Document:

The Registrant's Audited Canadian GAAP Financial Statements

 Exhibit 4.6 

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING 

The consolidated financial statements contained in this report have been prepared by management in accordance with generally accepted
accounting principles and have been approved by the Board of Directors. The integrity and objectivity of these consolidated financial statements are the responsibility of management. 

In support of this responsibility, management maintains a system of internal controls to provide reasonable assurance as to the
reliability of financial information and the safe-guarding of assets. The consolidated financial statements include amounts which are based on the best estimates and judgments of management. 

The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and internal
control and exercises this responsibility principally through the Audit Committee. The Audit Committee consists of three directors not involved in the daily operations of the Company. The Audit Committee meets with management and meets independently
with the external auditors to satisfy itself that management’s responsibilities are properly discharged and to review the consolidated financial statements prior to their presentation to the Board of Directors for approval. 

The external auditors, KPMG LLP, conduct an independent examination, in accordance with generally accepted auditing standards, and
express their opinion on the consolidated financial statements. Their examination includes a review of the Company’s system of internal controls and appropriate tests and procedures to provide reasonable assurance that the consolidated
financial statements are, in all material respects, presented fairly and in accordance with accounting principles generally accepted in Canada. The external auditors have free and full access to the Audit Committee with respect to their findings
concerning the fairness of financial reporting and the adequacy of internal controls. 
  

					
	 /s/    MARK J.
MURRAY        
	 		 	 /s/    IAN C.
MORTIMER        

	Dr. Mark J. Murray	 		 	Ian C. Mortimer
	President and Chief Executive Officer	 		 	Executive Vice President, Finance and
	June 21, 2010	 		 	Chief Financial Officer

  

 1 

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 To the Board of Directors of Tekmira Pharmaceuticals Corporation 

We have audited the accompanying consolidated balance sheets of Tekmira Pharmaceuticals Corporation (“the Company”) and
subsidiaries as of March 31, 2010, December 31, 2009 and 2008 and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for the three months ended March 31, 2010 and
for each of the years in the three-year period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. 
 We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. 
 In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the financial position of the Company and subsidiaries as of March 31, 2010, December 31, 2009 and 2008 and the results of their operations and their
cash flows for the three months ended March 31, 2010 and each of the years in the three-year period ended December 31, 2009 in conformity with Canadian generally accepted accounting principles. 

Canadian generally accepted accounting principles vary in certain significant respects from US generally accepted accounting principles.
Information relating to the nature and effect of such differences is presented in Note 19 to the consolidated financial statements. 
  

	
	/s/ KPMG LLP
	Chartered Accountants

 Vancouver, Canada 

June 21, 2010 
  

 2 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Consolidated Balance Sheets 

(Expressed in Canadian Dollars) 
  

													
	 	  	March 31
2010	 	 	December 31
2009	 	 	December 31
2008	 
	 Assets
	  				 				 			
	 Current assets:
	  				 				 			
	 Cash and cash equivalents
	  	$	18,528,274	  	 	$	24,397,740	  	 	$	26,218,342	  
	 Short-term investments
	  	 	—  	  	 	 	—  	  	 	 	5,730,507	  
	 Accounts receivable (note 15)
	  	 	748,832	  	 	 	1,052,895	  	 	 	632,439	  
	 Investment tax credits receivable (note 9)
	  	 	280,132	  	 	 	280,132	  	 	 	404,453	  
	 Inventory
	  	 	—  	  	 	 	—  	  	 	 	174,524	  
	 Prepaid expenses and other assets
	  	 	183,279	  	 	 	226,981	  	 	 	100,360	  
		  	 	 	 	 	 	 	 	 	 	 	 
		  	 	19,740,517	  	 	 	25,957,748	  	 	 	33,260,625	  
	 Intangible assets (note 6)
	  	 	14,839,476	  	 	 	15,152,430	  	 	 	16,306,980	  
	 Property and equipment (note 7)
	  	 	3,186,188	  	 	 	2,812,340	  	 	 	1,962,691	  
		  	 	 	 	 	 	 	 	 	 	 	 
		  	$	37,766,181	  	 	$	43,922,518	  	 	$	51,530,296	  
		  	 	 	 	 	 	 	 	 	 	 	 
	 Liabilities and shareholders’ equity
	  				 				 			
	 Current liabilities:
	  				 				 			
	 Accounts payable and accrued liabilities (note 17)
	  	$	3,426,566	  	 	$	5,653,827	  	 	$	4,473,612	  
	 Deferred revenue (note 5)
	  	 	1,290,772	  	 	 	1,162,437	  	 	 	459,094	  
		  	 	 	 	 	 	 	 	 	 	 	 
		  	 	4,717,338	  	 	 	6,816,264	  	 	 	4,932,706	  
	 Shareholders’ equity:
	  				 				 			
	 Common shares (note 8)
	  				 				 			
	 Authorized—unlimited number with no par value
	  				 				 			
	 Issued and outstanding:
	  				 				 			
	 51,643,605 (2009—51,642,938; 2008—51,623,677)
	  	 	229,427,135	  	 	 	229,426,757	  	 	 	229,412,230	  
	 Contributed surplus (note 4)
	  	 	29,890,688	  	 	 	29,531,049	  	 	 	29,272,005	  
	 Deficit
	  	 	(226,268,980	) 	 	 	(221,851,552	) 	 	 	(212,086,645	) 
		  	 	 	 	 	 	 	 	 	 	 	 
		  	 	33,048,843	  	 	 	37,106,254	  	 	 	46,597,590	  
		  	 	 	 	 	 	 	 	 	 	 	 
		  	$	37,766,181	  	 	$	43,922,518	  	 	$	51,530,296	  
		  	 	 	 	 	 	 	 	 	 	 	 
	Basis of presentation and future operations (note 1)	  				 				 			
	Business acquisition (note 4)	  				 				 			
	Commitments and contingencies (notes 5(d) and 12)	  				 				 			
	Subsequent events (note 18)	  				 				 			

  
 See accompanying notes to the
consolidated financial statements. 
  

 3 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Consolidated Statements of Operations and Comprehensive Loss 

(Expressed in Canadian Dollars) 
  

																					
	 	 	Three months ended	 	 	Year
ended
December 31
2009	 	 	Year
ended
December 31
2008	 	 	Year
ended
December 31
2007	 
	 	 	March 31
2010	 	 	March 31
2009
(Unaudited)	 	 	 	 
	 Revenue (note 5)
	 				 				 				 				 			
	 Research and development collaborations
	 	$	2,465,935	  	 	$	2,880,763	  	 	$	13,831,916	  	 	$	6,649,273	  	 	$	6,406,986	  
	 Licensing fees and milestone payments
	 	 	—  	  	 	 	—  	  	 	 	596,500	  	 	 	5,082,303	  	 	 	9,361,907	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
		 	 	2,465,935	  	 	 	2,880,763	  	 	 	14,428,416	  	 	 	11,731,576	  	 	 	15,768,893	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Expenses
	 				 				 				 				 			
	 Research, development and collaborations (note 9)
	 	 	5,456,477	  	 	 	3,618,892	  	 	 	17,764,379	  	 	 	16,123,203	  	 	 	8,348,218	  
	 General and administrative
	 	 	995,272	  	 	 	971,954	  	 	 	4,152,540	  	 	 	4,404,028	  	 	 	4,399,525	  
	 Termination and restructuring expenses (note 10)
	 				 				 	 	—  	  	 	 	3,172,544	  	 	 	—  	  
	 Amortization of intangible assets (note 6)
	 	 	313,894	  	 	 	318,326	  	 	 	1,275,515	  	 	 	768,887	  	 	 	43,789	  
	 Depreciation of property and equipment
	 	 	177,782	  	 	 	177,241	  	 	 	728,894	  	 	 	587,881	  	 	 	363,870	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
		 	 	6,943,425	  	 	 	5,086,413	  	 	 	23,921,328	  	 	 	25,056,543	  	 	 	13,155,402	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 (Loss) income from operations
	 	 	(4,477,490	) 	 	 	(2,205,650	) 	 	 	(9,492,912	) 	 	 	(13,324,967	) 	 	 	2,613,491	  
						
	 Other income (losses)
	 				 				 				 				 			
	 Interest income
	 	 	21,393	  	 	 	83,593	  	 	 	163,696	  	 	 	898,600	  	 	 	1,012,783	  
	 Loss on purchase and settlement of exchangeable and development notes (note 1)
	 				 				 	 	—  	  	 	 	—  	  	 	 	(5,179,000	) 
	 Impairment loss on goodwill (note 4)
	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(3,890,749	) 	 	 	—  	  
	 Foreign exchange gains (losses)
	 	 	38,669	  	 	 	46,478	  	 	 	(435,691	) 	 	 	2,056,192	  	 	 	(1,004,794	) 
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Net loss and comprehensive loss
	 	$	(4,417,428	) 	 	$	(2,075,579	) 	 	$	(9,764,907	) 	 	$	(14,260,924	) 	 	$	(2,557,520	) 
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Weighted average number of common shares
	 				 				 				 				 			
	 Basic and diluted
	 	 	51,643,442	  	 	 	51,623,833	  	 	 	51,629,038	  	 	 	40,581,748	  	 	 	23,848,269	  
						
	 Loss per common share
	 				 				 				 				 			
	 Basic and diluted
	 	$	(0.09	) 	 	$	(0.04	) 	 	$	(0.19	) 	 	$	(0.35	) 	 	$	(0.11	) 

 See accompanying notes to
the consolidated financial statements. 
  

 4 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Consolidated Statements of Shareholders’ Equity 

(Expressed in Canadian Dollars) 

For the three months ended March 31, 2010 and the years ended December 31, 2009, 2008 and 2007 

 

																			
	 	 	Number
of shares	 	Share
capital	 	 	Contributed
surplus	 	 	Deficit	 	 	Total
shareholders’
equity	 
	 Balance, December 31, 2006
	 	19,283,397	 	$	180,237,917	  	 	$	15,211,567	  	 	$	(195,268,201	) 	 	$	181,283	  
	 Net loss
	 	—  	 	 	—  	  	 	 	—  	  	 	 	(2,557,520	) 	 	 	(2,557,520	) 
	 Stock-based compensation (note 8)
	 	—  	 	 	—  	  	 	 	376,591	  	 	 	—  	  	 	 	376,591	  
	 Issuance of common shares pursuant to exercise of options (note 8)
	 	107,284	 	 	162,203	  	 	 	(66,636	) 	 	 	—  	  	 	 	95,567	  
	 Issuance of common shares pursuant to public offering (note 8)
	 	5,175,000	 	 	16,042,500	  	 	 	—  	  	 	 	—  	  	 	 	16,042,500	  
	 Share issuance costs
	 	—  	 	 	(1,125,350	) 	 	 	—  	  	 	 	—  	  	 	 	(1,125,350	) 
	 Capital contribution from former parent company concurrent with Plan of Arrangement and paid to former noteholders (note
1)
	 	—  	 	 	—  	  	 	 	5,179,000	  	 	 	—  	  	 	 	5,179,000	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Balance, December 31, 2007
	 	24,565,681	 	 	195,317,270	  	 	 	20,700,522	  	 	 	(197,825,721	) 	 	 	18,192,071	  
	 Net loss
	 	—  	 	 	—  	  	 	 	—  	  	 	 	(14,260,924	) 	 	 	(14,260,924	) 
	 Stock-based compensation (note 8)
	 	—  	 	 	—  	  	 	 	1,772,351	  	 	 	—  	  	 	 	1,772,351	  
	 Issuance of common shares pursuant to exercise of options (note 8)
	 	42,742	 	 	55,740	  	 	 	(25,623	) 	 	 	—  	  	 	 	30,117	  
	 Issuance of common shares pursuant to acquisition of Protiva Biotherapeutics Inc. (note 4)
	 	22,848,588	 	 	28,789,221	  	 	 	—  	  	 	 	—  	  	 	 	28,789,221	  
	 Reservation of common shares for issue on the exercise of Protiva Biotherapeutics Inc. options (note 4)
	 	—  	 	 	—  	  	 	 	2,109,754	  	 	 	—  	  	 	 	2,109,754	  
	 Issuance of common shares pursuant to private placement (note 4)
	 	4,166,666	 	 	5,249,999	  	 	 	4,715,001	  	 	 	—  	  	 	 	9,965,000	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Balance, December 31, 2008
	 	51,623,677	 	$	229,412,230	  	 	$	29,272,005	  	 	$	(212,086,645	) 	 	$	46,597,590	  
	 Net loss
	 	—  	 	 	—  	  	 	 	—  	  	 	 	(9,764,907	) 	 	 	(9,764,907	) 
	 Stock-based compensation (note 8)
	 	—  	 	 	—  	  	 	 	265,685	  	 	 	—  	  	 	 	265,685	  
	 Issuance of common shares pursuant to exercise of options (note 8)
	 	19,261	 	 	14,527	  	 	 	(6,641	) 	 	 	—  	  	 	 	7,886	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Balance, December 31, 2009
	 	51,642,938	 	$	229,426,757	  	 	$	29,531,049	  	 	$	(221,851,552	) 	 	$	37,106,254	  
	 Net loss
	 	—  	 	 	—  	  	 	 	—  	  	 	 	(4,417,428	) 	 	 	(4,417,428	) 
	 Stock-based compensation (note 8)
	 	—  	 	 	—  	  	 	 	359,817	  	 	 	—  	  	 	 	359,817	  
	 Issuance of common shares pursuant to exercise of options (note 8)
	 	667	 	 	378	  	 	 	(178	) 	 	 	—  	  	 	 	200	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Balance, March 31, 2010
	 	51,643,605	 	$	229,427,135	  	 	$	29,890,688	  	 	$	(226,268,980	) 	 	$	33,048,843	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 See accompanying notes to the consolidated financial statements. 

 

 5 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Consolidated Statements of Cash Flow 

(Expressed in Canadian Dollars) 
  

																					
	 	 	Three months ended	 	 	Year
ended
December 31
2009	 	 	Year
ended
December 31
2008	 	 	Year
ended
December 31
2007	 
	 	 	March 31
2010	 	 	March 31
2009
(Unaudited)	 	 	 	 
	 OPERATIONS
	 				 				 				 				 			
	 Loss for the period
	 	$	(4,417,428	) 	 	$	(2,075,579	) 	 	$	(9,764,907	) 	 	$	(14,260,924	) 	 	$	(2,557,520	) 
	 Items not involving cash:
	 				 				 				 				 			
	 Amortization of intangible assets
	 	 	313,894	  	 	 	318,326	  	 	 	1,275,515	  	 	 	768,887	  	 	 	43,789	  
	 Depreciation of property and equipment
	 	 	177,782	  	 	 	177,241	  	 	 	728,894	  	 	 	587,881	  	 	 	363,870	  
	 Stock-based compensation expense (note 8(d))
	 	 	359,817	  	 	 	110,845	  	 	 	265,685	  	 	 	1,772,351	  	 	 	376,591	  
	 Gain from sale of property and equipment
	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(1,217	) 
	 Impairment loss on goodwill (note 4)
	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	3,890,749	  	 	 	—  	  
	 Foreign exchange (gains) losses arising on foreign currency cash balances
	 	 	(38,670	) 	 	 	(20,362	) 	 	 	373,726	  	 	 	(1,749,237	) 	 	 	207,544	  
	 Net change in non-cash working capital (note 16)
	 	 	(1,751,161	) 	 	 	369,480	  	 	 	1,635,326	  	 	 	(1,335,134	) 	 	 	(1,716,071	) 
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
		 	 	(5,355,766	) 	 	 	(1,120,049	) 	 	 	(5,485,761	) 	 	 	(10,325,427	) 	 	 	(3,283,014	) 
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 INVESTMENTS
	 				 				 				 				 			
	 Proceeds from sale of property and equipment
	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	1,217	  
	 Proceeds from short-term investments, net
	 	 	—  	  	 	 	5,730,507	  	 	 	5,730,507	  	 	 	2,606,652	  	 	 	—  	  
	 Acquisition of intangible assets
	 	 	(940	) 	 	 	(113,838	) 	 	 	(120,964	) 	 	 	(97,609	) 	 	 	(613,865	) 
	 Acquisition of property and equipment
	 	 	(551,630	) 	 	 	(686,048	) 	 	 	(1,578,544	) 	 	 	(1,078,551	) 	 	 	(736,848	) 
	 Cash acquired through acquisition of Protiva Biotherapeutics Inc., net of acquisition costs (note 4)
	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	2,519,095	  	 	 	—  	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
		 	 	(552,570	) 	 	 	4,930,621	  	 	 	4,030,999	  	 	 	3,949,587	  	 	 	(1,349,496	) 
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 FINANCING
	 				 				 				 				 			
	 Issuance of common share pursuant to:
	 				 				 				 				 			
	 Public offering, net of issue costs
	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	14,917,150	  
	 Private placements (note 4)
	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	9,965,000	  	 	 	—  	  
	 Exercise of options
	 	 	200	  	 	 	600	  	 	 	7,886	  	 	 	30,117	  	 	 	95,567	  
	 Capital contribution from Inex Pharmaceuticals Corporation
	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	5,179,000	  
	 Repayment of obligations under capital leases
	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(75,688	) 	 	 	(96,895	) 
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
		 	 	200	  	 	 	600	  	 	 	7,886	  	 	 	9,919,429	  	 	 	20,094,822	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Foreign exchange gains (losses) arising on foreign currency cash balances
	 	 	38,670	  	 	 	20,362	  	 	 	(373,726	) 	 	 	1,749,237	  	 	 	(207,544	) 
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Increase (decrease) in cash and cash equivalents
	 	 	(5,869,466	) 	 	 	3,831,534	  	 	 	(1,820,602	) 	 	 	5,292,826	  	 	 	15,254,768	  
	 Cash and cash equivalents, beginning of period
	 	 	24,397,740	  	 	 	26,218,342	  	 	 	26,218,342	  	 	 	20,925,516	  	 	 	5,670,748	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Cash and cash equivalents, end of period
	 	$	18,528,274	  	 	$	30,049,876	  	 	$	24,397,740	  	 	$	26,218,342	  	 	$	20,925,516	  
		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Supplemental cash flow information
	 				 				 				 				 			
	 Interest paid
	 	$	—  	  	 	$	—  	  	 	$	—  	  	 	$	3,668	  	 	$	10,171	  
	 Income taxes (recovered) paid
	 	 	—  	  	 	 	275,965	  	 	 	—  	  	 	 	—  	  	 	 	(63,576	) 
	 Non-cash financing and investing activities:
	 				 				 				 				 			
	 Fair value of Alnylam Pharmaceuticals, Inc. shares received
	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	9,323,200	  
	 Fair value of shares issued to Protiva Biotherapeutics Inc. shareholders pursuant to business acquisition
(note 4)
	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	28,789,221	  	 	 	—  	  
	 Fair value of shares reserved for the exercise of Protiva Biotherapeutics Inc. stock options (note 4)
	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	2,109,754	  	 	 	—  	  

 See accompanying notes
to the consolidated financial statements. 
  

