##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 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)2601 Fourth Ave., Suite 500Seattle, Washington
    
    98121(Address of principal executive offices)
    
    (Zip Code)
 (206) 801-2100  (Registrants telephone number, including area code)
 o þ
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ONCOTHYREON INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2010
  
 INDEX
 PagePart I  Financial Information
    
    
    1Item 1. Financial Statements
    
    
    1Condensed Consolidated Balance Sheets
    
    
    1Condensed Consolidated Statements of Operations and Comprehensive Loss
    
    
    2Condensed Consolidated Statements of Stockholders Equity
    
    
    3Condensed Consolidated Statements of Cash Flows
    
    
    4Notes to the Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18Part II  Other Information
    
    
    20Item 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 6. Exhibits
    
    
    38Signatures
    
    
    39EX-31.1EX-31.2EX-32.1EX-32.2
   -i-




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ONCOTHYREON INC.
 
 Condensed Consolidated Balance Sheets
 (in thousands, except share amounts)
 (Unaudited)
 June 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrentCash and cash equivalents
    
    $
    2,514
    
    
    $
    18,974Short-term investments
    
    
    20,279
    
    
    
    14,244Accounts receivable
    
    
    62
    
    
    
    41Note receivable from employee
    
    
    151
    
    
    
    36Prepaid expenses
    
    
    453
    
    
    
    233Total current assets
    
    
    23,459
    
    
    
    33,528Plant and equipment, net
    
    
    2,085
    
    
    
    2,076Note receivable from employees
    
    
    
    
    
    
    150Long-term deposits
    
    
    290
    
    
    
    354Goodwill
    
    
    2,117
    
    
    
    2,117Total assets
    
    $
    27,951
    
    
    $
    38,225LIABILITIESCurrentAccounts payable
    
    $
    77
    
    
    $
    600Accrued liabilities
    
    
    1,160
    
    
    
    1,457Current portion of deferred revenue
    
    
    18
    
    
    
    18Total current liabilities
    
    
    1,255
    
    
    
    2,075Notes payable
    
    
    199
    
    
    
    199Deferred revenue
    
    
    136
    
    
    
    149Deferred rent
    
    
    342
    
    
    
    295Warrant liability
    
    
    5,072
    
    
    
    10,059Class UA preferred stock, 12,500 shares authorized, issued and outstanding
    
    
    30
    
    
    
    30Total liabilities
    
    
    7,034
    
    
    
    12,807Contingencies, commitments, and guarantees (Note 8)STOCKHOLDERS EQUITYPreferred stock, $0.0001 par value; 10,000,000 shares authorized, no
shares issued or outstanding
    
    
    
    
    
    
    Common stock, $0.0001 par value; 100,000,000 shares authorized,
25,753,405 shares issued and outstanding
    
    
    345,836
    
    
    
    345,836Additional paid-in capital
    
    
    16,896
    
    
    
    16,285Accumulated deficit
    
    
    (336,749
    )
    
    
    (331,637
    )Accumulated other comprehensive loss
    
    
    (5,066
    )
    
    
    (5,066
    )20,917
    
    
    
    25,418$
    27,951
    
    
    $
    38,225
  -1-




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ONCOTHYREON INC.
 
 Condensed Consolidated Statements of Operations
 (in thousands, except share and per share amounts)
 (Unaudited)
 Three months
    
    
    Six monthsended June 30,
    
    
    ended June 302010
    
    
    2009
    
    
    2010
    
    
    2009RevenueLicensing revenue from collaborative and
licensing agreements
    
    $
    4
    
    
    $
    4
    
    
    $
    9
    
    
    $
    8Licensing, royalties, and other revenue
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    27Total revenue
    
    
    4
    
    
    
    31
    
    
    
    9
    
    
    
    35Operating expensesResearch and development
    
    
    2,768
    
    
    
    1,995
    
    
    
    5,287
    
    
    
    2,675General and administrative
    
    
    1,833
    
    
    
    1,745
    
    
    
    4,640
    
    
    
    3,496Depreciation
    
    
    121
    
    
    
    67
    
    
    
    233
    
    
    
    132Total operating expenses
    
    
    4,722
    
    
    
