribution systems or in lieu of our own sales force and        distribution systems. To the extent that we enter into co-promotion or other licensing        arrangements, our product revenue is likely to be lower than if we directly marketed or        sold our products, when and if we have any. In addition, any revenue we receive will depend        in whole or in part upon the efforts of such third parties, which may not be        successful and will generally not be within our control. If we are unable to        enter into such arrangements on acceptable terms or at all, we may not be able to        successfully commercialize our existing and future product candidates. If we re not        successful in commercializing our existing and future product candidates, either on our own        or through collaborations with one or more third parties, our future product revenue will        suffer and we may incur significant additional losses.

         

36

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**Risks        Related to Our Intellectual Property**

 

**Our        proprietary rights may not adequately protect our technologies and product        candidates.**

         

Our commercial success will depend on our ability to obtain patents and/or        regulatory exclusivity and maintain adequate protection for our technologies and product        candidates in the United States and other countries. We will be able to protect our        proprietary rights from unauthorized use by third parties only to the extent that our        proprietary technologies and future product candidates are covered by valid and enforceable        patents or are effectively maintained as trade secrets.

         

We apply for patents covering both our technologies and product candidates,        as we deem appropriate. However, we may fail to apply for patents on important technologies        or product candidates in a timely fashion, or at all. Our existing patents and any future        patents we obtain may not be sufficiently broad to prevent others from practicing our        technologies or from developing competing products and technologies. In addition, we do not        always control the patent prosecution of subject matter that we license from others.        Accordingly, we are sometimes unable to exercise the same degree of control over this        intellectual property as we would over our own. Moreover, the patent positions of        biopharmaceutical companies are highly uncertain and involve complex legal and factual        questions for which important legal principles remain unresolved. As a result, the validity        and enforceability of our patents cannot be predicted with certainty. In addition, we        cannot guarantee that:

         

|   | **•** | we or our licensors were the first to make the inventions                    covered by each of our issued patents and pending patent                    applications; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | we or our licensors were the first to file patent applications                    for these inventions; |
|--------|------------|---------------------------------------------------------------------------------------------------------|

         

|   | **•** | others will not independently develop similar or alternative                    technologies or duplicate any of our technologies; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | any of our or our licensors’ pending patent applications                    will result in issued patents; |
|--------|------------|------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | any of our or our licensors’ patents will be valid or                    enforceable; |
|--------|------------|---------------------------------------------------------------------------------------------|

         

|   | **•** | any patents issued to us or our licensors and collaboration                    partners will provide us with any competitive advantages, or will not be                    challenged by third parties; |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | **•** | we will develop additional proprietary technologies that are                    patentable; or |
|--------|------------|------------------------------------------------------------------------------------------------|

         

|   | **•** | the patents of others will not have an adverse effect on our                    business. |
|--------|------------|-------------------------------------------------------------------------------------------|

         

The actual protection afforded by a patent varies on a product-by-product        basis, from country to country and depends upon many factors, including the type of patent,        the scope of its coverage, the availability of regulatory related extensions, the        availability of legal remedies in a particular country and the validity and enforceability        of the patents. Our ability to maintain and solidify our proprietary position for our        product candidates will depend on our success in obtaining effective claims and enforcing        those claims once granted. Our issued patents and those that may issue in the future, or        those licensed to us, may be challenged, invalidated or circumvented, and the rights        granted under any issued patents may not provide us with proprietary protection or        competitive advantages against competitors with similar products. Due to the extensive        amount of time required for the development, testing and regulatory review of a potential        product, it is possible that, before any of our product candidates can be commercialized,        any related patent may expire or remain in force for only a short period following        commercialization, thereby reducing any advantage of the patent.

         

37

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Protection afforded by U.S. patents may be adversely affected by proposed        changes to patent related U.S. statutes and to U.S. Patent and Trademark Office, or        U.S.PTO, rules, especially changes to rules concerning the filing of continuation        applications. If implemented, the rules may require that second or subsequent continuing        application filings be supported by a showing as to why the new amendments or claims,        argument or evidence presented could not have been previously submitted. Other rules, if        implemented, may limit consideration by the U.S.PTO of up to only ten claims per        application. It is common practice to file multiple patent applications with many claims in        an effort to maximize patent protection. If the first set of proposed U.S.PTO rules are        implemented, they may limit our ability to file continuing applications directed to our        product candidates and methods and related competing products and methods. In addition, if        the second set of U.S.PTO rules are implemented, they may limit our ability to patent a        number of claims sufficient to cover our product candidates and methods and related        competing products and methods. Other changes to the patent statutes may adversely affect        the protection afforded by U.S. patents and/or open U.S. patents up to third party attack        in non-litigation settings.

