Registrant's unaudited Canadian GAAP Financial Statements



 Exhibit 4.1 

TEKMIRA PHARMACEUTICALS CORPORATION 

Consolidated Balance Sheets 

(Expressed in Canadian Dollars) 
  

									
	 	  	June 30
2010
(Unaudited)
	 	 	December 31
2009	 
	 Assets
	  				 			
	 Current assets:
	  				 			
	 Cash and cash equivalents
	  	$	18,187,243	  	 	$	24,397,740	  
	 Accounts receivable
	  	 	976,703	  	 	 	1,052,895	  
	 Investment tax credits receivable
	  	 	270,494	  	 	 	280,132	  
	 Prepaid expenses and other assets
	  	 	197,028	  	 	 	226,981	  
		  	 	 	 	 	 	 	 
		  	 	19,631,468	  	 	 	25,957,748	  
	 Intangible assets
	  	 	14,474,924	  	 	 	15,152,430	  
	 Property and equipment
	  	 	3,171,512	  	 	 	2,812,340	  
		  	 	 	 	 	 	 	 
		  	$	37,277,904	  	 	$	43,922,518	  
		  	 	 	 	 	 	 	 
	 Liabilities and shareholders’ equity
	  				 			
	 Current liabilities:
	  				 			
	 Accounts payable and accrued liabilities
	  	$	3,199,614	  	 	$	5,653,827	  
	 Deferred revenue (note 3)
	  	 	5,159,181	  	 	 	1,162,437	  
		  	 	 	 	 	 	 	 
		  	 	8,358,795	  	 	 	6,816,264	  
	 Shareholders’ equity:
	  				 			
	 Common shares
	  				 			
	 Authorized—unlimited number with no par value
	  				 			
	 Issued and outstanding—51,666,556 (2009—51,642,938)
	  	 	229,466,722	  	 	 	229,426,757	  
	 Contributed surplus
	  	 	29,932,796	  	 	 	29,531,049	  
	 Deficit
	  	 	(230,480,409	) 	 	 	(221,851,552	) 
		  	 	 	 	 	 	 	 
		  	 	28,919,109	  	 	 	37,106,254	  
		  	 	 	 	 	 	 	 
		  	$	37,277,904	  	 	$	43,922,518	  
		  	 	 	 	 	 	 	 
	 Basis of presentation and future operations (note 1)
	  				 			
	Subsequent events (note 6)	  				 			

 See accompanying notes to the consolidated financial statements. 

 

 1 








 TEKMIRA PHARMACEUTICALS CORPORATION 

Consolidated Statements of Operations and Comprehensive Loss 

(Unaudited) 

(Expressed in Canadian Dollars) 
  

																	
	 	  	Three months ended	 	 	Six months ended	 
	 	  	June 30
2010	 	 	June 30
2009	 	 	June 30
2010	 	 	June 30
2009	 
	 Revenue (note 3)
	  				 				 				 			
	 Research and development collaborations revenue
	  	$	2,316,163	  	 	$	3,181,193	  	 	$	4,782,098	  	 	$	6,061,956	  
	 Licensing fees and milestone payments
	  	 	—  	  	 	 	596,500	  	 	 	—  	  	 	 	596,500	  
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
		  	 	2,316,163	  	 	 	3,777,693	  	 	 	4,782,098	  	 	 	6,658,456	  
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Expenses
	  				 				 				 			
	 Research, development and collaborations
	  	 	4,829,240	  	 	 	4,380,938	  	 	 	10,285,717	  	 	 	7,999,830	  
	 General and administrative
	  	 	1,080,986	  	 	 	1,119,560	  	 	 	2,076,258	  	 	 	2,091,514	  
	 Amortization of intangible assets
	  	 	396,028	  	 	 	320,718	  	 	 	709,922	  	 	 	639,044	  
	 Depreciation of property and equipment
	  	 	176,498	  	 	 	186,439	  	 	 	354,280	  	 	 	363,680	  
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
		  	 	6,482,752	  	 	 	6,007,655	  	 	 	13,426,177	  	 	 	11,094,068	  
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Loss from operations
	  	 	(4,166,589	) 	 	 	(2,229,962	) 	 	 	(8,644,079	) 	 	 	(4,435,612	) 
	 Other income (losses)
	  				 				 				 			
