##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
file number: 001-33882
 ONCOTHYREON INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    26-0868560(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)110 - 110th Avenue NE, Suite 685Bellevue, Washington
    
    98004(Address of principal executive offices)
    
    (Zip Code)
 (425) 450-0370  (Registrants telephone number, including area code)
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



ONCOTHYREON INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2008
 INDEX
 PagePart I  Financial Information
    
    
    3Item 1. Financial Statements (unaudited)
    
    
    3Notes to the Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    25Item 3. Qualitative and Quantitative Disclosures about Market Risks
    
    
    37Item 4. Controls and Procedures
    
    
    38Part II  Other Information
    
    
    40Item 1. Legal Proceedings
    
    
    40Item 1A. Risk Factors
    
    
    40Item 6. Exhibits
    
    
    58Signatures
    
    
    59EXHIBIT 12.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
   -2-




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements (unaudited)
 ONCOTHYREON INC.
Condensed Consolidated Balance Sheets
(expressed in thousands of U.S. dollars, except Stock amounts)
(Unaudited)
 March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrentCash and cash equivalents
    
    $
    5,885
    
    
    $
    12,035Short-term investments
    
    
    10,566
    
    
    
    12,151Accounts receivable
    
    
    2,741
    
    
    
    2,024Government grant receivable
    
    
    210
    
    
    
    552Notes receivable
    
    
    350
    
    
    
    364Prepaid expenses
    
    
    400
    
    
    
    528Inventory (See Note 5)
    
    
    6,395
    
    
    
    5,06926,547
    
    
    
    32,723Plant and equipment
    
    
    1,375
    
    
    
    1,378Goodwill
    
    
    2,117
    
    
    
    2,117$
    30,039
    
    
    $
    36,218LIABILITIESCurrentAccounts payable and accrued liabilities
    
    $
    3,980
    
    
    $
    5,768Current portion of capital lease obligations
    
    
    100
    
    
    
    104Current portion of deferred revenue
    
    
    5,894
    
    
    
    5,8019,974
    
    
    
    11,673Capital lease obligations
    
    
    40
    
    
    
    66Notes payable
    
    
    199
    
    
    
    199Warrant liability (See Note 6)
    
    
    
    
    
    
    64Deferred revenue
    
    
    12,555
    
    
    
    12,167Class UA preferred stock, 12,500 shares authorized, 12,500 and 12,500
shares issued and outstanding
    
    
    29
    
    
    
    3022,797
    
    
    
    24,199Contingencies, commitments, and guarantees (See Note 9)STOCKHOLDERS EQUITYPreferred stock, $0.0001 par value; 10,000,000 shares authorized, no
shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.0001 par value; 100,000,000 shares authorized, 19,485,889
and 19,485,889 shares issued and outstanding
    
    
    324,992
    
    
    
    324,992Warrants (See Note 6)
    
    
    64
    
    
    
    Additional paid-in capital
    
    
    14,012
    
    
    
    13,636Accumulated deficit
    
    
    (326,657
    )
    
    
    (321,543
    )Accumulated other comprehensive loss
    
    
    (5,169
    )
    
    
    (5,066
    )7,242
    
    
    
    12,019$
    30,039
    
    
    $
    36,218
  -3-




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ONCOTHYREON INC.
 Condensed Consolidated Statements of Operations and Comprehensive Loss
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 Three months endedMarch 31,2008
    
    
    2007RevenueContract research and development
    
    $
    
    
    
    $
    99Contract manufacturing
    
    
    1,718
    
    
    
    Licensing revenue from collaborative agreements
    
    
    302
    
    
    
    63Licensing, royalties, and other revenue
    
    
    
    
    
    
    92,020
    
    
    
    171ExpensesResearch and development (see Note 4)
    
    
    2,308
    
    
    
    2,972Manufacturing
    
    
    2,080
    
    
    
    General and administrative
    
    
    2,703
    
    
    
    1,911Marketing and business development
    
    
    
    
    
    
    478Depreciation
    
    
    103
    
    
    
    57Investment and other income (See Note 8)
    
    
    (60
    )
    
    
    (305
    )Change in fair value of warrant liability (See Note 6)
    
    
    
    
    
    
    (266
    )7,134
    
    
    
    4,847Net loss
    
    
    (5,114
    )
    
    
    (4,676
    )Other comprehensive loss
    
    
    (103
    )
    
    
    (1,227
    )Comprehensive loss
    
    $
    (5,217
    )
    
    $
    (5,903
    )Basic and diluted loss per share
    
    $
    (0.26
    )
    
    $
    (0.24
    )Weighted average number of common shares outstanding
    
    
    19,485,889
    
    
    
    19,485,889
  -4-




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##### Table of Contents



ONCOTHYREON INC.
 Condensed Consolidated Statements of Stockholders Equity
(expressed in thousands of U.S. dollars, except number of common shares issued and outstanding)
(Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    
    
    
    