         

We also rely on trade secrets to protect some of our technology, especially        where we do not believe patent protection is appropriate or obtainable. However, trade        secrets are difficult to maintain. While we use reasonable efforts to protect our trade        secrets, our or our collaboration partners’ employees, consultants, contractors or        scientific and other advisors may unintentionally or willfully disclose our proprietary        information to competitors. Enforcement of claims that a third party has illegally obtained        and is using trade secrets is expensive, time consuming and uncertain. In addition,        non-U.S. courts are sometimes less willing than U.S. courts to protect trade secrets. If        our competitors independently develop equivalent knowledge, methods and know-how, we would        not be able to assert our trade secrets against them and our business could be        harmed.

         

**We may        not be able to protect our intellectual property rights throughout the        world.**

         

Filing, prosecuting and defending patents on all of our product candidates        and products, when and if we have any, in every jurisdiction would be prohibitively        expensive. Competitors may use our technologies in jurisdictions where we or our licensors        have not obtained patent protection to develop their own products. These products may        compete with our products, when and if we have any, and may not be covered by any of our or        our licensors’ patent claims or other intellectual property rights.

         

The laws of some non-U.S. countries do not protect intellectual property        rights to the same extent as the laws of the United States, and many companies have        encountered significant problems in protecting and defending such rights in foreign        jurisdictions. The legal systems of certain countries, particularly certain developing        countries, do not favor the enforcement of patents and other intellectual property        protection, particularly those relating to biotechnology and/or pharmaceuticals, which        could make it difficult for us to stop the infringement of our patents. Proceedings to        enforce our patent rights in foreign jurisdictions could result in substantial cost and        divert our efforts and attention from other aspects of our business.

         

**The        intellectual property protection for our product candidates is dependent on third        parties.**

         

With respect to OGX-011, OGX-427 and OGX-225, we have exclusively licensed        from UBC certain issued patents and pending patent applications covering the respective        antisense sequences underlying these product candidates and their commercialization and use        and we have licensed from Isis certain issued patents and pending patent applications        directed to chemical modification of our product candidates for commercialization, use and        the manufacturing thereof, as well as some alternative antisense sequences. We have also        received a sublicense from Isis under certain third party patent portfolios directed to        such modifications. We have entered into an exclusive in-licensing agreement with Bayer for        development of caspase activators that are presently being evaluated in preclinical        studies.

         

The patents and pending patent applications underlying our licenses do not        cover all potential product candidates, modifications and uses. In the case of patents and        patent applications licensed from Isis and Bayer, we do not have and have not had any        control over the filing, prosecution or enforcement of these patents or patent        applications. We cannot be certain that such prosecution efforts have been or will be        conducted in compliance with applicable laws and regulations or will result in valid and        enforceable patents. We also cannot be assured that our licensors or their respective        licensors will agree to enforce any such patent rights at our request or devote sufficient        efforts to attain a desirable result. Any failure by our licensors or any of their        respective licensing partners to properly protect the intellectual property rights relating        to our product candidates could have a material adverse effect on our financial condition        and results of operation.

         

38

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**The        patent protection for our product candidates or products may expire before we are able to        maximize their commercial value which may subject us to increased competition and reduce or        eliminate our opportunity to generate product revenue.**

         

The patents for our product candidates have varying expiration dates and,        when these patents expire, we may be subject to increased competition and we may not be        able to recover our development costs. For example, the first granted U.S. patent directed        to OGX-011 and licensed from UBC is due to expire in 2021. Generally, we anticipate that        the patents we license from Isis will expire prior to the patents we license from UBC. In        some of the larger economic territories, such as the United States and Europe, patent term        extension/restoration may be available to compensate for time taken during aspects of the        product candidate’s regulatory review. However, we cannot be certain that an        extension will be granted, or if granted, what the applicable time period or the scope of        patent protection afforded during any extended period will be. In addition, even though        some regulatory agencies may provide some other exclusivity for a product candidate under        its own laws and regulations, we may not be able to qualify the product candidate or obtain        the exclusive time period.

         

If we are unable to obtain patent term extension/restoration or some other        exclusivity, we could be subject to increased competition and our opportunity to establish        or maintain product revenue could be substantially reduced or eliminated. Furthermore, we        may not have sufficient time to recover our development costs prior to the expiration of        our U.S. and non-U.S. patents.

         

**We may        incur substantial costs as a result of litigation or other proceedings relating to patent        and other intellectual property rights and we may be unable to protect our rights to, or        use of, our technology.**

         

If we choose to go to court to stop someone else from using the inventions        claimed in our patents or our licensed patents, that individual or company has the right to        ask the court to rule that these patents are invalid and/or should not be enforced against        that third party. These lawsuits are expensive and would consume time and other resources        even if we were successful in stopping the infringement of these patents. In addition,        there is a risk that the court will decide that these patents are invalid or unenforceable        and that we do not have the right to stop the other party from using the inventions. There        is also the risk that, even if the validity of these patents is upheld, the court will        refuse to stop the other party on the ground that such other party’s activities do        not infringe our rights.