 6 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements 

(Expressed in Canadian dollars) 

1. Basis of presentation and future operations 

Tekmira Pharmaceuticals Corporation (the “Company”) was incorporated on October 6, 2005 as an inactive wholly owned
subsidiary of Inex Pharmaceuticals Corporation (“Inex”). Pursuant to a “Plan of Arrangement” effective April 30, 2007 and as described more fully below, the business and substantially all of the assets and liabilities of
Inex were transferred to the Company. The consolidated financial statements for all periods presented herein include the consolidated operations of Inex until April 30, 2007 and the operations of the Company thereafter. 

The Company is a Canadian biopharmaceutical business focused on advancing novel RNA interference therapeutics and providing its leading
lipid nanoparticle delivery technology to pharmaceutical partners. 
 Pursuant to the Plan of Arrangement referred to above,
substantially all of Inex’s business and transferable assets and liabilities and contractual arrangements, including all cash and cash equivalents, all intellectual property, products, technology, partnership arrangements and Inex’s
contingent obligation related to certain debt (note 12(c)) were transferred to the Company. The losses of Inex for income tax purposes remained with Inex. Inex’s management team and employees became employees of the Company and assumed the same
positions they occupied in Inex. The record holders of Inex’s common shares immediately before the Plan of Arrangement received 100% of the shares of the Company as a result of the reorganization. 

As a non-recurring related party transaction between the Company and Inex, companies under common control at the time of the Plan of
Arrangement, the assets and liabilities were transferred at their carrying values using the continuity-of-interests method of accounting. For accounting purposes, the Company is considered to have continued Inex’s biopharmaceutical business;
accordingly, these consolidated financial statements include the historical operations and changes in financial position of Inex to April 30, 2007 and those of the Company thereafter. Reference in these consolidated financial statements to
“the Company” means “Inex” for the time prior to May 1, 2007. 
 On April 30, 2007, concurrent
with and as part of the Plan of Arrangement, Inex, having no remaining pharmaceutical assets, issued convertible debentures to a group of Investors (the “Inex Investors”) for $5,300,000 cash. As at April 30, 2007, the Inex Investors,
through their interest in the convertible debentures, held the ability to convert the debentures into 100% of the non-voting common shares of Inex and 80% of Inex’s common shares. The balance of Inex’s common shares immediately following
issuance of these convertible debentures continued to be held by the record holders of Inex’s shares immediately before the Plan of Arrangement. 

Pursuant to the Plan of Arrangement, Inex distributed $5,179,000 (US$4,664,345) of the cash received from the convertible debentures to
certain contingent debtors of the Company (the “Former Noteholders”) pursuant to the June 20, 2006 Purchase and Settlement Agreement (note 12(c)). The cash distributed by Inex was recorded by the Company as an increase in contributed
surplus and the amount distributed to the Former Noteholders was recorded by the Company as loss on purchase and settlement of exchangeable and development notes. 

Immediately before the Plan of Arrangement, Inex’s common shares were consolidated on a basis of two current common shares for one
new common share. All references to common stock, common shares outstanding, average number of common shares outstanding, per share amounts and options in these consolidated financial statements and notes thereto have been restated to reflect the
common stock consolidation on a retroactive basis. 
 These consolidated financial statements include the accounts of the
Company and its two wholly-owned subsidiaries, Protiva Biotherapeutics Inc. and Protiva Biotherapeutics (USA), Inc., which were acquired on May 30, 2008 (note 4). All intercompany transactions and balances have been eliminated on consolidation.

  

 7 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 Future operations 

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

These consolidated financial statements have been audited for all dates and periods presented except for the three months ended
March 31, 2009. 
 These consolidated financial statements are presented in Canadian dollars and have been prepared in
accordance with Canadian generally accepted accounting principles. A reconciliation of amounts presented in accordance with United States generally accepted accounting principles (US GAAP) is detailed in note 19. The following is a summary of
significant accounting policies used in the preparation of these consolidated financial statements: 
 (a) Use of
estimates 
 The preparation of the consolidated financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenue, expenses, contingent assets and contingent liabilities as at the end or during the reporting
period. Management believes that the estimates used are reasonable and prudent, however, actual results could significantly differ from those estimates. Significant areas requiring the use of management estimates relate to the valuation of goodwill
and intangible assets, the useful lives of property and equipment and intangible assets for the purpose of amortization, recognition of revenue, stock-based compensation, and the amounts recorded as accrued liabilities. 

(b) Cash and cash equivalents 

Cash and cash equivalents are all highly liquid instruments with an original maturity of three months or less when purchased. Cash and
cash equivalents are recorded at fair value. 
 (c) Financial instrument measurement bases 

The following table shows the measurement basis adopted by the Company for its financial instrument categories: 

 

					
	 Financial instrument category
	  	 Classification
	  	 Measurement basis

	 Cash and cash equivalents
	  	Held for trading	  	Fair value
	 Short-term investments
	  	Held for trading	  	Fair value
	 Accounts receivable
	  	Loans and receivables	  	Amortized cost
	 Investment tax credits receivable
	  	Loans and receivables	  	Amortized cost
	 Accounts payable and accrued liabilities
	  	Other financial liabilities	  	Amortized cost

  

 8 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 (d) Inventory 

Inventory includes materials assigned for the manufacture of products for our collaborative partners and manufacturing costs for products
awaiting acceptance by our collaborative partners. Inventory is carried at the lower of cost and net realizable value. The cost of inventories includes all costs of purchase, costs of manufacturing and other costs incurred in bringing the
inventories to their present location and condition. 
 (e) Property and equipment 

Property and equipment is recorded at cost less impairment losses, accumulated amortization, related government grants and investment tax
credits. The Company records amortization using the straight-line method over the estimated useful lives of the capital assets as follows: 
  

			
	 	  	Rate
	 Laboratory equipment
	  	5 years
	 Computer networks
	  	5 years
	 Office equipment
	  	2 years
	 Furniture and fixtures
	  	5 years

 Leasehold
improvements are amortized over the lesser of their estimated useful lives or the lease term. Assets held under capital leases that do not allow for ownership to pass to the Company are amortized using the straight-line method over the lease term.

 (f) Intangible assets 

Intangible assets consist of medical technology and computer software. 

The costs of acquiring or licensing medical technology from arm’s length third parties are capitalized. Costs are amortized on a
straight-line basis over the estimated useful life of the technology. 
 The costs incurred in establishing and maintaining
patents for intellectual property developed internally are expensed in the period incurred. 
 Costs incurred in purchasing or
developing computer software are recorded as intangible assets and are amortized over 2 to 5 years. 
 (g) Impairment of
long-lived assets 
 If management determines that the carrying value of property and equipment or medical technology
exceeds the recoverable value based on undiscounted future cash flows, such assets are written down to their fair values. 

(h) Revenue recognition 

The Company earns revenue from research and development collaboration services, licensing fees and milestone payments. Revenues associated
with multiple element arrangements are attributed to the various elements based on their relative fair values or are recognized as a single unit of accounting when relative fair values are not determinable. Non-refundable payments received under
collaborative research and development 
  

 9 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 
agreements are recorded as revenue as services are performed and related expenditures are incurred. Non-refundable upfront license fees from collaborative licensing and development arrangements
are recognized as the Company fulfills its obligations related to the various elements within the agreements, in accordance with the contractual arrangements with third parties and the term over which the underlying benefit is being conferred.
Revenue earned under contractual arrangements upon the occurrence of specified milestones is recognized as the milestones are achieved and collection is reasonably assured. Revenue earned under research and development manufacturing collaborations
where the Company bears some or all of the risk of a product manufacturing failure is recognized when the purchaser accepts the product and there are no remaining rights of return. Revenue earned under research and development collaborations where
the Company does not bear any risk of product manufacturing failure is recognized in the period the work is performed. 
 Cash
or other compensation received in advance of meeting the revenue recognition criteria is recorded on the balance sheet as deferred revenue. Revenue meeting recognition criteria but not yet received or receivable is recorded on the balance sheet as
accrued revenue and classified in accounts receivable. 
 (i) Leases and lease inducements 

Leases entered into are classified as either capital or operating leases. Leases which substantially transfer all benefits and risks of
ownership of property to the Company are accounted for as capital leases. At the time a capital lease is entered into, an asset is recorded together with its related long-term obligation to reflect the purchase and financing. 

All other leases are accounted for as operating leases wherein rental payments are expensed as incurred. 

Lease inducements represent leasehold improvement allowances and reduced or free rent periods and are amortized on a straight-line basis
over the term of the lease and are recorded as a reduction of rent expense. 
 (j) Research and development expenditures

 Research costs are charged as an expense in the period in which they are incurred. Development costs are charged as an
expense in the period incurred unless the Company believes a development project meets specified criteria for deferral and amortization. No development costs have been deferred to date. 

(k) Income or loss per share 

Income or loss per share is calculated based on the weighted average number of common shares outstanding. Diluted loss per share does not
differ from basic loss per share since the effect of the Company’s stock options are antidilutive. Diluted income per share is based on the diluted weighted average number of common shares outstanding resulting from in-the-money stock options
based on the average trading price of the Company’s shares in that period. 
 (l) Government assistance

 Government assistance provided for current expenses is included in the determination of income for the year, as a
reduction of the expenses to which it relates. Government assistance towards the acquisition of property and equipment is deducted from the cost of the related property and equipment. 

 

 10 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 (m) Foreign currency translation 

The functional currency of the Company is the Canadian dollar. For the Company and its integrated subsidiaries (Protiva Biotherapeutics
Inc. and Protiva Biotherapeutics (USA), Inc.), foreign currency monetary assets and liabilities are translated into Canadian dollars at the rate of exchange prevailing at the balance sheet date. Non-monetary assets and liabilities are translated at
historical exchange rates. The previous month’s closing rate of exchange is used to translate revenue and expense transactions. Exchange gains and losses are included in income or loss for the period. 

(n) Future income taxes 

Income taxes are accounted for using the asset and liability method of accounting. Future income taxes are recognized for the future
income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases and for loss carry-forwards. Future income tax assets and liabilities are measured using substantively
enacted or enacted income tax rates expected to apply to taxable income in the periods in which temporary differences are expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in tax laws or rates is
included in earnings in the period that includes the substantive enactment date. When realization of future income tax assets does not meet the more-likely-than-not criterion for recognition, a valuation allowance is provided. 

(o) Economic dependence 

The Company is dependent on collaborative partners for both funding and access to intellectual property. Funding from collaborative
partners and credit risk associated with accounts receivable from these partners is described in notes 5 and 15 respectively. 

(p) Stock-based compensation 

The Company grants stock options to employees and directors pursuant to a share incentive plan described in note 8. Compensation expense
is recorded for issued stock options using the fair value method with a corresponding increase in contributed surplus. Any consideration received on the exercise of stock options is credited to share capital. 

The fair value of stock options is typically measured at the grant date and amortized on a straight-line basis over the vesting period.

 (q) Comparative figures 

Certain comparative figures have been reclassified to conform with the financial statement presentation adopted in the current period.

 3. Recent accounting pronouncements 

(a) Goodwill and intangible assets and financial statement concepts 

Effective January 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) accounting
standards updates for goodwill and intangible assets (CICA 3064) and for financial statement concepts (CICA 1000). CICA 3064, Goodwill and Intangible Assets replaced CICA 3062, Goodwill and Other Intangible Assets, and CICA 3450,
Research and Development Costs. CICA 1000, Financial Statement Concepts was also amended to provide consistency with this new standard. The new section establishes standards for the recognition, measurement, and disclosure of goodwill
and intangible assets. 
  

 11 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 The adoption of this standard did not have any impact on the Company’s net loss but
did result in a reclassification of computer software costs from property and equipment to intangible assets in the amount of $1,511,232 as at December 31, 2008. 

(b) International financial reporting standards 

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

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

 (c) Financial instruments disclosure 

The Company adopted the amendments to CICA 3862, Financial Instruments—Disclosures on January 1, 2009. CICA 3862
establishes a three-tier hierarchy as a framework for disclosing fair value. The hierarchy of inputs to be disclosed is summarized below: 
  

	 	•	 	 quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) 

 

	 	•	 	 inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices) (Level 2) 

  

	 	•	 	 inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3) 

The application of the fair value hierarchy disclosures to the Company’s financial instruments is detailed in note 15. 

The adoption of CICA 3862 did not have a material impact on the Company’s consolidated financial statements. 

4. Business acquisition 

On May 30, 2008, the Company completed the acquisition of 100% of the outstanding shares of Protiva Biotherapeutics, Inc.
(“Protiva”), a privately owned Canadian company developing lipid nanoparticle delivery technology for small interfering RNA (“siRNA”), for $31,761,255. Concurrent with the acquisition, the Company entered into initial research
agreements with F. Hoffman-La Roche Ltd and Hoffman La-Roche Inc. (collectively “Roche”). 
  

 12 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 The acquisition of Protiva and related financing and other transactions were first
announced by the Company on March 30, 2008 and the acquisition closed on May 30, 2008. 
 The primary purpose of the
Protiva acquisition is to give the Company broader technology and intellectual property in the field of lipid nanoparticle delivery, including the delivery of siRNA as well as RNAi product candidates. 

Cost of acquisition 

The Company issued 22,848,588 common shares to acquire 100% of the outstanding shares of Protiva. The fair value of the Company’s
shares has been determined based on the weighted average closing price of the shares traded on the Toronto Stock Exchange from March 27, 2008 to April 2, 2008, being $1.26 per share. The Company used the Black-Scholes option pricing model
to estimate the fair value of the 1,752,294 shares reserved at the acquisition date for the exercise of assumed Protiva stock options using the following weighted average assumptions: dividend yield of 0%; risk free interest rate of 3.03%;
volatility factor of the expected market price of the Company’s common stock of 131%; and a weighted average expected life of the options of six years. 

The acquisition was accounted for under the purchase method of accounting. Accordingly, the assets, liabilities, revenues and expenses of
Protiva are consolidated with those of the Company from May 30, 2008. Total fair value of the consideration given was allocated to the assets acquired and liabilities assumed based upon their estimated fair values, as follows: 

 

					
	 Cost of acquisition:
	  			
	 Common shares issued
	  	$	28,789,221	  
	 Common shares issuable upon exercise of Protiva stock options
	  	 	2,109,754	  
	 Direct acquisition costs
	  	 	862,280	  
		  	 	 	 
		  	$	31,761,255	  
		  	 	 	 
	 Allocated at estimated fair values:
	  			
	 Cash
	  	$	3,381,375	  
	 Short-term investments
	  	 	8,337,159	  
	 Accounts receivable
	  	 	1,148,928	  
	 Prepaid expenses and other assets
	  	 	82,573	  
	 Investment tax credit receivable
	  	 	275,695	  
	 Property and equipment
	  	 	635,911	  
	 Medical technology (in-process research and development - note 19(a))
	  	 	16,252,000	  
	 Goodwill
	  	 	3,890,749	  
	 Accounts payable and accrued liabilities
	  	 	(1,794,500	) 
	 Deferred revenue
	  	 	(448,635	) 
		  	 	 	 
		  	$	31,761,255	  
		  	 	 	 

 Allocation of fair values 

A valuation of Protiva’s property and equipment and medical technology was completed. 

 

 13 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 The Company used the income approach and considered potential cash flows from both
internal and partnered products to determine the fair value of the medical technology. The excess purchase price over the fair value of the net identifiable assets acquired has been allocated to goodwill. 

Various factors contributed to the establishment of goodwill, including: the value of Protiva’s highly skilled and knowledgeable
work force as of the acquisition date; the expected revenue growth over time that is attributable to new and expanded collaborative partnerships; and the synergies expected to result from combining workforces and infrastructures. 

At September 30, 2008 the Company carried out a goodwill impairment test. Based on the Company’s market capitalization as at
September 30, 2008 the Company determined that the fair value of goodwill was nil and an impairment loss of $3,890,749 was recorded in the statement of operations and comprehensive loss. 

The medical technology acquired includes licenses and intellectual property. The medical technology is being amortized on a straight-line
basis over its useful life, estimated to be 16 years (notes 6 and 19). 
 The Company does not anticipate a future tax liability
as a result of the differences between the tax values and allocated fair values of the assets, based on available tax deductions. At the time of the acquisition, Protiva had approximately $19,000,000 of unused non-capital losses available to reduce
taxable income of future years and expiring between 2008 and 2027 and approximately $1,000,000 of investment tax credits available to reduce income taxes of future years expiring between 2011 and 2027. Furthermore, Protiva had Scientific Research
and Experimental Development expenditures of approximately $11,500,000 available for carry-forward indefinitely against future taxable income. The tax value of goodwill arising on the acquisition is approximately $2,918,000. The potential income tax
benefits relating to these future tax assets have not been recognized in the purchase price allocation as their realization does not meet the requirements of “more likely than not” under the liability method of tax allocation. 

On March 25, 2008, Protiva declared dividends totaling US$12,000,000. The dividend was paid by Protiva issuing promissory notes on
May 23, 2008. Recourse against Protiva for payment of the promissory notes will be limited to Protiva’s receipt, if any, of up to US$12,000,000 in payments from a certain third party. Protiva will pay these funds if and when it receives
them, to the former Protiva shareholders in satisfaction of the promissory notes. As contingent obligations that would not need to be funded by the Company at the acquisition, the US$12,000,000 receivable and the related promissory notes payable are
not included in the purchase equation above and are not recorded in the Company’s consolidated balance sheet. 