    Paid-in
    
    
    Accumulated
    
    
    ComprehensiveNumber
    
    
    Amount
    
    
    Warrants
    
    
    Capital
    
    
    Deficit
    
    
    LossBalance at December 31, 2006
    
    
    19,485,889
    
    
    $
    324,992
    
    
    $
    
    
    
    $
    11,955
    
    
    $
    (301,203
    )
    
    $
    (8,309
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,681
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,340
    )
    
    
    Unrealized holding loss on
available-for-sale-securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )Foreign currency
translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,291Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,243Balance at December 31, 2007
    
    
    19,485,889
    
    
    $
    324,992
    
    
    $
    
    
    
    $
    13,636
    
    
    $
    (321,543
    )
    
    $
    (5,066
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    376
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,114
    )
    
    
    Warrants (Note 6)
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    Unrealized holding loss on
available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103
    )Balance at March 31, 2008
    
    
    19,485,889
    
    
    $
    324,992
    
    
    $
    64
    
    
    $
    14,012
    
    
    $
    (326,657
    )
    
    $
    (5,169
    )
  -5-




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ONCOTHYREON INC.
 Condensed Consolidated Statements of Cash Flows
(expressed in thousands of U.S. dollars)
(Unaudited)
 Three months endedMarch 31,2008
    
    
    2007OperatingNet loss
    
    $
    (5,114
    )
    
    $
    (4,676
    )Depreciation
    
    
    103
    
    
    
    57Stock-based compensation expense
    
    
    376
    
    
    
    358Change in fair value of warrant liability (See Note 6)
    
    
    
    
    
    
    (266
    )Gain on disposal of short-term investments
    
    
    
    
    
    
    (44
    )Proceeds from collaborative agreements
    
    
    
    
    
    
    2,497Deferred revenue
    
    
    481
    
    
    
    (63
    )Net change in non-cash working capital balances from operationsAccounts receivable
    
    
    (717
    )
    
    
    793Government grant receivable
    
    
    342
    
    
    
    Prepaid expenses
    
    
    128
    
    
    
    32Inventory
    
    
    (1,326
    )
    
    
    (2,050
    )Accounts payable and accrued liabilities
    
    
    (1,501
    )
    
    
    78(7,228
    )
    
    
    (3,284
    )InvestingPurchase of short-term investments
    
    
    (10,397
    )
    
    
    (8,416
    )Redemption of short-term investments
    
    
    11,879
    
    
    
    9,561Purchase of plant and equipment
    
    
    (387
    )
    
    
    (37
    )Payment of accrued business acquisition cost
    
    
    
    
    
    
    (236
    )1,095
    
    
    
    872FinancingRepayment of share issuance costs
    
    
    
    
    
    
    (164
    )Repayment of capital lease obligations
    
    
    (30
    )
    
    
    (12
    )(30
    )
    
    
    (176
    )Net cash outflow
    
    
    (6,163
    )
    
    
    (2,588
    )Effect of exchange rate fluctuations on cash and cash equivalents
    
    
    13
    
    
    
    96Decrease in cash and cash equivalents
    
    
    (6,150
    )
    
    
    (2,492
    )Cash and cash equivalents, beginning of period
    
    
    12,035
    
    
    
    13,409Cash and cash equivalents, end of period
    
    $
    5,885
    
    
    $
    10,917Supplemental disclosure of cash flow informationAmount of interest paid in the period
    
    $
    2
    
    
    $
    1Amount of income taxes paid in the period
    
    $
    
    
    
    $
    
  -6-




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ONCOTHYREON INC.
 
 Notes to the Condensed Consolidated Financial Statements
 Three months ended March 31, 2008 and 2007
 (expressed in thousands of U.S. dollars, except share and per share amounts)
 (Unaudited)
 1. DESCRIPTION OF BUSINESS
  Change in reporting entity
     Accounting
for Business Combinations
 -7-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
  2. BASIS OF PRESENTATION
    Foreign currency translation
 Foreign Currency Translation,
 -8-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 3. ACCOUNTING POLICY CHANGES
 Accounting standards adopted in the current year
 Fair Value Measurements
 Fair Value Measurements (SFAS 157)
 The Fair Value Option for Financial Assets and Financial Liabilities
 The Fair Value Option for Financial Assets
and Financial Liabilities (SFAS 159)
 Accounting for Non Refundable Advance Payments for Goods or Services
Received for Use in Future Research and Development Activities
 Accounting for Non Refundable
Advance Payments for Goods or Services Received for Use in Future Research and Development
Activities
 Accounting standards effective in future years
 Collaborative Arrangements
 Collaborative
Arrangements
 -9-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
  Business Combinations
 Business Combinations
 Noncontrolling Interests in Consolidated Financial Statements
 Noncontrolling Interests in Consolidated Financial Statementsan Amendment of ARB No. 51
 Disclosures about Derivative Instruments and Hedging Activities
 Disclosure about Derivative Investments and Hedging Activities  an
amendment to SFAS No. 133 (SFAS 161) SFAS SFAS
 4. RESEARCH AND DEVELOPMENT COSTS
  -10-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 5. INVENTORY
 March 31,
    
