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# **UNITED STATES**

# **SECURITIES AND EXCHANGE COMMISSION**

## **Washington D.C.20549**

## ** **

# **FORM 10-Q**

# ** **

**x****     ****QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**FOR THEQUARTERLY PERIOD ENDED JUNE 30, 2008**

 

**or**

 

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

 

**FOR THE TRANSITION PERIOD FROM                      TO                        .**

 

**Commissionfile number 000-21243**

 

**Sonus Pharmaceuticals, Inc.**

(Exact Name ofRegistrant as Specified in Its Charter)

 

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

 

**1522217th Place SE, Suite 100, Bothell, Washington 98021**

(Address ofPrincipal Executive Offices)

 

**(425) 487-9500**

(Registrant’s telephone number, including areacode)

 

Indicate by check whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.   Yes  x   No  o

 

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

 

| Large  accelerated filer o                                              |   | Accelerated  filer x         |
|-------------------------------------------------------------------------|--------|------------------------------|
|                                                                    |   |                         |
| Non-accelerated  filer o  (Do not check if a smaller reporting company) |   | Smaller  reporting company o |

 

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

 

Indicate the number of shares outstandingof each of the issuer’s classes of common stock, as of the latest practicabledate.

 

| **Class**                       | ** ** | **Outstanding at July 31, 2008** |
|---------------------------------|------------|---------------------------------------|
|                            |       |                                  |
| Common Stock,  $0.001 par value |       | 37,089,679                            |

 

 

 

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**SonusPharmaceuticals, Inc.**

**Index to Form 10-Q**

 
| ** **                                                                  | **Page****Number**                                                                                                    |
|-----------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|
| **Part I.   Financial Information**                               | ** **                                                                                                            |
| ** **                                                                  | ** **                                                                                                            | ** ** |
| Item 1.                                                                     | Financial Statements                                                                                                  |   |
|                                                                        |                                                                                                                  |   |
|                                                                        | Balance Sheets as of  June 30, 2008 (unaudited) and December 31, 2007                                       | 3 |
|                                                                        |                                                                                                                  |   |
|                                                                        | Statements of  Operations (unaudited) for the three and six months ended June 30, 2008  and   June 30, 2007 | 4 |
|                                                                        |                                                                                                                  |   |
|                                                                        | Statements of Cash Flows (unaudited) for the six  months ended June 30, 2008 and June 30, 2007              | 5 |
|                                                                        |                                                                                                                  |   |
|                                                                        | Notes to Financial Statements (unaudited)                                                                             | 6 |
|                                                                        |                                                                                                                  |   |
| Item 2.                                                                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                           | 12 |
|                                                                        |                                                                                                                  |   |
| Item 3.                                                                     | Quantitative  and Qualitative Disclosures About Market Risk                                                           | 19 |
|                                                                        |                                                                                                                  |   |
| Item 4.                                                                     | Controls and  Procedures                                                                                              | 19 |
|                                                                        |                                                                                                                  |   |
| **Part II.  Other Information**                                   |                                                                                                                  |
|                                                                        |                                                                                                                  |   |
| Item 1A.                                                                    | Risk  Factors                                                                                                         | 20 |
|                                                                        |                                                                                                                  |   |
| Item 6.                                                                     | Exhibits                                                                                                              | 24 |
|                                                                        |                                                                                                                  |   |
| Items 1, 2, 3, 4 and 5  are not applicable and therefore have been omitted. |                                                                                                                  |

 

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**Part I.     Financial Information**

** **

**Item 1.    Financial Statements**

 

**Sonus Pharmaceuticals, Inc.**

**BalanceSheets**

 
| ** **                                                                                                                                                                             | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                             | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| ** **                                                                                                                                                                             | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                                                             |       |              |       |                  |       |
| Current assets:                                                                                                                                                                        |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                             |       | $                 | 5,727,889  |                  | $          | 6,535,272 |   |
| Marketable  securities                                                                                                                                                                 |       | 17,532,448        |       | 27,663,554            |       |
| Interest  receivable                                                                                                                                                                   |       | 233,545           |       | 456,149               |       |
| Other current  assets                                                                                                                                                                  |       | 454,633           |       | 576,905               |       |
| Total current assets                                                                                                                                                                   |       | 23,948,515        |       | 35,231,880            |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Equipment,  furniture and leasehold improvements, net                                                                                                                                  |       | 8,987,747         |       | 9,577,567             |       |
| Other assets                                                                                                                                                                           |       | 497,327           |       | 439,822               |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Total assets                                                                                                                                                                           |       | $                 | 33,433,589 |                  | $          | 45,249,269 |   |
|                                                                                                                                                                                   |       |              |       |                  |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                         |       |              |       |                  |       |
| Current  liabilities:                                                                                                                                                                  |       |              |       |                  |       |
| Accounts payable                                                                                                                                                                       |       | $                 | 151,530    |                  | $          | 1,462,444 |   |
| Accrued expenses                                                                                                                                                                       |       | 1,104,012         |       | 4,141,273             |       |
| Current portion  of deferred rent and long-term obligation                                                                                                                             |       | 902,606           |       | 765,005               |       |
| Total current  liabilities                                                                                                                                                             |       | 2,158,148         |       | 6,368,722             |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Deferred rent  and long-term obligation, less current portion                                                                                                                          |       | 6,759,191         |       | 6,976,130             |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Commitments and  contingencies                                                                                                                                                         |       |              |       |                  |       |
| Stockholders’  equity:                                                                                                                                                            |       |              |       |                  |       |
| Preferred stock;  $.001 par value; 5,000,000 authorized; no shares issued or outstanding                                                                                               |       | **—**        |       | —                |       |
| Common stock;  $.001 par value; 75,000,000 shares authorized; 37,089,679 and 37,048,335  shares issued and outstanding at June 30, 2008 and December 31,  2007, respectively |       | 157,248,395       |       | 156,704,899           |       |
| Accumulated  deficit                                                                                                                                                                   |       | (132,723,932      | )          | (124,801,837          | )          |
| Accumulated  other comprehensive (income) loss                                                                                                                                         |       | (8,213            | )          | 1,355                 |       |
| Total  stockholders’ equity                                                                                                                                                       |       | 24,516,250        |       | 31,904,417            |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Total  liabilities and stockholders’ equity                                                                                                                                       |       | $                 | 33,433,589 |                  | $          | 45,249,269 |   |

 

See accompanyingnotes.

 

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**Sonus Pharmaceuticals, Inc.**

**Statementsof Operations**

**(Unaudited)**

 
| ** **                                                          | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                          | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                |       |                                            |       |                                          |       |   |   |   |   |
| Revenue:                                                            |       |                                            |       |                                          |       |   |   |   |   |
| Collaboration  revenue from Bayer Schering                          |       | $                                               | —     |                                          | $          | 3,271,018 |   | $ | — |   | $ | 8,322,052 |   |
| ** **                                                          | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating  expenses:                                                | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Research and  development                                           |       | 1,487,766                                       |       | 7,695,972                                     |       | 3,756,800 |   | 14,635,370 |   |
| General and  administrative                                         |       | 2,507,076                                       |       | 2,128,522                                     |       | 4,608,485 |   | 4,104,121 |   |
| ** **                                                          | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total operating  expenses                                           |       | 3,994,842                                       |       | 9,824,494                                     |       | 8,365,285 |   | 18,739,491 |   |
| ** **                                                          | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating loss                                                      |       | (3,994,842                                      | )          | (6,553,476                                    | )          | (8,365,285 | ) | (10,417,439 | ) |
| ** **                                                          | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Other income  (expense):                                            | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Other income  (expense)                                             |       | 12,935                                          |       | 949                                           |       | (31,443 | ) | (34,004 | ) |
| Interest income                                                     |       | 175,003                                         |       | 589,485                                       |       | 474,631 |   | 1,263,358 |   |
| Interest expense                                                    |       | —                                          |       | (125                                          | )          | — |   | (434 | ) |
| ** **                                                          | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total other  income, net                                            |       | 187,938                                         |       | 590,309                                       |       | 443,188 |   | 1,228,920 |   |
| ** **                                                          | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss                                                            |       | $                                               | (3,806,904 | )                                             | $          | (5,963,167 | ) | $ | (7,922,097 | ) | $ | (9,188,519 | ) |
| ** **                                                          | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic and  diluted net loss per share                               |       | $                                               | (0.10      | )                                             | $          | (0.16 | ) | $ | (0.21 | ) | $ | (0.25 | ) |
| ** **                                                          | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Shares used in  computation of basic and diluted net loss per share |       | 37,062,353                                      |       | 36,883,944                                    |       | 37,057,187 |   | 36,868,990 |   |

 

See accompanyingnotes.