Private placement investment 

Concurrent with the acquisition, the Company completed a private placement investment of 2,083,333 newly issued common shares for
$4,965,000 (US$5,000,000, US$2.40 per share) with Alnylam Pharmaceuticals, Inc. (“Alnylam”) and a private placement investment of 2,083,333 newly issued common shares for $5,000,000 (CAD$2.40 per share) with a Roche affiliate for an
aggregate investment of $9,965,000. The fair value of the Company’s shares issued to Alnylam and the Roche affiliate of $5,249,999 ($1.26 per share) was determined based on the weighted average closing price of the shares traded on the Toronto
Stock Exchange on the five days around the March 30, 2008 acquisition and investment announcement being March 27, 2008 to April 2, 2008 and has been recorded as share capital. Based on this fair value, the share premium paid by
Alnylam and the Roche affiliate was an aggregate of $4,715,001 and has been recorded as contributed surplus. 
  

 14 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 5. Collaborative and Licensing Agreements 

The following tables set forth revenue recognized under the licensing, collaborative and evaluation agreements: 

 

							
	 	  	Three months
ended March 31
2010	  	Three months
ended March 31
2009
	 	  	 	  	(unaudited)
	 Research and development collaborations
	  			  		
	 Alnylam (a)
	  	$	865,823	  	$	2,386,795
	 Roche (b)
	  	 	1,265,187	  	 	397,310
	 Other RNAi collaborators (c)
	  	 	334,925	  	 	96,658
		  	 	 	  	 	 
	 Total research and development collaborations
	  	$	2,465,935	  	$	2,880,763
		  	 	 	  	 	 

  

										
	 	  	Year ended
December 31
2009	  	Year ended
December 31
2008	  	Year ended
December 31
2007
	 Research and development collaborations
	  			  			  		
	 Alnylam (a)
	  	$	8,831,250	  	$	6,079,681	  	$	5,886,709
	 Roche (b)
	  	 	4,757,842	  	 	159,465	  	 	—  
	 Other RNAi collaborators (c)
	  	 	242,824	  	 	359,112	  	 	—  
	 Hana (d)
	  	 	—  	  	 	51,015	  	 	520,277
		  	 	 	  	 	 	  	 	 
	 Total research and development collaborations
	  	 	13,831,916	  	 	6,649,273	  	 	6,406,986
	 Licensing fees and milestone payments
	  			  			  		
	 Alnylam (a)
	  	 	596,500	  	 	5,082,303	  	 	4,991,152
	 Hana up-front payment (d)
	  	 	—  	  	 	—  	  	 	4,122,930
	 Aradigm milestone payment (e)
	  	 	—  	  	 	—  	  	 	247,825
		  	 	 	  	 	 	  	 	 
	 Total licensing fees and milestone payments
	  	 	596,500	  	 	5,082,303	  	 	9,361,907
		  	 	 	  	 	 	  	 	 
	 Total revenue
	  	$	14,428,416	  	$	11,731,576	  	$	15,768,893
		  	 	 	  	 	 	  	 	 

 (a) License and collaboration with Alnylam
Pharmaceuticals, Inc. (“Alnylam”) 
 License and Collaboration Agreement with Alnylam through Tekmira 

 On January 8, 2007, the Company entered into a licensing and collaboration agreement with Alnylam (“Alnylam License
and Collaboration”) giving them an exclusive license to certain of the Company’s historical lipid nanoparticle intellectual property for the discovery, development, and commercialization of ribonucleic acid interference (“RNAi”)
therapeutics. 
 Cross-License with Alnylam acquired through Protiva 

As a result of the acquisition of Protiva on May 30, 2008, the Company acquired a Cross-License Agreement between Protiva and Alnylam
dated August 14, 2007 (the “Alnylam Cross-License”). Alnylam was granted a non-exclusive license to the Protiva intellectual property. Under the Alnylam Cross-License, Alnylam 

 

 15 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 
was required to make collaborative research payments at a minimum rate of US$2,000,000 per annum for the provision of the Company’s research staff. The research collaboration under the
Alnylam Cross-License expired on August 13, 2009. 
 Research and development collaboration with Alnylam 

Up until December 31, 2008, Alnylam was making collaborative agreement payments to both Tekmira and Protiva. Effective
January 1, 2009, all collaborative research with Alnylam is performed under the Alnylam Cross-License and manufacturing is performed under a manufacturing agreement (the “Alnylam Manufacturing Agreement”) dated January 2, 2009.
Under the Alnylam Manufacturing Agreement the Company continues to be the exclusive manufacturer of any products required by Alnylam through to the end of phase 2 clinical trials that utilize the Company’s technology. Alnylam pays the Company
for the provision of staff and for external costs incurred. Time charged to Alnylam is at a fixed rate and under the Alnylam Manufacturing Agreement there is a contractual minimum for the provision of staff of $11,200,000 for the three years from
2009 to 2011. 
 Licensing fees and milestone payments 

In 2007, under the Alnylam License and Collaboration, the Company received 361,990 newly issued shares of Alnylam common stock which the
Company sold for the net amount of $8,938,867 (US$7,594,619) and a subsequent cash payment of $475,720 (US$405,381) to bring the total up-front payment to $9,414,587 (US$8,000,000). Under a license agreement with the University of British Columbia
(“UBC”), the Company made a milestone payment of $941,459, in respect of the up-front payment from Alnylam. In accordance with the Company’s revenue recognition policy, the up-front payment of $9,414,587 and the milestone payment to
UBC of $941,459, were deferred and were amortized on a straight-line basis to revenue and expense respectively to December 31, 2008, the period over which the Company provided research support under the Alnylam License and Collaboration.

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

In the year ended December 31, 2009, the Company received a $596,500 (US$500,000) milestone payment from Alnylam in respect of the
initiation of Alnylam’s ALN-VSP Phase 1 human clinical trial and the Company made a related milestone payment of $58,700 (US$50,000) to UBC. 

Alnylam deferred revenue 

At March 31, 2010, the Company had deferred research and development collaboration revenue in respect of Alnylam of $352,440
(December 31, 2009—$35,987; December 31, 2008—$309,250). 
  

 16 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 (b) Roche 

On May 11, 2009 the Company announced a product development agreement with Roche (the “Roche Product Development
Agreement”). Under the Roche Product Development Agreement Roche will pay the Company up to US$8,800,000 to support the advancement of each Roche RNAi product candidate using the Company’s SNALP technology through to the filing of an
Investigational New Drug (“IND”) application. The Company is also eligible to receive up to US$16,000,000 in milestones plus royalties on product sales for each product advanced through development and commercialization based on
Roche’s access to the Company’s intellectual property through Alnylam. 
 The Company will develop and manufacture the
drug product for use in all preclinical studies under the Roche Product Development Agreement and will collaborate with Roche to conduct the preclinical testing. The agreement also provides that the Company will manufacture one batch of clinical
product for a Phase 1 clinical trial. 
 Under the Roche Product Development Agreement Roche will pay the Company for the
provision of staff and for external costs incurred. The Company is recognizing revenue in proportion to the services provided up to the reporting date by comparing actual hours spent to estimated total hours for each product under the contract.
Revenue from external costs incurred on Roche product candidates will be recorded in the period that Roche is invoiced for those costs. The difference between service revenue recognized and cash received will be recorded in the Company’s
balance sheet as accrued revenue or deferred revenue, as appropriate, and as at March 31, 2010 the deferred revenue balance was $835,146 (December 31, 2009—$792,583; December 31, 2008—$nil). 

At December 31, 2009 there was one product in development under the Roche Product Development Agreement. Under the agreement, Roche
may select a second product for development. 
 Under a separate February 11, 2009 research agreement with Roche the
Company received $923,151 (US$765,000). For the three months ended March 31, 2009 the Company recognized $397,310 from this agreement (three months ended March 31, 2010—$nil; year ended December 31, 2009—$923,151;
2008—$nil; 2007—$nil). 
 (c) Other RNAi collaborators 

The Company has active research agreements with a number of other RNAi collaborators including Bristol-Myers Squibb Company (see note
18—Subsequent event) and Takeda. As at March 31, 2010 other RNAi collaborator deferred revenue was $103,186 (December 31, 2009—$333,867; December 31, 2008—$149,844). 

(d) Agreements with Hana Biosciences, Inc. (“Hana”) and related contingent obligation 

On May 6, 2006, the Company signed a number of agreements with Hana including the grant of worldwide licenses
(the “Hana License Agreement”) for three of the Company’s chemotherapy products, Marqibo®,
AlocrestTM (formerly INX-0125, Optisomal Vinorelbine) and
BrakivaTM (formerly INX-0076, Optisomal Topotecan). Under
the License Agreement, Hana paid a non-refundable up-front cash payment of $1,657,300 (US$1,500,000) and issued 1,118,568 Hana shares to the Company (together the “Hana Up-front Payments”). The aggregate fair value of the Hana shares on
May 6, 2006, based on a share price of $12.34 (US$11.15) was $13,806,541 (US$12,472,033). 
 The Company allocated $170,910
as proceeds on the transfer of certain surplus laboratory equipment to Hana, resulting in no gain or loss on disposal. In accordance with the Company’s revenue recognition policy, the 

 

 17 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 
remaining $15,292,931 of the Hana Up-front Payments was deferred and was amortized into revenue from May 6, 2006 to December 31, 2007 by which time all services under a technology
transfer agreement had been substantially completed. 
 Under the Hana License Agreement the Company could have received up to
US$29,500,000 in cash or Hana shares upon achievement of further development and regulatory milestones and is also eligible to receive royalties on product sales. On May 27, 2009, the Hana License Agreement was amended to decrease the size of
near-term milestone payments and increase the size of long-term milestone payments. If received, these contingent payments from Hana will be transferred to contingent creditors (note 12(c)). 

(e) Aradigm Corporation (“Aradigm”) 

The Company entered into a licensing agreement with Aradigm on December 8, 2004 under which Aradigm licensed certain of the
Company’s technology. Under this agreement, the Company is eligible to receive up to US$4,750,000 in milestone payments for each disease indication, to a maximum of two, pursued by Aradigm as well as royalties on product revenue resulting from
products utilizing the licensed technology. The milestone payments are only payable twice regardless of the number of disease indications pursued. 

On November 19, 2007, Aradigm announced that it would commence a Phase 2 trial of inhaled liposomal ciprofloxacin. The
Company’s management believes that the commencement of this trial in December 2007 triggered a US$250,000 milestone payable by Aradigm. Aradigm’s management believes that its product does not use the Company’s technology as defined
under the license agreement. The dispute over the initial milestone was resolved on February 13, 2008 when Aradigm and the Company signed an amendment to the licensing agreement. The amendment does not change the Company’s milestone and
royalty eligibility under the original license agreement. 
 Under the amendment Aradigm agreed to pay US$250,000 to the Company
and payment was received on February 15, 2008. The Company accrued the US$250,000 payment as milestone payment revenue in the year ended December 31, 2007 and has recorded the same amount in accounts receivable as at December 31,
2007. The Company has not received any further milestone payments from Aradigm. 
 (f) License agreement with
Merck & Co., Inc. (“Merck”) 
 As a result of the acquisition of Protiva the Company received a
non-exclusive royalty-bearing world-wide license, of certain intellectual property acquired by Merck. Under the license Merck will pay up to US$17,000,000 in milestones for each product it develops using the acquired intellectual property except for
the first product for which Merck will pay up to US$15,000,000 in milestones. Merck will also pay royalties on product sales. The license agreement with Merck was entered into as part of a settlement of litigation between Protiva and a Merck
subsidiary. 
 Merck has granted a license to the Company to certain of its intellectual property. 

 

 18 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 6. Intangible assets 

 

											
	 March 31, 2010
	  	Cost	  	Accumulated
amortization	 	 	Net book
value
	 Medical technology (note 4)
	  	$	16,252,000	  	$	(1,862,208	) 	 	$	14,389,792
	 Computer software
	  	 	1,633,136	  	 	(1,183,452	) 	 	 	449,684
		  	 	 	  	 	 	 	 	 	 
		  	$	17,885,136	  	$	(3,045,660	) 	 	$	14,839,476
		  	 	 	  	 	 	 	 	 	 
				
	 December 31, 2009
	  	Cost	  	Accumulated
amortization	 	 	Net book
value
	 Medical technology (note 4)
	  	$	16,252,000	  	$	(1,608,271	) 	 	$	14,643,729
	 Computer software
	  	 	1,632,196	  	 	(1,123,495	) 	 	 	508,701
		  	 	 	  	 	 	 	 	 	 
		  	$	17,884,196	  	$	(2,731,766	) 	 	$	15,152,430
		  	 	 	  	 	 	 	 	 	 
				
	 December 31, 2008
	  	Cost	  	Accumulated
amortization	 	 	Net book
value
	 Medical technology (note 4)
	  	$	16,252,000	  	$	(592,521	) 	 	$	15,659,479
	 Computer software
	  	 	1,511,232	  	 	(863,731	) 	 	 	647,501
		  	 	 	  	 	 	 	 	 	 
		  	$	17,763,232	  	$	(1,456,252	) 	 	$	16,306,980
		  	 	 	  	 	 	 	 	 	 

 The medical technology acquired from Protiva (note 4)
is being amortized on a straight-line basis over its useful life, estimated to be 16 years. 
 7. Property and equipment 

 

											
	 March 31, 2010
	  	Cost	  	Accumulated
depreciation
and impairment	 	 	Net
book value
	 Laboratory equipment
	  	$	7,509,108	  	$	(6,221,476	) 	 	$	1,287,632
	 Leasehold improvements
	  	 	6,063,661	  	 	(4,420,030	) 	 	 	1,643,631
	 Computer networks
	  	 	1,055,145	  	 	(833,972	) 	 	 	221,173
	 Office equipment
	  	 	564,142	  	 	(549,720	) 	 	 	14,422
	 Furniture and fixtures
	  	 	662,242	  	 	(642,912	) 	 	 	19,330
		  	 	 	  	 	 	 	 	 	 
		  	$	15,854,298	  	$	(12,668,110	) 	 	$	3,186,188
		  	 	 	  	 	 	 	 	 	 
				
	 December 31, 2009
	  	Cost	  	Accumulated
depreciation
and impairment	 	 	Net
book value
	 Laboratory equipment
	  	$	7,352,191	  	$	(6,116,631	) 	 	$	1,235,560
	 Leasehold improvements
	  	 	5,671,752	  	 	(4,377,986	) 	 	 	1,293,766
	 Computer networks
	  	 	1,055,145	  	 	(814,435	) 	 	 	240,710
	 Office equipment
	  	 	561,338	  	 	(540,758	) 	 	 	20,580
	 Furniture and fixtures
	  	 	662,242	  	 	(640,518	) 	 	 	21,724
		  	 	 	  	 	 	 	 	 	 
		  	$	15,302,668	  	$	(12,490,328	) 	 	$	2,812,340
		  	 	 	  	 	 	 	 	 	 

  

 19 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

											
	 December 31, 2008
	  	Cost	  	Accumulated
depreciation
and
impairment	 	 	Net
book value
	 Laboratory equipment
	  	$	6,966,852	  	$	(5,703,814	) 	 	$	1,263,038
	 Leasehold improvements
	  	 	5,699,816	  	 	(5,473,402	) 	 	 	226,414
	 Computer networks
	  	 	1,301,727	  	 	(939,516	) 	 	 	362,211
	 Office equipment
	  	 	558,274	  	 	(479,156	) 	 	 	79,118
	 Furniture and fixtures
	  	 	662,242	  	 	(630,332	) 	 	 	31,910
		  	 	 	  	 	 	 	 	 	 
		  	$	15,188,911	  	$	(13,226,220	) 	 	$	1,962,691
		  	 	 	  	 	 	 	 	 	 

 8. Share capital 

(a) Authorized 

The Company’s authorized share capital consists of an unlimited number of common and preferred shares without par value. 

(b) Issuance of common shares pursuant to the acquisition of Protiva 

On May 30, 2008, the Company issued 22,848,588 common shares in exchange for 100% of Protiva’s share capital (note 4).

 (c) Financing 

On February 20, 2007, the Company completed a public offering of 10,350,000 newly issued common shares at a price of $1.55 per common
share. After adjusting for the April 30, 2007 share consolidation (note 1), the offering effectively represents the issuance of 5,175,000 shares at a price of $3.10 per common share. After paying underwriters commission and other share issue
costs, the offering generated net cash of $14,917,150. 
 On May 30, 2008, the Company completed a private placement
investment of 2,083,333 newly issued common shares for $4,965,000 (US$5,000,000, US$2.40 per share) with Alnylam and a private placement investment of 2,083,333 newly issued common shares for $5,000,000 ($2.40 per share) with a Roche affiliate (note
4). 
 (d) Stock-based compensation 

As part of the Plan of Arrangement that resulted in the transfer of the business of Inex to the Company, effective April 30, 2007,
all outstanding options in Inex were cancelled and replaced with equivalent options of the Company. Under the Company’s stock option plan the Board of Directors may grant options to employees and directors. The exercise price of the options is
determined by the Company’s Board of Directors but will be at least equal to the closing market price of the common shares on the day preceding the date of grant and the term may not exceed 10 years. Options granted generally vest over three
years for employees and immediately for directors. 
 Concurrent with the announcement of the acquisition of Protiva on
March 28, 2008, the Company’s Board approved the accelerated vesting of all options outstanding under the Company’s 1996 Share Option Plan such that all options outstanding at that date became fully vested and exercisable. Any stock
based compensation expense not yet recognized with respect to the options with accelerated vesting was recognized on May 30, 2008, the date that Protiva was acquired. 
  