    
    December 31,2008
    
    
    2007Raw material supplies
    
    $
    1,958
    
    
    $
    1,693Work-in-process
    
    
    4,217
    
    
    
    2,454Finished goods
    
    
    220
    
    
    
    922$
    6,395
    
    
    $
    5,069
 6. SHARE CAPITAL
 Warrants
 Accounting for Derivative Instruments and Hedging
Activities (SFAS 133)
  Stock transactions
 (a) Loss per Share
  (b) Registration Statement
  -11-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 7. STOCK-BASED COMPENSATION
 Stock Option Plan
    Three months endedMarch 31,2008
    
    2007Weighted average grant-date fair value per stock option $CDN
    
    $
    3.84
    
    
    $
    6.18Expected dividend rate
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    109.34
    %
    
    
    102.63
    %Risk-free interest rate
    
    
    3.09
    %
    
    
    3.90
    %Expected life of options in years
    
    
    6.0
    
    
    
    6.0
 8. IMPACT OF FOREIGN CURRENCY TRANSLATION
  9. CONTINGENCIES, COMMITMENTS, AND GUARANTEES
 Royalties
  -12-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
   Guarantees
    10. FINANCIAL INSTRUMENTS
  -13-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 Credit risk
  Interest rate risk
  Foreign exchange risk
    Short-term investments
  -14-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 Accounts receivable, government grant receivable and accounts payable and accrued liabilities
  Notes receivable
  Capital lease obligations
  Notes payable
  Limitations
  Fair values
  March 31, 2008
    
    December 31, 2007Carrying
    
    
    
    
    
    CarryingFair Value
    
    Amount
    
    Fair Value
    
    AmountAssetsCash and cash equivalents
    
    $
    5,885
    
    
    $
    5,885
    
    
    $
    12,035
    
    
    $
    12,035Short-term investments
    
    
    10,566
    
    
    
    10,566
    
    
    
    12,151
    
    
    
    12,151Accounts receivable
    
    
    2,741
    
    
    
    2,741
    
    
    
    2,024
    
    
    
    2,024Government grant receivable
    
    
    210
    
    
    
    210
    
    
    
    552
    
    
    
    552Notes receivable
    
    
    350
    
    
    
    350
    
    
    
    364
    
    
    
    364LiabilitiesAccounts payable and accrued liabilities
    
    
    3,980
    
    
    
    3,980
    
    
    
    5,768
    
    
    
    5,768Capital lease obligations
    
    
    147
    
    
    
    140
    
    
    
    177
    
    
    
    170Notes payable
    
    
    199
    
    
    
    199
    
    
    
    199
    
    
    
    199Warrant liability
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    64
 -15-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 11. SEGMENTED INFORMATION
  Three months endedMarch 31,2008
    
    
    2007Revenue from operations inCanada
    
    $
    4
    
    
    $
    13United States
    
    
    1,975
    
    
    
    Barbados
    
    
    28
    
    
    
    141Europe
    
    
    13
    
    
    
    17$
    2,020
    
    
    $
    171DepreciationCanada
    
    $
    73
    
    
    $
    9United States
    
    
    30
    
    
    
    48$
    103
    
    
    $
    57
 March 31, 2008
    
    
    December 31, 2007Long-lived assetsCanada
    
    $
    837
    
    
    $
    833United States
    
    
    2,655
    
    
    
    2,662$
    3,492
    
    
    $
    3,495
   Customers
    
    RevenueThree months ended March 31, 2007
    
    
    1
    
    
    $
    154Three months ended March 31, 2008
    
    
    1
    
    
    $
    2,016
 -16-




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##### Table of Contents



ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE
UNITED STATES AND CANADA
  Three months endedMarch 31,2008
    
    
    2007Consolidated statements of operations and other
comprehensive incomeNet loss  U.S. GAAP
    
    $
    (5,114
    )
    
    $
    (4,676
    )Intangible assets (a), (c)
    
    
    (783
    )
    
    
    (679
    )Future income taxes (a)
    
    
    521
    
    
    
    629Acquired in-process research and development,
net of future income taxes (b)
    
    
    
    
    
    
    421Change in fair value of warrants (c)
    
    
    
    
    
    
    (266
    )Net loss  Canadian GAAP
    
    $
    (5,376
    )
    
    $
    (4,571
    )Weighted average number of common shares outstanding
    
    
    19,485,889
    
    
    
    19,485,889Loss per common shareBasic and diluted loss per share  U.S. GAAP
    
    $
    (0.26
    )
    
    $
    (0.24
    )Basic and diluted loss per share  Canadian GAAP
    
    $
    (0.28
    )
    