    3,807
    
    
    
    10,160
    
    
    
    6,303Loss from operations
    
    
    (4,718
    )
    
    
    (3,776
    )
    
    
    (10,151
    )
    
    
    (6,268
    )Other (income) lossInvestment and other, net
    
    
    (12
    )
    
    
    54
    
    
    
    (52
    )
    
    
    34Change in fair value of warrant liability
    
    
    (366
    )
    
    
    2,502
    
    
    
    (4,987
    )
    
    
    2,502Total other (income) loss
    
    
    (378
    )
    
    
    2,556
    
    
    
    (5,039
    )
    
    
    2,536Net loss
    
    $
    (4,340
    )
    
    $
    (6,332
    )
    
    $
    (5,112
    )
    
    $
    (8,804
    )Basic and diluted loss per share
    
    $
    (0.17
    )
    
    $
    (0.30
    )
    
    $
    (0.20
    )
    
    $
    (0.43
    )Weighted average number of common shares
outstanding
    
    
    25,753,405
    
    
    
    20,984,352
    
    
    
    25,753,405
    
    
    
    20,242,514
  -2-




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ONCOTHYREON INC.
 
 Condensed Consolidated Statements of Stockholders Equity
 (in thousands, except share amounts)
 (Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    LossBalance at January 1, 2009
    
    
    19,492,432
    
    
    $
    325,043
    
    
    $
    15,094
    
    
    $
    (314,418
    )
    
    $
    (5,066
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,266
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    6,159,553
    
    
    
    20,050
    
    
    
    
    
    
    
    
    
    
    
    Warrant exercises
    
    
    91,500
    
    
    
    668
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,219
    )
    
    
    Conversion of restricted share units
    
    
    9,920
    
    
    
    75
    
    
    
    (75
    )
    
    
    
    
    
    
    Balance at December 31, 2009
    
    
    25,753,405
    
    
    $
    345,836
    
    
    $
    16,285
    
    
    $
    (331,637
    )
    
    $
    (5,066
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    611
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,112
    )
    
    
    Balance at June 30, 2010
    
    
    25,753,405
    
    
    $
    345,836
    
    
    $
    16,896
    
    
    $
    (336,749
    )
    
    $
    (5,066
    )
  -3-




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ONCOTHYREON INC.
 
 Condensed Consolidated Statements of Cash Flows
 (in thousands)
 (Unaudited)
 Six months ended June 30,2010
    
    
    2009OperatingNet loss
    
    $
    (5,112
    )
    
    $
    (8,804
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    233
    
    
    
    132Stock-based compensation expense
    
    
    611
    
    
    
    746Recognition of unearned revenue
    
    
    (13
    )
    
    
    (8
    )Deferred rent
    
    
    47
    
    
    
    55Partial forgiveness of employee loan
    
    
    35
    
    
    
    Loss on disposal of plant and equipment
    
    
    
    
    
    
    5Change in fair value of warrant liability
    
    
    (4,987
    )
    
    
    2,502Net change in assets and liabilities:Accounts receivable
    
    
    (21
    )
    
    
    189Government grant receivable
    
    
    
    
    
    
    32Prepaid expenses
    
    
    (220
    )
    
    
    95Accounts payable
    
    
    (610
    )
    
    
    125Accrued liabilities
    
    
    (297
    )
    
    
    (1,566
    )Long-term deposits
    
    
    64
    
    
    
    Net cash used in operating activities
    
    
    (10,270
    )
    
    
    (6,497
    )InvestingPurchase of short-term investments
    
    
    (12,157
    )
    
    
    Redemption of short-term investments
    
    
    6,122
    
    
    
    Purchase of plant and equipment
    
    
    (155
    )
    
    
    (71
    )Net cash used in investing activities
    
    
    (6,190
    )
    
    
    (71
    )FinancingProceeds on issuance of common stock and warrants, net
    
    
    
    
    
    
    10,108Net cash provided by financing activities
    
    
    
    
    
    
    10,108Increase (decrease) in cash and cash equivalents
    
    
    (16,460
    )
    
    
    3,540Cash and cash equivalents, beginning of period
    
    
    18,974
    
    
    
    19,166Cash and cash equivalents, end of period
    
    $
    2,514
    
    
    $
    22,706
  -4-




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ONCOTHYREON INC.
 