         

If we wish to use the technology or compound claimed in issued and unexpired        patents owned by others, we will need to obtain a license from the owner, enter into        litigation to challenge the validity or enforceability of the patents or incur the risk of        litigation in the event that the owner asserts that we infringed its patents. The failure        to obtain a license to technology or the failure to challenge an issued patent that we may        require to discover, develop or commercialize our product candidates may have a material        adverse impact on us.

         

If a third party asserts that we infringed its patents or other proprietary        rights, we could face a number of risks that could seriously harm our results of        operations, financial condition and competitive position, including:

         

|   | **•** | patent infringement and other intellectual property claims,                    which would be costly and time consuming to defend, whether or not the claims                    have merit, and which could delay the regulatory approval process and divert                    management’s attention from our business; |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | substantial damages for past infringement, which we may have to                    pay if a court determines that our product candidates or technologies infringe                    a competitor’s patent or other proprietary rights; |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | a court prohibiting us from selling or licensing our                    technologies or future drugs unless the third party licenses its patents or                    other proprietary rights to us on commercially reasonable terms, which it is                    not required to do; and |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | if a license is available from a third party, we may have to pay                    substantial royalties or lump sum payments or grant cross licenses to our                    patents or other proprietary rights to obtain that license. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

The biotechnology industry has produced a proliferation of patents, and it        is not always clear to industry participants, including us, which patents cover various        types of products or methods of use. The coverage of patents is subject to interpretation        by the courts, and the interpretation is not always uniform. If we are sued for patent        infringement, we would need to demonstrate that our product candidates or methods of use        either do not infringe the patent claims of the relevant patent and/or that the patent        claims are invalid, and we may not be able to do this. Proving invalidity, in particular,        is difficult since it requires a showing of clear and convincing evidence to overcome the        presumption of validity enjoyed by issued patents.

         

39

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U.S. patent laws as well as the laws of some foreign jurisdictions provide        for provisional rights in published patent applications beginning on the date of        publication, including the right to obtain reasonable royalties, if a patent subsequently        issues and certain other conditions are met.

Because some patent applications in the United States may be maintained in        secrecy until the patents are issued, because patent applications in the United States and        many foreign jurisdictions are typically not published until 18 months after filing,        and because publications in the scientific literature often lag behind actual discoveries,        we cannot be certain that others have not filed patent applications for technology covered        by our licensors’ issued patents or our pending applications or our licensors’        pending applications, or that we or our licensors were the first to invent the        technology.

         

Patent applications filed by third parties that cover technology similar to        ours may have priority over our or our licensors’ patent applications and could        further require us to obtain rights to issued patents covering such technologies. If        another party files a United States patent application on an invention similar to ours, we        may elect to participate in or be drawn into an interference proceeding declared by the        U.S.PTO to determine priority of invention in the United States. The costs of these        proceedings could be substantial, and it is possible that such efforts would be        unsuccessful, resulting in a loss of our United States patent position with respect to such        inventions.

         

Some of our competitors may be able to sustain the costs of complex patent        litigation more effectively than we can because they have substantially greater resources.        In addition, any uncertainties resulting from the initiation and continuation of any        litigation could have a material adverse effect on our ability to raise the funds necessary        to continue our operations. We cannot predict whether third parties will assert these        claims against us or against the licensors of technology licensed to us, or whether those        claims will harm our business. If we are forced to defend against these claims, whether        they are with or without any merit, whether they are resolved in favor of or against us or        our licensors, we may face costly litigation and diversion of management’s attention        and resources. As a result of these disputes, we may have to develop costly non-infringing        technology, or enter into licensing agreements. These agreements, if necessary, may be        unavailable on terms acceptable to us, if at all, which could seriously harm our business        or financial condition.

         

**If we        breach any of the agreements under which we license rights to our product candidates or        technology from third parties, we could lose license rights that are important to our        business. Certain of our license agreements may not provide an adequate remedy for their        breach by the licensor.**

         

We license the development and commercialization rights for most of our        product candidates, including OGX-011, OGX-427, OGX-225 and CSP-9222, and we expect to        enter into similar licenses in the future. Under such licenses, we are subject to various        obligations such as royalty and milestone payments, annual maintenance fees, limits on        sublicensing, insurance obligations and the obligation to use commercially reasonable best        efforts to develop and exploit the licensed technology. If we fail to comply with any of        these obligations or otherwise breach these agreements, our licensors may have the right to        terminate the license in whole or in part or to terminate the exclusive nature of the        license. Loss of any of these licenses or the exclusivity rights provided therein could        harm our financial condition and operating results. In addition, certain of our license        agreements with UBC eliminate our ability to obtain money damages in respect of certain        claims against UBC.