    $
    (0.23
    )
 Three months endedMarch 31,2008
    
    
    2007Other comprehensive loss   U.S. GAAP
    
    $
    (103
    )
    
    $
    (1,227
    )Foreign currency translation adjustments
    
    
    
    
    
    
    623Other comprehensive loss  Canadian GAAP
    
    $
    (103
    )
    
    $
    (604
    )
 -17-




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##### Table of Contents



ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 March 31, 2008
    
    December 31, 2007U.S. GAAP
    
    Canadian GAAP
    
    U.S. GAAP
    
    Canadian GAAPConsolidated balance sheetsIntangible assets (a), (b)
    
    $
    
    
    
    $
    37,189
    
    
    $
    
    
    
    $
    37,972Future income taxes (a)
    
    
    
    
    
    
    9,947
    
    
    
    
    
    
    
    10,468Warrant liability (c)
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    Share Capital (a), (c)
    
    
    324,992
    
    
    
    324,137
    
    
    
    324,992
    
    
    
    324,137Additional paid-in capital (c)
    
    
    14,012
    
    
    
    21,979
    
    
    
    13,636
    
    
    
    21,603Deficit (a), (b), (c)
    
    
    (326,657
    )
    
    
    (315,061
    )
    
    
    (321,543
    )
    
    
    (309,685
    )Accumulated other comprehensive loss
    
    
    (5,169
    )
    
    
    (1,349
    )
    
    
    (5,066
    )
    
    
    (1,246
    )Warrants (c)
    
    
    64
    
    
    
    4,778
    
    
    
    
    
    
    
    4,778Total Stockholders equity
    
    
    7,242
    
    
    
    34,484
    
    
    
    12,019
    
    
    
    39,587
  March 31,
    
    
    December 31,2008
    
    
    2007Stockholders equity  U.S. GAAP
    
    $
    7,242
    
    
    $
    12,019Intangible assets (a), (b)
    
    
    37,189
    
    
    
    37,972Future income taxes (a)
    
    
    (9,947
    )
    
    
    (10,468
    )Warrant liability reclassification (c)
    
    
    
    
    
    
    64Stockholders equity  Canadian GAAP
    
    $
    34,484
    
    
    $
    39,587
  Three months endedMarch 31,2008
    
    
    2007Accumulated other comprehensive loss U.S. GAAP
    
    $
    (5,169
    )
    
    $
    (8,281
    )Foreign currency translation adjustments
    
    
    3,820
    
    
    
    (1,214
    )Accumulated other comprehensive loss  Canadian GAAP
    
    $
    (1,349
    )
    
    $
    (9,495
    )
 -18-




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##### Table of Contents



ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 Three months endedMarch 31,2008
    
    
    2007Consolidated statements of cash flow  Canadian GAAPCash and cash equivalents, beginning of period
    
    $
    12,035
    
    
    $
    13,409Cash used in operating activities (b)
    
    
    (7,228
    )
    
    
    (2,863
    )Cash provided by investing activities (b)
    
    
    1,095
    
    
    
    451Cash used in financing activities
    
    
    (30
    )
    
    
    (176
    )Effect of exchange rate fluctuations on cash and cash equivalents
    
    
    13
    
    
    
    96Cash and cash equivalents, end of period
    
    $
    5,885
    
    
    $
    10,917
 Business acquisitions
  Intangible assets acquired from others for use in research and development
 Warrants
 -19-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
   Canadian GAAP accounting standards adopted in the current year
 Inventories
 Inventories
 Financial instruments  Disclosures and Presentations
 Financial Instruments 
Disclosures Financial Instruments 
Disclosures and Presentation Financial Instruments  Presentations
 -20-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
  Capital Disclosures
 Capital Disclosures
 .
   Going Concern
 General Standards of
Financial Statement Presentation
 Canadian GAAP accounting standards effective in future years
 Goodwill and Intangible Assets
 Goodwill and Intangible Assets Goodwill and Intangible Assets Research and Development Costs Intangible Assets
 -21-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
  Financial Statement Concepts
 .
 13. OTHER INFORMATION
    As previouslyreportedCanadian
    
    
    As restatedGAAP
    
    
    U.S. GAAPCDN $
    
    
    U.S. $RevenueContract research and development
    
    $
    116
    
    
    $
    99Licensing revenue from collaborative agreements
    
    
    74
    
    
    
    63Licensing, royalties, and other revenue
    
    
    11
    
    
    
    9201
    
    
    
    171ExpensesResearch and development
    
    
    2,989
    
    
    
    2,972General and administrative
    
    
    2,243
    
    
    
    1,911Marketing and business development
    
    
    560
    
    
    
    478Amortization
    
    
    862
    
    
    
    57Investment and other income
    
    
    (357
    )
    
    
    (305
    )Change in fair value of warrant liability
    
    
    
    
    
    
    (266
    )6,297
    
    
    
    4,847
 -22-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 As previouslyreportedCanadian
    
    
    As restatedGAAP
    
    
    U.S. GAAPCDN $
    
    