 Notes to the Condensed Consolidated Financial Statements
Three and six months ended June 30, 2010 and 2009
(Unaudited)
 1. DESCRIPTION OF BUSINESS
  2. BASIS OF PRESENTATION
   3. RECENT ACCOUNTING PRONOUNCEMENTS
 Improving Disclosures about Fair Value Measurements Fair Value Measurements and
Disclosures
  4. FAIR VALUE MEASUREMENTS
  
    
    Level 1  quoted prices in active markets for identical assets or liabilities;
    
    Level 2  observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other inputs that
are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities; and
    
    Level 3  unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities.
 -5-




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June 30, 2010
    
    
    December 31, 2009Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalMoney market
funds (asset)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8,039
    
    
    $
    
    
    
    $
    
    
    
    $
    8,039Certificates of
deposits (asset)
    
    
    
    
    
    
    20,339
    
    
    
    
    
    
    
    20,339
    
    
    
    
    
    
    
    14,244
    
    
    
    
    
    
    
    14,244Warrants (liability)
    
    
    
    
    
    
    
    
    
    
    5,072
    
    
    
    5,072
    
    
    
    
    
    
    
    
    
    
    
    10,059
    
    
    
    10,059
   5. EARNINGS PER SHARE
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Net loss (in thousands)
    
    $
    4,340
    
    
    $
    6,332
    
    
    $
    5,112
    
    
    $
    8,804Denominator:Weighted average shares outstanding
used to compute earnings per share 
basic
    
    
    25,753,405
    
    
    
    20,984,352
    
    
    
    25,753,405
    
    
    
    20,242,514Effective of dilutive options and RSUs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding
and dilutive securities used to
compute earnings per share  diluted
    
    
    25,753,405
    
    
    
    20,984,352
    
    
    
    25,753,405
    
    
    
    20,242,514
  As of June 30,2010
    
    
    2009Director and employee stock options
    
    
    1,876,766
    
    
    
    1,267,599Non-employee director restricted share units
    
    
    226,696
    
    
    
    165,261Warrants
    
    
    3,838,918
    
    
    
    3,704,394
 6. WARRANTS
 Derivatives and Hedging
 -6-




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Three months endedJune 30,2010
    
    
    2009Exercise price
    
    $
    3.92
    
    
    $
    3.92Market value of stock at end of period
    
    $
    3.31
    
    
    $
    2.57Expected dividend rate
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    80
    %
    
    
    89
    %Risk-free interest rate
    
    
    1.4
    %
    
    
    2.3
    %Expected life in years
    
    
    3.9
    
    
    
    5.0Shares underlying warrants outstanding classified as liabilities
    
    
    2,817,744
    
    
    
    2,909,244Shares underlying warrants outstanding classified as equity
    
    
    1,021,174
    
    
    
    795,150
   Warrant liability as of January 1, 2010
    
    $
    10,059Balance as of March 31, 2010
    
    
    5,438Change in fair value for the three months ended March 31, 2010
    
    $
    (4,621
    )Warrant liability as of April 1, 2010
    
    $
    5,438Balance as of June 30, 2010
    
    
    5,072Change in fair value for the three months ended June 30, 2010
    
    $
    (366
    )
 7. STOCK-BASED COMPENSATION
 Share Option Plan
    Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Weighted average grant-date
fair value for stock options
granted
    
    $
    2.80
    
    
    $
    2.05
    
    
    $
    2.80
    
    
    $
    0.88Expected dividend rate
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    90.61
    %
    
    
    97.8
    %
    
    
    90.61
    %
    
    
    98.64
    %Risk-free interest rate
    
    
    2.60
    %
    
    
    3.14
    %
    
    
    2.60
    %
    
    
    2.27
    %Expected life of options in years
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6
 Employee Stock Purchase Plan
  -7-




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Restricted Share Unit Plan
    8. CONTINGENCIES, COMMITMENTS, AND GUARANTEES
 Royalties
   Guarantees
    9. FINANCIAL INSTRUMENTS
  -8-