 

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**Sonus Pharmaceuticals, Inc.**

**Statementsof Cash Flows**

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| **Operating  activities:**                                                   |       |                                              |       |   |   |
| Net loss                                                                     |       | $                                                 | (7,922,097 | ) | $ | (9,188,519 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                              |       |   |   |
| Depreciation                                                                 |       | 695,454                                           |       | 302,288 |   |
| Non-cash  stock-based compensation                                           |       | 530,724                                           |       | 1,309,490 |   |
| Amortization  (Accretion) of investments                                     |       | 12,787                                            |       | (322,799 | ) |
| Changes in  operating assets and liabilities:                                |       |                                              |       |   |   |
| Accounts  receivable from related party                                      |       | —                                            |       | 2,494,678 |   |
| Interest  receivable                                                         |       | 222,604                                           |       | (535,535 | ) |
| Other current  assets                                                        |       | 122,272                                           |       | (13,060 | ) |
| Other long term  assets                                                      |       | (57,505                                           | )          | 15,671 |   |
| Accounts payable                                                             |       | (1,310,914                                        | )          | (757,115 | ) |
| Accounts payable  to related party                                           |       | —                                            |       | 297,250 |   |
| Accrued expenses                                                             |       | (3,037,261                                        | )          | (4,828,936 | ) |
| Deferred rent                                                                |       | (251,856                                          | )          | — |   |
| Other current  liabilities                                                   |       | 139,691                                           |       | (50,029 | ) |
| Deferred revenue  from related party                                         |       | —                                            |       | (2,772,959 | ) |
| Other long-term  liabilities                                                 |       | 32,827                                            |       | — |   |
| Net cash used in  operating activities                                       |       | (10,823,274                                       | )          | (14,049,575 | ) |
|                                                                         |       |                                              |       |   |   |
| **Investing  activities:**                                                   |       |                                              |       |   |   |
| Purchases of  capital equipment and leasehold improvements                   |       | (105,634                                          | )          | (437,453 | ) |
| Purchases of  marketable securities                                          |       | (21,145,760                                       | )          | (38,690,506 | ) |
| Proceeds from  sales of marketable securities                                |       | 30,955,000                                        |       | 19,510,014 |   |
| Proceeds from  maturities of marketable securities                           |       | 299,513                                           |       | 281,587 |   |
| Net cash  provided by (used in) investing activities                         |       | 10,003,119                                        |       | (19,336,358 | ) |
|                                                                         |       |                                              |       |   |   |
| **Financing  activities:**                                                   |       |                                              |       |   |   |
| Proceeds from of  common stock warrants                                      |       |                                              |       | 57,440 |   |
| Proceeds from  issuance of common stock under employee benefit plans         |       | 12,772                                            |       | 116,509 |   |
| Payments on  lease obligations                                               |       | —                                            |       | (14,763 | ) |
| Net cash  provided by investing activities                                   |       | 12,772                                            |       | 159,186 |   |
|                                                                         |       |                                              |       |   |   |
| Decrease in cash  and cash equivalents for the period                        |       | (807,383                                          | )          | (33,226,747 | ) |
| Cash and cash  equivalents at beginning of period                            |       | 6,535,272                                         |       | 35,771,784 |   |
|                                                                         |       |                                              |       |   |   |
| Total cash and  cash equivalents                                             |       | $                                                 | 5,727,889  |   | $ | 2,545,037 |   |
|                                                                         |       |                                              |       |   |   |
| Supplemental  cash flow information:                                         |       |                                              |       |   |   |
| Interest paid                                                                |       | $                                                 | —     |   | $ | 434 |   |

 

See accompanyingnotes.

 

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**SonusPharmaceuticals, Inc.**

**Notes toFinancial Statements**

**(Unaudited)**

** **

**1.****              Basis ofPresentation**

** **

The unaudited financial statements havebeen prepared in accordance with generally accepted accounting principles forinterim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of theinformation and footnotes required to be presented for complete financialstatements.  The accompanying financialstatements reflect all adjustments (consisting only of normal recurring items)which are, in the opinion of management, necessary for a fair presentation ofthe results for the interim periods presented. The accompanying Balance Sheet at December 31, 2007 has beenderived from the audited financial statements included in the Company’s AnnualReport on Form 10-K for the year then ended.  The financial statements and relateddisclosures have been prepared with the assumption that users of the interimfinancial information have read or have access to the audited financialstatements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunctionwith the audited financial statements and the related notes thereto included inthe Annual Report on Form 10-K for the year ended December 31, 2007and filed with the Securities and Exchange Commission on March 14, 2008.

 

The Companyadopted SFAS No. 157, “*Fair Value Measurements*”(“SFAS No. 157”) effective January 1, 2008. SFAS No. 157 definesfair value, establishes a framework for measuring fair value and expandsdisclosure of fair value measurements. The Company did not have a transitionadjustment to beginning retained earnings as a result of adopting thisstandard. SFAS No. 157 applies to all financial instruments that aremeasured and reported on a fair value basis. This includes those items reportedin marketable securities on the balance sheets. See Note 5 for additionalinformation.

 

Inconjunction with the adoption of SFAS No. 157, the Company also adoptedSFAS 159, *“The Fair Value Option for Financial Assets andFinancial Liabilities – Including an Amendment of SFAS No. 115”*(“SFAS No. 159”) as of January 1, 2008. SFAS No. 159 providescompanies the option to report select financial assets and liabilities at fairvalue. This statement also establishes presentation and disclosure requirementsdesigned to facilitate comparisons between companies that choose differentmeasurement attributes for similar types of assets and liabilities. After theinitial adoption, the election is made at the acquisition of a financial assetor financial liability and it may not be revoked. We did not apply the fairvalue option to any of our outstanding instruments; therefore, there has beenno impact on our financial statements.

 

Effective January 1,2008, the Company adopted the provisions of FASB Emerging Issues Task Force,Issue 07-3, Accounting for Nonrefundable Advance Payments for Goods orServices Received for Use in Future Research and Development Activities, orEITF 07-3. In accordance with EITF 07-3, nonrefundable contractualprepayments related to future R&D activities are deferred and recognized asan expense in the period that the related goods are delivered or services areperformed.  Our adoption of this standardhas not had a material impact on our financial statements.

 

**2.****              ArrangementAgreement**

** **

On May 27, 2008, the Company entered into anArrangement Agreement with OncoGenex Technologies Inc., a privately heldcorporation existing under the federal laws of Canada (“OncoGenex”),providing for a business combination between OncoGenex and Sonus.  Under the terms of the Arrangement Agreement,Sonus will acquire all of the outstanding shares of capital stock of OncoGenexpursuant to a Plan of Arrangement (the “ Arrangement ”) under Section 192of the Canada Business Corporations Act.  Assuming the Arrangement iscompleted, it would have the effect of making OncoGenex a wholly ownedsubsidiary of Sonus.

 

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Upon consummation of the Arrangement, Sonus willissue to the securityholders of OncoGenex a number of shares of Sonus commonstock equal to the number of common shares of Sonus outstanding immediatelyprior to the closing, such that immediately after the closing of theArrangement, Sonus stockholders and OncoGenex securityholders will each own50%, respectively, of the outstanding shares of Sonus common stock.  As ofJune 30, 2008, 37,089,679sharesof Sonus common stock were outstanding.  Assuming no additional shares ofSonus common stock are issued prior to the closing, 37,089,679  shares of Sonus commonstock will be issued to OncoGenex securityholders upon the closing of theArrangement.

 

In addition to the shares of Sonus common stockissued upon the closing of the Arrangement, the former holders of OncoGenexcapital stock are also entitled to receive up to an aggregate of 25,000,000additional shares of Sonus common stock (the “ Milestone Shares ”) uponthe achievement of certain agreed-upon milestones, as more particularly setforth in escrow agreements to be executed prior to the closing.  The25,000,000 Milestone Shares will be placed into escrow at the closing of theArrangement.  If the Milestone Shares are not earned within six (6) yearsafter the closing of the Arrangement, they will be returned to Sonus forcancellation.  On July 14, 2008,OncoGenex announced that it has reached an agreement with the U.S. Food andDrug Administration (FDA) on the design of a Phase 3 registration trial ofOGX-011, its lead product candidate targeting hormone refractory prostatecancer, via the Special Protocol Assessment (SPA) process.  This event is one of the agreed-uponmilestones, and thus, upon closing of the Arrangement, 25% of the MilestoneShares, or 6,250,000 shares, would be immediately released to former holders ofOncoGenex capital stock following Board approval.

 

Each option to purchase OncoGenex common stockwill be assumed by Sonus and will be exercisable by its holder for shares ofSonus common stock, as adjusted for the share exchange ratio.