	 Interest income
	  	 	25,477	  	 	 	30,866	  	 	 	46,870	  	 	 	114,459	  
	 Foreign exchange losses
	  	 	(70,317	) 	 	 	(51,786	) 	 	 	(31,648	) 	 	 	(5,308	) 
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Net loss and comprehensive loss
	  	$	(4,211,429	) 	 	$	(2,250,882	) 	 	$	(8,628,857	) 	 	$	(4,326,461	) 
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Weighted average number of common shares
	  				 				 				 			
	 Basic and diluted
	  	 	51,649,814	  	 	 	51,625,677	  	 	 	51,646,645	  	 	 	51,624,760	  
	 Loss per common share
	  				 				 				 			
	 Basic and diluted
	  	$	(0.08	) 	 	$	(0.04	) 	 	$	(0.17	) 	 	$	(0.08	) 

 See accompanying notes to
the consolidated financial statements. 
  

 2 








 TEKMIRA PHARMACEUTICALS CORPORATION 

Consolidated Statements of Shareholders’ Equity 

(Expressed in Canadian Dollars) 

For the six months ended June 30, 2010 (unaudited) and the year ended December 31, 2009 (audited) 

 

																		
	 	  	Number
of shares	  	Share
capital	  	Contributed
surplus	 	 	Deficit	 	 	Total
shareholders’
equity	 
	 Balance, December 31, 2008
	  	51,623,677	  	$	229,412,230	  	$	29,272,005	  	 	$	(212,086,645	) 	 	 	46,597,590	  
	 Net loss
	  	—  	  	 	—  	  	 	—  	  	 	 	(9,764,907	) 	 	 	(9,764,907	) 
	 Stock-based compensation
	  	—  	  	 	—  	  	 	265,685	  	 	 	—  	  	 	 	265,685	  
	 Issuance of common shares pursuant to exercise of options
	  	19,261	  	 	14,527	  	 	(6,641	) 	 	 	—  	  	 	 	7,886	  
		  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 
	 Balance, December 31, 2009
	  	51,642,938	  	$	229,426,757	  	$	29,531,049	  	 	$	(221,851,552	) 	 	$	37,106,254	  
	 Net loss
	  	—  	  	 	—  	  	 	—  	  	 	 	(8,628,857	) 	 	 	(8,628,857	) 
	 Stock-based compensation (note 4)
	  	—  	  	 	—  	  	 	420,351	  	 	 	—  	  	 	 	420,351	  
	 Issuance of common shares pursuant to exercise of options (note 4)
	  	23,618	  	 	39,965	  	 	(18,604	) 	 	 	—  	  	 	 	21,361	  
		  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 
	 Balance, June 30, 2010
	  	51,666,556	  	$	229,466,722	  	$	29,932,796	  	 	$	(230,480,409	) 	 	$	28,919,109	  
		  	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 

 See accompanying notes to the consolidated financial statements. 

 

 3 








 TEKMIRA PHARMACEUTICALS CORPORATION 

Consolidated Statements of Cash Flow 

(Unaudited) 

(Expressed in Canadian Dollars) 
  

																	
	 	  	Three months ended	 	 	Six months ended	 
	 	  	June 30
2010	 	 	June 30
2009	 	 	June 30
2010	 	 	June 30
2009	 
	 OPERATIONS
	  				 				 				 			
	 Loss for the period
	  	$	(4,211,429	) 	 	$	(2,250,882	) 	 	$	(8,628,857	) 	 	$	(4,326,461	) 
	 Items not involving cash:
	  				 				 				 			
