UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2010

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from                      to

Commission file number: 001-33882

ONCOTHYREON INC.

Delaware (State or other jurisdiction of incorporation or organization)		26-0868560 (I.R.S. Employer Identification Number)

2601 Fourth Ave., Suite 500 Seattle, Washington (Address of principal executive offices)		98121 (Zip Code)

(206) 801-2100
Registrant’s telephone number, including area code

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

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No þ

     As of November 8, 2010 the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 30,056,196.

 

 

ONCOTHYREON INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2010

INDEX

		Page
Part I — Financial Information			1
Item 1. Financial Statements			1
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Operations			2
Condensed Consolidated Statements of Stockholders’ Equity			3
Condensed Consolidated Statements of Cash Flows			4
Notes to the Condensed Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures About Market Risk			24
Item 4. Controls and Procedures			25
Part II — Other Information			27
Item 1. Legal Proceedings			27
Item 1A. Risk Factors			27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 6. Exhibits			49
Signatures			50
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

     In this Quarterly Report on Form 10-Q, unless otherwise specified, all monetary amounts are in United States dollars, all references to “$” and “U.S. dollars” mean U.S. dollars and all references to “Cdn. $” mean Canadian dollars.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ONCOTHYREON INC.

Condensed Consolidated Balance Sheets
(in thousands, except share amounts)

		September 30,				December 31,
		2010				2009
		(Unaudited)
ASSETS
Current
Cash and cash equivalents		$	16,482			$	18,974
Short-term investments			16,923				14,244
Accounts receivable			62				41
Note receivable from employee			152				36
Prepaid expenses and other assets			698				233
Total current assets			34,317				33,528
Plant and equipment, net			1,988				2,076
Note receivable from employee			—				150
Long-term deposits			290				354
Goodwill			2,117				2,117
Total assets		$	38,712			$	38,225
LIABILITIES
Current
Accounts payable		$	666			$	600
Accrued liabilities			1,284				1,457
Current portion of deferred revenue			18				18
Total current liabilities			1,968				2,075
Notes payable			199				199
Deferred revenue			132				149
Deferred rent			365				295
Warrant liability			11,285				10,059
Class UA preferred stock, 12,500 shares authorized, issued and outstanding			30				30
Total liabilities			13,979				12,807
Contingencies, commitments, and guarantees (Note 9)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued or outstanding			—				—
Common stock, $0.0001 par value; 100,000,000 shares authorized, 30,056,196 and 25,753,405 shares issued and outstanding			353,727				345,836
Additional paid-in capital			17,173				16,285
Accumulated deficit			(341,101	)			(331,637	)
Accumulated other comprehensive loss			(5,066	)			(5,066	)
Total stockholder’s equity			24,733				25,418
Total liabilities and stockholder’s equity		$	38,712			$	38,225

See accompanying notes to the unaudited condensed consolidated financial statements.

ONCOTHYREON INC.

Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(Unaudited)

		Three Months								Nine Months
		Ended September 30,								Ended September 30
		2010				2009				2010				2009
Revenue
Licensing revenue from collaborative and licensing agreements		$	4			$	4			$	13			$	12
Licensing, royalties, and other revenue			—				—				—				27
Total revenue			4				4				13				39
Operating expenses
Research and development			2,589				1,320				7,876				3,995
General and administrative			1,639				1,377				6,279				4,873
Depreciation			117				67				350				199
Total operating expenses			4,345				2,764				14,505				9,067
Loss from operations			(4,341	)			(2,760	)			(14,492	)			(9,028	)
Other (income) loss
Investment and other, net			(48	)			(16	)			(100	)			17
Change in fair value of warrant liability			259				3,201				(4,728	)			5,703
Total other (income) loss			211				3,185				(4,828	)			5,720
Loss before income taxes			(4,552	)			(5,945	)			(9,664	)			(14,748	)
Income tax:
Current benefit			(200	)			—				(200	)			—
Net loss		$	(4,352	)		$	(5,945	)		$	(9,464	)		$	(14,748	)
Basic and diluted loss per share		$	(0.17	)		$	(0.24	)		$	(0.37	)		$	(0.68	)
Weighted average number of common shares outstanding			25,948,423				24,713,794				25,819,126				21,749,318

See accompanying notes to the unaudited condensed consolidated financial statements.

ONCOTHYREON INC.

Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
(Unaudited)

																		Accumulated
										Additional								Other
		Common Stock								Paid-in				Accumulated				Comprehensive
		Shares				Amount				Capital				Deficit				Loss
Balance at January 1, 2009			19,492,432			$	325,043			$	15,094			$	(314,418	)		$	(5,066	)
Stock-based compensation expense			—				—				1,266				—				—
Issuance of common stock			6,159,553				20,050				—				—				—
Warrant exercises			91,500				668				—				—				—
Net loss			—				—				—				(17,219	)			—
Conversion of restricted share units			9,920				75				(75	)			—				—
Balance at December 31, 2009			25,753,405			$	345,836			$	16,285			$	(331,637	)		$	(5,066	)
Stock-based compensation expense			—				—				888				—				—
Issuance of common stock			4,302,791				7,891				—				—				—
Net loss			—				—				—				(9,464	)			—
Balance at September 30, 2010			30,056,196			$	353,727			$	17,173			$	(341,101	)		$	(5,066	)

See accompanying notes to the unaudited condensed consolidated financial statements.

ONCOTHYREON INC.

Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

		Nine Months Ended
		September 30,
		2010				2009
Operating
Net loss		$	(9,464	)		$	(14,748	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			350				199
Commitment fee			200				—
Stock-based compensation expense			888				981
Recognition of unearned revenue			(17	)			(12	)
Deferred rent			70				83
Partial forgiveness of employee loan			35				—
Loss on disposal of plant and equipment			—				5
Change in fair value of warrant liability			(4,728	)			5,703
Net change in assets and liabilities:
Accounts receivable			(23	)			1,801
Government grant receivable			—				(116	)
Prepaid expenses and other assets			(465	)			103
Accounts payable			(21	)			(87	)
Accrued liabilities			(172	)			(1,840	)
Long-term deposits			64				—
Net cash used in operating activities			(13,283	)			(7,928	)
Investing
Purchase of short-term investments			(12,157	)			—
Redemption of short-term investments			9,478				—
Purchases of plant and equipment			(175	)			(462	)
Net cash used in investing activities			(2,854	)			(462	)
Financing
Proceeds on issuance of common stock and warrants, net			13,645				24,204
Net cash provided by financing activities			13,645				24,204
Increase (decrease) in cash and cash equivalents			(2,492	)			15,814
Cash and cash equivalents, beginning of period			18,974				19,166
Cash and cash equivalents, end of period		$	16,482			$	34,980

     See accompanying notes to the unaudited condensed consolidated financial statements.

ONCOTHYREON INC.

Notes to the Condensed Consolidated Financial Statements
Three and nine months ended September 30, 2010 and 2009
(Unaudited)

1. DESCRIPTION OF BUSINESS

     Oncothyreon Inc. (the “Company” or “Oncothyreon”) is a clinical-stage biopharmaceutical company incorporated in the State of Delaware on September 7, 2007. Oncothyreon is focused primarily on the development of therapeutic products for the treatment of cancer. Oncothyreon’s goal is to develop and commercialize novel synthetic vaccines and targeted small molecules that have the potential to improve the lives and outcomes of cancer patients. Oncothyreon’s operations are not subject to any seasonality or cyclicality factors.

2. BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial statements. The accounting principles and methods of computation adopted in these condensed consolidated financial statements are the same as those of the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, except as disclosed in Note 3 below.

     Omitted from these statements are certain information and note disclosures normally included in the audited consolidated financial statements prepared in accordance with U.S. GAAP. The Company believes all adjustments, consisting only of normal recurring items, necessary for a fair statement of the results for the periods presented have been made. The financial results for the three and nine months ended September 30, 2010 are not necessarily indicative of financial results for the full year. The condensed consolidated financial statements and notes presented should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2009 filed with the Company’s Annual Report on Form 10-K with the U.S. Securities and Exchange Commission (“SEC”).

3. RECENT ACCOUNTING PRONOUNCEMENTS

     In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update, (“ASU”) No. 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, to require a number of additional disclosures regarding fair value measurements. Effective January 1, 2010, ASU 2010-06 requires disclosure of the amounts of significant transfers of assets and liabilities between Level 1 and Level 2 fair value hierarchies and the reasons for such transfers, the reasons for any transfers in or out of the Level 3 fair value hierarchy, and disclosure of the policy for determining when transfers between hierarchy levels are recognized. ASU 2010-06 also clarified that disclosures should be provided for each class of assets and liabilities and clarified the requirement to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 measurements. Beginning January 1, 2011, ASU 2010-06 also requires that information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements be provided on a gross basis. The adoption of ASU 2010-06 only required additional disclosures and did not have an impact on the Company’s consolidated financial position or results of operations.

     There was no other new accounting pronouncement issued during the nine months ended September 30, 2010 whose adoption had, or is expected to have, a material impact on the Company’s financial position, operating results or disclosures.

4. FAIR VALUE MEASUREMENTS

     The Company measures at fair value certain financial assets and liabilities in accordance with a hierarchy which requires an entity to maximize the use of observable inputs which reflect market data obtained from independent sources and minimize the use of unobservable inputs which reflect the Company’s market assumptions when measuring fair value. There are three levels of inputs that may be used to measure fair value:

•

Level 1 — quoted prices in active markets for identical assets or liabilities;

•

Level 2 — observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•

Level 3 — unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

     The Company’s financial assets and liabilities measured at fair value consisted of the following as of September 30, 2010 and December 30, 2009 (in thousands):

		September 30, 2010														December 31, 2009
		Level 1		Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Money market funds (asset)		$—		$	—			$	—			$	—			$	8,039			$	—			$	—			$	8,039
Certificates of deposits (asset)		—			16,923				—				16,923				—				14,244				—				14,244
Warrants (liability)		—			—				11,285				11,285				—				—				10,059				10,059

     If quoted market prices in active markets for identical assets are not available to determine fair value, then the Company uses quoted prices from similar assets or inputs other than the quoted prices that are observable either directly or indirectly. These investments are included in Level 2 and consist of certificates of deposits denominated at or below $250,000 issued by banks insured by the Federal Deposit Insurance Corporation.

     There were no transfers between Levels 1 and 2 during the three and nine months ended September 30, 2010. The change in fair value of warrants in the amount of $0.3 million and $4.7 million, respectively, for the three and nine months ended September 30, 2010 classified in Level 3 is recognized in the condensed consolidated statements of operations.

     Level 3 fair values are based on the inputs and valuation technique used to measure fair value. A discussion of the valuation techniques and inputs to determine fair value of these instruments is included in Note 7.

5. EARNINGS PER SHARE

     The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Numerator:
Net loss (in thousands)		$	4,352			$	5,945			$	9,464			$	14,748
Denominator:
Weighted average shares outstanding used to compute earnings per share – basic			25,948,423				24,713,794				25,819,126				21,749,318
Effect of dilutive options and RSU’s			—				—				—				—
Weighted average shares outstanding and dilutive securities used to compute earnings per share – diluted			25,948,423				24,713,794				25,819,126				21,749,318

     Shares potentially issuable upon the exercise or conversion of the following securities outstanding as of the dates indicated below have been excluded from the calculation of diluted loss per share because their effect was anti-dilutive:

		As of September 30,
		2010				2009
Director and employee stock options			1,876,766				1,281,914
Non-employee director restricted share units			226,696				155,341
Warrants			7,156,665				3,930,418

6. EQUITY BASED TRANSACTIONS

  (a) Equity Line Financing

     On July 6, 2010, the Company entered into a common stock purchase agreement (“Purchase Agreement”) with Small Cap Biotech Value Fund, Ltd. (“SCBV”) providing for a committed equity line financing facility. The Purchase Agreement provides that, upon the terms and subject to the conditions in the Purchase Agreement, SCBV is committed to purchase up to $20.0 million of shares of the Company’s common stock over the 24-month term of the Purchase Agreement under certain specified conditions and limitations, provided that in no event may the Company sell under the Purchase Agreement more than 5,090,759 shares of common stock. Furthermore, in no event may SCBV purchase any shares of the Company’s common stock which, when aggregated with all other shares of common stock then beneficially owned by SCBV, would result in the beneficial ownership by SCBV of more than 9.9% of the then outstanding shares of the Company’s common stock. These maximum share and beneficial ownership limitations may not be waived by the parties.

     From time to time over the term of the Purchase Agreement, and in the Company’s sole discretion, the Company may present SCBV with draw down notices requiring SCBV to purchase a specified dollar amount of shares of the Company’s common stock, based on the price per share over 10 consecutive trading days (the “Draw Down Period”) with the total dollar amount of each draw down subject to certain agreed-upon limitations based on the market price of the Company’s common stock at the time of the draw down (which may not be waived or modified). In addition, in the Company’s sole discretion, but subject to certain limitations, the Company may require SCBV to purchase a percentage of the daily trading volume of the

Company’s common stock for each trading day during the Draw Down Period. The Company is allowed to present SCBV with up to 24 draw down notices during the term of the Purchase Agreement, with only one such draw down notice allowed per Draw Down Period and a minimum of five trading days required between each Draw Down Period.

     Before SCBV is obligated to purchase any shares of the Company’s common stock pursuant to a draw down notice, certain conditions specified in the Purchase Agreement, none of which are in SCBV’s control, must be satisfied. One such condition is that the registration statement registering the resale of any shares issued to SCBV pursuant to the Purchase Agreement (the “Registration Statement”) must be effective under the Securities Act of 1933, as amended. In connection with the execution of the Purchase Agreement, the Company entered into a registration rights agreement with SCBV, pursuant to which the Company agreed to use its commercially reasonable efforts to prepare and file the Registration Statement.