 

Upon completion of the Arrangement, OncoGenexsecurityholders will hold approximately 50% of the outstanding shares of thecombined company (or up to 62.6% if certain milestones are reached) and bothOncoGenex and Sonus will have equal representation on the Board of Directors ofthe combined company. Because OncoGenex senior management will comprise themajority of senior management positions of the combined company and becauseOncoGenex shareholders will hold more than 50% of the combined company uponachievement of certain milestones, it is anticipated that the transaction willbe treated as a reverse merger under the purchase method of accounting inaccordance with Statement of Financial Accounting Standards (SFAS) No. 141,*“Business Combinations,”* with OncoGenexbeing identified as the acquiring entity. This means that OncoGenex willallocate the purchase price, including the costs of the acquisition, to thefair value of our tangible and intangible assets and liabilities as of theeffective date of the Arrangement. The preliminary estimated total purchaseprice of the proposed transaction is $11.2 million.  The actual purchase price will be based onthe Sonus shares and options to purchase Sonus shares outstanding on theclosing date of the transaction.  Ourassets and liabilities and results of operations will be consolidated into theresults of operations of OncoGenex as of and from the effective date of theArrangement.

 

The Arrangement Agreement also contemplates that,concurrently with the closing of the Arrangement and subject to the approval ofSonus stockholders, Sonus will (i) effect a reverse stock split ofoutstanding common stock of Sonus by a whole-number ratio of between 1-for-10and up to 1-for-20, or by such other ratio as agreed upon by Sonus andOncoGenex pursuant to the terms of the Arrangement Agreement (the “ ReverseStock Split ”); (ii) adjust the number of authorized shares of Sonuscommon stock such that, immediately following the Reverse Stock Split, theauthorized share capital of Sonus consists of approximately two times thenumber of shares of Sonus common stock outstanding immediately following theclosing of the Arrangement (including the Milestone Shares deposited intoescrow) (collectively, the “ Capital Adjustment ”); and (iii) changethe name of the corporation from “Sonus Pharmaceuticals, Inc.” to “OncoGenexPharmaceuticals, Inc.” (the “ Name Change ”).

 

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TheArrangementissubjecttoanumberofclosingconditions,including,withoutlimitation,(i)theapprovaloftheArrangementbythesecurityholdersofOncoGenex,(ii)theapprovaloftheissuanceofsharesofSonuscommonstockinrespectoftheArrangement,theReverseStockSplit,theCapitalAdjustmentandtheNameChangebythestockholdersofSonus,(iii)thereceiptofafinalorderfromtheSupremeCourtofBritishColumbiaapprovingtheArrangement,(iv)theexemptionoftheissuanceofSonuscommonsharesandsubstituteoptionsinrespectoftheArrangementfromU.S.securitiesregistrationrequirementsundersection3(a)(10)oftheSecuritiesActof1933,and(v)othercustomaryclosingconditions.  TheCompanyhasscheduleditsmeetingofstockholdersonAugust 19,2008andanticipatesclosingtheArrangementinthethirdquarterof2008.

 

Costsassociated with this Arrangement include fees for financial advisors, attorneysand accountants, filing fees and financial printing costs.  As of June 30, 2008, we recordedapproximately $1.2 million of such costs which were included in general andadministrative expenses.

 

**3.****              RelatedParty**

 

The Company hasengaged in significant transactions with Bayer Schering Pharma AG, Germany (“BayerSchering”).  Bayer Schering is a relatedparty due to their ownership interest in the Company (approximately 12.8% fullydiluted) and has been appropriately identified as such on the face of thefinancial statements.  All amountsdisclosed on the face of the financial statements with related parties areattributable to Bayer Schering.  Pleasesee Note 4 “Collaboration and License Agreement with Bayer Schering Pharma AG”for additional details.

 

**4.     Collaboration and License Agreement withBayer Schering Pharma AG**

** **

In October 2005, the Company entered into a Collaboration andLicense Agreement with Bayer Schering, a German corporation, pursuant to which,among other things, the Company granted Bayer Schering an exclusive, worldwidelicense to TOCOSOL Paclitaxel, its anti-cancer product candidate (the “Product”).  With respect to the Product, Bayer Scheringpaid Sonus an upfront license fee of $20 million and paid Sonus for researchand development services performed equal to 50% of eligible product researchand development costs (in certain cases the reimbursement rate was 100%).  In connection with the Collaboration andLicensing Agreement, the Company and an affiliate of Bayer Schering enteredinto a Securities Purchase Agreement whereby the Company sold 3,900,000 sharesof common stock for an aggregate of $15.7 million and warrants to purchase975,000 shares of common stock for an aggregate purchase price of $122,000.

 

In October 2007, Sonus received notificationfrom Bayer Schering of its decision to terminate the Collaboration and LicenseAgreement in accordance with its terms because the Phase 3 pivotal trial didnot meet its primary endpoint.  Thetermination was effective on November 2, 2007. In accordance with theterms of the Agreement, all rights to TOCOSOL Paclitaxel have reverted back toSonus.  The Company has discontinueddevelopment of TOCOSOL Paclitaxel due to results of the Phase 3 study. Theseclosure activities were substantially complete by December 31, 2007.

 

During the six month period ended June 30, 2007, the Companyrecognized revenue of $2.8 million as amortization of the upfront license feeand an additional $5.5 million related to research and development servicesperformed by Sonus primarily for the Phase 3 trial for TOCOSOL Paclitaxel andrelated drug supply and manufacturing costs.

 

The Company will not earn revenue related to theAgreement with Bayer Schering beyond 2007. The final net billing between the Company and Bayer Schering wascompleted during the fourth quarter of 2007. Settlement of the final amount outstanding was received from Bayer Scheringin December 2007.  There were noreceivables from, or payables to, Bayer Schering outstanding at June 30,2008 or at December 31, 2007.

 

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**5.****              MarketableSecurities**

 

With the adoption of SFAS No. 157, beginning January 1,2008, assets and liabilities recorded at fair value in the balance sheets arecategorized based upon the level of judgment associated with the inputs used tomeasure their fair value. SFAS No. 157 specifies a hierarchy of valuationtechniques based on whether the inputs to those valuation techniques areobservable or unobservable. In accordance with SFAS No. 157, these inputsare summarized in the three broad levels listed below:

 

·                  Level 1 – Quoted prices in active markets foridentical securities;

·                  Level 2 – Other significant observable inputsthat are observable through corroboration with market date (including quotedprices in active markets for similar securities);

·                  Level 3 – Significant unobservable inputsthat reflect management’s best estimate of what market participants would usein pricing the asset or liability.

 

In determining the appropriate levels, the Companyperformed a detailed analysis of the assets and liabilities that are subject toSFAS No. 157.  The following tablepresents information about our assets and liabilities that are measured at fairvalue on a recurring basis as of June 30, 2008, and indicates the fairvalue hierarchy of the valuation techniques we utilized to determine such fairvalue:

 
| ** **                  | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **2008**  | ** ** |
|-----------------------------|------------|------------------|------------|------------------|------------|------------------|------------|-----------|------------|
| Corporate debt  securities  |       | $                | —     |             | $          | 15,156,465       |       | $         | —     |   | $ | 15,156,465 |   |
| Government debt  securities |       | —           |       | 2,375,983        |       | —           |       | 2,375,983 |       |
| Asset-backed  securities    |       | —           |       | —           |       | —           |       | —    |       |
|                        |       | $                | —     |             | $          | 17,532,448       |       | $         | —     |   | $ | 17,532,448 |   |

 

**6.****             ****Accrued Expenses**

** **

Accrued expenses consist of thefollowing:

 
| ** **      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|-------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| Clinical trials |       | $                 | 223,249    |                  | $          | 2,627,765 |   |
| Severance       |       | 76,939            |       | 908,496               |       |
| Compensation    |       | 176,391           |       | 227,044               |       |
| Other           |       | 627,433           |       | 377,968               |       |
|            |       | $                 | 1,104,012  |                  | $          | 4,141,273 |   |

 

**7.****              Restructuring****Activities**

** **

On March 31, 2008, theCompany reduced its workforce by approximately 37%.  This action was taken in order to conservecash and align the workforce with anticipated staffing needs.  The total severance cost associated with thisreduction of workforce of approximately $1.0 million, was recognized as expenseof $656,000 and $393,000 in research and development expense and general and administrativeexpense, respectively in the first quarter of 2008. The following tablesummarizes the severance expense activity associated with the reduction ofworkforce:

 
| Accrued  severance as of December 31, 2007          |   | $          | 908,496 |   |
|----------------------------------------------------------|--------|------------|---------|--------|
| Cash payments  made in the first half of 2008            |   | (1,880,752 | )       |
| Severance  expense recorded in the first quarter of 2008 |   | 1,049,195  |    |
| Accrued  severance as of June 30, 2008              |   | $          | 76,939  |   |

 

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In the second quarter 2008,we also vacated a portion of our laboratory and office.  Excess facilities charges of approximately$95,000 and $179,000 were recognized in research and development expense andgeneral and administrative expense, respectively.  Pursuant to SFAS No.146, “*Accounting for Costs Associated with Exit or DisposalActivities”*, we recorded restructuring charges when we ceased usingthis space.  The non-cash charge iscalculated as the present value of the lease commitments for unused space, netof estimated sublease income.  As of June 30,2008, we had accrued approximately $173,000 related to these facilitiescharges, of which approximately $140,000 was included in current portion oflong-term obligations and approximately $33,000 in deferred rent and long-termobligation, less current portion.