U.S. $Loss before income taxes
    
    
    (6,096
    )
    
    
    (4,676
    )Income tax recovery:Future
    
    
    737
    
    
    
    737
    
    
    
    Net loss
    
    
    (5,359
    )
    
    
    (4,676
    )Other comprehensive loss
    
    
    (52
    )
    
    
    (1,227
    )Comprehensive loss
    
    $
    (5,411
    )
    
    $
    (5,903
    )Basic and diluted loss per share
    
    $
    (0.28
    )
    
    $
    (0.24
    )Weighted average number of common shares
outstanding
    
    
    19,485,889
    
    
    
    19,485,889
  As previouslyreportedCanadian
    
    
    As restatedGAAP
    
    
    U.S. GAAPCDN $
    
    

U.S. $OperatingNet loss
    
    $
    (5,359
    )
    
    $
    (4,676
    )Amortization
    
    
    862
    
    
    
    57Future income tax recovery
    
    
    (737
    )
    
    
    Stock-based compensation expense
    
    
    419
    
    
    
    358Change in fair value of warrant liability
    
    
    
    
    
    
    (266
    )Gain on disposal of short-term investments
    
    
    (52
    )
    
    
    (44
    )Proceeds from collaborative arrangements
    
    
    2,925
    
    
    
    2,497Foreign exchange gain on notes payable
    
    
    (3
    )
    
    
    Deferred revenue
    
    
    (74
    )
    
    
    (63
    )Foreign exchange (gain) loss on cash and cash
equivalents
    
    
    85
    
    
    
    Net change in non-cash working capital balances
from operationsAccounts receivable
    
    
    929
    
    
    
    793Prepaid expenses
    
    
    38
    
    
    
    32Inventory
    
    
    (2,402
    )
    
    
    (2,050
    )Accounts payable and accrued liabilities
    
    
    91
    
    
    
    78(3,278
    )
    
    
    (3,284
    )InvestingPurchase of short-term investments
    
    
    (9,860
    )
    
    
    (8,416
    )Redemption of short-term investments
    
    
    11,202
    
    
    
    9,561
 -23-




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ONCOTHYREON INC.
 Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 As previouslyreportedCanadian
    
    
    As restatedGAAP
    
    
    U.S. GAAPCDN $
    
    

U.S. $Purchase of plant and equipment
    
    
    (43
    )
    
    
    (37
    )Payment of accrued business acquisition costs
    
    
    (277
    )
    
    
    (236
    )Purchase of intangible assets
    
    
    (493
    )
    
    
    529
    
    
    
    872FinancingRepayment of share issuance costs
    
    
    (192
    )
    
    
    (164
    )Repayment of capital lease obligation
    
    
    (14
    )
    
    
    (12
    )(206
    )
    
    
    (176
    )Net cash outflow
    
    
    (2,955
    )
    
    
    (2,588
    )Effect of
exchange rate fluctuations on cash and cash equivalents
    
    
    (85
    )
    
    
    96Decrease in cash and cash equivalents
    
    
    (3,040
    )
    
    
    (2,492
    )Cash and cash equivalents, beginning of period
    
    
    15,626
    
    
    
    13,409Cash and cash equivalents, end of period
    
    $
    12,586
    
    
    $
    10,917Supplemental disclosure of cash flow informationAmount of interest paid in the period
    
    $
    1
    
    
    $
    1Amount of income taxes paid in the period
    
    $
    
    
    
    $
    
 -24-




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 The information in this Item 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with our consolidated financial statements
and related notes included in Part I, Item 1 of this quarterly report. This discussion contains
forward-looking statements based on current expectations that involve risks and uncertainties, such
as our plans, objectives, expectations and intentions. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to differ materially
from those anticipated in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in quarterly report in Part II,
Item 1A  Risk Factors, and elsewhere in this quarterly report These statements, like all
statements in this quarterly report, speak only as of their date, and we undertake no obligation to
update or revise these statements in light of future developments.
 Overview
     -25-




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-26-




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Key Financial Metrics
 Revenue
  Contract Research and Development
 Contract Manufacturing
 Licensing Revenue from Collaborative Agreements
 -27-




---



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Other Revenue
 Expenses
 Research and Development/Manufacturing
     -28-




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General and Administrative
 Marketing and Business Development
 Depreciation
 Investment and other income
 Interest expense
 Change in fair value of warrants
 -29-




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Critical Accounting Policies and Significant Judgments and Estimates
  Foreign
Currency Translation,
  Results of Operations for the Quarters Ended March 31, 2008 and March 31, 2007
  Overview
 Three
months ended March 31,2008
    
    
    2007
    
    
    % Change(In millions, except per share amounts)Revenue
    
    $
    2.0
    
    
    $
    0.2
    
    
    
    900.0
    %Expenses
    
    
    7.1
    
    
    
    5.2
    
    
    
    36.5
    %Change in fair value of warrant
liability
    
    
    