 20 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 On June 20, 2007, May 28, 2008 and May 12, 2009, the shareholders of
the Company approved increases to the number of shares reserved for issuance under the Company’s 1996 Stock Option Plan of 1,125,115, 1,487,000 and 1,331,000, respectively, thereby increasing the maximum common shares available under the plan
to 6,846,276 of which 1,261,837 common shares remain available for future allocation as at March 31, 2010. 
 On
May 30, 2008, as a condition of the acquisition of Protiva (note 4), the Company reserved 1,752,294 common shares for the exercise of 519,073 Protiva share options (“Protiva Options”). The Protiva Options have an exercise price of
$0.30, are fully vested, expire at various dates from November 19, 2010 to March 1, 2018 and upon exercise each option will be converted into approximately 3.3758 shares of the Company (the same ratio at which Protiva common shares were
exchanged for Company common shares at completion of the acquisition of Protiva). To March 31, 2010, none of the Protiva Options had been exercised, forfeited or cancelled. The Protiva Options are not part of the Company’s 1996 Stock
Option Plan and the Company is not permitted to grant any further Protiva Options. 
 The following table sets forth outstanding
options under the Company’s 1996 Stock Option Plan: 
  

							
	 	  	Number of optioned
common shares	 	 	Weighted average
exercise price
	 Balance, December 31, 2006
	  	2,636,435	  	 	$	4.44
			
	 Options granted
	  	352,288	  	 	 	1.48
	 Options exercised
	  	(107,284	) 	 	 	0.89
	 Options forfeited, cancelled or expired
	  	(267,944	) 	 	 	11.43
		  	 	 	 	 	 
	 Balance, December 31, 2007
	  	2,613,495	  	 	$	3.48
			
	 Options granted
	  	2,634,950	  	 	 	0.85
	 Options exercised
	  	(42,742	) 	 	 	0.70
	 Options forfeited, cancelled or expired
	  	(617,277	) 	 	 	1.59
		  	 	 	 	 	 
	 Balance, December 31, 2008
	  	4,588,426	  	 	 	2.25
			
	 Options granted
	  	13,200	  	 	 	0.97
	 Options exercised
	  	(19,261	) 	 	 	0.41
	 Options forfeited, cancelled or expired
	  	(254,225	) 	 	 	6.18
		  	 	 	 	 	 
	 Balance, December 31, 2009
	  	4,328,140	  	 	$	2.02
			
	 Options granted
	  	950,250	  	 	 	0.77
	 Options exercised
	  	(667	) 	 	 	0.30
	 Options forfeited, cancelled or expired
	  	(105,483	) 	 	 	0.82
		  	 	 	 	 	 
	 Balance, March 31, 2010
	  	5,172,240	  	 	$	1.82
		  	 	 	 	 	 

 Options under the 1996 Stock Option Plan expire at
various dates from May 28, 2010 to January 27, 2020. 
  

 21 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 The following table summarizes information pertaining to stock options outstanding at
March 31, 2010 under the Company’s 1996 Stock Option Plan: 
  

													
	 	 	Number
of options
outstanding	 	Options outstanding
March 31, 2010	 	Options exercisable
March 31, 2010
	 Range of
Exercise prices
	 	 	Weighted
average
remaining
contractual
life (years)	 	Weighted
average
exercise
price	 	Number
of options
exercisable	 	Weighted
average
exercise
price
	$0.30 to $0.56	 	795,900	 	8.7	 	$	0.34	 	473,122	 	$	0.35
	$0.60 to $0.95	 	1,951,327	 	8.2	 	 	0.74	 	1,292,098	 	 	0.70
	$1.07 to $1.12	 	1,442,346	 	7.6	 	 	1.11	 	1,435,579	 	 	1.11
	$1.18 to $2.32	 	501,329	 	6.3	 	 	1.39	 	501,329	 	 	1.39
	$8.02 to $14.10	 	481,338	 	2.0	 	 	11.18	 	481,338	 	 	11.18
	$0.30 to $14.10	 	5,172,240	 	7.4	 	$	 1.82	 	4,183,466	 	$	 2.09

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

 

									
	 	  	Three months ended
March 31
2010	 	 	Three months ended
March 31
2009
(unaudited)	 
	 Dividend yield
	  	 	0.0	% 	 	 	0.0	% 
	 Expected volatility
	  	 	119.6	% 	 	 	142.7	% 
	 Risk-free interest rate
	  	 	2.7	% 	 	 	1.95	% 
	 Expected average option term
	  	 	7.0 years	  	 	 	5.0 years	  
	 Fair value of options granted
	  	$	0.69	  	 	$	0.55	  

  

													
	 	  	Year ended
December 31
2009	 	 	Year ended
December 31
2008	 	 	Year ended
December 31
2007	 
	 Dividend yield
	  	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 
	 Expected volatility
	  	 	144.0	% 	 	 	123.2	% 	 	 	124.0	% 
	 Risk-free interest rate
	  	 	2.5	% 	 	 	2.8	% 	 	 	4.3	% 
	 Expected average option term
	  	 	5.0 years	  	 	 	7.2 years	  	 	 	7.3 years	  
	 Fair value of options granted
	  	$	0.87	  	 	$	0.77	  	 	$	1.17	  

 An expense for
stock-based compensation for the three months ended March 31, 2010 for options awarded to employees and calculated in accordance with the fair value method of $359,817 (three months ended March 31, 2009—$110,845 (unaudited);
2009—$265,685; 2008—$1,772,351; 2007—$376,591) has been recorded in the consolidated statements of operations and comprehensive loss in research, development and collaborations and general and administrative expenses. 

9. Government grants and refundable investment tax credits 

Government grants and refundable investment tax credits have been netted against research and development expenses. 

 

 22 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 Government grants for the three months ended March 31, 2010 include $98,678 in
funding from the US Army Medical Research Institute for Infectious Diseases (three months ended March 31, 2009—$203,132 (unaudited); year ended December 31, 2009—$775,292; 2008—$239,031; 2007—$nil). 

The Company’s estimated claim for refundable Scientific Research and Experimental Development investment tax credits for the year
ended December 31, 2009 is $139,502 (2008—$128,758; 2007—$26,184). Investment tax credits receivable as at December 31, 2008 of $404,453 include $275,695 earned by Protiva prior to being acquired by the Company and losing its
Canadian Controlled Private Corporation tax status. 
 10. Termination and restructuring expenses 

In May 2008, as a condition of closing the business combination with Protiva (note 4) the employment contract of the Company’s
previous Chief Executive Officer was terminated and an expense of $1,984,266 was recorded. The termination sum is being paid out as salary continuance and $392,010 remained unpaid as at March 31, 2010 (December 31,
2009—$608,550; December 31, 2008—$1,484,757). 
 In October 2008, as part of the integration of the
operations of Tekmira and Protiva, the Company completed a restructuring that resulted in a reduction in workforce of 15 employees. The Company recorded an expense of $1,188,278 in respect of these 15 employees in accordance with EIC
134—Accounting for Severance and Termination Benefits. As at March 31, 2010 a balance of $5,182 remained unpaid (December 31, 2009—$5,284; December 31, 2008—$235,393). 

11. Income taxes 
 Income
tax (recovery) expense varies from the amounts that would be computed by applying the combined Canadian federal and provincial income tax rate of 28.5% (year ended December 31, 2009—30.0%; 2008—31.0%; 2007—34.12%) to the loss
before income taxes as shown in the following tables: 
  

					
	 	  	Three months ended
March 31
2010	 
	 Computed taxes (recoveries) at Canadian federal and provincial tax rates
	  	$	(1,258,967	) 
	 Difference due to change in enacted tax rates
	  	 	—  	  
	 Permanent and other differences
	  	 	294,917	  
	 Change in valuation allowance
	  	 	964,050	  
	 Utilization of non-capital loss carryforwards
	  	 	—  	  
		  	 	 	 
	 Income tax (recovery) expense
	  	$	—  	  
		  	 	 	 

  

													
	 	  	Year ended
December 31
2009	 	 	Year ended
December 31
2008	 	 	Year ended
December 31
2007	 
	 Computed taxes (recoveries) at Canadian federal and provincial tax rates
	  	$	(2,929,472	) 	 	$	(4,420,886	) 	 	$	(960,493	) 
	 Difference due to change in enacted tax rates
	  	 	635,462	  	 	 	237,731	  	 	 	—  	  
	 Permanent and other differences
	  	 	927,938	  	 	 	(200,276	) 	 	 	1,815,699	  
	 Change in valuation allowance
	  	 	1,366,072	  	 	 	4,383,431	  	 	 	1,027,508	  
	 Utilization of non-capital loss carryforwards
	  	 	—  	  	 	 	—  	  	 	 	(1,882,714	) 
		  	 	 	 	 	 	 	 	 	 	 	 
	 Income tax (recovery) expense
	  	$	—  	  	 	$	—  	  	 	$	—  	  
		  	 	 	 	 	 	 	 	 	 	 	 

  

 23 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 As at March 31, 2010, the Company has investment tax credits available to reduce
Canadian federal income taxes of $5,304,810 (December 31, 2009—$5,304,810; December 31, 2008—$3,193,999) and provincial income taxes of $2,781,784 (December 31, 2009—$2,781,784; December 31, 2008— $1,425,686)
and expiring between 2011 and 2030. At March 31, 2010, the Company has scientific research and experimental development expenditures of $27,483,678 (December 31, 2009—$27,483,678; December 31, 2008—$20,301,032) available for
indefinite carry-forward and $27,855,251 (December 31, 2009—$23,758,157; December 31, 2008—$23,868,051) of net operating losses due to expire between 2015 and 2030 and which can be used to offset future taxable income in Canada.

 Significant components of the Company’s future tax assets are shown below: 

 

													
	 	  	March 31
2010	 	 	December 31
2009	 	 	December 31
2008	 
	 Future tax assets:
	  				 				 			
	 Non-capital loss carry-forwards
	  	$	6,964,000	  	 	$	5,940,000	  	 	$	6,206,000	  
	 Research and development deductions
	  	 	6,871,000	  	 	 	6,871,000	  	 	 	5,278,000	  
	 Book amortization in excess of tax
	  	 	3,232,000	  	 	 	3,436,000	  	 	 	4,217,000	  
	 Share issue costs
	  	 	196,000	  	 	 	213,000	  	 	 	292,000	  
	 Tax value in excess of accounting value in investment
	  	 	—  	  	 	 	—  	  	 	 	24,000	  
	 Revenue recognized for tax purposes in excess of revenue recognized for accounting purposes
	  	 	323,000	  	 	 	291,000	  	 	 	113,000	  
	 Tax value in excess of accounting value in lease inducements
	  	 	114,000	  	 	 	124,000	  	 	 	—  	  
	 Provincial investment tax credits
	  	 	696,000	  	 	 	629,000	  	 	 	301,000	  
		  	 	 	 	 	 	 	 	 	 	 	 
	 Total future tax assets
	  	 	18,396,000	  	 	 	17,504,000	  	 	 	16,431,000	  
	 Future tax liability:
	  				 				 			
	 Accounting value in excess of tax value in intangible assets
	  	 	(3,518,000	) 	 	 	(3,580,000	) 	 	 	(3,981,000	) 
		  	 	 	 	 	 	 	 	 	 	 	 
		  	 	14,878,000	  	 	 	13,924,000	  	 	 	12,450,000	  
	 Valuation allowance
	  	 	(14,878,000	) 	 	 	(13,924,000	) 	 	 	(12,450,000	) 
		  	 	 	 	 	 	 	 	 	 	 	 
	 Net future tax assets
	  	$	—  	  	 	$	—  	  	 	$	—  	  
		  	 	 	 	 	 	 	 	 	 	 	 

 Under a Plan of Arrangement (Note 1) completed on April 30, 2007, Inex’s non-capital losses and
scientific research and experimental development pool of undeducted expenditures as well as the federal non-refundable investment tax credits generated from the business through April 30, 2007 are not available to the Company. The balances at
March 31, 2010 represent the balances available to the Company. 
 The potential income tax benefits relating to the future
tax assets shown in the table have not been recognized in the accounts as their realization does not meet the requirements of “more likely than not” under the liability method of tax allocation. Accordingly, no future tax assets have been
recognized as at March 31, 2010, December 31, 2009 and December 31, 2008. 
 12. Commitments and contingencies

  

	(a)	 Effective July 29, 2009 the Company signed an amendment to the operating lease for its laboratory and office premises. The amended lease expires
in July 2014 but the Company has the option to extend the lease 

  

 24 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

	 	 
to 2017 and then to 2022 and then to 2027. The amended lease includes a signing incentive payment. In accordance with the Company’s accounting policy the signing incentive payment will be
amortized on a straight-line basis over the term of the amended lease. 

 Following the lease amendment the
minimum commitment, contracted sub-lease income and net commitment for rent and estimated operating costs, are as follows: 
  

											
	 	  	Lease
commitment	  	Sub-lease
income	 	 	Net
commitment
	 Nine months ended December 31, 2010
	  	$	1,060,000	  	$	(183,000	) 	 	$	877,000
	 Year ended December 31, 2011
	  	 	1,410,000	  	 	(244,000	) 	 	 	1,166,000
	 Year ended December 31, 2012
	  	 	1,410,000	  	 	(234,000	) 	 	 	1,176,000
	 Year ended December 31, 2013
	  	 	1,410,000	  	 	—  	  	 	 	1,410,000
	 Year ended December 31, 2014
	  	 	823,000	  	 	—  	  	 	 	823,000
		  	 	 	  	 	 	 	 	 	 
		  	$	6,113,000	  	$	(661,000	) 	 	$	5,452,000
		  	 	 	  	 	 	 	 	 	 

 The Company’s lease expense, net of sub-lease
income, for the three months ended March 31, 2010 of $253,555 has been recorded in the consolidated statements of operations and comprehensive loss in research, development and collaborations and general and administrative expenses
(2009—$1,008,290; 2008—$1,447,850; 2007—$415,961). 
 The Company has netted $48,570 of sub-lease income against
lease expense in the three months ended March 31, 2010 (year ended December 31, 2009—$191,376; 2008—$208,518; 2007—$756,425). 
  

	(b)	The Company entered into a Technology Partnerships Canada (“TPC”) agreement with the Canadian Federal Government on November 12, 1999. Under this
agreement, TPC agreed to fund 27% of the costs incurred by the Company, prior to March 31, 2004, in the development of certain oligonucleotide product candidates up to a maximum contribution from TPC of $9,329,912. As at December 31, 2007,
a cumulative contribution of $3,701,571 has been received and the Company does not expect any further funding under this agreement. In return for the funding provided by TPC, the Company agreed to pay royalties on the share of future licensing and
product revenue, if any, that is received by the Company on certain non siRNA oligonucleotide product candidates covered by the funding under the agreement. These royalties are payable until a certain cumulative payment amount is achieved or until a
pre-specified date. In addition, until a cumulative amount equal to the funding actually received under the agreement has been paid to TPC, the Company agreed to pay royalties of between 0.375% and 5% on the share of future product revenue, if any,
for Marqibo that is received by the Company. To March 31, 2010 the Company has not made any royalty payments to TPC. 

  

	(c)	In 2001, Elan Corporation, plc (“Elan”), a former collaborative partner of the Company, provided the Company with a US$12,015,000 exchangeable note to fund
the Company’s share of licensing costs of certain Elan technology. Also in 2001, Elan provided the Company with a development note facility of US$15,000,000 to partially fund the Company’s share of Marqibo’s development expenditures.
Interest on the exchangeable and development notes (together “the Notes”) accrued at 7% per annum, but no payment of interest or principal was required until maturity on April 27, 2007. 

In April 2004, Elan assigned the Notes to a group of institutional investors. The terms and conditions of the Notes remained unchanged.

 On June 20, 2006, the Company and the holders of exchangeable and development notes (the “Former Noteholders”)
signed a purchase and settlement agreement (the “Purchase and Settlement Agreement”). The 
  

 25 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 
Purchase and Settlement Agreement retired the exchangeable and development notes in exchange for US$2,500,000 in cash, 1,118,568 Hana shares received upon licensing chemotherapy products to Hana
and certain contingent consideration. Subsequent to the Purchase and Settlement Agreement, amounts owing on the Notes became contingent obligations so have been removed from the Company’s Balance Sheet. As further explained in Note 1, the
Company assumed all contingent obligations of Inex under the Purchase and Settlement Agreement as part of the Plan of Arrangement completed on April 30, 2007. 

The contingent obligation under the Purchase and Settlement Agreement as at March 31, 2010 was US$22,835,476 (December 31, 2009
and 2008—US$22,835,476). 
 Further repayment under the Purchase and Settlement Agreement is contingent on the Company
receiving future milestone or royalty payments from Hana. If the Company does not receive any future proceeds from Hana then it will not owe the Former Noteholders any additional consideration or payments. The Former Noteholders have no recourse to
any of the Company’s other assets. 
  

	(d)	The Company has a contingent liability of US$12,000,000 in regard to certain promissory notes and has a related, equal and offsetting contingent asset receivable from a
third party as described in note 4. 

 13. Related party transactions 

Research, development and collaborations expenses in the three months ended March 31, 2009 include $29,638 (unaudited) of
non-clinical research costs for one of our product candidates, measured at the cash amount and incurred in the normal course of operations with Ricerca Biosciences, LLC (“Ricerca”), a contract research organization whose Chief Executive
Officer is also a director of the Company (year ended December 31, 2009—$44,415; December 31, 2008 and 2007—$nil). There was no balance in accounts payable and accrued liabilities at March 31, 2010 in respect of Ricerca
(December 31, 2009 and 2008—$nil). There were no related party transactions in the three months ended March 31, 2010. 
 14.
Capital Disclosures 
 The Company’s board of directors’ (“Board”) policy is to maintain a strong capital
base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management defines capital as the Company’s total shareholders’ equity. To maintain the capital structure, the Company may
attempt to issue new shares, acquire or dispose of assets or structure collaborative and license agreements in a particular way. The Company has not yet attained sustainable profitable operations, therefore the Board does not establish quantitative
return on capital criteria for management. 
 As of March 31, 2010 the Company’s total equity was $33,048,843
(December 31, 2009—$37,106,254; December 31, 2008—$46,597,590). 
 In the three months ended March 31, 2010,
total equity decreased 11% and in the year ended December 31, 2009, total equity decreased 20%, in both cases due to an increase in deficit. There were no changes in the Company’s approach to capital management during the three month ended
March 31, 2010 or the year ended December 31, 2009. The Company is not subject to externally imposed capital requirements. 
 15.
Financial Instruments and Financial Risk 
 Credit Risk 

Credit risk is defined by the Company as an unexpected loss in cash and earnings if a collaborative partner is unable to pay its
obligations in due time. The Company’s main source of credit risk is related to its accounts receivable balance which principally represents temporary financing provided to collaborative partners in the

  

 26 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 
normal course of operations. The account receivable from Alnylam Pharmaceuticals, Inc. (“Alnylam”) as at March 31, 2010 was $307,705 and represents 41% of total accounts receivable
as at that date (December 31, 2009—$398,658 and 38%; December 31, 2008 -$393,830 and 62%). 
 The Company does
not currently maintain a provision for bad debts as the majority of accounts receivable are from collaborative partners or government agencies and are considered low risk. 