 

**8.****             ****Refund from Return of RecalledTaxol**

 

In March 2007,Bristol-Myers Squibb Pharmaceuticals recalled certain batches of Taxol due topotential lack of sterility assurance. Sonus had some of these batches at clinical sites which were being usedin the reference arm of the Phase 3 TOCOSOL Paclitaxel pivotal study.  The Company has returned all of the recalledmaterial to its suppliers in accordance with the recall notice.  On March 12, 2008, the Company receivedan initial refund from its suppliers of $848,408 for returned material whichwas recorded as a reduction of research and development expense in the firstquarter of 2008.  We are not reasonablyable to estimate an amount for any additional refund that we may receive infuture periods.  Accordingly, there areno receivables recorded for any potential future refunds.

 

**9.****              ComprehensiveIncome (Loss)**

** **
| ** **                                                       | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                       | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net loss                                                         |       | $                                                   | (3,806,904 | )                                                 | $          | (5,963,167 | ) | $ | (7,922,097 | ) | $ | (9,188,519 | ) |
| Unrealized  (loss) on cash equivalents and marketable securities |       | (12,764                                             | )          | (12,672                                           | )          | (9,567 | ) | (21,469 | ) |
| Comprehensive  loss                                              |       | $                                                   | (3,819,668 | )                                                 | $          | (5,975,839 | ) | $ | (7,931,664 | ) | $ | (9,209,988 | ) |

** **

**10.****      ****Stockholders’ Equity**

 

***Employee Stock Plans***

*** ***

During the second quarter of 2008, the Company received $7,460in proceeds from the issuance of 27,630 shares of common stock under employeebenefit programs.  For the six monthsended June 30, 2008, the Company received $12,772 in proceeds from theissuance of 42,344 shares of common stock under employee benefit programs.

 

Employee stock optionsvest over a period of time determined by the Board of Directors, generally fouryears, and director stock options are generally fully vested on the date ofgrant.  Stock options generally aregranted at the fair market value on the date of grant and expire ten years fromthe date of grant.

 

In the first quarter of2008, the Company granted stock options to employees for 1,415,000 shares ofcommon stock.  These options fully vesttwo years from the date of grant.

 

The Company has anemployee stock purchase plan whereby employees may contribute up to 15% oftheir compensation to purchase shares of the Company’s common stock at 85% ofthe stock’s fair market value at the lower of the beginning or end of eachsix-month offering period.  At June 30,2008, a total of 11,921 shares remain available for purchase by employees underthe plan.

 

The Company has a 401(k) plan forall employees under which it provides a specified percentage match on employeecontributions. Currently, the Company match is made in shares of the Company’scommon stock. The Company recognized compensationexpense related to this plan for the three month period ended 

 

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June 30,2008 of $5,312.  AtMarch 31, 2008, there were no shares available for future issuances asmatching contributions under the plan; therefore, no matching contributionswere made during the quarter ended June 30, 2008.

 

***Stock-Based Compensation***

*** ***

During the three and six month periods ended June 30, 2008 and2007, respectively, the Company recorded stock-based compensation cost underthe provisions of Statement of Accounting Standard 123 (revised 2004), “ShareBased Payment,” or “SFAS 123R”.  Thefollowing table summarizes the income statement classification of stock-basedcompensation:

 
| ** **                              | ** ** | **Three months ended June  30,** | ** ** | **Six months ended June 30,** | ** ** |
|-----------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                              | ** ** | **2008**                                        | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Stock-based  compensation expense:      | ** ** | ** **                                      | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| General &  administrative      |       | $                                               | (144,945   | )                                                 | $          | (480,688 | ) | $ | (311,503 | ) | $ | (766,849 | ) |
| Research &  development        |       | (81,172                                         | )          | (333,653                                          | )          | (219,221 | ) | (542,641 | ) |
| Total  stock-based compensation expense |       | $                                               | (226,117   | )                                                 | $          | (814,341 | ) | $ | (530,724 | ) | $ | (1,309,490 | ) |

 

The Company changed its estimatedforfeiture rate based on personnel reductions in the first quarter of2008.  The impact in stock compensationexpense as a result of the change in estimated forfeiture rate was notsignificant.  The fair value of eachstock option used in the calculations under SFAS 123R is estimated using theBlack-Scholes-Merton option pricing model. The assumptions used in this model include (1) the stock price atgrant date, (2) the exercise price, (3) an estimated option life offour years as of June 30, 2008 and 2007, (4) no expected dividendsfor each period presented, (5) stock price volatility factor of 106.99%and 56.7% as of June 30, 2008 and 2007, respectively, and (6) arisk-free interest rate of 3.16%****and 4.58% asof June 30, 2008 and 2007, respectively.

 

***Stock Option Activity***

*** ***

Thefollowing is a summary of option activity for the first half of 2008:

 
| ** **                     | ** ** | ** **                            | ** ** | **Options Outstanding** | ** ** |
|--------------------------------|------------|---------------------------------------|------------|------------------------------|------------|
| ** **                     | ** ** | **Shares  Available for  Grant** | ** ** | **Number of  Shares**   | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
|                           |       |                                  |       |                         |       |   |   |
| December 31,  2007        |       | 5,271,101                             |       | 4,278,960                    |       | $ | 4.82 |   |
| Grants                         |       | (1,415,000                            | )          | 1,415,000                    |       | $ | 0.37 |   |
| Exercises                      |       | —                                |       | —                       |       | — |   |
| Cancellations  and expirations |       | 958,612                               |       | (961,612                     | )          | $ | 4.53 |   |
| March 31,  2008           |       | 4,814,713                             |       | 4,732,348                    |       | $ | 3.55 |   |
|                           |       |                                  |       |                         |       |   |   |
| Grants                         |       | —                                |       | —                       |       | — |   |
| Exercises                      |       | —                                |       | —                       |       | — |   |
| Cancellations  and expirations |       | 413,831                               |       | (458,081                     | )          | $ | 5.49 |   |
| June 30,  2008            |       | 5,228,544                             |       | 4,274,267                    |       | $ | 3.34 |   |

 

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**Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

** **

**Forward-LookingStatements**

** **

Thisreport contains certain forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended, and we intend that suchforward-looking statements be subject to the safe harbors created thereby.Examples of these forward-looking statements include, but are not limited to:

 

·            our anticipated closing of the transactionwith OncoGenex Technologies, Inc. and the synergies and benefits arisingfrom such transaction;

timingand amount of future contractual payments, product revenue and operatingexpenses;

·            progress and preliminary results of clinicaltrials;

·            our anticipated future capital requirementsand the terms of any capital financing agreements;

·            anticipated regulatory filings, requirementsand future clinical trials; and

·            market acceptance of our products and theestimated potential size of these markets.

 

Whilethese forward-looking statements made by us are based on our current beliefsand judgments, they are subject to risks and uncertainties that could causeactual results to vary from the projections in the forward-looking statements.You should consider the risks below carefully in addition to other informationcontained in this report before engaging in any transaction involving shares ofour common stock. If any of these risks occur, they could seriously harm ourbusiness, financial condition or results of operations. In such case, thetrading price of our common stock could decline, and you may lose all orpart of your investment.

 

Thediscussion and analysis set forth in this document contains trend analysis,discussions of regulatory status and other forward-looking statements. Actualresults could differ materially from those projected in the forward-lookingstatement as a result of the following factors, among others:

 

·            our ability to complete the transaction withOncoGenex Technologies, Inc., successfully execute our integrationstrategies and achieve planned synergies;

·            uncertainties regarding the combined company’sfuture operating results, and the risk that the combined company’s productswill not obtain the requisite regulatory approvals to commercialize itsproducts or that the future sales of the company’s products may be less thanexpected;

·            future capital requirements and uncertaintyof obtaining additional funding through corporate partnerships, debt or equityfinancings;

·            therisk that we may not maintain continued listing of our common stock on theNASDAQ Global Market or NASDAQ Capital Market;

·            resultsof research and preclinical studies may not be indicative of results in humans;

·            ourability to build out our product candidate pipeline through productin-licensing or acquisition activities;

·            propermanagement of our operations will be critical to the success of the company;

·            historyof operating losses and uncertainty of future financial results;

·            volatilityin the value of our common stock;

·            dependenceon the development and commercialization of products;

·            uncertaintyof governmental regulatory requirements and lengthy approval process;

·            dependenceon third parties for funding, clinical development, regulatory approvals, 

 

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manufacturing and distribution;

·            dependenceon key employees;

·            uncertaintyof U.S. or international legislative or administrative actions;

·            competitionand risk of competitive new products;

·            limitedmanufacturing experience and dependence on a limited number of contractmanufacturers and suppliers;

·            ourability to obtain and defend patents, protect trade secrets and avoidinfringing patents held by third parties;

·            limitationson third-party reimbursement for medical and pharmaceutical products;

·            acceptanceof our products by the medical community;

·            potentialfor product liability issues and related litigation;

·            potentialfor claims arising from the use of hazardous materials in our business;

·            fluctuationsin our operating results;

·            uncertaintyrelating to the timing and results of clinical trials; and

·            otherfactors set forth under “Risk Factors” contained in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2007 filed on March 14, 2008,Quarterly Report on Form 10-Q filed on May 9, 2008 for the firstquarter ending March 31, 2008****and in thisQuarterly Report on Form 10-Q.