    
    
    
    (0.3
    )
    
    
    N/M+Net loss
    
    $
    5.1
    
    
    $
    4.7
    
    
    
    8.5
    %Other comprehensive loss
    
    
    0.1
    
    
    
    1.2
    
    
    
    916.7
    %Comprehensive loss
    
    $
    5.2
    
    
    $
    5.9
    
    
    
    11.8
    %Basic and diluted loss per share
    
    $
    0.26
    
    
    $
    0.24
    
    
    
    8.3
    %
 
 +
    
    Not meaningful -30-




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Revenue
 Three
months ended March 31,2008
    
    
    2007
    
    
    % Change(In millions)Contract research and development
    
    $
    
    
    
    $
    0.1
    
    
    
    N/M+Contract manufacturing
    
    
    1.7
    
    
    
    0.0
    
    
    
    N/M+Licensing
revenue from collaborative agreements
    
    
    0.3
    
    
    
    0.1
    
    
    
    200%-$
    2.0
    
    
    $
    0.2
    
    
    
    900.0
    %
 
 +
    
    Not meaningful    -31-




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Research and Development / Manufacturing Expenses
 Three
months ended March 31,
    
    
    % Change2008
    
    
    2007(In millions)Research development
    
    $
    2.3
    
    
    $
    3.0
    
    
    
    (23.3
    )%Manufacturing
    
    
    2.1
    
    
    
    0.0
    
    
    
    N/M+$
    4.4
    
    
    $
    3.0
    
    
    
    46.7.
    %
   General and Administrative Expense
 Three
months ended March 31,
    
    % Change2008
    
    2007(In millions)General and administrative
    
    $
    2.7
    
    
    $
    1.9
    
    
    
    42.1
    %
  Marketing and Business Development Expense
 Three
months ended March 31,
    
    % Change2008
    
    2007(In millions)Marketing and business development
    
    $
    
    
    
    $
    0.5
    
    
    
    N/M+
  Depreciation Expense
 Three
months ended March 31,
    
    % Change2008
    
    2007(In millions)Depreciation
    
    $
    0.1
    
    
    $
    0.1
    
    
    
    
 -32-




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Investment and Other Income
 Three
months ended March 31,
    
    % Change2008
    
    2007(In millions)Investment and other income
    
    $
    0.1
    
    
    $
    0.3
    
    
    
    (66.7
    %)
 
 +
    
    Not meaningful  Change in Fair Value of Warrant Liability
 Three
months ended March 31,
    
    % Change2008
    
    2007(In millions)Change in fair value of
warrant liability
    
    $
    
    
    
    $
    0.3
    
    
    
    N/M+
  Liquidity and Capital Resources
 Cash, cash equivalents, short term investments and working capital
   -33-




---



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Cash Flows From Operating Activities
  Cash Flows From Investing Activities
  Cash Flows From Financing Activities
  Contractual Obligations and Contingencies
  -34-




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Payments Due by PeriodTotal
    
    
    Less than 1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 Years(In thousands)Operating leases  premises
    
    $
    1,283
    
    
    $
    391
    
    
    $
    640
    
    
    $
    252
    
    
    $
    Capital lease obligations
(including interest)
    
    
    141
    
    
    
    94
    
    
    
    47
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    1,424
    
    
    $
    485
    
    
    $
    687
    
    
    $
    252
    
    
    $
    
      -35-




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Guarantees and Indemnification
  Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Accounting
for Non Refundable Advance Payments for Goods or Services Received for Use in Future Research and
Development Activities
 -36-




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Collaborative
Arrangements
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements  an Amendment of ARB No. 51
 Accounting for Derivative
Instruments and Hedging Activities,
 
 Item 3. Qualitative and Quantitative Disclosures about Market Risks
 Foreign Currency Exchange Risk
  Interest Rate Sensitivity
  -37-




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Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
   Inherent Limitation on the Effectiveness of Internal Controls
  -38-




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-39-




---



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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Set forth below and elsewhere in this quarterly report, and in other documents we file with
the SEC are descriptions of risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking statements contained in this
report. Because of the following factors, as well as other variables affecting our operating
results, past financial performance should not be considered a reliable indicator of future
performance and investors should not use historical trends to anticipate results or trends in
future periods. The risks and uncertainties described below are not the only ones facing us.
Other events that we do not currently anticipate or that we currently deem immaterial also affect
our results of operations and financial condition.
 Risks Relating to our Business
 Our near-term success is highly dependent on the success of our lead product candidate,
Stimuvax, and we cannot be certain that it will receive regulatory approval or be successfully
commercialized.
  Stimuvax and our other vaccine product candidates are based on novel technologies, which may
raise new regulatory issues that could delay or make FDA approval more difficult.
  -40-




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We have a history of net losses, we anticipate additional losses and we may never become
profitable.
  If we fail to obtain additional financing when needed, we may be unable to complete the
development, regulatory approval and commercialization of our product candidates.
  
    
    our commercialization activities and arrangements;
    
    the progress of our research and development programs;
    
    the progress of our pre-clinical and clinical testing;
    
    the time and cost involved in obtaining regulatory approvals for our product
candidates;
    
    the cost of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights with respect to our intellectual property;
    
    the effect of competing technological and market developments;
    
    the effect of changes and developments in our existing collaborative, licensing and
other relationships; and
    
    the terms of any new collaborative, licensing and other arrangements that we may
establish.
 