         

**We may        be subject to damages resulting from claims that we, or our employees or consultants, have        wrongfully used or disclosed alleged trade secrets of third parties.**

         

Many of our employees were previously employed, and certain of our        consultants are currently employed, at universities or biotechnology or pharmaceutical        companies, including our competitors or potential competitors. Although we have not        received any claim to date, we may be subject to claims that these employees or consultants        or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary        information of these current or former employers. Litigation may be necessary to defend        against these claims. If we fail in defending such claims, in addition to paying monetary        damages, we may lose valuable intellectual property rights or personnel. We may be subject        to claims that employees of our partners or licensors of technology licensed by us have        inadvertently or otherwise used or disclosed trade secrets or other proprietary information        of their former employers. We may become involved in litigation to defend against these        claims. If we fail in defending such claims, in addition to paying monetary damages, we may        lose valuable intellectual property rights or personnel.

 

40

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**Risks        Related to our Common Stock**

 

**If we        raise additional financing, the terms of such transactions may cause dilution to existing        shareholders or contain terms that are not favorable to us.**

         

We may seek to raise future financing through private placements or public        offerings of our equity or debt securities, or partnering with other pharmaceutical or        biotechnology companies. We cannot be certain that additional funding will be available on        acceptable terms, or at all. To the extent that we raise additional funds by issuing equity        securities, our shareholders may experience significant dilution. Any debt financing, if        available, may involve restrictive covenants, such as limitations on our ability to incur        additional indebtedness, limitations on our ability to acquire or license intellectual        property rights and other operating restrictions that could adversely impact our ability to        conduct our business.

         

**We have        never paid cash dividends and do not intend to do so.**

         

We have never declared or paid cash dividends on our common stock. We        currently intend to retain any earnings to finance the growth of our business rather than        to pay cash dividends. Payments of any cash dividends in the future will depend on our        financial condition, results of operations and capital requirements, as well as other        factors deemed relevant by our board of directors.

         

**Risks        Related to Our Industry**

 

**Failure        to obtain regulatory approval outside the United States would prevent us from marketing our        product candidates abroad.**

         

We intend to market certain of our existing and future product candidates in        non-North American markets. In order to market our existing and future product candidates        in the European Union and many other non-North American jurisdictions, we must obtain        separate regulatory approvals. We have had no interactions with non-North American        regulatory authorities, and the approval procedures vary among countries and can involve        additional testing, and the time required to obtain approval may differ from that required        to obtain FDA approval. Approval by the FDA or other regulatory authorities does not ensure        approval by regulatory authorities in other countries, and approval by one or more        non-North American regulatory authorities does not ensure approval by regulatory        authorities in other countries or by the FDA. The non-North American regulatory approval        process may include all of the risks associated with obtaining FDA approval. We may not        obtain non-North American regulatory approvals on a timely basis, if at all. We may not be        able to file for non-North American regulatory approvals and may not receive necessary        approvals to commercialize our existing and future product candidates in any        market.

         

**Even if        we obtain regulatory approvals for our product candidates, the terms of approvals and        ongoing regulation of our product candidates may limit how we manufacture and market our        product candidates, which could materially impair our ability to generate        revenue.**

         

Once regulatory approval has been granted, the approved product and its        manufacturer are subject to continual review. Any regulatory approval that we receive for a        product candidate is likely to be subject to limitations on the indicated uses for which        the end product may be marketed, or include requirements for potentially costly        post-approval follow-up clinical trials. In addition, if the FDA and/or non-U.S. regulatory        authorities approve any of our product candidates, the labeling, packaging, adverse event        reporting, storage, advertising and promotion for the end product will be subject to        extensive regulatory requirements. We and the manufacturers of our products, when and if we        have any, will also be required to comply with current Good Manufacturing Practice        (“cGMP”) regulations, which include requirements relating to quality control        and quality assurance as well as the corresponding maintenance of records and        documentation. Further, regulatory agencies must approve these manufacturing facilities        before they can be used to manufacture our products, when and if we have any, and these        facilities are subject to ongoing regulatory inspection. If we fail to comply with the        regulatory requirements of the FDA and other non-U.S. regulatory authorities, or if        previously unknown problems with our products, when and if we have any, manufacturers or        manufacturing processes are discovered, we could be subject to administrative or judicially        imposed sanctions, including:

         

41

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|   | **•** | restrictions on the products, manufacturers or manufacturing                    process; |
|--------|------------|------------------------------------------------------------------------------------------|

 

|   | **•** | warning letters; |
|--------|------------|------------------|

 

|   | **•** | civil or criminal penalties or fines; |
|--------|------------|---------------------------------------|