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Foreign Exchange Risk
   Accounts Receivable, Government Grant Receivable and Accounts Payable and Accrued Liabilities
  Notes Receivable
  Notes Payable and Class UA Preferred Stock
  Limitations
  10. SUBSEQUENT EVENTS
 Committed equity financing facility
    -9-




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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 condensed consolidated financial
statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q .
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 include, but are not limited to, the following: our expectations
regarding future expenses and our ability to effectively manage them; clinical and pre-clinical
development activities, including our plans for the pre-clinical development of ONT-10 in 2010
and our decision to initiate one or more Phase 2 trials for PX-866 in 2010; our expectations
regarding the timing and results of the Phase 3 trials for Stimuvax; the outcome of the suspension
of the clinical trials of Stimuvax; our ability to secure collaboration arrangements with
pharmaceutical companies to complete the development and commercialization of our product
candidates; our ability to obtain suitable financing to support our operations, clinical trials and
commercialization of our products; and the use and adequacy of cash resources. 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 this
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
      -10-




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Key Financial Metrics
 Revenue
 Licensing Revenue from Collaborative and License Agreements
 -11-




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Licensing, Royalties, and Other Revenue.
  Expenses
 Research and Development
    General and Administrative
 -12-




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Depreciation
 Investment and Other Income
 Change in Fair Value of Warrant Liability.
 Critical Accounting Policies and Significant Judgments and Estimates
   Results of Operations for the Three and Six Month Periods Ended June 30, 2010 and June 30, 2009
  -13-




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Overview
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In millions, except per
    
    
    (In millions, except pershare amounts)
    
    
    share amounts)Expenses
    
    $
    4.7
    
    
    $
    3.8
    
    
    $
    10.2
    
    
    $
    6.3Net loss
    
    $
    4.3
    
    
    $
    6.3
    
    
    $
    5.1
    
    
    $
    8.8Basic and diluted loss per share
    
    $
    0.17
    
    
    $
    0.30
    
    
    $
    0.20
    
    
    $
    0.43
  Research and Development
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In millions)
    
    
    (In millions)Research and development
    
    $
    2.8
    
    
    $
    2.0
    
    
    $
    5.3
    
    
    $
    2.7
    General and Administrative Expense
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In millions)
    
    
    (In millions)General and administrative
    
    $
    1.8
    
    
    $
    1.7
    
    
    $
    4.6
    
    
    $
    3.5
   -14-




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Change in Fair Value of Warrant Liability
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In millions)
    
    
    (In millions)Change in fair value of warrant liability
    
    $
    (0.4
    )
    
    $
    2.5
    
    
    $
    (5.0
    )
    
    $
    2.5
  Liquidity and Capital Resources
 Cash, Cash Equivalents, Short-term Investments and Working Capital
       Cash Flows From Operating Activities
  -15-




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Cash Flows From Investing Activities
  Contractual Obligations and Contingencies
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(In thousands)Operating leases  premises
    
    $
    4,837
    
    
    $
    436
    
    
    $
    1,087
    
    
    $
    1,182
    
    
    $
    2,131
    Guarantees and Indemnification
  Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Improving Disclosures about Fair Value Measurements Fair Value Measurements and
Disclosures
 -16-




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-17-




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Sensitivity
  
 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
  -18-




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-19-




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Set forth below and elsewhere in this 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
 The suspension of Mercks clinical development program for Stimuvax could severely harm our
business.
  Our ability to continue with our planned operations is dependent on our success at raising
additional capital sufficient to meet our obligations on a timely basis. 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.
  
    
    activities and arrangements related to the commercialization of our product
candidates;
 -20-




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##### Table of Contents




    
    the progress of our research and development programs;
    
    the progress of pre-clinical and clinical testing of our product candidates;
    
    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 licensing and other
relationships; and
    
    the terms of any new collaborative, licensing and other arrangements that we may
establish.
   Our near-term success is highly dependent on the success of our lead product candidate, Stimuvax,
and we cannot be certain that it will be successfully developed or receive regulatory approval or
be successfully commercialized.
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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.
   We have a history of net losses, we anticipate additional losses and we may never become
profitable.
  There is no assurance that we will be granted regulatory approval for any of our product
candidates.
  We are dependent upon Merck KGaA to develop and commercialize our lead product candidate, Stimuvax.
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We and Merck KGaA 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.
     Any failure or delay in commencing or completing clinical trials for our product candidates could
severely harm our business.
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
    
    safety issues or side effects;
    