	 Amortization of intangible assets
	  	 	396,028	  	 	 	320,718	  	 	 	709,922	  	 	 	639,044	  
	 Depreciation of property and equipment
	  	 	176,498	  	 	 	186,439	  	 	 	354,280	  	 	 	363,680	  
	 Stock-based compensation expense (note 4)
	  	 	60,534	  	 	 	85,293	  	 	 	420,351	  	 	 	196,138	  
	 Foreign exchange (gains) losses arising on foreign currency cash balances
	  	 	70,317	  	 	 	(286,902	) 	 	 	31,648	  	 	 	(307,264	) 
	 Net change in non-cash working capital items:
	  				 				 				 			
	 Accounts receivable
	  	 	(227,871	) 	 	 	(143,180	) 	 	 	76,192	  	 	 	(838,463	) 
	 Investment tax credits receivable
	  	 	9,638	  	 	 	—  	  	 	 	9,638	  	 	 	275,965	  
	 Inventory
	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	174,524	  
	 Prepaid expenses and other assets
	  	 	(13,749	) 	 	 	(98,966	) 	 	 	29,953	  	 	 	(62,441	) 
	 Accounts payable and accrued liabilities
	  	 	(226,952	) 	 	 	(883,899	) 	 	 	(2,454,213	) 	 	 	(797,404	) 
	 Net change in deferred revenue
	  	 	3,868,409	  	 	 	1,257,369	  	 	 	3,996,744	  	 	 	1,748,623	  
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
		  	 	(98,577	) 	 	 	(1,814,010	) 	 	 	(5,454,342	) 	 	 	(2,934,059	) 
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 INVESTMENTS
	  				 				 				 			
	 Proceeds from (acquisition of) short-term investments, net
	  	 	—  	  	 	 	(14,525,853	) 	 	 	—  	  	 	 	(8,795,346	) 
	 Acquisition of intangible assets
	  	 	(31,476	) 	 	 	(2,248	) 	 	 	(32,416	) 	 	 	(116,086	) 
	 Acquisition of property and equipment
	  	 	(161,822	) 	 	 	(85,074	) 	 	 	(713,452	) 	 	 	(771,122	) 
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
		  	 	(193,298	) 	 	 	(14,613,175	) 	 	 	(745,868	) 	 	 	(9,682,554	) 
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 FINANCING
	  				 				 				 			
	 Issuance of common share pursuant to exercise of options
	  	 	21,161	  	 	 	—  	  	 	 	21,361	  	 	 	600	  
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
		  	 	21,161	  	 	 	—  	  	 	 	21,361	  	 	 	600	  
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Foreign exchange gains (losses) arising on foreign currency cash balances
	  	 	(70,317	) 	 	 	286,902	  	 	 	(31,648	) 	 	 	307,264	  
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Decrease in cash and cash equivalents
	  	 	(341,031	) 	 	 	(16,140,283	) 	 	 	(6,210,497	) 	 	 	(12,308,749	) 
	 Cash and cash equivalents, beginning of period
	  	 	18,528,274	  	 	 	30,049,876	  	 	 	24,397,740	  	 	 	26,218,342	  
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Cash and cash equivalents, end of period
	  	$	18,187,243	  	 	$	13,909,593	  	 	$	18,187,243	  	 	$	13,909,593	  
		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Supplemental cash flow information
	  				 				 				 			
					
	 Interest paid
	  	$	—  	  	 	$	—  	  	 	$	—  	  	 	$	—  	  
	 Investment tax credits received
	  	$	20,652	  	 	$	—  	  	 	$	20,652	  	 	$	275,965	  

 See accompanying notes
to the consolidated financial statements. 
  

 4 








 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Interim Consolidated Financial Statements (Unaudited) 

(Expressed in Canadian dollars) 

Three and six months ended June 30, 2010 and 2009 

1. Basis of presentation and future operations 

These unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting
principles (“GAAP”) for interim financial statements and accordingly, do not include all disclosures required for annual financial statements. 