 

## **MD&AOverview**

 

InManagement’s Discussion and Analysis of Financial Condition and Results ofOperations we explain the general financial condition and the results ofoperations for our Company, including:

·            an overview of our business;

·            results of operations and why those resultsare different from the prior year; and

·            capital resources we currently have andpossible sources of additional funding for future capital requirements.

 

# **Business Overview**

 

Sonus Pharmaceuticals is developing novel smallmolecule drugs for the treatment of patients with cancer.  Our objective is to identify opportunitieswhere there is the possibility for major improvements in patient treatments andwhere we believe we can mitigate development risk.  We currently have one drug in clinicaldevelopment. Our plan is to continue to develop our internal pipeline ofclinical compound opportunities and to evaluate possible strategicalternatives, including in-licensing and completion of the transaction withOncoGenex Technologies, Inc., as a means of achieving our businessstrategies and enhancing stockholder value.

 

## **Product Candidates**

## ** **

SN2310

 

SN2310 Injectable Emulsion (“SN2310”) is a novelcamptothecin derivative. Camptothecins are an important class of anti-cancerdrugs, however, the marketed camptothecin analogs, irinotecan (Camptosar®) andtopotecan (Hycamtin®), have demonstrated limitations that may reduce theirclinical utility. Irinotecan and topotecan are used in the treatment of colorectal,lung, and ovarian cancers. SN2310 is a prodrug of SN-38.  SN-38 is also the active moiety ofirinotecan.  Our objective with SN2310 isto provide a product that has enhanced anti-tumor activity and improvedtolerability compared with the approved camptothecin-based products. AnInvestigational New Drug Application (“IND”) was submitted to the U.S. Food andDrug Administration (“FDA”) for SN2310 in June 2006 and Phase 1 clinicaltesting was initiated in September 2006. We expect to close enrollment inthis study in 2008 and initiate a Phase 2 clinical trial soon thereafter ifwarranted based on results of the Phase 1 trial. As this product candidate isearly in clinical development, we cannot give any assurance that this compoundwill be clinically successful.

 

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TOCOSOL® Paclitaxel

 

TOCOSOL Paclitaxel is anovel formulation of paclitaxel manufactured in a ready-to-use, injectablevitamin E-based emulsion formulation. In September 2007 we announced thatTOCOSOL Paclitaxel failed to meet the primary endpoint in Phase 3 clinicaltesting.  We have discontinueddevelopment of TOCOSOL Paclitaxel due to results of the Phase 3 study, and thetime and cost that would be required to conduct the necessary clinical studiesto continue development, which at a minimum, would include another Phase 3pivotal trial.  These closure activitieswere substantially complete by December 31, 2007, although limited closureactivities continue in the first and second quarters of 2008.

 

Researchand Development

** **

Following the reduction of workforce in March 2008, we havesubstantially reduced our internal drug discovery capabilities.  Our current strategy for broadening ourproduct candidate pipeline will be primarily through in-licensing of novelcompounds or other strategic activities. Our primary product focus will remain oncology and supportive care.

 

## **ArrangementAgreement**

## ** **

On May 27, 2008, we entered into anArrangement Agreement with OncoGenex Technologies Inc., a privately heldcorporation existing under the federal laws of Canada (“OncoGenex”),providing for a business combination between OncoGenex and Sonus.  Under the terms of the Arrangement Agreement,we will acquire all of the outstanding shares of capital stock of OncoGenexpursuant to a Plan of Arrangement (the “ Arrangement ”) under Section 192of the Canada Business Corporations Act.  Assuming the Arrangement iscompleted, it would have the effect of making OncoGenex a wholly ownedsubsidiary of Sonus.

 

Upon consummation of the Arrangement, we willissue to the securityholders of OncoGenex a number of shares of Sonus commonstock equal to the number of our common shares outstanding immediately prior tothe closing, such that immediately after the closing of the Arrangement, ourstockholders and OncoGenex securityholders will each own 50%, respectively, ofthe outstanding shares of our common stock.  As of June 30, 2008, 37,089,679 shares of our commonstock were outstanding.  Assuming no additional shares of our common stockare issued prior to the closing, 37,089,679shares ofour common stock will be issued to OncoGenex securityholders upon the closingof the Arrangement.

 

In addition to the shares of our common stockissued upon the closing of the Arrangement, the former holders of OncoGenexcapital stock are also entitled to receive up to an aggregate of 25,000,000additional shares of our common stock (the “ Milestone Shares ”) uponthe achievement of certain agreed-upon milestones, as more particularly setforth in escrow agreements to be executed prior to the closing.  The25,000,000 Milestone Shares will be placed into escrow at the closing of theArrangement.  If the Milestone Shares are not earned within six (6) yearsafter the closing of the Arrangement, they will be returned to us forcancellation.  On July 14, 2008,OncoGenex announced that it has reached an agreement with the U.S. Food andDrug Administration (FDA) on the design of a Phase 3 registration trial ofOGX-011, its lead product candidate targeting hormone refractory prostatecancer, via the Special Protocol Assessment (SPA) process.  This event is one of the agreed-uponmilestones, and thus, upon closing of the Arrangement, 25% of the MilestoneShares, or 6,250,000 shares, would be immediately released to former holders ofOncoGenex capital stock.  Upon completionof the Arrangement, OncoGenex securityholders will hold more than 50% of theoutstanding shares 

 

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of the combined company (or up to 62.6% if certainmilestones are reached) and both OncoGenex and Sonus will have equalrepresentation on the Board of Directors of the combined company.

 

Each option to purchase OncoGenex common stockwill be assumed by Sonus and will be exercisable by its holder for shares ofour common stock, as adjusted for the share exchange ratio.

 

The Arrangement Agreement also contemplates that,concurrently with the closing of the Arrangement and subject to the approval ofour stockholders, we will (i) effect a reverse stock split of ouroutstanding common stock by a whole-number ratio of between 1-for-10 and up to1-for-20, or by such other ratio as agreed upon by Sonus and OncoGenex pursuantto the terms of the Arrangement Agreement (the “ Reverse Stock Split ”);(ii) adjust the number of authorized shares of our common stock such that,immediately following the Reverse Stock Split, our authorized shares of commonstockwill consist of approximately two times the number of shares of our commonstock outstanding immediately following the closing of the Arrangement(including the Milestone Shares deposited into escrow) (collectively, the “ CapitalAdjustment ”); and (iii) change the name of the corporation from “SonusPharmaceuticals, Inc.” to “OncoGenex Pharmaceuticals, Inc.” (the “ NameChange ”).

 

The Arrangement is subject to a number of closingconditions, including, without limitation, (i) the approval of theArrangement by the securityholders of OncoGenex, (ii) the approval of theissuance of shares of our common stock in respect of the Arrangement, the ReverseStock Split, the Capital Adjustment and the Name Change by our stockholders, (iii) thereceipt of a final order from the Supreme Court of British Columbia approvingthe Arrangement, (iv) the exemption of the issuance of our shares ofcommon stock and substitute options in respect of the Arrangement from U.S.securities registration requirements under section 3(a)(10) of theSecurities Act of 1933, and (v) other customary closing conditions.

 

**Collaboration and LicenseAgreement with Bayer Schering Pharma AG**

 

InOctober 2005, we entered into a Collaboration and License Agreement withBayer Schering, a German corporation, pursuant to which, among other things, wegranted Bayer Schering an exclusive, worldwide license to TOCOSOL Paclitaxel,its anti-cancer product candidate (the “Product”).  With respect to the Product, Bayer Scheringpaid us an upfront license fee of $20 million and paid us for research anddevelopment services performed equal to 50% of eligible product research anddevelopment costs.  In connection withthe Collaboration and Licensing Agreement, we and an affiliate of BayerSchering entered into a Securities Purchase Agreement whereby we sold 3,900,000shares of common stock for an aggregate of $15.7 million and warrants topurchase 975,000 shares of common stock for an aggregate purchase price of$122,000.