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at March 31,
2010 was the accounts receivable balance of $748,832 (December 31, 2009—$1,052,895; December 31, 2008—$632,439). 

The aging of accounts receivable at the reporting date was: 

 

										
	 	  	March 31
2010	  	December 31
2009	  	December 31
2008
	 Current
	  	$	653,143	  	$	898,859	  	$	632,439
	 Past due 0-30 days
	  	 	53,465	  	 	154,036	  	 	—  
	 Past due more than 30 days
	  	 	42,224	  	 	—  	  	 	—  
		  	 	 	  	 	 	  	 	 
		  	$	748,832	  	$	1,052,895	  	$	632,439
		  	 	 	  	 	 	  	 	 

 Liquidity Risk 

Liquidity risk results from the Company’s potential inability to meet its financial liabilities, for example payments to suppliers.
The Company ensures sufficient liquidity through the management of net working capital and cash balances. 
 The Company’s
liquidity risk is primarily attributable to its cash and cash equivalents. The Company limits exposure to liquidity risk on its liquid assets through maintaining its cash and cash equivalent deposits with high-credit quality financial institutions.
Due to the nature of these investments, the funds are available on demand to provide optimal financial flexibility. 
 The
Company believes that its current sources of liquidity are sufficient to cover its likely applicable short term cash obligations. The Company’s financial obligations include accounts payable and accrued liabilities which generally fall due
within 45 days. 
 The net liquidity of the Company is considered to be the cash, cash equivalents and short-term investments
funds available less accounts payable and accrued liabilities. 
  

													
	 	  	March 31
2010	 	 	December 31
2009	 	 	December 31
2008	 
	 Cash, cash equivalents and short term investments
	  	$	18,528,274	  	 	$	24,397,740	  	 	$	31,948,849	  
	 Less: Accounts payable and accrued liabilities
	  	 	(3,426,566	) 	 	 	(5,653,827	) 	 	 	(4,473,612	) 
		  	 	 	 	 	 	 	 	 	 	 	 
		  	$	15,101,708	  	 	$	18,743,913	  	 	$	27,475,237	  
		  	 	 	 	 	 	 	 	 	 	 	 

  

 27 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 Foreign currency risk 

The Company’s revenues and operating expenses are denominated in both Canadian and US dollars so the results of the Company’s
operations are subject to currency transaction risk and currency translation risk. 
 The operating results and financial
position of the Company are reported in Canadian dollars in the Company’s financial statements. The fluctuation of the US dollar in relation to the Canadian dollar will consequently have an impact upon the Company’s income or loss and may
also affect the value of the Company’s assets and the amount of shareholders’ equity. 
 The Company manages its US
dollar exchange rate risk by using cash received from US dollar revenues to pay US dollar expenses and by limiting its holdings of US dollar cash and cash equivalent balances to working capital levels. The Company has not entered into any agreements
or purchased any instruments to hedge possible currency risks at this time. 
 The Company’s exposure to US dollar currency
risk expressed in Canadian dollars was as follows: 
  

													
	 	  	March 31
2010	 	 	December 31
2009	 	 	December 31
2008	 
	 Cash and cash equivalents
	  	$	(58,628	) 	 	$	293,027	  	 	$	1,649,187	  
	 Accounts receivable
	  	 	272,601	  	 	 	520,892	  	 	 	540,527	  
	 Accounts payable and accrued liabilities
	  	 	(1,391,163	) 	 	 	(1,765,874	) 	 	 	(1,006,854	) 
		  	 	 	 	 	 	 	 	 	 	 	 
		  	$	(1,177,190	) 	 	$	(951,955	) 	 	$	1,182,860	  
		  	 	 	 	 	 	 	 	 	 	 	 

 A 10% strengthening of the Canadian dollar against the US dollar at March 31, 2010 would have decreased
losses for the three months ended March 31, 2010 by $117,719. A 10% weakening of the Canadian dollar against the US dollar at March 31, 2010 would have increased losses for the same period by $117,719. This analysis assumes that all other
variables, in particular interest rates, remain constant. 
 Interest rate risk 

The Company invests its cash reserves in bankers’ acceptances and high interest savings accounts issued by major Canadian banks. The
Company’s audit committee approves a list of acceptable investments on a quarterly basis. A 100 basis point decrease in the interest rate would have resulted in the Company earning no interest and an increase in net losses of $21,393 for the
three months ended March 31, 2010. A 100 basis point increase in interest rates would have resulted in a decrease in net losses of $42,786. 

At March 31, 2010, the Company’s cash equivalents held in bankers’ acceptances and high interest savings accounts bore a
weighted average interest rate of 0.6% (December 31, 2009—0.4%; December 31, 2008—1.7%). 
 Fair values

 The Company’s financial instruments consist of cash and cash equivalents, short-term investments, accounts
receivable, investment tax credits receivable, accounts payable and accrued liabilities and promissory notes. 
 The carrying
values of cash and cash equivalents and short-term investments are recorded at fair value based on quoted prices in active markets (level 1 as defined in note 3(c)). The carrying values of accounts receivable, investment tax credits receivable and
accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term maturity of these financial instruments. 
  

 28 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 16. Net change in non-cash working capital items 

 

									
	 	  	Three months ended
March 31
2010	 	 	Three months ended
March 31 2009
(unaudited)	 
	 Accounts receivable
	  	$	304,063	  	 	$	(695,283	) 
	 Investment tax credits receivable
	  	 	—  	  	 	 	275,965	  
	 Inventory
	  	 	—  	  	 	 	174,524	  
	 Prepaid expenses and other assets
	  	 	43,702	  	 	 	36,525	  
	 Accounts payable and accrued liabilities
	  	 	(2,227,261	) 	 	 	86,495	  
	 Deferred revenue
	  	 	128,335	  	 	 	491,254	  
		  	 	 	 	 	 	 	 
		  	$	(1,751,161	) 	 	$	369,480	  
		  	 	 	 	 	 	 	 

  

													
	 	  	Year ended
December 31
2009	 	 	Year ended
December 31
2008	 	 	Year ended
December 31
2007	 
	 Accounts receivable
	  	$	(420,456	) 	 	$	2,310,444	  	 	$	(1,081,266	) 
	 Investment tax credits receivable
	  	 	124,321	  	 	 	(102,574	) 	 	 	(34,210	) 
	 Inventory
	  	 	174,524	  	 	 	38,495	  	 	 	(213,019	) 
	 Prepaid expenses and other assets
	  	 	(126,621	) 	 	 	91,367	  	 	 	(33,104	) 
	 Accounts payable and accrued liabilities
	  	 	1,180,215	  	 	 	923,691	  	 	 	(44,913	) 
	 Deferred revenue
	  	 	703,343	  	 	 	(4,596,557	) 	 	 	(174,782	) 
		  	 	 	 	 	 	 	 	 	 	 	 
		  	$	1,635,326	  	 	$	(1,335,134	) 	 	$	(1,716,071	) 
		  	 	 	 	 	 	 	 	 	 	 	 

 17. Supplementary information 

Accounts payable and accrued liabilities is comprised of the following: 

 

										
	 	  	March 31
2010	  	December 31
2009	  	December 31
2008
	 Trade accounts payable
	  	$	620,117	  	$	2,090,672	  	$	619,912
	 Research and development accruals
	  	 	1,040,302	  	 	1,246,053	  	 	485,145
	 Professional fee accruals
	  	 	372,415	  	 	548,551	  	 	551,972
	 Executive termination cost accrual
	  	 	392,010	  	 	608,550	  	 	1,484,757
	 Restructuring cost accruals
	  	 	40,181	  	 	40,283	  	 	235,393
	 Executive bonus accrual
	  	 	—  	  	 	—  	  	 	80,357
	 Deferred lease inducements
	  	 	457,946	  	 	495,229	  	 	283,334
	 Other accrued liabilities
	  	 	503,595	  	 	624,489	  	 	732,742
		  	 	 	  	 	 	  	 	 
		  	$	3,426,566	  	$	5,653,827	  	$	4,473,612
		  	 	 	  	 	 	  	 	 

 18. Subsequent event 

On May 10, 2010 the Company announced the expansion its research collaboration with Bristol-Myers Squibb Company (“Bristol-Myers
Squibb”). Under the new agreement, Bristol-Myers Squibb will use small interfering RNA (“siRNA”) molecules formulated by the Company in SNALP to silence target genes of interest.

  

 29 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 
Bristol-Myers Squibb will conduct the preclinical work to validate the function of certain genes and share the data with the Company. The Company can use the preclinical data to develop RNAi
therapeutic drugs against the therapeutic targets of interest. The Company received US$3,000,000 from Bristol-Myers Squibb concurrent with the signing of the agreement. The Company will be required to provide a pre-determined number of SNALP batches
over the four-year agreement. Bristol-Myers Squibb will have a first right to negotiate a licensing agreement on certain RNAi products developed by the Company that evolve from Bristol-Myers Squibb validated gene targets. 

19. Reconciliation of Generally Accepted Accounting Principles (“GAAP”) 

The Company prepares its consolidated financial statements in accordance with Canadian GAAP, which, as applied in these consolidated
financial statements, conform in all material respects to US GAAP, except as summarized below: 
 Reconciliation of
net loss and comprehensive loss 
 The application of US GAAP would have the following effects on the net loss and
comprehensive loss as reported: 
  

													
	 	  	Three months
ended March 31
2010	 	 	Year ended
December 31
2009	 	 	Year ended
December 31
2008	 
	 Net loss and comprehensive loss for the period, Canadian GAAP
	  	$	(4,417,428	) 	 	$	(9,764,907	) 	 	$	(14,260,924	) 
	 Adjustment for in–process research and development (note 19(a))
	  	 	253,937	  	 	 	1,015,750	  	 	 	(15,659,479	) 
		  	 	 	 	 	 	 	 	 	 	 	 
	 Net loss and comprehensive loss for the period, US GAAP
	  	$	(4,163,491	) 	 	$	(8,749,157	) 	 	$	(29,920,403	) 
		  	 	 	 	 	 	 	 	 	 	 	 
	 Basic and diluted loss per common share, US GAAP
	  	$	(0.08	) 	 	$	(0.17	) 	 	$	(0.74	) 
		  	 	 	 	 	 	 	 	 	 	 	 

 Reconciliation of significant balance sheet items 

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

Intangible assets 
  

													
				
	 	  	March 31
2010	 	 	December 31
2009	 	 	December 31
2008	 
	 Intangible assets, Canadian GAAP
	  	$	14,839,476	  	 	$	15,152,430	  	 	$	16,306,980	  
	 Adjustments for in–process research and development (note 19(a))
	  	 	(14,389,792	) 	 	 	(14,643,729	) 	 	 	(15,659,479	) 
		  	 	 	 	 	 	 	 	 	 	 	 
	 Intangible assets, US GAAP
	  	$	449,684	  	 	$	508,701	  	 	$	647,501	  
		  	 	 	 	 	 	 	 	 	 	 	 

  

 30 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 Deficit 

 

													
				
	 	  	March 31
2010	 	 	December 31
2009	 	 	December 31
2008	 
	 Deficit, Canadian GAAP
	  	$	(226,268,980	) 	 	$	(221,851,552	) 	 	$	(212,086,645	) 
	 Adjustment for in–process research and development (note 19(a))
	  	 	(14,389,792	) 	 	 	(14,643,729	) 	 	 	(15,659,479	) 
		  	 	 	 	 	 	 	 	 	 	 	 
	 Deficit, US GAAP
	  	$	(240,658,772	) 	 	$	(236,495,281	) 	 	$	(227,746,124	) 
		  	 	 	 	 	 	 	 	 	 	 	 

 (a) In-process research and development 

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

Intangible assets 

The Company expects annual amortization expense related to intangible assets to be approximately $1,276,000 for the next five fiscal
years. 
 Stock-based compensation 

The following information on the Company’s stock-based compensation is in addition to the disclosure provided under Canadian GAAP in
note 8(d). 
 Option Valuation Assumptions

The fair value of each option is estimated as at the date of grant using the Black-Scholes option pricing model. The weighted average
option pricing assumptions and the resultant fair values are provided in note 8(d). Assumptions about the Company’s expected stock-price volatility are based on the historical volatility of the Company’s publicly traded stock. Expected
life assumptions are based on the Company’s historical data. Assumptions on the dividend yield are based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. The risk-free interest rate
used for each grant is equal to the zero coupon rate for instruments with a similar expected life. The Company currently expects, based on an analysis of its historical forfeitures, that no options will be forfeited by senior employees and that
approximately 90% of its options issued to non-senior employees will actually vest, and based on a three year vesting period has applied an annual forfeiture rate of 3.3% to all unvested options held by non-senior employees as of March 31,
2010. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeitures are higher than estimated. 

At March 31, 2010, there remains $508,765 of unearned compensation expense related to unvested employee stock options to be
recognized as expense over a weighted-average period of approximately 10 months. 
  

 31 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 Stock option activity for the Company’s 1996 Stock Option Plan

 There were 4,183,466 options exercisable under the 1996 Stock Option Plan at March 31, 2010 (December 31,
2009—3,770,378; December 31, 2008—3,408,461). 
 The weighted average remaining contractual life of
exercisable options as at March 31, 2010 was 6.9 years. 
 The aggregate intrinsic value of options outstanding at
March 31, 2010 was $771,348, of which $521,696 related to exercisable options. The intrinsic value of options exercised in the three months ended March 31, 2010 was $307 (year ended December 31, 2009—$11,515; year ended
December 31, 2008—$25,550). The aggregate intrinsic value of options expected to vest as at March 31, 2010 was $229,932 (December 31, 2009—$197,827; December 31, 2008—$24,369). The weighted average fair value of
stock options expected to vest as at March 31, 2010 was $0.59 per share (December 31, 2009—$0.51; December 31, 2008—$0.66). 

The weighted average remaining contractual life for options expected to vest at March 31, 2010 was 9.2 years (December 31,
2009—8.9 years; December 31, 2008—9.7 years) and the weighted average exercise price for these options was $0.66 per share (December 31, 2009—$0.56; December 31, 2008—$0.72). 

Stock option activity for the Company’s Protiva Options 

On May 30, 2008, as a condition of the acquisition of Protiva (note 4), the Company reserved 1,752,294 common shares for the exercise
of 519,073 Protiva share options (“Protiva Options”). The Protiva Options have an exercise price of $0.30, are fully vested, expire at various dates from November 19, 2010 to March 1, 2018 and upon exercise each option will be
converted into approximately 3.3758 shares of the Company (the same ratio at which Protiva common shares were exchanged for Company common shares at completion of the acquisition of Protiva). To March 31, 2010, none of the Protiva Options had
been exercised, forfeited or cancelled. The Protiva Options are not part of the Company’s 1996 Stock Option Plan and the Company is not permitted to grant any further Protiva Options. 

The weighted average remaining contractual life of exercisable Protiva Options as at March 31, 2010 was 5.5 years. 

The aggregate intrinsic value of Protiva Options outstanding at March 31, 2010 was $1,421,343. 

Tax uncertainties 

The amount of liability for unrecognized tax benefits under US GAAP as at March 31, 2010, December 31, 2009 and
December 31, 2008 is $nil. 
 The Company recognizes interest and penalties related to income taxes in interest and other
income. To date, the Company has not incurred any significant interest and penalties. 
 Tekmira Pharmaceuticals Corporation and
its subsidiary, Protiva Biotherapeutics Inc., file income tax returns with the federal and provincial tax authorities within Canada. The Company’s other subsidiary, Protiva Biotherapeutics (USA), Inc., files income tax returns in the United
States. In general, the Corporation is subject to examination by taxing authorities for years after 2001. 
  

 32 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 (c) Recently adopted US accounting pronouncements 

Accounting for Collaborative Arrangements 

FASB requires participants in a collaborative arrangement to present the results of activities for which they act as the principal on a
gross basis and to report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative or a reasonable, rational, and consistently applied
accounting policy election. Significant disclosures of the collaborative agreements are also required. The requirements for accounting for collaborative arrangements are effective for annual periods beginning after December 15, 2008 and are to
be applied retrospectively for collaborative arrangements existing at December 15, 2008 as a change of accounting principle. The adoption of these requirements did not have an impact on the Company’s consolidated financial statements.

 Credit Accounting for Defensive Intangible Assets 

On January 1, 2009, the Company adopted FASB guidance on how to account for acquired intangible assets in situations in which an
entity does not intend to actively use the asset but intends to hold (lock up) the asset to prevent others from obtaining access to the asset (a defensive intangible asset), except for intangible assets that are used in research and development
activities. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements. 

Subsequent Events 

FASB provides general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued for fiscal years and interim periods ending after June 15, 2009. These standards did not have an impact on the Company’s consolidated financial statements. 

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly 
 On April 1, 2009, the Company adopted additional guidance for estimating fair value
when the volume and level of activity for the asset or liability have significantly decreased. The Company also adopted guidance on identifying circumstances that indicate a transaction is not orderly. The adoption of this guidance did not have an
impact on the Company’s consolidated financial statements. 
 The FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting
Principles 
 The FASB Accounting Standards
CodificationTM (“Codification”)
 is the source of authoritative US GAAP to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP
for SEC registrants. The Codification supersedes all then existing non-SEC accounting and reporting standards for interim and annual periods ending after September 15, 2009. All other nongrandfathered non-SEC accounting literature not included
in the Codification will become nonauthoritative. The Codification did not affect the Company’s consolidated financial statements as the Codification did not change US GAAP. 

 

 33 

 TEKMIRA PHARMACEUTICALS CORPORATION 

Notes to Consolidated financial statements—(Continued) 

(Expressed in Canadian dollars) 
  

 Business Combinations 

In December 2007, the FASB issued an accounting standard for business combinations. Under the new standard, an acquiring entity will be
required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. The standard applies prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements. 