The unaudited interim consolidated financial statements reflect, in the opinion of management, all adjustments and reclassifications
necessary to present fairly the financial position, results of operations and cash flows at June 30, 2010 and for all periods presented. 

The results of operations for the three months and six months ended June 30, 2010 and June 30, 2009 are not necessarily
indicative of the results for the full year. 
 These statements should be read in conjunction with the Company’s audited
consolidated financial statements and notes thereto for the year ended December 31, 2009 and included in the 2009 Annual Report. 

These financial statements reflect the same significant accounting policies as those described in the notes to the audited consolidated
financial statements of Tekmira Pharmaceuticals Corporation (“the Company”) for the year ended December 31, 2009. 

These consolidated financial statements include the accounts of the Company and its two wholly-owned subsidiaries, Protiva
Biotherapeutics Inc. (“Protiva”) and Protiva Biotherapeutics (USA), Inc., which were acquired on May 30, 2008. All intercompany transactions and balances have been eliminated on consolidation. 

Future operations 

The success of the Company and its ability to realize the value of its non-monetary assets is dependent on obtaining the necessary
regulatory approval, bringing its products to market and achieving profitable operations. The continuation of the research and development activities and the commercialization of its products are dependent on the Company’s ability to
successfully complete these activities and to obtain adequate financing through a combination of financing activities and operations. It is not possible to predict either the outcome of future research and development programs or the Company’s
ability to fund these programs in the future. 
 2. Future changes in accounting policies 

On February 13, 2008, the Accounting Standards Board confirmed that the use of International Financial Reporting Standards
(“IFRS”) will be required, for fiscal years beginning on or after January 1, 2011, for publicly accountable profit-oriented enterprises. After that date, IFRS will replace Canadian GAAP for those enterprises. IFRS uses a conceptual
framework similar to Canadian GAAP, but there are significant differences on recognition, measurement and disclosures. 
 On May
12, 2010, the Company announced plans to apply for a listing of its common shares on the NASDAQ Global Market. This listing would be in addition to the Company’s current listing on the Toronto Stock Exchange. To list its shares in the United
States the Company will need to register with the U.S. Securities and Exchange Commission (“SEC”). The Canadian Securities Administrators’ National Instrument 52-107, Acceptable Accounting Principles, Auditing Standards and
Reporting Currency, permits Canadian public companies which are also SEC registrants the option to prepare their financial statements under US GAAP. 
  

 5 









 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Interim Consolidated Financial Statements (Unaudited)—(Continued) 

(Expressed in Canadian dollars) 

Three and six months ended June 30, 2010 and 2009 

 

 The Company undertook a detailed review of the implications of conversion to
US GAAP as compared to IFRS. As a result of this analysis, it has been determined that should the Company complete a listing on the NASDAQ Global Market in 2010 it will adopt US GAAP as its primary basis of financial reporting commencing
December 31, 2010 on a retrospective basis. 
 3. Collaborative and Licensing Agreements 

The following table sets forth revenue recognized under the licensing, collaborative and evaluation agreements: 

 

													
	 	  	Three months ended	  	Six months ended
	 	  	June 30,
2010	  	June 30,
2009	  	June 30,
2010	  	June 30,
2009
	 Research and development collaborations
	  			  			  			  		
	 Alnylam (a)
	  	$	1,419,227	  	$	2,216,268	  	$	2,285,050	  	$	4,603,063
	 Roche (b)
	  	 	896,936	  	 	964,925	  	 	2,162,123	  	 	1,362,235
	 Other RNAi collaborators (c)
	  	 	—  	  	 	—  	  	 	334,925	  	 	96,658
		  	 	 	  	 	 	  	 	 	  	 	 
		  	 	2,316,163	  	 	3,181,193	  	 	4,782,098	  	 	6,061,956
	 Alnylam licensing fees and milestone payments (a)
	  	 	—  	  	 	596,500	  	 	—  	  	 	596,500
		  	 	 	  	 	 	  	 	 	  	 	 