 

InOctober 2007, we received notification from Bayer Schering of its decisionto terminate the Collaboration and License Agreement in accordance with itsterms because the Phase 3 pivotal trial did not meet its primary endpoint.  The termination was effective on November 2,2007. In accordance with the terms of the Agreement, all rights to TOCOSOLPaclitaxel have reverted back to us. Wehave discontinued development of TOCOSOL Paclitaxel due to results ofthe Phase 3 study. These closure activities were substantially complete by December 31,2007, although limited closure activities continue in the first and secondquarters of 2008.

 

We will not earn revenue and do not expect to incurexpenses related to the Agreement with Bayer Schering beyond 2007.  The final net billing between Sonus and BayerSchering was completed during the fourth quarter of 2007.  Settlement of the final amount outstandingwas received from Bayer Schering in December 2007.  There were no receivables from, or payablesto, Bayer Schering outstanding at June 30, 2008 or at December 31,2007.

 

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** **

**Restructuring Activities**

 

On March 31, 2008, wereduced our workforce by approximately 37% in order to conserve cash and alignthe workforce with anticipated staffing needs. The total cost associated with this reduction of workforce ofapproximately $1.0 million, which consisted of severance costs and medicalinsurance was recognized as expense in the first quarter 2008.

 

In the second quarter of2008, we also vacated a portion of our laboratory and office facilities andrecorded excess facilities charges.  Anexcess facilities charge of approximately $274,000 was recognized in the secondquarter of 2008.  We recordedrestructuring charges when we ceased using this space.  The non-cash charge is calculated as thepresent value of total lease commitments, net of estimated subleaseincome.  As of June 30, 2008, we hadapproximately $173,000 accrued related to excess facilities charges.

 

**Results of Operations**

 

As of June 30, 2008, our accumulated deficit was approximately$132.7 million. We expect to incur substantial additional operating losses overthe next several years.  Such losses havebeen and will continue to principally be the result of various costs associatedwith our research and development programs. Substantially all of our working capital in recent years has resultedfrom equity financings and payments received under corporate partnershipagreements.  Our ability to achieve aconsistent, profitable level of operations depends in large part on obtainingregulatory approval for future product candidates in addition to successfullymanufacturing and marketing those products if they are approved.  Even if we are successful in theaforementioned activities our operations may not be profitable.

 

Werecognized no revenue for the three months ended June 30, 2008 as comparedwith $3.2 million for the same period in 2007. We had no revenue for the six months ended June 30, 2008 comparedwith $8.3 million for the same period in 2007.  Revenue in the both periods was fully attributable to the agreement withBayer Schering.  This agreement wasterminated in the fourth quarter of 2007. We recognized $1.4 million and $2.8 million in amortization of anupfront license fee received from Bayer Schering for the three and six monthperiods ended June 30, 2007, respectively and an additional $1.9 millionand $5.5 million in research and development reimbursements for the three andsix month period ended June 30, 2007.

 

Ourresearch and development (“R&D”) expenses were $1.5 million for the threemonths ended June 30, 2008 compared with $7.7 million for the same periodin 2007.  Our R&D expenses were $3.8million for the six months ended June 30, 2008 compared with $14.6 millionfor the same period in 2007.  Thedecrease was primarily the result of lower spending on clinical trials and drugsupply and manufacturing costs due to the termination of the Phase 3 trial forTOCOSOL Paclitaxel in the fourth quarter of 2007 and the discontinuation ofdiscovery efforts in the first quarter 2008. Research and development expenses in the first half of 2008 are alsolower as a result of recognition of a refund of approximately $850,000 forrecalled material which had been returned to suppliers.  This refund was recorded as a reduction ofresearch and development expense in the first quarter of 2008.  Although research and development personnelcosts were reduced in the six months ended June 30, 2008 as compared tothe same period in 2007 due to a reduction in workforce effective in November 2007,this reduction was offset by the recognition of approximately $656,000 ofseverance expenses recorded in connection with an additional reduction inworkforce effective March 31, 2008. We expect R&D expenses in 2008 tobe significantly lower than levels experienced in 2007, absent any strategictransaction which could affect R&D expenses.

 

Ourgeneral and administrative (“G&A”) expenses were $2.5 million for the threemonths ended June 30, 2008 compared with $2.1 million for the same periodin 2007.  Our G&A expenses were $4.6million for the six months ended June 30, 2008 compared with $4.1 millionfor the same period in 2007.  Theincrease for both periods was primarily the result of higher spending associatedwith personnel 

 

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related costsof approximately $393,000 for severance benefits due to a reduction ofworkforce effective March 31, 2008 and increased legal and professionalservices fees related to the evaluation of potential strategic alternatives andactivities associated with the pending arrangment with OncoGenex.  We expect G&A expenses for the remainderof 2008 to be higher than levels experienced in 2007, due to the continued costof activities associated with the pending arrangment with OncoGenex.

 

Ourtotal operating expenses in 2008 are expected to decrease from 2007 levels dueto the termination of research and development activities for TOCOSOLPaclitaxel and the two reductions of workforce which occurred in November 2007and March 2008. We estimate that R&D spending will comprise more than42% of the anticipated spending in 2008. A significant portion of the R&Dspending will be devoted to development activities for SN2310. These estimatedexpenses are subject to change depending on many factors, including, withoutlimitation, the affect of the proposed Arrangement with OncoGenex.

 

Ourother income, net, was $188,000 for the three months ended June 30, 2008compared with $590,000 for the same period in 2007.  The decrease was due primarily to lowerlevels of invested cash in 2008 compared to the same periods in 2007.

 

TheCompany had no income tax expense for the three periods ended March 31,2008 or 2007 as it had incurred pretax losses.

 

## **Liquidityand Capital Resources**

## ** **

Wehave historically financed operations with proceeds from equity financings andpayments under collaboration agreements with third parties.  At June 30, 2008, we had cash, cashequivalents and marketable securities totaling $23.3 million compared to $34.2million at December 31, 2007.  Thedecrease was primarily due to the net loss for the six month period ended June 30,2008 of $7.9 million, in addition to timing of items accrued in 2007 and paidin 2008.

 

Netcash used in operating activities for the six months ended June 30, 2008and 2007 was $10.8 million and $14.0 million, respectively.  We recognized no revenue for the six monthsended June 30, 2008 as compared with $8.3 million for the same period in2007.  All revenue recognized in the sixmonth period ending June 30, 2007 was fully attributable to the agreementwith Bayer Schering.  This agreement wasterminated in the fourth quarter of 2007 and no additional revenue from thisagreement is expected to be received. Expenditures in all periods were a result of R&D expenses, includingclinical trial costs, and G&A expenses in support of our operations.  Product development activities were primarilyrelated to SN2310 and pipeline development activities in the first half of2008, whereas product development activities in the first half of 2007consisted primarily of expenditures related to TOCOSOL Paclitaxel and to alesser extent other potential product candidates.  The decrease in net cash used in operatingactivities for the six months ended June 30, 2008 compared to the sameperiod in 2007 was primarily due to the reduction of expenditures for TOCOSOLPaclitaxel.

 

Net cashprovided by (used in) investing activities for the six months ended June 30,2008 and 2007 was $10.0 million and ($19.3) million, respectively. The net cashprovided by and used in investing activities was primarily due to transactionsinvolving marketable securities in the normal course of business.  The related maturities and sales of thoseinvestments provide us with working capital on an as-needed basis.  We initiate shifts between cash equivalentsecurities and marketable securities based on our cash needs and the prevailinginterest rate environment.  The cashprovided by investing activities for the six months ended June 30, 2008primarily related to proceeds from sales of marketable securities.  The cash used in investing activities for thesame period in 2007 primarily reflected purchases of marketable securities.

 

Net cash provided by financing activities for thesix months ended June 30, 2008 and 2007 was approximately $13,000 and$159,000, respectively.  The net cashprovided by financing activities during both of these periods was primarily dueto the issuance of common stock under employee benefit plans.

 

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Weexpect that our cash requirements will decrease in 2008 due to the terminationof development of TOCOSOL Paclitaxel and related staff reductions.  Under our current forecasted cash needs,which assume continued development of SN2310, we believe that existing cash,cash equivalents and marketable securities will be sufficient to fund expectedoperations through 2009.  This forecastdoes not reflect any additional cash needs if the OncoGenex transaction iscompleted.  We will need additionalcapital to support the continued development SN2310, other product candidatesand to fund continuing operations after 2009. Our future capital requirements depend on many factors including:

 

·                  our ability toobtain equity or debt financings;

·                  completion ofthe planned Arrangement with OncoGenex;

·                  timing andcosts of preclinical development, clinical trials and regulatory approvals;

·                  timing and costof product development and in-licensing activities;

·                  entering intonew collaborative or product license agreements for products in our pipeline;and

·                  costs relatedto obtaining, defending and enforcing patents.