(d) Recently issued US accounting pronouncements 

Multiple-Deliverable Revenue Arrangements 

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

 34Registrant's Management's Discussion and Analysis of Financial Condition

 Exhibit 4.7 

TEKMIRA PHARMACEUTICALS CORPORATION 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATIONS 

March 17, 2010 / This discussion and analysis should be read in conjunction with our audited consolidated financial
statements for the year ended December 31, 2009 and related notes that are prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). Unless the context otherwise requires, all references to
“Tekmira”, the “Company”, “we”, “us”, and “our” refer to Tekmira Pharmaceuticals Corporation, including all its subsidiaries. Additional information relating to Tekmira, including the Company’s
March 31, 2009 Annual Information Form is on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com. 

FORWARD-LOOKING STATEMENTS 
 This
discussion and analysis, contains forward-looking statements that are not based on historical fact, including without limitation statements containing the words “believes”, “may”, “plan”, “will”,
“estimate”, “continue”, “anticipates”, “intends”, “expects”, and similar expressions, including the negative of such expressions. These statements are only predictions. 

Forward-looking statements and information should be considered carefully. Undue reliance should not be placed on forward-looking statements and
information as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements and information involve numerous assumptions, known and unknown risks and
uncertainties, both general and specific, which contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements and information will not occur and may cause actual results or events to differ
materially from those anticipated in such forward-looking statements and information. 
 More particularly and without limitation, this
discussion and analysis contains forward-looking statements, assumptions and information concerning the Company’s potential, the potential of RNA interference (“RNAi”) therapeutics as a treatment for disease, pre-clinical results, our
product development plans, the number and timing of advancement of our products into clinical development, the plans of our collaborative partners and the impact of those collaborations on our product development activities and our financial
resources. These statements are based upon our product expertise, our assessment of our research and development capabilities and resources, our understanding of the regulatory approval process and the public statements of our collaborative
partners. There are circumstances and factors that may cause our assessments included in these forward-looking statements to materially change. Such circumstances and factors include the failure of RNAi therapies to become commercially viable, our
inability or a collaborative partner’s inability to develop commercially viable RNAi therapies, changes to the product development plans of our collaborative partners, clinical trials may not demonstrate safety and efficacy in humans and our
inability to formulate products to meet efficacy needs within an acceptable toxicity level. 
 Also included in this discussion and analysis is
an estimate of the length of time that our business will be funded by our anticipated financial resources (see Risks and uncertainties). This estimate is based upon our assessment of the time to complete our research and product development
activities, the announced programs of our collaborative partners, and estimates of the timing of payments to be received under contracts. There are circumstances and factors that may cause actual cash usage to be materially different from our
current estimate of the adequacy of our cash resources. Such circumstances and factors include the following: preclinical trials may not be completed, or clinical trials started, when anticipated; preclinical and clinical trials may be more costly
or take longer to complete than currently anticipated; preclinical or clinical trials may not generate results that warrant future development of the tested drug candidate; funding and milestone payments from our research and product development
partners may not be provided when required under our agreements with those partners; batches of drugs that we manufacture may fail to meet specifications resulting in delays and investigational and remanufacturing costs; decisions to in-license or
acquire additional products for 
  

 Page 1 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 
development; we may become subject to product liability or other legal claims for which we have made no accrual on our financial statements; the sufficiency of budgeted capital expenditures in
carrying out planned activities; and the availability and cost of labour and services. 
 A more complete discussion of the risks and
uncertainties facing Tekmira appears in our Annual Information Form dated March 31, 2009 available at www.sedar.com. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the
forward-looking statements or information contained herein to reflect future results, events or developments, except as required by law. 

OVERVIEW 
 Tekmira is a biopharmaceutical
company focused on advancing novel RNA interference therapeutics and providing its leading lipid nanoparticle delivery technology to pharmaceutical partners. 

Business combination with Protiva on May 30, 2008 

On May 30, 2008, we completed the acquisition of 100% of the outstanding shares of Protiva Biotherapeutics, Inc. (“Protiva”), a privately
owned Canadian company developing lipid nanoparticle delivery technology for small interfering RNA (“siRNA”) and combined our businesses. We believe the business combination gives us leading scientific capabilities and intellectual
property to develop RNAi therapeutics using our lipid nanoparticle delivery technology which we refer to as SNALP (Stable Nucleic Acid Lipid-Particles). 

The acquisition of Protiva was accounted for using the purchase method of accounting. Accordingly, the assets, liabilities, revenues and expenses of
Protiva are consolidated with those of the Company from May 30, 2008. 
 Further information on the acquisition of Protiva is provided in
the Company’s 2009 Consolidated Financial Statements. 
 Technology, product development and licensing agreements 

Our therapeutic product pipeline consists of products being developed internally with our research and development resources. We also support the
development of our partners’ products. Our focus is on advancing products that utilize our proprietary lipid nanoparticle technology, referred to as SNALP, for the delivery of siRNA. These products are intended to treat diseases through a
process known as RNA interference which prevents the production of proteins that are associated with various diseases. We have rights under Alnylam Pharmaceuticals, Inc.’s (“Alnylam”) fundamental RNAi intellectual property to develop
seven RNAi therapeutic products. 
 Our lead internal product candidates are 

 

	 	•	 	 apolipoprotein B (“ApoB”) SNALP, for the treatment of high cholesterol; and 

 

	 	•	 	 polo-like kinase 1 (“PLK1”) SNALP for the treatment of cancer. 

In the field of RNAi therapeutics, we have licensed our lipid nanoparticle delivery technology to Alnylam and Merck & Co., Inc. Alnylam has
granted non-exclusive access to some of our intellectual property to certain of its partners, including F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (together “Roche”), Regulus Therapeutics, Inc. (“Regulus”) (a joint
venture between Alnylam and Isis Pharmaceuticals, Inc.) and Takeda Pharmaceutical Company Limited. In addition, we have ongoing research relationships with Bristol-Myers Squibb Company, the US Army Medical Research Institute for Infectious Diseases
and the United States National Cancer Institute. Outside the RNAi field, we have legacy licensing agreements with Hana Biosciences, Inc. and Aradigm Corporation. 

 

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	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 ApoB SNALP 

On July 2, 2009 we announced that we had initiated a Phase 1 human clinical trial for ApoB SNALP. ApoB SNALP, our lead RNAi therapeutic product
candidate, is being developed as a treatment for patients with high levels of low-density lipoprotein (“LDL”) cholesterol, or “bad” cholesterol, who are not well served by current therapy. ApoB SNALP is designed to reduce the
production of apolipoprotein B 100 (“ApoB”), a protein produced in the liver that plays a central role in cholesterol metabolism. 

Our therapeutic approach is to target ApoB, a protein synthesized in the liver that is essential to the assembly and secretion of very low density
lipoprotein (“VLDL”), a precursor to LDL, both of which are required for the transport and metabolism of cholesterol. ApoB SNALP consists of small interfering RNA (“siRNA”), designed to silence ApoB, encapsulated in a SNALP
formulation. ApoB SNALP is delivered with high efficiency into the liver hepatocytes, the cells which produce ApoB, where the siRNA acts to silence the mRNA coding for ApoB protein resulting in a decrease in circulating VLDL and LDL. 

On January 7, 2010 we announced the completion of the Phase 1 ApoB SNALP clinical trial. We enrolled a total of 23 subjects in the trial. Of the 23
subjects enrolled, 17 subjects received a single dose of ApoB SNALP at one of seven different dosing levels and six subjects received a placebo. 

The primary endpoints of the ApoB SNALP Phase 1 clinical trial were measures of safety and tolerability. ApoB SNALP was well tolerated overall in this
study with no evidence of liver toxicity, which was the anticipated dose-limiting toxicity observed in preclinical studies. Of the two subjects treated at the highest dose level, one subject experienced flu-like symptoms consistent with stimulation
of the immune system caused by the ApoB siRNA payload. The other subject treated at the highest dose level experienced no side effects. Based on the potential for the immune stimulation to interfere with further dose escalation, we decided to
conclude the trial. 
 Building on extensive preclinical work and the data obtained in our first ApoB SNALP clinical trial,
we have now selected a second generation ApoB siRNA which we expect will enable us to resume clinical evaluation in the second half of 2010. The selection is based on experiments confirming the siRNA’s ability to inhibit the expression of ApoB
without stimulating the human immune system. The new ApoB SNALP will also use a second generation SNALP formulation, the result of improvements in SNALP formulation technology made since the first ApoB SNALP formulation was selected. We are
targeting the second half of 2010 to initiate a Phase
 1/2 clinical trial with our next generation ApoB
SNALP. 
 The therapeutic activity of ApoB SNALP has been demonstrated in several preclinical studies with both first and second
generation SNALP formulations. In one such study, rodents fed a high fat diet demonstrated a 50-100% increase in total cholesterol in the blood. A single ApoB SNALP treatment overcame diet-induced high cholesterol, returning blood cholesterol levels
to normal within 24 hours of treatment. The suppressive effects of a single ApoB SNALP dose lasted for several weeks in preclinical animal studies. 

PLK1 SNALP 
 Our second internal siRNA
product candidate, PLK1 SNALP, has been shown in preclinical animal studies to selectively kill cancer cells, while sparing normal cells in healthy tissue. PLK1 SNALP is targeted against PLK1 (polo-like kinase 1), a protein involved in tumor cell
proliferation and a validated oncology target. Inhibition of PLK1 prevents the tumor cell from completing cell division, resulting in cell cycle arrest and death of the cancer cell. 

Our preclinical studies have demonstrated that a single, systemic intravenous administration of PLK1 SNALP blocked PLK1 expression in liver tumors
causing extensive tumor cell death. After repeat dosing, this result translated into significant inhibition of tumor growth and prolonged survival without evidence of toxicities often associated with oncology drugs. The PLK1 SNALP anti-tumor
efficacy results were confirmed to be the result of silencing PLK1 via RNA interference. Furthermore certain SNALP formulations also provided potent anti-tumor efficacy in preclinical models of distal tumors outside the liver. 

 

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	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 We have initiated formal preclinical safety studies and expect to initiate a Phase 1 human clinical
trial in the second half of 2010 evaluating PLK1 SNALP as a treatment for cancer. 
 Alnylam collaboration and license 

On January 8, 2007, we entered into a licensing and collaboration agreement with Alnylam giving them an exclusive license to certain historical lipid
nanoparticle intellectual property owned by Tekmira for the discovery, development, and commercialization of RNAi therapeutics. This agreement only covered intellectual property owned before the business combination with Protiva. 

As a result of the business combination with Protiva on May 30, 2008 we acquired a Cross-License Agreement (“Alnylam Cross-License”)
between Protiva and Alnylam, dated August 14, 2007. The Cross-License grants Alnylam non-exclusive access to Protiva’s intellectual property and required Alnylam to fund a certain level of collaborative research for two years. The research
collaboration element of the Alnylam Cross-License expired on August 13, 2009. We are, however, continuing to make SNALP research batches for Alnylam under a manufacturing agreement which is discussed below. 

On August 21, 2007, under the Alnylam Cross-License, Alnylam made a payment of US$3.0 million that gives Alnylam the right to “opt-in” to
the Tekmira PLK1 SNALP project and contribute 50% of product development costs and share equally in any future product revenues. Alnylam has until the start of a Phase 2 clinical trial of the PLK1 SNALP project to exercise their opt-in right. If
Alnylam chooses to opt into the PLK1 SNALP project the US$3.0 million already paid will be credited towards Alnylam’s 50% share of project costs to date. 

We are eligible to receive from Alnylam up to US$16.0 million in milestones for each RNAi therapeutic advanced by Alnylam or its partners that utilizes
our intellectual property, and royalties on product sales. The impact of the Alnylam agreements, including contract manufacturing services, on our results of operations is covered further in the Revenue section of this discussion. 

The agreements with Alnylam grant us intellectual property rights to develop our own proprietary RNAi therapeutics. Alnylam has granted us a worldwide
license for the discovery, development and commercialization of RNAi products directed to seven gene targets (three exclusive and four non-exclusive licenses). Licenses for two targets, ApoB and PLK1, have already been granted on a non-exclusive
basis. Under the RNAi licenses granted to us, we may select five additional gene targets to develop RNAi therapeutic products, provided that the targets are not part of an ongoing or planned development program of Alnylam. In consideration for this
license, we have agreed to pay royalties to Alnylam on product sales and have milestone obligations of up to US$8.5 million on each of the four non-exclusive licenses (with the exception of PLK1 SNALP if Alnylam opts–in to the development
program) and no milestone obligations on the three exclusive licenses. 
 On April 3, 2009 Alnylam announced that they had initiated a
Phase 1 human clinical trial for a product candidate that utilizes our SNALP technology. The Alnylam product candidate, ALN-VSP, is being developed as a treatment for liver cancer and other solid tumors with liver involvement. ALN-VSP comprises
siRNA molecules delivered systemically using our SNALP technology. We are responsible for manufacturing the ALN-VSP drug product. The initiation of the ALN-VSP Phase 1 clinical trial triggered a milestone payment of $0.6 million (US$0.5 million)
which we received in May 2009. 
 In August 2009 Alnylam announced ALN-TTR as their next siRNA product candidate for human clinical trials.
Alnylam will be advancing two ALN-TTR formulations, ALN-TTR01 and ALN-TTR02. Both formulations are RNAi therapeutics targeting transthyretin (“TTR”) for the treatment of TTR amyloidosis,

  

 Page 4 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 
a systemic disease caused by mutations in the TTR gene. ALN-TTR01 and ALN-TTR02 utilize our SNALP technology and will be manufactured by us. Alnylam expects to initiate a clinical trial for
ALN-TTR01 in the first half of 2010. 
 Under a manufacturing agreement (the “Alnylam Manufacturing Agreement”) dated January 2,
2009, we continue to be the exclusive manufacturer of any products required by Alnylam through to the end of Phase 2 clinical trials that utilize our technology. Alnylam will pay for the provision of staff and for external costs incurred. Under the
Alnylam Manufacturing Agreement there is a contractual minimum of $11.2 million payable by Alnylam for the three years from 2009 to 2011 for the provision of our staff. 

Roche product development and research agreements 

On May 30, 2008, we signed an initial research agreement with Roche. This initial research agreement expired at the end of 2008 and was replaced by a
research agreement (the “Roche Research Agreement”) dated February 11, 2009. We have now completed all of the work under the Roche Research Agreement. 

On May 11, 2009 we announced a product development agreement with Roche (the “Roche Product Development Agreement”) that provides for
product development up to the filing of an Investigation New Drug application (an “IND”) by Roche. The product development activities under this agreement expand the activities that were formerly covered by the Roche Research Agreement.
Under the Roche Product Development Agreement, Roche will pay up to US$8.8 million for us to support the advancement of each Roche RNAi product candidate using our SNALP technology through to the filing of an IND application. We are also eligible to
receive up to US$16.0 million in milestones plus royalties on product sales for each product advanced through development and commercialization based on Roche’s access to our intellectual property through Alnylam. 

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

Under the Roche Product Development Agreement Roche will pay for the provision of our staff and for external costs incurred. We are recognizing revenue
from this agreement in proportion to the services provided up to the reporting date by comparing actual hours spent to estimated total hours for each product under the contract. Revenue from external costs incurred on Roche product candidates will
be recorded in the period that Roche is invoiced for those costs. 
 At December 31, 2009 there was one systemic RNAi product in
development under the Roche Product Development Agreement. Roche expects to file an IND application for this product in 2010. Under the agreement, Roche may select a second product for development. 

Merck & Co., Inc. (“Merck”) license agreement 

As a result of the business combination with Protiva we acquired a non-exclusive royalty-bearing worldwide license agreement with Merck. Under the
license, Merck will pay up to US$17.0 million in milestones for each product they develop covered by Protiva’s intellectual property, except for the first product for which Merck will pay up to US$15.0 million in milestones, and will pay
royalties on product sales. Merck has also granted a license to the Company to certain of its patents. The license agreement with Merck was entered into as part of the settlement of litigation between Protiva and a Merck subsidiary. 

 

 Page 5 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 Bristol-Myers Squibb Company (“Bristol-Myers Squibb”) research agreement 

We have an ongoing research collaboration agreement with Bristol-Myers Squibb to utilize SNALP technology for target validation. 

US Army Medical Research Institute for Infectious Diseases (“USAMRIID”) research agreement 

In 2005, Protiva and the USAMRIID signed a five-year research agreement to collaborate on the development of siRNA-based therapy against filovirus
infections, including Ebola, using SNALP. The grant under this collaboration was recently extended to March 31, 2011. Grants received from the USAMRIID are netted against research and development expenses when the grant is earned. 

Takeda Pharmaceutical Company Limited (“Takeda”) research agreement 

We have an ongoing research agreement with Takeda signed on December 26, 2008. 

Takeda has, through Alnylam, a non-exclusive sublicense to our intellectual property. Under our agreements with Alnylam we are eligible to receive up to
US$16.0 million in milestones plus additional royalties on each Takeda product that uses our technology. 
 Hana Biosciences, Inc.
(“Hana”) license agreement 
 Hana is developing targeted chemotherapy products under a legacy license
agreement entered into in May 2006. Marqibo® (Optisomal Vincristine), AlocrestTM (formerly INX-0125, Optisomal
Vinorelbine) and BrakivaTM (formerly INX-0076, Optisomal Topotecan), products originally developed by us, have been exclusively licensed to Hana. Hana has agreed to pay us milestones and royalties and is responsible for all future development and
future expenses. On May 27, 2009, the license agreement with Hana was amended to decrease the size of near-term milestone payments and increase the size of long-term milestone payments. If received, certain of these contingent payments from
Hana will be transferred to certain contingent creditors as covered further in the Off-Balance Sheet Arrangements – Debt retirement section of this discussion. 

Aradigm Corporation (“Aradigm”) license agreement 

On December 8, 2004, we entered into a licensing agreement with Aradigm under which Aradigm exclusively licensed certain of our liposomal
intellectual property. Under this agreement, we are entitled to milestone payments totaling US$4.75 million for each disease indication, to a maximum of two, pursued by Aradigm using our technology. In addition, we are entitled to royalties on any
product revenue. 
  