 

|   | **•** | injunctions; |
|--------|------------|--------------|

 

|   | **•** | product seizures, detentions or import bans; |
|--------|------------|----------------------------------------------|

 

|   | **•** | voluntary or mandatory product recalls and publicity                    requirements; |
|--------|------------|---------------------------------------------------------------------------------------|

 

|   | **•** | suspension or withdrawal of regulatory approvals; |
|--------|------------|---------------------------------------------------|

 

|   | **•** | total or partial suspension of production; |
|--------|------------|--------------------------------------------|

 

|   | **•** | imposition of restrictions on operations, including costly new                    manufacturing requirements; and |
|--------|------------|-------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | refusal to approve pending New Drug Applications                    (“NDAs”) or supplements to approved NDAs. |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------|

         

In addition, the FDA and non-U.S. regulatory authorities may change their        policies and additional regulations may be enacted that could prevent or delay regulatory        approval of our product candidates. We cannot predict the likelihood, nature or extent of        government regulation that may arise from future legislation or administrative action,        either in the United States, Canada or abroad. If we are not able to maintain regulatory        compliance, we would likely not be permitted to market our future product candidates and we        may not achieve or sustain profitability.

         

| **Item 4.** | **Submission of Matters to a Vote of Security                    Holders** |
|-------------|----------------------------------------------------------------------------|

         

The Company held an Annual and Special Meeting of the Stockholders on August        19, 2008. The items voted upon by the Stockholders and the results of voting are set forth        below.

         

The Stockholders voted to approve the issuance of common stock in connection        with the Arrangement. The results of such vote are as follows:

         

|   | For:   12,708,836 | Against:   616,248 | Abstain:  442,978 | Broker Non-votes:  15,786,976 |
|--------|------------------------|-------------------------|------------------------|------------------------------------|

         

The Stockholders elected the nominees for director set forth below. The        “For” column represents the number of affirmative votes, and the        “Withheld” column represents the number of abstentions and broker non-votes by        holders of common stock represented by either proxy or in person at the meeting.

         

| Name                                 | For             | Withhold      |
|--------------------------------------|-----------------------------------------------------------------------------|----------------------------------------|
| Michael A.                Martino    |                                                                        | 28,253,435                             |   | 1,301,603 |   |
| Michelle G.                Burris    |                                                                        | 28,416,387                             |   | 1,138,651 |   |
| George W. Dunbar,                Jr. |                                                                        | 28,408,051                             |   | 1,146,987 |   |
| Robert E. Ivy                        |                                                                        | 28,414,721                             |   | 1,140,317 |   |
| Dwight Winstead                      |                                                                        | 28,420,470                             |   | 1,134,568 |   |

The Stockholders voted to approve an amendment to our Amended and Restated        Certificate of Incorporation (“Certificate”) to change our name to        “OncoGenex Pharmaceuticals, Inc.”. The results of such vote are as        follows:

         

|   | For:   28,778,411 | Against:  726,497 | Abstain:  50,130 | Broker Non-votes:  0 |
|--------|------------------------|------------------------|-----------------------|---------------------------|

42

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The Stockholders voted to approve of an amendment of our Certificate to (1)        effect a reverse stock split of the outstanding shares of Sonus’ common stock within        the range of 1-for-10 and 1-for-20 and (2) reduce the number of authorized shares of common        stock from 75 million shares to the number of shares which is equal to two times the number        of shares of the Company’s common stock outstanding immediately following the closing        of the Arrangement and the reverse stock split. The results of such vote are as        follows:

         

|   | For:  28,138,687 | Against:  1,381,654 | Abstain:  34,697 | Broker Non-votes:  0 |
|--------|-----------------------|--------------------------|-----------------------|---------------------------|

The Stockholders ratified the appointment of Ernst & Young LLP as our        Independent Registered Public Accounting Firm for the fiscal year ending December 31, 2008.        The results of such vote are as follows:

|   | For:  29,328,741 | Against:  169,859 | Abstain:  56,438 | Broker Non-votes:  0 |
|--------|-----------------------|------------------------|-----------------------|---------------------------|

The Stockholders approved an adjournment or postponement of the meeting to        solicit additional proxies. The results of such vote are as follows:

|  | For: 25,692,491 | Against:  2,600,827 | Abstain:  1,261,720 | Broker Non-votes:  0 |
|--|----------------------|--------------------------|--------------------------|---------------------------|

 

 

 

43

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**Item        6.    Exhibits**