    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;
    
    governmental or regulatory delays and changes in regulatory requirements, policy and
guidelines;
    
    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; 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.
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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.
  Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our
products internationally.
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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.
  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;
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
    
    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.
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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.
  Governments often impose strict price controls, which may adversely affect our future
profitability.
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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.
  Stimuvax
 Small Molecule Products
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
    
    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 agreements with partners to perform sales and marketing functions,
or build these functions ourselves, we will not be able to commercialize our product candidates.
  
    
    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.
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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.
  We have identified material weaknesses in our internal control over financial reporting and have
had to restate our historical financial statements.
 Accounting Changes and Error Corrections
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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.
     If we are required to redeem the shares of our Class UA preferred stock, our financial condition
may be adversely affected.
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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.
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Risks Related to the Ownership of Our Common Stock
 Our common stock may become ineligible for listing on The NASDAQ Stock Market, which would
materially adversely affect the liquidity and price of our common stock.
   The trading price of our common stock may be volatile.
  
    
    public concern as to the safety of products developed by us or others;
    
    the results of pre-clinical testing and clinical trials by us, our collaborators, our
competitors and/or companies that are developing products that are similar to ours
(regardless of whether such products are potentially competitive with ours);
    
    technological innovations or new therapeutic products;
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
    
    governmental regulations;
    
    developments in patent or other proprietary rights;
    
    litigation;
    
    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 perception that shares of our common stock may be delisted from The NASDAQ Stock
Market;
    
    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.
  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.
  We expect that we will seek 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 and could trigger anti-dilution provisions in outstanding warrants.
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If we sell shares of our common stock under our existing committed equity line financing facility,
our existing stockholders will experience immediate dilution and, as a result, our stock price may
go down.
  Our management will have broad discretion over the use of proceeds from the sale of shares to
SCBV and may not use such proceeds in ways that increase the value of our stock price.
  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.
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We expect our quarterly operating results to fluctuate in future periods, which may cause our stock
price to fluctuate or decline.
 Derivatives and Hedging
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Item 6. Exhibits
 ExhibitNumber
    
    Description10.1
    
    2010 Employee Stock Purchase Plan (incorporated by reference
from Exhibit 10.1 to Current Report on Form 8-K filed on June
8, 2010).10.2
    
    Form of Subscription Agreement and Notice of Withdrawal under
the 2010 Employee Stock Purchase Plan (incorporated by
reference from Exhibit 10.2 to Current Report on Form 8-K
filed on June 8, 2010).31.1
    
    Certification of Robert L. Kirkman, M.D., President and Chief
Executive Officer, pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Shashi K. Karan, Corporate Controller,
pursuant to Exchange Act Rules 13a-14(a) and 15d 14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    Certification of Robert L. Kirkman, M.D., President and Chief
Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    Certification of Shashi K. Karan, Corporate Controller,
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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SIGNATURES
  ONCOTHYREON INC.
(Registrant)Date: August 6, 2010
    /s/ Shashi K. KaranCorporate Controller and Corporate Secretary -39-




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INDEX OF EXHIBITS
 ExhibitNumber
    
    Description10.1
    
    2010 Employee Stock Purchase Plan (incorporated by reference
from Exhibit 10.1 to Current Report on Form 8-K filed on June
8, 2010).10.2
    
    Form of Subscription Agreement and Notice of Withdrawal under
the 2010 Employee Stock Purchase Plan (incorporated by
reference from Exhibit 10.2 to Current Report on Form 8-K
filed on June 8, 2010).31.1
    
    Certification of Robert L. Kirkman, M.D., President and Chief
Executive Officer, pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Shashi K. Karan, Corporate Controller,
pursuant to Exchange Act Rules 13a-14(a) and 15d 14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    Certification of Robert L. Kirkman, M.D., President and Chief
Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    Certification of Shashi K. Karan, Corporate Controller,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 -40-