     Once presented with a draw down notice, SCBV is required to purchase a pro rata portion of the shares on each trading day during the trading period on which the daily volume weighted average price for the Company’s common stock exceeds a threshold price determined by the Company for such draw down. The per share purchase price for these shares equals the daily volume weighted average price of the Company’s common stock on each date during the Draw Down Period on which shares are purchased, less a discount ranging from 5.00% to 7.00% (which range may not be modified), based on a minimum price the Company specifies. If the daily volume weighted average price of the Company’s common stock falls below the threshold price on any trading day during a Draw Down Period, the Purchase Agreement provides that SCBV will not be required to purchase the pro-rata portion of shares of common stock allocated to that trading day. The obligations of SCBV under the Purchase Agreement to purchase shares of the Company’s common stock may not be transferred to any other party.

     If the Company issues a draw down notice and fails to deliver the shares to SCBV on the applicable settlement date, and such failure continues for 10 trading days, the Company agreed to pay SCBV, in addition to all other remedies available to SCBV under the Purchase Agreement, an amount in cash equal to 2.0% of the purchase price of such shares for each 30-day period the shares are not delivered, plus accrued interest.

     Reedland Capital Partners, an Institutional Division of Financial West Group, member FINRA/SIPC, served as the Company’s placement agent in connection with the financing arrangement contemplated by the Purchase Agreement. The Company agreed to pay Reedland, upon each sale of its common stock to SCBV under the Purchase Agreement, a fee equal to 1.0% of the aggregate dollar amount of common stock purchased by SCBV upon settlement of each such sale.

     In partial consideration for SCBV’s execution and delivery of the Purchase Agreement, the Company issued to SCBV upon the execution and delivery of the Purchase Agreement 59,921 shares of the Company’s common stock (the “Commitment Shares”), which is equal to the sum of $200,000 divided by the volume weighted average price of the Company’s common stock for each trading day during the 10 trading day period ending July 6, 2010. The average price per Commitment Share was approximately $3.34. The Company recorded the fair value of the Commitment Shares issued to SCBV as an expense during the three months ended September 30, 2010.

   (b) Equity Financings

     In May 2009, the Company closed the sale of 3,878,993 units, with each unit consisting of one share of Company common stock and a warrant to purchase 0.75 shares of common stock, at $2.85 per unit for gross proceeds of approximately $11.1 million. 2,909,244 shares of common stock underlay such warrants at the time of issuance; however, due to the adjustment provisions described in Note 7, an aggregate of

2,953,344 shares underlie such warrants as of September 30, 2010, giving effect to exercises of warrants. The exercise price of the warrants is $3.74 per share. The warrants are exercisable at any time prior to May 26, 2014. All of these warrants have been classified as liabilities as discussed in Note 7.

     In August 2009, the Company closed the sale of 2,280,502 units, with each unit consisting of one share of Company common stock and a warrant to purchase 0.30 shares of common stock, at $6.5775 per share for gross proceeds of approximately $15.0 million. The exercise price of the warrants is $6.5775 per share. The warrants are exercisable at any time prior to August 7, 2011.

     In September 2010, the Company closed the sale of 4,242,870 units, with each unit consisting of one share of Company common stock and a warrant to purchase 0.75 shares of common stock, at $3.50 per unit for proceeds of approximately $13.6 million, net of $1.2 million in issuance costs associated with the offering. 3,182,147 shares of common stock underlay such warrants at the time of issuance. The exercise price of the warrants is $4.24 per share. They are exercisable at any time on or after the six-month anniversary of the closing through and including the five year anniversary of the earlier of (i) the date on which the shares of common stock underlying the warrants may be freely resold pursuant to a resale registration statement and (ii) the date on which the shares of common stock underlying the warrants may be sold under Rule 144, promulgated under the Securities Act of 1933, as amended, without any restriction or limitation and without the requirement to be in compliance with Rule 144(c)(1). The warrants have been classified as liabilities as discussed in Note 7.

7. WARRANTS

     The warrants issued in May 2009 and September 2010 have been classified as a liability as opposed to equity, in accordance with ASC Topic 815, Derivatives and Hedging, due to potential cash settlement upon the occurrence of certain transactions specified in the warrant agreement related to the warrants and, in the case of the warrants issued in May 2009, certain adjustments that may be made to the terms of the warrants if the Company issues or sells shares below the exercise price. The September 2010 equity financing triggered such adjustment provisions and, as a result, the aggregate number of shares underlying such unexercised warrants increased 135,600 to 2,953,344 as of September 30, 2010 and the per share exercise price decreased from $3.92 to $3.74. Pursuant to the terms of the warrant agreement, the terms of the warrants issued in May 2009 will not be further adjusted for any future transactions.

     The estimated fair value of outstanding warrants is determined as of the balance sheet date and recorded in the consolidated balance sheet at each financial reporting period. The change in fair value of the warrants is recorded in the statement of operations as a gain (loss) and the fair value of the warrants is estimated using the Black-Scholes option-pricing model with the following inputs for the warrants issued in May 2009 and September 2010, respectively:

May 2009 Warrants

		September 30,
		2010				2009
Exercise price		$	3.74			$	3.92
Market value of stock at end of period		$	3.49			$	5.21
Expected dividend rate			0	%			0	%
Expected volatility			78	%			74	%
Risk-free interest rate			.8	%			2.2	%
Expected life in years			3.65				4.65
Shares underlying warrants outstanding classified as liabilities			2,953,344				2,909,244

September 2010 Warrants

		September 30,
		2010				2009
Exercise price		$	4.24				—
Market value of stock at end of period		$	3.49				—
Expected dividend rate			0	%			—
Expected volatility			68	%			—
Risk-free interest rate			1.3	%			—
Expected life in years			5.00				—
Shares underlying warrants outstanding classified as liabilities			3,182,147				—

     All warrants issued by the Company other than the warrants issued in May 2009 and September 2010 are classified as equity. Shares underlying warrants outstanding and classified as equity are 1,021,174 for the periods ended September 30, 2009 and 2010.

     The changes in fair value of warrant liability for the three-month period ended September 30, 2010 and 2009 was as follows (in thousands):

		2010				2009
Warrant liability as of July 1		$	5,072			$	6,720
Increase from September 28, 2010 warrants issued			5,954				—
Warrant liability as of September 30			11,285				9,921
Change in fair value for the three-months ended September 30		$	259			$	3,201

     The changes in fair value of the warrant liability for the nine-month period ended September 30, 2010 and 2009 was as follows (in thousands):

		2010				2009
Warrant liability as of January 1		$	10,059			$	4,218
Increase from September 28, 2010 warrants issued			5,954				—
Warrant liability as of September 30			11,285				9,921
Change in fair value for the nine-months ended September 30		$	(4,728	)		$	5,703

     A summary of changes to the outstanding warrants as of September 30, 2010 and changes during the nine-month period then ended is presented below.

		Outstanding
		Warrants as of
Balance, January 1, 2010			3,838,918
Warrants issued			3,317,747
Warrants exercised			—
Warrants expired			—
Balance, September 30, 2010			7,156,665

8. STOCK-BASED COMPENSATION

  Share Option Plan

     The Company sponsors a Share Option Plan under which a maximum fixed reloading percentage of 10% of the issued and outstanding common stock of the Company may be granted to employees, directors, and service providers. Historically, options granted under such plan generally began to vest after one year from the date of the grant, and vest in equal amounts over four years on the anniversary date of the grant, and expire eight years following the date of grant. As of September 30, 2010, the maximum number of shares of common stock reserved for issuance under the Share Option Plan was 3,005,619. As of September 30, 2010, 1,128,853 shares of common stock remained available for future grant under the Share Option Plan.

     The Company did not grant any options during the three months ended September 30, 2010, and granted 25,000 options to shares during the three months ended September 30, 2009. The Company granted options to purchase 42,500 and 203,000 shares during the nine months ended September 30, 2010 and 2009, respectively.

     The Company uses the Black-Scholes option pricing model to value the options at each grant date, using the following weighted average assumptions:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Weighted average grant-date fair value for stock options granted		$	—			$	4.93			$	2.80			$	1.38
Expected dividend rate			—				0	%			0	%			0	%
Expected volatility			—				89.97	%			90.61	%			97.57	%
Risk-free interest rate			—				2.84	%			2.60	%			2.34	%
Expected life of options in years			—				6				6				6

  Employee Stock Purchase Plan

     The Company adopted an Employee Stock Purchase Plan (“ESPP”) on June 3, 2010, pursuant to which a total of 900,000 shares of common stock were reserved for sale to employees of the Company. The ESPP is administered by the compensation committee of the board of directors and is open to all eligible employees of the Company. Under the terms of the ESPP, eligible employees may purchase shares of the Company’s common stock at six-month intervals during 18-month offering periods through their periodic payroll deductions, which may not exceed 15% of any employee’s compensation and may not exceed a value of $25,000 in any calendar year, at a price not less than the lesser of an amount equal to 85% of the fair market value of the Company’s common stock at the beginning of the offering period or an amount equal to 85% of the fair market value of the Company’s common stock on each purchase date. The maximum aggregate number of shares that may be purchased by each eligible employee during each offering period is 15,000 shares of the Company’s common stock.

     The Company uses the Black-Scholes options pricing model to estimate the fair value of share-based awards under the ESPP. Compensation cost for the awards is measured at fair value as of the grant date, and the Company uses a straight-line method to allocate compensation cost over the offering period. For the three and nine months ended September 30, 2010 expense related to this plan was $31,000.

  Restricted Share Unit Plan

     The Company also sponsors a Restricted Share Unit Plan (the “RSU Plan”) for non-employee directors, which was established in 2005. The RSU Plan provides for grants to be made from time to time by the board of directors or a committee thereof. Each grant is to be made in accordance with the RSU Plan and terms specific to that grant and will be converted into one share of common stock at the end of the grant period (not to exceed five years) without any further consideration payable to the Company in respect thereof. As of September 30, 2010, the maximum number of shares of common stock of the Company reserved for issuance pursuant to the RSU Plan was 466,666. As of September 30, 2010, 220,341 shares of common stock remain available for future grants of restricted share units under the RSU Plan.

     The Company did not grant any restricted share units during the three months ended September 30, 2010 and 2009. During the nine months ended September 30, 2010 and 2009, the Company granted 40,430 and 85,712, restricted share units with a fair value of $150,000 and $106,000, respectively.

     The fair value of the restricted share units has been determined to be the equivalent of the Company’s common shares closing trading price on the date of grant as quoted in NASDAQ Global Market.

9. CONTINGENCIES, COMMITMENTS, AND GUARANTEES

  Royalties

     In connection with the issuance of the Class UA preferred stock, the Company has agreed to pay a royalty in the amount of 3% of the net proceeds of sale of any products sold by the Company employing technology acquired in exchange for the shares. None of the Company’s products currently under development employ the technology acquired.

     Pursuant to various license agreements, the Company is obligated to make payments based both on the achievement of certain milestones and a percentage of revenues derived from the sublicensed technology and royalties on net sales.

  Guarantees

     The Company is contingently liable under a mutual undertaking of indemnification with Merck KGaA for any withholding tax liability that may arise from payments under the Company’s agreements with them.

     In the normal course of operations, the Company indemnifies counterparties in transactions such as purchase and sale contracts for assets or shares, service agreements, director/officer contracts and leasing transactions. These indemnification agreements may require the Company to compensate the counterparties for costs incurred as a result of various events, including environmental liabilities, changes in (or in the interpretation of) laws and regulations, or as a result of litigation claims or statutory sanctions that may be suffered by the counterparties as a consequence of the transaction. The terms of these indemnification agreements vary based upon the contract, the nature of which prevents the Company from making a reasonable estimate of the maximum potential amount that could be required to pay to counterparties. Historically, the Company has not made any significant payments under such indemnification agreements and no amounts have been accrued in the accompanying condensed consolidated financial statements with respect to these indemnification guarantees.

     Under the Agreement and Plan of Reorganization between Oncothyreon, Biomira Acquisition Corporation, ProlX and two of the principal stockholders of ProlX, the Company has indemnified the former ProlX stockholders against certain liabilities, including with respect to certain tax liabilities that may arise as a result of actions taken by the Company through 2011. The estimated maximum potential amount of future payments that could potentially result from hypothetical future claims is $15 million. The Company believes the risk of having to make any payments under this agreement to be remote and therefore no amounts have been recorded thereon.

10. FINANCIAL INSTRUMENTS

     Financial instruments consist of cash and cash equivalents, accounts receivable and notes receivable that will result in future cash receipts, as well as accounts payable and accrued liabilities, notes payable, Class UA preferred stock and warrants that require or may require future cash outlays.

  Foreign Exchange Risk

     Historically, the Company has purchased goods and services denominated primarily in U.S. and Canadian currencies and, to a lesser extent, in certain European currencies. Since the Company disposed of its Canadian operations in 2008, expenditures have been incurred primarily in U.S. dollars. The Company does not utilize derivative instruments.

     As of September 30, 2010, the Company had a minimal amount of Canadian dollar denominated cash and cash equivalents.

  Accounts Receivable, Government Grant Receivable and Accounts Payable and Accrued Liabilities

     The carrying amounts of accounts receivable, government grant receivable and accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these financial instruments.

  Notes Receivable

     The fair value of notes receivable are assumed to be equal to their carrying value as the interest rate charged approximates market.

  Notes Payable and Class UA Preferred Stock

     The fair values of notes payable and class UA preferred stock are assumed to be equal to their carrying value as the amounts that will be paid and the timing of the payments cannot be determined with any certainty.