	 Total revenue
	  	$	2,316,163	  	$	3,777,693	  	$	4,782,098	  	$	6,658,456
		  	 	 	  	 	 	  	 	 	  	 	 

 The following table sets forth deferred research and
development collaborations revenue: 

							
	 	  	June 30,
2010	  	December 31,
2009
	 Alnylam (a)
	  	$	 452,464	  	$	 35,987
	 Roche (b)
	  	 	1,100,131	  	 	792,583
	 BMS (c)
	  	 	3,336,586	  	 	333,867
	 Other RNAi collaborators (c)
	  	 	270,000	  	 	—  
		  	 	 	  	 	 
	 Total deferred revenue
	  	$	5,159,181	  	$	1,162,437
		  	 	 	  	 	 

 (a) License and collaboration with Alnylam
Pharmaceuticals, Inc. (“Alnylam”) 
 On January 8, 2007, the Company entered into a licensing and
collaboration agreement with Alnylam (“Alnylam License and Collaboration”) giving Alnylam an exclusive license to certain of the Company’s historical lipid nanoparticle intellectual property for the discovery, development, and
commercialization of ribonucleic acid interference (“RNAi”) therapeutics. 
 As a result of the acquisition of Protiva
on May 30, 2008, the Company acquired a Cross-License Agreement between Protiva and Alnylam dated August 14, 2007 (the “Alnylam Cross-License”). Alnylam was granted a non-exclusive license to the Protiva intellectual property.
Under the Alnylam Cross-License, Alnylam was required to make collaborative research payments at a minimum rate of US$2,000,000 per annum for the 

 

 6 









 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Interim Consolidated Financial Statements (Unaudited)—(Continued) 

(Expressed in Canadian dollars) 

Three and six months ended June 30, 2010 and 2009 

 

 
provision of the Company’s research staff. The research collaboration under the Alnylam Cross-License expired on August 13, 2009. 

Alnylam has provided non-exclusive access to the Company’s lipid nanoparticle intellectual property to F. Hoffman-La Roche Ltd
(“Roche”), Regulus Therapeutics, Inc. (a joint venture between Alnylam and Isis Pharmaceuticals, Inc.) and Takeda Pharmaceutical Company Limited (“Takeda”). The Company is eligible to receive up to US$16,000,000 in milestone
payments for each RNAi therapeutic advanced by Alnylam or its partners. The Company is also eligible for royalties on product sales. These milestones and royalties will pass through Alnylam. Of the US$16,000,000 potential milestone payments,
US$4,500,000 relate to pre-regulatory approval milestones and US$11,500,000 relate to the milestones of regulatory approval and cumulative product sales of over US$500,000,000. 

In the three month period ended June 30, 2009 the Company received a $596,500 (US$500,000) milestone payment from Alnylam in respect
of the initiation of Alnylam’s ALN-VSP Phase 1 human clinical trial. 
 Manufacturing Agreement with Alnylam

 The Company has a manufacturing agreement with Alnylam dated January 2, 2009 (the “Alnylam Manufacturing
Agreement”). Under the Alnylam Manufacturing Agreement the Company is the exclusive manufacturer of any products required by Alnylam through to the end of phase 2 clinical trials that utilize the Company’s technology. Alnylam pays the
Company for the provision of staff and for external costs incurred. Time charged to Alnylam is at a fixed rate and under the Alnylam Manufacturing Agreement there is a contractual minimum of $11,200,000 for the three years from 2009 to 2011.

 (b) Roche 

Under a February 11, 2009 research agreement with Roche the Company recognized $397,310 as revenue during the six month period ended
June 30, 2009. The work under this agreement was completed in June 2009. 
 On May 11, 2009 the Company announced a
product development agreement with Roche (the “Roche Product Development Agreement”). Under the Roche Product Development Agreement Roche will pay the Company up to US$8,800,000 to support the advancement of a Roche RNAi product candidate
using the Company’s delivery technology through to the filing of an Investigational New Drug (“IND”) application. The Company is also eligible to receive up to US$16,000,000 in milestones plus royalties on product sales for each
product advanced through development and commercialization based on Roche’s access to the Company’s intellectual property through Alnylam. 