 -41-




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There is no assurance that we will be granted regulatory approval for any of our product
candidates.
  We are dependent upon our collaborative relationship with Merck KGaA to develop and
commercialize our lead product candidate, Stimuvax.
  -42-




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We currently rely on third party manufacturers to supply our product candidates, which could
delay or prevent the clinical development and commercialization of our product candidates.
     -43-




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The continuing threat of terrorist attacks on the United States and current concern regarding
the possibility of further chemical/biological terrorist threats could interfere with the
manufacturing and distribution of our product candidates.
  Any failure or delay in commencing or completing clinical trials for our product candidates
could severely harm our business.
  
    
    our or our collaborators ability to obtain regulatory approval to commence a
clinical trial;
    
    our or our collaborators ability to manufacture or obtain from third parties
materials sufficient for use in pre-clinical studies and clinical trials;
    
    delays in patient enrollment and variability in the number and types of patients
available for clinical trials;
    
    poor effectiveness of product candidates during clinical trials;
    
    safety issues or side effects;
    
    governmental or regulatory delays and changes in regulatory requirements, policy and
guidelines; and
    
    varying interpretation of data by the FDA and similar foreign regulatory agencies.
  The failure to enroll patients for clinical trials may cause delays in developing our product
candidates.
  -44-




---



##### Table of Contents



We rely on third parties to conduct our clinical trials. If these third parties do not
perform as contractually required or otherwise expected, we may not be able to obtain regulatory
approval for or be able to commercialize our product candidates.
  Even if regulatory approval is received for our product candidates, the later discovery of
previously unknown problems with a product, manufacturer or facility may result in restrictions,
including withdrawal of the product from the market.
  
    
    warning letters;
    
    fines;
    
    product recalls;
    
    withdrawal of regulatory approval;
    
    operating restrictions;
    
    disgorgement of profits;
    
    injunctions; and
    
    criminal prosecution.
 
 -45-




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Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing
our products internationally.
  Our product candidates may never achieve market acceptance even if we obtain regulatory
approvals.
  
    
    our ability to provide acceptable evidence of safety and efficacy;
    
    the prevalence and severity of adverse side effects;
    
    availability, relative cost and relative efficacy of alternative and competing
treatments;
    
    the effectiveness of our marketing and distribution strategy;
    
    publicity concerning our products or competing products and treatments; and
    
    our ability to obtain sufficient third party insurance coverage or reimbursement.
 
 -46-




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If we are unable to obtain, maintain and enforce our proprietary rights, we may not be able to
compete effectively or operate profitably.
  
    
    obtain patent and other proprietary protection for our technology, processes and
product candidates;
    
    defend patents once issued;
    
    preserve trade secrets; and
    
    operate without infringing the patents and proprietary rights of third parties.
  
    
    we might not have been the first to make the inventions covered by any of our
patents, if issued, or our pending patent applications;
    
    we might not have been the first to file patent applications for these inventions;
    
    others may independently develop similar or alternative technologies or products
and/or duplicate any of our technologies and/or products;
    
    it is possible that none of our pending patent applications will result in issued
patents or, if issued, these patents may not be sufficient to protect our technology or
provide us with a basis for commercially-viable products and may not provide us with
any competitive advantages;
    
    if our pending applications issue as patents, they may be challenged by third
parties as infringed, invalid or unenforceable under U.S. or foreign laws;
    
    if issued, the patents under which we hold rights may not be valid or enforceable;
or
    
    we may develop additional proprietary technologies that are not patentable and which
may not be adequately protected through trade secrets, if for example a competitor were
to independently develop duplicative, similar or alternative technologies.
  -47-




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-48-




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If any products we develop become subject to unfavorable pricing regulations, third party
reimbursement practices or healthcare reform initiatives, our ability to successfully commercialize
our products will be impaired.
  Foreign governments often impose strict price controls, which may adversely affect our future
profitability.
  -49-




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##### Table of Contents



We face potential product liability exposure, and if successful claims are brought against us,
we may incur substantial liability for a product candidate and may have to limit its
commercialization.
  
    
    decreased demand for our product candidates;
    
    impairment of our business reputation;
    
    withdrawal of clinical trial participants;
    
    costs of related litigation;
    
    substantial monetary awards to patients or other claimants;
    
    loss of revenues; and
    
    the inability to commercialize our product candidates.
  We face substantial competition, which may result in others discovering, developing or
commercializing products before, or more successfully, than we do.
  -50-