  Limitations

     Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment; therefore, they cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

11. NOTES RECEIVABLE FROM EMPLOYEE

     Pursuant to the acquisition of ProlX in 2006, the Company advanced notes of $0.3 million to certain employees of ProlX and a former director of ProlX. The principal amount of the loans, together with interest accrued at the rate of 5.0% per annum to the date of payment, was due and payable on April 28, 2009. As of the year ended December 31, 2009, $0.1 million of principal was repaid and the original due dates for the remaining loans were extended to April 28, 2010 and to April 28, 2011. As of September 30, 2010, a balance of $0.2 million in principal remained outstanding. Interest income related to these loans for the three and nine month periods ended September 30, 2010, was $1,592 and $5,335, respectively, and was recorded in the consolidated statements of operations.

12. SUBSEQUENT EVENTS

     None

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The information in this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. These forward-looking statements include, but are not limited to, the following: our expectations regarding future expenses and our ability to effectively manage them; clinical and pre-clinical development activities, including our plans for the pre-clinical development of ONT-10 in 2010 and our decision to initiate one or more Phase 2 trials for PX-866 in 2010; our expectations regarding the timing and results of the Phase 3 trials for Stimuvax; the outcome of the suspension of the clinical trials of Stimuvax; our ability to secure collaboration arrangements with pharmaceutical companies to complete the development and commercialization of our product candidates; our ability to obtain suitable financing to support our operations, clinical trials and commercialization of our products; and the use and adequacy of cash resources. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this quarterly report in Part II, Item 1A – “Risk Factors,” and elsewhere in this quarterly report. These statements, like all statements in this quarterly report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments.

Overview

     We are a clinical-stage biopharmaceutical company focused primarily on the development of therapeutic products for the treatment of cancer. Our goal is to develop and commercialize novel synthetic vaccines and targeted small molecules that have the potential to improve the lives and outcomes of cancer patients. Our cancer vaccines are designed to stimulate the immune system to attack cancer cells, while our small molecule compounds are designed to inhibit the activity of specific cancer-related proteins. We are advancing our product candidates through in-house development efforts and strategic collaborations.

     We believe the quality and breadth of our product candidate pipeline, strategic collaborations and scientific team will enable us to become an integrated biopharmaceutical company with a diversified portfolio of novel, commercialized therapeutics for major diseases.

     Our lead product candidate is Stimuvax, which is a cancer vaccine currently in Phase 3 clinical trials for the treatment of non-small cell lung cancer, or NSCLC. We have granted an exclusive, worldwide license to Merck KGaA of Darmstadt, Germany, or Merck KGaA, for the development, manufacture and commercialization of Stimuvax. In March 2010, the U.S. Federal Drug Administration, or FDA, imposed a clinical hold on Stimuvax trials in NSCLC and breast cancer. In June 2010, the FDA lifted the clinical hold on the NSCLC clinical trials and Merck has resumed the worldwide clinical development program for Stimuvax in NSCLC. The clinical hold on the Stimuvax trial in breast cancer remains in effect and Merck KGaA has discontinued the Phase 3 trial in breast cancer. Our pipeline of clinical stage proprietary small molecule product candidates was acquired by us in October 2006 from ProlX Pharmaceuticals Corporation, or ProlX. We are currently focusing our internal development efforts on PX-866. We plan to initiate one or more Phase 2 trials in 2010 and on November 3, 2010 we enrolled the first patient in a Phase 1/2 trial of PX-866 in combination with the chemotherapeutic agent docetaxel. As of the date of this report, we have not licensed any rights to PX-866 to any third party and retain all development, commercialization and manufacturing rights. We are also conducting preclinical development of ONT-10 (formerly BGLP40), a cancer vaccine directed against a target similar to Stimuvax, and which is proprietary to us. In addition to our

product candidates, we have developed novel vaccine technology we may further develop ourselves and/or license to others.

     In May 2001, we entered into a collaborative arrangement with Merck KGaA to pursue joint global product research, clinical development and commercialization of Stimuvax. In December 2008, we entered into a license agreement with Merck KGaA which replaced our pre-existing agreements with them. Upon the execution of the 2008 license agreement, all of our future performance obligations related to the collaboration for the clinical development and development of the manufacture process of Stimuvax were removed and our continuing involvement in the development and manufacturing of Stimuvax ceased. Pursuant to the 2008 license agreement, we may receive cash payments of up to $90 million, which figure excludes the $2.0 million payment received in December 2009 and $19.8 million received prior to the execution of the 2008 license agreement. We are also entitled to receive royalties based on net sales of Stimuvax ranging from a percentage in the mid-teens to high single digits, depending on the territory in which the net sales occur. Royalty rates were reduced relative to prior agreements by a specified amount which we believe is consistent with our estimated costs of goods, manufacturing scale-up costs and certain other expenses assumed by Merck KGaA. In addition, pursuant to the terms of the 2008 license agreement we (1) agreed not to develop any product, other than ONT-10, that is competitive with Stimuvax and (2) granted to Merck KGaA a right of first negotiation in connection with any contemplated collaboration or license agreement with respect to the development or commercialization of ONT-10.

     For additional information regarding our relationship with Merck KGaA, see “Note 12—Collaborative and License Agreements” of the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009.

     We have not developed a therapeutic product to the commercial stage. As a result, with the exception of the unusual effects of the transaction with Merck KGaA in December 2008, our revenue has been limited to date, and we do not expect to recognize any material revenue for the foreseeable future. In particular, our ability to generate revenue in future periods will depend substantially on the progress of ongoing clinical trials for Stimuvax and our small molecule compounds, our ability to obtain development and commercialization partners for our small molecule compounds, Merck KGaA’s success in obtaining regulatory approval for Stimuvax, our success in obtaining regulatory approval for our small molecule compounds, and Merck KGaA’s and our respective abilities to establish commercial markets for these drugs.

     Any adverse clinical results relating to Stimuvax or any decision by Merck KGaA to discontinue its efforts to develop and commercialize the product would have a material and adverse effect on our future revenues and results of operations and would be expected to have a material adverse effect on the trading price of our common stock. Our small molecule compounds are much earlier in the development stage than Stimuvax, and we do not expect to realize any revenues associated with the commercialization of the compounds for the foreseeable future.

     The continued research and development of our product candidates will require significant additional expenditures, including preclinical studies, clinical trials, manufacturing costs and the expenses of seeking regulatory approval. We rely on third parties to conduct a portion of our preclinical studies, all of our clinical trials and all of the manufacturing of drug substance material for human clinical studies. We expect expenditures associated with these activities to increase in future years as we continue the development of our small molecule product candidates.

     With the exception of the year ended 2008, we have incurred substantial losses since our inception. As of September 30, 2010, our accumulated deficit totaled $341.1 million. We incurred a net loss of $9.5 million for the nine months ended September 30, 2010 compared to a net loss of $14.7 million for the same

period in 2009. In future periods, we expect to continue to incur substantial net losses as we expand our research and development activities with respect to our small molecules product candidates. To date we have funded our operations principally through the sale of our equity securities, cash received through our strategic alliance with Merck KGaA, government grants, debt financings, and equipment financings. We completed financings in May 2009, August 2009 and September 2010 in which we raised approximately $11.0 million, $15.0 million and, $14.9 million, respectively, in gross proceeds from the sale of our common stock and the issuance of warrants.

     On July 6, 2010, we secured a committed equity financing facility under which we may sell up to $20 million of our shares of common stock to Small Cap Biotech Value, Ltd. which we refer to as the investor, over a 24-month period. We are not obligated to use the facility and remain free to enter into and consummate other equity and debt financing transactions.

     We will determine, at our sole discretion, the timing, dollar amount and floor price per share for any draw under this facility, subject to certain limitations. When and if we elect to use the facility, the number and price of shares sold in each draw will be determined by a contractual formula and the investor will purchase shares at a pre-negotiated discount to the volume weighted average price of our common stock over a multi-day pricing period. The actual amount of funds that can be raised under this facility will be dependent on the number of shares actually sold under the agreement and the market value of our common stock during the pricing period of each sale. We may not issue more than 5,150,680 shares in connection with the facility (including the shares issued to the investor as consideration for its commitment to enter into the committed equity financing facility).

     As consideration for the investor’s commitment to purchase shares under the facility, we issued to the investor 59,921 shares of our common stock.

     Because we have limited revenues and substantial research and development and operating expenses, we expect that we will in the future seek additional working capital funding from the sale of equity or debt securities or the licensing of rights to our product candidates.

Key Financial Metrics

  Revenue

     Licensing Revenue from Collaborative and License Agreements. Revenue from collaborative and license agreements consists of (1) up-front cash payments for initial technology access or licensing fees and (2) contingent payments triggered by the occurrence of specified events or other contingencies derived from our collaborative and license agreements. Royalties from the commercial sale of products derived from our collaborative and license agreements are reported as licensing, royalties, and other revenue.

     If we have continuing obligations under a collaborative agreement and the deliverables within the collaboration cannot be separated into their own respective units of accounting, we utilize a multiple attribution model for revenue recognition as the revenue related to each deliverable within the arrangement should be recognized upon the culmination of the separate earnings processes and in such a manner that the accounting matches the economic substance of the deliverables included in the unit of accounting. As such, (1) up-front cash payments are recorded as deferred revenue and recognized as revenue ratably over the period of performance under the applicable agreement and (2) contingent payments are recorded as deferred revenue when all the criteria for revenue recognition are met and recognized as revenue ratably over the estimated period of our ongoing obligations. Royalties based on reported sales of licensed products, if any,

are recognized based on the terms of the applicable agreement when and if reported sales are reliably measurable and collectability is reasonably assured.

     Licensing, Royalties, and Other Revenue. Licensing, royalties, and other revenue consists of sales of compounds and processes from patented technologies to third parties and royalties received pursuant to collaborative agreements and license agreements. Royalties based on reported sales, if any, of licensed products are recognized based on the terms of the applicable agreement when and if reported sales are reliably measurable and collectability is reasonably assured.

     If we have no continuing obligations under a license agreement, or a license deliverable qualifies as a separate unit of accounting included in a collaborative arrangement, license payments that are allocated to the license deliverable are recognized as revenue upon commencement of the license term and contingent payments are recognized as revenue upon the occurrence of the events or contingencies provided for in such agreement, assuming collectability is reasonably assured.

  Expenses

     Research and Development. Research and development expense consists of costs associated with research activities as well as costs associated with our product development efforts, conducting preclinical studies, and sale of clinical trial material. These expenses include external research and development expenses incurred pursuant to agreements with third party manufacturing organizations; technology access and licensing fees related to the use of proprietary third party technologies; employee and consultant-related expenses, including salaries, stock-based compensation expense; third party supplier expenses and an allocation of facility costs.

     To date, we have recognized research and development expenses, including those paid to third parties, as they have been incurred.

     Our research and development programs are at an early stage and may not result in any approved products. Product candidates that appear promising at early stages of development may not reach the market for a variety of reasons. For example, Merck KGaA cancelled our collaboration relating to Theratope only after receiving Phase 3 clinical trial results. We had made substantial investments over several years in the development of Theratope and terminated all development activities following the cancellation of our collaboration. Similarly, any of our continuing product candidates may be found to be ineffective or cause harmful side effects during clinical trials, may take longer to complete clinical trials than we have anticipated, may fail to receive necessary regulatory approvals, and may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality. As part of our business strategy, we may enter into collaboration or license agreements with larger third party pharmaceutical companies to complete the development and commercialization of our small molecule or other product candidates, and it is unknown whether or on what terms we will be able to secure collaboration or license agreements for any candidate. In addition, it is difficult to provide the impact of collaboration or license agreements, if any, on the development of product candidates. Establishing product development relationships with large pharmaceutical companies may or may not accelerate the time to completion or reduce our costs with respect to the development and commercialization of any product candidate.

     As a result of these uncertainties and the other risks inherent in the drug development process, we cannot determine the duration and completion costs of current or future clinical stages of any of our product candidates. Similarly, we cannot determine when, if, or to what extent we may generate revenue from the commercialization and sale of any product candidate. The timeframe for development of any product candidate, associated development costs, and the probability of regulatory and commercial success vary

widely. As a result, we continually evaluate our product candidates and make determinations as to which programs to pursue and how much funding to direct to specific candidates. These determinations are typically made based on consideration of numerous factors, including our evaluation of scientific and clinical trial data and an ongoing assessment of the product candidate’s commercial prospects. We anticipate that we will continue to develop our portfolio of product candidates, which will increase our research and development expense in future periods. We do not expect any of our current candidates to be commercially available before 2013, if at all.

     General and Administrative. General and administrative expense consists principally of salaries, benefits, stock-based compensation expense, and related costs for personnel in our executive, finance, accounting, information technology, and human resource functions. Other general and administrative expenses include professional fees for legal, consulting, and accounting services and an allocation of our facility costs.

     Depreciation. Depreciation expense consists of depreciation of the cost of equipment such as scientific, office, manufacturing and computer equipment as well as depreciation of leasehold improvements.

     Investment and Other Income. Investment and other (income) expense consists of interest and other income on our cash and short-term investments and foreign exchange gains and losses. Our short term investments consist of certificates of deposit issued by U.S. banks and insured by the Federal Deposit Insurance Corporation.

     Change in Fair Value of Warrant Liability. Warrants issued in connection with our securities offerings in May of 2009 and September 2010 are classified as a liability due to their settlement and other terms and, as such, were recorded at their estimated fair value on the date of the closing of the transaction. The warrants are marked to market for each financial reporting period, with changes in fair value recorded as a gain or loss in our statement of operations. The fair value of the warrants is determined using the Black-Scholes option-pricing model, which requires the use of significant judgment and estimates for the inputs used in the model. For more information, see “Note 7—Warrants” of the unaudited condensed consolidated financial statements included elsewhere in report.