 

| **    Exhibit                        Number** | **Description**                                                                                                                                                                                               |
|---------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1(1)                                                                                | Arrangement Agreement between the Company and OncoGenex                    Technologies Inc. dated May 27, 2008†                                                                                       |
| 2.2                                                                                   | First Amendment to Arrangement Agreement between the Company and                    OncoGenex Technologies Inc. dated August 11, 2008                                                                         |
| 2.3                                                                                   | Second Amendment to Arrangement Agreement between the Company                    and OncoGenex Technologies Inc. dated August 15, 2008                                                                        |
| 3.1(2)                                                                                | Amended and Restated Certificate of Incorporation of Sonus                    Pharmaceuticals, Inc. (As Amended Through May 5, 2004)                                                                          |
| 3.2                                                                                   | Certificate of Amendment to Certificate of Incorporation of                    Sonus Pharmaceuticals, Inc., effective August 20, 2008                                                                         |
| 3.3(3)                                                                                | Third Amended and Restated Bylaws of Oncogenex Pharmaceuticals,                    Inc.                                                                                                                       |
| 4.1                                                                                   | Specimen Certificate of Common Stock                                                                                                                                                                          |
| 4.2(4)                                                                                | Amended and Restated Rights Agreement dated as of July 24, 2002                    between the Company and U.S. Stock Transfer Corporation                                                                    |
| 4.3(5)                                                                                | First Amendment to Amended and Restated Rights Agreement dated                    as of October 17, 2005 between the Company and U.S. Stock Transfer                    Corporation                           |
| 4.4(6)                                                                                | Second Amendment to Amended and Restated Rights Agreement dated                    as of August 10, 2006 between the Company and U.S. Stock Transfer                    Corporation                           |
| 4.5(7)                                                                                | Third Amendment to Amended and Restated Rights Agreement dated                    May 27, 2008 between the Company and Computershare Trust Company,                    N.A.                                   |
| 4.6(1)                                                                                | Form of Escrow Agreement between the Company, Computershare                    Trust Company of Canada and former shareholders and debentureholders of                    OncoGenex Technologies Inc.         |
| 4.7(1)                                                                                | Form of OncoGenex Voting Agreement                                                                                                                                                                            |
| 4.8(1)                                                                                | Form of Sonus Voting Agreement                                                                                                                                                                                |
| 10.1(8)                                                                               | Sonus Pharmaceuticals, Inc. Incentive Stock Option, Nonqualified                    Stock Option and Restricted Stock Purchase Plan – 1991 (the “1991                    Plan”), as amended |
| 10.2(8)                                                                               | Form of Incentive Option Agreement (pertaining to the 1991                    Plan)                                                                                                                           |
| 10.3(8)                                                                               | Form of Sonus Pharmaceuticals, Inc. Nonqualified Stock Option                    Agreement under the 1991 Plan                                                                                                |
| 10.4(9)                                                                               | Sonus Pharmaceuticals, Inc. 1999 Nonqualified Stock Incentive                    Plan (the “1999 Plan”)                                                                                           |
| 10.5(9)                                                                               | Form of Sonus Pharmaceuticals, Inc. Nonqualified Stock Option                    Agreement under the 1999 Plan                                                                                                |
| 10.6(9)                                                                               | Form of Sonus Pharmaceuticals, Inc. Restricted Stock Purchase                    Agreement under the 1999 Plan                                                                                                |
| 10.7(10)                                                                              | Sonus Pharmaceuticals, Inc. 2000 Stock Incentive Plan (the                    “2000 Plan”)                                                                                                        |
| 10.8(11)                                                                              | First Amendment to Sonus Pharmaceuticals, Inc. 2000                    Plan                                                                                                                                   |
| 10.9(10)                                                                              | Form of Sonus Pharmaceuticals, Inc. Stock Option Agreement                    (pertaining to the 2000 Plan)                                                                                                   |
| 10.10(12)                                                                             | Sonus Pharmaceuticals, Inc. 2007 Performance Incentive Plan (the                    “2007 Plan”)                                                                                                  |
| 10.11(13)                                                                             | Form of Sonus Pharmaceuticals, Inc. Stock Option Agreement                    (pertaining to the 2007 Plan)                                                                                                   |
| 10.12(13)                                                                             | Form of Sonus Pharmaceuticals, Inc. Restricted Stock Purchase                    Agreement under the 2007 Plan                                                                                                |
| 10.13(14)                                                                             | OncoGenex Technologies Inc. Amended and Restated Stock Option                    Plan                                                                                                                         |
| 10.14(15)                                                                             | Stock Option Assumption, Amending and Confirmation Agreement                    dated as of August 21, 2008 between the Company and OncoGenex Technologies                    Inc.                            |

 

 