 

Wehave contractual obligations in the form of operating leases which expirebetween 2010 and 2017. We signed our current facility lease in November 2006.  The facility lease has a term of 10 yearswith a provision for two additional five year renewals.  The term commencement date for the new leasewas January 1, 2008. The following table summarizes our contractualobligations under these agreements as of June 30, 2008:

 
| **Contractual  Obligations** | ** ** | **Total** | ** ** | **Less than   1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than 5   years** | ** ** |
|------------------------------|------------|-----------|------------|---------------------------------------|------------|--------------------|------------|--------------------|------------|----------------------------------------|------------|
|                         |       |      |       |                                  |       |               |       |               |       |                                   |       |
| Operating lease  obligations |       | $         | 20,691,256 |                                  | $          | 1,957,332          |       | $                  | 4,014,016  |                                   | $          | 6,447,534 |   | $ | 8,272,374 |   |
|                              |            |           |            |                                       |            |                    |            |                    |            |                                        |            |  |  |  |  |  |

 

**Material Changes in FinancialCondition**

** **
| ** **                 | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|----------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                       |       |                        |       |                            |       |
| Total assets               |       | $                           | 33,433,589 |                            | $          | 45,249,269 |   |
| Total  liabilities         |       | $                           | 8,917,339  |                            | $          | 13,344,852 |   |
| Shareholders’  equity |       | $                           | 24,516,250 |                            | $          | 31,904,417 |   |

 

The decline in assets from December 31, 2007primarily relates to declines in cash, cash equivalents and marketablesecurities used to fund operations.  Thedecline in liabilities from December 31, 2007 relates primarily togenerally lower accrued liabilities on reduced clinical trial expense.  The decline in shareholders equity isprimarily due to the net loss for the period.

 

**Critical Accounting Policies and Estimates**

 

We previously identified certain policies andestimates as critical to our business operations and the understanding of ourpast or present results of operations in our Annual Report on Form 10-Kfor the year ended December 31, 2007 and filed with the Securities andExchange Commission on March 14, 2008. These policies and estimates are considered critical because they had amaterial impact, or they have the potential to have a material impact, on ourfinancial statements and because they require significant judgments,assumptions or estimates.  Ourpreparation of financial statements requires us to make estimates andassumptions that affect the reported amount of assets and liabilities,disclosure of contingent assets and liabilities at the date of our financialstatements, and the reported amounts of revenue and expenses during thereporting period.

 

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The Companyadopted SFAS No. 157, “*Fair Value Measurements*”(“SFAS No. 157”) effective January 1, 2008. SFAS No. 157 definesfair value, establishes a framework for measuring fair value and expandsdisclosure of fair value measurements. The Company did not have a transitionadjustment to beginning retained earnings as a result of adopting thisstandard. SFAS No. 157 applies to all financial instruments that aremeasured and reported on a fair value basis. This includes those items reportedin marketable securities on the balance sheets.

 

Inconjunction with the adoption of SFAS No. 157, the Company also adoptedSFAS 159, *“The Fair Value Option for Financial Assets andFinancial Liabilities – Including an Amendment of SFAS No. 115”*(“SFASNo. 159”) as of January 1, 2008. SFAS No. 159 provides companiesthe option to report select financial assets and liabilities at fair value.This statement also establishes presentation and disclosure requirementsdesigned to facilitate comparisons between companies that choose differentmeasurement attributes for similar types of assets and liabilities. After theinitial adoption, the election is made at the acquisition of a financial assetor financial liability and it may not be revoked. We did not apply the fairvalue option to any of our outstanding instruments; therefore, there has beenno impact on our financial statements.

 

Effective January 1,2008, the Company adopted the provisions of FASB Emerging Issues Task Force,Issue 07-3, Accounting for Nonrefundable Advance Payments for Goods orServices Received for Use in Future Research and Development Activities, orEITF 07-3. In accordance with EITF 07-3, nonrefundable contractualprepayments related to future R&D activities are deferred and recognized asan expense in the period that the related goods are delivered or services areperformed.  Our adoption of this standardhas not had a material impact on our financial statements.

 

**Item 3. Quantitative andQualitative Disclosures About Market Risk**

 

*Interestrate risk:*

 

Themarket risk inherent in our marketable securities portfolio represents the potentialloss arising from adverse changes in interest rates. If market rateshypothetically increase immediately and uniformly by 100 basis points fromlevels at June 30, 2008, the decline in the fair value of the investmentportfolio would not be material. Given the short-term nature of our investmentportfolio, we do not expect our operating results or cash flows to be affectedto any significant degree by a sudden change in market interest rates.

 

*Foreign currency exchange risk:*

 

We are exposed to risks associated with foreigncurrency transactions on certain contracts denominated in foreign currencies(primarily Euro and Pound Sterling denominated contracts) and we have nothedged these amounts. As our unhedged foreign currency transactions fluctuate, ourearnings might be negatively affected. Accordingly, changes in the value of theU.S. dollar relative to the Euro/Pound Sterling might have an adverse effect onour reported results of operations and financial condition, and fluctuations inexchange rates might harm our reported results and accounts from period toperiod.  The impact of foreign currencyfluctuations related to realized gains and losses during the six month periodsended June 30, 2008 and 2007, respectively, was not material.

 

**Item 4. Controls and Procedures**

 

Evaluationof disclosure controls and procedures

 

An evaluation as of the end of the periodcovered by this report was carried out under the supervision and participationof management, including our Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of our disclosurecontrols and procedures.  Based upon theevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures are effective in timely alertingthem to material 

 

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informationrequired to be included in our periodic SEC filings.  A controls system, no matter how welldesigned and operated, cannot provide absolute assurance that the objectives ofthe controls are met, and no evaluation of controls can provide absoluteassurance that all controls and instances of fraud, if any, within a companyhave been, or will be, detected.

 

Changesin internal control over financial reporting

 

Wehave not made any changes to our internal control over financial reporting (asdefined in rule 13a-15(f) and 15d-15(f) under the Exchange Act)during the fiscal quarter ended June 30, 2008 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

**Part II.   Other Information**

 

**Item1A.  Risk Factors**

 

Youshould consider the risks below carefully in addition to other informationcontained in this report before engaging in any transaction involving shares ofour common stock.  Potential risks anduncertainties include, among other things, those factors discussed in thesections entitled “Business”, “Risk Factors” and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in our Annual Reporton Form 10-K for the year ended December 31, 2007, the sectionentitled “Management’s Discussion and Analysis of Financial Condition andResults of Operations” in this Quarterly Report on Form 10-Q, and as setforth below in this Item 1A. Readers should carefully review those risks, aswell as additional risks described in other documents we file from time to timewith the Securities and Exchange Commission. The following risk factors includematerial changes to the risk factors previously disclosed in our Form 10-Kfor the year ended December 31, 2007, and are not a complete list of ourrisk factors. We undertake no obligation to publicly release the results of anyrevisions to any forward-looking statements to reflect anticipated orunanticipated events or circumstances occurring after the date of suchstatements.

 

**RisksRelated to the Arrangement with OncoGenex**

 

*The Arrangement will result in substantial dilution to the ownershipinterests of our current stockholders*.

 

Uponconsummation of the Arrangement, we will issue to the securityholders ofOncoGenex a number of shares of our common stock equal to the number of ouroutstanding shares immediately prior to the closing, such that immediatelyafter the closing of the Arrangement, our stockholders and OncoGenexsecurityholders will each own 50%, respectively, of the outstanding shares ofour common stock.  As of June 30,2008, 37,089,679 shares of our common stock were outstanding.  Assuming no additional shares of our commonstock are issued prior to the closing, 37,089,679 shares of our common stockwill be issued to OncoGenex securityholders upon the closing of theArrangement.  In addition, the formerholders of OncoGenex capital stock are also entitled to receive up to anaggregate of 25,000,000 additional shares of our common stock (the “ MilestoneShares ”) upon the achievement of certain agreed-upon milestones.  On July 14, 2008, OncoGenex announcedthat it had achieved one of the agreed-upon milestones, and thus, upon closingof the Arrangement, subject to approval of the combined Board of Directorsfollowing the Arrangement, 25% of the Milestone Shares, or 6,250,000 shares,will be immediately released to former holders of OncoGenex capital stock.  Upon completion of the Arrangement, if theMilestone Shares are earned, OncoGenex securityholders will hold up to 62.6% ofthe combined company.  As a result, ourstockholders will not be able to control the management or affairs of thecombined company, including the election of directors and approval ofsignificant corporate transactions.