Critical Accounting Policies and Significant Judgments and Estimates

     We have prepared this Management’s Discussion and Analysis of Financial Condition and Results of Operations based on our condensed consolidated financial statements, which have been included elsewhere in this report and which have been prepared in accordance with generally accepted accounting principles in the United States. These accounting principles require us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the dates of our consolidated financial statements as well as the reported amounts of revenue and expense during the periods presented. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. For any given individual estimate or assumption we make, there may also be other estimates or assumptions that are reasonable. We believe that the estimates and judgments upon which we rely are reasonable based upon historical experience and information available to us at the time that we make these estimates and judgments. To the extent there are material differences between these estimates and actual results, our consolidated financial statements will be affected. Although we believe that our judgments and estimates are appropriate, actual results may differ from these estimates.

     Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission, or SEC, on

May 6, 2010. There have been no material changes in our critical accounting policies and judgments since that date.

Results of Operations for the Three and Nine Month Periods Ended September 30, 2010 and September 30, 2009

     The following table sets forth selected consolidated statements of operations data for each of the periods indicated.

  Overview

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(In millions, except per								(In millions, except per
		share amounts)								share amounts)
Expenses		$	4.3			$	2.8			$	14.5			$	9.1
Net loss		$	(4.4	)		$	(5.9	)		$	(9.5	)		$	(14.7	)
Basic and diluted loss per share		$	(0.17	)		$	(0.24	)		$	(0.37	)		$	(0.68	)

     As discussed in more detail below, the decrease in our net loss for the three and nine months ended September 30, 2010 compared to the prior year periods was primarily attributable to a decrease in expense related to the change in fair value of warrant liability partially offset by increases in research and development and general and administrative expenses.

  Research and Development

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(In millions)								(In millions)
Research and development		$	2.6			$	1.3			$	7.9			$	4.0

     Research and development expenses increased by $1.3 million, or 100%, for the three months ended September 30, 2010 compared to the prior year period, principally due to higher employee related expense of $0.3 million and costs for lab and development services of $0.5 million and a $0.4 million reduction of government grants. Such increases were partially offset by reductions in consulting services of $0.1 million. Employee-related costs have increased as a result of planned increases of headcount in clinical and development staff from 15 to 19 from September 30, 2009 to September 30, 2010.

     Research and development expenses increased by $3.9 million, or 98%, for the nine months ended September 30, 2010 compared to the prior year period, due to increases in employee related expense of $1.0 million, lab and preclinical development expenses of $1.4 million and manufacturing development expenses of $0.6 million and a $0.8 million reduction in government grants.

     The increase in costs for lab supplies and services was attributable to the higher headcount. Preclinical and manufacturing development expenses increased due to increased activity on ONT-10 and PX-866 compared to the prior year period. We expect our periodic research and development costs to remain at the current levels for the balance of the year.

  General and Administrative Expense

		Three Months Ended								Nine Months Ended
		September 30								September 30,
		2010				2009				2010				2009
		(In millions)								(In millions)
General and administrative		$	1.6			$	1.4			$	6.3			$	4.9

     The $0.2 million, or 14%, increase in general and administrative expense for the three month period ended September 30, 2010 relative to the comparable prior year period was attributable to insurance and other expenses of $0.1 million and legal fees and other costs associated with the execution of the equity line financing of $0.3 million. The increases were offset by lower facility related and other costs of $0.2 million.

     The $1.4 million, or 29%, increase in general and administrative expense for the nine month period ended September 30, 2010 relative to the comparable prior year period was attributable to higher professional fees incurred in the current year to respond to an SEC inquiry into our policy for accounting for our arrangement with Merck KGaA and for the tax monetization transaction of $1.6 million, director and officer fees partially due to the addition of a new director to our board of directors of $0.1 million, and increased directors and officer insurance and other expense of $0.3 million. Such increase was offset in part by decreases in employee-related costs of $0.5 million due to stock options that were fully vested in 2009 and lower facility related and other costs of $0.1 million.

     We expect our periodic general and administration expense to remain at current levels for the balance of the year.

  Change in Fair Value of Warrant Liability

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(In millions)								(In millions)
Change in fair value of warrant liability		$	0.3			$	3.2			$	(4.7	)		$	5.7

     The fair value of the warrant liability for the three and nine month periods ended September 30, 2010 increased $0.3 million and decreased $4.7 million relative to the warrant liability value as of June 30, 2010 and January 1, 2010, respectively. For the three months ending September 30, 2010 the increase was attributable principally to new warrants issued as a result of the warrant adjustment terms included in the May 2009 warrant agreements. For the nine months ending September 30, 2010, the decrease was attributable principally to the decrease in the price of our common stock.

Liquidity and Capital Resources

  Cash, Cash Equivalents, Short-term Investments and Working Capital

     As of September 30, 2010, our principal sources of liquidity consisted of cash and cash equivalents and short-term investments of $33.4 million. Our cash equivalents consist of certificates of deposits insured by the Federal Deposit Insurance Corporation with an initial maturity of less than 90 days. Our short-term investments are invested in certificates of deposit insured by the Federal Deposit Insurance Corporation with maturities not exceeding 12 months. Our primary source of cash has historically been proceeds from the issuance of equity securities, debt and equipment financings, and payments to us under licensing and

collaboration agreements. These proceeds have been used to fund our losses from operations. On September 28, 2010 we raised net proceeds of $13.6 million, net of $1.2 million in issuance costs, from the sale of 4,242,870 shares of our common stock and warrants to purchase 3,182,147 shares of our common stock.

     Our cash and cash equivalents and short-term investments were $33.4 million as of September 30, 2010 compared to $33.2 million as of December 31, 2009, an increase of $.2 million.

     As of September 30, 2010, our working capital (defined as current assets less current liabilities) was $32.3 million compared to $31.5 million as of December 31, 2009, an increase of $0.8 million, or 2.5%. The increase in working capital was primarily attributable to a $2.7 million increase in short-term investments and a $0.7 million net change of assets and liabilities. Such increase was offset in part by a $2.5 million decrease in cash and cash equivalents.

     On July 6, 2010, we secured a committed equity financing facility under which we may sell up to $20 million of shares of our common stock to Small Cap Biotech Value, Ltd., or SCBV, over a 24-month period. We are not obligated to use the facility and remain free to enter into and consummate other equity and debt financing transactions.

     We will determine, at our sole discretion, the timing, dollar amount and floor price per share for any draw under this facility, subject to certain limitations. When and if we elect to use the facility, the number and price of shares sold in each draw will be determined by a contractual formula and SCBV will purchase shares at a pre-negotiated discount to the volume weighted average price of our common stock over a multi-day pricing period. The actual amount of funds that can be raised under this facility will be dependent on the number of shares actually sold under the agreement and the market value of our common stock during the pricing period of each sale. We may not issue more than 5,150,680 shares in connection with the facility (including the shares issued to the investor as consideration for its commitment to enter into the committed equity financing facility.) Costs incurred to enter into this facility were expensed as incurred. During the three months ended September 30, 2010, we recognized $200,000 of expense representing the fair value of the 59,921 shares of common stock issued at a volume weighted average price of our common stock for each trading day during the 10 trading day period ending July 6, 2010 of approximately $3.34 per share.

     We believe that our currently available cash and cash equivalents, together with the equity line facility, will be sufficient to finance our operations for at least the next 12 months. Nevertheless, we expect that we will require additional capital from time to time in the future in order to continue the development of products in our pipeline and to expand our product portfolio. We would expect to seek additional financing from the sale and issuance of equity or debt securities, but we cannot predict that financing will be available when and as we need financing or that, if available, the financing terms will be commercially reasonable. If we are unable to raise additional financing when and if we require, it would have a material adverse effect on our business and results of operations. To the extent we issue additional equity securities, our existing shareholders could experience substantial dilution.

  Cash Flows Used In Operating Activities

     We used $13.3 million of cash in operating activities for the nine months ended September 30, 2010, an increase of $5.4 million compared to the prior year period. The increase in cash used in operations is directly attributable to the increased operating expenditures in research and development and general and administrative expenses.

  Cash Flows Used In Investing Activities

     Cash used in investing activities was approximately $2.9 million in the nine months ended September 30, 2010, compared to cash used in investing activities of $0.5 million for the nine months ended September 30, 2009. The increase in cash used for investing activities was attributable primarily to net purchases of short-term investments of $2.7 million in the nine months ended September 30, 2010.

  Cash Flows From Financing Activities

     Cash provided by financing activities for the nine months ended September 30, 2010 consisted of $13.6 million in proceeds, net of issuance costs of $1.2 million, pursuant to the sale of units in the September 2010 equity financing. For the nine months ended September 30, 2009, cash provided by financing activities consisted of net proceeds of $24.2 million received pursuant to the sale of units in our May 2009 and August 2009 equity financings.

Contractual Obligations and Contingencies

     In our operations, we have entered into long-term contractual arrangements from time to time for our facilities, debt financing, the provision of goods and services, and acquisition of technology access rights, among others. The following table presents contractual obligations arising from these arrangements as of September 30, 2010:

		Payments Due by Period
						Less than												More Than
		Total				1 Year				1-3 Years				3-5 Years				5 Years
										(In thousands)
Operating leases		$	4,745			$	440			$	1,130			$	1,194			$	1,981

     In May 2008, we entered into a sublease for an office and laboratory facility in Seattle, Washington totaling approximately 17,000 square feet where we have consolidated our operations. The sublease expires on December 17, 2011. The sublease provides for a monthly base rent of $33,324 increasing to $36,354 in 2011. In May 2008 we also entered into a lease directly with the landlord of the same facility which will have a six year term beginning at the expiration of the sublease. The lease provides for a monthly base rent of $47,715 increasing to $52,259 in 2018.

     In connection with the acquisition of ProlX, we may become obligated to issue additional shares of our common stock to the former stockholders of ProlX upon satisfaction of certain milestones. We may become obligated to issue shares of our common stock with a fair market value of $5.0 million (determined based on a weighted average trading price at the time of issuance) upon the initiation of the first Phase 3 clinical trial for a ProlX product. We may become obligated to issue shares of our common stock with a fair market value of $10.0 million (determined based on a weighted average trading price at the time of issuance) upon regulatory approval of a ProlX product in a major market.

     Under certain licensing arrangements for technologies incorporated into our product candidates, we are contractually committed to payment of ongoing licensing fees and royalties, as well as contingent payments when certain milestones as defined in the agreements have been achieved.

Guarantees and Indemnification

     In the ordinary course of our business, we have entered into agreements with our collaboration partners, vendors, and other persons and entities that include guarantees or indemnity provisions. For example, our agreements with Merck KGaA and the former stockholders of ProlX contain certain tax indemnification provisions, and we have entered into indemnification agreements with our officers and directors. Based on information known to us as of the date of this report, we believe that our exposure related to these guarantees and indemnification obligations is not material.

Off-Balance Sheet Arrangements

     During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for another contractually narrow or limited purpose.

Recent Accounting Pronouncements

     In January 2010, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Accounting Standards Codification, or ASC, Topic 820, Fair Value Measurements and Disclosures, to require a number of additional disclosures regarding fair value measurements. Effective January 1, 2010, ASU 2010-06 requires disclosure of the amounts of significant transfers between Level 1 and Level 2 and the reasons for such transfers, the reasons for any transfers in or out of Level 3, and disclosure of the policy for determining when transfers between levels are recognized. ASU 2010-06 also clarified that disclosures should be provided for each class of assets and liabilities and clarified the requirement to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 measurements. Beginning January 1, 2011, ASU 2010-06 also requires that information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements be provided on a gross basis. The adoption of ASU 2010-06 only required additional disclosures and did not have an impact on our consolidated financial position or results of operations.

     There was no other new accounting pronouncement issued during the first nine months of 2010 whose adoption had, or is expected to have, a material impact on our financial position, operating results or disclosures.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  Interest Rate Sensitivity

     We had cash and cash equivalents and short-term investments totaling $33.4 million and $33.2 million as of September 30, 2010 and December 31, 2009, respectively. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short term nature of our cash, cash equivalents and short-term investments. Declines in interest rates, however, would reduce future investment income. A 100 basis points decline in interest rates, occurring January 1, 2010 and sustained throughout the period ended September 30, 2010, would result in a decline in investment income of approximately $0.3 million for that same period.

Item 4. Controls and Procedures

  Evaluation of Disclosure Controls and Procedures

     Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness, as of September 30, 2010, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The purpose of this evaluation was to determine whether as of the evaluation date our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the Securities and Exchange Commission, or SEC, under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our chief executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, management has concluded that as of September 30, 2010, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in our internal controls described in our Annual Report on Form 10-K in the section captioned “Item 9A – Controls and Procedures – Management’s Report on Internal Control Over Financial Reporting” that remain present.

  Changes in Internal Control Over Financial Reporting

     There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than those described below.

     In response to the material weaknesses in our internal controls noted in our Annual Report on Form 10-K, on May 5, 2010, management presented a proposed remediation plan to our audit committee concerning our internal controls over financial reporting, and the audit committee adopted management’s remediation plan. We have begun implementing this plan by retaining a nationally recognized registered public accounting firm as a consultant to support and enhance our internal control over financial reporting and hiring staff to further support effective internal controls. Remediation of the material weaknesses will require management time and attention over the coming quarters and will result in additional incremental expenses, including increasing the size of our finance organization and fees associated with the consultant we have retained. Any failure on our part to remedy our identified weaknesses or any additional errors or delays in our financial reporting would have a material adverse effect on our business and results of operations and could have a substantial adverse impact on the trading price of our common stock.

     Subject to oversight by our board of directors, our chief financial officer will be responsible for implementing management’s internal control remediation plan, adopted by our audit committee and approved by our board of directors.

     Specifically, the remediation plan consists of the following modifications and improvements in our internal controls. We intend to retain outside consultants to assist us (i) to design and implement an adequate risk assessment process to identify future complex transactions requiring specialized knowledge to ensure the appropriate accounting for and disclosure of such transactions, and (ii) to identify and retain personnel with the appropriate technical expertise to assist us in accounting for complex transactions in accordance with U.S. GAAP. It is anticipated that the remediation plan, once implemented, will materially affect our internal control over financial reporting.