The Company will develop and manufacture drug product for use in all preclinical studies under the Roche Product Development Agreement
and will collaborate with Roche to conduct the preclinical testing. The agreement also provides that the Company will manufacture one batch of clinical product for a Phase 1 clinical trial. 

Under the Roche Product Development Agreement Roche will pay the Company for the provision of staff and for external costs incurred. The
Company is recognizing revenue in proportion to the services provided up to the reporting date by comparing actual hours spent to estimated total hours for each product under the contract. Revenue from external costs incurred on Roche product
candidates will be recorded in the period that Roche is invoiced for those costs. The difference between service revenue recognized and cash received will be recorded 

 

 7 









 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Interim Consolidated Financial Statements (Unaudited)—(Continued) 

(Expressed in Canadian dollars) 

Three and six months ended June 30, 2010 and 2009 

 

 
in the Company’s balance sheet as accrued revenue or deferred revenue, as appropriate, and as at June 30, 2010 the deferred revenue balance was $1,100,131 (December 31,
2009—$792,583). 
 (c) Other RNAi collaborators 

The Company has active research agreements with a number of other RNAi collaborators including Bristol-Myers Squibb Company, Pfizer and
Takeda. 
 On May 10, 2010 the Company announced the expansion of its research collaboration with Bristol-Myers Squibb
Company (“Bristol-Myers Squibb”). Under the new agreement, Bristol-Myers Squibb will use small interfering RNA (“siRNA”) molecules formulated by the Company in lipid nanoparticles (“LNPs”) to silence target genes of
interest. Bristol-Myers Squibb will conduct the preclinical work to validate the function of certain genes and share the data with the Company. The Company can use the preclinical data to develop RNAi therapeutic drugs against the therapeutic
targets of interest. The Company received $3,233,400 (US$3,000,000) from Bristol-Myers Squibb concurrent with the signing of the agreement. The Company will be required to provide a pre-determined number of LNP batches over the four-year agreement.
Bristol-Myers Squibb will have a first right to negotiate a licensing agreement on certain RNAi products developed by the Company that evolve from Bristol-Myers Squibb validated gene targets. 

Revenue from the May 10, 2010 agreement with Bristol-Myers Squibb is being recognized as the Company produces the related LNP
batches. No LNP batches had been produced under the agreement by June 30, 2010. 
 4. Stock-based compensation 

Stock options 

The following table sets forth outstanding options under the Company’s 1996 Stock Option Plan: 

 

							
	 	  	Number of optioned
common shares	 	 	Weighted average
exercise price
	 Balance, December 31, 2009
	  	4,328,140	  	 	$	2.02
	 Options granted
	  	959,350	  	 	 	0.77
	 Options exercised
	  	(23,618	) 	 	 	0.90
	 Options forfeited, cancelled or expired
	  	(128,833	) 	 	 	2.51
		  	 	 	 	 	 
	 Balance, June 30, 2010
	  	5,135,039	  	 	$	1.78
		  	 	 	 	 	 

 The stock options expire at various dates from
December 18, 2010 to June 24, 2020. A total of 1,276,087 options are available for future allocation under the 1996 Share Option Plan. 