---



##### Table of Contents



Stimuvax
 Small Molecule Products
  
    
    design and develop products that are superior to other products in the market;
    
    attract qualified scientific, medical, sales and marketing and commercial personnel;
    
    obtain patent and/or other proprietary protection for our processes and product
candidates;
    
    obtain required regulatory approvals; and
    
    successfully collaborate with others in the design, development and
commercialization of new products.
  If we are unable to enter into collaborations with partners to perform sales and marketing
functions, or build these functions ourselves, we will not be able to commercialize our product
candidates.
  -51-




---



##### Table of Contents




    
    our inability to recruit and retain adequate numbers of effective sales and
marketing personnel;
    
    the inability of sales personnel to obtain access to or persuade adequate numbers of
physicians to prescribe our products;
    
    the lack of complementary products to be offered by sales personnel, which may put
us at a competitive disadvantage relative to companies with more extensive product
lines; and
    
    unforeseen costs and expenses associated with creating a sales and marketing
organization.
  If we lose key personnel, or we are unable to attract and retain highly-qualified personnel on
a cost-effective basis, it would be more difficult for us to manage our existing business
operations and to identify and pursue new growth opportunities.
   Our business is subject to increasingly complex environmental legislation that has increased
both our costs and the risk of noncompliance.
  -52-




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If we fail to establish and maintain proper and effective internal controls, our ability to
produce accurate financial statements on a timely basis could be impaired, which would adversely
affect our consolidated operating results, our ability to operate our business, and our stock
price.
     -53-




---



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We may expand our business through the acquisition of companies or businesses or in-licensing
product candidates that could disrupt our business and harm our financial condition.
  
    
    substantial cash expenditures;
    
    potentially dilutive issuance of equity securities;
    
    incurrence of debt and contingent liabilities, some of which may be difficult or
impossible to identify at the time of acquisition;
    
    difficulties in assimilating the operations of the acquired companies;
    
    diverting our managements attention away from other business concerns;
    
    entering markets in which we have limited or no direct experience; and
    
    potential loss of our key employees or key employees of the acquired companies or
businesses.
  -54-




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Risks Related to the Ownership of Our Common Stock
 Our common stock may become ineligible for listing on the NASDAQ Global Market, which would
materially adversely affect the liquidity and price of our common stock.
  The trading price of our common stock may be volatile.
  
    
    the results of pre-clinical testing and clinical trials by us, our collaborators
and/or our competitors;
    
    technological innovations or new therapeutic products;
    
    governmental regulations;
    
    developments in patent or other proprietary rights;
    
    litigation;
    
    public concern as to the safety of products developed by us or others;
    
    comments by securities analysts;
    
    the issuance of additional shares of common stock, or securities convertible into,
or exercisable or exchangeable for, shares of our common stock in connection with
financings, acquisitions or otherwise;
    
    the incurrence of debt;
    
    general market conditions in our industry or in the economy as a whole; and
    
    political instability, natural disasters, war and/or events of terrorism.
  -55-




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##### Table of Contents



Because we do not expect to pay dividends on our common stock, stockholders will benefit from
an investment in our common stock only if it appreciates in value.
  Future sales of shares by existing stockholders could cause our stock price to decline.
  We expect to raise additional capital in the future; however, such capital may not be
available to us on reasonable terms, if at all, when or as we require additional funding. If we
issue additional shares of our common stock or other securities that may be convertible into, or
exercisable or exchangeable for, our common stock, our existing stockholders would experience
further dilution.
  -56-




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Changes in financial accounting standards related to share-based payments are expected to
continue to have a significant effect on our reported results.
 Share-Based Payment
 Our operating results may be affected by currency exchange rate fluctuations.
  We can issue shares of preferred stock that may adversely affect the rights of a stockholder
of our common stock.
  
    
    adversely affect the voting power of the holders of our common stock;
    
    make it more difficult for a third party to gain control of us;
    
    discourage bids for our common stock at a premium;
    
    limit or eliminate any payments that the holders of our common stock could expect to
receive upon our liquidation; or
    
    otherwise adversely affect the market price or our common stock.
  -57-




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Item 6. Exhibits.
 ExhibitNumber
    
    Description12.1
    
    Ratio of Earnings to Fixed Charges31.1
    
    Certification of Chief Executive Officer and President Pursuant to Exchange Act Rule 13a-14(a)31.2
    
    Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 -58-




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SIGNATURES
  ONCOTHYREON INC.
(Registrant)Date:  May 9, 2008
    /s/ Edward A. TaylorVice President, Finance and Administration,Chief Financial Officer and Corporate Secretary -59-




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INDEX OF EXHIBITS
 ExhibitNumber
    
    Description12.1
    
    Ratio of Earnings to Fixed Charges31.1
    
    Certification of Chief Executive Officer and President Pursuant to Exchange Act Rule 13a-14(a)31.2
    
    Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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