  Inherent Limitation on the Effectiveness of Internal Controls

     The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     We are not a party to any material legal proceedings with respect to us, our subsidiaries, or any of our material properties. From time to time, we may become involved in legal proceedings in the ordinary course of our business.

Item 1A. Risk Factors

     Set forth below and elsewhere in this report, and in other documents we file with the SEC are descriptions of risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Because of the following factors, as well as other variables affecting our operating results, past financial performance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods. The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also affect our results of operations and financial condition.

Risks Relating to our Business

Our near-term success is highly dependent on the success of our lead product candidate, Stimuvax, and we cannot be certain that it will be successfully developed or receive regulatory approval or be successfully commercialized.

     Until a recent suspension of clinical trials in March 2010, our lead product candidate, Stimuvax, was being evaluated in Phase 3 clinical trials for the treatment of non-small cell lung cancer, or NSCLC, and breast cancer. In March 2010, we announced that Merck KGaA had suspended the clinical development program for Stimuvax as the result of a suspected unexpected serious adverse event reaction in a patient with multiple myeloma participating in an exploratory clinical trial. In June 2010, we announced that the U.S. Federal Drug Administration, or FDA, lifted the clinical hold it had placed on the Phase 3 clinical trials in NSCLC. Merck KGaA has resumed the treatment and enrollment in these trials for Stimuvax in NSCLC. The clinical hold on the Stimuvax trial in breast cancer remains in effect and Merck KGaA has discontinued the Phase 3 trial in breast cancer. Stimuvax will require the successful completion of these trials and possibly other clinical trials before submission of a biologic license application, or BLA, or its foreign equivalent for approval. This process can take many years and require the expenditure of substantial resources. Pursuant to our agreement with Merck KGaA, Merck KGaA is responsible for the development and the regulatory approval process and any subsequent commercialization of Stimuvax. We cannot assure you that Merck KGaA will continue to advance the development and commercialization of Stimuvax as quickly as would be optimal for our stockholders. In addition, Merck KGaA has the right to terminate the 2008 license agreement upon 30 days’ prior written notice if, in its reasonable judgment, it determines there are issues concerning the safety or efficacy of Stimuvax that would materially and adversely affect Stimuvax’s medical, economic or competitive viability. Clinical trials involving the number of sites and patients required for FDA approval of Stimuvax may not be successfully completed. If these clinical trials fail to demonstrate that Stimuvax is safe and effective, it will not receive regulatory approval. Even if Stimuvax receives regulatory approval, it may never be successfully commercialized. If Stimuvax does not receive regulatory approval or is not successfully commercialized, or if Merck were to terminate the 2008 license Agreement, we may not be able to generate revenue, become profitable or continue our operations. Any failure of Stimuvax to receive regulatory approval or be successfully commercialized would have a material adverse effect on our business, operating results, and financial condition and could result in a substantial decline in the price of our common stock.

Stimuvax and our other vaccine product candidates are based on novel technologies, which may raise new regulatory issues that could delay or make FDA approval more difficult.

     The process of obtaining required FDA and other regulatory approvals, including foreign approvals, is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. Stimuvax and our other vaccine therapies are novel; therefore, regulatory agencies may lack experience with them, which may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of Stimuvax and our other active vaccine products under development.

     To date, the FDA has approved for commercial sale in the United States only one active vaccine designed to stimulate an immune response against cancer. Consequently, there is limited precedent for the successful development or commercialization of products based on our technologies in this area.

The suspension of Merck’s clinical development program for Stimuvax could severely harm our business.

     In March 2010, we announced that Merck KGaA suspended the clinical development program for Stimuvax as the result of a suspected unexpected serious adverse event reaction in a patient with multiple myeloma participating in an exploratory clinical trial. The suspension was a precautionary measure while an investigation of the cause of the adverse event was conducted, but it affected the Phase 3 clinical trials in NSCLC and in breast cancer. In June 2010, we announced that the FDA, lifted the clinical hold it had placed on the Phase 3 clinical trials in NSCLC. Merck KGaA has resumed the treatment and enrollment in these trials for Stimuvax in NSCLC. The clinical hold on the Stimuvax trial in breast cancer remains in effect and Merck KGaA has discontinued the Phase 3 trial in breast cancer.

     As of the date of this report, we can offer no assurances that this serious adverse event was not caused by Stimuvax or that there are not or will not be more such serious adverse events in the future. The occurrence of this serious adverse event, or other such serious adverse events, could result in a prolonged delay, including the need to enroll more patients or collect more data, or the termination of the clinical development program for Stimuvax. Another unexpected serious adverse event reaction could cause a similar suspension of clinical trials in the future. Any of these foregoing risks could materially and adversely affect our business, results of operations and the trading price of our common stock.

Our ability to continue with our planned operations is dependent on our success at raising additional capital sufficient to meet our obligations on a timely basis. If we fail to obtain additional financing when needed, we may be unable to complete the development, regulatory approval and commercialization of our product candidates.

     We have expended and continue to expend substantial funds in connection with our product development activities and clinical trials and regulatory approvals. Funds generated from our operations will be insufficient to enable us to bring all of our products currently under development to commercialization. Accordingly, we need to raise additional funds from the sale of our securities, partnering arrangements or other financing transactions in order to finance the commercialization of our product candidates. The current financing environment in the United States, particularly for biotechnology companies like us, remains challenging and we can provide no assurances as to when such environment will improve. For these reasons, among others, we cannot be certain that additional financing will be available when and as needed or, if available, that it will be available on acceptable terms. If financing is available, it may be on terms that adversely affect the interests of our existing stockholders or restrict our ability to conduct our operations. If adequate financing is not available, we may need to continue to reduce or eliminate our expenditures for

research and development, testing, production and marketing for some of our product candidates. Our actual capital requirements will depend on numerous factors, including:

	•		activities and arrangements related to the commercialization of our product candidates;
	•		the progress of our research and development programs;
	•		the progress of pre-clinical and clinical testing of our product candidates;
	•		the time and cost involved in obtaining regulatory approvals for our product candidates;
	•		the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights with respect to our intellectual property;
	•		the effect of competing technological and market developments;
	•		the effect of changes and developments in our existing licensing and other relationships; and
	•		the terms of any new collaborative, licensing and other arrangements that we may establish.

     We may not be able to secure sufficient financing on acceptable terms. If we cannot, we may need to delay, reduce or eliminate some or all of our research and development programs, any of which would be expected to have a material adverse effect on our business, operating results, and financial condition.

     Further, since we failed to timely file our Annual Report on Form 10-K for the year ended December 31, 2009, we are ineligible to utilize a registration statement on Form S-3 to raise capital and will continue to be ineligible to use such registration statement until at least May 7, 2011. Our inability to take advantage of the benefits afforded by Form S-3 will limit our financing alternatives and may significantly increase our cost of capital or the dilutive impact on the voting and economic interests of our existing stockholders, as transactions effected using a registration statement on Form S-3 are simpler and less costly to execute and may be perceived by potential investors as being more attractive than those effected in a different manner. If financing is available, the terms of such financing may place restrictions on us and adversely affect the trading price of our common stock and the interests of our existing stockholders.

We have a history of net losses, we anticipate additional losses and we may never become profitable.

     Other than the year ended December 31, 2008, we have incurred net losses in each fiscal year since we commenced our research activities in 1985. The net income we realized in 2008 was due entirely to our December 2008 transactions with Merck KGaA and we do not anticipate realizing net income again for the foreseeable future. As of September 30, 2010, our accumulated deficit was approximately $341.1 million. Our losses have resulted primarily from expenses incurred in research and development of our product candidates. We do not know when or if we will complete our product development efforts, receive regulatory approval for any of our product candidates, or successfully commercialize any approved products. As a result, it is difficult to predict the extent of any future losses or the time required to achieve profitability, if at all. Any failure of our products to complete successful clinical trials and obtain regulatory approval and any failure to become and remain profitable would adversely affect the price of our common stock and our ability to raise capital and continue operations.

There is no assurance that we will be granted regulatory approval for any of our product candidates.

     Merck KGaA has been testing our lead product candidate, Stimuvax, in Phase 3 clinical trials for the treatment of NSCLC. We are currently planning to initiate one or more Phase 2 trials in 2010 for PX-866. Our other product candidates remain in the pre-clinical testing stages. The results from pre-clinical testing and clinical trials that we have completed may not be predictive of results in future pre-clinical tests and clinical trials, and there can be no assurance that we will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals. A number of companies in the biotechnology and pharmaceutical industries, including our company, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. For example, the clinical trials for Stimuvax were suspended as a result of a suspected unexpected serious adverse event reaction in a patient. Although the clinical hold for trials in NSCLC has been lifted, it remains in effect for the trial in breast cancer and Merck KGaA has decided to discontinue the Phase 3 trial in breast cancer. Regulatory approval may not be obtained for any of our product candidates. If our product candidates are not shown to be safe and effective in clinical trials, the resulting delays in developing other product candidates and conducting related pre-clinical testing and clinical trials, as well as the potential need for additional financing, would have a material adverse effect on our business, financial condition and results of operations.

We are dependent upon Merck KGaA to develop and commercialize our lead product candidate, Stimuvax.

     Under our license agreement with Merck KGaA for our lead product candidate, Stimuvax, Merck KGaA is entirely responsible for the development, manufacture and worldwide commercialization of Stimuvax and the costs associated with such development, manufacture and commercialization. Any future payments, including royalties to us, will depend on the extent to which Merck KGaA advances Stimuvax through development and commercialization. Merck KGaA has the right to terminate the 2008 license agreement, upon 30 days’ written notice, if, in Merck KGaA’s reasonable judgment, Merck KGaA determines that there are issues concerning the safety or efficacy of Stimuvax which materially adversely affect Stimuvax’s medical, economic or competitive viability; provided that if we do not agree with such determination we have the right to cause the matter to be submitted to binding arbitration. Our ability to receive any significant revenue from Stimuvax is dependent on the efforts of Merck KGaA. If Merck KGaA fails to fulfill its obligations under the 2008 license agreement, we would need to obtain the capital necessary to fund the development and commercialization of Stimuvax or enter into alternative arrangements with a third party. We could also become involved in disputes with Merck KGaA, which could lead to delays in or termination of our development and commercialization of Stimuvax and time-consuming and expensive litigation or arbitration. If Merck KGaA terminates or breaches its agreement with us, or otherwise fails to complete its obligations in a timely manner, the chances of successfully developing or commercializing Stimuvax would be materially and adversely affected.

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

     We currently depend on third party manufacturers for the manufacture of our small molecule product candidates. Any disruption in production, inability of these third party manufacturers to produce adequate quantities to meet our needs or other impediments with respect to development or manufacturing could adversely affect our ability to continue our research and development activities or successfully complete pre-clinical studies and clinical trials, delay submissions of our regulatory applications or adversely affect our ability to commercialize our product candidates in a timely manner, or at all.

     Merck KGaA currently depends on a single manufacturer, Baxter International Inc., or Baxter, for the supply of our lead product candidate, Stimuvax, and on Corixa Corp. (now a part of GlaxoSmithKline plc, or

GSK) for the manufacture of the adjuvant in Stimuvax. If Stimuvax is not approved by 2015, Corixa/GSK may terminate its obligation to supply the adjuvant. In this case, we would retain the necessary licenses from Corixa/GSK required to have the adjuvant manufactured, but the transfer of the process to a third party would delay the development and commercialization of Stimuvax, which would materially harm our business.

     Similarly, we rely on a single manufacturer, Fermentek, LTD for the supply of Wortmannin, a key raw ingredient for PX-866. Without the timely support of Fermentek, LTD, our development program for PX-866 could suffer significant delays, require significantly higher spending or face cancellation.

     Our product candidates have not yet been manufactured on a commercial scale. In order to commercialize a product candidate, the third party manufacturer may need to increase its manufacturing capacity, which may require the manufacturer to fund capital improvements to support the scale up of manufacturing and related activities. With respect to our small molecule product candidates, we may be required to provide all or a portion of these funds. The third party manufacturer may not be able to successfully increase its manufacturing capacity for our product candidate for which we obtain marketing approval in a timely or economic manner, or at all. If any manufacturer is unable to provide commercial quantities of a product candidate, we (or Merck KGaA, in the case of Stimuvax) will need to successfully transfer manufacturing technology to a new manufacturer. Engaging a new manufacturer for a particular product candidate could require us (or Merck KGaA, in the case of Stimuvax) to conduct comparative studies or utilize other means to determine equivalence between product candidates manufactured by a new manufacturer and those previously manufactured by the existing manufacturer, which could delay or prevent commercialization of our product candidates. If any of these manufacturers is unable or unwilling to increase its manufacturing capacity or if alternative arrangements are not established on a timely basis or on acceptable terms, the development and commercialization of our product candidates may be delayed or there may be a shortage in supply.

     Any manufacturer of our products must comply with current Good Manufacturing Practices, or cGMP, requirements enforced by the FDA through its facilities inspection program or by foreign regulatory agencies. These requirements include quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our products may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. We have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products.

Any failure or delay in commencing or completing clinical trials for our product candidates could severely harm our business.

     Each of our product candidates must undergo extensive pre-clinical studies and clinical trials as a condition to regulatory approval. Pre-clinical studies and clinical trials are expensive and take many years to complete. The commencement and completion of clinical trials for our product candidates may be delayed by many factors, including:

	•		safety issues or side effects;
	•		delays in patient enrollment and variability in the number and types of patients available for clinical trials;

	•		poor effectiveness of product candidates during clinical trials;
	•		governmental or regulatory delays and changes in regulatory requirements, policy and guidelines;
	•		our or our collaborators’ ability to obtain regulatory approval to commence a clinical trial;
	•		our or our collaborators’ ability to manufacture or obtain from third parties materials sufficient for use in pre-clinical studies and clinical trials; and
	•		varying interpretation of data by the FDA and similar foreign regulatory agencies.