 Page 6 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 CRITICAL ACCOUNTING POLICIES AND ESTIMATES 

The significant accounting policies that we believe to be most critical in fully understanding and evaluating our financial results are revenue
recognition, valuation and amortization of intangible assets, goodwill valuation and stock-based compensation. These accounting principles require us to make certain estimates and assumptions. We believe that the estimates and assumptions upon which
we rely are reasonable, based upon information available to us at the time that these estimates and assumptions are made. Actual results may differ from our estimates. Areas where critical accounting estimates are made include revenue recognition,
the valuation and amortization of intangible assets, goodwill valuation and amounts recorded as stock-based compensation. Our critical accounting estimates affect our net loss calculation. 

Revenue Recognition / Our primary sources of revenue have been derived from research and development collaborations services, and licensing fees
comprised of initial fees and milestone payments. Payments received under collaborative research and development agreements, which are non-refundable, are recorded as revenue as services are performed and as the related expenditures are incurred
pursuant to the agreement, provided collectability is reasonably assured. Revenue earned under research and development manufacturing collaborations where we bear some or all of the risk of a product manufacture failure is recognized when the
purchaser accepts the product and there are no remaining rights of return. Revenue earned under research and development collaborations where we do not bear any risk of product manufacture failure is recognized in the period the work is performed.
Initial fees and milestone payments which require our ongoing involvement are deferred and amortized into income over the estimated period of our involvement as we fulfill our obligations under our agreements. Revenue earned under contractual
arrangements upon the occurrence of specified milestones is recognized as the milestones are achieved and collection is reasonably assured. 

Our revenue recognition policy is in accordance with the guidelines provided in Emerging Issues Committee (EIC) -141, Revenue Recognition,
Non-Refundable Fees and EIC-142, Revenue Arrangements with Multiple Deliverables.  
 The revenue that we recognize is a critical
accounting estimate because of the volume and nature of the revenues we receive. Some of the research and development collaboration and licensing agreements that we have entered into contain multiple revenue elements that are to be recognized for
accounting in accordance with our revenue recognition policy. We need to make estimates as to what period the services will be delivered with respect to up-front licensing fees and milestone payments received because these payments are deferred and
amortized into income over the estimated period of our ongoing involvement. The actual period of our ongoing involvement may differ from the estimated period determined at the time the payment is initially received and recorded as deferred revenue.
This may result in a different amount of revenue that should have been recorded in the period and a longer or shorter period of revenue amortization. When an estimated period changes we amortize the remaining deferred revenue over the estimated
remaining time to completion. The rate at which we recognize revenue from payments received for services to be provided under collaborative research and development agreements depends on our estimate of work completed to date and total work to be
provided. The actual total services provided to earn such payments may differ from our estimates. 
 Our revenue for 2009 was $14.4 million
(2008 - $11.7 million) and deferred revenue at December 31, 2009 was $1.2 million (December 31, 2008 - $0.5 million). 
 Valuation and
amortization of intangible assets / Our intangible assets are medical technology purchased or licensed from arm’s length third parties and computer software. The costs incurred in establishing and maintaining patents for intellectual
property developed internally are expensed in the period incurred. 
  

 Page 7 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 The costs of our purchased medical technology are amortized on a straight-line basis over the estimated
useful life of the technology. Factors considered in estimating the valuation and useful life of medical technology include: 
  

	 	•	 	 our expected use of the asset 

  

	 	•	 	 legal, regulatory and contractual provisions that may limit the useful life 

 

	 	•	 	 the effects of obsolescence, demand, competition and other economic factors 

 

	 	•	 	 the level of expenditures required to obtain the expected future cash flows from the medical technology 

We review the carrying value of our medical technology on an annual basis and when we undergo major changes in our business and if we determine that
successful development of products to which medical technology costs relate is not sufficiently viable, or that deferred medical technology costs exceed the recoverable value based on future potential undiscounted cash flows, such costs are written
down to fair value. 
 The valuation of medical technology is a critical accounting estimate because of the long-term nature of and risks and
uncertainties related to the development of our medical technology. Significant judgment is exercised and assumptions are made when determining whether the carrying value of the medical technology may or may not be recoverable based on future
potential undiscounted cash flows. Any significant changes to our assessment could possibly result in an impairment loss being charged against our medical technology. Also, the determination of the fair value of technology is highly dependent on
estimated future cash flows that are subject to significant uncertainty. 
 The $16.3 million valuation of medical technology acquired through
the business combination with Protiva is covered further in the Company’s 2009 Consolidated Financial Statements. We have estimated that the life of the medical technology acquired from Protiva is 16 years. This estimate is based, amongst other
things, on the remaining patent lives underlying the Protiva medical technology. The down-turn in financial markets led us to carry out an impairment test on the Protiva medical technology in the third quarter of 2008 and we determined that the
undiscounted future cash-flows exceeded the carrying value of intangible assets thereby requiring no impairment. We carried out our annual intangible assets impairment indicators test in the third quarter of 2009 and did not find any changes in our
intangible asset valuation assumptions to suggest any impairment in value. 
 Goodwill valuation / We account for acquired businesses
using the purchase method of accounting which requires that the assets acquired and liabilities assumed be recorded at date of acquisition at their respective fair values. The application of the purchase method requires certain estimates and
assumptions, especially concerning the determination of the fair values of the acquired intangible assets and goodwill. The judgments made in the context of the purchase price allocation can materially impact our financial position and results of
operations. 
 Goodwill is not amortized but is tested for possible impairment at least annually and whenever changes in circumstances occur
that would indicate an impairment in the value of goodwill. When the carrying value of goodwill exceeds the fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess. Circumstances that could trigger an impairment
include adverse changes in legal or regulatory matters or the business climate, technological advances, decreases in anticipated demand for the technology, unanticipated competition and other market conditions. 

The $3.9 million excess of the purchase price for Protiva over the estimated fair values of the net assets acquired was recorded as goodwill. Various
factors contributed to the establishment of goodwill, including: the value of Protiva’s highly skilled and knowledgeable work force as of the acquisition date; the expected revenue growth over time that is attributable to new and expanded
collaborative partnerships; and the synergies expected to result from combining workforces and infrastructures. 
  

 Page 8 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 The down-turn in financial markets led us to carry out a goodwill impairment test as at
September 30, 2008. Based on Tekmira’s market capitalization as at September 30, 2008 we determined that the fair value of goodwill arising from the acquisition of Protiva was nil and an impairment loss of $3.9 million, the full value
of goodwill, was recorded in the Consolidated statement of operations and comprehensive (loss). 
 Stock-based compensation / The stock
based compensation that we record is a critical accounting estimate due to the value of compensation recorded, the volume of our stock option activity, and the many assumptions that are required to be made to calculate the compensation expense.

 Compensation expense is recorded for stock options issued to employees and directors using the fair value method. We must calculate the fair
value of stock options issued and amortize the fair value to stock compensation expense over the vesting period, and adjust the expense for stock option forfeitures and cancellations. We use the Black-Scholes model to calculate the fair value of
stock options issued which requires that certain assumptions, including the expected life of the option and expected volatility of the stock, be estimated at the time that the options are issued. This accounting estimate is reasonably likely to
change from period to period as further stock options are issued and adjustments are made for stock option forfeitures and cancellations. We account for the forfeitures of unvested options in the period in which the forfeitures occur. We amortize
the fair value using the straight-line method over the vesting period of the options, generally a period of three years for employees and immediate vesting for directors. 

The Black-Scholes model is not the only permitted model to calculate the fair value of stock options issued pursuant to Handbook Section 3870. A
different model, such as the binomial model, as well as any changes to the assumptions made may result in a different stock compensation expense calculation. 

We recorded stock compensation expense in 2009 of $0.3 million (2008 - $1.8 million). 

CHANGES IN ACCOUNTING POLICIES AND ADOPTION OF NEW STANDARDS 

Goodwill and intangible assets (CICA 3064) and financial statement concepts (CICA 1000) 

Effective January 1, 2009, CICA 3064, Goodwill and Intangible Assets replaced CICA 3062, Goodwill and Other Intangible Assets, and CICA
3450, Research and Development Costs. CICA 1000, Financial Statement Concepts was also amended to provide consistency with this new standard. The new section establishes standards for the recognition, measurement and disclosure of
goodwill and intangible assets. 
 The adoption of this standard did not have any impact on our net loss but did result in a reclassification of
computer software costs from property and equipment to intangible assets in the amount of $1.5 million as at December 31, 2008. 

RECENT ACCOUNTING PRONOUNCEMENTS 

Convergence with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”) 
 In February 2008, the Accounting Standards Board (“AcSB”) confirmed that Canadian GAAP for publicly
accountable enterprises will convert to IFRS effective in calendar year 2011, with early adoption allowed starting in calendar year 2009. IFRS use a conceptual framework similar to Canadian GAAP, but there are significant differences on recognition,
measurement and disclosures. In the period leading up to the changeover, the AcSB will continue to issue accounting standards that are converged 

 

 Page 9 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 
with IFRS, thus mitigating the impact of adopting IFRS at the changeover date. The IASB will also continue to issue new accounting standards during the conversion period and, as a result, the
final impact of IFRS on our consolidated financial statements will only be measured once all the IFRS applicable at the conversion date are known. 

We will be required to changeover to IFRS for interim and annual financial statements beginning on January 1, 2011. As a result, we are developing a
plan to convert our consolidated financial statements to IFRS. Individuals primarily responsible for the changeover have been identified and have begun training. The Company also held an IFRS information session with Audit Committee. During this
session management provided the Audit Committee with a review of the timeline for implementation and a preliminary analysis of major differences between IFRS and the Company’s current accounting policies. As a result of the information session,
the Audit Committee members are considering how they will gain the necessary financial expertise of IFRS. The Audit Committee will continue to receive ongoing presentations and project status updates from management. 

We have completed a preliminary analysis of the differences between IFRS and the Company’s accounting policies and of the various accounting
alternatives available at the changeover date. Through our preliminary analysis we expect our balance sheet and income statement to be impacted as at the time of conversion in the areas of stock-based compensation and provisions and contingent
liabilities. Based on our preliminary analysis we do not expect to need to make major changes to our internal controls over financial reporting, disclosure controls and procedures, business activities or our accounting and information technology
systems. A detailed analysis will be carried out mid-2010. Also, we continue to monitor changes that could result from the IASB’s ongoing new accounting standards projects. Changes in accounting policies are likely and may materially impact our
consolidated financial statements. 
 SELECTED FINANCIAL INFORMATION 

The following is selected financial information for our 2009, 2008 and 2007 fiscal years: 

 

													
	 (in millions of Cdn$ except per share date)
	  	2009	 	 	2008	 	 	2007	 
				
	 Total revenues
	  	$	14.4	  	 	$	11.7	  	 	$	15.8	  
	 Research and development expenses
	  	 	17.8	  	 	 	16.1	  	 	 	8.3	  
	 General and administrative expenses
	  	 	4.2	  	 	 	4.4	  	 	 	4.4	  
	 Termination and restructuring expenses
	  	 	—  	  	 	 	3.2	  	 	 	—  	  
	 Amortization of intangible assets
	  	 	1.3	  	 	 	0.8	  	 	 	0.1	  
	 Depreciation of property and equipment
	  	 	0.7	  	 	 	0.6	  	 	 	0.3	  
	 Other income and (losses)
	  	 	(0.3	) 	 	 	(0.9	) 	 	 	(5.2	) 
	 Total (loss)
	  	 	(9.8	) 	 	 	(14.3	) 	 	 	(2.6	) 
	 Basic and diluted (loss) per share
	  	 	(0.19	) 	 	 	(0.35	) 	 	 	(0.11	) 
	 Total assets
	  	 	43.9	  	 	 	51.5	  	 	 	24.6	  
	 Total liabilities
	  	 	6.8	  	 	 	4.9	  	 	 	6.4	  
	 Deficit
	  	 	(221.9	) 	 	 	(212.1	) 	 	 	(197.8	) 
	 Total shareholders’ equity
	  	$	37.1	  	 	$	46.6	  	 	$	18.2	  

  

 Page 10 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 The factors that have caused period to period variations in our revenues, expenses and loss per year
between 2009 and 2008 are explained in detail in Results of Operations. There were a number of factors contributing to changes in our results from 2007 to 2008 such as the inclusion of Protiva’s results from May 30, 2008, the date Protiva
was acquired, some additional expenses linked to the acquisition of Protiva and the impairment loss on goodwill. 
 The drop in revenue from
2007 to 2008 relates primarily to the amortization of a Hana up-front payment being complete at the end of 2007. 
 The increase in research and
development expenses from 2007 to 2008 is largely due to the inclusion of Protiva expenses from May 30, 2008, including ApoB SNALP and PLK1 SNALP project expenses and salary and infrastructure costs. The majority of the increase in research and
development external expenditures relate to our ApoB SNALP program, specifically preclinical toxicology costs and costs related to the purchase of materials for clinical trials. Stock based compensation for research and development staff was $1.3
million in 2008 as compared to $0.3 million in 2007 as our Board approved the accelerated vesting of all Tekmira stock options concurrent with the announcement of the business combination with Protiva. Intellectual property legal expenses increased
by $0.6 million over the prior year due to the expansion of our patent portfolio following the business combination with Protiva. 
 Total
general and administrative expenses remained unchanged from 2007 to 2008 but there were some changes in the make up of expenses. There were some expense increases in 2008 as a result of the business combination with Protiva and 2007 expenses
included some one time legal and professional fees related to Tekmira’s April 30, 2007 corporate reorganization. 
 Salary and
infrastructure costs increased as a result of the business combination with Protiva. Staff numbers initially increased by about 75% as a result of the business combination although there was a subsequent post-integration reorganization in October
2008. Our internal research and development staff numbers were 61 at December 31, 2008 (total staff 76) as compared to 39 (total staff 50) at December 31, 2007. 

Termination and restructuring expenses in 2008 resulted from the integration of Tekmira and Protiva’s operations. 

The amortization of intangible assets expense increased in 2008 due to the addition of $16.3 million in medical technology acquired through the business
combination with Protiva. 
 Depreciation charges increased from 2007 to 2008 with the addition of Protiva property and equipment on
May 30, 2008. 
 Other income and (losses) include non-operational items such as interest income and foreign exchange gains (losses). Other
income and (losses) in 2007 also include a loss of $5.2 million related to debt retirement. Other income and (losses) in 2008 also include a $3.9 million impairment loss on goodwill which is covered further in the Results of operations section of
this discussion. 
 The increase in total assets from 2007 to 2008 was primarily due to increasing cash and intangible assets as a result of the
business combination with Protiva. 
  

 Page 11 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 SUMMARY OF QUARTERLY RESULTS 

The following table presents our unaudited quarterly results of operations for each of our last eight quarters. This data has been derived from our
unaudited consolidated financial statements, which were prepared on the same basis as our annual audited financial statements and, in our opinion, include all adjustments necessary, consisting solely of normal recurring adjustments, for the fair
presentation of such information. 
 The quarterly results shown below include the results of Protiva from date of acquisition, May 30,
2008. 
 (in millions Cdn$ except per share data) 
  

																																	
	 	  	Q1
2008	 	 	Q2
2008	 	 	Q3
2008	 	 	Q4
2008	 	 	Q1
2009	 	 	Q2
2009	 	 	Q3
2009	 	 	Q4
2009	 
									
	 Revenue
	  	$	1.9	  	 	$	2.5	  	 	$	4.2	  	 	$	3.1	  	 	$	2.9	  	 	$	3.8	  	 	$	3.3	  	 	$	4.5	  
	 Net (loss)
	  	 	(0.4	) 	 	 	(4.8	) 	 	 	(6.0	) 	 	 	(3.1	) 	 	 	(2.1	) 	 	 	(2.3	) 	 	 	(2.8	) 	 	 	(2.6	) 
	 Basic and diluted net (loss) per share
	  	$	(0.02	) 	 	$	(0.14	) 	 	$	(0.12	) 	 	$	(0.07	) 	 	$	(0.04	) 	 	$	(0.04	) 	 	$	(0.05	) 	 	$	(0.05	) 

 Quarterly Trends / Our revenue is
derived from research and development collaborations, licensing fees and milestone payments. Over the past two years, our principal sources of revenue have been our Alnylam partnership entered into in March 2006 and more recently our Roche
partnership. Revenue from our Roche collaboration increased throughout 2009 to $2.3 million in the fourth quarter when we manufactured a number of batches of drug. We expect revenue to continue to fluctuate particularly due to the variability in
demand for our manufacturing services and timing of milestone receipts. 
 Net losses generally increased from the time of the business
combination with Protiva on May 30, 2008 as this resulted in the expansion of our drug development pipeline and related expenses. More particularly, net loss in Q2 2008 increased due to: 

 

	 	•	 	 Stock based compensation non-cash expense for research and development staff of $1.0 million which is unusually high and is a result of accelerated
vesting of all Tekmira stock options concurrent with the announcement of the business combination with Protiva; and 

  

	 	•	 	 The accrual of $2.0 million for payments due to our former CEO. 

Net loss in Q3 2008 includes a $3.9 million charge for the impairment of goodwill arising on the acquisition of Protiva and increased research and
development expenses related to our ApoB SNALP program. 
 Net loss in Q4 2008 includes $1.2 million in restructuring costs as we reduced our
workforce by 15 employees as part of the integration of the operations of Tekmira and Protiva. Q4 2008 also includes $1.3 million in foreign exchange gains largely due to the positive effect on our US denominated cash investments and accounts
receivable from the strengthening of the US dollar as compared to the Canadian dollar. 
 Net loss in Q1 2009 was less than the Q4 2008 loss as
our focus was on writing an IND application for our ApoB SNALP program. Net loss in Q2 2009 includes a bonus pay-out following the successful filing of our ApoB SNALP IND application and signing a product development agreement with Roche. Our
compensation philosophy is to pay discretionary bonuses as and when we achieve major corporate goals. 
 Net losses in Q3 and Q4 2009 include
increased spending on our ApoB SNALP and PLK1 SNALP programs. 
  

 Page 12 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 RESULTS OF OPERATIONS 

For the fiscal year ended December 31, 2009, our net loss was $9.8 million ($0.19 per common share, basic and fully diluted) as compared to a net
loss of $14.3 million ($0.35 per common share, basic and fully diluted) for 2008. 
 There are a number of factors contributing to changes in
our results including some one time 2008 expenses linked to the acquisition of Protiva and a loss due to the impairment of goodwill. 