The Company has recorded compensation expense for stock-based compensation awarded to employees and calculated in accordance with the
fair value method in the consolidated statements of operations and comprehensive loss in research, development and collaborations and general and administrative expenses as follows: 

 

													
	 	  	Three months ended	  	Six months ended
	 	  	June 30,
2010	  	June 30,
2009	  	June 30,
2010	  	June 30,
2009
	 Stock-based compensation expense
	  	$	60,534	  	$	85,293	  	$	420,351	  	$	196,138

  

 8 









 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Interim Consolidated Financial Statements (Unaudited)—(Continued) 

(Expressed in Canadian dollars) 

Three and six months ended June 30, 2010 and 2009 

 

 The fair value of each option is estimated as at the date of grant using the
Black-Scholes option pricing model. The weighted average option pricing assumptions and the resultant fair values are as follows: 
  

																	
	 	  	Three months ended	 	 	Six months ended	 
	 	  	June 30,
2010	 	 	June 30,
2009	 	 	June 30,
2010	 	 	June 30,
2009	 
	 Dividend yield
	  	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 
	 Expected volatility
	  	 	117.1	% 	 	 	142.7	% 	 	 	119.6	% 	 	 	142.7	% 
	 Risk-free interest rate
	  	 	2.4	% 	 	 	2.0	% 	 	 	2.7	% 	 	 	2.0	% 
	 Expected average option term
	  	 	5.0 years	  	 	 	5.0 years	  	 	 	7.0 years	  	 	 	5.0 years	  
	 Fair value of options granted
	  	$	0.98	  	 	$	0.55	  	 	$	0.69	  	 	$	0.55	  

 On May 30, 2008,
as a condition of the acquisition of Protiva the Company reserved 1,752,294 common shares for the exercise of 519,073 Protiva share options (“Protiva Options”). The Protiva Options have an exercise price of $0.30, are fully vested, expire
at various dates from November 19, 2010 to March 1, 2018 and upon exercise each option will be converted into approximately 3.3758 shares of the Company (the same ratio at which Protiva common shares were exchanged for Company common
shares at completion of the acquisition of Protiva). To June 30, 2010, none of the Protiva Options had been exercised, forfeited or cancelled. The Protiva Options are not part of the Company’s 1996 Stock Option Plan and the Company is not
permitted to grant any further Protiva Options. 
 5. Related party transactions 

Research, development and collaborations expenses in the three months and six months ended June 30, 2009 include $14,777 and $44,415
respectively of contract research costs, measured at the cash amount and incurred in the normal course of operations with Ricerca Biosciences, LLC (“Ricerca”) whose Chief Executive Officer, Mr. Ian Lennox, is also a director of the
Company. There were no transactions with Ricerca in the six months ended June 30, 2010. Accounts payable and accrued liabilities at June 30, 2010 include $nil in respect of Ricerca (December 31, 2009—$nil). 

6. Subsequent events 

Contract with U.S. Government to develop an Ebola anti-viral 

On July 14, 2010, the Company signed a contract with the United States Government to advance TKM-Ebola, an RNAi therapeutic utilizing
the Company’s lipid nanoparticle technology to treat Ebola virus infection. 
 In the initial phase of the contract, which
is expected to last approximately three years and is funded as part of the Transformational Medical Technologies program, the Company is eligible to receive up to US$34.7 million. This initial funding is for the development of TKM-Ebola including
completion of preclinical development, filing an Investigational New Drug application with the United States Food and Drug Administration (“FDA”) and completing a Phase 1 human safety clinical trial. 

The United States Government has the option of extending the contract beyond the initial funding period to support the advancement of
TKM-Ebola through to the completion of clinical development and FDA approval. Based on the contract budget this would provide the Company with a total of up to US$140.0 million in funding for the entire program. 