     It is possible that none of our product candidates will complete clinical trials in any of the markets in which we and/or our collaborators intend to sell those product candidates. Accordingly, we and/or our collaborators may not receive the regulatory approvals necessary to market our product candidates. Any failure or delay in commencing or completing clinical trials or obtaining regulatory approvals for product candidates would prevent or delay their commercialization and severely harm our business and financial condition. For example, although the suspension of the clinical development program for Stimuvax in March 2010 has been lifted for trials in NSCLC, it remains in effect for trials in breast cancer and, in any event, may result in a prolonged delay or in the termination of the clinical development program for Stimuvax. For example, Merck KGaA has announced that it has decided to discontinue the Phase 3 trial in breast cancer. A prolonged delay or termination of the clinical development program would have a material adverse impact on our business and financial condition.

The failure to enroll patients for clinical trials may cause delays in developing our product candidates.

     We may encounter delays if we, any collaboration partners or Merck KGaA are unable to enroll enough patients to complete clinical trials. Patient enrollment depends on many factors, including, the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites and the eligibility criteria for the trial. Moreover, when one product candidate is evaluated in multiple clinical trials simultaneously, patient enrollment in ongoing trials can be adversely affected by negative results from completed trials. Our product candidates are focused in oncology, which can be a difficult patient population to recruit. In addition, the suspension of the Stimuvax trials may require Merck KGaA to enroll additional patients which could delay such trials.

     We rely on third parties to conduct our clinical trials. If these third parties do not perform as contractually required or otherwise expected, we may not be able to obtain regulatory approval for or be able to commercialize our product candidates.

     We rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to assist in conducting our clinical trials. We have, in the ordinary course of business, entered into agreements with these third parties. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical trials may be extended,

delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our product candidates.

Even if regulatory approval is received for our product candidates, the later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions, including withdrawal of the product from the market.

     Approval of a product candidate may be conditioned upon certain limitations and restrictions as to the drug’s use, or upon the conduct of further studies, and may be subject to continuous review. After approval of a product, if any, there will be significant ongoing regulatory compliance obligations, and if we or our collaborators fail to comply with these requirements, we, any of our collaborators or Merck KGaA could be subject to penalties, including:

	•		warning letters;
	•		fines;
	•		product recalls;
	•		withdrawal of regulatory approval;
	•		operating restrictions;
	•		disgorgement of profits;
	•		injunctions; and
	•		criminal prosecution.

     Regulatory agencies may require us, any of our collaborators or Merck KGaA to delay, restrict or discontinue clinical trials on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. For example, in March 2010, Merck KGaA suspended the clinical development program for Stimuvax in both NSCLC and breast cancer as the result of a suspected unexpected serious adverse event reaction in a patient with multiple myeloma participating in an exploratory clinical trial. Although the clinical hold placed on Stimuvax clinical trials in NSCLC has been lifted, the suspension of clinical trials in breast cancer remains in effect and Merck KGaA has announced that it has decided to discontinue the Phase 3 trial in breast cancer. In addition, we, any of our collaborators or Merck KGaA may be unable to submit applications to regulatory agencies within the time frame we currently expect. Once submitted, applications must be approved by various regulatory agencies before we, any of our collaborators or Merck KGaA can commercialize the product described in the application. All statutes and regulations governing the conduct of clinical trials are subject to change in the future, which could affect the cost of such clinical trials. Any unanticipated costs or delays in such clinical studies could delay our ability to generate revenues and harm our financial condition and results of operations.

Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our products internationally.

     We intend to have our product candidates marketed outside the United States. In order to market our products in the European Union and many other non-U.S. jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. To date, we have not filed for

marketing approval for any of our product candidates and may not receive the approvals necessary to commercialize our product candidates in any market. The approval procedure varies among countries and can involve additional testing and data review. The time required to obtain foreign regulatory approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory agencies in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory agencies in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in other jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in foreign jurisdictions could harm our business.

Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.

     Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial success of these product candidates will depend on, among other things, their acceptance by physicians, patients, third party payors such as health insurance companies and other members of the medical community as a therapeutic and cost-effective alternative to competing products and treatments. If our product candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors, including:

	•		our ability to provide acceptable evidence of safety and efficacy;
	•		the prevalence and severity of adverse side effects;
	•		availability, relative cost and relative efficacy of alternative and competing treatments;
	•		the effectiveness of our marketing and distribution strategy;
	•		publicity concerning our products or competing products and treatments; and
	•		our ability to obtain sufficient third party insurance coverage or reimbursement.

     If our product candidates do not become widely accepted by physicians, patients, third party payors and other members of the medical community, our business, financial condition and results of operations would be materially and adversely affected.

If we are unable to obtain, maintain and enforce our proprietary rights, we may not be able to compete effectively or operate profitably.

     Our success is dependent in part on obtaining, maintaining and enforcing our patents and other proprietary rights and will depend in large part on our ability to:

	•		obtain patent and other proprietary protection for our technology, processes and product candidates;
	•		defend patents once issued;
	•		preserve trade secrets; and

•

operate without infringing the patents and proprietary rights of third parties.

     As of September 30, 2010, we owned approximately 16 U.S. patents and 10 U.S. patent applications, as well as the corresponding foreign patents and patent applications, and held exclusive or partially exclusive licenses to approximately 6 U.S. patents and 4 U.S. patent applications, as well as the corresponding foreign patents and patent applications. The degree of future protection for our proprietary rights is uncertain. For example:

	•		we might not have been the first to make the inventions covered by any of our patents, if issued, or our pending patent applications;
	•		we might not have been the first to file patent applications for these inventions;
	•		others may independently develop similar or alternative technologies or products and/or duplicate any of our technologies and/or products;
	•		it is possible that none of our pending patent applications will result in issued patents or, if issued, these patents may not be sufficient to protect our technology or provide us with a basis for commercially-viable products and may not provide us with any competitive advantages;
	•		if our pending applications issue as patents, they may be challenged by third parties as infringed, invalid or unenforceable under U.S. or foreign laws;
	•		if issued, the patents under which we hold rights may not be valid or enforceable; or
	•		we may develop additional proprietary technologies that are not patentable and which may not be adequately protected through trade secrets, if for example a competitor were to independently develop duplicative, similar or alternative technologies.

     The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves many complex legal and technical issues. There is no clear policy involving the breadth of claims allowed in patents or the degree of protection afforded under patents. Although we believe our potential rights under patent applications provide a competitive advantage, it is possible that patent applications owned by or licensed to us will not result in patents being issued, or that, if issued, the patents will not give us an advantage over competitors with similar products or technology, nor can we assure you that we can obtain, maintain and enforce all ownership and other proprietary rights necessary to develop and commercialize our product candidates.

     Even if any or all of our patent applications issue as patents, others may challenge the validity, inventorship, ownership, enforceability or scope of our patents or other technology used in or otherwise necessary for the development and commercialization of our product candidates. We may not be successful in defending against any such challenges. Moreover, the cost of litigation to uphold the validity of patents to prevent infringement or to otherwise protect our proprietary rights can be substantial. If the outcome of litigation is adverse to us, third parties may be able to use the challenged technologies without payment to us. There is no assurance that our patents, if issued, will not be infringed or successfully avoided through design innovation. Intellectual property lawsuits are expensive and would consume time and other resources, even if the outcome were successful. In addition, there is a risk that a court would decide that our patents, if issued, are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of a patent were upheld, a court would refuse to stop the other party from using the inventions, including on the ground that its activities do not infringe that patent. If any of these

events were to occur, our business, financial condition and results of operations would be materially and adversely effected.

     In addition to the intellectual property and other rights described above, we also rely on unpatented technology, trade secrets, trademarks and confidential information, particularly when we do not believe that patent protection is appropriate or available. However, trade secrets are difficult to protect and it is possible that others will independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality and invention assignment agreement at the commencement of an employment or consulting relationship with us. However, it is possible that these agreements will not provide effective protection of our confidential information or, in the event of unauthorized use of our intellectual property or the intellectual property of third parties, provide adequate or effective remedies or protection.

     If our vaccine technology or our product candidates, including Stimuvax, conflict with the rights of others, we may not be able to manufacture or market our product candidates, which could have a material and adverse effect on us and on our collaboration with Merck KGaA.

     Issued patents held by others may limit our ability to develop commercial products. All issued patents are entitled to a presumption of validity under the laws of the United States. If we need licenses to such patents to permit us to develop or market our product candidates, we may be required to pay significant fees or royalties, and we cannot be certain that we would be able to obtain such licenses on commercially reasonable terms, if at all. Competitors or third parties may obtain patents that may cover subject matter we use in developing the technology required to bring our products to market, that we use in producing our products, or that we use in treating patients with our products.

     We know that others have filed patent applications in various jurisdictions that relate to several areas in which we are developing products. Some of these patent applications have already resulted in the issuance of patents and some are still pending. We may be required to alter our processes or product candidates, pay licensing fees or cease activities. Certain parts of our vaccine technology, including the MUC1 antigen, originated from third party sources.

     These third party sources include academic, government and other research laboratories, as well as the public domain. If use of technology incorporated into or used to produce our product candidates is challenged, or if our processes or product candidates conflict with patent rights of others, third parties could bring legal actions against us, in Europe, the United States and elsewhere, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. Additionally, it is not possible to predict with certainty what patent claims may issue from pending applications. In the United States, for example, patent prosecution can proceed in secret prior to issuance of a patent. As a result, third parties may be able to obtain patents with claims relating to our product candidates which they could attempt to assert against us. Further, as we develop our products, third parties may assert that we infringe the patents currently held or licensed by them and it is difficult to provide the outcome of any such action.

     There has been significant litigation in the biotechnology industry over patents and other proprietary rights and if we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license, grant cross-licenses and pay substantial royalties in order to continue to manufacture or market the affected products.

     There is no assurance that we would prevail in any legal action or that any license required under a third party patent would be made available on acceptable terms or at all. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations, as a result of claims of patent infringement or violation of other intellectual property rights, which could have a material and adverse effect on our business, financial condition and results of operations.

If any products we develop become subject to unfavorable pricing regulations, third party reimbursement practices or healthcare reform initiatives, our ability to successfully commercialize our products will be impaired.

     Our future revenues, profitability and access to capital will be affected by the continuing efforts of governmental and private third party payors to contain or reduce the costs of health care through various means. We expect a number of federal, state and foreign proposals to control the cost of drugs through government regulation. We are unsure of the impact recent health care reform legislation may have on our business or what actions federal, state, foreign and private payors may take in response to the recent reforms. Therefore, it is difficult to provide the effect of any implemented reform on our business. Our ability to commercialize our products successfully will depend, in part, on the extent to which reimbursement for the cost of such products and related treatments will be available from government health administration authorities, such as Medicare and Medicaid in the United States, private health insurers and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care products, particularly for indications for which there is no current effective treatment or for which medical care typically is not sought. Adequate third party coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product research and development. If adequate coverage and reimbursement levels are not provided by government and third party payors for use of our products, our products may fail to achieve market acceptance and our results of operations will be harmed.

Governments often impose strict price controls, which may adversely affect our future profitability.

     We intend to seek approval to market our future products in both the United States and foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product. In some foreign countries, particularly in the European Union, prescription drug pricing is subject to government control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our future product to other available therapies. In addition, it is unclear what impact, if any, recent health care reform legislation will have on the price of drugs; however, prices may become subject to controls similar to those in other countries. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.

     The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

	•		decreased demand for our product candidates;
	•		impairment of our business reputation;
	•		withdrawal of clinical trial participants;
	•		costs of related litigation;
	•		substantial monetary awards to patients or other claimants;
	•		loss of revenues; and
	•		the inability to commercialize our product candidates.

     Although we currently have product liability insurance coverage for our clinical trials for expenses or losses up to a $10 million aggregate annual limit, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any or all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.

     Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the design, development and commercialization of our product candidates. We expect any product candidate that we commercialize with our collaborative partners or on our own will compete with existing, market-leading products and products in development.

     Stimuvax. Two products have been approved in the U.S. for treatment of advanced NSCLC, including Stage III NSCLC, which is one of the indications for which Stimuvax is being developed. These products are Tarceva (erlotinib), a targeted small molecule from Genentech BioOncology, and Alimta (pemetrexed), a chemotherapeutic from Eli Lilly and Company. Stimuvax has not been tested in combination with or in comparison to these products. It is possible that other existing or new agents will be approved for this indication. In addition, there are three vaccines in development for the treatment of NSCLC, including GSK’s MAGE A3 vaccine in Phase 3, NovaRx Corporation’s Lucanix in Phase 3, and Transgene’s TG-4010 in Phase 2.

     Small Molecule Products. PX-866 is an inhibitor of phosphoinositide 3-kinase (PI3K). We are aware of several companies that have entered clinical trials with competing compounds targeting the same protein. Among those are compounds being developed by Novartis (Phase 1/2), Roche/Genentech (Phase 1), Semafore (Phase 1), Sanofi-Aventis (Phase 2), Pfizer and Calistoga (Phase 2). There are also several approved targeted therapies for cancer and in development against which PX-866 might compete.

     Many of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of these competitors have significantly greater commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to:

	•		design and develop products that are superior to other products in the market;
	•		attract qualified scientific, medical, sales and marketing and commercial personnel;
	•		obtain patent and/or other proprietary protection for our processes and product candidates;
	•		obtain required regulatory approvals; and
	•		successfully collaborate with others in the design, development and commercialization of new products.

     Established competitors may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete. In addition, any new product that competes with a generic market-leading product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome severe price competition and to be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.

If we are unable to enter into agreements with partners to perform sales and marketing functions, or build these functions ourselves, we will not be able to commercialize our product candidates.