 

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*If we are not successful in integrating our organizations, we may notbe able to operate efficiently after the Arrangement.*

 

Achievingthe benefits of the Arrangement will depend in part on the successfulintegration of Sonus’ and OncoGenex’s operations and personnel in a timely andefficient manner.  The integrationprocess requires coordination of different development, regulatory, clinicalresearch and executive teams, and involves the integration of systems,applications, policies, procedures, business processes and operations.  If we do not successfully integrate ouroperations and personnel, we may not realize the expected benefits of theArrangement.

 

*Integration efforts may divert management’s attention away from ouroperations.*

 

Successfulintegration of Sonus’ and OncoGenex’s operations, product candidates andpersonnel may place a significant burden on our management and our internalresources.  The diversion of management’sattention and any difficulties encountered in the transition and integrationprocess could result in delays in the companies’ clinical trial programs andcould otherwise harm our business, financial condition and operating results.

 

*We may incur significant costs integrating the companies into a singlebusiness.*

 

Wemay incur significant costs integrating Sonus’ and OncoGenex’s operations,products candidates and personnel.  Thesecosts may include costs for:

 

·      employeeredeployment, relocation or severance;

·      conversionof information systems;

·      combiningdevelopment, regulatory, clinical research and executive teams and processes;

·      reorganizationof facilities; and

·      relocationor disposition of excess equipment.

 

*If we fail to retain key employees, the benefits of the Arrangementcould be diminished.*

 

Thesuccessful combination of Sonus and OncoGenex will depend in part on theretention of key personnel.  There can beno assurance that Sonus will be able to retain its or OncoGenex’s keymanagement and scientific personnel.  Ifwe fail to retain such key employees, we may not realize the anticipatedbenefits of the Arragement.

 

*Failure to complete the Arrangement could cause our stock price todecline and could harm our business and operating results.*

 

TheArrangement Agreement contains conditions to consummate the Arrangement andeither party may terminate the Arrangement Agreement under certaincircumstances.  If the Arrangement is notcompleted for any reason, we may be subject to a number of risks, including thefollowing:

 

·      themarket price of our common stock may decline to the extent that the currentmarket price reflects a market assumption that the Arrangement will becompleted;

 

·      manycosts related to the Arrangement, such as legal, accounting, and financialprinting fees must be paid regardless of whether the Arrangement is completed;and

 

·      there maybe substantial disruption to our business and distraction of our workforce andmanagement team.

 

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*We will need additional capital in the future to support the continueddevelopment of our product candidates and to fund continuing operations.*

 

Althoughour cash requirements have decreased due to the discontinuation of developmentof TOCOSOL Paclitaxel and reductions in workforce, we will need additionalcapital to support the continued development of SN2310and to fund continuingoperations after 2009. We believe that existing cash, cash equivalents andmarketable securities will be sufficient to fund current operations through2009.  This forecast does not reflect anyadditional cash needs if the OncoGenex transaction is completed.  The Arrangment with OncoGenex will addseveral additional product candidates to our pipeline, which will requireadditional capital to continue preclinical and clinical trials and regulatoryapprovals.  Our future capitalrequirements depend on many factors including:

 

·      our ability to obtain debtor equity financings;

·      timing and costs ofpreclinical development, clinical trials and regulatory approvals;

·      timing and cost of researchand development;

·      entering into newcollaborative or product license agreements for products in our pipeline; and

·      costs related to obtaining,defending and enforcing patents.

 

*Failure to satisfy NASDAQ Global Market listing requirements may resultin our common stock being delisted from The NASDAQ Global Market.*

 

Ourcommon stock is currently listed on The NASDAQ Global Market under the symbol “SNUS.”  For continued inclusion on The NASDAQ GlobalMarket, we must maintain, among other requirements, stockholders’ equity of atleast $10.0 million, a minimum bid price of $1.00 per share and a market valueof our public float of at least $5.0 million; or market capitalization of atleast $50 million, a minimum bid price of $1.00 per share and a market value ofour public float of at least $15.0 million. On November 5, 2007, we received notice from NASDAQ that we did notcomply with NASDAQ’s continued listing standards because the closing bid priceof our common stock had been below the required minimum bid price of $1.00 for30 consecutive business days.  On May 6,2008, we received a staff determination letter indicating that we have failedto regain compliance with the minimum bid price requirement prior to expirationof the grace period to regain compliance, as permitted by NASDAQ.  On June 12, 2008, we attended a hearingwith a NASDAQ Listing Qualifications Panel. On July 17, 2008, we received a notice from the NASDAQ ListingQualifications Panel indicating that the NASDAQ Panel has determined to grantSonus’ request to continue the listing of its securities on The NASDAQ GlobalMarket.  The Company’s continued listingon NASDAQ is subject to its compliance with certain conditions by August 29,2008, including the implementation of a reverse stock split, the completion ofits planned arrangement with OncoGenex, and approval from NASDAQ of thecombined entity’s application for initial listing on The NASDAQ Capital Marketupon completion of the arrangement.  Theclosing price of our common stock, as reported on the NASDAQ Global Market asof July 31, 2008 was $0.26 per share.

 

*We have a history of operating losses which we expect will continue andwe may never become profitable.*

 

Wehave experienced significant accumulated losses since our inception, and expectto incur net losses for the foreseeable future. These losses have resultedprimarily from expenses associated with our research and developmentactivities, including nonclinical and clinical trials, and general andadministrative expenses. As of June 30, 2008, our accumulated deficittotaled $132.7 million.  We anticipatethat our operating losses will continue as we further invest in research anddevelopment for our products. Our results of operations have varied and willcontinue to vary significantly and depend on, among other factors:

 

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·      ourability to obtain debt or equity financings;

·      completionof planned Arrangement with OncoGenex;.

·      timingand costs of preclinical development, clinical trials and regulatory approvals;

·      drugdiscovery and research and development;

·      enteringinto new collaborative or product license agreements for products in ourpipeline; and

·      costsrelated to obtaining, defending and enforcing patents.

 

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Item 6.  Exhibits

 
| Exhibit No. 2: Plan of Acquisition                                  |
|-------------------------------------------------------------------------------|
| 2.1*                                                                          |   |   | Arrangement Agreement dated May 27, 2008, by  and between Sonus Pharmaceuticals, Inc., and OncoGenex Technologies Inc.  (incorporated by reference to the Company’s Current Report on FORM 8-K  filed May 30, 2008). |
|                                                                          |   |   |   |
| Exhibit No. 4: Instruments Defining the  Rights of Security Holders |
| 4.1                                                                           |   |   | Third Amendment to Amended and Restated Rights  Agreement dated May 27, 2008, by and between Sonus  Pharmaceuticals, Inc. and Computershare Trust Company, N.A., as Rights  Agent (incorporated by reference to the Company’s Current Report on  FORM 8-K filed May 30, 2008). |
|                                                                          |   |   |
| Exhibit No. 10: Material Contracts                                  |
|                                                                          |   |   |
| 10.1                                                                          |   |   | Form of OncoGenex Voting Agreement  (incorporated by reference to the Company’s Current Report on FORM 8-K  filed May 30, 2008). |
| 10.1.1                                                                        |   |   | Schedule of Parties to OncoGenex Voting Agreement  (incorporated by reference to the Company’s Current Report on FORM 8-K  filed May 30, 2008). |
| 10.2                                                                          |   |   | Form of Sonus Voting Agreement (incorporated by  reference to the Company’s Current Report on FORM 8-K filed May 30,  2008). |
| 10.2.1                                                                        |   |   | Schedule of Parties to Sonus Voting Agreement  (incorporated by reference to the Company’s Current Report on FORM 8-K  filed May 30, 2008). |
|                                                                          |   |   |
| Certifications                                                                |
| 31.1                                                                          |   |   | Certification of President and Chief Executive  Officer pursuant to Rule 13a-14(a) or 15d-14(a). |
| 31.2                                                                          |   |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) or 15d-14(a). |
| 32.1                                                                          |   |   | Certification of President and Chief Executive  Officer pursuant to Rule 13a-14(b) or 15d-14(b). |
| 32.2                                                                          |   |   | Certification of Chief Financial Office pursuant to  Rule 13a-14(b) or 15d-14(b). |

 

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* Schedules and similar attachments tothe Arrangement Agreement have been omitted pursuant to Item 601(b)(2) ofRegulation S-K. Registrant will furnish supplementally a copy of any omittedschedule or similar attachment to the Securities and Exchange Commission uponrequest.

 

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**SIGNATURES**

 

In accordance withthe requirements of the Securities Exchange Act, the registrant caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
| ** ** | ** **     | **SONUS PHARMACEUTICALS, INC.** |
|------------|----------------|---------------------------------|
| ** ** | ** **     |
| Date:      | August 5, 2008 | By:                             | /s/ Alan Fuhrman |
|       |           | Alan Fuhrman                    |
|       |           | Senior Vice President,          |
|       |           | Chief Financial Officer         |
|       |           | (Principal Financial  Officer)  |
|            |                |                                 |  |  |

 

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