 

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 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Interim Consolidated Financial Statements (Unaudited)—(Continued) 

(Expressed in Canadian dollars) 

Three and six months ended June 30, 2010 and 2009 

 

 Licensing milestone payment of US$500,000 due from Alnylam 

On July 7, 2010, the Company announced that Alnylam have initiated a Phase 1 human clinical trial for their product candidate
ALN-TTR01 which triggered a US$500,000 milestone payable to the Company. 
 7. Reconciliation of Generally Accepted Accounting Principles
(“GAAP”) 
 The Company prepares its consolidated financial statements in accordance with Canadian GAAP, which, as
applied in these consolidated financial statements, conform in all material respects to US GAAP, except as summarized below: 

Reconciliation of net loss and comprehensive loss 

The application of US GAAP would have the following effects on the net loss and comprehensive loss as reported: 

 

									
	 	  	Three months ended
June 
30 2010	 	 	Six months ended
June 30
2010	 
	 Net loss and comprehensive loss for the period, Canadian GAAP
	  	$	(4,211,429	) 	 	$	(8,628,857	) 
	 Adjustment for in–process research and development (note 7(a))
	  	 	253,938	  	 	 	507,875	  
		  	 	 	 	 	 	 	 
	 Net loss and comprehensive loss for the period, US GAAP
	  	$	(3,957,491	) 	 	$	(8,120,982	) 
		  	 	 	 	 	 	 	 
	 Basic and diluted loss per common share, US GAAP
	  	$	(0.08	) 	 	$	(0.16	) 
		  	 	 	 	 	 	 	 

 Reconciliation of significant balance sheet items 

The application of US GAAP would have the following effects on the balance sheet as reported: 

Intangible assets 
  

					
	 	  	June 30
2010	 
	 Intangible assets, Canadian GAAP
	  	$	14,474,924	  
	 Adjustments for in–process research and development (note 7(a))
	  	 	(14,135,854	) 
		  	 	 	 
	 Intangible assets, US GAAP
	  	$	339,070	  
		  	 	 	 

 Deficit 
  

					
	 	  	June 30
2010	 
	 Deficit, Canadian GAAP
	  	$	(230,480,409	) 
	 Adjustment for in–process research and development (note 7(a))
	  	 	(14,135,854	) 
		  	 	 	 
	 Deficit, US GAAP
	  	$	(244,616,263	) 
		  	 	 	 

  

 10 









 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Interim Consolidated Financial Statements (Unaudited)—(Continued) 

(Expressed in Canadian dollars) 

Three and six months ended June 30, 2010 and 2009 

 

 (a) In-process research and development 

Under US GAAP, the Company’s medical technology acquired as a result of the acquisition of Protiva on May 30, 2008 would be
classified as in-process research and development and written off immediately as it has no alternative use. Under Canadian GAAP, the medical technology acquired from Protiva has been recorded as intangible assets and is being amortized over its
estimated useful life. 
 (b) Recently issued US accounting pronouncements 

Multiple-Deliverable Revenue Arrangements 

In October 2009, FASB provided amendments to the criteria for separating consideration in multiple-deliverable arrangements, established a
selling price hierarchy for determining the selling price of a deliverable, and eliminated the residual method of allocation of consideration by requiring that arrangement consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method. FASB also requires expanded disclosures related to multiple-deliverable revenue arrangements, including information about the significant judgments made and changes to those judgments, as well as
how the application of the relative selling-price method affects the timing and amount of revenue recognition. These amendments will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on
or after June 15, 2010. The Company is currently assessing the impact of these amendments on its consolidated financial statements. 

Milestone Method of Revenue Recognition 

In April 2010, the FASB issued guidance on the criteria that should be met for determining whether the application of the milestone method
of revenue recognition is appropriate for research and development transactions. Under the new guidance use of the milestone method of revenue recognition or another method of proportional revenue recognition remains a policy choice. To use the
milestone method, a vendor can recognize consideration contingent upon achieving a milestone only if the milestone is substantive. For a milestone to be considered substantive, the consideration earned by achieving the milestone should: 

 

	 	•	 	 be commensurate with the vendor’s performance to achieve the milestone; 



 

	 	•	 	 relate solely to past performance; and 


  

	 	•	 	 be reasonable relative to all deliverables and payment terms in the arrangement. 



This guidance will be effective prospectively for milestones achieved in fiscal years beginning on or after June 15, 2010. The Company is
currently assessing the impact of these amendments on its consolidated financial statements. 
  

 11