     We currently do not have any internal sales, marketing or distribution capabilities. In order to commercialize any of our product candidates, we must either acquire or internally develop a sales, marketing and distribution infrastructure or enter into agreements with partners to perform these services for us. Under our agreements with Merck KGaA, Merck KGaA is responsible for developing and commercializing Stimuvax, and any problems with that relationship could delay the development and commercialization of Stimuvax. Additionally, we may not be able to enter into arrangements with respect to our product candidates not covered by the Merck KGaA agreements on commercially acceptable terms, if at all. Factors that may inhibit our efforts to commercialize our product candidates without entering into arrangements with third parties include:

	•		our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
	•		the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;
	•		the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
	•		unforeseen costs and expenses associated with creating a sales and marketing organization.

     If we are not able to partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketing and distribution infrastructure, we will have difficulty commercializing our product candidates, which would adversely affect our business and financial condition.

If we lose key personnel, or we are unable to attract and retain highly-qualified personnel on a cost-effective basis, it would be more difficult for us to manage our existing business operations and to identify and pursue new growth opportunities.

     Our success depends in large part upon our ability to attract and retain highly qualified scientific, clinical, manufacturing, and management personnel. In addition, any difficulties retaining key personnel or managing this growth could disrupt our operations. Future growth will require us to continue to implement and improve our managerial, operational and financial systems, and continue to retain, recruit and train additional qualified personnel, which may impose a strain on our administrative and operational infrastructure. The competition for qualified personnel in the biopharmaceutical field is intense. We are highly dependent on our continued ability to attract, retain and motivate highly-qualified management, clinical and scientific personnel. Due to our limited resources, we may not be able to effectively recruit, train and retain additional qualified personnel. If we are unable to retain key personnel or manage our growth effectively, we may not be able to implement our business plan.

     Furthermore, we have not entered into non-competition agreements with all of our key employees. In addition, we do not maintain “key person” life insurance on any of our officers, employees or consultants. The loss of the services of existing personnel, the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, and the loss of our employees to our competitors would harm our research and development programs and our business.

Our business is subject to increasingly complex environmental legislation that has increased both our costs and the risk of noncompliance.

     Our business may involve the use of hazardous material, which will require us to comply with environmental regulations. We face increasing complexity in our product development as we adjust to new and upcoming requirements relating to the materials composition of many of our product candidates. If we use biological and hazardous materials in a manner that causes contamination or injury or violates laws, we may be liable for damages. Environmental regulations could have a material adverse effect on the results of our operations and our financial position. We maintain insurance under our general liability policy for any liability associated with our hazardous materials activities, and it is possible in the future that our coverage would be insufficient if we incurred a material environmental liability.

We have identified material weaknesses in our internal control over financial reporting and have had to restate our historical financial statements.

     In March 2010, we announced that we would restate our financial statements as of and for the year ended December 31, 2008 contained in our 2008 Annual Report on Form 10-K and our condensed financial statements for the interim periods ended March 31, June 30 and September 30, 2009 contained in our Quarterly Reports on Form 10-Q to correct our failure to make all of the appropriate disclosures required by the Financial Accounting Standards Board’s Accounting Standards Codification 250, Accounting Changes and Error Corrections, with respect to a change in our revenue recognition policy regarding the accounting for our arrangement with Merck KGaA, and to correct for certain other errors. For additional information, see “Note 2 — Restatement — 2008 Change in Accounting Policy Not Previously Reported and Other Error Corrections” of the audited financial statements appearing in Part II Item 8 Financial Statements and Supplementary Data included in our Annual Report on Form 10-K for the year ended December 31, 2009. In connection with the preparation of that Annual Report, we identified certain material weaknesses in our internal control over financial reporting. Specifically, the material weaknesses related to (i) a lack of adequately designed controls to ensure appropriate accounting for and disclosure of complex transactions

under U.S. GAAP and (ii) a lack of adequately designed and implemented risk assessment processes to identify complex transactions requiring specialized knowledge in the application of U.S. GAAP.

     We may become the subject of private or government actions regarding the restatement in our Annual Report on Form 10-K in the future. Litigation may be time-consuming, expensive and disruptive to normal business operations, and the outcome of litigation is difficult to predict. The defense of any litigation will result in significant expenditures and the diversion of our management’s time and attention from the operation of our business, which could impede our business.

     We cannot be certain that restatements will not occur in the future. Execution of restatements like the ones described above could create a significant strain on our internal resources and cause delays in our filing of quarterly or annual financial results, increase our costs and cause management distraction.

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

     Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Failure on our part to have effective internal financial and accounting controls would cause our financial reporting to be unreliable, could have a material adverse effect on our business, operating results, and financial condition, and could cause the trading price of our common stock to fall dramatically. We and our independent registered public accounting firm have identified certain material weaknesses in our internal controls that are described in greater detail in “Part II — Item 9A — Controls and Procedures — Management’s Report on Internal Control over Financial Reporting,” in our Annual Report on Form 10-K for the year ended December 31, 2009.

     Remedying these material weaknesses and maintaining proper and effective internal controls will require substantial management time and attention and may result in our incurring substantial incremental expenses, including with respect to increasing the breadth and depth of our finance organization to ensure that we have personnel with the appropriate qualifications and training in certain key accounting roles and adherence to certain control disciplines within the accounting and reporting function.

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company will have been detected.

     In June 2010 we retained outside consultants to assist us with designing and implementing an adequate risk assessment process to identify future complex transactions requiring specialized knowledge to ensure the appropriate accounting for and disclosure of such transactions. In September 2010 we retained personnel with the appropriate technical expertise to assist us in accounting for complex transactions in accordance with U.S. GAAP. We cannot be certain that the actions we are taking to improve our internal controls over financial reporting will be sufficient or that we will be able to implement our planned processes and procedures in a timely manner. In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act reveals any other material weaknesses or significant deficiencies, the correction of any such

material weaknesses or significant deficiencies could require additional remedial measures which could be costly and time-consuming. In addition, we may be unable to produce accurate financial statements on a timely basis. Any of the foregoing could cause investors to lose confidence in the reliability of our consolidated financial statements, which could cause the market price of our common stock to decline and make it more difficult for us to finance our operations and growth.

If we are required to redeem the shares of our Class UA preferred stock, our financial condition may be adversely affected.

     Our certificate of incorporation provides for the mandatory redemption of shares of our Class UA preferred stock if we realize “net profits” in any year. See “Note 10 — Share Capital — Authorized Shares — Class UA preferred stock” of the audited financial statements included in our Annual Report on Form 10 K for the year ended December 31, 2009. For this purpose, “net profits . . . means the after tax profits determined in accordance with generally accepted accounting principles, where relevant, consistently applied.”

     The certificate of incorporation does not specify the jurisdiction whose generally accepted accounting principles would apply for the redemption provision. At the time of the original issuance of the shares, we were a corporation organized under the federal laws of Canada, and our principal operations were located in Canada. In addition, the original purchaser and current holder of the Class UA preferred stock is a Canadian entity. In connection with our reincorporation in Delaware, we disclosed that the rights, preferences and privileges of the shares would remain unchanged except as required by Delaware law, and the mandatory redemption provisions were not changed.

     In addition, the formula for determining the price at which such shares would be redeemed is expressed in Canadian dollars. Although, if challenged, we believe that a Delaware court would determine that “net profits” be interpreted in accordance with Canadian GAAP, we cannot provide assurances that a Delaware court would agree with such interpretation.

     As a result of the December 2008 Merck KGaA transaction, we recognized on a one-time basis all deferred revenue relating to Stimuvax, under both U.S. GAAP and Canadian GAAP. Under U.S. GAAP this resulted in net income. However, under Canadian GAAP we were required to recognize an impairment on intangible assets which resulted in a net loss for 2008 and therefore do not intend to redeem any shares of Class UA preferred stock in 2009. If in the future we recognize net income under Canadian GAAP, or any successor to such principles, or if the holder of Class UA preferred stock were to challenge, and prevail in a dispute involving, the interpretation of the mandatory redemption provision, we may be required to redeem such shares which would have an adverse effect on our cash position. The maximum aggregate amount that we would be required to pay to redeem such shares is CAN $1.25 million.

     The holder of the Class UA preferred stock has declined to sign an acknowledgement that Canadian GAAP applies to the redemption provision and has indicated that it believes U.S. GAAP should apply. As of the date of this report, the holder has not initiated a proceeding to challenge this interpretation; however, it may do so. If they do dispute this interpretation, although we believe a Delaware court would agree with the interpretation described above, we can provide no assurances that we would prevail in such a dispute. Further, any dispute regarding this matter, even if we were ultimately successful, could require significant resources which may adversely affect our results of operations.

We may expand our business through the acquisition of companies or businesses or in-licensing product candidates that could disrupt our business and harm our financial condition.

     We may in the future seek to expand our products and capabilities by acquiring one or more companies or businesses or in-licensing one or more product candidates. Acquisitions and in-licenses involve numerous risks, including:

	•		substantial cash expenditures;
	•		potentially dilutive issuance of equity securities;
	•		incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;
	•		difficulties in assimilating the operations of the acquired companies;
	•		diverting our management’s attention away from other business concerns;
	•		entering markets in which we have limited or no direct experience; and
	•		potential loss of our key employees or key employees of the acquired companies or businesses.

     In our recent history, we have not expanded our business through in-licensing and we have completed only one acquisition; therefore, our experience in making acquisitions and in-licensing is limited. We cannot assure you that any acquisition or in-license will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or business or in-licensed product candidate. In addition, our future success would depend in part on our ability to manage the rapid growth associated with some of these acquisitions and in-licenses. We cannot assure you that we would be able to make the combination of our business with that of acquired businesses or companies or in-licensed product candidates work or be successful. Furthermore, the development or expansion of our business or any acquired business or company or in-licensed product candidate may require a substantial capital investment by us. We may not have these necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to raise funds by selling shares of our capital stock, which could dilute our current stockholders’ ownership interest, or securities convertible into our capital stock, which could dilute current stockholders’ ownership interest upon conversion.

Risks Related to the Ownership of Our Common Stock

Our common stock may become ineligible for listing on The NASDAQ Stock Market, which would materially adversely affect the liquidity and price of our common stock.

     Our common stock is currently listed for trading in the United States on The NASDAQ Global Market. As a result of our failure to timely file our Annual Report on Form 10 K for the year ended December 31, 2009, we received a letter from The NASDAQ Stock Market informing us that we are not in compliance with continued listing requirements. Although we believe the filing of our Annual Report for the year ended December 31, 2009 allowed us to regain full compliance with SEC reporting requirements and The NASDAQ Stock Market continued listing requirements, we have in the past and could in the future be unable to meet The NASDAQ Global Market continued listing requirements. For example, on August 20, 2008 we disclosed that we had received a letter from The NASDAQ Stock Market indicating that we did not comply with the requirements for continued listing on The NASDAQ Global Market because we did not meet

the maintenance standard in Marketplace Rule 4450(b)(1)(A) (recodified as Marketplace Rule 5450(b)) that specifies, among other things, that the market value of our common stock be at least $50 million or that our stockholders’ equity was at least $10 million. Although we regained compliance with the stockholders’ equity standard, we have a history of losses and would expect that, absent the completion of a financing or other event that would have a positive impact on our stockholders’ equity, our stockholders’ equity would decline over time. Further, in the past our stock price has traded near, and at times below, the $1.00 minimum bid price required for continued listing on NASDAQ. Although NASDAQ in the past has provided relief from the $1.00 minimum bid price requirement as a result of the recent weakness in the stock market, it may not do so in the future. If we fail to maintain compliance with NASDAQ’s listing standards, and our common stock becomes ineligible for listing on The NASDAQ Stock Market the liquidity and price of our common stock would be adversely affected.

     If our common stock was delisted, the price of our stock and the ability of our stockholders to trade in our stock would be adversely affected. In addition, we would be subject to a number of restrictions regarding the registration of our stock under U.S. federal securities laws, and we would not be able to allow our employees to exercise their outstanding options, which could adversely affect our business and results of operations. If we are delisted in the future from The NASDAQ Global Market, there may be other negative implications, including the potential loss of confidence by actual or potential collaboration partners, suppliers and employees and the loss of institutional investor interest in our company.

The trading price of our common stock may be volatile.

     The market prices for and trading volumes of securities of biotechnology companies, including our securities, have been historically volatile. The market has from time to time experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The market price of our common shares may fluctuate significantly due to a variety of factors, including:

	•		public concern as to the safety of products developed by us or others;
	•		the results of pre-clinical testing and clinical trials by us, our collaborators, our competitors and/or companies that are developing products that are similar to ours (regardless of whether such products are potentially competitive with ours);
	•		technological innovations or new therapeutic products;
	•		governmental regulations;
	•		developments in patent or other proprietary rights;
	•		litigation;
	•		comments by securities analysts;
	•		the issuance of additional shares of common stock, or securities convertible into, or exercisable or exchangeable for, shares of our common stock in connection with financings, acquisitions or otherwise;
	•		the perception that shares of our common stock may be delisted from The NASDAQ Stock Market;

	•		the incurrence of debt;
	•		general market conditions in our industry or in the economy as a whole; and
	•		political instability, natural disasters, war and/or events of terrorism.

     In addition, the stock market has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

Because we do not expect to pay dividends on our common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.

     We have never paid cash dividends on our common shares and have no present intention to pay any dividends in the future. We are not profitable and do not expect to earn any material revenues for at least several years, if at all. As a result, we intend to use all available cash and liquid assets in the development of our business. Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, if any, capital requirements, operating and financial conditions and on such other factors as our board of directors deems relevant. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

We expect that we will seek to raise additional capital in the future; however, such capital may not be available to us on reasonable terms, if at all, when or as we require additional funding. If we issue additional shares of our common stock or other securities that may be convertible into, or exercisable or exchangeable for, our common stock, our existing stockholders would experience further dilution and could trigger anti-dilution provisions in outstanding warrants.