44

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| **    Exhibit                        Number** | **Description**                                                                                                                                                                                                                                       |
|---------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.15(16)                                                                             | Sonus Pharmaceuticals, Inc. 2006 Employee Stock Purchase                    Plan                                                                                                                                                                      |
| 10.16(17)                                                                             | Sonus Pharmaceuticals, Inc. Compensation Policy                                                                                                                                                                                                       |
| 10.17(17)                                                                             | Sonus Pharmaceuticals, Inc. Executive Compensation                    Program                                                                                                                                                                         |
| 10.18(8)                                                                              | Form of Indemnification Agreement for Officers and Directors of                    the Company                                                                                                                                                        |
| 10.19(14)                                                                             | Form of Indemnification Agreement between OncoGenex Technologies                    Inc. and each of Scott Cormack, Stephen Anderson and Cindy Jacobs                                                                                                 |
| 10.20(14)                                                                             | Form of Indemnification Agreement between OncoGenex Technologies                    Inc. and Neil Clendeninn                                                                                                                                          |
| 10.21(18)                                                                             | Severance/Change in Control Agreement dated January 11, 2008                    between the Company and Michael Martino                                                                                                                               |
| 10.22                                                                                 | Executive Termination Agreement and General Release dated August                    21, 2008 between the Company and Michael Martino                                                                                                                  |
| 10.23(18)                                                                             | Severance/Change in Control Agreement dated January 11, 2008                    between the Company and Alan Fuhrman                                                                                                                                  |
| 10.24                                                                                 | Executive Termination Agreement and General Release dated August                    21, 2008 between the Company and Alan Fuhrman                                                                                                                     |
| 10.25(14)                                                                             | Employment Agreement between OncoGenex Technologies Inc. and                    Scott Cormack dated as of December 21, 2001, and Employment Amending Agreement                    dated as of August 10, 2005                                         |
| 10.26(19)                                                                             | Employment Agreement between OncoGenex Technologies Inc. and                    Stephen Anderson dated as of January 9, 2006*                                                                                                                         |
| 10.27                                                                                 | Employment Amending Agreement dated June 28, 2007 between                    OncoGenex Technologies Inc. and Stephen Anderson                                                                                                                         |
| 10.28(19)                                                                             | Employment Agreement between OncoGenex, Inc. and Cindy Jacobs                    dated as of September 12, 2005*                                                                                                                                      |
| 10.29(20)                                                                             | Securities Purchase Agreement dated as of August 15, 2005 by and                    among the Company and the investors named therein, together with their                    permitted transferees (“Securities Purchase Agreement”)     |
| 10.30(20)                                                                             | Form of Purchase Warrant related to the Securities Purchase                    Agreement                                                                                                                                                              |
| 10.31(20)                                                                             | Registration Rights Agreement dated as of August 15, 2005 by and                    among the Company and the investors named therein                                                                                                                 |
| 10.32(21)                                                                             | Lease by and between BMR-217th Place LLC and the                    Company dated as of November 21, 2006                                                                                                                                             |
| 10.33(22)                                                                             | First Amendment to Lease by and between BMR-217th                    Place LLC and the Company dated as of August 17, 2007                                                                                                                            |
| 10.34(23)                                                                             | Second Amendment to Lease by and between BMR-217th                    Place LLC and the Company dated as of January 28, 2008                                                                                                                          |
| 10.35                                                                                 | Amended and Restated License Agreement effective as of July 2,                    2008 by and between OncoGenex Technologies Inc. and Isis Pharmaceuticals, Inc.                    (OGX-011)*                                                        |
| 10.36(19)                                                                             | License Agreement between OncoGenex Technologies Inc. and the                    University of British Columbia effective as of November 1, 2001, and Amending                    Agreement dated as of August 30, 2006                    (OGX-011)* |
| 10.37                                                                                 | Second Amending Agreement and Consent as of August 7, 2008                    between The University of British Columbia and OncoGenex Technologies Inc.                    (OGX-011)                                                                 |
| 10.38(19)                                                                             | Collaboration and License Agreement between OncoGenex                    Technologies Inc. and Isis Pharmaceuticals, Inc. effective as of January 5,                    2005 (OGX-427)*                                                               |

 

 

 

45

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| **    Exhibit                        Number** | **Description**                                                                                                                                                                                                                                   |
|---------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.39(19)                                                                             | License Agreement between OncoGenex Technologies Inc. and the                    University of British Columbia effective as of April 5, 2005, and Amending                    Agreement dated as of August 30, 2006 (OGX-427)*                   |
| 10.40                                                                                 | Second Amending Agreement as of August 7, 2008 between The                    University of British Columbia and OncoGenex Technologies Inc.                    (OGX-427)                                                                         |
| 31.1

                                                                           | Certification of President and Chief Executive Officer pursuant                    to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as                    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2

                                                                           | Certification of Chief Financial Officer pursuant to Rule                    13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002               |
| 32.1

                                                                           | Certification of President and Chief Executive Officer pursuant                    to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the                    Sarbanes-Oxley Act of 2002                                             |
| 32.2