Revenue / Revenue from research and development collaborations, licensing fees and milestone payments was $14.4 million in 2009 as compared to
$11.7 million in 2008. Looking at collaborations revenue, the expiration of our research collaboration with Alnylam in August 2009 has been offset by expansion of manufacturing services provided to Alnylam and the expansion of our collaboration with
Roche. Licensing fees and milestone payments revenue is lower in 2009 as compared to 2008 as up-front payments from Alnylam were fully amortized into revenue by the end of 2008 and the only 2009 receipt was an Alnylam milestone payment of $0.6
million. 
 Revenue is detailed in the following table: 
  

							
	 (in millions Cdn$)
	  	2009	  	2008
	 Research and development collaborations
	  			  		
	 Alnylam
	  	$	8.8	  	$	6.1
	 Roche
	  	 	4.8	  	 	0.1
	 Other RNAi collaborators
	  	 	0.2	  	 	0.3
	 Hana
	  	 	—  	  	 	0.1
		  	 	 	  	 	 
	 Total research and development collaborations
	  	 	13.8	  	 	6.6
	 Licensing fees and milestone payments from Alnylam
	  	 	0.6	  	 	5.1
		  	 	 	  	 	 
	 Total revenue
	  	$	14.4	  	$	11.7

 Alnylam revenue / Under an
agreement with Alnylam they were required to make collaborative research payments at a minimum rate of US$2.0 million per annum for the provision of our research staff. This agreement expired on August 13, 2009 and we no longer receive research
funding from Alnylam. We are, however, continuing to make SNALP research and clinical trial batches for Alnylam under the Alnylam Manufacturing Agreement. 

Under the Alnylam Manufacturing Agreement we are the exclusive manufacturer of any products required by Alnylam that utilize our technology through to
the end of Phase 2 clinical trials. Under the Alnylam Manufacturing Agreement there is a contractual minimum payment for the provision of staff in each of the three years from 2009 to 2011 and Alnylam is reimbursing us for any external costs
incurred. Revenue from external costs related to the Alnylam Manufacturing Agreement is being recorded in the period that Alnylam is invoiced for those costs except where we bear the risk of batch failure in which case revenue is recognized only
once Alnylam accepts the batch. The total payment for the provision of staff from 2009 to 2011 is a minimum of $11.2 million. We are recognizing revenue for the provision of staff under the Alnylam Manufacturing Agreement based on actual staff hours
provided. 
 We are eligible to receive up to US$16.0 million in milestones for each RNAi therapeutic advanced by Alnylam or its partners that
utilizes our intellectual property, and royalties on product sales. On April 3, 2009 Alnylam announced that they had initiated a Phase 1 human clinical trial for ALN-VSP, a product candidate that utilizes our SNALP technology. The initiation of
the ALN-VSP Phase 1 clinical trial triggered a milestone payment of $0.6 million (US$0.5 million) that we received and recorded as revenue in 2009. 
  

 Page 13 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 Roche revenue / Under the Roche Product Development Agreement dated May 2009 they are paying us
for the provision of staff and for certain external costs incurred. We are recognizing revenue from the Roche Product Development Agreement in proportion to the services provided up to the reporting date by comparing actual hours spent to estimated
total project hours. Revenue from external costs incurred under the Roche Product Development Agreement is recorded in the period that Roche is invoiced for those costs. The difference between service revenue recognized and cash received is being
recorded in the balance sheet as accrued or deferred revenue, as appropriate, and as at December 31, 2009 there was $0.8 million of deferred revenue in this respect. 

We earned $0.9 million (US$0.8 million) in research and development collaborations revenue during the first half of 2009 for work completed under a
separate Roche Research Agreement. 
 Under the Roche Product Development Agreement we are currently developing one product with Roche. Roche
may select a second product for development. 
 Other RNAi collaborators / We have active research agreements with a number of other RNAi
collaborators including Bristol-Myers Squibb and Takeda. 
 Expenses / Research, development and collaborations / Research and
development expenses increased to $17.8 million in 2009 as compared to $16.1 million in 2008 due, in part, to the following factors: 
  

	 	•	 	 As a result of the business combination with Protiva completed on May 30, 2008, the level and cost of our research and development activities
generally increased. 

  

	 	•	 	 With the business combination our intellectual property portfolio and related expenses expanded. 

 

	 	•	 	 Spending on our ApoB SNALP program was significantly higher in 2008 as compared to 2009. In 2008 we took ApoB SNALP through preclinical toxicology
studies and the manufacture of drug product for human clinical trials. In 2009 our ApoB SNALP program moved into Phase 1 of clinical trials. 

  

	 	•	 	 In 2009 PLK1 SNALP spending increased significantly over 2008 as we commenced preclinical toxicology studies and the manufacture of human clinical
trial drug product. 

  

	 	•	 	 Costs marked up and passed through to our collaborators were higher in 2009 as we supported a number of Alnylam products that utilize our SNALP
technology and in May 2009 our collaboration with Roche expanded into product development. 

  

	 	•	 	 Research and development wage expenses increased significantly following the business combination on May 30, 2008 and continued to be higher in
2009 as staffing levels were maintained to support our two lead internal programs and two major collaborative partners, Alnylam and Roche. However, research and development total compensation expenses in 2008 were unusually high as stock based
compensation was $0.3 million in 2009 as compared to $1.8 million in 2008. In 2008 our Board approved the accelerated vesting of all Tekmira stock options concurrent with the announcement of the business combination with Protiva.

 Our research, development and collaboration expenses and laboratory equipment costs are reported net of funding from
USAMRIID of $0.8 million in 2009 and $0.2 million in 2008. 
 Our research and development staff numbers have increased to 64 at
December 31, 2009 (total staff 78) as compared to 61 (total staff 76) at December 31, 2008. 
  

 Page 14 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 Research, development and collaborations expenses guidance for 2010 / Research and development
expenses are expected to increase in 2010 as we progress PLK1 SNALP and a new ApoB SNALP formulation into the clinic. Also, effective January 1, 2010, in line with our organizational structure, we will be classifying our information systems
department costs and related overheads as research and development expenses instead of their former classification of general and administrative expenses. 

General and administrative / General and administrative expenses decreased to $4.2 million in 2009 as compared to $4.4 million in 2008. General
and administrative expenses increased with the addition of Protiva expenses following the business combination on May 30, 2008. This increase in expenses fell off as the two businesses were integrated. 

General and administrative expenses guidance for 2010 / General and administrative expenses are expected to decrease in 2010 largely as a result
of the reclassification of information systems costs discussed above. 
 Termination and restructuring expenses / Termination and
restructuring expenses were $nil in 2009 and $3.2 million in 2008. In May 2008, as a condition of closing the business combination with Protiva, the employment contract of Tekmira’s Chief Executive Officer was terminated and an expense of $2.0
million was recorded. In October 2008, as part of the integration of the operations of Tekmira and Protiva, we completed a restructuring that resulted in a reduction in workforce of 15 employees and recorded an expense of $1.2 million. 

Amortization of intangible assets / Amortization of intangible assets expense was $1.3 million in 2009 as compared to $0.8 million in 2008. Of the
2009 amortization charge $1.0 million relates to the $16.3 million in medical technology acquired through the business combination with Protiva on May 30, 2008 that is being amortized over 16 years (2008 - $0.6 million). The balance of the
amortization on intangible assets relates to software. 
 Depreciation of property and equipment / Depreciation of property and equipment
was $0.7 million in 2009 as compared to $0.6 million in 2008. Our results from May 30, 2008 onwards include Protiva’s depreciation charges. Also, capital asset purchases and depreciation thereof has increased steadily in line with growth
in the manufacturing side of our business. 
 Other income (losses) / Interest income / Interest income was $0.2 million in 2009 as
compared to $0.9 million in 2008. Our average cash, cash equivalent and short-term investment balances were at similar levels in 2009 and 2008 but average interest rates were significantly lower in 2009 as compared to 2008. In the future, interest
income will continue to fluctuate in relation to cash balances and interest yields. 
 Impairment loss on goodwill / A down-turn in
financial markets led us to carry out a goodwill impairment test as at September 30, 2008. Based on Tekmira’s market capitalization as at September 30, 2008 we determined that the fair value of goodwill arising from the acquisition of
Protiva was nil and an impairment loss of $3.9 million, the full value of goodwill, was recorded in the Consolidated statement of operations and comprehensive loss. See Critical accounting polices and estimates for further discussion of goodwill
valuation.  
 Foreign exchange gains (losses) / Foreign exchange gains (losses) showed losses of $0.4 million in 2009 as compared
to gains of $2.1 million in 2008. The foreign exchange gains in 2008 relate largely to the positive effect on our US denominated cash investments and accounts receivable from the strengthening of the US dollar as compared to the Canadian dollar.
Conversely, foreign exchange losses in 2009 relate to the weakening of the US dollar as compared to the Canadian dollar. 
  

 Page 15 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 Towards the end of 2008 we converted the majority of our US dollar cash and cash equivalent holdings
into Canadian dollars which reduced our exposure to foreign exchange rate fluctuations in 2009. We will continue to hold only working capital levels of US dollars. However, as a large portion of our revenues and expenses are in US dollars, exchange
rate fluctuations will continue to create gains or losses as we continue holding US denominated cash, cash investments, accounts receivable and accounts payable. 

LIQUIDITY AND CAPITAL RESOURCES 
 Since
our incorporation, we have financed our operations through the sales of shares, debt, revenues from research and development collaborations and licenses with corporate partners, interest income on funds available for investment, and government
grants and tax credits. 
 At December 31, 2009, we had cash, cash equivalents and short-term investments of approximately $24.4 million as
compared to $31.9 million at December 31, 2008. 
 Operating activities used cash of $5.5 million in 2009 as compared to cash used of $10.3
million in 2008. The $1.6 million increase in non-cash working capital for 2009 relates largely to an increase in accounts payable and accrued liabilities as there was a particularly high level of materials and contract purchases ongoing as at
December 31, 2009. Excluding changes in non-cash working capital, cash used in operating activities in 2009 was $7.1 million as compared to $9.0 million in 2008. Our loss in 2008 was $4.5 million higher than in 2009 but included a $3.9 million
non-cash impairment of goodwill charge. 
 Net cash provided by investing activities was $4.0 million in 2009 as compared to net cash provided
by investing activities of $3.9 million in 2008. Proceeds from short-term investments were $5.7 million in 2009 as we moved maturing short-term investments into a high interest savings account with a major Canadian bank. The high-interest savings
account is classified as “cash and cash equivalents” in our balance sheet. Property and equipment spending of $1.6 million in 2009 relates largely to facility improvements and manufacturing equipment. 

Net cash provided by financing activities was $0.01 million in 2009 as compared to $9.9 million 2008. The only financing activity in 2009 was from the
exercise of stock options. In 2008, concurrent with the business combination with Protiva on May 30, 2008, we completed a private placement investment of 2,083,333 newly issued common shares for $5.0 million with Alnylam and a private placement
investment of 2,083,333 newly issued common shares for $5.0 million with a Roche affiliate. 
 We believe that our current funds on hand plus
expected interest income and the contractually payable further funds from Alnylam, Roche and our other collaborators will be sufficient to continue our product development until mid-2011 (see Risks and uncertainties). 

Contractual obligations  
 Effective
July 29, 2009 we signed an amendment to our operating lease for our laboratory and office premises. The amended lease expires in July 2014 but we have the option to extend the lease to 2017 and then to 2022 and then to 2027. The amended lease
includes a signing incentive payment. In accordance with our accounting policy the signing incentive payment will be amortized on a straight-line basis over the term of the amended lease. 

 

 Page 16 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 Our minimum lease commitment, contracted sub-lease income and net commitment for lease and estimated
operating costs, are as follows: 
  

											
	 (in millions Cdn$)
	  	Lease
commitment	  	Sub-lease
income	 	 	Net
commitment
				
	 Year ended December 31, 2010
	  	$	1.4	  	$	(0.2	) 	 	$	1.2
	 Year ended December 31, 2011
	  	 	1.4	  	 	(0.2	) 	 	 	1.2
	 Year ended December 31, 2012
	  	 	1.4	  	 	(0.2	) 	 	 	1.2
	 Year ended December 31, 2013
	  	 	1.4	  	 	—  	  	 	 	1.4
	 Year ended December 31, 2014
	  	 	0.8	  	 	—  	  	 	 	0.8
		  	 	 	  	 	 	 	 	 	 
		  	$	6.4	  	$	(0.6	) 	 	$	5.8
		  	 	 	  	 	 	 	 	 	 

 We also have collaborative arrangements that require us to undertake
certain research and development work as further explained elsewhere in this discussion. 
 OFF-BALANCE SHEET ARRANGEMENTS 

Debt retirement / On June 20, 2006 we signed an agreement whereby we retired certain debt in exchange for contingent consideration including
certain future potential milestone and royalty payments from Hana. The contingent creditors have no recourse to any of Tekmira’s assets other than certain milestone and royalty payments that we receive from Hana. As off-setting contingent
assets and liabilities neither the potential milestones nor the contingent obligation are shown on our balance sheet. The balance of the contingent obligation related to the Hana milestones and royalties is not affected by the May 27, 2009
amendment to the license agreement with Hana (see Overview) and is US$22.8 million as at December 31, 2009 (December 31, 2008 – US$22.8 million). 

Protiva promissory notes / On March 25, 2008, Protiva declared dividends totaling US$12.0 million. The dividend was paid by Protiva issuing
promissory notes on May 23, 2008. Recourse against Protiva for payment of the promissory notes will be limited to Protiva’s receipt, if any, of up to US$12.0 million in payments from a third party. Protiva will pay these funds, if and when
it receives them, to the former Protiva shareholders in satisfaction of the promissory notes. As contingent obligations that would not need to be funded by the Company, the US$12.0 million receivable and the related promissory notes payable are not
included in our consolidated balance sheet. 
 RELATED PARTY TRANSACTIONS 

Research, development and collaborations expenses in 2009 include $0.04 million of contract research costs, measured at the cash amount and incurred in
the normal course of operations with Ricerca Biosciences, LLC (“Ricerca”) whose Chief Executive Officer, Mr. Ian Lennox, is also a director of the Company (2008 - $nil). We do not have any current contracts with Ricerca. 

OUTSTANDING SHARE DATA 
 As of
February 28, 2010, we had 51,643,605 common shares outstanding and we had outstanding options to purchase 5,172,240 common shares. 
  

 Page 17 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 RISKS AND UNCERTAINTIES 

Our risks and uncertainties are discussed in further detail in our Annual Information Form dated March 31, 2009 which can be found at www.sedar.com.

 Within the next several years, substantial additional funds will be required to continue with the active development of our pipeline products
and technologies. In particular, our funding needs may vary depending on a number of factors including: 
  

	 	•	 	 revenues earned from our collaborative partnerships, particularly Alnylam and Roche; 

 

	 	•	 	 our decisions to in-license or acquire additional products or technology for development, in particular for our RNAi therapeutics program;

  

	 	•	 	 the extent to which we continue the development of our product candidates or form collaborative relationships to advance our products;

  

	 	•	 	 our ability to attract and retain corporate partners, and their effectiveness in carrying out the development and ultimate commercialization of our
product candidates; 

  

	 	•	 	 whether batches of drugs that we manufacture fail to meet specifications resulting in delays and investigational and remanufacturing costs;

  

	 	•	 	 the decisions, and the timing of decisions, made by health regulatory agencies regarding our technology and products; 

 

	 	•	 	 competing technological and market developments; and 

  

	 	•	 	 prosecuting and enforcing our patent claims and other intellectual property rights. 

We will seek to obtain funding to maintain and advance our business from a variety of sources including public or private equity or debt financing,
collaborative arrangements with pharmaceutical companies and government grants. There can be no assurance that funding will be available at all or on acceptable terms to permit further development of our products especially in light of the current
economic downturn. In addition, we have not established bank financing arrangements and there can be no assurance that we will be able to establish such arrangements or that bank financing can be arranged on satisfactory terms. 

If adequate funding is not available, we may be required to delay, reduce or eliminate one or more of our research or development programs. We may need
to obtain funds through arrangements with collaborators or others that may require us to relinquish most or all of our rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise seek if we were
better funded. Insufficient financing may also mean failing to prosecute our patents or relinquishing rights to some of our technologies that we would otherwise develop or commercialize. 

In addition, we are exposed to market risk related to changes in interest and foreign currency exchange rates, each of which could adversely affect the
value of our assets and liabilities. We invest our cash reserves in a high interest savings account and in bankers’ acceptances with varying terms to maturity (not exceeding two years) issued by major Canadian banks, selected with regard to the
expected timing of expenditures for continuing operations and prevailing interest rates. Investments with a maturity greater than three months are classified in our Balance Sheet as held-for-trading short-term investments and are recorded at cost
plus accrued interest. The fair value of our cash investments as at December 31, 2009 is at least equal to the face value of those investments and the value reported in our Balance Sheet. Due to the relatively short-term nature of the
investments that we hold, we do not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates relative to our investment portfolio. We purchase goods and services in
both Canadian and US dollars and earn a significant portion of our revenues in US dollars. We manage our US dollar currency risk by using cash received from US dollar revenues to pay US dollar expenses and by limiting holdings of US dollar cash and
cash equivalent balances to working capital levels. We have not entered into any agreements or purchased any instruments to hedge possible currency risks at this time. 
  

 Page 18 of 19 

			
	Management’s Discussion and Analysis (continued)	 	Tekmira – 2009    

 
  

 CONTROLS AND PROCEDURES 

Our Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures for the year ending
December 31, 2009 and have concluded that our disclosure controls and procedures provide reasonable assurance that material information relating to the Company was made known to them and reported as required. 

Our Chief Executive Officer and the Chief Financial Officer are also responsible for the design and effectiveness of internal controls over financial
reporting within the Company in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. They have evaluated our
internal controls and procedures over financial reporting as of the end of the period covered by the annual filings and believe them to provide such reasonable assurance. They also concluded that there were no changes during 2009 that materially
affected the Company’s internal control over financial reporting and disclosure controls and procedures. 
  

 Page 19 of 19

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