     We expect that we will seek to raise additional capital from time to time in the future. For example, in July 2010, we entered into a common stock purchase agreement with Small Cap Biotech Value, Ltd., or “SCBV,” pursuant to which we may sell to SCBV up to 5,090,759 shares of our common stock over a 24-month period, subject to the satisfaction of certain terms and conditions contained in the common stock purchase agreement. Future financings may involve the issuance of debt, equity and/or securities convertible into or exercisable or exchangeable for our equity securities. These financings may not be available to us on reasonable terms or at all when and as we require funding. If we are able to consummate such financings, the trading price of our common stock could be adversely affected and/or the terms of such financings may adversely affect the interests of our existing stockholders. Any failure to obtain additional working capital when required would have a material adverse effect on our business and financial condition and would be expected to result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.

     Further, as a result of the delayed filing of our Annual Report on Form 10-K for the year ended December 31, 2009, we will be ineligible to register the offer and sale of our securities on Form S-3 by us or resale by others until one year from the date the last delinquent filing is made. We may use Form S-1 to raise

capital or complete acquisitions, but doing so could increase transaction costs and adversely impact our ability to raise capital or complete acquisitions of other companies in a timely manner.

If we sell shares of our common stock under our existing committed equity line financing facility, our existing stockholders will experience immediate dilution and, as a result, our stock price may go down.

     In July 2010, we entered into a committed equity line financing facility, or financing arrangement, under which we may sell up to $20.0 million of our common stock to SCBV over a 24-month period subject to a maximum of 5,150,680 shares of our common stock, including the 59,921 shares of common stock we issued to SCBV in July 2010 as compensation for their commitment to enter into the financing arrangement. The sale of shares of our common stock pursuant to the financing arrangement will have a dilutive impact on our existing stockholders. SCBV may resell some or all of the shares we issue to them under the financing arrangement and such sales could cause the market price of our common stock to decline significantly with advances under the financing arrangement. To the extent of any such decline, any subsequent advances would require us to issue a greater number of shares of common stock to SCBV in exchange for each dollar of the advance. Under these circumstances, our existing stockholders would experience greater dilution. Although SCBV is precluded from short sales of shares acquired pursuant to advances under the financing arrangement, the sale of our common stock under the financing arrangement could encourage short sales by third parties, which could contribute to the further decline of our stock price.

Our management will have broad discretion over the use of proceeds from the sale of securities to the investors in the 2010 private placement and to SCBV and may not use such proceeds in ways that increase the value of our stock price.

     We will have broad discretion over the use of proceeds from the sale of securities to the investors in the 2010 private placement and to SCBV and we could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. Our failure to apply these funds effectively could have a material adverse effect on our business, delay the development of our product candidates and cause the price of our common stock to decline.

We can issue shares of preferred stock that may adversely affect the rights of a stockholder of our common stock.

     Our certificate of incorporation authorizes us to issue up to 10,000,000 shares of preferred stock with designations, rights, and preferences determined from time-to-time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock. For example, an issuance of shares of preferred stock could:

	•		adversely affect the voting power of the holders of our common stock;
	•		make it more difficult for a third party to gain control of us;
	•		discourage bids for our common stock at a premium;
	•		limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or
	•		otherwise adversely affect the market price or our common stock.

•

We have in the past, and we may at any time in the future, issue additional shares of authorized preferred stock.

We expect our quarterly operating results to fluctuate in future periods, which may cause our stock price to fluctuate or decline.

     Our quarterly operating results have fluctuated in the past, and we believe they will continue to do so in the future. Some of these fluctuations may be more pronounced than they were in the past as a result of the issuance by us in May 2009 of warrants to purchase 2,909,244 shares of our common stock and the issuance by us in September 2010 of warrants to purchase 3,182,147 shares of our common stock. These warrants are accounted for as a derivative financial instrument pursuant to the ASC Topic 815, Derivatives and Hedging, and classified as a derivative liability. Accordingly, the fair value of the warrants is recorded on our consolidated balance sheet as a liability, and such fair value is adjusted at each financial reporting date with the adjustment to fair value reflected in our consolidated statement of operations. The fair value of the warrants is determined using the Black-Scholes option valuation model. Fluctuations in the assumptions and factors used in the Black-Scholes model can result in adjustments to the fair value of the warrants reflected on our balance sheet and, therefore, our statement of operations. Due to the classification of such warrants and other factors, quarterly results of operations are difficult to forecast, and period-to-period comparisons of our operating results may not be predictive of future performance. In one or more future quarters, our results of operations may fall below the expectations of securities analysts and investors. In that event, the market price of our common stock could decline. In addition, the market price of our common stock may fluctuate or decline regardless of our operating performance.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Committed Equity Line Financing Facility

     On July 6, 2010, we entered into a common stock purchase agreement with SCBV providing for a financing arrangement that is sometimes referred to as a committed equity line financing facility. The common stock purchase agreement provides that, upon the terms and subject to the conditions set forth therein, SCBV is committed to purchase up to $20.0 million of shares of our common stock over the 24-month term of the common stock purchase agreement under certain specified conditions and limitations, provided that in no event may we sell more than 5,090,759 shares of common stock, which is equal to one share less than 20% of our outstanding shares of common stock on July 6, 2010, the closing date of the common stock purchase agreement, less the number of shares of common stock we issued to SCBV on the closing date as commitment shares. Furthermore, in no event will SCBV be obligated to purchase any shares of our common stock which, when aggregated with all other shares of our common stock then beneficially owned by SCBV, would result in the beneficial ownership by SCBV of more than 9.9% of the then outstanding shares of our common stock.

     From time to time over the term of the common stock purchase agreement, and in our sole discretion, we may present SCBV with draw down notices requiring SCBV to purchase a specified dollar amount of shares of our common stock, based on the price per share over 10 consecutive trading days, or the draw down period, with the total dollar amount of each draw down subject to certain agreed-upon limitations based on the market price of our common stock at the time of the draw down (which may not be waived or modified). In addition, in our sole discretion, but subject to certain limitations, we may require SCBV to purchase a percentage of the daily trading volume of our common stock for each trading day during the draw down period. We are allowed to present SCBV with up to 24 draw down notices during the term of the common stock purchase agreement, with only one such draw down notice allowed per draw down period and a minimum of five trading days required between each draw down period.

     Once presented with a draw down notice, SCBV is required to purchase a pro rata portion of the shares on each trading day during the trading period on which the daily volume weighted average price for our common stock exceeds a threshold price determined by us for such draw down. The per share purchase price for these shares equals the daily volume weighted average price of our common stock on each date during the draw down period on which shares are purchased, less a discount ranging from 5.00% to 7.00%, based on a minimum price we specify. If the daily volume weighted average price of our common stock falls below the threshold price on any trading day during a draw down period, the common stock purchase agreement provides that SCBV will not be required to purchase the pro-rata portion of shares of common stock allocated to that trading day. SCBV’s obligations under the common stock purchase agreement to purchase shares of our common stock may not be transferred to any other party.

     In partial consideration for SCBV’s execution and delivery of the common stock purchase agreement, we issued to SCBV 59,921 shares of our common stock, or the commitment shares, which is equal to the sum of $200,000 divided by the volume weighted average price of our common stock for each trading day during the 10 trading day period ending July 6, 2010. The average price per commitment share was $3.3377. The issuance of the commitment shares, together with all other shares of common stock issuable to SCBV pursuant to the terms of the common stock purchase agreement, is exempt from registration under the Securities Act, pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(2) of and Regulation D under the Securities Act.

2010 Private Placement

     On September 23, 2010, we entered into a securities purchase agreement with 17 accredited investors in a private placement transaction, pursuant to which we sold an aggregate of 4,242,870 units, with each unit comprised of one share of common stock and a warrant to purchase 0.75 of a share of common stock, at a purchase price of $3.50 per unit. The exercise price of the warrants is $4.24 per share. They are exercisable at any time on or after the six-month anniversary of the closing through and including the five year anniversary of the earlier of (i) the date on which the shares of common stock underlying the warrants may be freely resold pursuant to a resale registration statement and (ii) the date on which the shares of common stock underlying the warrants may be sold under Rule 144, promulgated under the Securities Act of 1933, as amended, without any restriction or limitation and without the requirement to be in compliance with Rule 144(c)(1). The gross proceeds of such private placement was an aggregate of approximately $14.9 million.

     The shares of our common stock, warrants and the shares of our common stock underlying the warrants offered and sold in the 2010 private placement were offered and sold in reliance upon exemptions from registration under the Securities Act in reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. The securities purchase agreement for the 2010 private placement contains representations to support our reasonable belief that the investors that are parties thereto had access to information concerning our operations and financial condition, the investors did not acquire the securities with a view to the distribution thereof in the absence of an effective registration statement or an applicable exemption from registration, and that the investors are “accredited investors” (as defined by Rule 501 under the Securities Act). We relied upon the representations made by the investors pursuant to the purchase agreement in determining that such exemptions were available.

Item 6. Exhibits

Exhibit
Number		Description
4.1		Registration Rights Agreement, dated as of July 6, 2010, by and between Oncothyreon Inc. and Small Cap Biotech Value, Ltd., a business company incorporated under the laws of the British Virgin Islands (incorporated by reference from Exhibit 4.1 to Current Report on Form 8-K filed on July 7, 2010).
4.2		Registration Rights Agreement, dated as of September 28, 2010, by and among Oncothyreon Inc. and the several purchasers signatory thereto. (incorporated by reference from Exhibit 4.1 to Current Report on Form 8-K filed on September 27, 2010).
10.1		Common Stock Purchase Agreement, dated as of July 6, 2010, by and between Oncothyreon Inc. and Small Cap Biotech Value, Ltd., a business company incorporated under the laws of the British Virgin Islands (incorporated by reference from Exhibit 10.1 to Current Report on Form 8-K filed on July 7, 2010).
10.2		Engagement Letter, dated as of July 6, 2010, by and between Oncothyreon Inc. and Reedland Capital Partners, an Institutional Division of Financial West Group (incorporated by reference from Exhibit 10.2 to Current Report on Form 8-K filed on July 7, 2010).
10.3		Offer Letter dated August 17, 2010 between Oncothyreon Inc. and Julia M. Eastland (incorporated by reference from Exhibit 10.1 to Current Report on Form 8-K filed on August 31, 2010).
10.4		Form of Warrant issued pursuant to the terms of the Securities Purchase Agreement, dated September 23, 2010, by and among Oncothyreon Inc. and the signatories thereto, as amended. (incorporated by reference from Exhibit 10.49 to the Registration Statement on Form S-1, as amended, filed on October 4, 2010).
10.5		Securities Purchase Agreement, dated September 23, 2010, by and among Oncothyreon Inc. and the purchasers identified on the signature pages thereto (incorporated by reference from Exhibit 10.1 to Current Report on Form 8-K filed on September 27, 2010).
10.6		Amendment No. 1 to the Securities Purchase Agreement, dated as of September 28, 2010, by and among Oncothyreon Inc. and the purchasers identified on the signature pages to the Securities Purchase Agreement, dated September 23, 2010 (incorporated by reference from Exhibit 10.1 to Current Report on Form 8-K filed on September 30, 2010).
12.1		Ratio of Earnings to Fixed Charges.
31.1		Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Julia M. Eastland, Chief Financial Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Julia M. Eastland, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INDEX OF EXHIBITS

Exhibit
Number		Description
4.1		Registration Rights Agreement, dated as of July 6, 2010, by and between Oncothyreon Inc. and Small Cap Biotech Value, Ltd., a business company incorporated under the laws of the British Virgin Islands (incorporated by reference from Exhibit 4.1 to Current Report on Form 8-K filed on July 7, 2010).
4.2		Registration Rights Agreement, dated as of September 28, 2010, by and among Oncothyreon Inc. and the several purchasers signatory thereto. (incorporated by reference from Exhibit 4.1 to Current Report on Form 8-K filed on September 27, 2010).
10.1		Common Stock Purchase Agreement, dated as of July 6, 2010, by and between Oncothyreon Inc. and Small Cap Biotech Value, Ltd., a business company incorporated under the laws of the British Virgin Islands (incorporated by reference from Exhibit 10.1 to Current Report on Form 8-K filed on July 7, 2010).
10.2		Engagement Letter, dated as of July 6, 2010, by and between Oncothyreon Inc. and Reedland Capital Partners, an Institutional Division of Financial West Group (incorporated by reference from Exhibit 10.2 to Current Report on Form 8-K filed on July 7, 2010).
10.3		Offer Letter dated August 17, 2010 between Oncothyreon Inc. and Julia M. Eastland (incorporated by reference from Exhibit 10.1 to Current Report on Form 8-K filed on August 31, 2010).
10.4		Form of Warrant issued pursuant to the terms of the Securities Purchase Agreement, dated September 23, 2010, by and among Oncothyreon Inc. and the signatories thereto, as amended. (incorporated by reference from Exhibit 10.49 to the Registration Statement on Form S-1, as amended, filed on October 4, 2010).
10.5		Securities Purchase Agreement, dated September 23, 2010, by and among Oncothyreon Inc. and the purchasers identified on the signature pages thereto (incorporated by reference from Exhibit 10.1 to Current Report on Form 8-K filed on September 27, 2010).
10.6		Amendment No. 1 to the Securities Purchase Agreement, dated as of September 28, 2010, by and among Oncothyreon Inc. and the purchasers identified on the signature pages to the Securities Purchase Agreement, dated September 23, 2010 (incorporated by reference from Exhibit 10.1 to Current Report on Form 8-K filed on September 30, 2010).
12.1		Ratio of Earnings to Fixed Charges.
31.1		Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Julia M. Eastland, Chief Financial Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Julia M. Eastland, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.