                                                                           | Certification of Chief Financial Officer pursuant to 18 U.S.C.                    Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of                    2002                                                           |

| † | Schedules and similar attachments to the Arrangement Agreement                    have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Registrant will                    furnish supplementally a copy of any omitted schedule or similar attachment to                    the SEC upon request. |
|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| * | Confidential portions of this exhibit have been omitted and                    filed separately with the Commission pursuant to an application for                    Confidential Treatment under Rule 24b-2 promulgated under the Securities                    Exchange Act of 1934, as amended. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (1) | Incorporated by reference to the Company’s proxy statement on Schedule                    14A filed on July 3, 2008. |
|-----|----------------------------------------------------------------------------------------------------------------------------|

| (2) | Incorporated by reference to the Company’s quarterly                    report on Form 10-Q for the quarter ended June 30, 2004. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Incorporated by reference to the Company’s current report                    on Form 8-K filed on October 30, 2008. |
|-----|---------------------------------------------------------------------------------------------------------------------------|

| (4) | Incorporated by reference to the Company’s amended Form                    8-A filed on July 25, 2002. |
|-----|--------------------------------------------------------------------------------------------------------------|

| (5) | Incorporated by reference to the Company’s amended Form                    8-A filed on October 18, 2005. |
|-----|-----------------------------------------------------------------------------------------------------------------|

| (6) | Incorporated by reference to the Company’s amended Form                    8-A filed on August 14, 2006. |
|-----|----------------------------------------------------------------------------------------------------------------|

| (7) | Incorporated by reference to the Company’s current report                    on Form 8-K filed on May 30, 2008. |
|-----|-----------------------------------------------------------------------------------------------------------------------|

| (8) | Incorporated by reference to the Company’s registration                    statement on Form S-1, Reg. No. 33-96112. |
|-----|----------------------------------------------------------------------------------------------------------------------------|

| (9) | Incorporated by reference to the Company’s quarterly                    report on Form 10-Q for the quarter ended March 31, 1999. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------|

| (10) | Incorporated by reference to the Company’s quarterly                    report on Form 10-Q for the quarter ended June 30, 2000. |
|------|----------------------------------------------------------------------------------------------------------------------------------------|

| (11) | Incorporated by reference to the Company’s quarterly                    report on Form 10-Q for the quarter ended September 30, 2006. |
|------|---------------------------------------------------------------------------------------------------------------------------------------------|

| (12) | Incorporated by reference to the Company’s proxy statement                    on Schedule 14A filed on April 3, 2007. |
|------|-----------------------------------------------------------------------------------------------------------------------------|

| (13) | Incorporated by reference to the Company’s quarterly                    report on Form 10-Q for the quarter ended September 30, 2007. |
|------|---------------------------------------------------------------------------------------------------------------------------------------------|

| (14) | Incorporated by reference to the OncoGenex Technologies Inc.                    registration statement on Form F-1 filed on December 13, 2006. |
|------|------------------------------------------------------------------------------------------------------------------------------------------------|
| (15) | Incorporated by reference to the Company’s registration                    statement on Form S-8 filed on August 26, 2008.               |

| (16) | Incorporated by reference to the Company’s proxy statement                    on Schedule 14A filed on March 24, 2006. |
|------|------------------------------------------------------------------------------------------------------------------------------|

| (17) | Incorporated by reference to the Company’s current report                    on Form 8-K filed on December 15, 2006. |
|------|----------------------------------------------------------------------------------------------------------------------------|

| (18) | Incorporated by reference to the Company’s current report                    on Form 8-K filed on January 17, 2008. |
|------|---------------------------------------------------------------------------------------------------------------------------|

| (19) | Incorporated by reference to the OncoGenex Technologies Inc.                    registration statement on Form F-1, Amendment No. 1, filed on January 29,                    2007. |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (20) | Incorporated by reference to the Company’s current report                    on Form 8-K filed on August 18, 2005. |
|------|--------------------------------------------------------------------------------------------------------------------------|

| (21) | Incorporated by reference to the Company’s annual report                    on Form 10-K for the year ended December 31, 2006. |
|------|--------------------------------------------------------------------------------------------------------------------------------------|

| (22) | Incorporated by reference to the Company’s annual report                    on Form 10-K for the year ended December 31, 2007. |
|------|--------------------------------------------------------------------------------------------------------------------------------------|

| (23) | Incorporated by reference to the Company’s quarterly                    report on Form 10-Q for the quarter ended March 31, 2008. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------|

 

 

 

 

46

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**SIGNATURES**

         

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.

         

|   | **ONCOGENEX PHARMACEUTICALS, INC.** |
|--------|-------------------------------------|

         

         

| Date:   November 10, 2008 | By:  /s/ Stephen Anderson                                                                        |
|-------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                | Stephen Anderson        Chief Financial                    Officer and Secretary        (Principal                    Financial and Accounting Officer) |

         

 

 

47

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